Saturday, June 01, 2013

Narayana Murthy's comeback at Infosys

Infosys is, by general reckoning, in bad shape, losing ground-  to both arch-rival TCS and to newcomers such as Cognizant. One should not be surprised that NRN's comeback at Infosys as Executive Chairman has received a positive welcome. However, his return does raise troubling issues of governance.

First, it is an acknowledgement of top management failure- whether this is a failure of the strategy labelled Infosys 3.0, I am not in a position to judge. Good governance requires that those responsible step aside. This would include Chairman K V Kamath, executive co-Chairman K Gopalakrishnan and CEO S D Shibulal. There is no indication that this is happening in the immediate future.

Secondly, what does it say about succession planning if the fortunes of a company hinge principally on its preeminent founder? Both Kamath and Shubulal were appointed following a much-publicised search for the posts of Chairman and CEO. Kamath was credited with being able to take the tough decisions needed at the company, given his track record at ICICI Bank. If things could go wrong so quickly, it hardly reflects well on the succession process and the depth of management that Infosys was reputed to have. Are we to suppose that if something were to happen to NRN tomorrow, there is no hope for the company?

Thirdly, many observers are of the view that NRN was never completely out of the company, whether as non-executive Chairman or as emeritus Chairman. If this is true, he shares responsibility for the strategy, if not the execution. Schumpeter, writing in the Economist, has this to say about the company's strategy:

The firm has two problems, one easier to solve that the other. Its execution has become abysmal, with stop-start investment in new projects and wildly inaccurate financial planning. Mr Murthy, who was known for delivering consistent and smooth performance, will probably sort this out quickly. The firm’s strategic problem is that it has clung to its reputation as a “premium” provider of technology services. Competitors with lower prices and who are prepared to tolerate lower margins have stolen a lot of market share. Whether Mr Murthy can resolve this predicament easily is open to debate.

Lastly, there is the matter of NRN's son being pitchforked into the Chairman's office as executive assistant. This does not appear consistent with the company's stated policy of keeping the founders' family members out of the company.  Schumpeter voices this concern bluntly:
The second concern is that in a bizarre tangent, Mr Murthy’s son will be parachuted into the firm to become his assistant. In its prime Infosys was known for being a fierce meritocracy. Its problems have partly been because it morphed into a stage-managed dictatorship, in which each of the firm’s co-founders got a stint running the firm, even if they were not up to the task, as has been the case since 2011. Mr Murthy junior is a brainy man, with Ivy league credentials. But let’s hope his father does not now try to introduce a form of management which is sadly all too common in India—a dynasty.

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