Still smiling: Can iGate CEO Phaneesh Murthy replicate his success at Infosys

You could call it a bird that can't fly. Or you could call it a dark horse in the great it services sweepstakes. It is a company that has seen five CEOs in five years. That boasts a net profit of a mere Rs 8 lakh on a turnover of Rs 571 crore. Whose onsite to offshore ratio is 46:54. And which suffers from an identity crisis. It is, also incidentally, a company whose largest client is GE, known to squeeze its suppliers remorselessly and that in its latest quarter saw its net profit nosedive by 99 per cent against the same quarter the previous year. You would be right in thinking that this is a bird, which could simply not fly.

But what if you knew that the organisation was led by a new CEO-a marketing livewire named Phaneesh Murthy, committed to getting his company among the front ranks of the it services industry-and that it had recently managed to lure a host of hot-shot execs from the likes of Infosys. That would be reason enough for most to start thinking again.

The Phaneesh Saga

There were a host of expectations as well as a number of unanswered questions when iGate announced that Murthy-the former head of Infosys' marketing in the key US market-had taken over as its CEO almost a year ago. When this correspondent met Murthy at iGate's 14-acre campus at Whitefield in Bangalore, many of those questions lingered on. Two days before the meeting, the company had announced a net profit of Rs 11 lakh for the latest quarter. Still, Murthy is not without his successes in reviving an organisation many were beginning to write off.

The Phaneesh saga began in 1992, when he joined the sales and marketing department of a then-unknown software company, Infosys. The man recalls his days at Infosys and the hard work that went into making the software company the giant that it is today. Murthy says, "In the first 11 years, Infosys had a turnover of $2 million (Rs 8 crore). In the next 11, it became a $700-million (Rs 3,150-crore) company. Before me, Shibu (Lal), Kris (Gopal Krishnan) and Nandan (Nilekani) had all headed marketing operations in the US. It was during my leadership, however, that we really had much success." At the pinnacle of his career at Infosys, where he was even tipped to be the next managing director, disaster struck. Allegations of sexual harassment led to his resignation from Infosys. His career hit an all-time low.

After a hiatus, during which he, along with wife Jaya, launched a strategic advisory firm Primentor, Phaneesh decided to go in for a piece of the action himself. An old friend, Tiger Ramesh, who was the head of Ideaspace, a software company of the GMR Group, lent a helping hand. GMR had sold its stake in Vysya Bank to ING Group for Rs 560 crore in cash and was looking for fresh investment avenues. Thus was born Quintant with an investment of $30 million (Rs 135 crore). Seven months after its launch, it was acquired by iGate and Murthy was named its CEO and MD.

The iGate Story

In 1993, the US-based promoters of iGate, Ashok Trivedi and Sunil Wadhwani, set up Mascot Systems. By 2000-01 Mascot's topline had reached Rs 340 crore. The same year it went public and raised Rs 144 crore. Mascot continued to be dogged by problems. The company's top management was unstable. In five years, the company saw as many CEOs (see Too Many Heads). Immediately after taking over as the CEO in August 2003, Phaneesh asked that certain systems and procedures be changed in sales reporting, and was surprised months later when none were implemented. Murthy says, "The concerned person felt that since CEOs came and went, I would also go." The individual was sacked immediately. "We wanted to send a clear message. As long as I stayed, I would run the show in a certain manner. Those who didn't fit in with my style simply had to go."

One major irritant was the micro-managing mindset of the promoters. A former CEO recalls: "Factions and multiple sources of authority abounded in the company. There was no clear delineation between ownership and management." A lacuna, which Murthy says has been completely rectified. "In all fairness to the promoters, they have never interfered in the day-to-day functioning of the company after I took over. I have been given complete freedom."

Another problem faced by iGate was the offshore and onsite dilemma. Offshore work (in India) offers higher margins, whereas onsite (usually the US or Europe) work means higher billing but lower margins. Which is why almost all Indian companies have an offshore to onsite ratio of 70:30 (for Infosys, it was 70.4 offshore and 29.6 onsite in the last quarter). iGate's offshore to onsite has always been the opposite. When Murthy came in, it was at a high 60:40, though in the last one year it has come down to 46:54. "My goal now is to reduce this to 40:60 and lower," says Mohan Shekar, Chief Delivery Officer of iGate.

A FRIEND IN NEED... Murthy has tapped into his former company Infosys to hire key execs.
	Madhav Mohan
	At Infosys	Head Sales (Canada)
	At iGate	Head Sales (North America)
	Hired	Mid-2003
	Jessie Paul
	At Infosys	Global Brand Manager
	At iGate	Global Marketing Head
	Hired	Mid-2003
	Mohan Shekar
	At Infosys	Head (North America Delivery)
	At iGate	Global Delivery Head (IT Services)
	Hired	End 2003
	Srinjay Sengupta
	At Infosys	Head Sales (Europe)
	At iGate	Global Sales Head
	Hired	Mid-2004

A much more serious problem arose from the fact that iGate had multiple identities. The group was functioning more as a federation of companies than as a single unit, and customers had to go through multiple contact points before they could get through.

A year on, iGate claims that the issue has finally been resolved. For instance, Symphoni, which had a turnover of Rs 48.5 crore last year, and Red Brigade, with a turnover of Rs 22 crore, have been bought over from the promoters for $0.75 million (Rs 3.4 crore). "All subsidiaries have been merged into the parent company," says N. Ramachandran, CFO of iGate.

All these problems, Murthy can with some justice claim to have resolved. Today, the 3,550-strong company is in the hiring mode again and has ambitious plans for growth. The markets, however, seem reluctant to buy this supposed success story. iGate's market capitalisation is at Rs 645 crore, a factor of less than 1.2x of sales compared to say 22x for Infosys, and has belied the hopes many had when Phaneesh took over. iGate still lags behind in physical infrastructure. The new team has committed itself to a capex of Rs 45 crore, including Rs 9 crore for the 14-acre campus at Whitefield in Bangalore. But the results are still a long way off.

Fixing A Running Car

A confident Murthy is playing for time. Murthy says that he knew all about the problems at iGate when he took over as its CEO. "We have restructured, created infrastructure, improved morale and bagged new clients." Ask him about the dip in revenue and profits and he shoots back, "It is like trying to fix a car while it is running. It's not easy."

Another area of concern remains the ability of iGate to retain the GE account, which constitutes nearly half its revenues. Using his legendary persuasive skills, he has managed to swing off a three-year fixed price contract, giving breathing time for his company. When asked about GE's penchant for putting the squeeze on its suppliers, he answers with a shrug, "You can't change all the four tyres when the car is running." Numbers, however give the game away. iGate's onsite billing rates are $55 (Rs 2,475) per hour against the industry average of $70 (Rs 3,150) and the offshore billing rate is $18.2 (Rs 820) per hour against the industry average of $22 (Rs 990). Murthy points out the silver lining: "Look at the quality of revenue, not quantity. Our aim is to be a profitable company, not just one with a huge topline."

To achieve future growth, iGate has taken on board a host of senior Infosys execs and is seen as being in the process of luring several more. Murthy, however, denies being personally involved. iGate's new marketing head Jessie Paul was the global brand manager at Infosys. Paul says, "At Infosys, there were no new challenges. Here, I am creating things from scratch." The sentiment is shared by Mohan Shekar, who used to head the Northern American delivery operations for Infosys and is now the global delivery head at iGate: "The scope for executing new things is more at iGate. The freedom to set up new processes is something I've always coveted." Ex-Infoscians form 5 per cent of the company's 3,550-strong workforce.

Another of Murthy's priorities is the new-found focus on what he calls Business Services Provisioning. A key differentiator that iGate says will ensure its success. Tiger Ramesh, Head of BSP/BPO operations, says, "Here we create IP, and though upfront costs are involved, savings to customers are higher over a number of years." For all this, iGate would be just another mid-sized software services company if it were not for the reputation Phaneesh Murthy has in the marketing circles. "We will be a profitable entity by year-end and restructuring will pay off over the next few quarters," he asserts. The jury is still out on that.