Every downturn is actually a boon for Indian software companies: Infosys founder Narayana Murthy


NEW DELHI: Infosys founder NR Narayana Murthy has said that demand for India IT is on rise and the country must retain its focus on services. In an exclusive interview with ET Now, Murthy said that that he wishes to see new big tech company in India to become much bigger than even Infosys as that is the only way the country can grow.
Here are the excerpts from the interview…
To begin with I wanted to lean on your wisdom because in your experience at Infosys and even before you must have seen these many cycles of high inflation, soft landing, recession, bubble burst etc. How resilient can the demand for Indian IT be in this global context and how soon do you see the global businesses recovering?
This is perhaps somewhat heretic what I am going to say. Whenever there is a downturn in the major markets for Indian software companies, the demand for the Indian software companies goes up. Why? Because in a downturn people are trying to reduce cost, trying to get better value for money and Indian software companies by definition have provided better value for money than most other software services companies. Therefore I think every downturn is actually a boon for Indian software companies except some extraordinary events like 2008 when the banking sector went down very badly and that was a reasonably large sector for large Indian software companies like TCS, Infosys etc. Other than that, but even during that year I still remember, Kris Gopalakrishnan was the CEO, we grew by 25% so that was not bad.
It’s quite disheartening to read the global headlines around layoffs these days and these are the global tech mega giants the likes of Alphabet, Apple, Meta etc that are laying off people. In your own career have you ever faced the demon of layoffs and what would be your advice to businesses who are currently facing the conundrum of ethics versus economics?
Well first of all we must all accept that downturns are part of the business cycle. It’s part of the existence of any corporation. Having said that, when we Infosys faced such a downturn, particularly in 2001 there was internet bust. What we did was the senior management sat down and said that look we have offered appointment letters to some 1500 youngsters. Now it is not the fault of the youngsters but it is our fault because we could foresee or we could forecast that downturn. Therefore it is not fair to punish the youngsters. So what we did was the senior most management took the biggest cut in salary, the next level took slightly lower. Like that we went on and we made sure that every one of the appointment letters we had given was honored and we were the only company to have done that. I am very very proud of that.
As a country we are facing this problem of brain drain at the moment. There are youngsters who are complaining about lack of innovation in the country etc. and that is quite visible in the IT sector as well. The entry packages for the freshers has remained stagnant over the last 10 years while the pay of the CEOs have been rising to an exorbitant amount if I may. What is your take on that?
You know I retired from Infosys in 2014 and I don’t take much interest in the company. I don’t take that much interest in the industry because I read a lot of physics, mathematics, theoretical, computer science etc. So I am probably not the right person to answer that question. All that I would say is we in India have to embrace compassionate capitalism and make capitalism an acceptable paradigm. And that can only happen if we offer as much of comfort to the people about capitalism and we demonstrate that capitalism is all about high growth, higher earnings, better salary for everybody. And the leaders will make whatever sacrifice is needed to ensure that the youngsters are not inconvenienced.
I also wanted to bring out this criticism that Indian IT sector usually faces and that’s the lack of the innovation quotient. In the sense it’s always said whether cloud, artificial intelligence, big data analytics etc. They all are conceived in the Silicon Valley and Indian IT just follows suit. Would you concur with that view?
Well let me tell you my belief. India is a large country. It produces a large number of engineers. And right in 1980, before I founded Infosys, I realized that our charter has to be created large number of jobs for our people. And I also realized that services sector is the one that will continue to flourish for a long time. Whereas products may come, they may go quickly because how many products out of thousands that have come to the market have sustained. On the other hand, look at how TCS has grown, look how Infosys has grown since 2017. I think therefore I said we Indians should focus on services for a very important reason. First of all, no matter what systems a corporation in a developed country has installed, it needs to be modified, it needs to be enhanced to keep pace with changes in technology and changes in business practices. Therefore there is always a revenue stream. Second, even if you have a product that’s very popular, you need to build a layer of customization around this. SAP is a classical example. For every dollar of license revenue, probably there were two dollars of services revenue. So therefore right in 1980, I said we in India should focus much more on services because our charter is to bring happiness to our youngsters. It is not to say I invented some product, okay, I take only a small number of people and then, you know, I don’t care, I’ll make money. That has never been at least our philosophy and I think that has stood the test of time. So and also in the services itself, remember, we came out with the formalization of global delivery model, we came out with 24 hour productivity, produced lots of technology for these two paradigms and then we started creating technology for easy servicing of new paradigms like cloud and AI and others. So while the Indian software industry may not have focused on inventing new ideas, it has been very very successful in creating the technology for servicing the needs of those new technologies. So I’m very very proud of it. I’m very proud of it.
But do you think the Indian IT is now geared up to probably take up innovation as well?
Let’s remember, Infosys’ Finacle is probably the most successful and popular product. But that perhaps contributes about half a billion dollars today. Out of 17 billion dollars of emphasis revenue, half a billion is 3%. So it’s not a big deal. So therefore, by nature, I think the top management in most Indian software services companies, they are focused on services, they are focused on making those services better, more and more of higher quality, better value for money, etc. So therefore, our mindset is one of creating lots of jobs for our youngsters in the country.
If you were 35 years old today and starting up a new business, would you still look at IT services as your business interests? Or would it be something else manufacturing, VC, platform tech, etc?
Well, you know, I did my graduate studies and majoring in computer science. I worked abroad in France, in IT applications in operating systems area, etc. So given that I am so I would continue to look at IT. But I would also look at what is suitable for the country, what will help our country because I am not in it just to say I’ll make some money and then go. That’s not the focus. The focus is how can we add value to the country? How can we bring smile on to the youngsters? So therefore, I would say given that the disposable income in the developed countries are higher, given that in a country like the US, there is a clear acceptance of the role of technology in delivering competitive differentiation. Therefore, I would say that my view would be to focus on developed world, to focus on countries like the US and provide software services.
A lot of people are saying that manufacturing is positioned the way services was 40 years ago and it could perhaps be the sunrise sector for the next 40 years. What’s your take with respect to what’s happening for the policy action and how manufacturing is placed?
I would not claim to know manufacturing in detail. But whatever I hear from youngsters and I interact a lot with youngsters is that there is considerable confidence amongst youngsters that you see electric vehicles coming out. You know, so many companies have started producing electric cars. You know, even high quality cars like Mercedes and others have provided electric vehicles in India. Then you have the electric scooters, electric other vehicles. There is considerable focus on bringing autonomy to vehicles and the manufacturing productivity is improving. And a lot of youngsters feel a lot more comfortable with the manufacturing today than they were 20 years ago. So I think there is a certain confidence in the air. There is a certain positivism in the air. There is a certain can do spirit in the air amongst youngsters. So that’s what I could say because I’m not an expert in that area.
Since we are talking about the next big trend, etc., do you think this energy transition could be the next big trend and have you triedChat GPT by any chance?
Well, my son introduced me to Chat GPT several months ago. And it is a very powerful tool in adding knowledge to people. And I think it will become very, very useful. This whole talk about banning chat GPT in university is not a good idea. Because the test would be how smart are our youngsters in using chat GPT to produce very compelling arguments, very compelling articles, very compelling answers. Therefore, we will move to the next orbit where Chat GPT becomes a part of the students life. But then the teachers will have to modify their stance to differentiate between answer A and answer B in that orbit. Today we are in a lower orbit. So I am a great believer in these technologies. And I think you should embrace it wholeheartedly and India will be a beneficiary.
Do you see any of these new big tech companies, the likes of Zomato, Niacap, ATM, etc, being the next TCS or Insfosys?
I am first an Indian citizen, and then a tech entrepreneur. So therefore, I would want India to make tremendous progress, not just in IT, but in every sector. Now the company that we spoke about, they’re all promising startups, I want them to succeed, I want them to become bigger than Infosys and perhaps TCS. And that will be good for the country, because as long as they can create productive jobs for youngsters, as long as they can create jobs, which have higher disposable income for youngsters, I think it is good for the country. Therefore, I wish these companies my best, I want them to become much bigger than Infosys. That’s the only way the country can grow.
With what’s happening in the capital market, do you think the entrepreneurs these days are looking at IPOs as surrogates to funding and forms of instant gratification versus the deferred gratification that they should really look for?
Well, you know, I wouldn’t blame the young entrepreneurs, I would blame the older people. Because it is the job of the older people, it’s the job of the veterans, it’s the job of seasoned venture capitalists to advise the youngsters that deferred gratification will result in much bigger wealth for those people. That’s exactly what happened in Infosys. In the 80s, there were at least a couple of my colleagues who were somewhat unhappy in 90s rather, that, you know, we had not seen anything, any wealth out of Infosys. But then I advised them, I said, Look, if you make sacrifice in the short and medium term, you will reap the benefit many, many times more than otherwise. So I would not blame the youngsters, I would rather request the veterans in the field, venture capitalists to advise them on this. That’s what I would say.
The last 10 years have been great for Indian startups, right? There was abundant liquidity, the policy action was positive, but now the tide seems to be turning a tad bit with the funding winter setting in, liquidity becoming scarce, etc. Do you see any kind of moderation in Indian startups? And would you believe this would separate the wheat from the chaff per se?
As I said before, this is all part of business cycle. There was a time when we had boom time in venture capital availability. Now that has become much more difficult. This expected. However, if our entrepreneurs focus on creating a differentiated business value proposition, vis-a-vis their competitors, and they are able to communicate well to the VCs, I do think money would become the problem. However, in these difficult times, they have to realize two important things. One, they have to estimate the market very carefully. Unfortunately, there is no well established company in India which can estimate the market opportunity. That’s a big problem in India. Therefore, entrepreneurs tend to do a not so quality estimation and that results in overestimation. They should avoid that overestimation. They should go with a realistic estimation and consequently their expenses should be cut. Ideally, they should focus on becoming positive in terms of cash flows as early as possible. I understand it takes time. However, they should try. If we did all of that, I don’t think there will be any problem.
Just coming back to the point that you were talking about at Infosys itself, how in the 90s there was this lack of gratification per se. But then there were many of these offers made to you at that time when people were willing to buy you out for millions of dollars. At that time, how difficult was the decision for you and in your own decision making, what role does gut play versus logic?
I used to get a very good salary when I was heading the software group at PCS. I didn’t do this for money. I took one tenth of the salary when Infosys was founded while I gave 20% more to all my younger co-founders. So money was never a part of our calculations and I’m very, very grateful to my wife for that way of living our life. So I was not very much after in cashing little money. I wanted to create a company that would be highly respected, that would be known throughout India, that would be known at least in the developed world as a company that has demonstrated good governance and all of that. So I could convince my younger colleagues that they should demonstrate their commitment to different gratification by not wanting to accept this offer. And they were all very, very good people, very, very understanding youngsters and they all accepted. That’s how we went forward.
What made you then go for the IPO at that point? What was that decision making marker?
Well, you know, there were a lot of youngsters to whom we had given the initial in the initial round of stock option plan. Later on, we did a bigger one in 1994. And number two, we felt that the true worth of a company is what is determined by the market, the true value of the company is what is determined by the market. We just wanted to conduct an experiment where we would know whether our assumptions of Infosys would be agreed to by the outside investors or not. And that really was the initial thinking.
Well, you did mention that you wanted to understand how the market is valuing the company. And right now it’s about how the entire world is valuing India because the entire Adani issue has actually been played out and it’s getting a lot of attention of global media as well as investors alike. Do you see this impacting the credibility of India and Indian corporate governance in any way?
This is not an area where I have spent any time studying. So I would not be the right person to answer such questions. I think so I would rather. Sure, absolutely point taken. But let me talk about Infosys then. Do Nandan and Salil still reach out to you for critical decision making, your expertise? No, no, no. They don’t talk to me about any decision. And that’s fine with me as long as they’re doing well, as long as there are no governance deficits created as it happened between 2014 and 2017. And if there is anything that comes fundamentally against compassionate capitalism, they know that I would not keep quiet. They have done a very good job and I’m very grateful to them. But there is no decision on which they have consulted me so far since 2017 and I don’t expect them to. But since you are one of the largest shareholders of Infosys, are you happy as a shareholder purely in that capacity with the way companies performing? Oh, absolutely, because since 2017, Salil has done a good job. You know, they have been distributing pretty good dividends, one of the best in the industry. And all that I look at is when I receive my due. That’s all how I am in some way I’m connected with Infosys. But I think on that count, they have done a good job. They have done some buybacks. They have been growing the revenue pretty well. And yes, I think the operating margin is not the same as it used to be during my time. I understand.
Infosys just completed 40 years and there was an interesting comment that you made there that initially your thought process was to keep the kids out of the business, but perhaps that’s not the best course of action. Should we believe that going forward, your kids will play a larger role and participate more in the company?
After that initial thought, I had discussion with lots of thinkers in the US and a few in India, many in the UK, many in France, Germany, Singapore. And they all felt that whatever principle I adopt, that should not come in the way of legitimate opportunity for any youngster. Forget about sons, daughters, nephews. That’s not the issue. No individual should be prevented from the legitimate opportunity that is available to him or her as a citizen of this country. They said what I was thinking was wrong. What is important is that they should come through the same channel as the rest of the people. They should demonstrate their worthiness through whatever tests and qualifying examinations and interviews you do. And they should move up the corporate ladder in the same way as anybody else. And you cannot do reverse discrimination. And therefore, I was educated by many corporate leaders, many leaders in the area of leadership, by, you know, in the US and in the developed world and in Singapore. And therefore, I had to revise. Because whenever I hear from people who provide thoughts better than my own, then I salute them, I accept them.
Talking about your kids a bit more, you pointed out that growing, when they were growing up, Infosys was your first priority and family came second. Do you regret any of that? Would you change anything at all?
Well, I regret it because there were, you know, most of the time I was traveling abroad, I was meeting prospects and clients at home. I used to leave at 6 a.m. and I used to return by 9. But within that, whenever I was in the country, I would take, you know, my wife and I would take our children to have dinner with them and get them toys or whatever it is. And we kept them to the extent possible as happy. And my wife did a brilliant job of tutoring them at home. And both of them did a, one did a PhD in Harvard, another did MBA from Stanford. You can’t expect more than that. They did pretty well. More importantly, both of them have turned out to be value-based individuals. And so to that extent, I don’t regret. I don’t regret because of the extraordinary role that my wife played.
I saw some pictures of you holidaying with your daughter as well as your grandkids in Goa. But what was conspicuous was your missing son-in-law (UK PM Rishi Sunak). Is the responsibility at 10 Downing Street keeping him very busy and not able to visit you?
You know, I, as a foreigner, I don’t want to comment on any issue of a foreign country. So therefore, I would like to abstain from making any comments. Sure. But I was just intrigued and curious.
What are the books that you are reading at this point of time? What’s the classic that you would probably recommend to all the youngsters?
I read more of physics, mathematics and computer science. I don’t read management books. I don’t read history. I don’t read any of those. One of the interesting books that I am reading is the best writing in mathematics that’s produced in the US every year. I’m reading the 2020 version. Then I am reading a book on puzzles by Martin Gardner. I mean, I do, I try to solve some. I take a long time and then, you know, I look at the answer if I’m not able to do that. And I’m also reading a book on economics in one lesson. Those may not be interesting to most people because they bring me happiness and that’s what I do.
And what brought you happiness was also Mrs. Murthy, right? With Women’s Day just right being around the corner, anything that you want to say to her or anything for women as a whole. Do you think they are doing enough with respect to narrowing the gender gap in the country?
Well, obviously, we have not done as much as some other developed countries. So we have our task cut out. We need to enroll more women in higher education. We need to enroll a larger number of women in technology and engineering. Though I must say Infosys has done a reasonably good job. I think the year I left 2014, it was almost 50% per women among engineers. But I think there is a lot of work to do because Infosys is more like an Oasis. So that’s not the way to measure India’s progress. So overall, I think we have our work cut out.
Somebody who’s starting out at this point of time, what would you tell them how they should hone their career?
Well, I think we live in extraordinary times for the country. The country is respected outside. Unlike in 1980, 1970s, when India was known as a country of filth and poverty. That’s all what the West focused on when it came to India. But today, there is a certain level of respect for India’s achievements. There is a certain level of respect thanks to the NRIs who have done extremely well in the developed world. Thanks to the entrepreneurs who have done very well in India. Thanks to some of the wonderful surgeons here. In other words, India has been recognized as being able to contribute well. So this is the time for our youngsters to work very hard, be disciplined and take India to the next orbit. And I have no doubt at all that the path is much easier today than what it was in 1980. And we the elders will always cheer them from the sidelines as they run this marathon. And I have no doubt they will do that.
Source: ET Now


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