Finding a growth formula: How resilience and fundamentals can sustain growth

Mr Jerry Rao,Former Chairman & CEO Mphasis, welcomed Mr Narayana Murthy, Chief Mentor of Infosys; and spoke about the greatness of the man, the brilliance of the professional and the empathy of a socialist. He also shared interesting anecdotes on his long association with Mr Murthy and how over the years Infosys, the great organization that it is, has become synonymous with the individual.

Mr Murthy welcomed the participants and thanked NASSCOM for creating such a platform where it was always marked in his annual calendar. Both he and his wife really looked forward to coming to Mumbai with great eagerness every year for the NASSCOM India Leadership Forum.

He started on a lighter vein and expressed his fondness for Som Mittal and how in the “mutual admiration club”, Som was the smartest. Mr Murthy briefly traced back the glorious history of NASSCOM and acknowledged the distinct value additions made by some of the illustrious presidents in the past, namely Anil Srivastava, Devang Mehta, Kiran Karnik and now the iconic chief, Som Mittal. He also shared some of his memorable experiences as the Vice President and as President of the apex body between the years 1990 – 94.

Mr Murthy talked about the difficult times and also mentioned how in the earlier sessions it was already adequately covered by Nandan Nilekani, Vineet Nayyar, S Ramadorai amongst other thought leaders. He said that in his lifetime, he had experienced serious crisis during 1981-83, when Infy was funded, 1989 – 93 just before liberalization and as recent as 1999-02, when the “tech bubble” burst. But, this one in his opinion was the “mother of all recessions”. He feared that the current crisis would really have a long term effect, akin to the great depression of 1929 and could last for a considerably longer period of time. These were times which called for leadership of the highest standard conceivable. Youngsters should be encouraged to come forward and take up leadership positions.

Presently, customer expectations have been growing exponentially and it was always “more for less”. There was an overbearing need to add “greater and greater business value for lower & lower cost”. It was all about “prized performance” giving way to “performance at a prize”, he added. The focus was on increasing productivity, adding business and technological value. He also talked about the criticality of business communication and how young managers should be encouraged to interact with senor management. This would help in cutting down on cycle time, in the decision making process. At Infosys, they had engaged Mckinsey to train the young managers called the “1000 Board Room Consultants”. Project Managers, were considered to be P&L Heads judged purely on net income margin only. He cited an example, where operating margin could sometimes be misleading, due to differential levels of state taxation in the US. For example, 29% Operating Margin in New York, is not the same as 29% in California.

It was clearly evident that the industry was moving from the fixed cost regime to the variable one. He talked about a 2*2 Matrix, where Variable direct cost and fixed cost be plotted on a graph, to be used as a measuring tool. Under such a competitive environment, it was important to introduce better training methods. He talked about the 16 week and the 29 week programme at Mysore campus of Infosys. During downturn, youngsters also get an opportunity to face the “real world” and develop new skill sets. Keeping the enthusiasm levels of the workforce was really the key challenge. “At Infosys, we believe in honouring  all commitments and we ensure that people on the bench remain committed at all times”, Mr Murthy added. Having said this he ended his address and the floor was thrown open for questions:

When will the US GDP rise, Q4, next calendar year or even beyond?

Mr Murthy: I have a lurking suspicion that this one is more like the 1929 Depression, in that case, it wil take much longer to recover. We have to hope for the best, but at the same time, be prepared for the worst. He cited the importance of cash flow and liquidity, to survive this downturn.

What about companies who don’t have a healthy cash flow?

Mr Murthy: Time to reduce indirect expenditure; reach out to more prospects, to mitigate the risk of lost customers. Also, now was the time to leverage debt, not the best of times to go to the capital market, to raise funds. But most importantly, engage in Moral Leadership by setting  examples.

What to do during a downturn?

Mr Murthy: Listen to youngsters, create channels which allow unadulterated flow of data and create an open environment for discussion and debate.

Trends in IT Spend?

Mr Murthy: At the beginning of 2008-09, growth was projected at 19-20% in dollar terms. Last Quarter, it was projected between 13 – 15 %. So, there was a clear down gradation of nearly 30 % so we were facing a serious situation.

What was stopping IT Spend?

Mr Murthy: There have been budgetary cuts and orgnisations were only concentrating on the hygiene factors. The focus was now only on maintaining the data centres and no plans for upgrading existing infrastructure. Decisions relating to IT Spends have been pushed to the back burner and the cycle time has gone up considerably.

Creating IP, will it help?

Mr Murthy: At Infosys, the focus was on developing Mathematical / Heuristic / Statistical models to communicate business value. That really is the message – customers must see value add. Develop models to measure reduction in cost, reducing cycle time, increasing revenue and productivity. We should concentrate on verticals, which has not been hit so badly, like BFSI, Healthcare etc.

Mr Jerry Rao, then thanked Mr Murthy for agreeing to Chair the newly formed Corporate Governance Committee, of NASSCOM. Mr Murthy, then acknowledged and said, it was an honour for him to lead such an initiative which has some illustrious members like Azim Premji, Ramadorai  and Ashank Desai.

What advice for SME companies?

Mr Murthy: Infosys, could have fallen under this category, till about 1994, so obviously, they have considerable experience in witnessing the real problems. “Spend less than what you earn, there is no insult in that”. Leaders should lead by example and engage in building character. Profligacy never really benefitted anyone.

How to replicate the Indian IT success story in other countries?

Mr Murthy: Look at the global market, building infrastructure, inculcate learnability, penchant for innovation and create an open culture and remain investor friendly at all times.

Will the IT Industry seek help from the government in terms of a financial package?

Mr Murthy: Support sops for smaller companies, to tide over credit crisis but certainly not for large organizations. Smaller companies must sit down together and keep an air of honesty and cooperation, to avoid undercutting each other during the bidding process. This will help the industry over all.

Will we see sub contracting by Third Party Vendors to benefit a lower cost arbitrage?

Mr Murthy: In difficult times, customers want to deal with well known companies to mitigate risk, but certainly, a shift in trends was possible.

What advice for OEM and solutions suppliers to system integrators?

Mr Murthy: Try and increase your prospective customer  base, reduce cost of sales, indirect expenditure and aim for increase in productivity and delivery excellence.

Being the last question for the day, Mr Jerry Rao, thanked Mr Murthy and the session ended by felicitation of the speakers by NASSCOM.

Post Contributed by Soumitra  Dasgupta, NASSCOM

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