• In Conversation
• Top Stories

He is the man who drove Infosys’ revenue growth from $2 million-$700 million in 10 years. A pioneer of unique offshore outsourcing models, Phaneesh Murthy has structured and managed large outsourcing deals for Fortune 500 companies. Here, the CEO of iGate talks to Entrepreneur about his latest business outcome-based model, the Indian IT space, and the entrepreneurial ecosystem in India.

Entrepreneur (E): What are the new entrepreneurial opportunities in India?
Phaneesh Murthy (PM): There are a number of new opportunities coming up in India. Clearly we are seeing new areas emerging which will be in high demand. The entire area of green, whether it is in water, power or lighting, is one such area. A company in each of these areas can be created which would be very large over time. My view has always been that you should take some kind of a discontinuity that is happening in the industry rather than just getting into another space. Today, the entire discontinuity which is happening in green is making a huge impact.

The second opportunity is a whole host of products and solutions addressing the Indian consumer. The Indian consumer is moving more and more into a non-savings society and becoming aspirational. This means a demand for a new set of products and services at different price points.

A third great opportunity lies in products and solutions which can be aimed at any consumer, because 400 million consumers have a device near them at any given point of time. The fact that I can reach them at any time because they have an intelligent device [primarily mobile phones], in itself says you can generate a whole new set of products and solutions effectively. Also, these don’t require high investments and that is why I say it’s an entrepreneurial opportunity.

E. Any opportunities in relation to IT space specifically?
PM: The IT market is very large. The advantage of a large market is that any kind of niche product or solution can make significant headway. While I don’t have any specific advice, the fact is that if you look at what’s happening, there are so many different models that come to India two to three years later than the West while some go from here to the West. So, if you look at the whole spectrum there could be several products and solutions that could emerge. The telecom industry is largely connected to IT anyway, the mobile applications and so on.

E: Will you ever look at sectors other than IT?
PM: Oh yes. I love IT, it was a sunrise industry when I entered it but I have loved being part of companies in the making, industries in the making and even a country in the making. The whole IT revolution really created India. And that has given me a unique amount of passion and pride in what I do. But there could be other industries; I can see myself working in the green space very comfortably. It has a great social cause, it’s good for the environment and at the same time you can make huge profits.

E: How can one bring value addition to IT?
PM: Too often we have felt that value addition in IT means moving from services to products. I have a different view. My belief is that the next big value addition to IT and operations will come from running shared services for companies. This breaks the linearity, allows us to do more productivity and get rewarded for that productivity.

E: Are you seeing a change in the pricing model?
PM: We at iGate are trying to move it from effort-based to a complete outcome-based model. Obviously we all try and push for a discontinuity, because the whole theory is that if you can create a discontinuity then you can occupy a larger share of discontinued space. In the early 90’s offshore companies created an operating model of discontinuity by saying that we will do the same thing faster, cheaper and better. And we occupied a disproportionate amount of that discontinued space. Now I’m trying a new business model–an outcome-based pricing model using technology and operations. I think customers are beginning to warm up to the idea.

E: Why are older companies not prepared to effect a change in the dollar + people model?
PM: Cultural transformation is the most difficult thing in the world, particularly when you have more and more employers. For years training programs for project managers in large companies have been focused on identifying new and more billable hours. When you want to move to an outcome-based pricing model, you have to look at reducing the number of hours. This change in culture is going to be very dramatic. Secondly, very often large companies get their premiums and valuations in the financial market by their predictive capability of revenues. The moment you start pricing on a different matrix all those models have to change and that is going to be a turning point. The fact is that innovation always happens outside large companies and that’s how companies get created. That is the whole model of Silicon Valley and of entrepreneurship.

E: Can you tell us a bit more about the new outsourcing model you are pioneering?
PM: The outsourcing model we are talking about is really the business outcome-based model that uses integration of technology and process. We look at a company, an end-to-end process, the underlying technology, the total cost, what it is trying to achieve and integrate this technology and process, and make it significantly more efficient. The big advantage for us is that we are not trying to make money from the consumer. We and the consumer are both trying to make money from the market, rather than from each other. Secondly, since both of us are working in each other’s interests, we figure out a way to do it more efficiently.

E: What will be the next most disruptive movement in the Indian IT space?
PM: Definitely, shared services. The time has come, the models are emerging. I would say it will emerge over the next two years.

E: What kind of trend do you see for the IT / BPO industry in 2010 since we are just past the recession?
PM: IT spending is back. We expect it to go up by 2-4 percent. Interestingly, this overall increase in spending by many companies is sans job role. So the recovery is happening in a jobless manner. And my analysis is that they are not employing because of concerns of a W-shaped recovery.

Consequently, when there is spending and you don’t want to hire anybody it has to be done by somebody. And that is a third party, that’s where we are benefiting. Also, now less than three percent of operations dollars are spent in India. It is my estimate that this number will go to 15-20 percent over the next five years. I actually believe that BPO will drive more growth of the Indian industry than IT over the next 3-5 years.

E: You have worked with one of India’s most famous entrepreneurs and then been one yourself. Now you hold the position of CEO in the firm that bought your startup. How has your journey been?
PM: Overall, it has been a very exciting journey. When I went to the US I remember going with the knowledge that I had to make the company successful in order to protect my own job. But that is what entrepreneurship is all about. Becoming a CEO is a huge responsibility. The fact is that you start looking at things differently. From taking a slightly narrower perspective, even if you are on the board, you do want to fight for your team.

As a CEO, you have to make sure all perspectives are taken into consideration. It has been a big learning experience for me. The ability to prioritize and allocate resources has also been an interesting learning experience.

E: Is it necessary for someone to be in close quarters to an existing entrepreneur before venturing out on his / her own?
PM: Yes, certainly I think he/she is more likely to be successful. Working with an entrepreneur helps you learn some of the tips, techniques, strategies, and tools to make yourself more successful. But fundamentally, entrepreneurship cannot be half-hearted. It is full passion, complete belief entry.

E: How different is the field for an IT entrepreneur in India versus the U.S.?
PM: The world is flattening, so to that extent the differences are lessening. But over time, the access to capital, partnerships, and product-usage culture are all different. An Indian entrepreneur can make a brilliant product for Indian usage, but it may take him / her a long time to make a product for international usage. This is not because he or she is not technically qualified, but because growing up in a culture of usage of something, it’s important to be able to spot the nuances of what can work and what cannot.

E: Why is funding such a challenge for startups?
PM: The first is that entrepreneurs don’t clarify their ideas. They have to express their ideas in the form of a business benefit, its scale, and how it will change the world. Many entrepreneurs I’ve met find it very difficult to explain their ideas. So if they find it difficult to explain to me, financiers will find it difficult to have enough faith to actually fund them! Secondly, we don’t have enough experienced financiers [VCs, Angels] who know how to evaluate and appraise an idea and judge its true merit.

Over time, we have all become used to asset-based lending and project-based finance. But the concept of the evaluation of an idea is a fascinating concept. It could have been difficult for anyone to grasp that if I build a good search engine it would be worth hundreds of billions of dollars. The early investors in these ideas got it right. So part of the challenge comes from the entrepreneurs who do not know how to express their ideas and the other part of the challenge comes from financiers who don’t know how to evaluate these ideas.

E: So what exactly does the Indian entrepreneurial ecosystem need?
PM: Our ecosystem needs some kind of mentoring arrangement for entrepreneurs to really be able to crisply define their ideas. Then it needs some kind of an angel network to get past the initial hurdles and then a more robust network of VCs and larger funding specialists. Angel investing in India is still very underdeveloped. This is the period where you are incubating ideas and that’s the time when you can get an angel investor to mentor some of your stuff. I don’t necessarily believe that even the ones that exist today are as well tied into the market as they should be.

E: What is your advice to entrepreneurs?
PM: First, choose your partners carefully. Friends coming together to form a venture is not necessarily a good idea. But people with a shared vision coming together is a good idea. Remember, partners will stay with you for a long time, many times you will run into difficult situations and unless you have that shared vision, people will be thinking very differently.

Secondly, however hard anyone may have worked you have to dig deeper into reserves to come up with something more. This is your idea and until you break every wall to get your idea communicated, you should not stop.

Thirdly, the knowledge that by sharing with a few people you can create a larger pie, is important. Too often we don’t like to share because we feel our percentage will come down, but by sharing you can create a larger pie.

E: You have mentioned before that you always wanted to do something in medicine? Any ventures planned?
PM: I got into IIT after my 10th standard. In those days, you were allowed to get into medicine after the 12th standard. My father encouraged me to take the JEE. I got into IIT and peer pressure took over, my friends pushed me into it because I had a good rank. Later, I applied to a few medicine colleges in the U.S. (because in India, you cannot do medicine after IIT), and got accepted at a few as well. But the prospect of 7-8 years more of education was daunting. But I still have my dream. An intersection of medicine, technology and green would be my dream next venture.

©Entrepreneur March 2010

Tags:
iGate, Infosys, IT, Phaneesh Murthy