INFOSYS CASE STUDY - Narayana Murthy and Infosys'

The case study Narayana Murthy and Infosys' describes how Narayana Murthy, set up
India's leading software company - Infosys. Narayana Murthy turned a small software
development venture that he had set up with his friends in !", into one of the leading
companies of the country. Infosys grew rapidly throughout the !!#s Narayana Murthy
distributed the company's profits among the employees through a stoc$-option program,
and adopted the best corporate governance practices. %ll this earned him praise and
respect. In !!!, the company became the first Indian firm to be listed on the Nasda&
'toc$ Mar$et. In (###, Infosys was poised to become a true global company.)y (###,
Infosys' mar$et capitali*ation reached +s. billion and by (##, Infosys was one of the
biggest e,porters of software from India. Narayana Murthy had built an organi*ation that
was respected across the country, with very strong systems, high ethical values and a
nurturing wor$ing atmosphere.In -ebruary (##, Infosys Technologies .td. /Infosys0 was
voted as the )est Managed 1ompany in %sia in the Information Technology sector, in
leading financial maga*ine 2uromoney's -ifth %nnual 'urvey of )est Managed
1ompanies in %sia.
KEY SUCCESS FACTORS
3ith his sound management s$ills, Narayana Murthy seemed to have ta$en Infosys to the
pinnacle of success with the following $ey success factors 4
. Ladrsh!" ta# $ The leadership team needs to balance vision with practical
e,perience. In most cases, a technology start-up will have a visionary and5or a technical
genius /most often, these are the founders0 in place from day one. 6owever, all to often,
the leadership team is not rounded out by people who actually $now how to run a
business and how to drive sales. )uilding a strong balanced team can be one of the
tric$ier aspects of creating a successful start-up because it necessarily re&uires the
visionary and the technical genius /founders0 to admit their practical shortcomings and
give up some of the control of the business. The idea behind a start-up is often
somebody's 7baby7 and, &uite naturally, they want to control every aspect of its
development. 8nce you move these people away from micromanaging the business, the
start-up begins to have a chance.
(. %&&-'on'!(d )us!nss "&an $ This is an area where the practical e,perience of a
well-rounded leadership team gives the start-up a leg up. The business plan needs to be
practical and detailed. The business plan provides the blueprint for the growth of the
company. 9erhaps more importantly, the business plan is how you demonstrate the
viability of the business to third party investors.
:. A stron* "rodu't $ It is a given that the product needs to be special ; something that
will differentiate itself from the universe of competing products - but there are other
important factors. Ideally, the product will be one that can be protected by patent. If the
products cannot be protected by a patent, then the start-up has to be positioned to
capitali*e on being the first to mar$et. %bsent patent protection, being the first to mar$et
and capturing as much mar$et share as you can before the copy-cats arrive is the ne,t
best thing. The product needs to have a ready mar$et meaning that there is a mar$et for it
and that either there is no real competition or that the product allows the company to
differentiate itself from the competition.
<. S'a&a)!&!ty $ The scalability of the business may not be critical to the success of every
business, but it is critical to drive a start-up to a large scale business. In other words, if
the goal is to become a large, valuable company, scalability is $ey. 6owever, if the goal
is a little less lofty, then scalability is a little less important.
=. Ad+uat 'a"!ta& $. 3ithout ade&uate capital, the business will struggle. 9erhaps the
business will have phenomenal sales, but be unable to deliver the product. 8r, the
business may build the product, but lac$ the cash to ade&uately mar$et it. 8r the business
will be unable to attract the leadership team it needs and the team it has is diluted to
ineffectiveness. 8r, the business is unable to capitali*e on its 7first-to-mar$et7 status.
3hile it is true that the management team for a start-up has to be versatile and willing to
wear different hats, a capital-starved start-up can force the dilution of the management
team to the point of everything being done poorly. >uite obviously, in many cases, the
lu,ury of having ade&uate capital does not e,ist from day one. -inding the capital in a
timely way can be very difficult. The more that can be done to address the other four
points, the easier it will be to find capital.
Laun'h of Infosys
Narayana Murthy obtained his )achelor's degree in 2lectrical 2ngineering from
?niversity of Mysore in !@A and his Master's degree in Technology from Indian
Institute of Technology, Banpur in !@!. 6e started his career as head of the computer
centre at IIM, %hmedabad.In !A(, he went to 9aris where he was part of the team that
designed a <##-terminal, real-time operating system for handling air cargo for 1harles Ce
Daulle airport. Narayana Murthy was a left-wing activist and mingled with -rench
communists during his stay in 9aris but his outloo$ changed while traveling around
2urope. 6e believed that the only way to pull India out of poverty was to create more
Eobs, by setting up new companies.In !A=, he returned to India and Eoined 'ystems
+esearch Institute, 9une,/Maharashtra0. 6e then headed 9atni 1omputer 'ystems 9vt.
.td., Mumbai, /Maharashtra0 before founding Infosys in !", along with si, other
professionals.
Th Strat*!st
-rom the beginning, Narayana Murthy focused on the world's most challenging mar$et -
the ?'. 6e had two reasons for this. -irst, there was no mar$et for software in India at
the time. 6e believed that Indian software companies should e,port products in which
they had a competitive advantage.In !"A, Infosys entered into a Eoint venture with Burt
'almon %ssociates /B'%0, a leading global management consultancy firm. B'%-Infosys
was the first Indo-%merican Eoint venture in the ?'.
,o"& Mana*#nt
%nalysts felt that one factor which helped Infosys to grow at a faster pace than others was
the low employee turnover.The turnover rate at Infosys was around F as opposed to
industry average for software companies' of over (=F during the !!#s.Infosys' retention
capability was a function both of its rigorous selection procedures as well as proactive
6+C practices. %bout "#F of the middle and senior level e,ecutives were promoted
from within the organi*ation...

Cor"orat -o(rnan' and Infosys
%nalysts felt that Infosys became one of the most respected companies in India, through
its corporate governance practices, which were better than those of many other
companies in India. Narayana Murthy's move to adhere to the best global practices was
driven by his vision to become a global player. Infosys adopted the stringent ?'
Denerally %ccepted %ccounting 9ractices /D%%90 many years before other companies in
India did...
Ladrs !n th Ma.!n*
Narayana Murthy set up a .eadership Institute in Mysore, India, to manage the future
growth of Infosys. The institute aimed at preparing Infosys employees to face the
comple,ities of a rapidly changing mar$etplace and to bring about a change in wor$
culture by instilling leadership &ualities.
I would li$e to end with a comment from 'ri Narayana Murthy$ / sa!d0 1It !s our
(!s!on at Infosys0 to 'rat 2or&d-'&ass &adrs 2ho 2!&& ) at th forfront of
)us!nss and t'hno&o*y !n today's 'o#"t!t!( #ar.t"&a'333
This has been at the forefront of their corporate culture GGG
Ladrs !n th Ma.!n*
In %ugust (##, Narayana Murthy set up a .eadership Institute in Mysore, India, to
manage the future growth of Infosys. The institute aimed at preparing Infosys employees
to face the comple,ities of a rapidly changing mar$etplace and to bring about a change in
wor$ culture by instilling leadership &ualities.
1ommenting on the institute, Narayana Murthy said, HIt is our vision at Infosys, to create
world-class leaders who will be at the forefront of business and technology in today's
competitive mar$etplace...
N3 R3 Narayana Murthy
1hairman and Managing Cirector
Infosys Technologies .imited
)angalore, India
On Entr"rnursh!"
I am indeed honoured by this generosity on part of the MM% and the eminent Eudges that
chose me for this prestigious award. Mr. Iaghul has been a hero in corporate circles and
it is the dream of every 128 to be blessed by him. I am really grateful to him for
considering me worthy of this recognition. am also very grateful to other members of
the Eury, to the MM%, and to members of the 'ri. %nantharama$rishnan family.
It is only recently that there is some acceptance, in India, of the idea that creation of
wealth is the only way to solve the debilitating problem of poverty. Mahatma Dandhi's
dream was to wipe the tears of every poor person in the country. In my opinion, fulfilling
this dream re&uires a consensus among all political parties on the following tenets4
a. The only way we can solve the problem of poverty is by creating new wealth legally
and ethicallyJ not by redistributing e,isting wealth.
b. There are only a few people who can lead the tas$ of creation of wealth, Eust as there
are only a few good surgeons, professors, and lawyers.
c. These people are human beings and they need incentives to create wealth.
d. The Eob of the government is not to create wealth but to create an environment where
these leaders are enthused to create more and more wealth.
There are two $inds of wealth creators - those that add to e,isting wealth passed on to
them by the previous generation of wealth creatorsJ and those that create wealth from
scratch. I belong to the latter category and have very little idea of the former. 6ence, I
will tal$ a little bit about creating wealth from scratch. 2ntrepreneurship refers to such a
creation of corporate wealth by leveraging sweat e&uity. In general, entrepreneurship
translates to leadership and innovation. .ac$ of ade&uate finance forces an entrepreneur
to ta$e a path hitherto untrodden and create a niche for himself. % necessary but not a
sufficient condition for entry of entrepreneurs into an industry is that it must afford
opportunities for innovation e,ecuted with sweat e&uity at least in the initial stages of the
enterprise. The software industry world-wide is full of successful entrepreneurs. +apid
advances in technology and the conse&uent productivity gains have opened great mar$et
opportunities for innovation and, thus, ensured a steady stream of entrepreneurs in the
%merican software industry. 3hether it is )ill Dates of Microsoft or .arry 2llison of
8+%1.2, the common factors are4 sweat e&uity, innovation, a brilliant vision, a well
thought out strategy and flawless e,ecution.
I have studied entrepreneurship in the Indian software industry for over (# years and have
come to some conclusions. Curing !A! - !", ten to twelve entrepreneurs
/professionals0 started software companies for operating in the domestic and e,port
mar$ets. %s of today, only one or two of them have survived, succeeded and been
consistently among the top five Indian software e,port houses. % case study of these ten
to twelve companies is a great education. 3e can draw certain conclusions from these
case studies and can define some criteria for success.
The physiology of successful companies and pathology of unsuccessful companies bring
out the following criteria for success4
. Shard (!s!on$
The founders of the company must articulate a clear vision of what they want
their company to be in the long run. This vision must be something that provides
for a clearly definable synergy between corporate obEectives of the enterprise and
personal aspirations of the entrepreneurs and the professionals wor$ing for the
enterprise.
(. A #ar.ta)& !da$
?nless you have a good idea that adds value to a customer, there is no 9oint in
proceeding further. Kour product or service must provide one or more of the
following benefits - reduce cost, reduce cycle time, improve productivity or
improve free time - for users of the product. Most failures are due to negligence of
this cardinal principle.
:. A sound strat*y and an !#"&#nta)& a't!on "&an$
'trategy is about ma$ing oneself uni&ue in the mar$etplace. % strategic plan that
clearly brings out the competitive advantages of the idea of the entrepreneurs, that
mas$s the wea$nesses of the entrepreneurs, that. is realistic, and that ensures
sustainability is needed. % realistic action plan that has the re&uired resources is
needed to put this strategy in to action.
<. A &ayr of 'o#"tnt #ana*#nt$
The bane of most entrepreneurs is that they are primarily technocrats and hardly
understand managerial issues in building an enterprise. Indeed, have come
across entrepreneurs who cannot read a balance sheet and hardly distinguish
between term loans and wor$ing capitalG They have a healthy contempt for
anything other than technical challengesG 'uch an attitude is a sure recipe for
unmitigated disaster. % successful enterprise will bring together complementary
s$ills in technology and management. 'urely, success in an enterprise re&uires a
good understanding of human motivation, finance, leadership, technology,
&uality, and a host of other s$ills.
=. A shard (a&u syst#$
% value system for a group of entrepreneurs is li$e the rudder for a ship. The
temptation to bend your own set of Co's and Con'ts is very compelling but the
ability to stand firm in the face of an adverse situation is what separates men from
boys. have seen many an enterprise flounder because the entrepreneurs could
not come out with a shared value system.
@. ,rofss!ona&!s#$
I have seen several budding entrepreneurs criticise their employers and do e,actly
what they criticised when they start their company. 9rofessionalism is drawing a
line between personal needs and company resources, treating all your colleagues
with respect and dignity, being issue-based and not personality-based,
establishing and following person-independent rules and procedures in the
company and showing integrity and honesty in all transactions with your
customers, colleagues, vendor-partners, government and the society.
A. D!(or'!n* 'ontro& fro# #ana*#nt$
Indeed, if there is one critical issue in succeeding in entrepreneurship, it is the
ability to divorce control from management. In the ?', any entrepreneur will
$now that his venture capitalist will put in a management structure independent of
his shareholding in the company. Kou, as the entrepreneur, will be as$ed to
perform the role best suited to the organisation's needs. 3e all $now the story of
'teve Lobs and how he himself brought in Lohn 'culley to head %pple when he
realised the need for professional leadership. Kou must recognise your strengths
and contribute to the organisation only in that role.
". S"!r!t of sa'r!f!'$
Nothing can ever be built unless there is some sacrifice at least in the initial
period. Most entrepreneurs fall prey to the trappings of the so-called 7Industrialist
syndrome7 and end up Eeopardising the interests of the enterprise.
!. ,r!d !n 'rat!on of 2a&th$
I have met several entrepreneurs who are very apologetic about creation of
wealth. -or heaven's sa$e, there is absolutely nothing wrong in creating wealth
by legal and ethical means. Co not ever confuse creation of wealth with charity.
-irst, you create wealth efficiently and only then can you donate your share of the
profit to any charity.
#. Ido&o*y0 !nt&&'tua& arro*an' and th ntr"r!s$
I have seen several instances where my entrepreneur friends have destroyed their
enterprise Eust because they went on an ill-founded ideology trip. -or e,ample,
one of my good friends felt that his company must produce compilers and word
processors in India and compete with Microsoft's and )orland's even though it
was clear to everybody but him that such a strategy was absolutely unwise and
disastrous. 6is whole argument was that we Indians are second to none and that
we will prove to the world that we can produce system software better than
anybody else. 8bviously, he did not succeed as much as his superb intellect
should have enabled him to.
. R and D and th )rad-and-)uttr stra#$
It is a truism in any business that the bread-and-butter stream of your enterprise
pays for all costs including+ and C. % smart enterprise derives its revenues from
a bread-and--butter stream, pays for the operational costs and uses a small
percentage of this revenue /usually =F to #F0 to conduct + and C in promising
new streams. 'ome of these new streams will, in the future, become bread-and-
butter streams for the enterprise. have $nown a couple of entrepreneurs who
tried to derive a large part of their revenues from + and C and, I am sad to say,
they are in serious trouble.
(. Ladrsh!"-)y-4a#"&$
In enterprises dominated by white collar and $nowledge professionals, you must
lead by e,ample. Today's professional has global level s$ills and opportunities
and he is aware of itG %ny discrepancy between what you preach and what you
practise will be easily analysed by your younger colleagues and articulated well
enough to create a dissonance, %fter all, Mahatma Dandhi was not wrongG
.et me close by saying that speed and imagination are the two hallmar$s of any
successful entrepreneur. Those who leverage these two attributes will survive and
succeed in the coming millennium of intense competition. I have no doubt that the
dynamic members of the Madras Management %ssociation will use speed and
imagination very effectively to become the leading wealth creators for this nation.
Than$s for your generosity in listening to me.
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