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Past Issue • Apr-Jun 2016

Be a Capitalist with a Simple Heart

Be a Capitalist with a Simple Heart

Earlier this year the Indian School of Business (ISB) conferred the Honorary Distinguished Fellowship on N R Narayana Murthy, Founder, Infosys and Catamaran Ventures, making him the first recipient of the Fellowship. The ISB Honorary Distinguished Fellowship is designed to honour personalities of national and international eminence, who have contributed to the society through their thought leadership and success, are respected by the industry and the academia alike, and have inspired generations of people to achieve excellence in their respective fields of activity.

Professor Rajendra Srivastava, Dean ISB and Novartis Professor of Marketing Strategy and Innovation engaged Mr Murthy in a freewheeling conversation covering the guiding principles at Infosys, the latter’s personal values, his transformation from a confused leftist to a determined compassionate capitalist, Infosys’ listing on NASDAQ, his learnings from the 2008 recession and more. Excerpts from the conversation:

Dean Rajendra Srivastava: To get started, Mr Murthy, you are the father of India’s information technology industry, an entrepreneur, an engineer, a wealth creating engine, a left-leaning secular principled compassionate capitalist, an author and an educator, a family man, a community leader, a straight shooter, a business leader and an inspiration to all of us. How would you like to define yourself?

N R Narayana Murthy: I have often been asked this question, how would you like to be remembered? How do you define yourself? I tell them that I don’t want to be known as a good person because in India a good person is one who keeps his or her eyes shut even when he or she sees something wrong and doesn’t say anything. However, I want to be remembered as a fair person who follows the golden rule, which is do unto others what you want them to do unto you. I am very open in giving honest feedback to people.

What you just said relates to the principles that are followed at Infosys which were generated by you and your colleagues who started the company. Some of the guiding principles at Infosys are – the softest pillow is a clear conscience, you can disagree with me as long as you are not disagreeable, praise in public and criticise in private, in God we trust everybody else bring data to the table, under-promise and over-deliver, it is best to deliver bad news to the stakeholders proactively and at the earliest and when in doubt disclose, a plausible impossibility is better than a convincing possibility. Could you comment on the last one; a plausible impossibility is better than a convincing possibility? What would it mean to our students?

Well, at this point in time in the history of our country where we have huge challenges in primary education, in healthcare, and in nutrition we have to take up initiatives whose success looks impossible. I think in some way the prime minister has done that. Swachh Bharat is one such initiative. It is plausible because we all want to be clean. It appears almost impossible because in a short period of time the prime minister wants to erase the habit of most Indians of dirtying the places around them. So, therefore, the challenge for all of us accepting Swachh Bharat appears impossible but it is plausible because it is aspirational. So, therefore, to strive to do something that is plausible but appears impossible but requires a lot of hard work, sacrifice, a lot of effort, a lot of daring, is so much better in the end than the alternative which seems convincingly possible.

I want to be remembered as a fair person who follows the golden rule, which is do unto others what you want them to do unto you. I am very open in giving honest feedback to people.

Thank you. What you just said is really what we Indians need in terms of respect, globally. Swachh Bharat is just one of them. Mr Murthy, when all the founder members were deliberating the Infosys dream in your 10X10 room you chose respect as your founding philosophy (when I say you I mean the team) rather than revenues, market cap etc. Can you tell us why you felt this proposition was a true differentiator?

It was in May 1981 that we met in my small apartment in Bandra West in Mumbai to decide the vision for the company, the objectives for the company. One fellow said we must be the software company with the highest revenue. Somebody else said we must be the software company which must be the most profitable. But when it was my turn I said why don’t we say we must be the most respected company, not just a software company but the most respected company? The rationale was very simple. If you seek respect from customers you will exceed their expectations, you will provide high quality software, you will not shortchange them and you will deliver whatever you said on time. And that builds a sense of respect, a sense of admiration for you. Automatically they will come back as repeat customers and you go to them and say we are filing this RFP, can we include this appreciation from you, they will have no problems. If you seek respect from your fellow employees you will treat them with dignity, you will be fair to them, you will be transparent with them, you will be honest with them, you will conduct yourself in a way that they will respect you. And that means that they will become your ambassadors to get more and more good employees. And they will be happy and if they are happy they will be more productive etc. If you seek respect from investors you will follow the finest principles of corporate governance, you will be transparent, you will bring bad news to them early and proactively, you will not learn the distinction between corporate resources and personal resources, you will not have any related party transactions etc. So, therefore, a lot of good investors will come to you. If you seek respect from your vendor partners, if you are fair with them, if you don’t negotiate with them beyond reasonableness, if you accept their desire for profitability as much as your desire for profitability, then in your bad times, then they will be with us, they will help us. If you seek respect from the government of the land then it is very easy to pick up the phone and call any minister, call any secretary in India. Similarly, politicians will also not mind listening to you, not mind doing what is in the good, in the interest of the industry. Finally, if you seek respect from society, if you make a small difference to society, to the poorer sections of the society then society recognises you and repays it because society contributes customers, society contributes employees, society contributes investors, society elects politicians and society contributes bureaucrats. Therefore, respect is the most important instrument that you youngsters should seek, because then revenues will come, profits will come, market cap will come, investors will come, good employees will come, good customers will come, the government will make it easy for you to operate etc.

To strive to do something that is plausible but appears impossible but requires a lot of hard work, sacrifice, a lot of effort, a lot of daring, is so much better in the end than the alternative which seems convincingly possible.

Last night you told a story. And stories stay in your heart just as this one will. The story was about how you evolved from being a leftist into a compassionate capitalist. Could you please help us understand the nuances of what compassionate capitalism is and how it should be practiced.

Compassionate capitalism is about living in harmony, living in stability, living in peace, living in fairness with the society. It is about the rich and the powerful exercising self-restraint in allocating to themselves power and riches. There is no force more powerful than self-restraint in bringing stability to any society. The poor don’t have to worry about it, the weak don’t have to worry much about it because anyway the rich and the powerful will keep them in their place, will make sure that there are checks and balances. But who is there to control the rich and the powerful? Therefore, self-restraint is the only thing. Compassionate capitalism is about treating every employee with respect and dignity. It is about protecting the self-esteem of every one of your employees. Right in the beginning I said I am a fair person, I am not a good person in the sense that if somebody does something wrong I will definitely sit down with that person and give him feedback and tell him that the next time he did this the consequences will be serious. But you have to do it in a way that their self-esteem is not eroded. Compassionate capitalism is also about good corporate governance, it is about transparency, it is about accountability, it is about fairness. So if we keep some of these things in mind and conduct ourselves according to those rules I believe that we as corporate leaders will be doing the right thing. I also want every one of you youngsters to remember that India is still at a very nascent stage in embracing capitalism. Therefore, every one of you has to be an evangelist for capitalism. And if you want to be an evangelist for capitalism you have to lead as simple a life as possible. You cannot profligate, you cannot demonstrate in a vulgar manner your wealth.

I first met you seven-and-a-half years ago in Singapore when you were on the board of trustees of SMU. You made a comment that has stayed with me. It was that if you want to lead, and if you look behind and notice that there is nobody following you, you are just going for a walk. I think in the first segment of our interaction today you spoke much about the qualities of leadership and societal leadership. The next few questions I am going to devote to are questions on leadership at Infosys and what it means in the business communities, some things that we should do and some things that had a great impact on the evolution of Infosys and subsequently the Indian IT industry. The question is the listing of Infosys in 1999 on the NASDAQ was a giant leap for the Indian IT industry in general and Infosys in particular. Tell us strategically how important the decision was to Infosys.

Respect is the most important instrument that you youngsters should seek, because then revenues will come, profits will come, market cap will come, investors will come, good employees will come, good customers will come, the government will make it easy for you to operate etc.

On the day of start of trading the entire group had flown in from San Francisco. We reached New York around 6:30 in the morning and 8 O’clock was when we had to be at NASDAQ market place and I was made to sit on a high stool. They turned on all these powerful lights and then I had to say something. I borrowed the words of Neil Armstrong and I said “It is a small step for NASDAQ but a giant leap for Infosys and the Indian software industry”. It was a giant leap for Infosys for several reasons. Firstly, we realised that the only way that we can enhance the confidence of CFOs in their agreeing to Infosys being given large mission critical projects is if they can see our symbol on the ticker tape. That tells them that we are listed in the U.S., we are held accountable by SEC, and, therefore, we are a growing concern and that they can depend on us. Second, we had to create a currency for our out-of-India base employees in our desire to democratise wealth. The third reason why we got listed on NASDAQ was simply because we wanted to enhance the credibility of Infosys in the eyes of prospective employees out there. Once again the logic was very simple. If your symbol is on the ticker tape and if analysts are covering you and if you get interviewed by CNBC or many of those TV channels then your visibility becomes higher and, therefore, hopefully many good employees in your market places will join you.

Respect, credibility, sharing, which we were talking about earlier, are all reflected in the NASDAQ listing. So, as a leader, and as an individual, how difficult was it to pass through the challenges of the 2008 recession. I want you to talk more about the opportunities than the challenges.

In 2008 when the financial markets went into a tizzy we realised that it would be an opportunity for Indian companies to demonstrate their value to the market. That is the time we realised when we had to build up our character, we had to demonstrate our business value addition, business value leverage that we can give to our customers. That is when we had to tighten our belts and that is when we had to learn to control our expenses. During the year 2010-2011 Infosys grew by 25% of revenue. So the point that I am making is that even though 2008 was a tough year from the perspective of the financial markets in the U.S., even though most of us experienced a dip in growth during that year because people stopped all projects they just did not want to spend any money, because they were confused they did not know where they were going. But pretty quickly our sales people beat the payment, they explained to customers how we are the ones that they could depend upon in those tough times, how we will give them better value for money, how we will help them control their costs, how they will get better bang for the buck and then we took off.

I understand that in 1995 Infosys had to deal with a key customer who had a reputation for holding tough aggressive negotiations by getting the best out of each of their vendors and then pitting them against each other. Despite the Infosys team arguing on why a fair price was in the customer’s interest, such as offering arguments like investment and good people, R&D, practices, the customer offered two stark choices; either accept the terms without question or end the contract. There were two constraints that were ahead for Infosys. The customer contributed about 25% of the revenues, and at that time the revenues were limited. Mr Murthy, you took a decision to end the contract. Can you comment on three things; how you and when your team reached that decision, what did you learn from the episode, and what changes did Infosys make in managing business performance and balancing profitability growth investments down the line?

In 2008 when the financial markets went into a tizzy we realised that it would be an opportunity for Indian companies to demonstrate their value to the market. That is the time we realised when we had to build up our character, we had to demonstrate our business value addition, business value leverage that we can give to our customers

This indeed was the toughest decision that I took. At that point of time we had been listed on the Indian stock exchange for less than two years and this Fortune ten company contributed 25% of our top line and they contributed only 8% to our bottom line. I have always been a great fan of bottom line margins more than the top line. When 10 or 12 senior vice presidents of this company came and said take it or leave it all my colleagues looked at me. So, I was very respectful and I said if we accept what you are asking first of all we will not be able to provide you the quality of service that you would expect from us. We will shortchange it. I said that according to my value system that is not a good thing, that is not a fair thing. Today you may accept it because you know that you have negotiated us down. But tomorrow you may not be in the organisation. Somebody else may come and say what kind of fellows are these that are delivering less than acceptable quality of stuff and, therefore, let us get rid of them. Second, if we accept those kinds of rates with you fairness demands that we accept it from other customers. There is nothing that prevents other customers from coming back to us and asking us to bring down the rates. That simply is not a good strategy. Then I said you please tell us to whom you want to transfer our business and we will take full responsibility to transfer the entire business to the vendor that you choose in such a way that you will not be inconvenienced. Frankly, they were shocked. They never expected anybody who was a very small company at that time, hardly $10 million, that such a silly company would stand up and say this to a $40 billion company. But we did that. That evening when I was returning the head of sales was very upset because this was his first major contract. He said you don’t seem to be bothered about the company, you seem so cool, you are not showing any sense of anxiety at all. I said young man, one fundamental principle that you have to remember not just in Infosys but even outside and particularly in your home. You are the father of the house. When there is a crisis at home, when one child is sick, as the father of the house or the mother of the house you cannot get into a state of panic. You have to give confidence to everybody, you have to do the right thing. Therefore, this is not the time to panic. However you will have to act pretty quickly so that you don’t get into this kind of a situation. I said why do you think I am going to the office, it is 6:30 now, why do you think I am going? I am going because I have asked the Marketing Manager and the Planning Manager to stay back, I am going to start a risk mitigation council and we will develop a risk mitigation tool starting this evening. Then what we did was we reached the office and we started a risk mitigation council. We identified a set of 129 parameters of risk in all dimensions: customers, employees, finance, infrastructure, technology, everything. We took about a week or ten days and then we came to the conclusion that we will not depend on one customer, we will not depend upon one employee etc. And that is the time we put a limit of 10% of revenue coming from an employee. In fact, most of the time until 2011 the largest customer contribution was only 6%.

ABOUT THE AUTHORS

  • Guest-Editor

    Rajendra Srivastava

    Dean and Novartis Professor of Marketing Strategy and Innovation at the Indian School of Business (ISB). His research interests include Marketing Strategy, Marketing Metrics, and Brand/ Customer Management. His current work focuses on Business Model Innovations, especially in Services, B2B, Technology and Emerging Markets.
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