Strategic Management Project on Infosys
NMIMS MBA Capital Markets2008-10
Group Members:Parul Bhatnagar(04) Chetan Ganatra(06) Varun Goyal(07) Siddhartha Jha(10) Saurabh Kumar(14) Amish Pansuria(22) Shreedhar Rengarajan(24)
IT Industry Overview » » The total total revenues revenues for for the Indian Indian IT industry were around US$ 71.7 billion in 2008-09. » Contributi Contribution on of IT industr industry y to India’s gross domestic product (GDP) has grown from 1.2 per cent in 1997-08 to an estimated 5.8 per cent in 2008-09. » The Indian IT industry has been growing at a compound annual growth rate (CAGR) of 27 per cent for the last five years. » »
IT Industry Overview Overall Revenues by Segment Segment in in $(Bn.) $(Bn.)
CAGR :27%
Advantage India » Cost advantage » » •Cost of an engineer is about 20 –40 per cent of the comparable cost in European Union (EU) » » •Selling, •Selling, general general and administra administrative tive costs approximately 80 per cent of comparable cost in EU » » •Average •Average offshor offshore e billing billing rate at US$ 20 to 35 per hour; about 50 to 70 per cent lower than EU »
Ease of scalability
•6,75,000 technical graduates per annum, of which 4,00,000 are engineers •Over 50,000 MBAs graduating per annum •Indian IT industry is expected to add 40,000 employees in 2009-10.
Advantage India
India topped the A.T. Kearney Global Services Location Index 2009, beating 49 other countries of the world, emerging to be the destination of choice as an off shoring location of global IT/ITeS power houses.
Vision And Mission » Vision “To be a globally globally respected respected corporatio corporation n that provides provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people." » » » Mission Mission "To achieve achieve our objectives objectives in an environmen environmentt of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large."
Values » Infosys’ value system is best articulated by the acronym C-Life – Customer Delight, Leadership by Example, Integrity & Transparency, Fairness and Pursuit of Excellence. » » The
major major objective of the company is to become India’s most respected company.
» » Infosys deliberately defocused on revenue and profits. Their goal was to do everything by the book.
Introduction to Infosys ØInfosys ØToday, oday,
Technologies Technologies Ltd. was started in 1981.
it is a global leader in the "next generation" of IT and consulting.
ØInfosys
defines, designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. ØInfosys
serves the client globally and is one of the pioneers in strategic offshore outsourcing of software services Ø ØInfosys
pioneered Global Delivery Model (GDM)
Milestones
In 1987 Infosys got its first foreign client. In 1993, Infosys became a public limited company and received ISO 9001/TickIT 9001/TickIT certification. In 1999, Infosys crossed $100 Million and was listed on NASDAQ. In 2006, Infosys completed 25 years of its existence and its revenues crossed $ 2 billion. Today Infosys has more than 1,03,078 employees and has presence in more than 20 countries across the world. Its corporate headquarters is in Bangalore.
Awards and Achievements Achievements
Infosys moved up to No. 14 on FinTech FinTech 100. Infosys was awarded the ‘India’s ‘India’s best company to work wor k for’ for ’ in 2009. Infosys entered the Balanced Scorecard Hall of Fame for Executing Strategy on the strength of its innovative strategy planning and execution capabilities. Infosys was honored with the Sharpening Brand and Competitive Differentiation Marketing Excellence Award Award from the Information Technology Services Marketing Association (ITSMA) A leader in SAP implementation services.
Infosys - Business Lines Insurance Bankin Communicat Energy, Retails, Man New India Healthcar g and ion Media utilities Consumer ufact Market Business Unit e and Life capital and and Goods and uring s and Sciences Market Entertainme Services Logistics Service s nt s
Consulting Solutions (CS) Enterprise Solutions (ES) Product Engineering and Validation Services (PEVS) – PED, PLES, IVS Infrastructure Management Services (IMS) Software Engineering and Technology Labs (SETLabs) System Integration Services (SI) Corporate Sales and Marketing (CSM)
Geographical Presence (Revenue)
North America
63.2
62
63.3
64.8
65.2
Europe
26.4
28.1
26.4
24.5
22.3
India
1.3
1.3
1.6
1.7
1.9
Rest Rest of the the 9.1 World
8.6
8.7
9
10.6
100
100
100
1 00
Total
100
Revenue Segmentation 2009
Geographical Presence (Service Delivery) » Infosys has presence in over 31 Countries. » Infosys has expanded in low cost service centers like China, Philippines etc.
Financial Performance Revenues
Rs 20766 Crores
PAT
Rs 5819 Crores
EPS
101.58
Total Assets
Rs 17809 Crores
Cash and Cash Equivalent
Rs 10289 Crores For Year Year 2009
Source : www.moneycontrol.com www.moneycontrol.com
Financial Performance 42.4
45.4
48
51.5
6
5.7
4.7
4
24.9
23.8
21.1
19.7
6.3
4.9
4.4
3.6
2.2
1.6
1.6
1.8
3.6
2.8
2.3
1.7
6.8
7.5
6.9
5.9
3.9
4.7
7.1
8
Total Total Services Services
96.1
96.4
96.1
96.2
Product revenues
3.9
3.6
3.9
3.8
Total
100
10 0
10 0
100
Financial Growth
Revenue Break up as per Services offered in 2009 2 009
Industry Segmentation Performance
Source – Annual Financial report Infosys, 2009
S.W.O.T. Analysis » Strengths:» Cost advantage advantage – Presence Presence of Infosys in India is key to its success » Breadth of service service offering – end to end end solutions including high end services like IT consultancy and KPO » Quality and maturity of process process – Infosys has quality standards such as CMM Level 5i to differentiate from other competitors » Global and 24/7 delivery capability – excellent internet backbone and telecommunications facilities enabling companies to develop 24/7 delivery capabilities capabilities from India itself
S.W.O.T. Analysis » Weaknesses:» Excessive dependence dependence on USA for revenues revenues – US Companies are cutting down IT budget hence revenues to be hit hard for Infosys » Excessive dependence on BFSI sector for revenues – Banking sector is facing a crisis globally and is going to spend less on IT » High rates of attrition attrition – Although slowdown in global economy has lowered attrition rate but the industry still faces high attrition rates as compared to other sectors » Decreasing competitive advantage – rising salary expenses is taking away the cost advantage enjoyed by Indian companies (including Infosys).
S.W.O.T. Analysis » Opportunities:» Greater scope for product innovation » Increased focus on high end work like consulting consulting and KPO » Domestic demand for IT services is to grow at 20 % » Greater scope to service domains other than BFSI such as Transportation, Infrastructure, etc. » Satyam fiasco – Likely to have positive impact on business considering corporate governance, possibility of shifting of business, getting higher incremental business from overlapped clients, and winning new business from new clients
S.W.O.T. Analysis » Threats :» Global Global economic economic slowdown slowdown may continue continue for several several years – hence low IT spending globally » US Govt. Govt. agains againstt outsourcin outsourcing g » Shrinking Shrinking margins margins due to rising rising wage wage inflation inflation » Rupee-dol Rupee-dollar lar movement movement affects affects revenue and hence hence margins » Increased Increased competition competition from foreign foreign firms like Accenture, Accenture, IBM etc. » Increased Increased competition competition from low-wage low-wage countries countries like China, Indonesia etc.
Porters Five Forces Model Threat of Substitutes: 1.Other 1. Other offshore locations – Low Cost Locations like Eastern Europe, Philippines and China. 2.Price 2. Price quoted is the biggest Differentiator.
Bargaining Power of Suppliers: 1.Due 1. Due to Slow Down, Job Cuts, layoff & bleak IT outlook 2.Demand 2. Demand Supply is not favorable to employees 3.Availability 3. Availability of vast pool of talent.
Bargaining Rivalry among Firms:Power of Customers: 1.Large 1. Large Number of IT Companies vying for projects – High 1.Low 1. Low Cost 2.Huge 2. Huge Decline in IT Expenditure 2.Commoditized 2. Commoditized offering 3.High 3. High Industry growth
Barriers to Entry: 1.Low 1. Low Capital Requirements 2.Large 2. Large value chain for small enterprises 3.MNCs 3. MNCs are ramping up capacity and employee strength
BCG Matrix – Infosys (USA) HI G H Busines s Growth Rate
Consulting, KPO
BPO
Package Implementation
L O W
Maintenance Application & development, Software Products
NONE
HIGH
LOW Market Share
BCG Matrix – Infosys (India) HI G H Busines s Growth Rate
Software Products
Maintenance Package Implementation
L O W
NONE
Consulting, BPO, KPO H IGH
LO W Market Share
McKinsey’s 7 S Model Style - LEADERSHIP L EADERSHIP “Infosys Leadership Institute” open door policy, continuous sharing of information, takes inputs from employees in decision making, builds personal rapport with employees
Staff – HUMAN RESOURCES
“Knowledge Based Industry” (90% are engineers) Emphasis on academic records Technical skills Ability to learn 2.65 per cent of its revenues on up gradation of pl skil skills ls
McKinsey’s 7 S Model
McKinsey’s 7 S Model
Strategy
» » » » » »
Client Client focused focused strategy strategy (custom (custom built built soft wares) wares) Qualit Quality y drive driven n mode modell Strong Engagements with existing clients Value added services services to new client clients s Geographical Expansion Enhanced Solution Set » » » »
Consulting Business Process Management Systems Integration Infrastructure Management
» Deep Industry Knowledge » Brand Visibility » Pursue Pursue alliances alliances and strategic strategic acquisit acquisitions ions
McKinsey’s 7 S Model Shared Values
» » » » »
Customer Delight Leadership by Example Integr Integrity ity and and Transpa Transparenc rency y Fairn airnes ess s Pursuit of Excellence
Organizational Structure
» Free ree Form Form » Flexib Flexible le Team Team Stru Structu cture re E.g. A member, who might have been team leader in one project, may be replaced by another member of the same team for another project. » Equality among employees
McKinsey’s 7 S Model Skills
» Domain specific Certifications » Competency Building » Infosys has been CMM-Level 5 certified for its process capabilities.
It has entered the Balanced Scorecard Hall of Fame for Executing
Strategy for achieving breakthrough performance results using the
Balanced Scorecard (BSC).
Key Success Factors Sound Management Skills Nurturing Working Atmosphere Commitment To Values, Values, Speed ,Imagination ,Imagina tion and Excellence Personnel Management Infrastructure
Other Success Factors
»Invest in well understood, proven product & not just R&D. »While dealing with investors, always underpromise and over deliver. » Have a healthy sense of paranoia and respect for the competition. »Leaders in the making.
Strategy Analysis - Infosys
Infosys- Corporate Level Strategy » Global Delivery Delivery Model: Producing where where it is most cost effective and selling where it is most profitable. » » Moving UP the the value chain: chain: Getting involved involved in a software development development project at the earliest stage of the life cycle. » » PSPD Model: “Predictability of Revenues, sustainability of revenues, Profitability, De-Risking” for Risk Management.
Infosys – Corporate Level Strategy » Actions Taken » Expansion Expansion into low low cost countries countries like like Mauritius, Mauritius, Philippines, Thailand, Mexico etc. » Improved Improved Quality Quality capabilitie capabilities s -> CMM Level Level 5i » Emphasis Emphasis on delivering delivering high high value services services » Currency Currency hedging hedging for predictabil predictability ity of revenues. revenues. » Investing Investing heavily heavily in training training centers centers..
Infosys – Generic Strategy » Low cost Global delivery 24/7 Model » » Litt Little le differentiation in low-end services of value chain; high differentiation in high end services in value chain like software products and package solutions. s olutions. » » Focus on Quality, Customer relationship management, timely delivery.
Infosys – Grand Strategies » Ansoff’s matrix
Current Market Current Product New Product
New Market
Market Penetration Market Strategy Development Strategy Product Diversification Development Strategy Strategy
Market Penetration Strategy » Current Markets: USA and Europe » Current Products: Products: BPO, KPO, KPO, consultancy consultancy services (in BFSI, manufacturing and retail) and software products (financial products). » Recommendation: Recommendation: As most large clients clients in US and and Europe are cutting costs, Infosys needs to be more aggressive on cost and quality front. » Result of strategy: Unlikely to yield good results
Market Development Strategy » New Market: India, Middle-east and Australia » Current Product: Product: ADM, BPO, KPO, consultancy services services (in BFSI, manufacturing and retail) and software products (financial products). » Recommendation: Recommendation: Since these these are fast developing developing IT market, Infosys needs a paradigm shift in focus from US and EU markets to these markets. » Result of strategy: Likely to yield good result.
Product Development Strategy » Current Market: USA and Europe » New Product: Consultancy and and package implementati implementation on services in relatively growing sectors esp. healthcare, life sciences and aviation sector, and KPO services. s ervices. » Recommendation: Recommendation: Concentrate on building building expertise in in these domains by strategic acquisitions. » Result of Strategy: Strategy: Likely to have good good result. (better the company acquired, the better the result).
Diversification Strategy » New Market: India, Middle-east and Australia » New product: Consultancy Consultancy and and package implementati implementation on services in relatively growing sectors esp. healthcare, life sciences and aviation sector, and KPO services. s ervices. » Recommendation: Recommendation: Changing Brand image from low value service provider to high value service provider. » Result of Strategy: Strategy: Difficult Difficult to achieve overnight (possible (possible in long term)
Other Strategies » CONCENTRATION: 90% of Infosys revenues from American and European nations.
» VERTICAL VERTICAL INTEGRATI INTEGRATION: ON: Infosys Infosys recently recently made a bid to acquire acquire a European major – Axon consultancy to improve its business in European markets, but finally called off the deal due to high valuation. Otherwise, Infosys has always believed in organic growth.
» INNOVATION: The Software Engineering and Technology Labs (SETLabs) at Infosys is the center for applied technology research in software engineering and enterprise technology. SETLabs conducted 24 Innovation Workshops with customers from the US and Australia, to identify research collaboration possibilities. Infosys promotes a favorable work environment that encourages innovation and meritocracy.
Future Strategies
Future Strategies Contd.. » Global sourcing strategy is aligned with business strategy » Enhancing operational efficiency efficiency and delivering delivering value value added services » Structuring processes and services into modules thus leading to enhanced flexibility and productivity » Aggressive focus on ERP solutions like Oracle and SAP » Expand into high end consulting
Lessons to Draw » Do not put all eggs in one basket: » Provide more high end services in value chain (3 rd wave IT) » Shift in focus from low cost advantage to high quality services » Consolidation Consolidation and Strategic Strategic acquisitions acquisitions are essential essential for future growth of revenues. » Quick adoption adoption to high growth growth markets is is necessary.
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