N.R.N. Murthy: Margins Better Than Revenues

One of India’s finest leaders, N.R. Narayana Murthy reminisces about setting up Infosys and the bold decisions that helped the software giant succeed

Published: Oct 31, 2011
N.R.N. Murthy: Margins Better Than Revenues
Image: Mallikarjun Katkol for Forbes India

Name: N.R. Narayana Murthy
Profile: Chairman Emeritus, Infosys Technologies
Age: 65
Why He Won For extraordinary leadership skills that have had a profound impact in building an enduring enterprise with a beneficial impact on the wider community. He has also pushed India Inc. to improve standards and helped raise its profile in the international arena.

One of the most important lessons I have learnt is that you need character and chance for the success of any initiative. In the beginning you have to make a lot of sacrifices — being away from family, you have very little resources. For example, we have stayed in extremely inexpensive hotels, we travelled in India by train from Bombay to Delhi when we were trying to get our licences.

When you are very small, everyone around you will say that you won’t succeed. I remember I once went with a friend of mine to his friend’s house for dinner in Delhi. We had just started in 1981 and this person, who was ex-IBM, was so insulting, and so dismissive of me and the whole concept of Infosys. So you have to accept lots of discouragement, lots of scepticism. To do all of that you need character, but you have to retain hope. In the 1980s it took us one year to get a telephone connection, three years for a licence to import a computer, 15 days to get permission to travel abroad for a day. It required tremendous strength of character.

Second, you need chance. As somebody said, “When god is shy to announce his presence he comes in the form of chance.” I have seen a lot of my friends who were smarter than us as a team, who had better resources, who could have succeeded a lot better, but they didn’t. There were about 13 teams, which formed companies like Infosys between 1979 and 1982, and I had documented it and they just didn’t make it. I have no other explanation than the fact that we were lucky; god was very kind to us.

When you are building the company and go from one orbit to another, that sense of achievement generally induces a lot of confidence and, in most people, a sense of arrogance leading to hubris. Therefore, it is very important for us to remember, that you have worked hard, maybe you are a little bit smart, but a lot of it happened because you were lucky. At least that’s what I have told myself, my colleagues and my children.

On Leadership
The second thing I learnt in this extraordinary journey of 32 years is that courage is the first attribute of a leader. If a leader does not have courage then it is unlikely that any other attribute of that leader will find utterance.

A leader for whom I have the highest respect in the world is Mahatma Gandhi. His greatest strength was leadership by example. For example, when I founded the company, I was generous to all my younger colleagues. Kris [Gopalakrishnan], [K.] Dinesh, Nandan [Nilekani] were less experienced than me, they had only one, one-and-a-half years of work experience. I was about 10 steps ahead of them when we founded Infosys. I was number two in Patni Computer Systems (PCS) and these were all software engineers. I gave them huge amounts of equity. I took a very small percentage of my salary, one-tenth of what I used to get, but I made sure that all of them got 20 percent more, so I brought down the difference between them and me to almost nothing. Third, my wife was as qualified, if not more — except for Kris who was a Master’s in Computer Science — than any of the others, she was definitely more qualified than me, but I said if we want to create a company that is truly professional then family relationships are not going to be a part of it. So she made a sacrifice.

I did it because I wanted to create the first company from India that was of the professionals, for the professionals and by the professionals. In fact, the byline of Infosys for the first 12 years was “The Professionals Company”.

The Turning Point
If there was one example of success of the reforms ushered by Manmohan Singh as finance minister it was Infosys. When licences were abolished and current account convertibility was introduced, 100 percent equity was allowed to MNCs in technology to come and operate in India, I realised that from now onwards the decisions of the corporate will have to be taken in the boardroom rather than waiting in the office of the government. In 1992, we started our own office in the US. That was the turning point.

Building Brand Infosys
I realised pretty early in 1992, that if you want to build a brand without spending money then we have to do unusual things, get written about and get covered by the TV. In 1992, we had requested Ravi Chander, Hema’s [ex-HR head of Infosys] husband to do an unaided mind recall of Infosys among the students at IIT and IIM. It was very sad — zero percent of students named Infosys as the company they would join. Ravi was very apologetic when they made the presentation. I said our work is cut out and our charter is to become the Number One company in the next five years.

Interestingly, we did it in just four years. In 1996, surveys said we were Number One with 18 percent of students saying they wanted to join Infosys.

Next was an MNC with 11 percent. We did many things in that period. We did the employee stock option plan in 1994, we got the ISO 9001 and CMM Level 4 certification, got listed in India, became the first ones to publish quarterly reports, and went in for a Nasdaq listing in 1999. People got curious and they wanted to spend some time studying it.

Taking Risks
I took a big gamble in building India’s first software campus in 1994. At that time our revenue was Rs. 13 crore and we had just gone public and I said we will build a campus of Rs. 19 crore. Almost all my colleagues said this man is crazy. Including my friend Mohandas Pai who had not yet joined and he was observing us from outside as an investor. But I knew that if I have to retain my people in competition with multinationals, who were all coming back to India thanks to liberalisation, I had to create a hospitable infrastructure. It was a courageous decision.

On Creating Wealth
Profit is an extraordinary attribute of a corporation. In one figure it sums up the entire story of the corporation as long as you are seeking that profit legally and ethically. I am extremely focussed on the bottom line. As long as I was in the company I didn’t allow the margins to be diluted. I would rather sacrifice the topline growth but never the margins. Therefore, every entrepreneur must focus on profitability and the consequence of that is your growth in EPS. When you focus on that you are focussing on a higher P-E ratio and by doing that you are focussing on the growth in the market cap and you are focussing on the personal wealth.

Life Without Infosys
The Infosys journey was wonderful, exciting, it was almost like we were all on some drugs.

If Infosys hadn’t taken off, it would have been difficult for me to find another job. I was already Number Two in PCS and there were only four-five other companies at that time — most probably I would have gone to teaching.

Now there is no next thing for me. I worked hard and I have retired at 65. It’s all for my son to do something now. I deserve a break now. I don’t think I have the mental energy to do something else. If Rohan does something and wants secondary help from me, I am willing to do that.

(As told to Mitu Jayashankar)

‘He Talked About Value Systems, Not Studying Hard’

Rohan narayana Murty, son of N.R. Narayana Murthy

Every child thinks the world of his parents, and it’s no different in my case. So, you would have to discount that in whatever I say about my father. What I admire most in my father is his willingness to take a stand for what he believes in. He stands by his principles even if they are going to cost him a lot. My earliest memory of that is when the IIM controversy erupted.

[In 2004, Murli Manohar Joshi, the then HRD minister, passed a regulation demanding a cut in fees at IIMs from Rs. 150,000 per annum to Rs. 30,000 per annum. IIM-A under chairman N.R.N. Murthy contested that decision in the Supreme Court.]

My father is not an alumnus of IIM-A and is not a direct or indirect beneficiary. I was then an undergrad student. My father opposed the decision to suddenly slash the fees. He thought that it would have an adverse effect on the institute. Every week he would travel and talk to the ministry and show them the data on how this decision was so wrong. He argued that no deserving student was missing out on IIM because they couldn’t afford it; there were scholarship schemes to take care of it.

All the other five IIMs were forced to sign up, the only one that stood against it was IIM-A. My father dug his heels in, and the only person who supported him was Vindi Banga [then global head of the Foods division of Unilever]. There was no other support from corporate India. In private, they agreed with what he was doing, but in public were not willing to go against the ministry. I remember I was only 19 at that time and had come home for semester break. There was lot of pressure on my father and the entire family was tense. He suffers from high BP and we were very concerned for him. He was so upset, he took the whole thing so personally.

If my father takes a stand on something, he will not shift from it. I remember when we were very young and there was no Internet at home. I was a geek from a very young age and would die to work on the computer. We were not allowed at the Infosys office and my father’s computer had an Internet connection. I would literally beg him to let me use it. But he wouldn’t budge. He told me, if you use it, then tomorrow Kanan’s children [the chauffeur] will ask for it and I won’t be able to say no and then everybody will start getting their children to office. This way kids will suck up all the bandwidth that is available for Infosys work. I was in 4th standard then and I found his logic so frustrating.

He was very clear with us that we were not going to be his replacement at Infosys. I sometimes tease him now, saying I am well qualified [Ph.D. in Harvard], and they made this rule when we were very young. Does he want to change his mind? He says no. What was decided at that time still holds good.
I hardly saw my father when I was young; I am told that when I was born he was away for the entire year. It was normal for us to not see him for three-four months. When I was young, my relationship with him was extremely hierarchical. We started getting close only when it was time for me to leave for college. Our relationship changed after that. He started treating me like a friend and today I can talk to him about anything. Whenever we are together we talk a lot about science, physics and mathematics. I guess it’s our way of bonding with each other.

He would call me every day and ask if I was sleeping well and eating well. He has read every single line I have written since going to college. Every paper, thesis and project I have submitted, he reads it and gives advice. It’s like I have my own personal editor. Sometimes I call him to say I am sending you something for your feedback. He would be getting into a board meeting, and would say, “I will look at it in four hours”. And exactly four hours later, I would get his comments. Similarly, I have read every lecture or speech he has ever given.

Even when we were very young, he never told me to study hard or do well in exams. Only my mother would do that. My father would talk to me about value systems, about eating well and sleeping on time. Sometimes to tease him I tell him that I think I will do a double major in Philosophy and he won’t blink an eyelid. He just says do what you like.

When I was a teenager, I was very fond of writing code. But when he would look at it and try to give some feedback, I would think ‘what does he know? He studied programming a long time ago’. Today, I realise what a fool I was. The best compliment that I can pay him is that today he is my best friend.

(This story appears in the 04 November, 2011 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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