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The Infosys Revolution

Thirty years ago, with a few colleagues, a young engineer based in Bangalore founded a software company that was to become a global giant in the world of computing. Last year, Narayana Murthy relinquished his position as president of Infosys. In an interview to ParisTech Review, he re-examines elements that paved the way to success – elements that cannot be dissociated from transformations in contemporary India.

March 2012
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Thirty years ago, with a few colleagues, a young engineer based in Bangalore founded a software company that was to become a global giant in the world of computing. Last year, Narayana Murthy relinquished his position as president of Infosys. In an interview to ParisTech Review, he re-examines elements that paved the way to success – elements that cannot be dissociated from transformations in contemporary India.

ParisTech Review - Infosys is a world-class reference in the field of offshore IT services. Are there any factors intrinsically Indian in that success?

Narayana Murthy - The story of Infosys is closely linked to the story of India, to its evolution and its reforms, but it was from the outset inscribed in a global perspective. In 1981 when I founded the company with a handful of friends and a few rupees, it was after four major events. The first one, in 1976, was the decoupling of hardware and software in the world of computers, following a decision by American President Gerald Ford. This meant that software companies could now sell software packages installed on machines sold by manufacturers. Up until that time, hardware manufacturers only sold homemade software solely destined to equip their own computers. Secondly, computers at once powerful and inexpensive emerged. Thirdly, software for online transaction processing became available on microcomputers, a development crucial for online business applications. The fourth factor, which was decisive, was purely Indian: a very large number of quality graduate engineers... and no jobs. The conjunction between the explosion of IT services in the U.S. market and the availability of this reservoir of high quality manpower is what led to the emergence and rapid boom of Infosys.

Yet, competitors in India benefited from the same context. What were the strategic choices that allowed you to make a difference?

For us, competition came from India but also from the United States. Our guiding principle, from day one, was that innovation would determine everything. “Total innovation” that is – innovation happening at all levels of our operations. This is what has enabled us to handle the early years and then manage the spectacular takeoff of the 1990s.

The beginning, between 1981 and 1991, was difficult because Indian entrepreneurs had to cope with a really hostile business environment. For a one-day trip abroad, you needed the agreement of the Central Bank, which took two weeks. To import a computer worth $ 100,000, one had to wait three or four years and go to Delhi at least fifty times. Obtaining a new phone line took two or three years. During this decade, our growth remained modest. In 1982, we grossed $ 140,000. In 1991, our turnover stood at $ 1.4 million. A tenfold increase in ten years’ time. But between 1991 and 2011, we went from 1.4 million to 7.4 billion. A five-thousand-fold multiplier in twenty years! Clearly, once Indian regulations gave us clearance to innovate, our company made a quantum leap. We became leaders in innovation and we committed ourselves to always outstrip our Indian and foreign competitors.

How exactly did Indian regulations evolve, after 1991, and how did Infosys benefit from that change?

Gradually, all decisions regarding a company fell within the scope of its board of directors. In the last twenty years, I’ve never had to go to Delhi again to request an administrative permit. And the current account convertibility, introduced in 1994, allowed us to travel as we pleased and to buy companies worth up to $ 15 million without having to ask for permission. This was not the only manifestation of this incredible regulatory metamorphosis. India, for instance, is the place where teledensity is growing fastest in the world: it is in this country that each month the greatest number of mobile telephone lines is added.

India underwent reforms and that helped Infosys to expand. Conversely, what has Infosys done for India?

Somehow, what matters the most is that we enthused millions of young private contractors in India as to their ability to succeed, their ability to serve the global market and its most sophisticated clients.

But our success also contained a message about practices: we were living proof that it was indeed possible to make profits while managing a company legally and ethically, even though the environment was far from optimal in this respect. This is a key element of our corporate identity: when necessary, Infosys has always chosen ethics against growth. In the same vein, we showed that the best business governance practices could be implemented in India as much as anywhere else.

We have thus helped to establish standards and new levels of expectations, in line with the practices of our U.S. customers and of global enterprises. And these practices gradually spread in India. It is a competitiveness factor: an Indian company based in India can now be benchmarked alongside the best global companies.

Along this impact on the business environment, I would like to mention the impact on Indian society itself. What a company does internally can have external impact, on its social environment. For example, we have innovated in team motivation by launching an ambitious stock options plan. What was that all about? For us, the first challenge was to motivate our employees, but our plan also had a side effect – it democratized the creation of value on a scale never before practiced in the country. We gave 35% of company shares to its employees. Thus, out of a market capitalization of $ 30 billion, they now possess about $ 11 billion. Companies like Infosys have contributed to the emergence of a middle class in India. The idea of sharing profits has snowballed, and we did our little part in paving the way.

Most forecasters say that by 2050 the three largest economies in the world will be China and India, followed by the United States. In all logic, in 2050, India should be your second market.

Today, the volume of our business in India is still very low but it is indeed in India that our growth is strongest. As for 2050, everything is possible. But it’s a long way!

Yes: today, the Indian market only translates into 2% of your sales... which seems to suggest Indian companies are not really benefitting from the advanced services you produce.It is clear that the Indian domestic market is still hindered by significant bottlenecks, but since 2010, things have been changing fast. The federal government and the governments of federated states have implemented large-scale computing solutions. Today, the customers of our most important projects are precisely these civil services. In the field of IT infrastructure, the country is therefore embarked on a profound transformation process. This is but the very beginning, but the pace and scale of progress are impressive.

That being said, we are and will remain a global company: Infosys achieves 98% of its turnover outside India. At Infosys, when you pick up a phone, you hear the American dial tone! Thanks to a communication system using the latest generation high-bandwidth technology, we can access computers located anywhere around the world. And our security system is remarkable. So a company like Infosys feels no technological limitation. And maintaining that freedom is a strategic necessity. This means a huge investment effort: each year we spend 6% of our turnover in technological upgrading.

Infosys and other Indian high-tech companies are admired the world over, yet regarding its education system, its university network and its research framework, India is falling behind in all world rankings...

It is true that India performs poorly in primary school and higher education. There is no doubt that China is doing much better. The federal government has recognized the problem and tripled the education budget. It has also set up new science and technology institutes. The country now houses about 1600 engineering colleges. Since 2010, the federal government has launched a massive educational and academic stimulus package. But it will take ten years before any results are visible.

China is fifteen years ahead of you and its political system allows it to act with much greater speed. Do you see a danger in this imbalance?

I believe that India has an asset that China is lacking. From the 50s on, India has been sending engineers to train in the West. Some stayed and we met a number in Silicon Valley, but many of them are gradually returning to support our efforts in the field of science and technology. This is a gigantic potential to be tapped, still largely invisible, but the country’s boom and the presence of global leaders should take things to another level.

What percentage of your revenue is generated from China?

We have two centers in China, in Shanghai and Hangzhou. But we realized it’s even more difficult to serve the Chinese market than to enter the Indian market. China’s contribution to our turnover is probably less than 0.5%. What we are building in China is therefore more a platform for us to deploy to the rest of the world.

Where do you see Infosys and India in 2025?

Just before I founded the company in 1981, I invited my associates to dinner at my home in Mumbai, to discuss the future of Infosys. I asked everyone: in your opinion, what will the best way to measure the success of our company, how will we acknowledge it? The first associate replied, I want us to be the software industry company whose sales are the biggest in the country. Another said: I want us to be India’s most profitable software company. Another wanted Infosys to have the highest market capitalization. All these goals were obviously very tempting and very commendable, but when my turn came, I told them what I set my heart on and it seemed to encompass all the other goals: “I want Infosys to be the most respected company in India. It is a goal that needs to be updated constantly.”

How does respect translate into an income statement?

If one deserves the respect of each of the stakeholders, if one doesn’t overcharge customers, if one is fair to employees, if one is transparent with investors, if one strictly complies with the laws, then a true bond of goodwill is created and so is market goodwill with civil society. All other criteria of success, more material and mechanical in nature, will follow. And so it happened for us. So, in fifteen years, I would like Infosys to be a company where people from all around the world, of different religions and from all walks of life get to join our team. They will join a universe that is both intensely competitive and scrupulously, utterly respectful, a universe called Infosys, that ever creates more value for our customers.

The financial crisis of 2008 came from the excesses of financial products, resulting in part from the ultra-connectivity of whatever services were available to financial institutions. Shouldn’t a company as ethical as Infosys have warned financial circles earlier, or even refuse to provide certain IT innovations?

This is what we did: in the United States, we have helped companies implement the necessary arrangements to comply with Sarbanes-Oxley Act of 2002, which reformed the Public Company Accounting and Investor Protection Act by imposing new accounting rules and financial transparency. It addressed various financial scandals revealed in the country in the early 2000s, such as Enron’s and Worldcom’s. I instructed our platforms in the U.S. and in Europe to ensure that compliance to regulations was carried out better, with more protection for investors and more transparency.

Will the services you provide today still be relevant in fifteen years?

We do not innovate for the sake of innovation, or indiscriminately. We have a very close relationship with our customers. They innovate and we innovate in parallel. Today we are developing new consulting services in “cloud computing”, so that our customers gain market shares, greater flexibility and power.

In a nutshell, what is your recipe for management?

We strive to create an environment that has several characteristics: openness to new ideas, meritocracy, emphasis on speed and innovation, excellence in execution of these novel ideas. Therefore an enthusiastic atmosphere must be installed so that this generation of new ideas gets to happen. So that the stream of innovation is a constant flow.

One day, an employee in charge of the cleaning of eight conference rooms came to me and told me he didn’t understand that “innovation” word. I told him: “Whatever you do, try to do it better, faster and cheaper. That’s innovation. Find a way to clean nine rooms instead of eight, try to reduce the cost of the detergent you use, and clean the place even better than you did yesterday. If you succeed, then you have innovated. Every time you shall find yourself asking these questions and that you shall bring answers, you will be innovating.”

Narayana Murthy
Chairman Emeritus, Infosys