Phaneesh Murthy on Strategies for Value Creation and Growth in IT Services

Phaneesh Murthy on Strategies for Value Creation and Growth in IT Services

Information technology services have undergone massive transformations over the past few decades. At the forefront of these changes has been industry veteran Phaneesh Murthy. Drawing from his 30+ years of experience, Murthy recently shared his blueprint for creating value and catalyzing growth in IT services at the annual ITServe Alliance Synergy Conference.

Murthy emphasized that market discontinuities have repeatedly created opportunities for agile companies to disrupt competitors. By aligning strategies with technological shifts and global policies, Murthy engineered industry-defining innovations during his time at Infosys and iGATE. He continues to mentor executives on sparking hypergrowth and ending stagnation.

According to Murthy, quality revenue with the potential for growth and margin expansion is key for value creation. This revenue comes from core operations with strategic Fortune 1000 customers through long-term contracts. Murthy also stressed the importance of balancing growth rate and profitability, pointing to the “Rule of 40” where EBITDA margins plus revenue growth should exceed 40.

Drawing from his decades of experience leading disruptive change, Phaneesh Murthy foresees generative AI services creating immense growth opportunities. He specifically called out prompt engineering and reliability validation engineering for generative AI models as strategic areas to build capabilities around over the next few years.

However, Murthy emphasized that capitalizing on new technologies begins with individual drive and ingenuity. He knows firsthand the immense effort required for transformation, having worked 80+ hour weeks for over 30 years. Murthy credits this tireless work ethic as instrumental to his success in pioneering innovations at Infosys and iGATE.

His advice serves both as inspiration and as a warning— Murthy believes companies must run every morning regardless of size or history. Even industry giants need to continually transform through individual performance to stay ahead. Much like during his tenures driving exponential growth, Murthy encourages IT professionals to work creatively and rapidly to spark innovation. By embracing this mindset, providers can harness emerging technologies and sustain value creation amid relentless change.

Phaneesh Murthy began by tracing the trajectory of IT services over the years. As a key player in the industry’s evolution, there’s hardly a better person to examine what worked and what didn’t in the early years of IT services. Murthy emphasized the role of market discontinuities in this evolution. These discontinuities, often driven by technological advancements or shifts in global economic policies, have provided opportunities for agile companies to leapfrog their competition. He gave an example from the early days of the industry:

“There was a business model discontinuity because the accounting firms forced SAP to stop doing their implementations,” Phaneesh Murthy said. ”They created billions of dollars of revenue stream for [companies like] Accenture, Ernst & Young, Deloitte, KPMG, et cetera because they were doing the SAP implementations.” Murthy’s experience demonstrates how successful IT companies have not just adapted to changes but have often been the engineers of these shifts. By anticipating market trends and aligning his strategy accordingly, Murthy’s companies have managed to stay ahead of the curve. Murthy’s explanation of this tactic is not just a history lesson—it’s a roadmap for catalyzing and leveraging future market disruptions to spark growth.

Murthy’s presentation focused on the concept of value creation in IT services. He broke this down into two key components: quality of revenue and the relationship between revenue growth and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins. Phaneesh Murthy explained that quality revenue is sustainable revenue. It comes from core operations and has the potential for growth and margin expansion. This contrasts with lower-quality revenue that might be large in volume but low-margin or non-sustainable. According to Murthy, “quality” revenue determines revenue growth, and companies generating this type of revenue are highly valued. He defines quality by the nature of customers and contracts, emphasizing the strategic value of long-term contracts with large companies.