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Monday, June 3, 2013

Can Mr Murthy work his magic with Infosys this time too?


Mr Narayanamurthy, the most iconic name in the Indian IT space is being forced out of his cushy retirement after close to 3 years. From the man's eyes, it must have pained him immensely to see the conglomerate he built for over 2 decades and help grow from nobody to the 2nd largest IT Company in India, go spiralling down. Infosys is no longer the brand that people respected. 9 years ago, when I began my career in Infosys, when someone asked me what I was doing or where I was working, their reaction was that of pure respect when I said, I am working in Infosys. Ever since the gentleman left his throne at the helm of the company, things have gone south both from an Employee's perspective and an Investors perspective.

The idea behind this article is to analyze what kind of impact Mr NRN (This is how he is addressed by people within Infosys) will have on the company and its shares from an Investors Point of View.

Before we begin: This article is pure speculation from my part on how Mr NRN's impact will be on the IT behemoth. Only time will tell if things actually will work out for the best or not. This is not investment advise to either buy/sell or hold Infy shares. Nor is this a review of Infosys as an employer or a place to work.

A Brief History of Infosys and Mr Narayanamurthy:

Mr Narayanamurthy is an Electrical Engineer from the National Institute of Technology. He along with his few friends founded Infosys in the year 1981. He was the CEO of the company for 21 years up until 2002 and was succeeded by co-founder Mr Nandan Nilekani. Mr Murthy was the Executive Chairman of the board between 2002 and 2006. In 2006, NRN became the Chief Mentor and retired completely in August 2011.

Infosys's Position in the Indian Markets:

Infosys is the Third Largest Indian IT Company (Behind TCS and Cognizant) and is a part of both the BSE Sensex and NSE Nifty. It is one of the most, well respected shares in the Large Cap space and people have been trusting the stock for years on the basis of its performance as well as other aspects like bonus shares, dividends etc.

To say that - Infosys was a darling for the Investors for close to 20 years would be the Understatement of the Century. Of late however, the share has lost its charm due to mismanagement as well as stiff competition.

So, Why is Mr NRN returning as head of Infosys?

There are many reasons for this sudden decision.

Main Reason: Lack of Consistent Performance

Infosys was considered best IT Company in India up until a few years ago and it was just a matter of time before it overtook TCS to take its rightful place as India's No. 1 IT company. Unfortunately, things did not work out as expected and the management was not able to keep up its incredible performance while under Mr NRN.

Over the past few years, its earnings have consistently failed to bring any special cheer to the investors and recently it lost its No.2 position in India's IT world. Its peers like Cognizant and TCS have been able to post far better numbers than Infosys could.

Additional Reason: Low Staff Morale & Dwindling Quality Talent (Attrition)

Many investors and industry experts feel that the low morale among the staff, especially in the customer facing group and the pre-sales group is one of the key reasons why the company is unable to attract new business or expand existing agreements.

Infosys has always been known to hire and attract the top talent the country has to offer. But, this has mostly become a story of the past. Because of not-so employee friendly policies adopted by the management over the past 5 years, has resulted in a significant number of talented staff jump ship to other competitors. Because of the negative publicity created by bad-press from the unhappy staff that are either with the company or have left it, people are not willing to consider the offers Infosys is making in recruitment drives.

I am firm believer in Mr NRN's words. He always said - "Don't Love Your Company. You Never Know When Your Company Will Stop Loving You". This is what happened to the thousands of enthusiastic individuals who joined the company between 2000 and 2010. The company's HR policies were termed atrocious by many and even ridiculous by a few but still the management stuck on to them. When staff realized that the company wasn’t loving them back, the talented ones moved on while the ones that had no place to go (either due to professional or personal commitments) had to stay back.

Will Mr NRN's 2nd Innings with Infosys recreate the old Magic?

I think, Yes Because - The Man is a visionary and will definitely be able to work his magic and boost the sentiments across the board.

Will This Magic be quick?

I don’t think so. Years of hard work can be undone in just a few days of stupidity. On the other hand, to undo months and years of bad work, it will take many many years. This is what Mr NRN is setting out to do - to undo years of bad work and trust me, it won’t be quick.

I am not doubting the man's ability. I have met him and he is one of the most humble and charismatic individuals I have ever seen. If anyone can restore the company to its lost glory, it is him...

What do Shareholders Think about his Return?

A Majority of them are pleased and it is evident from the fact that the stock has risen around 7% today in the morning session. In short term, the stock will do good but unless investors see actual results, even the charisma or name value of Mr NRN cannot sustain the stocks upward price movement.

Short Term - Yes Positive

Long Term - Only Time Will Tell


Is Bringing In Rohan Murthy a Good Idea?

Personally, I am not sure.

Mukesh & Anil Ambani, succeeded their dad, the great Dhirubai Ambani. Rishad Premji is in one of the top positions in Wipro and is primed to take over when his dad Mr. Azim Premji retires. So, Rohan Murthy coming in to succeed his father is no surprise. In fact, the man is ultra-talented. He has a PhD in computer science from Harvard University and by merit he is more than capable of handling such a high profile role.

All this said, this is something the company & even Mr NRN has said, it will never happen.

For as far as anyone can remember, Mr. Murthy has held that no family member of a founder can ever come to work at Infosys. It is a rule he set himself and all these years he has taken great pride in living by it.

The whole mystique about Infosys was the fact that when it gave its word it knew how to keep it. If it made offers to employees and the market tanked, it still honoured them no matter what. If it made a promise to shareholders about meeting its revenue and profit guidance, it kept it, quarter after quarter. If it said founders would retire at 65, it made sure they were gone by that time. If it said founder’s family members would not join the company, it enforced the rule strictly.

Now, things have changed. Over the past few quarters, it has been unable to meet its revenue or profit guidance. Many people may say that the market played spoilsport, and I agree with them 100%. But, a couple of other promises have just been broken over the weekend which makes the company lose that Mystique...
* Mr NRN is 66 and is coming back into the company.
* Rohan Murthy is Coming into the company as NRN's Executive Assistant

Technically Rohan is not given any leadership role at Infosys and he is just an assistant to Mr NRN. His job is to help his dad work effectively and efficiently. In favor of this argument, we can all understand that Mr NRN is 66 and isn’t as technically savvy as many of the younger generation people are. His son can effectively use all the latest technological advances and help his dad do a better job.

But, is this a bad precedent? Will this result in other founders bringing in their son's and daughter's into the company in a similar capacity? - Only time can answer this question.

Couldn't Infosys find a senior employee with the kind of capabilities and vision like Rohan has and entrust this responsibility? We can’t really answer this question because we never know. A guy like NRN would not have decided on something without a good reason for it.


Some Last Words:

Many people feel that the current soup of a mess that Infosys is in, is a direct result of the policies implemented over the past couple of years by its current leaders. When Nandan took over from NRN, NRN was there to back him & guide fully, but he wasn’t around to do the same to Shibulal. The shareholders have been critical of Shibulal and Kris many times and some even publicly. So, maybe NRN is coming back to protect his friends and co-founders from further criticism.

At the end of the day, as an Investor I would want the most well-known share in the Indian Stock Market to do well. Personally too, I have a lot of good feelings towards Infosys esp. since it was my first job. It pained me immensely when my friends resigned from the company one by one with bad experience after bad experience. Almost all of my friends who joined along with me in Infosys in 2004 are no longer with the company. Nonetheless, I still want the company to bounce back and I am confident that Mr NRN can work his magic and take the company back to its glory days!!!

Lets hope for the best !!!

6 comments:

  1. I for one sure hope this works! Reg. bringing kin of founders to work - the initial rule that was set is bad. If their kids are talented, the board agrees & that youngster longs to see Infy go to top I don't see one iota of reason why they should not be working for Infy!

    As to why he's bringing his son instead of someone within Infy can possibly be his way of showcasing how bad the company talent has declined or maybe there's something significant developing that is not yet known

    ReplyDelete
    Replies
    1. I agree Rajesh. Maybe the top management that could save the company has already jumped ship or NRN doesnt see the potential in them.

      Also, I totally agree with you on the kids coming into leadership role. After all, it is their parents who created the empire. But, this No founders kids will work rule was flawed in the first place as you say and it must have never been publicised. Maybe he put that in place to avoid a power struggle in future when only the kids are around without their fathers.

      Imagine, what if the sons of Nandan, Kris and Shibulal all have some awesome qualifications like what Rohan does and wanna be the MD or CEO :)

      Delete
  2. Hi Anand,
    Nice article. Just a thought, you say - "On the other hand, to undo months and years of bad work, it will take many many years." -- what exactly do you think was bad in the post-NRN management till now? Yes, maybe Kris & Shibu aren't as visionary as him, but to suggest that they (or Shibu, whichever the case may be) grossly mismanaged Infy would be a tad unfair on them, no?

    ReplyDelete
    Replies
    1. @ Kaushik - Yes, it is a bit unfair to criticize them as bad, but when your predecessor sets the bar so high and you are not able to meet it, your work may be considered as bad even if you had given your absolute best.

      To argue on the other side, if they had managed the company efficiently, the company wouldnt be in a soup now and NRN wouldnt have had to come out of retirement to put out the fire...

      Agree? :)

      Anand

      Delete
    2. @Anand - These are broad generalizations which anyone will agree, given the current scenario. I was looking at more specific actions they did or didn't do...that unquestionably/directly led to the current crisis.

      Delete
    3. @ Kaushik - There are certain things I can or cannot say as a freelance blogger. Entering into a review of the policies of the management and critiquing each of it may not be the viable from what I intend to accomplish through this blog.

      Sorry about that.

      Anand

      Delete

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