IIM Bangalore hosts fireside chat with Mr. N. R. Narayana Murthy and Mr. Aditya Puri

Sure. Well, he told me that they would like me to start a bank and that he was going to get this guy from Kuala Lumpur. He was heading Citibank in Malaysia. And then from a distance I watched Aditya with tremendous admiration. You know I call him the finest entrepreneur post-independence for a very important reason. He focused for 99% of its revenue on outside India where there were no bureaucratic hurdles, there was no rivalry required, where technology was appreciated etc. etc. But what is impressive about this number one entrepreneur of India, Aditya, is that he succeeded in the Indian environment and he succeeded very well to take a company from zero revenue to a market capitalization of $180 billion. That's not easy. Infosys has not reached that. That is the reality. Infosys is today somewhere at $70 billion. But to do it in the banking institution which is highly regulated by the government, where there is tremendous interest from the politicians and the bureaucrats on various kinds of loans etc., requires a level of resilience, a level of steadfastness and adherence to truth and conviction that have rarely been seen. So therefore I have been an admirer from a distance. Of course in the last few years we have got to know each other better and the more I have got to know him, the more of an admirer that I have become. I think he has demonstrated to India truly that you can become a great bank dealing with Indian bureaucracy, dealing with Indian political leaders, helping India, adding values to both urban and rural India and I think that in my opinion frankly is a much greater contribution than exporting software outside India. That's my view.

Well, first of all, I came from a low middle class family or a poor family. Father was a high school teacher. Eight children, parents and grandmother. So 11 mouths to feed plus a 12th one because my mother practiced what is called 'anna dana'. That means once a week she would invite a child from a poorer family to eat dinner with us. So there used to be seven children eating dinner with us from a poor family. So we never imagined too much about money. We never talked about money. We were taught by our parents about earning respect from the peers, about contentment, about doing the right thing, about generosity. As I often say, Karna is my favorite character in Mahabharata. And therefore when I assembled my younger colleagues, they were all about 10 to 11 years younger than me, five to six levels below me at Patni where I was the group manager. Some of them were trainees, at least a couple of them. And I asked them what is it that you want to achieve if I invite you people to join me in this venture. One said we have to have the highest revenue. Second fellow said we must be the most profitable. Third one said we must have the highest market capitalization. All that. My style was always to listen to my younger colleagues and then say what I wanted because they're all very kind people, very good people, they would generally accept what I said so I always said whatever I wanted to say last. So when it came to me I said I want Infosys to be the most respected company in the eyes of its stakeholders. Then they asked the same question that you asked and that is why is respect very important. I said it's very simple. If you receive respect from customers, then it is only possible if you delivered whatever you promised to them on time, within budget, exceeding the quality and in that case they would want to do more business with you. They want to refer you to their friends and their peers in the industry. Thereby you will get more and more customers, more and more business. If you get respect from employees, to do that you have to be fair to them. You have to be transparent with them. You have to treat them like part of your family. And if you did all of that then they would want friends of theirs who are good and qualified to come and join. If you aim to get respect from investors, they would realize that these are honest people. These people are not going to run away with your money. Therefore, let us keep our investment as long as possible because it's going to multiply. Therefore, you get long-term investors. And if you want respect from vendor partners, you have to be fair to them. You have to be transparent with them and you have to pay them on time. You have to treat them with respect and dignity. And in that case they will understand when you have a difficult time to extend extra credit or extra time for you to pay because they understand that you are a reasonably good person. And if you want respect from the government of the land then you cannot violate any law of the land. And once you do that, they will create more and more regulations that will help you grow. And I said society contributes customers, society contributes employees, society contributes investors, society contributes vendor partners, society contributes bureaucrats, and society contributes politicians. Therefore, earning respect from the society is the most important objective of any corporation anywhere in the world.

Well, you know, as I told you, I was the head of the group and all these guys were five, six levels below me and they had observed how I operated. And when we founded Infosys, I took one-third the salary I was getting at Patni before we founded Infosys. So they realized that I was not in it purely to make money for myself, I was in it for something more noble. Second what I did was I gave each of them 20% higher salary than what they were getting at Patni. Third I did, I distributed equity like never before in this world. I just kept 23%. I must thank my wife because she was extremely kind and generous. She didn't raise any objections and I gave 15% equity to Nandan and Chris. Nandan had recruited as a software engineer trainee and then I gave 19% to Mr. Raghavan and then I gave 10% to the other three. This had never happened in the history of the world that somebody who starts a company, somebody who is five, six levels above others and somebody 11 years older saying that I will be fair to them in terms of equity. That made them realize that I was in it for something more noble than just money. And the way I selected them was by the byline of Infosys at that time, I don't know what it is today but anyway it was 'powered by intellect, driven by values'. I wanted people who are bright but at the same time who are value-based because at the end of the day when you are a small team, when you have to work very very hard, each of us has to have 100% faith in the other members of the team. None of them should ever doubt that somebody else is putting his hand in the till. They have to realize, their families will have to realize that that person alone is the person who is working very hard and rest of them are freeloading on him. So in other words, once you lead by example, once you demonstrate that you have sacrificed a lot more than all those guys, then the faith will be immense. You know they will then follow you, follow your words, do what you say because they realize that whatever I was doing was for the good of the team in the beginning and then good for all the employee group and then it was good for the entire investor community. So I think that I was very lucky that I could get six such people to join me who were both bright and who had values.

Yeah. Well, you know right from the beginning when I selected all the Indians, or rather one of them was older than me, my focus was on austerity. The reason is when you are in any business you have to make money and profit legally and ethically, absolutely, otherwise it's not worth running any business. And that will only happen if you accept deferred gratification. That is make sacrifices today and in the medium and long term you will obtain results that are multiples of whatever sacrifice you ever made. And that's something that I articulated very very clearly because I have found one thing that leaders have to be unequivocal in talking about values. There should not be any confusion in the message that they are giving. Everybody agreed till we reach a revenue of $1 billion and a bottom line of 20% after tax profit of $280 million in 2004, every one of us traveled economy on international flights. We ate at McDonald's for dinner. We took baths at airports. Why did we do that? Because there was a passion amongst everybody that we are onto something noble. And what was that noble star that we wanted to demonstrate? That the only way to solve the problem of poverty in this country is entrepreneurship and creation of jobs with good income. And that was the motivator. Therefore, when you have a noble objective like that, these sacrifices don't come to the front burner at all. They become part of your life. And we all learned to convince our partners. I did not have to because she has always been much more of a generous person than I have been. But others convinced their spouses because we just did not have any vehicle for about 12 years, for the first 12 years of the company. So all this is possible if you have a grand vision, if you have a noble objective, if you have an objective that brings peace of mind, that brings happiness, that brings pride and in some way that makes you worthy of the respect from the society. So I would say that's how we did that. But therefore I told them, I said look right from day one whatever revenue we get we will spend less than that because we have to make profit number one and in some way there was a very valuable benefit from that profit. And I tell you why. After paying the tax, we declare dividend. Remember our equity was just 10,000 rupees. Only 10,000 rupees. And in order to go public at that point of time, we needed to have an after-IPO equity of 30 million rupees or 3 crores and even if we had 60% of that we had to bring our equity to 1.8 crores from 10,000 rupees. So what I did was I said look every year right from 1981 to March 1993 we will control our cost, we will declare dividend, we will have profit, we will declare dividend but all that money you have to put back in the company, not one paisa will be allowed to be retained by you because 20 years from now you will all realize the value of that. So therefore we had a rationale, we had a reason and everybody bought into it.

You know I'm a great admirer of Aditya Puri and he taught all of us a very important instrument to inculcate values in his compatriots. And that was by example. And his belief was, and I agree with him, that actions speak louder than words. Actions are more important than words. So therefore in every situation, if the leader were to demonstrate whatever values he or she wants that his or her organization to be embraced by every employee, then they have to be the first ones to follow that value. Whether it is coming to the office, I was always in the office by 6:20 a.m. 6:00 I used to leave home and 6:20 I used to be in the office and I did not have to tell anybody to come. Never. Everybody knew. Everybody knew you were sitting at the end. Number two, you have to from time to time demonstrate your commitment to the values by your own action because people tend to forget. You know, let's say you go to the office after a year or so, people forget that, they say okay that's all right. So therefore, whenever there was an opportunity for you to lead by example in following good corporate values, you must seize that opportunity and demonstrate. I already told you that we all traveled economy on international flights till we reached a billion dollar of revenue. Similarly, we stayed in the cheapest hotels in the seediest spot of the world, Manhattan. Because we said our philosophy was to reduce our cost. Why was it? Because we said here are all these shareholders who are outside these seven of us. They have trusted us. They have put their hard-earned money and the only way we can enhance their trust in us is to provide them multiple returns. As Ranga pointed out, I'm very very proud of the fact that for 21 years, year after year after year, under my leadership, we provided 47% growth in our earnings. And that's at the end of the day, that's the work of a corporation. That's the responsibility of a corporation because a shareholder at large, a minority shareholder, he or she puts his or her hard-earned money in your company. And if you were to lead a profligate life and blow it up, then you're not a great human being. Because human beings have the ability to observe, the ability to come to conclusions, ability to act and ability to articulate. So therefore we are the most evolved beings and we have to demonstrate our commitment to our community, our society, you know the best. So in some sense I think those things work well. And as I said right from the beginning we wanted to provide employee stock option plan on a scale that had never been done in India and that's comparable to the US. And therefore, we gave at whatever about 10 years ago the value of the stock options that we provided was $19 billion on a market capitalization of about $60 billion. That's not bad. I mean that's almost 30% to the employees. This is not counting my younger colleagues with whom we founded the company but this was the peons, the best peon, the best clerk, the best accountant, the best software manager, every one of them benefited a lot. So I think in some way in order to keep the memory fresh of the values of the organization, the leader has to lead, has to demonstrate his or her commitment to the values from time to time. And finally, as I said, the most important thing that all of you who are going to become entrepreneurs must remember is leaders eat last. Please remember that leaders eat last. In other words, you should be the last person to obtain benefit from the company only after every employee has gotten the amounts may be different based on the contribution, based on the impact of work and all. I think at the end of the day the leaders must eat last. That's a good principle to follow.

Well, you know, right in the beginning I said in my eyes, in my value system, in my reckoning, Aditya is the finest entrepreneur produced by our country post-independence. Because I have not heard a single murmur that he succumbed to the politicians, he succumbed to bureaucrats and gave money which was not, gave loan which was not deserving. And that I think that requires tremendous resolve, tremendous level of integrity, tremendous commitment to values. And that is very very important.

The board of directors in the making of a company that aspires to respect has to look at two important things. One is governance and second is management. Governance and leadership is all about choosing the right objective. Management is about achieving the chosen objective with the best to achieve the best results. Therefore, it is the board that has to critique the strategy. It is the board that has to look at various risks. It is the board that has to look at whether systems of control. I think board has a very very important role in ensuring that the corporate values are maintained. That the board has a very important role in ensuring that there are systems and processes of control, that risk is identified and mitigated, that the reputation of the company is held by and that there is fairness, transparency and accountability exhibited by the management in every decision. Wherever this has not happened, that board failed. I don't need to give specific examples, there are many people here who know it, who have studied a lot and seen that. So therefore I would say that the board owns the responsibility for good governance and it's the chairman who has the responsibility for transparency, for accountability and fairness and to ensure that the management works in the right direction in a legal and ethical way and does not create any disproportionate benefit for itself at the cost of other employees or at the cost of other shareholders. In other words, that there is no related party transaction. I can go on and on but that's so board is most important.

Well, by and large we are economically still up and coming. We're not a, you know, with $2,818 US per capita we are still a very, a country in economic growth we are still somewhat weak. Number two, the moment you know in Canada there is a saying and that is, that means who has money is the guy who calls the shot. That's the reality whether we like it or not that's the reality. So therefore today everybody talks about China. You know, I used to sit on the board of HSBC Global in London and when they spoke about China 30 times, they may or they may not mention India. The reason is very simple. We are small people. China is six times our GDP. China has, you know, produced $1.2 trillion of surplus. $3.6 trillion of exports. US is second with two trillion and India somewhere around 470 and if you add the software thing probably about 600 billion. So if you are an up-and-coming country then people look at you with a certain level of skepticism. Therefore, in order to create Indian brands that are respected and that become popular outside India, we have to be smart. We have to work very hard. We have to have high aspirations. We have to be disciplined. We have to ensure that we bring in innovations, all that. So only when India becomes economically very powerful or India does something unique. Let me give you one simple example of that. You know, I take insulin injections and that comes from Denmark. Novo Nordisk or whatever that is. That's one of the most famous insulin companies in the world. It's a small, Denmark is a small country but they occupied a certain unique space and they did a brilliant job. So in some way the Indian software services industry has moved in that direction pretty well, for which we can all be very proud. However, in services, creation of brand is more difficult than in products. So hopefully at some point of time even the Indian software industry will be able to create a brand out of its services and who knows we may be able to do it in our car manufacturing etc. But that requires global level of quality, global level of value for money, global level of investment in brand creation. I think if we did all of that, we probably would be able to do that.

Okay. Thank you. Learnability is the ability to extract generic inferences out of specific instances and use them to solve new unstructured problems. At the end of the day, the purpose of education is to teach learnability, is to learn new things faster, better etc. So we at Infosys we always focused on education. We didn't do training. We didn't do training because it is the education that helps you learnability. Now what we did first of all all our programs including the foundation program which is a 24-week residential program for anybody, any technical person who joins Infosys, the focus was on education, the focus was on learnability. We didn't teach them Oracle or DB2. We taught them the relational databases, how do they work, what is concurrency, what is recoverability, what is normalization, why do we need that, etc., etc. And second, we created a body of knowledge. I realized pretty early that we in India, we are an oral tradition culture. We do not document things. Historically, if you look at a nation like India, which has had a wonderful civilization of probably 3,000 years, the amount of written material we have is minuscule compared to the Greek civilization, Roman civilization, etc. So what we did was I requested my colleague Kris Gopalakrishnan to design a knowledge management system. Anytime any employee did something new, he or she would create a knowledge nugget and enter into that database which was searchable based on keywords. We realized that just creating a knowledge management system doesn't work. People must have incentive to use that. So what we did was, it was Kris Gopalakrishnan's idea. It's not my idea. So what he did was he assigned a certain knowledge currency, certain amount of knowledge currency to the author of that knowledge nugget and every time somebody used it, that user also got certain knowledge currency because we wanted to improve our productivity. We didn't want people to reinvent the wheel and etc. And at the end of the year, we converted those knowledge currency to actual cash. So a person who contributed 20 new ideas to the company would have 20 times the amount of money compared to somebody who contributed only one idea. Similarly, a person who used that knowledge management system 100 times would have double the amount of money compared to somebody who used it 50 times. So we realized that the human frailties and we said we have to create incentives and we created that. Then I think later on they have taken various other things forward, online learning and all of that. The third most important thing that we did during our time was, this was again the idea of Mr. S. Shibulal. It's not my idea but it is the idea of Mr. Shibulal. He did a brilliant thing. He said a person must be tested by a professional society and has to get a certain, show a certain level of performance if he or she has to be promoted to the next level. It was not, those tests were not conducted by Infosys. They were conducted by let's say chartered accountants of UK or some electrical, IT. They had to pass or every two years based on the promotion cycle, they had to undergo this professional society test and it was open for everybody. These were the guys who took exam. These are the guys who passed or who were eligible. So we tried to bring as much of fairness, as much of transparency and as much of accountability in enhancing the domain knowledge and in many cases learnability.

Yeah, you are cheating and very easy.