Narayana Murthy

Building Infosys

November 20, 2018 / ZURICH
An Evening with Narayana Murthy - Building Infosys

Written by David McDonald
Infosys A Better India, A Better World India Economy Entrepreneurship Leadership Values International Business Multinational Corporation Integrity Job Creation Society

Narayana Murthy

“I believe that every corporation — whether it’s in Switzerland, India or the United States, or anywhere else in the world — must strive very hard to seek respect from society. That is the principle on which we founded Infosys” - Narayana Murthy.

On November 20th, the Asia Leaders Series hosted its fourth event of 2018, featuring the legendary Indian entrepreneur and business mogul, Narayana Murthy. Murthy is the founder of Indian tech giant Infosys, a multinational corporation providing IT consulting and outsourcing services.

In this fourth and final installment of the 2018 series, Murthy sits down with Callam Fletcher — the founder of the Asia Leaders Series — to discuss his path to forming Infosys, the challenges he encountered along the way, and his tips for entrepreneurial success.

Murthy embodies every redeeming quality one finds in a successful leader; honesty, integrity, determination, and above all, respect. Murthy places an undoubted importance on facilitating respectfulness in all business encounters, which in his experience leads to long term sustainability.

Founding Principals

In 1981, Infosys was co-founded by Narayana Murthy with a borrowed sum from his wife of just $250. Today, it is the second largest IT company in India with a market capitalization of nearly $45 Billion and an employee base exceeding 200,000 globally.

In his conversation he notes how his parents — both of whom are teachers — spoke regularly about the importance of respect from society. Every week there would be a discussion about how respect is the most important thing in life, not the riches.

These wholesome principles in which his childhood was molded by ended up becoming the foundation upon which Infosys was built. Murthy reflects on a very well-known discussion — one that is featured in his book, ‘A Better India, a Better World’ — about a conversation he had with his co-founders when founding Infosys in May 1981. He assembled the six partners and asked them, “what is it that we should aim for in founding Infosys?” The first person said they should be the company with the highest revenue for software in India. The second person said they should be the most profitable company in software in India. The third person said they should be the company that is listed and has the highest market capitalization. Finally, it was Murthy’s turn to speak; he explained how Infosys should aim to be the most respected company in India.

The partners, perplexed, turned to Murthy and asked how such a principle would serve their objectives. “it’s very simple,” explained Murthy. “If you seek respect from every one of the stakeholders, revenues will come, profits will come, and market capitalization will come. If you are considered highly respected, more customers will want to do business with you, more people will want to come and work for you, and more investors will want to invest in you.”

Right from the beginning, they believed that the only way a multinational can succeed is if it creates an environment where people of different nationalities, races, religious beliefs, genders, and even perhaps economic classes, can work together in an environment based on dignity, courtesy, and intense competition in order to add greater value to their customers. Therefore, the first requirement for a multinational should be to respect the beliefs and backgrounds of everyone. “These should not become the items for discussion, items for favoring one over the other,” notes Murthy. “Everyone should be treated fairly.”

Murthy explains how unless a corporation is seen as benefiting the society in which they operate, he doesn’t think it will demonstrate longevity. “Sooner or later the business will die,” he explains.

Therefore, even if you’re a multinational, the leaders have to identify strongly with the society at large; they must believe that unless their presence is beneficial to society, the corporation will not improve over time. Therefore, they must become active partners in adding whatever value they can to the local context within the constraints of the corporation.

A company is more than just a tool to generate profit; it is an entity that exists within a society and thus, must function as a cohesive, semi-autonomous member of society. Murthy realized that for Infosys to be the long-term success that he envisioned it to be, it would need to have a positive reputation not only within India, but around the world. He would accomplish this by outlining specific corporate social responsibility goals and leading his people to execute on those objectives.

One example of this came during the 2001 internet bust. Instead of cutting down on low-cost employees, Murthy instead issued pay cuts for all of the leaders of the company. Smaller pay cuts were issued further down the company hierarchy, until close to the bottom, where the workers with the lowest disposable incomes did not receive any pay cut. They then used the savings from this to provide jobs to 1,500 people.

“For a startup to be sustainable, the company has to have a clearly defined value system,” explains Murthy. He notes how, “company leaders have to lead by example since actions speak much louder than words. Every employee is watching to see you. Every action is discussed and, in some way, copied by people who are lower down the hierarchy.”

In the case of the 2001 internet bust, Murthy exemplified all the values that he holds close to his heart, and showed not only the rest of his employees, but also every external stakeholder involved with Infosys at the time, that this company’s management truly cares about their people. In Murthy’s words, having good morals is what allowed Infosys to survive for so long in such a rapidly-changing and challenging business climate.

Leadership

“The primary responsibility of a leader is to create a plausible and grand vision and empower his people to move toward that vision,” explains Murthy when asked what makes a good CEO.

“A leader is a transformation agent; they must be able to share the limelight with their people. In other words, a leader has to be generous. A leader has to enhance the confidence and selflessness of the team that works with him or her. A leader has to make people feel an inch taller in his or her presence. At the end of the day, if you enhance the self-esteem of people, the kind of things that they do are unbelievable.”

Murthy is a seasoned expert when it comes to successfully leading a large multinational firm through dark times. He understands the importance of making sure everyone in the company buys into the bigger picture; the vision for the future. Good leadership means good communication, selflessness, and making people feel enthusiastic, energetic, and confident about their contribution to the company.

His pay-cut tactic demonstrates his commitment to leading by example within the company, but Infosys was able to reach a level of global influence because Murthy also knew how to facilitate external relationships with great poise.

Less than two years after Infosys went public in India in 1993, one of the fortune 10 companies with whom they were partnered with at the time came for renegotiation of prices, ultimately wanting Infosys to lower its prices in order to maintain the partnership.

Even though this company contributed 25% to revenue and 8% to Infosys’ bottom line, Murthy was confident that Infosys would be able to maintain steady profitability even after losing such a substantial partner. Despite this decision being an unpopular choice among his colleagues, Murthy knew that if they began to drop prices, they would no longer be able to invest in technology, training, better processing, and salaries. Murthy turned it down in the most respectful manner possible.

This decision ultimately worked in his favor; not because they got lucky, but because Narayana Murthy had confidence in his people. Murthy knew that by turning down a fortune 10 company as a partner, he would need to work extremely hard to regain new partnerships. He proceeded to travel for 300 days a year for the next three years in order to secure international partnerships for Infosys. Six years later, Infosys became the first Indian multinational company listed on the NASDAQ, and the first Indian company to IPO at over $1bn.

Transparency

Among the several qualities and practices Murthy lists as necessary for long term success, transparency and honesty underly the continued success of Infosys.

At Infosys, Murthy decided to handle every internal issue using data and facts. This was an important step in limiting bias in arguments, and motivating employees to collect meaningful data before arguing their point.

Infosys began offering detailed annual reports and financial statements, before going public. Their high standards of reporting set new standards for Indian firms to list on the NASDAQ, which they did in 1999. This was a milestone in the company’s history that can be largely attributed to the transformational work of Mohandas Pai.

Mr. Pai served as Chief Financial Officer for Infosys from 1994 to 2011 and spoke at the Asia Leaders Series in 2017. “He brought in a lot of innovations,” says Murthy. Pai was able to enhance the transparency of Infosys’ annual report, and create many new records and win many awards on a global scale.

Furthermore, Infosys ranked in the top 5 on NASDAQ as a fully compliant company, as well as being the only company on NASDAQ to provide balance sheet and financial statements according to all G-8 country standards. Murthy explains how his job was to encourage Pai to ensure that there was an open-minded environment in the organization to do new things and to encourage good ideas.

The day before setting the stock price on the market, Murthy was advised by the bank to list at a higher price due to over-subscription. The American investment bankers were shocked with Murthy turned down the offer. When asked why he would want to reduce the stock price, Murthy simply said, “Look, we want to have a long-term relationship with our investors. And to do that, we have to demonstrate our sincere feelings for them.”. Murthy knew that in order to weather the down-turn of a business cycle, he needed investors who sought long-term growth.

Scaling Up

Infosys began launching development centers in 1995 when it opened its first locations in Toronto and Mangalore. Since then, Infosys has launched eleven development centers in India, four in China, two in the USA, three in Europe, and one in each of Mexico, Brazil, Australia, and Japan. The largest development center is located in Mysore, India, and has the capacity to train 14,500 engineers on any given day. It is the largest such center in the world. These centers serve as a technology development hub for manufacturing and engineering companies seeking world-class talent. They provide excellent opportunities for students around the world to gain access to great education and become high-paid members of society.

Narayana Murthy is one of the most respected entrepreneurs in India, not just because he pioneered one of the most successful IT companies in history, but because he made sure Infosys used its profits to invest in global education and socially responsible initiatives.

Infosys began launching development centers in 1995 when it opened its first locations in Toronto and Mangalore. Since then, Infosys has launched eleven development centers in India, four in China, two in the USA, three in Europe, and one in each of Mexico, Brazil, Australia, and Japan. The largest development center is located in Mysore, India, and has the capacity to train 14,500 engineers on any given day. It is the largest such center in the world. These centers serve as a technology development hub for manufacturing and engineering companies seeking world-class talent. They provide excellent opportunities for students around the world to gain access to great education and become high-paid members of society.

Serving Society

Furthermore, Murthy launched numerous charitable initiatives that Infosys still maintains. In 1996, the Infosys foundation was launched by Narayana Murthy and his wife, Sudha Murty, with the primary goal of supporting the underprivileged sections of society. It supports programs in the areas of healthcare, education, rural development, arts and culture, and destitute care.

Murthy speaks at length about corporate social responsibility, fostering respectful relationships and building companies that can stand the test of time. His actions as CEO of Infosys indeed speak louder than words, and his dedication to developing the Indian IT Industry is one reason why Fortune Magazine listed him as one of the greatest entrepreneurs of our time.

Reflections

Murthy’s talk at the final 2018 Asia Leaders Series event was insightful, introspective, and motivating. His stories of trial and triumph provide excellent insight into the realities of starting an IT enterprise in Asia.

After listening to Narayana Murthy recount his story of Infosys, it becomes evidently clear why he has reached such remarkable success; at the core of his business philosophy lies morality, good will, and respect.

Murthy finds simplicity in the most complex of situations and utilizes his relationships to get him and his businesses past any obstacle. Cherish those around you, treat others the way you would like to be treated, and seek to do good in the world; these are the principles that Narayana Murthy has stood by his entire life. And these are the qualities that make him one of the greatest entrepreneurs of our time. For in the words of Narayana Murthy himself, “the softest pillow is a clear conscience.”