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IndianInformation Technology Industry has two major components: IT Services and BPO (Business Process Outsourcing) services. From a contribution of 1.2% in FY1998, this sector has grown to contribute 7.5% of the GDP in FY 2012 (IBEF Report, August 2013). This has also led to India having closer economic ties with USA and the European Union. This industry is led by the major players: Tata Consultancy Services Limited, Infosys, Cognizant Technology Solutions, Wipro Limited, HCL Technologies and Accenture
We would discuss Infosys – its company overview, position in market, business strategy, competitive scenario and future strategy in detail in this report.
Infosys was established in 1981 by seven engineers after they had quit from another leading IT firm in India. Since then it has grown and has diversified it business across verticals and geographies to become one of the leading IT companies in India now providing It and business solution across the globe with operations in more than 50 countries.
Infosys has come up with a new business strategy, Infosys 3.0 which is not working too well for them and also with the arrival of Mr. S.D. Shibulal as the CEO in April 2011, the company is facing heat with weak leadership. Infosys now would need to adopt one of the two alternative strategies or a mixed option of some elements of both to get over this slow period and enter fast growth mode.
The strategy suggested involves Integrating Solutions, cutting margins and focusing on Innovation in services OR Inorganic growth, focus on innovation through new technology. Another option is a combination of both of these strategies which would mean focusing on new technology and innovation, acquiring new companies in different regions and maintaining client relations to increase the magnitude of repeat business.
Scope of Discussion
This PRT503 entrepreneurship assignment samplewould discuss the current scenario of Indian IT industry, position of the big players in this industry and their future strategies. It will also discuss the current issues faced by Infosys and the solutions for the same. The scope also includes the selection of an ideal business strategy for Infosys to overcome this slow growth period.
Since only data available to public can be used, this report would be based on secondary research on Annual Reports of companies, articles by newspapers, financial websites, third party industry and company reports and data available on the internet.
Company – Infosys
Infosys (formerly known as Infosys Technologies) is an Indian multinational headquartered in Bangalore. It was incorporated as "Infosys Consultants Pvt Ltd." in 1981 by seven co-founders after resigning from Patni Computer Systems. The co-founders are: N. R. Narayana Murthy, K. Dinesh, Nandan Nilekani, S. Gopalakrishnan, N. S. Raghavan, S. D. Shibulal, and Ashok Arora. In March’13 Infosys was the sixth largest publicly traded company with a market capitalization of $30.8 billion (Infosys Annual Report FY 2012-13).
It follows a hierarchicalorganization structure. The major products for this company are mainly providing IT services and consulting to its clients. The clients are all over the globe and the company follows a global delivery model in order to meet clients’ demands on time.
Lately, the company is facing slowdown due to global recession as well as strong competition from peers like Cognizant Technologies and Tata Consultancy Services. Company is also facing steep attrition and is not able to retain its top talent; even the top leadership is not stable at present.
Out of the 69 sales offices, Infosys has 2 sales offices in India and the rest 67 outside of India. Also, out of its 87 global software development centres 32 are in India and 55 spread outside India. It has made 4 major acquisitions since 2003 (Infosys Annual Report FY 2012-13). The major initiatives by the company are:
Infosys Foundations: Infosys Foundations was established to support the underprivileged sections of the society by Infosys in 1996. This foundation is related to programs regarding Education, Health care, Rural Development, etc. It was incorporated first in Karnataka and then was extended to Tamil Nadu, Andhra Pradesh, Maharashtra, Odisha and Punjab (Infosys Annual Report FY 2012-13).
Academic Entente: Academic Entente (AcE) is the arm of Infosys’ Global Academic Relation team which forges with academic institutions and explores educational and co-creational opportunities between these partner institutes and Infosys. The collaboration also extends on technological, research, conferences, globalization initiatives, etc. fronts (Infosys Annual Report FY 2012-13).
Infosys Labs: Global Innovation Hubs and Research Labs have collaborated to organize Infosys Labs. In addition to the collaboration with these labs, Infosys Labs works in association with many universities across the globe (Infosys Annual Report FY 2012-13).
Infosys Prizes: This is an annual award which honours scientists, engineers, researchers and social scientists in India given away by the Infosys Science Foundation, set up by Infosys in February 2009 (Infosys Annual Report FY 2012-13).
Goals and Objectives
In 1981, Infosys was started by seven engineers with the aim of building and implementing great ideas that enhance lives through enterprise solutions and drives progress for clients.
Infosys believes that its responsibilities extends beyond their business also which led to the establishment of Infosys Foundation. This is main reason for behaving honestly and ethically with all its stakeholders (Infosys Annual Report FY 2012-13). The vision statement of the company is:
"To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people."
According to the annual report of Infosys, FY 12-13, the mission of Infosys is to deliver greater value to their clients and stakeholders. This tireless commitment to new ideas is in their DNA. Infosys – Is a company of relentless innovators on a mission.
- Driven by innovation, Infosys has established as one of the top three companies among Indian Offshore companies by delivering quality services decade after decade
- Infosys in the last decade has been able to build brilliant and well defined service portfolio based on solid capabilities including implementation of processes and best-of-the-breed teams in all its key verticals like Retail, BFSI, Oil and Gas, etc (Money Control, June 2013)
- Infosys has one of the strongest man power in the globe with approximately 1, 56, 700 employees in India and across the globe
- This year Infosys has dedicated more than $100 million to support and implement innovative ideas coming from Big Data, Mobility and cloud (Money Control, June 2013)
- With no debt and approximately $4 billion cash in hand, Infosys is all set make some more strategic acquisitions in European and other markets
- With around 800 active clients, Infosys enjoys approximately 98% of its business from existing clients out of 12 are $100 million plus business providers (Infosys Annual Report FY 2012-13)
- Leadership:Since April 2011, S.D. Shibulal has taken over the role of CEO of Infosys but has not been able to meet the clients expectations. The margins and growth has been deterring since then and the offshore competitors like TCS, HCL, etc. have been gaining and continue to do better (Money Control, June 2013)
- The gross margin of Infosys has declined from 41% to 37% in FY 12-13. After withdrawing EPS recently the company is expected to grow at 6 to 10% which is below the industry growth rate (Infosys Annual Report FY 2012-13)
- On the annual basis, the pricing is already down by 3% and is expected to go even further down. This would in turn impact margins and profits (Infosys Annual Report FY 2012-13)
- Lower Utilization: Infosys, being a service based company should be on high alert after reporting a low utilization. In service based industry, lower utilization puts a lot of pressure on the business development team. Thus Infosys should also focus on developing more business to improve resource utilization (Money Control, June 2013)
- Infosys has more than intangibles worth more than $2 billion on its balance sheets, majority of which has come from its acquisitions. Infosys should realize that this type of strategy would result into cash erosion (Infosys Annual Report FY 2012-13)
- In the last of FY 12-13 (Q4), Infosys has seen a loss of $8 million due to volatility in Euro and Pound against Dollars
- Infosys has started investing the new and emerging technologies like cloud and Big data, which would in long term impact the companies standing amongst the competitors
- Infosys has a huge opportunity in product and platform segment amounting to a booking of about $685 million. This has grown by 12.4% over last year (Infosys Annual Report FY 2012-13)
- Infosys has best-of-the-breed teams which focus on Innovation which is also their main vision, to satisfy and help their clients to grow with innovative ideas
- Strategic Innovation:Infosys started acquiring firms and improving its top line in the year 2003 and would continue to strategically acquire firms to strengthen its grip in the market and improve its market share
- The biggest threat in the last decade was the slowdown of global economy. While the US economy has shown signs of improvement, European economy has still not been able to catch up (Money Control, June 2013)
- Competitor firms like Cognizant and Accenture are able to offer more consolidated but well differentiated offering and services to clients which in turn has resulted into reduced budgets for Infosys
To analyse the external factors that can impact Infosys, we have done PESTLE analysis:
- Indian political system is stable but the only threat is that it runs on coalition basis which makes it prone to instability while not resulting into the same till now
- US government has recently declared that US companies outsourcing IT work to any other location would not get tax benefit, which would impact on the business from US in the long run (Money Control, June 2013)
- Government institution and establishments like PSU, etc. have been instructed to give the IT related work to Indian IT companies which can benefit Infosys
- There is threat in many countries that do business with Infosys of terrorist attack leading to war (Money Control, June 2013)
- The demand of global IT spending has started to again rise after the global economic slowdown
- NASSCOM has estimated that the Domestic IT demand of India would grow by 20% year-on-year (NASSCOM Annual Report 2013)
- Currency fluctuations have negatively impacted the business for Indian firms as rupee has become more weak over the last decade (Money Control, June 2013)
- Real Estate prices has reduced after the economic slowdown resulting in reduced rental prices for the companies (First Post, April 2013)
- The attrition rate has also come down after the economic slowdown and the cold job market
- IT companies have become more attractive due to cost advantage and a modular approach provided to the client
- India has the linguistic advantage as English is the most widely used medium of education in India and India has one of the largest English speaking working population
- IT education is cheap and available at thousands of technical institutes and universities across the nation
- India has the advantage of the youngest working age groups which leads to cheaper human resource, better educated people at all levels and more enthusiasm and energy at the work place
- India has one of largest pool of IT graduates which become skilled IT professionals every year
- As per NASSCOM Strategic Review Report, India in one of the very few countries to have a growing share of working population among its total population (NASSCOM Annual Report 2013)
- India has world’s second largest networks of telephones with world’s lowest call rates. The subscriber base has already crossed 800 million, milestone in 2013. Technologies like 3G, VPN and Wi-max are poised to grow in the future and this would result in further strengthening the telecom network of India
- India is well connected with good and growing internet penetration. India has a good network of undersea optical cables which was established after the IT revolution in 1990s
- Cloud and Big data are some of the technologies that are having great potential to grow and are now within the reach of Indian IT companies. Infosys has already started stepping on this path to diversify its business and include solutions basis these technologies (First Post, April 2013)
- IT SEZ requirements:SEZ can be set up by IT companies with a minimum area of 10 hectares. This will lead them to be entitled to a host of tax benefits and fiscal benefits (Money Control, June 2013)
- Indian IT companies are many times criticized for the contract or bond that employees have to sign for joining the firm according to which they would have to serve a lock-in period of some years or months with the company. This is not legally required but is done by the company so that they can utilize the resource trained by them in the best possible manner and can have a better scheme of resource planning (First Post, April 2013)
- Indian government is working on improving the IT Act to improve the data security and transmission facilities in India which could work as a huge plus as the credibility of Indian IT companies would increase many fold after this is implemented successfully (First Post, April 2013)
- Companies that operated in Software Technology Parks (STPs) scheme got a tax benefit till 2010 and now new amendments are made for them so that they can get some support from the government (Money Control, June 2013)
Companies have now been focusing on energy conservation, reducing their carbon footprint, water utilization, paper recycling, etc. to help and make their contribution for the betterment of the society.
Thus, this analysis shows the factors that would impact the condition of Indian IT companies and how Infosys can build strategies to make its way to be the leader of this industry by reading these factors in its analysis
Existing Business & Customers
Infosys has had a low decibel year in FY 12-13. The total income increased at 17.6% over last year and software export revenues increased by 17.8% over last year. Out of the total income, 63.8% came from North America, 21.8% from Europe, 2.3% from India and 12.1% from the rest of the world. The revenues from India grew by 12.6% over last year (Infosys Annual Report FY 2012-13).
Thus, the biggest market for Infosys in North America and with the economy reviving in the country, it is expected that the next year would be even better in revenue than this year. 97.8% business was derived from repeat customers and only 235 new clients were added to the portfolio, which means that there is a need to focus on new business acquisition and the Business Development team has to really start generating some results in the next fiscal year to at least maintain, if not improve the standing of Infosys in the Indian IT Industry (Infosys Annual Report FY 2012-13).
Potential Business & Customers
Since 97.8% business was generated from repeat customers, these are the mainstay of business for Infosys. Though, the focus should be on generating new business, but maintaining relationships with the existing clients is even more important. The clients now look for consolidated solutions and competitors like Cognizant and Accenture have started catering to this need of the client with consolidated but well differentiated business solution, which means a cut in the revenues of Infosys from these big ticket clients (IBEF Report, August 2013).
Another potential area of business is in the development of new technologies which are poised to replace the existing ones in the near future. Though, Infosys has set aside a sum of $100 million of implementing innovative ideas, these should mainly revolve the ideas developed to incorporate the new technologies like cloud and big data into the business strategies of the clients and providing innovative business solutions around them.
Infosys 3.0 Strategy
This strategy involves the following directives (Infosys Annual Report FY 2012-13):
- Infosys will now not only focus on providing software services and solutions but also start with providing transformational business solutions to its clients. Thus, along with the IT services, Infosys would partner in business process improvement of the clients
- Infosys would aim to transform into a complete business solution provider by the next fiscal year
- Based on current market needs, Infosys would focus more on the new technologies like cloud or big data techniques to provide innovative and sustainable business solutions to the clients
- Infosys has recognized that its groups providing learning solutions and business platform solutions would be the growth engines of the future
- Sine clients now want consolidated business solutions, Infosys has also consolidated its verticals into four:
- Financial Services & Insurance
- Energy, Utilities, Communications and Services
- Retail, Logistics and Life Science
- Infosys Public Service subsidiary is one more vertical which will scout for US government public service work
- Infosys has grouped its offerings into three groups:
- Business Operations (maintenance, infrastructure management, application development, etc.)
- Business Transformation (systems integration, consulting work, enterprise solutions, etc.)
- Business Innovation (products, platforms and solutions)
The 5 main competitors of Infosys are TCS, Wipro Limited, Cognizant Technology Solutions Corporation, Accenture and HCL Technologies. We will look at 3 of these competitors, one at a time:
Tata Consultancy Services Limited
It is an Indian multinational IT services, business solutions and consulting company, headquartered in Mumbai, established in 1968. It operates across 44 countries through its 199 branches across the globe (TCS Annual Report FY 2012-13). TCS Ltd. is the largest company by market capitalization in Indian IT Industry. It has a long list of acquired companies and has made a profit of 13.6% over prior year, which in absolutes is very high compared to Infosys. TCS is also trying to consolidate its services and the advantage for TCS is that it has more number of products and services than any other company to fulfil the requirements of the client. It is also one of the largest recruiters in India which gives it a huge pool of IT professionals to choose from.
Wipro Limited (formerly Western India Products Limited) was established 1945 is an Indian multinational which started business in providing information technology (IT) consulting and outsourcing service in early 1980s company. Its headquarter is located in Bangalore, Karnataka. The company has close to 145,000 employees serving over 900 clients with a presence in 57 countries. It is the third largest IT services company in India. It grew by 18.2% in last fiscal year (Wipro Annual Report FY 2012-13).
Wipro Limited’s Strategy is geared to address the elements of ‘Where to Win’ and ‘How to Win’. The ‘Where to win’ addresses the areas we want to prioritize across 3 categories (1) Industry segments, (2) Service & Solution offerings and (3) Operating countries. Market Attractiveness and our Ability to Win in these markets given our capabilities are the 2 key dimensions that decide the area of our priority. The ‘How to Win’ defines the specific actions and the tactics we will drive, which brings the Strategy to life.
Cognizant Technology Solutions Corporation
It is an American multinational company, headquartered in Teaneck, New Jersey; specializes in information technology, business process outsourcing and consulting services. Cognizant witnessed a fast growth period during the 2000s which led it to become a Fortune 500 company in 2011 (Cognizant Annual Report FY 2012-13). Established in 1994, Cognizant Technology Solutions Corporation took the inorganic growth route by acquiring 17 companies in the last two decades. Out of these 9 were American companies, 5 European and 3 Indian companies. Thus, it had gained market share by acquiring companies in different regions of the world and then building on their business. It is a customer centric company that emphasises a lot of value in collaboration, empowerment, transparency and integrity. It has gained 20% in the last fiscal year, which is at a faster rate than Infosys and industry standards.
Thus, the main competitors are trying to align their products with the new technologies, growing inorganically by acquiring firms in different regions of the world and developing new business by being customer centric.
Diversification, Acquisition and Restructuring
Infosys is not emerging with a collaborated approach of providing business solutions and is also diversifying by focusing on providing business transformational solutions. Its acquisitions till date have been (Infosys Annual Report FY 2012-13):
- Expert Information Services:Australia based IT services company was acquired for $23 million in December 2003
- McCamish Systems:Atlanta based company was acquired by Infosys BPO for $38 million in December 2009
- Portland Group:Australia based provider of strategic sourcing and category management services was acquired by Infosys BPO for AUD 37 million in January 2012
- Lodestone Management Consultant:Infosys acquired this Switzerland based company in September 2012 for $345 million
Infosys has only 2.3% of its business coming from Indian clients, which grew by 12.6% in this year while the rest of its business grew by 17.8% from outside India. Thus, the market outside India has grown more and has provided 97.7% of the business, Thus, it becomes imperative to have a strong International strategy for the coming year (IBEF Report, August 2013). Looking at the industry trends and strategies employed by other IT companies, Infosys can also expand inorganically and acquire high potential companies and build on their clients to acquire new set of clients and improve standing in that region by providing best-in-class Infosys solutions to these newly acquired clients.
Also, Infosys can look at generating more business from the repeat clients by expanding the scope of business from them and introducing it new and innovative services based on latest technology and more integrated business solutions.
Recommendations for Business Strategy
The IT and ITES sector has become the growth engine of the Indian economy and is set to grow at a higher rate in the next fiscal year than the last five years. Global Economy is getting out of the slowdown and would catch up in the next fiscal year to provide better growth rates in this industry. In this time of preparing ourselves to face the competition at the right time, Infosys is struggling with some issues like weak leadership, strong competition and low margins.
To deal with these concerns, Infosys can focus on one of the following two strategies:
- Integrate Solutions, cut margins and focus on Innovation in services:This strategy would involve consolidation of the services provided by Infosys into fewer heads and selling the bunch of services to the same clients at lower costs. This would cut margins but would increase the business generated from repeat clients. Also, cost saving new processes can be coined using the innovative ideas of Infosys to maintain margins and then also cut cost to the clients. This may also lead in cost leadership and then after a certain equity is developed, the lost margins can be slowly recovered in the market
- Inorganic growth, focus on innovation through new technology:This strategy has worked for some of Infosys’ main competitors, where they have acquired companies in different regions of the world and have built better relations with their clients. This would diversify business, increases the sharing of best practices, provides better foothold in the region where the company is acquired, improves the good will of the company and increases the brand equity in the market. The at would second part of this strategy is to invest in developing new technologies that would drive the business in the future so that it would be easier to maintain business with the existing clients in the future, even when the new technologies are implemented by competition and also it might help in generating new business
The ideal strategy that we would suggest to Infosys would be to find a mid way between these two options, so that it can maintain the business from repeat clients, generate more business from them, develop new clients, acquire firms in different regions simultaneously diversifying it portfolio of services and invest in the technologies of the future to maintain what it has built over the last three decades. The Infosys 3.0 strategy can work only if the clients start trusting their collaborated products and if they can promise to work like their clients business partners providing business solution and not only just IT solutions.
- Money Control, June 2013 http://www.moneycontrol.com/news/business/what-is-infosys-30-strategy_887924.html Accessed on: 21st September 2013
- First Post, April 2013 http://www.firstpost.com/business/murthy-had-to-return-as-infosys-3-0-strategy-hasnt-delivered-832775.html Accessed on: 21st September 2013
- Infosys Annual Report FY 2012-13 http://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/Infosys-AR-13.pdf Accessed on: 21st September 2013
- Wipro Annual Report FY 2012-13 http://www.wipro.com/documents/investors/pdf-files/Wipro-annual-report-2012-13.pdf Accessed on: 22nd September 2013