Will take call on Infosys 3.0 after study: Narayana Murthy

Infosys' incoming executive chairman and founder Narayana Murthy was non-committal on the future of the company’s 3.0 strategy devised two years back, and one which has drawn flak from shareholders. In an interview to CNBC-TV18, he said it was too early to comment on whether or not the strategy was effective.

"I don't think anybody should look at any strategy as having failed or succeeded. I think what is important is how open we are to improve upon what we have been doing," he told CNBC-TV18.
At the press conference earlier in the day, Murthy said there was no dispute against the strategy in principle. But he added that it would be reviewed if required, after a thorough study.
Murthy parried questions on whether his being recalled in an executive role was a reflection on the currently leader at Infosys.
"I have known the current CEO (Shibulal) over 32 years, I admire him, I admire his discipline, I admire his commitment, I admire his intelligence," he said.
"All that I am saying is that we have to work as a team, add value to the mission of the company and that is what I am focused on. Anything else if you want please ask Mr. KV Kamath who is the chairman because I would be taking over effective next Thursday," he said.
Shibulal, who also was part of the same interview, said the 3.0 strategy has shown some positive results, and that it would deliver over the longer run.
When asked if he would continue as MD and CEO till 2015, Shibulal said it was for the board to decide.
Edited excerpts from the interview: You have been brought back in a sense to add value to S. D. Shibulal as the managing director and CEO of the company but I want to go back to the point that Mr. Kamath made, he said, "shareholders large and small asked for strengthening of the executive leadership during this challenging time." Where there concerns raised by institutional shareholders about the current executive leadership of Infosys, has that lead to your recall in a sense?
Murthy: So as I pointed out earlier let us remember that ever since I gave up my CEO position in 2002, for nine years till 2011 I added value to successive CEOs in my own small way. Therefore as we move forward I would add whatever value is expected of me in order to help Mr. Shibulal achieve his mission, that is all. I want to labour on this point because as you yourself pointed out that over the last seven years or nine years you haven't played an executive role in the company, you have been forced now if I can use that word ‘to come back’ to play an executive role. So obviously things have changed dramatically for the company over the last seven-nine years, the company has been forced to call you back, was there pressure from institutional shareholders, from other shareholders and questions raised about the capability and the competence of the current leadership at Infosys that forced these decisions.
Murthy: I have known the current CEO over 32 years, I admire him, I admire his discipline, I admire his commitment, I admire his intelligence. Therefore all that I am saying is that we have to work as a team, add value to the mission of the company and that is what I am focused on. Anything else if you want please ask Mr. KV Kamath who is the chairman because I would be taking over effective next Thursday if I am not wrong. I will ask that question to Kamath but let me go back to the conversations that you had with Kamath and you said that he came to you with the proposal on the May 04, When Kamath came to you asking you to come back as the executive chairman of Infosys there must have been issues that he raised with you as to why the company felt the need for you to be back and while value adding is one part of the story they must have been forced to come back to you after a gap of seven to nine years where you did not play an executive role in the company to seek you to come back. What was it that KV Kamath told you on May 04? Clearly the picture must have been fairly dire for the need to get you back?
Murthy: First of all I think it is only fair that I don't discuss the details of the conversation between him and me which was really a private conversation. Second he will be the best person to comment on why he felt the executive position is a good idea. You said that it is too premature - you have been out of the company from any executive role for several years and it is too premature to talk about any strategic shifts but may I ask you - do you believe the Infosys 3.0 strategy that was rolled out, there is a need to review that strategy, there is a need to re-look at that strategy because while people admit that it may work for Infosys in the future, in the short-term there are question marks on the viability of the 3.0 strategy? Do you acknowledge and admit that Infosys 3.0 has not delivered as it ought to have?
Murthy: You are a very bright person. I am sure you have read the June Business Harvard review which is all about sustainable strategy and there is an article by a professor by name Rita McGrath, she has written an article on transient strategy. So, what she says, in these turbulent times, in these complex environments people should be ready to revise the strategy as often as is necessary. Therefore, I don’t think anybody should look at any strategy as having failed or succeeded. I think what is important is how open we are to improve upon what we have been doing. How open we are to bring new innovations. After all, if we are all votaries of innovations- what it means is we are ready to accept change. The day we say no that is failed what we are saying is that we don’t want innovation, please. Do you then acknowledge that there is a need to change the Infosys 3.0 strategy?
Murthy: First of all I have not made any detailed study of that therefore it is not proper on my part, it is not humble on my part to pass a judgement. However if after studying it if we as a team come to the conclusion that it needs to be changed of course it will be changed. However as I pointed out in my answer to your question earlier, there are aspects of this strategy which have worked eminently well. If you look at the transformational or consulting led projects, this company has the highest percentage coming from that. If you look at platforms, products and solutions that is the way to go, nobody will argue. So there are aspects of strategy which have worked and there are things which have to improve. Of course I have to improve so much even though I am entering my 68th year. If I say I don't have to change because I have learnt wonderful things in my 68 years, I think I will be a fool. I don’t think it would be unfair of me to ask you to comment on this change but the fact of the matter is and that is how it will be read that there are question marks about the current executive leadership of Infosys and hence this decision has been taken by the board. The board has said it has a fiduciary responsibility to shareholders. If I can ask you, if any shareholders, large institutional shareholders raised concerns about the executive leadership at Infosys.
Shibulal: I think that’s a question which is best answered by Mr KV Kamath. On all parameters whether it is on the margins front, whether it is on employee attrition, whether it is on client wins, whether it is on the aggressiveness as far as Infosys’ acquisitive aspirations are concerned. The sense in the market and the sense from people who track this company very closely is that Infosys has failed to break through its comfort zone. Infosys has not been able to execute in the market place, Infosys had trouble as far as its tier two management is concerned. Do you today accept what the street has been saying over the last several quarters? It has been eight extremely difficult quarters for you.
Shibulal: If you look at the last few quarters, there have been many positives and many challenges. As Mr Murthy said - we as an organisation have the highest revenue share in the consulting and systematic relation space. We have built that over the last many years. It delivers higher margins and higher revenue productivity per person. In the last six quarters we launched the products and platform space. We have booked approximately USD 700 million of revenue in total contract value. At the same time it gives a small percentage of that as per year revenue. That is very much in line with the nature of the business. That is very much inline with the nature of the business. The third part of the business which is the business and IT operations, in the last half, in the second half of last year, we have won about a USD 1 billion. If you look at Infosys 3.0, it is about two things. Number one, it is about client relevance, number two, it is about creating balanced growth which means all three engines of growth have to grow continuously. If you look at the last two years, you can see that the business in IT operation side of the business has grown below our own average. So if you look at the last one year, that’s a correction which we need to make to make sure that as per the strategic direction, we grow all aspects of our business at the same level or above our average. So we are making those adjustments. In terms of strategic changes while we understand that it may deliver dividends for you in the long-term, but Infosys 3.0 and the strategy that you have embarked on in the short-term is clearly not something that the street is willing to be patient with. In the short-term in terms of your sales force, in terms of the way that you go after clients, the kind of clients that you go after, this need to go after discretionary spending, the focus on product, platform and solutions, what can you give me in terms of specifics that we will see Infosys change in order for you to move beyond and closer to the industry average?
Shibulal: As I said if I look at the last 12-18 months, maybe even a period of two to three years our growth has come from consulting and system integration. Recently it has started coming from products and platform on a lower base, but when you look at the Business IT Services (BITS) business which consists of application development, application maintenance, infrastructure management, independent validation, it has grown below our own company's average which means that is an area of improvement which we need to focus. We have started that focus in the last half of last year and the results are very encouraging. In the last half of last year we have won about USD 1 billion of business in that space. Please remember, when you win USD 1 billion of business in that space normally you get about 8 percent of that in the first year, about 15-20 percent of that in the second year. That means it takes couple of quarters for it to ramp-up, number one. Number two, USD 1 billion is not enough, because on a revenue base of USD 7 billion if you have to make a material change you have to win multi-billion dollars and that is one focus we have brought in the last half. We will continue to strengthen it. As per Infosys's current policy you are to step down in 2015. With a change that has been made today, with Mr. Murthy coming back it there likely to be a change as far as the Infosys's retirement policy is concerned and what now happens to succession planning and what happens to your role beyond 2015?
Shibulal: There is no change in that policy. You will stay on as Managing Director and CEO till 2015?
Shibulal: That is at the board's discretion. Are there likely to be any other changes that will be brought in in terms of other management positions, the CEO's position which continues to be unoccupied at this point in time? Any other changes, not even at the executive leadership, but even as far as the middle management is concerned?
Shibulal: We are a very large corporation. Leadership development is a big part of our process. That requires people to take on multiple roles and responsibilities. People to take on different kind of responsibilities. You have seen that as part of that we have made changes in the past in normal course of business that will continue. We have seen Rohan Murthy come into the company. This is the first time that the founder members have allowed their families to be part of the company. I understand Mr. Murthy said that Rohan will be his Executive Assistant and his term is coterminous with Mr. Murthy's. Is this now an opportunity for other founder members to perhaps open the door for other children to make their way into the company?
Shibulal: I will completely stick with what Mr. Murthy said on that matter.