A capitalist in mind, a socialist at heart, Infosys chief has created a role model firm
The gleaming headquarters of Indian software company Infosys Technologies is nestled in a 52-acre green oasis within Electronics City, on the outskirts of Bangalore. More than an office building, this place looks like a holiday resort, with rolling lush green lawns and landscaped gardens. There's even a golf putting range! Rock music belts out from an open-air food court, where young people sit and chatter. But theirs is not idle chatter - their animated conversations are all focused on abstruse IT topics.
It was here that Asian Business spoke with Infosys chairman NR Narayana Murthy, who had just returned from a trip to the US. Looking tired, with dark circles under his eyes, Murthy spoke candidly about his work and his vision.
It is Murthy's vision that has propelled Infosys from a Rs50 million (US$1.04 million) unknown entity in 1991 to the Rs19,000 million behemoth it is today. Infosys has become a role model for the entire Indian software industry. The company was set up in 1981 with US$250, which the six founders, headed by Murthy, struggled to raise. There were no angel investors or venture funds in India then and the partners had to fall back on selling their wives' jewellery.
They faced tremendous challenges in the closed Indian economy of that time. It was only after the economy opened up in the early nineties, that Infosys blossomed. Today, it is a world leader, providing customised software solutions to the world's top companies. It employs 9,000 people in 30 offices worldwide. In the Asia-Pacific region, Infosys has offices in Hong Kong, Singapore, Tokyo, Sydney and Melbourne. The company's revenues more than doubled from Rs9 billion in 1999-2000 to Rs19 billion in 2000-01. In tandem, its net profit jumped 114% to Rs3 billion.
Murthy, 55, is often described as a capitalist with a socialist heart. He holds only 7% of Infosys stock and believes that for a company to grow and succeed, it must share its wealth with its employees. In fact, from the annual report it appears that a number of Infosys employees earn salaries far higher than the founders. Despite being one of India's wealthiest people, Murthy leads a simple life, living in the same small house for the past 15 years. He and his wife, Sudha Murthy, are involved in various social causes and donate generously from their personal funds.
AB: What has been the secret of success for Infosys?
MURTHY: It's too early to say that, because for me success is about longevity. A corporation should have gone through 10-12 business cycles before one can call it a success. Infosys has to be there for a 100 years before we can call ourselves a success.
AB: How did Infosys become a role model for the Indian software industry?
MURTHY: Firstly, we have always benchmarked ourselves with the best on a global scale. We have never said that we will be the best Indian company. We said, we will be the best software services company. Once you make the globe your arena of comparison, you are comparing yourself with so many smart people. Secondly, we have realised that there are only three attributes for any corporation to succeed - speed, imagination and excellence in execution. And these have to be embraced not only by the software services people alone in the company, but by everybody - the finance people, human resources, sales and marketing etc.
So, in other words, we have made sure that every group has benchmarked itself on a global scale. Further, we have selected high quality people, we have empowered them, we have implemented processes, systems and tools that help people become more productive, more customer-oriented.
AB: Infosys was voted the best employer in India by Hewitt Associates. What are your HR practices?
MURTHY: Our main asset is our people. This asset walks out mentally and physically tired every evening and it is our responsibility to make sure they come back rejuvenated, enthusiastic and energetic to spend a useful eight-hour day at the office. Towards that, we have done several things. We have provided several facilities like food courts, a sauna, a fully equipped gym, swimming pool, golf putting range, tennis courts, aerobics, a company store etc. Then, we have created the environment of a university where there are free ideas, where it is open, where its competitive, where it's a meritocracy. Because we believe that there are three tenets that every software company has to follow. The first is our company is our campus. The second is our business is our curriculum, and thirdly, our leaders are our teachers. We have ensured that people are empowered. We are actually in the business of producing high quality people. Software is a by-product in some sense. As long as we have good quality people, as long as we give them the facilities and freedom to enhance their initiative, enterprise, imagination and skill, they will develop good quality software.
AB: How do you select your employees?
MURTHY: We operate in an environment where the pace of change is high. Technology, customer preferences, business models change rapidly. In other words, the only constant for us is change. We have always emphasised "learnability" in our recruits rather than experience. That is the ability to extract generic inferences from specific instances and the ability to use them in new and unstructured situations. So the most important thing for us is not so much what you know as how quickly you can learn new things. We also look for people who have good communication skills, people who can work as a team and people who have very high aspirations.
AB: What do you feel are the strengths of SMEs?
MURTHY: In a traditional economy, probably, I would have said that I don't see any great strength in being a small company. But, I think, in any services sector, being small has a lot of advantages. One, it brings speed. Actually, it's all about human beings. A smaller group has much better bonding, takes quick decisions, and has much more focus on customers. To that extent there are considerable opportunities for smaller companies in the high-tech economy. That is where a company like Infosys has done the trick. We have retained the soul of a small organisation in a body of a large one. We have kept all the good things about a small organisation in terms of speed, flexibility, adaptability, etc, while we also retained the strengths of a large organisation like financial strength.
AB: How has Infosys managed to retain the culture of a small company while being a big company?
MURTHY: If you notice there are 22 buildings on this campus. Now each building accommodates only about 300 people. We looked at a survey by the University of Pennsylvania and realised that to keep a certain closeness among people, to keep a very high level of bonding, to ensure that each knows the other person by name, we should not go beyond 300 people. Secondly, we run every project like a mini company.
AB: What do you think will be the impact of the US attacks and the "war on terrorism" on the software industry?
MURTHY: I don't think there will be any long-term impact of the war. It is only because the economy has gone from bad to worse in the last six months, we are all feeling it.
AB: What would be your advice to small and medium enterprises in the current slowdown of the global economy?
MURTHY: Firstly, they have to work that much harder because this is the time when customers are looking for unique value propositions. This is the time they are looking at better value for money than before. The difference between a small organisation and a large organisation is this: big companies have economies of scale. For example, our sales and general administration expenses (S&GA) are 13-14% of revenue, whereas, in a small company this will be higher. These are really fixed costs. So a smaller company has to look at how to reduce S&GA, while maintaining the value for money to the customer. And then, early to bed and early to rise and work like hell!
AB: Some analysts say that there is going to be more outsourcing with the slowdown in the US economy. Do you agree?
MURTHY: It is too early to say, because our own discussions have not borne out any data to say that there will be much more outsourcing. I think, as it is, there is considerable outsourcing, except that the whole pie has come down.
AB: Infosys has not focused too much on the Indian market (only 1.4% of revenue) or on software products (2.5% of revenue). Why?
MURTHY: Actually, in 1987 we took a decision to be in India in only one area - banking. And there, we said we will be only in products, because services is not a very lucrative operation in India. We invested heavily in our banking product - about US$20 million. We believe that the product (Finacle) has become the premier product in India; it is also installed in some 12 or 13 emerging countries. We will strengthen our initiative in that area - banking. There will be a lot of adjuncts. Unfortunately, the banking area (in India) has not developed as much as we would have liked it to. The problem today in India is that the importance of technology has still not been realised in end-user corporate circles. Secondly, because the government has such a monopoly in so many areas and it plays such an important role in the lives of our people, customer satisfaction has not been an important aspect of the Indian corporate world. Only when customer satisfaction becomes predominant, only when there is a level playing field, you will see tremendous opportunities in the domestic market for companies like Infosys.
AB: What is the cost advantage India has over the US in software development? How about China and the Philippines?
MURTHY: I think we are still 40% cheaper than the US. I think, if China and the Philippines were to spend the same amount of money (as India has) on technology, processes and training, on physical infrastructure, then they would be in the same ballpark as we are. We (India) have a very big advantage. The industry has, over the past 10-15 years, learned to manage large projects. We have good process orientation to reduce defects, to improve productivity and, of course, English is an important advantage. And finally, India has a large number of talented professionals.
AB: Are you too dependent on the United States market since 70% of revenues came from the US in 2000-01?
MURTHY: All (software) companies (in India) are dependent on the US, because that's where there is maximum premium on innovation, that's where it's most competitive, that's where the value of technology has been realised. If you look at the outsourcing opportunities, US forms 70% of the outsourcing opportunities for the entire Indian software industry. Having said that, we are trying to enhance our focus on non-US markets. We have opened more offices in Europe, Australia, Singapore, Hong Kong and Japan.
AB: One of the business strategies followed by Infosys is a "global delivery model". Could you explain?
MURTHY: I define globalisation as producing where it is most cost-effective, sourcing capital where it is cheapest, and selling where it is the most profitable without worrying about boundaries. However, this is easier said than done! There is always xenophobia - people raise non-tariff barriers when they see a certain threat from others. In the global delivery model, the total activities in a software development project are partitioned into those activities that have to be necessarily done at the customer site ("on site") and those activities that can be executed from remote cost competitive economies like India ("off shore"). This is what we have adopted. We are able to produce high quality software from India, because of our processes and systems, because we are able to attract high quality people in our development systems. Hence the defects are lower and productivity is higher.
AB: What proportion of work in Infosys is done at the customer's site and how much is executed in India?
MURTHY: Effortwise, about 65-75% of the work is taken up in India and 25-35% at the customer's site.
AB: In the future will Infosys be looking at setting up development centres in other countries?
MURTHY: According to our globalisation principles, we believe that there are several countries in Asia, as well as perhaps in Latin America - I'm not very certain at this stage about Africa - where it is cost competitive, where there is talent available.
Apart from India, we are looking at China, the Philippines and Mexico.
AB: What does your office in Singapore do?
MURTHY: This is a marketing, sales and support office. At this point of time we don't have any plans to start a development centre in Singapore as it is quite expensive, though Singapore has very good people. It's a great city state. At some stage we may look at having a proximity development centre. That is a centre where people are posted who have to operate very near the customer - doing activities like requirement definition, presentation to the customer, rapid reaction warranty, etc.
AB: What are the plans and objectives of your company for the next few years?
MURTHY: Our vision is to be a globally respected corporation delivering best-of-breed solutions employing best-in-class professionals. So we have to become much more global, much more multicultural, we have to attract investors from all over the world. We have to enhance our brand equity, so that when there is a large project, the customer should say - have you received a bid from Infosys? We will continue to be a software services company. We will globalise more and more.
AB: You are described as a capitalist in mind, but a socialist at heart. How do you implement this?
MURTHY: When running a corporation you must embrace meritocracy, you must focus on customer satisfaction, on margins, you must make as much money as possible. And then parallel to this, your organisation must ensure that it can make a difference to the society around you. For example, at Infosys we have hired 200 women on the campus. When their children are sleeping, they will come and clean the campus. We created job opportunities for them.
Similarly, Infosys foundation takes up projects that address the basic needs of the society. The founders of Infosys have contributed quite a lot of money (from their personal funds) to various causes in the country. But we can do all that only because we're financially strong. Also, I believe that the softest pillow is a clear conscience.