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'How we built Infosys from scratch'

Fakir Chand in Bangalore

Infosys' chairman and CEO N R Narayana Murthy had the rare privilege of being the first Indian speaker to address the MBA graduates of the Wharton School at the University of Pennsylvania, Philadelphia, on Sunday.

Going down memory lane, Murthy recalled how he and his six dedicated co-founders built a truly global Indian software company right from the scratch.

Recalling the lessons he had learnt from founding Infosys with a team of talented colleagues and managing it during the last 20 years, Murthy said while the experiment was conducted in far-away, less market-oriented India, he believed that the fundamental lessons he had learnt have broader applicability. Excerpts:

"As I look upon your bright and confident faces, my mind goes back to a sultry, fateful morning in July 1981, to my meeting with the other six founders of Infosys. The seven of us had forsaken -- at least as it then appeared to our friends and families -- safe and promising corporate careers.

"We were huddled together in a small room in Bombay in the hope of creating a brighter future for ourselves, for the Indian society and, perhaps, we dreamed, even for the world.

"Confidence, commitment, passion, hope, energy, enthusiasm, and the capacity for hard work were available in plenty. However, money was in short supply. We struggled to put together a princely sum of $250 as our initial seed capital. We were helped in this by our ever-enthusiastic bankers - our generous wives!

"Our enthusiasm can be expressed in the words of Eleanor Roosevelt who said: 'The future belongs to those who believe in the beauty of their dreams'.

"We knew our dream had to be based on a lofty vision, something larger than ourselves. Our vision was and is to be a globally respected software corporation providing best-in-class business solutions employing best-of-breed professionals.

"I have realised, over the years, that a powerful vision expressed as a simple sentence, capturing the core of our values and aspirations, enthuses generation after generation of employees in the company.

"The beauty of a simple yet powerful vision is that it is easy to understand, to communicate, to share, and to move towards.

"We built Infosys on three key concepts -- the criticality of customised software in creating competitive advantage for a corporation, globalisation and professionalisation of the corporation.

"Every successful company is built on an idea that is taken seriously in the marketplace.

"For this, an idea has to achieve one or more of the following: improve customer satisfaction, reduce cost, reduce cycle time, improve productivity, increase customer base, or improve comfort level of customers.

"Strategy, an important building block of success, is all about becoming unique in a marketplace. This requires that every corporation build this uniqueness into its business rules and models.

"These rules and models become embedded in the information systems of the company. Thus, there was, is and will be considerable opportunity in creating customised software.

"While we had a good idea, the market for the idea did not exist in India. Thus, we had to embrace globalisation. I believe globalisation is about sourcing capital from where it is cheapest, producing where it is most cost-effective, and selling where it is most profitable, all without being constrained by national boundaries.

"When we founded the company, we knew that India, with its vast pool of English-speaking, analytically strong technical talent, and the excellent work ethic among its professionals, had the essential ingredients for global success in customized software development.

"Thus, our idea was to produce software in India for clients in the G-7 countries. Our approach, while distinctive, was far from unique; companies in industries such as textiles and semi-conductors were following similar strategies.

"Since we co-founders had been professionals before we started Infosys, we wanted to build a company of professionals, for professionals and run by professionals, to borrow the words of President Abraham Lincoln who used them to describe the US democracy.

"Accordingly, it was our belief that the first duty of a corporation is to uphold respect and dignity for the individual. Right from day one, we eschewed any transaction that created asymmetry of benefits between the founder-employees and other employees.

"Our core corporate assets walk out every evening, mentally and physically tired. It is our duty to make sure that these assets return well rested, energetic and enthusiastic the next morning.

"Our respect for our professionals can be summed by our belief that the market capitalisation of Infosys becomes zero after working hours end at 5pm, no matter what it was during the day.

"A strong team is essential for every successful entrepreneurial experiment to succeed. A strong team brings together a set of complementary skills, expertise and experience.

"Today, the venture capitalists backing entrepreneurs help create such teams by connecting them with prospective key-employee-networks.

"However, in those days, we did not have any VCs in India. We ourselves had to bring together people who had some experience in human resources, finance, strategy, technology, project management, software development, and sales and marketing.

"In addition to complementary skills, it is essential that the team operates on a common value system and maintains the dignity and respect of every individual in every transaction. The motto for workplace interactions at Infosys has always been: You can disagree with me as long as you are not disagreeable.

"During the initial days, we faced tremendous challenges attempting to do business in India. To illustrate, it took us a year to obtain a telephone connection; two years to get a license to import a computer, and 15 days to get foreign currency for travel abroad.

"Thus, the first 10 years of our marathon seemed interminable and frustrating. Although we managed to keep our heads above water, we were floundering.

"However, the positive aspect of these years was that we learned to plough through adversity, and, I hope, we became better managers and better human beings.

"The fuel that kept us going was our passion to make a difference. Even today, I believe that our passion is more important than our finances.

"Louis Pasteur once said: Chance favors the prepared mind. Thus, as we were struggling along, the Indian economic reforms of 1991 came as a heaven-sent opportunity for us at Infosys.

"These watershed reforms -- likened by some to the winning of economic freedom, on the lines of the securing of political freedom from British rule in 1947 -- changed the Indian business context from one of state-centered, control orientation to a free, open market orientation, at least for hi-tech companies.

"We, at Infosys, leveraged the positives of liberalization, the opening up of the Indian economy, and we have never looked back.

"In fact, I take quiet pride in how Infosys has become a shining example of all the good that came out of India's economic reform process. The lesson from the Indian experience is a clear clarion call for all that is willing to listen: free trade can bring great benefits to society.

"Now, I will elaborate on some key lessons that we have learned from managing Infosys over the last 20 years. I believe that most of these lessons, while rooted in the Infosys' experience are valid in start-ups as well as in large corporations all over the world.

"The great American civil rights leader Dr Martin Luther King Jr. once remarked: 'The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy'.

"A company's value system is the guiding light in its hours of darkness, confusion and self-doubt, and when faced with moral dilemma.

"A value system builds confidence, provides peace of mind, and enhances energy and enthusiasm during trials and tribulations.

"The importance you attach to your value system is reflected in the cost you are willing to incur for your beliefs and convictions. Thus, the more profound one's commitment to a value system, the greater is the cost one is willing to incur to defend the value system.

"At Infosys, we have had several instances when our value system was severely tested. These events occurred in our dealings not only in India, but also the world over, including the US.

"In every incident, we were firm and stood by our values because we knew that taking short cuts that compromise our values would be suicidal for us.

"As we run the marathon that we have embarked upon, our value system is what binds the team together and is something that can never be compromised.

"Our value system at Infosys can be captured in one sentence: The softest pillow is a clear conscience. We try constantly to live up to this standard. We only act in ways that will let us sleep peacefully every night.

"Every company has to recognise its strategic resources, and ensure their long-term supply. In our case, human intellect, technology and processes are the three key strategic resources.

"We operate in a domain where customer preferences and technology change rapidly, and business models, paradigms, and rules quickly become obsolete. Thus, the only constant for us is change.

"These days, the world moves so fast that often one who says that something cannot be done is proved wrong by another person who is already doing it.

"Our success at Infosys depends on our ability to recognise, learn and assimilate these changes quickly, and on bringing business value to our customers by leveraging the assimilated knowledge.

"Thus, 'learnability' is critical for us. We define learnability as the ability to extract generic inferences from specific instances and using them in new, unstructured situations. Our company has always placed a premium upon recruiting people with a high learnability quotient.

"In fact, the implicit belief at Infosys is that each person should surround himself or herself with much smarter people.

"Such an environment creates competition and confidence, and leads to energy and enthusiasm. We provide these people with up-to-date technology and a strong foundation in processes.

"Infosys' longevity will depend on how well we build on our people resources.

"The biggest challenge for a knowledge company like Infosys is to recruit, enable, empower, and retain the best and the brightest talent. We realised long ago that we had to make a compelling value proposition to our employees, much the same as we did for our customers.

"Speed, imagination and excellence in execution are the three time-invariant and context-invariant attributes of a successful corporation. In fact, speed in imagination is the most critical success factor.

"Never before in history has imagination played a more significant role than it does today. As the power of incumbency keeps diminishing, the importance of imagination keeps increasing.

"The constant challenge is to move from information to insight. The future winners will be those firms that escape from the gravitational pull of the past on the fuel of innovation.

"The task of the CEO is to ensure that the corporation embraces and uses speed, imagination and excellence of execution in every aspect of its operation. This implies that every corporation has to create incentives for people to be innovative at all times.

"The best incentive for innovation is proactive obsolescence by wide dissemination. Such a proactive step helps a corporation be in control of obsolescence, and remain a leader in its field.

"Obsolescence of a firm's innovations by its competitors will generally take it by surprise and find the firm unprepared. Such unprepared corporations are the foster children of missed opportunities and will not survive.

"We have realised over the years that solutions to most of our problems lie within ourselves.

"Rationalisation of failure is simply a sign of weakness. The easiest way to escape from accountability is to blame reality. It renders people and nations apathetic and justifies inaction. Leaders, on the other hand, transform reality from what it is to what they want it to be.

"The main fuel of achievement comes from aspirations that are higher than the status quo.

"Leadership, therefore, is all about raising the aspirations of followers. It is about making people believe in themselves; it is about making them confident; and it is about making people achieve miracles.

"Leadership is about dreaming the impossible and helping followers achieve them. Lofty aspirations build great firms, great countries and great civilizations.

"The best form of leadership is leadership by example. In a knowledge company whose core competencies include human intellect and learning through a process of observation, data collection, analysis and conclusion, leaders have to walk the talk.

"In this global age, given the path breaking impact of the Internet on business practices, leaders in the business world can come from anywhere.

"Competition is global, all the more so in the world of digital products and services. The best ideas or business models will dominate, regardless of their national origins. It is in this competitive global regime that the best hopes and aspirations of my country of origin, India, rest.

"It goes without saying that many challenges lie ahead, but I am sanguine about the future role that India, and other human-resource-rich countries such as China, will play in the global knowledge economy.

"A well-run corporation embraces and practises a sound predictability-sustainability-profitability-de-risking model. We call this the PSPD model at Infosys.

"A good forecasting system for sales based on data gathered from the trenches ensures predictability (although predictability of costs is also needed to have predictable profit streams).

"Sustainability is achieved by energetic and motivated sales people who pound the pavement and make sales happen; by production people ensuring that quality products are delivered to the customer on time; and by billing and collecting on time.

"Every enterprise must focus on high profitability in order to ensure the best returns for its shareholders. Indeed, the long-term success of a corporation depends on having a model that scales up profitably.

"Finally, the corporation must have a good de-risking approach that recognizes, measures and mitigates risk along every dimension.

"The Degree of Affordable Risk is a composite measure of the risk threshold of a corporation. Every corporation must measure its DAR, constantly improve its DAR, and operate within the limits of its DAR.

"Having emphasised the importance of de-risking, I must hasten to add that I do not, even for a moment, want to dissuade you from taking risks. Take risks you must, but carefully thought-out risks.

"We know that ships are safest in the harbor. But, they are not meant to be there. The best ships are destined to ply the wide oceans, to brave the stormy, heavy seas.

"What is needed is to cross the oceans and finally return to the welcome safety of the port with the comfort of a destination achieved.

"Another lesson that is anchored in the Infosys experience concerns governance. Corporate governance is focused on maximizing shareholder value while ensuring fairness to all the stakeholders - customers, employees, vendor-partners, the government of the land, and society at large.

"In these days of free flowing global capital, the ability to attract capital requires that corporations adhere to the best global standards of corporate governance.

"Studies have shown a significant correlation between the standards of corporate governance of a firm and its cost of capital. The foundation of our corporate governance philosophy at Infosys is the belief that it is better to lose a billion dollars than to act in ways that make one lose a night's sleep.

"We also believe that it is a good practice to under-promise and over-deliver. Further, it is best to deliver the bad news to the stakeholders proactively and at the earliest.

"This creates goodwill with all the stakeholders. They fully understand that there inevitably will be ups and downs in every business. What they value, however, is for managements to level with them at all times.

"Quick progress comes in an environment that respects competence, where there is healthy competition and where there are no prejudices.

"Infoscions, the name by which we call all our employees, have a sense of respect for our competitors, a healthy sense of paranoia that keeps us on our toes, and a sense of humility about what we have achieved.

"We remember that success is, generally, ephemeral. We remember that we are only as good as the results of our last quarter. We fully believe that we are running a marathon, not a sprint; and our strategies and policies reflect that.

"One of my strongest beliefs is that corporations have an important duty to contribute to society.

"While, on average, tremendous progress has been made in enhancing the economic well being of people, the chasm between the haves and the have-nots of the world has unfortunately widened, especially in the developing world.

"No corporation can sustain its progress unless it makes a difference to its context. In the end, unless we can wipe the tears from the eyes of every poor man, woman and child on this planet, I do not think any dream is a worthy one.

"As I see you assembled here, I am filled with hope for the future. I have no doubt that you - coming from the best business school in the most progressive country in the world -- will put your shoulders to the wheel to make a better world for yourselves, for all others around you and, indeed, for all of humanity.

"The eyes of the world are upon you. The world will expect nothing less from you, for you are the chosen few.

"Let me now share a few words of personal advice with you based on my life experience. First, I want to emphasise the importance of being trustworthy with all in your dealings. It is on such foundations that great organisations are created.

"Secondly, fear is natural, but do not let your actions totally be governed by it. Just as fear may sometimes be the hidden voice of your intuition alerting you to what your rational mind may not yet have seen, it is also sometimes an invitation to explore a new part of yourself and the world.

"Thirdly, a supportive family is the bedrock upon which satisfying lives and careers are built. Create a support system for yourself with people who will rejoice in your success and be there for you.

"With this rock like support behind you, you can endure almost anything in your career.

"Fourthly, learn how to manage yourself, especially your feelings in a way that respects the dignity of others and yourself. I have found it helpful to separate the merits and demerits of a decision from the accompanying feelings. We call this 'being transaction oriented' at Infosys.

"Finally, live your life and lead your career in a way that makes a difference to your society."

On the occasion, Murthy was also awarded the Wharton Dean's Medal by Wharton School Dean Patrick Harker, for his contributions to the enlargement of the global economy, and to the improvement in the lives of people worldwide.

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