Management Case

Narayan Murthy 2.0 versus faltering Infosys 3.0

“Need and the Impact of Leadership change at Infosys”

Naveen NavlaniManjul Awasthi

Narayan Murthy 2.0 versus faltering Infosys 3.0

On a sunny October 2011 afternoon at an Andalusian-style resortin Southern California with breathtaking views of the Pacific, asenior PepsiCo information technology (IT) executive stopped inmidsentence to peer thoughtfully into a glass of Chardonnay. Theconversation, around outsourcing to India, had paused at Infosys,the poster child of Indian IT. Infosys is by far the biggestIndian IT outsourcing vendor that PepsiCo, a $67-billion food andbeverage multinational, ships big dollars worth of work to. TheBangalore company has been running PepsiCo's applications formany years. "I remember the time when Nandan(1)(Exhibit-1) was there. It was avery different Infosys. They were very clear about their strategy. I just don't knowShibulal(2). What is the company's strategic focus now?" the PepsiCo executive said.

On Saturday morning in Jun 2013, NRN Murthy joined a long list offounders such as Michael Dell, Steve Jobs and Howard Shultz, inthe entrepreneurial hall of fame. All of them like Murthyreturned to the companies they had started after either retiringor being ousted from them. Founders coming back to run a companyis hardly unusual. Many like Jobs have actually been far more

successful in their second stint than they were in the first. Soin the global scheme of things, NRN Murthy coming back asChairman of Infosys is not such a big deal. Especially when thecompany is going through a challenging time as Infosys clearlyis. At such time investors often feel that there is no one betterthan a founder to steady the ship.

Narayan Murthy - Early days

Nagavara Ramarao Narayana Murthy commonly referred to as NarayanaMurthy was born on 20 August 1946 in Mysore, Karnataka. Aftercompleting his school education, he appeared for the IndianInstitute of Technology entrance test but could not attend.Instead he went to the National Institute of Engineering andgraduated in 1967 with a degree in Electrical Engineering. In1969 he received his master's degree from the Indian Institute ofTechnology in Kanpur.

Murthy started his career at IIM Ahmedabad as chief systemsprogrammer. There he worked on India's first time-sharingcomputer system and designed and implemented a BASIC interpreterfor Electronics Corporation of India Limited. He started acompany named Softronics. When that company failed after about ayear and a half, he joined Patni Computer Systems in Pune.

INDUSTRY OVERVIEW(2010-2011)

Total revenues in India’s IT industry touched US$ 73.1 billion in2009–2010 compared with US$ 70.5 billion in 2008–09, growing at3.7 per cent. The contribution of the IT industry to India’s GDPhas grown from 1.2 per cent in 1997–98 to 6.1 per cent in 2009–2010.

The software and service sector posted revenues (excludinghardware) of US$ 63.7 billion in 2009–2010. Of this, IT servicesaccounted for 57 per cent, business process outsourcing (BPO)accounted for 23 per cent and engineering services/productdevelopment accounted for the remaining 20 per cent. Thecountry’s IT/ITeSexports have grown at a compound annual growthrate (CAGR) of 23.1 per cent between 2005–06 and 2009–2010.Theindustry added 90,000 new jobs in the 2009–2010, taking the totalnumber of employees to 2.3 million. It also generated around 8.2million indirect jobs.

IT Services

The Indian IT services exports is estimated to grow by 5.8 percent to reach US$ 27.3 billion in 2009–10E. The IT servicessegment comprises of project oriented, outsourcing, and supportand training. In 2008–09, the project oriented segment comprised51% of the exports followed by outsourcing (41%) and support andtraining (8%). Application development, infrastructure (IS)outsourcing, and application management are estimated to accountfor more than 65 per cent of the IT services exports.

India’s ITeSexports have grown to US$ 12.4 billion in 2009–2010from US$ 11.7 billion in 2008–09, a growth of more than 5.9 percent. ITeSis the fastest-growing segment across the IT services

and software segments and accounts for 20 per cent of thecountry’s IT industry (including hardware).

Market players

Policy and regulatory framework

Establishment of a nodal agency —STPIThe GoI established STPI in 1991 to provide:

• Fiscal benefits such as tax holidays to attract investment into the industry

• Basic infrastructure• Single-window clearance for setting up export-oriented units

(EOUs)• Virtual model allowing firms to avail of benefits without

restrictions on locationsProgressive policy reform (fiscal/trade/other)

• No FDI restrictions• Introduction of fiscal reforms (international taxation,

overseas investment, etc.) to facilitate ease of international transactions

• Telecom sector deregulation

• The sector was deregulated in the 1990s to allow private-sector participation.

• Regulatory reforms were introduced to allow the adoption of new technologies.

• Deregulation enabled the benefits of free market competition, improved service quality and declining tariffs.

• Information Technology Act, 2000• The act granted hierarchy of infrastructure that comprised a

controller for certifying authorities, adjudicating officersand a cyber appellate tribunal.

• The Information Technology (Amendment) Act, 2008 upgraded the existing legal framework to instill confidence in users and investors in the area of IT and added provisions to the existing Information Technology Act, 2000 to deal with new forms of cyber crime.

Infosys.

Murthy and six software professionals founded Infosys in 1981with an initial capital injection of Rs 10,000, which wasprovided by his wife Sudha Murthy. Murthy served as the CEO ofInfosys for 21 years from 1981 to 2002 and was succeeded by co-founder Nandan Nilekani. At Infosys he articulated, designed andimplemented the Global Delivery Model for IT services outsourcingfrom India. He was Chairman of the Board from 2002 to 2006, afterwhich he became Chairman of the Board and Chief Mentor. In August2011, he retired from the company, taking the title ChairmanEmeritus. Infosys has been feted and applauded for everythingfrom its business model to delivery excellence and its leadershipto its corporate governance. It was the first Indian company tooffer stock options to employees in 1993, the year it wentpublic. A total of 16,237 employees benefited until ESOPs werehalted in July 2003. In 1999, it became the first Indian companyto list on the Nasdaq. It was also the first in India to report

quarterly financials, issue guidance against insider trading,come up with the concept of a lead independent director, and havedirectors assessed by peers.

Long admired as an exemplar of best practice, Infosys neverstopped trying to change. In March 2011 it launched a muchvaunted 'Infosys 3.0' strategy that seeked to steer the companytowards high-end consulting, innovation and more "non-linearrevenue" - revenues growing faster than people costs. Shibulalsaid he "can clearly see our customers and analysts accepting thestrategy", but it is not resonating with clients like PepsiCoyet. The multinational recently outsourced more innovativeprojects to TCS, which is now working on analytics and specialtyapplications like transportation optimisation systems.

Strategies at Infosys

Infosys has continued to evolve since its birth, where theInfosys 1.0 was about global delivery models(GDM) and Infosys 2.0was about developing verticals and the third one implemented in2011 is about innovation and consolidation.

Infosys 3.0(Exhibit-2)Infosys 3.0 is a refreshing approach to the business ofoutsourcing.  This is perhaps the biggest bet the company has made since itwas founded. The strategy focuses on new technologies and modelssuch as cloud computing, mobility, software application platformsand products, and was launched when Shibulal took over from S.Gopalakrishnanin, April 2011. Infosys wants one-third of itsrevenue to come from these new areas in three-five years.

Identification of seven pervasive business trends as key focusareas

The company has identified seven key areas like Digitalconsumers, Emerging Economies, Sustainable Tomorrow, Smarterorganizations, New Commerce, Pervasive computing and Healthcareeconomy which are growing and have great scope for ITinnovations.

Mechanics of Infosys 3.0

The key elements of Infosys 3.0 are:Structuring service lines into three key categories (Exhibit-2)Under Infosys 3.0, the company will be structuring service linesinto three categories:

Transformation (will include 'change the business'initiatives like Package Implementation, Consulting, etc.)

Innovation (will include products, IP, Cloud, non-linearinitiatives, etc.)

Business Operations (will include 'run the business' kind ofinitiatives like ADM, testing, IMS, BPO, etc.)

The goal is to have each of these contributing around 1/3rd ofrevenue in the next 5-7 years (from the current contribution of~25% from Transformation, ~12% from Innovation, and ~63% from

Operations). This will require the company to make moreinvestments upfront, especially on the Innovation side with amagnitude that will be manageable within the overall coststructure.

While taking the inorganic route to grow the Innovation side ofthe business would be undertaken, though it effectively ruled outmaking any acquisitions in the commoditized business operationsspace. The strategy also looks at co-creating an intellectualproperty (IP) with a client, wherein it later can have theflexibility to use that IP elsewhere as well. Potential targetsmight be companies that provide access to product, platforms,smaller verticals (Healthcare) and/or new geographies (Germany orJapan).

Consolidation of existing verticals and creation of a new one.The second major change is the consolidation of verticals intofour key verticals and the creation of one additional vertical.The verticals would be:1. BFSI 2. Manufacturing3. Energy, Utilities and Telecom 4. Retail, CPG, Logistics and Life Sciences 5. Public Services and Healthcare

The vertical heads will have the independence to choose which ofthese trends are most relevant to them and focus just on those.Some of the examples of what Infosys is already doing around someof these themes are: (1) Flypp - a mobile applications platformfor telecom service providers and handset vendors (DigitalConsumer), (2) iTransform – a comprehensive platform for thehealthcare vertical to address HIPAA and ICD-10 regulations(Healthcare Economy).

While Infosys has designed a good strategy in Infosys 3.0, the big problem was incommunicating the strategy across the layers of the company. While reporting on arecent Forbes India story on Infosys 3.0, it was found that several people both withinand outside Infosys had only a vague or partial understanding of what exactly Infosys3.0 was. The most common misperception was that Infosys 3.0 was all about productsand platforms business. It's a much more complex strategy - that led the second levelleadership to drop the ball on the core 65% of Infosys business - of applicationdevelopment & maintenance, software testing, infrastructure management, businessprocess outsourcing - and focus too much on transformational business.

Leadership at InfosysMatt Barney, vice-president and director of the Infosys Leadership Institute. He saysleadership philosophy at the company focuses on the importance of developing leadersfrom within, and the need for a scientific- and evidence-based approach to leadershipdevelopment.

The leadership approach at Infosys is value driven. The entirecompany is based on the premise of respect: Giving respect to allstakeholders and consequently getting it back; integrity andtransparency [that are] second to none, and fairness — treatingevery human being right and equally, and holding the leadersaccountable for perhaps more pain and suffering than anyone else.The founders lived these [tenets] well before they codified themin the value system. These values are central to how we thinkabout the way in which we lead. We strive for outrageouslyinnovative approaches to creating more value for our variousstakeholders, but without leaving a trail of dead bodies. It isas much about what we accomplish as how we accomplish.

Barney adds, “When the Infosys Leadership Institute (ILI) wasfirst set up in 2001, the company had around 3,000-plus people;now we are over 130,000”. As the company has evolved over the

years, so has our approach toward leadership development. Forinstance, earlier, the majority of Infosys’ revenues came fromapplication development. But now we have services likeconsulting. At one time, we also had a hardware business. We havea long-standing tradition of mentoring and what we call “Leader’sTeach,” where the leaders are expected to take classes as part oftheir jobs. But a few years ago, there was a realization thatwhile mentoring is very important, with the company growing,there is a need for a more systematic approach. At that time, itincluded all the non-engineering sides of development — softskills, project management skills [and] leadership development —for all the employees. Towards the end of 2009, we restructuredthe Institute. Our responsibility now is to oversee thedevelopment of only the high-potential leaders who have beenidentified within the company and who someday could be in thesenior most positions. This selection was done in 2007. At thattime 750 people — called tier leaders — were identified.Currently there are 552 [in the program]; the others have leftthe company. We have a three-tier structure(Exhibit- 3). The “tier1″ leaders comprise people from the senior vice president level,“tier 2″ from vice president and “tier 3″ from the associate vicepresident [level]. Tier 1 has a subset called the executivecouncil — these are people who are closest to what I call the“destination jobs” [such as CEO, COO and CFO]. Our role is to seehow we can move each of the leaders to the next level.

Leadership and Strategy quagmire.

The Strategy Quagmire. Overall, what Infosys 3.0 strategy isattempting to do is akin to changing the engines of a plane mid-flight—a particularly bold strategy to pursue when rivals areaggressively pushing to gain share of more commoditized projectsthat include contracts to manage computer infrastructureremotely. Experts tracking the company appreciate the intentbehind the strategy, but question its timing. Many of these new areas

in the strategy still fall under the head of discretionary spends within the informationtechnology (IT) budgets of customers, and given the economic and financial pressuresmost are facing, such spends are often the first to be sacrificed.

The problem facing Infosys is not about making these bets, butabout the momentum shifting to rivals. “What it (Infosys) ignoresas ‘bad business’ is healthy in a period when growth is tough tocome by,” said the CEO of a rival firm. “Infosys was a Holy Cowuntil two years ago and we all waited for its earnings to pickcues about the future—not any more.” Ever since Infosys’s newmanagement made the 3.0 strategy the centerpiece of its currentand future bets, the chorus around whether Infosys is ignoring availablegrowth by preferring to bet on a futuristic strategy has been gaining momentum. Inmany ways, Infosys was known to set the agenda for the entireindustry by reporting its earnings first and providing bothannual and quarterly forecasts for the outsourcing business. Thecompany abandoned quarterly forecasts in July 13 citingambiguities in demand. In four of the past six quarters, Infosyshas missed the lower end of its own forecast(Exhibit-4) . In ayear when Nasscom has projected 11-14% annual growth in softwareexports from the country, Infosys has said it will grow revenueby a mere 5%. Rivals Tata Consultancy ServicesLtd (TCS), Cognizant Technology Solutions Corp. and HCLTechnologies Ltd have indicated that they will beat Nasscom’sforecast for this year. Infosys’s revenue from its top five andtop 10 customers has grown below the average company growth ratefor 13 of the past 18 quarters. As a result the confidence ofinvestors has toucuehd it trough with market capitalizationfalling rapidly in comparison to its early days(Exhibit-5)

DILEMMA- Infosys is on the horns of a strategic dilemma about whether to focus onInfosys 3.0, or push strongly to gain “bread-and-butter” outsourcing business—theagenda customers are far more immediately interested in the current economic climate.Indeed top outsourcing customers such as Citigroup Inc., which sends softwareapplication development and back office projects worth over a billion dollars annuallyto India, are more interested in cutting operational costs immediately than making boldinvestments in the future. TCS already counts Citigroup as its top customer; thecompany contributes around $700 million to its revenue every year. As a result, Infosys

is losing share.“The question is whether demand is really moderating and there are nogrowth opportunities available anymore (as stated by Infosys) or whether Infosys islosing market share and other players are eating Infosys’s lunch.

2. The Leadership Quagmire.

The chief executive officer’s post at Infosys Ltd has thus farbeen the preserve of its founders. Among the six individuals wholeft Patni Computer Systems to form Infosys in 1981, four—N. R.Narayana Murthy, Nandan Nilekani, Kris Gopalakrishnan and S.D.Shibulal—have gone on to become chief executives of Infosys. T.V.Mohandas Pai left in 2011—as a non-founder, he couldn’t risehigher than director in-charge of human resource andadministration after having served as chief financial officerfrom 1994 to 2006.

NRN Murthy joined a long list of founders such as Michael Dell,Steve Jobs and Howard Shultz, in the entrepreneurial hall offame. All of them like Murthy returned to the companies they hadstarted after either retiring or being ousted from them. Founderscoming back to run a company is hardly unusual. Many like Jobshave actually been far more successful in their second stint thanthey were in the first. So in the global scheme of things, NRNMurthy coming back as Chairman of Infosys is not such a big deal.

Murthy has never hidden his or his family’s attachment toInfosys. Infosys had seven founders, but it was only the Murthyswho referred to Infosys as their child. A founder’s wife oncetold me that none of the other founders could match the intensityof how the Murthys felt for Infosys. Murthy has always maintainedthat if Infosys needed him, he would not hold himself back.

But Murthy’s return to Infosys is a little bit different from theother iconic founders mentioned at the beginning of the article.None of them came back to the company along with their sons or

daughters. But more on this later, for now let’s look at someother important issues.

The biggest question is what happens now to the successionplanning at Infosys? With the founders back in the keyexecutive roles, what does it mean for the rest of themanagement team? There are at least three leaders (B GSrinivas, Ashok Vemuri and V Balakrishnan) waiting to takeover from S D Shibulal when he retires as CEO in 2015. Whathappens to them now that Murthy is back as executivechairman? The assumption was that one of them would becomethe CEO and Kris (S K Gopalakrishnan) and Shibulal would bekicked upstairs as Chairman and Vice Chairman respectively.

If Murthy stays on till 2018, then it means that either(Kris) Gopalakrishan, or Shibulal might have to go. Afterall even Infosys cannot afford to keep three chairmen in thecompany.

Another big thing is bringing in Rohan Murty into the company.While there is nothing unusual about this scenario, after allbig names like Rishad Premji Mukesh Ambani succeeded theirfather. Except for one detail, For as far as anyone canremember, Murthy has held that no family member of a founder canever come to work at Infosys. It is a rule he set himself and allthese years he has taken great pride in living by it.The wholemagic about Infosys was that when it gave its word it knew how tokeep it. If it made offers to employees and the market tanked, ithonored them no matter what. If it made a promise to shareholdersabout meeting its revenue and profit guidance, it kept it,quarter after quarter. If it said founders would retire at 65, itmade sure they were gone by that time. If it said founder’sfamily members would not join the company, it enforced the rulestrictly. Some time back, in an interview with me, Rohan had saidthat what he most admired about his father was that Murthy neverwent back on his word. He had said that he would often ask his

father jokingly whether he could join Infosys. And Murthy’sanswer would always be the same. No. Once a promise has beenmade, it had to be honored no matter what. For a while now,Infosys hasn’t been able to keep up with its promised guidance toshareholders. Today one more promise was broken.

Is poor management the only reason for Infosys' lack lusterperformance in recent times or is it Infosys 3.0 strategy, or isit a bit of both?

The Infosys 3.0 strategy was to move Infosys higher up in thevalue chain of IT - into areas such as innovation, products &platforms, consulting, and greater value addition in businessmanagement. However, the strategy came at a time when globaleconomy was going through a downturn and clients were focused oncost-cutting rather than on developing new business strategies.Times have changed and things have evolved both internally andexternally, with IT now a $100 billion industry as opposed to $22billion back in 2006 when Narayana Murthy quit Infosys. Infosys'revenue at present is $7.4 billion from 800 clients as against$2.1 billion from around 500 clients in 2006. The company, atpresent, is facing one of the highest attrition rates at 16% inthe industry and has a workforce of 1.6 lakh, against 50 thousandin 2006. Additionally, players such as Cognizant and HCLTechnologies, which were relatively modest firms when Murthy hungup his boots, have left Infosys behind in the race. 

To top it up, the top brass is abandoning the ship when it isbeing pounded by strong winds. Infosys BPO side of story is nodifferent. Their problems have led to criticism of everythingfrom their pricing strategy to what is considered a risk-averseculture, to their method of appointing CEOs and successionplanning. 

The company has many problems, some easier to solve than others.Infosys is suffering from lack of morale and a cohesivedirection. Narayana Murthy is well placed to address both ofthese issues - he is a father figure for all at Infosys and he is

a great visionary. Some of the others - Infosys brand equity andpoor company performance - would need time to get things back ontrack. Infosys is sitting on a high cash reserve and has beenextremely cautious in its inorganic growth strategy, and is yetto make a game-changing acquisition. This is another area whichis long overdue and would need Murthy's immediate attention.Infosys' problems today are completely different from Murthy 1.0era. The world in which Murthy ran Infosys (between 1981-2002)(Exhibit-6) has changed dramatically. He has not held an executiverole at Infosys for the last 11 years. When he was the CEO, therewas no iPad, Facebook, Twitter or Tumblr. At nearly 68 years ofage, it is not wrong to assume that Murthy might have fallenbehind on some of the big trends driving IT spending today. Nowit is time to make the elephant dance. Infosys is at a strategiccrossroad where it needs to decide whether to tweak Infosys 3.0to make it work better and faster, or whether to rethink anentire new strategy.

Can Narayan Murthy 2.0 be the answer to faltering Infosys 3.0.

Exhibit-1

Exhibit-2

Exhibit- 3

Exhibit-4

EXHIBIT 5 - QUARTERLY BALANCSHEETS - 2011-2013

Exhibit-6

Teaching Note Synopsis

The case provides valuable insights on leadership challengesfaced by INFOSYS, the global Indian IT major, inspite of havingimplemented best of the management strategies. The case considersthe impact of loss of strategic focus and its effect on thefirm’s resources and financial performance. The perpetualuncertainties and risks that emanate out of loss of strategicfocus or poorly defined Strategic intent , though do not destroythe firm but do result in thwarting the goal achievement. Whilethe Firm employs models such as the Malcolm Balrdiges qualityframework for outstanding performance and other such models ,failure of the leaders to dal with ever-moving bottlenecks-theconstraints caused not only by internal operational gaps, butalso by supply chain variation, competitors action and governmentlegislation. The case reflects the way the company and the marketlooks at the firm’s leadership and how it can contribute tobetter financial performance, thereby resulting in happysatisfied employees and the not the other way und. The role of acharismatic leader who can turn the mood upbeat - by changing thelens people use to see the events. The case also focuses on issuerelated to change management and tweeking of principles/missionthat a leadership is forced to adopt so as to revive or resurrectthe organisation. The case addresses issues such as internalrestructuring, leadership vacuum, complacency towards customers,rigid contracting terms, and a stubborn high-margin pricing modeland their impact on overall performance of the company.

Since it was founded by Nagavara Ramarao Narayana Murthy and sixother engineers in Pune in 1981 with an initial capital of Rs10,000, Infosys has been feted and applauded for everything from

its business model to delivery excellence and its leadership toits corporate governance. It was the first Indian company tooffer stock options to employees in 1993, the year it wentpublic. A total of 16,237 employees benefited until ESOPs werehalted in July 2003. In 1999, it became the first Indian companyto list on the Nasdaq. It was also the first in India to reportquarterly financials, issue guidance against insider trading,come up with the concept of a lead independent director, and havedirectors assessed by peers."The halo came from stock options that gave exceptional returns.The company was growing at a fast pace, with a lot of employeepride and people clamoured to be part of the organisation". Longadmired as an exemplar of best practice, Infosys has not stoppedtrying to change. In March 2011 it launched a much vaunted'Infosys 3.0' strategy that seeks to steer the company towardshigh-end consulting, innovation and more "non-linear revenue" -revenues growing faster than people costs. However, the strategywas neither resonating with the clients yet nor within itsemployees. Several people both within and outside Infosys hadonly a vague or partial understanding of what exactly Infosys 3.0was. The most common misperception was that Infosys 3.0 was allabout products and platforms business. As a result, in the recentyears the magic of INFOSYS had faded. Its revenues have beensagging, its profitability is getting hit, its attrition ratesare high, its employees mood is down, analysts are flogging thefirm, stock market has been giving its thumbs down to the stockfor some time now, all these at a time when its rivals are doingbetter. It has lost its IT bellwether tag to TCS, and the secondrank in the market to Cognizant in the last one year. In thelast two years the company had shown indifferent growth and thestrategy has not been executed well. Until Murthy retired,Infosys understood the market better than anybody else. Now,there are inconsistencies in its communication. The company wasbuilt on the PSPD model of Murthy - predictability,

sustainability, profitability and derisking. Now, predictabilityis gone, sustainability is in doubt, profitability is hurt andde-risking has gone too far. The company has become risk averse.All this calls for a big change and if so, what to change?

INFOSYS SWOT ANALYSIS

TYPE OF FACTORFACTOR FAVORABLE UNFAVORABLE

Internal STRENGTHS Strong Brand

recoginition Comprehensive

portfolio of solutions

Strong base in India

Ethical Leadership

WEAKNESSES Dependenec on

financial serfvices market

Poor implementation of Strategy 3.0

Leaderhsip Lacunae Succession

planning

EXTERNAL OPPURTUNITIES Steady growth in IT

sourcing Growth SaaS Market Positive outlook

for Indian BPO,EPO and KPO market

Labour cost arbitrage

THREATS Economic Slowdown Exchange Rate

Variation Intense

Competition Immigration

restrictions

PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)

THREAT OF ENTRY : Low

Low capital requirements Large Value Chain, Space for small enterpriseMNCs ramping up the offshore capacity and employee strength in India

BARGAINING POWER -Shift OF SUPPLIERS: High POWER OF BUYERS: Due to slow down companies looking for

during recession, job to low IT projects - resulting in cuts, lay offs and bleak

COMPETITIVE High competition for IT outlook. RIVALRY: High

Sector is dependant on in US, demands for IT differentiation& USA, Europe and BFSI professional and Positioning in particular for major lateral hires High Industry Growth share of its revenue. .Strong competitors & the recent financial crisis.

THREAT OF SUBSTITUTES : Other offshore locations such as Eastern Europe,

Philippines, Mexico, Brazil and China are emerging and posing a threat to Indian IT industry because of their cost advantage as salary and other costs will be lower there. However this should have an impact only in medium to long term.

Price quoted is also a major differentiator, the quality of products being same.

Social implications .

This case helps students realize the difficulties in realizing astrategic goal in the light of leadership vaccum and keeping thecompany on the path to achieve desired objectives despite adversechanges in internal and external business environment. Return of

the founder like Narayan Murthy to the company is nothing veryunheard of. Politicians aside, many corporate leaders - some infamily businesses - have dived back into the fray and helpedtheir companies clamber out of the corporate graveyard. Othershave been first-generation entrepreneurs, Steve Jobs being one ofthe examples. However, the whole magic about Infosys was itsethical high ground. When it gave its word it knew how to keepit. If it made offers to employees and the market tanked, ithonored them no matter what. If it made a promise to shareholdersabout meeting its revenue and profit guidance, it kept it,quarter after quarter. If it said founders would retire at 65, itmade sure they were gone by that time. If it said founder’sfamily members would not join the company, it enforced the rulestrictly. For a while now, Infosys hasn’t been able to keep upwith its promised guidance to shareholders. The flap aboutMurthy's return stems from two issues. Murthy, while at Infosys,made a big deal about founders retiring at the age of 65. He wasalso insistent that founders' children wouldn't join the company.This was a company whose reputation partly hinged on the factthat it kept its promises - to shareholders, employees andanalysts - and made sure everyone knew about it. Ethics was highon its agenda. And now, the demigod of the information technologyindustry has broken both rules by also bringing in tow son RohanMurthy as executive assistant.

Practical Implications.

This case tries to find answers to the question ,“Is Murthy'scomeback merely the application of a band-aid over an arterialwound?” The problem is today, the world is a technology-suffusedone, evolving at rapid speed, very different from what it waswhen Murthy was at the helm. Infosys has been growing muchslower than the industry average because of its unclear focus.Would Murthy’s return help in remoulding the leadership, rebuild

faith among customers, investors and employees. The caseillustrates that Infosys has been long admired as an exemplar ofbest practice, and has never stopped trying to change, butchanges to strategy alone without inclusiveness of stakeholders,would not necessarily mean accomplishment of objectives and howthe leadership can impact on the trend reversal. The case wouldalso help students to realise the difficulties that arise due tomid-course changes to succession planning in bigger organisationsand the associated impact of the same in attrition of talent.

Way Ahead This company was built on the PSPD model of Murthy -predictability, sustainability, profitability and derisking. Now,predictability is gone, sustainability is in doubt, profitabilityis hurt and de-risking has gone too far. The company has becomerisk averse. All this calls for a big change. A possible fivepoint solution could be :-

Murthy  has to return to the board again but as a mentor,with a specific task to remould leadership. A slew ofchanges have been seen ever since NR Narayana Murthy cameback at the helm of Infosys. Decision-making has beencentralised keeping in mind client needs and also marketchanges, top level has seen a change of cast, and expertsare again going gung-ho over the prospects of the IT giant.A good performance in the first quarter made analysts sit upand say that Infosys is back; now after the Q2 results thetheme has just got louder. Of course, the impact on thestock has been evident after the return of Mr Murthy. Thestock has gone up a little bit too sharply post Mr Murthytaking charge. Expectations are high.

Articulate and tweak Infosys 3.0 strategy

The company must have a new CEO-COO team to rebuild faithamong customers, investors and employees. The new teamshould be given adequate freedom to rework the strategy andgo for growth.

There is also a need for change in the board composition.

•

Refrences

• Market Overview of IT and ITeS(November 2010), India Brand EquityFoundation, www.ibef.org

• The IT-BPO Sector in India (2011), Strategic Review 2011, NASSCOM • Matt Barney (2011), An introduction to Ili Cue See Model, White Paper on “

Helping Leaders Better execute Strategy and manage Enterprise Risk, InfosysLeadership Institute

• Motilal Oswal 9th Annual Global Investor Conference 2013 • Infosys Annual Report (1999) • Infosys Annual Report (2000) • Infosys Annual Report (2001) • Infosys Annual Report (2002) • Infosys Annual Report (2003) • Infosys Annual Report (2004) • Infosys Annual Report (2006) • Infosys Annual Report (2010) • Infosys Annual Report (2011) • Infosys Annual Report (2012) • Infosys Annual Report (2013) • http://www.dnaindia.com/money/1842585/report-son-rise-at-infosys-as-

narayana-murthy-returns• http://economictimes.indiatimes.com/tech/ites/renaissance-man-infosys-brings-

back-nr-narayanamurthy-• as-executive-chairman-is-this-what-infy-needed/articleshow/20387396.cms• http://www.thehindubusinessline.com/industry-and-economy/info-tech/

narayana-murthy-is-backto-revive-infosys-fortunes/article4771759.ecehttp://forbesindia.com/article/boardroom/did-infosys-get-it-wrong-with-its-3.0-strategy/35299/2#ixzz2qarEK4Pl