Evolution of India’s IT Industry

N. R. Narayana Murthy is not just a visionary tech entrepreneur, he is a certified legend. As the founder of Infosys, India’s second-largest IT company with a market cap of $71.92 billion, he has overseen the rise of India’s burgeoning IT sector. He has been described as the “father of the Indian IT sector” by TIME magazine, as well as been listed among the 12 greatest entrepreneurs of our time by Fortune magazine. Ganesh Natarajan, Chairman, 5F World & Former Chairman of NASSCOM chats with N. R. Narayana Murthy about his middle-class values, his thoughts on corporate governance and the evolution of the Indian IT sector. Corporate Citizen brings you excerpts from the riveting interaction

"God has been very kind to us because it became possible for a set of seven ordinary people to do what was aspirational for all of us. I am a product of luck, by and large"

Ganesh Natarajan (GN): Tell us about Narayana Murthy in your own words.

N. R. Narayana Murthy (NM): I come from an ordinary family. My father was, for most of his career, a high school teacher. We were eight children from a lower middle-class family. I did my Bachelors in Electrical Engineering from the University of Mysore and did my graduate studies from IIT Kanpur. I worked at IIM Ahmedabad as a Chief Systems Programmer and then went on to Paris to work on a very aspirational project. I learnt a lot of good things, not just in computer science, but of compassionate capitalism. I hitchhiked all the way from Paris to Mysore, which took eleven and a half months. I spent all of $450 during this journey. Then I decided that when I should conduct an experiment in entrepreneurship in India. My first attempt, Softronics, which I started in Pune, was a failure as there was no domestic market. I quickly learnt and closed it down in nine months, and I joined as the General Manager at TCS. I learnt a lot there about the export market, and then I started Infosys. God has been very kind to us because it became possible for a set of seven ordinary people to do what was aspirational for all of us. I am a product of luck, by and large. I know a lot of friends and classmates who are a lot smarter than me, but somehow they didn’t get to the level that we did. But as Louis Pasteur said, ‘God favours the prepared mind’.

"There is no other country in the world other than the US which has understood the power of technology in gaining a competitive advantage in the marketplace"

GN: I started my career in the manufacturing industry, which was very weak at that time. Suddenly, out of the blue, the IT services industry came in. With the benefit of hindsight, what do you think made us have the confidence to create a truly global industry?

"NASSCOM was founded in 1988. There was a need to create a strong and authentic voice for the software services industry in dealing with the government"

NM: There were several factors why the IT services industry was different. The first is the market that we chose. The US corporations have traditionally understood the power of technology in gaining a competitive advantage in the marketplace. There is no other country in the world that has understood the power of technology in gaining a competitive advantage in the marketplace. The IT service providers chose the US instead of Europe, India or Japan as their first market. That was a very important thing. There was an explosion in market opportunity in the US in the early and middle ‘80s due to several reasons, such as the availability of inexpensive super mini-computers, hardware platforms introducing online transaction processing platforms based on relational databases and medium-sized companies and departments of several large companies in the US taking to commercial transaction-oriented computing in a big way. Therefore, the opportunities for developing transaction-oriented commercial applications on these inexpensive mini-computers exploded. Another very important reason was that there were lots of unemployed engineers in India, including a reasonable number from IITs. Indian software services companies used their services to exploit the market. All successful Indian IT services companies focussed on the export market rather than depending on the domestic market, which hardly existed at that time.

As my good friend Rahul Bajaj has said, “Competition is the best management Guru”. Competition teaches you to do everything necessary to attract and retain customers, attract and retain employees and attract and retain investors. When Indian companies started competing in the US market, they quickly realised that they had to bring distinctive competitive differentiation. It was also around this time that the economic reforms of 1991 happened. That allowed the US tech companies to come back to India with 100% equity. This started a heavy competition for talent. That is when Indian companies realised that they had to become employee focussed and they had to address a very important issue of how to attract, enable, empower, and retain the best and the brightest. They started creating a modern workplace, a good career growth path, up-to-date technology and other employee facilities and competitive compensation.

GN: What is the role that NASSCOM played in mobilising a larger mass of companies and taking it to the global market?

NM: NASSCOM was founded in 1988. There was a need to create a strong and authentic voice for the software services industry in dealing with the government. A set of factors came together in the early 90s. There were two extraordinary bureaucrats at that time, N Vittal and N Sheshagiri. N Vittal promised to fight for tax exemption for our industry if we promised to take the industry revenue from just $100 million in 1991 to $400 million in 1996. I just went and committed. The rest in history. The objectives of NASSCOM were very clear at that time. The first was to remove friction to businesses from the government, the second was to obtain tax exemptions, and the third was to enhance visibility for the Indian software industry abroad.

GN: Tell us about the philosophy of Infosys.

NM: Right from the first day and till we the founders retired from Infosys in 2014, we operated on a set of principles that ensured the longevity of the company. Let me mention a few of them. We were perhaps one of the first companies in the world to demonstrate on a large scale that entrepreneurial opportunity is not the preserve of a chosen few like it used to happen in India before liberalisation and before the availability of venture capital. That was our first objective. Secondly, Infosys has demonstrated to the next generation of entrepreneurs that it is possible to succeed in business in contemporary India, legally and ethically. We have also demonstrated that the only way an Indian company can become world-class is by benchmarking itself with the best global companies in every dimension of operation. The next thing we did was to conduct the country’s first experiment in large scale a democratisation of wealth. As of today, Infosys has distributed more than 20% of its equity to its employees worth more than Rs.150,000 crores. This is outside the founder wealth. No other company has done this either in India or abroad. Infosys has followed and reaped huge benefits from leadership by example. In my opinion, there is no more powerful instrument for leaders to gain the trust of their younger colleagues than by walking the talk.

As Jeff Bezos once said, entrepreneurs must be missionaries and not mercenaries. He said, entrepreneurs must have a larger than life, grand and noble vision. We at Infosys, in our own small way, have tried to be missionaries and not mercenaries. The interest of the company has always come ahead of the interest of the individuals at Infosys. Managing with six founders is not an easy thing. Once even Bill Gates said that he is very surprised and appreciative that we six people have lived together and demonstrated that we can manage. Whatever our strengths and weaknesses, everyone put the company before themselves in every decision. If in my next life, I had to become an entrepreneur and I got to choose who I wanted as my colleagues, I would choose the very same people.

We use data and facts and not personal biases and opinions to take decisions in every transaction in the company. This is a very important factor. Yes, sometimes we did use intuition and our gut feeling on top of what the data told us. The next important factor is that we believe that transparency, accountability and fairness enhances the trust of every stakeholder in the governance of the company. We acted according to this important belief. We also acted according to our belief that investors understand that every business will have its ups and downs and that they want us to level with them at all points in time. That is why we operated under the adages “When in doubt, disclose.” “Under-promise and over-deliver” and “Let the good news take the stairs, but ensure that the bad news always takes the elevators.” Today’s entrepreneurs are the evangelists of capitalism in India. Capitalism is new in India and is not trusted by most people. Therefore, right from the beginning, we embraced compassionate capitalism and conducted ourselves as exemplars of that philosophy. That required us to practice values respected by our society, to lead un-ostentatious lives, to have a fair share of compensation between the highest and lowest levels of employees in our companies, to ensure that salary increments are first given to lower-level employees, and to provide full transparency to the shareholders and to follow the best sustainability principles & earn the goodwill of the society in every country that we operate in.

GN: You are seen as the Czar of corporate governance in India. Tell us a few of your thoughts on corporate governance.

NM: There are three very important attributes for us to have a peace of mind. The first is that we must exercise self-control on greed, jealousy and anger. This is, of course, easier said than done. But if we were to keep this in mind and remember this every night before we go to sleep, we will be less greedy than what we are the next morning. We will get angry fewer times tomorrow than we did today and we will show less jealousy than what we did today. Then we will have inner peace. There is nothing in life that is more important than inner peace. That is where I am a great admirer of Hindu philosophy. If we the leaders keep this in mind when we sit in the boardroom and ask our self the question, “Will this decision of ours enhance respect for the company in the eyes of our stakeholders, colleagues, government and society?”

"We operated under the adages “When in doubt, disclose.” “Under-promise and over-deliver” and “Let the good news take the stairs, but ensure that the bad news always takes the elevators“"

GN: You have come from middle-class beginnings. Is it because of the essentially middle-class nature of this industry that we have so many icons of good corporate governance?

NM: I was once talking to Shri Vittal in the early ‘90s. I asked him what it is that he finds somewhat unusual about our industry. He said that in other industries, the entrepreneur came in a completely beaten up ambassador car when he was looking to secure a loan. After a few years, he came in a Mercedes Benz to re-negotiate the loan. However, in your industry, we continue to come in a beaten up ambassador.

Every civilisation has been advanced primarily by its middle-class people, whether it is England, Germany, the US or India. It is the middle-class which has contributed primarily to intellectual leadership, value leadership, etc. Our parents went on advising us on good values and leading a simple life. Our culture has been shaped by these values.

GN: The middle-class is looking forward to an India with optimism, but also with some sense of fear at times. What is the future of India? What do you think we should be doing to make sure the future, which is in the dreams of so many Indians is realised?

NM: My view is that reducing our population growth rate and improving the quality of children born in the next 50-100 years has to be the most important priority for India in the coming decades. The quality of life of children is going down year after year. Middle-class couples with the ability to provide nutritious food and take care of the health and education of their children have limited the number of children they have to two. Also, I may be wrong on this fact, but in the BIMARU states, the population is increasing more than the population in the better-off states. What is it that is required to ensure that we focus on controlling the population growth? This requires a laser focus on family planning, aggressive promotion of condoms, educating couples about the negatives of having more than two children and improving the quality of nutrition for children and mothers. Improving the nutrition of school-going children is another extremely important initiative, and I am very proud of Akshaya Patra, which my friend Mohandas Pai and Swami Prabhupada started 20 years ago. They serve 1.8 million children hot nutritious food every day. Improving the quality of education and healthcare for children is also very critical to improve the country in the next 30-50 years. If our children are better prepared today, they will be better prepared when they grow up to contribute better. We need to improve the income levels of our citizens by creating well-paying jobs. Once we improve the income level of our citizens, then hopefully corruption levels will go down. Better quality of people will come into politics, and there will be a lot of hope in the country. About 42% of Indians depend on agriculture, which produces about 16% of our GDP. That means that the per capita GDP of a person in an agricultural area is just 42% of India’s low per capita GDP of Rs.1.3 lakhs per year. An agricultural worker earns only about Rs.4500 per month on average. Therefore, we have to move people out of agriculture to low-tech manufacturing. Now let me come to the most difficult task we have to do. A cultural change in India is most important. We have to focus on honesty, hard work, compassion, discipline, speed of action, and accountability. We have to behave like a western developed country in terms of our public governance. We have to adopt public governance from the western model and the wonderful family handling from the Indian model.