Sunday, June 2, 2013

The Return of Narayana Murthy: Fast Forward Again for Infosys?

On May 7, 2011, I published a blog post on the board level moves at Infosys, “Infosys Board Rejig: Crowded at the Top?”, in my blog Strategy Musings,  The blog post analyzed the challenges founder-leader teams face when all the leaders are competent and when the broader leadership team needs the challenges and opportunities of running their corporations. The blog post traced the dilemma faced by founder-leaders when they are one too many in a corporation. The post also made three important points. The first was that corporations need to recognize the importance of holistic leaders. The second was that leadership is not only skills and competencies but also about charisma and instincts. The third was that when corporations are headed by iconic leaders, such corporations struggle to subject themselves to objective benchmarking with respect to competition.
The loss of competitive edge and industry leadership faced by Infosys after the board level rejig that was announced on April 30, 2011 together with the more competitive business landscape has apparently prompted the Infosys board and its key stakeholders to raise, on June 1, 2013, the retirement age for executive positions to 75 years of age and recall the Chairman Emeritus N R Narayana Murthy to the board to operate as Executive Chairman. The other existing leaders,  Kris Gopalakrishnan becomes the Vice Chairman (from being a co-chairman) while SD Shibulal would continue to be the MD and CEO. While Narayana Murthy has stated that it was too early to comment on how he would re-strategize, his plan to establish an executive office, headed by his son Rohan Murty, a well-qualified professional in his own right points to his leadership style being different this time around.
Global leadership comebacks
The global corporate world has witnessed several comeback sagas. The most recent one has been the callback of the 66 year old A G Lafley, former chairman as the chairman and CEO by Procter & Gamble (P&G). Other notable comebacks have been Myron Ullman at JC Penney, Steve Jobs at Apple,  Henry Schacht at Lucent,  Jamie Houghton at Corning,  Ted Waitt at Gateway,  Richard Schulze at Best Buy, Charles Schwab at Schwab, William Stavropoulos at Dow,  Howard Schultz at Starbucks, Michael Dell at Dell and Paul Allaire at Xerox. Such callbacks have often been prompted by the need to shore up struggling businesses or take them to newer trajectories. However, not all such comebacks have proved to be successful.  The most spectacular comeback story was that of Steve Jobs at Apple as is widely known. Another success story has been that of Howard Schultz at Starbucks. Others had successes and difficulties in their second innings, in varying degrees though.
Given that not all global comebacks have been equally successful, and some have been even downright disastrous, it goes without saying that comeback by itself is not an implicit guarantee of success. A research on leadership comebacks quoted and commented upon in the May 24, 2013 online issue of Forbes suggests that allowing gilded chief executives an encore performance had been no guarantee of success. It often required the recalled leaders to execute radically new and unsentimental strategies even if some of them were crafted by them. It also mentions that paradoxically three-quarters of the recalled chief executives had actually handpicked their successor leaders, suggesting that handling them in the new innings could be a challenge, besides implying concerns on the durability of handpicked succession plans. The case of Infosys suggests that organizational challenges in the company could be no different, given that the successor team had been handpicked by Narayana Murthy himself. Setting the strategic direction and ensuring capable succession would continue to be the exiting leader’s most important contribution. Even when it is done well, there could be unexpected eventualities as demonstrated by several of the above cases.
Challenging times, dramatic measures
The saga of leadership comebacks is not so well experienced in India. Part of the reason is that Indian enterprises generally tend to retain their leaders as long as possible; the cases in point being Ratan Tata of Tata Group or Y C Deveshwar of ITC Group.  Infosys has been an exception where the founder leaders themselves accelerated leadership successions. The return of the 67 year old Narayana Murthy to Infosys is likely to be the most high profile and path-breaking one in India Inc, potentially rewriting the script in terms of leadership tenure, succession planning and comeback options in challenging and difficult times. That the times have been challenging in the last seven years when Murthy has been taking a declining interest and, in fact, no interest over the last two years when he moved out of even non-executive chairmanship are well documented. In the times of Nandan Nilekani, who succeeded Narayana Murthy as the MD and CEO (2003-07), Infosys clocked compounded annual growth rates (CAGRs) of  42.3, 44.5 and 54 percent in revenues, profits and share price respectively in that block of years. Those were some of the best times in Infosys’s history.
Times, however, have started to change for the worse as Kris Gopalakrishnan took charge between 2007-11 as reflected by the declining CAGRs of 18.3, 15.2 and 10.3 in each of those factors. During the current CEO S D Shibulal’s term (2011-13) not only the market conditions turned tougher but the competitors notably upgraded their competitive game; as a result the CAGRs continued to maintain their downward journey with 10.7 and 7.3 and finally a negative 7.1 percent in respect of revenues, profit and share price in 2011-13. During the same period, the leader Tata Consultancy Services (TCS) continued to post stronger results while other competitors, notably Cognizant and HCL Technologies, began to overtake Infosys in performance. As a result, while Infosys continued to retain an iconic aura, the earnings bellwether status began to slip. During the period, the company also saw the exits of several high profile executives and leaders from the company. Apparently, the Infosys board led by non-executive chairman K V Kamath (who himself was brought in to wring in a change in Infosys in 2013) felt that the return of Narayana Murthy would be the one dramatic measure that would reverse the declining fortunes (Kamath, one of the great leaders of the Indian industry, would continue as the lead independent director).
Challenges; internal or external?
In 2011, at the time of his retirement from Infosys, Narayana Murthy stated that the team that he left behind at Infosys was a dream team in whose safe hands the company would grow further. At that time, Infosys initiated a major strategic transformation, called Infosys 3.0. The strategy aimed to move Infosys higher up the value chain of information technology into newer areas like consulting, products and platforms while targeting greater value addition in the traditional areas of application development and management. One view has been that Infosys embarked on a right strategy at a wrong time; the company needed to protect its base business through low costs, competitive pricing and quality execution prior to embarking on newer vistas of development. The other view is that the new leadership upset the organization all across the levels as it sought to become more efficient through readjustment of roles, responsibilities and grades; increased attrition pointed to more than ordinary churn.  
Declining performance of corporations is often due to a variety of causes, both internal and external. Leadership and competencies are unique and internal to a company. Customer mindsets and competitors are discontinuities and external to a company. The intersections that are available to the company and competitors are technologies, strategies and people. The skill of the company lies in deploying technologies, strategies and people to maximize its competitive advantage in the marketplace vis-à-vis its competitors. Leadership and competencies that are unique to the organization can drive the competitive advantage through the above equation. The decision to recall Narayana Murthy is grounded in a strong faith in his charismatic leadership which is characterized by a visionary approach and a global stature that would augur well for positive, business development. It remains to be seen whether this time around he would develop his leadership bench to be able to weather any sort of competitive pressures.
Rohan, the new ‘roshan’?
If there has been one surprise in the recall paradigm, it is the induction by Narayana Murthy of his son Rohan Murty as his executive assistant in a chairman’s office that will be newly created to connect Narayana Murthy with the broader company. There is no doubt that the 30 year old Rohan is a highly educated and well accredited young professional, with roots in Indian values  and his father’s value system, and competencies in state-of-the-art information technology. Narayana Murthy has assured, in addition, that Rohan would have no leadership role in Infosys, and more such young professionals would be inducted into the chairman’s office. There are two ways this surprise induction can be looked at. The first is that as a software company, Infosys can no longer ignore the massive changes that are occurring in the hardware segment in terms of ultrabooks, tablets, smartphones, phablets, convertibles and wearable computers, as also the integration of the new generations of hardware and new applications software. Rohan and his team of young officers would hopefully go beyond the mechanics of data collection and analysis of a conventional chairman’s office and drive innovation as well as connectivity with Gen-Next devices and users.
At the other end of activity spectrum, if Rohan and his executive office stay at the level of data compilation and data analysis, the recall experiment of Narayana Murthy could create an informal power hierarchy which is more operations-focused and performance-oriented rather than innovation and transformation driven. At an extreme, such a traditional approach could make the established leadership somewhat redundant as the formal structure would also have similar operational performance objectives. Unless managed well, Narayana Murthy’s comeback could be a boomerang on the orderly management which Infosys is known for. The balance of advantage to Narayana Murthy as the new executive chairman, therefore, lies in utilizing Rohan and his young team as the new ‘roshan’ (shine and light being the literal meanings of the Indian word) that shines the light for a new pathway of technological and operational innovation for Infosys.
Without doubt, the Narayana Murthy experiment has to succeed exceedingly well for the sake of not only Infosys but also the Indian information technology sector in general. And, succeed must this experiment as Infosys has no comeback leader left in the open other than Nandan Nilakani, now well ensconced as the successful head of Government of India’s strategic Aadhaar UID Project!
Posted by Dr CB Rao on June 2, 2013



1 comment:

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