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BUSINESS STRATEGY 2010 STRATEGIC ANALYSIS OF INFOSYS SUBMITTED TO: PROF. G.K SRIKANTH SUBMITTED BY: MADHUSUDAN MOHAPATRA ENROLLMENT NO 09BSHYD0419 3 RD SEMESTER, SEC - A IBS H YDERABAD

Strategic Management at Infosys (Business Strategy)

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Page 1: Strategic Management at Infosys (Business Strategy)

BUSINESS STRATEGY

2010

STRATEGIC ANALYSIS OF INFOSYS SUBMITTED TO: PROF. G.K SRIKANTH

SUBMITTED BY: MADHUSUDAN MOHAPATRA

ENROLLMENT NO – 09BSHYD0419

3RD SEMESTER, SEC - A

I B S H Y D E R A B A D

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CONTENTS PAGE NO.

INTRODUCTION ………………………………………………………………… 03

ENVIRONMENTAL SCANNING ………………………………………………. 04

EXTERNAL ENVIRONMENTAL – PESTEL ANALYSIS……………. 04

OPERATING ENVIRONMENT………………………………………… 08

PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)…………………. 12

INFOSYS …………………………………………………………………………. 13

INFOSYS BUSINESS LINE……………………………………………… 13

MCKINSEY’S 7 S MODEL ON INFOSYS………………………………. 15

SWOT ANALYSIS OF INFOSYS………………………………………… 16

ANALYSIS OF STRATEGY OF INFOSYS……………………………. 17

REFERENCES…………………………………………………………………… 19

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INTRODUCTION

In an increasingly globalised world, significant complexity and uncertainty is getting attached to

the unprecedented economic crisis. The Indian economy was also impacted by the recessionary

trends, with a slowdown in GDP growth to seven per cent in 2008. The focus and exponential

growth in the domestic market has partially offset this fall and insulated the country, resulting in

net overall momentum. The IT and ITES industry in India has today become a growth engine for

the economy, contributing substantially to increase in the GDP, urban employment and exports,

to achieve the vision of a “Young and resilient” India. During these years, the sector maintained

its double digit growth rate and was a net hirer. This growth has been fueled by increasing

diversification in the geographic base and industry verticals, and adaptation in the service

offerings portfolio. While the effects of the economic crisis are expected to linger in the near

term future, the Indian IT and ITES industry has displayed resilience and tenacity in countering

the unpredictable conditions and reiterating the viability of India’s fundamental value

proposition. Consequently, India has retained its leadership position in the global outsourcing

market even during recession time.

The Indian IT and ITES industry achieved revenues of USD 71.7 billion in FY2009, with the IT

software and services industry accounting for USD 60 billion of revenues. During this period,

direct employment reached nearly 2.23 million, an addition of 226,000 employees, while indirect

job creation touched 8 million. As a proportion of national GDP, the sector revenues have grown

from 1.2 per cent in FY1998 to an estimated 5.8 per cent in FY2009. Software and services

exports (including BPO) are expected to account for over 99 per cent of total exports, employing

over 1.76 million employees. While the current mood is that of “cautious optimism,” the industry

is expected to witness sustainable growth over a two-year horizon, going past its USD 60 billion

export target in FY2011. While the industry has significant headroom for growth, competition is

increasing, with a number of countries such as Brazil, Mexico, Philippines etc. creating enabling

business environments aimed at replicating India’s success in the IT and ITES industry. Hence,

concentrated efforts are required by all stakeholders to address the current challenges, to ensure

that India realizes its potential, and maintains its leadership position.

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ENVIRONMENTAL SCANNING

EXTERNAL ENVIRONMENT - PESTEL ANALYSIS

Political

1. Political Stability: Indian political structure is

considered stable enough and Govt. of India has set up a

National Task Force on IT and software development to

examine the feasibility of strengthening the industry.

2. U.S government declaration that U.S companies that will

outsource I.T works to other locations other than U.S

will not get tax benefit.

3. Government owned companies and PSUs have decided

to give more IT projects to Indian companies.

4. Terrorist attack or war.

Positive

Negative

Positive

Negative

Economic

1. Global IT Spending (Demand) from USA will increase

in FY 2010.

2. Domestic IT Spending (Demand): The Indian domestic

market will grow by 12.9 percent through 2013.

3. Currency Fluctuation.

4. Real Estate Prices: Decline in real estate prices has

resulted in reduction of rental expenditure.

5. Attrition: After U.S recession in 2008-2009, companies

are on a hiring spree and there is a revival of the job

market, attrition rate is going to be high in 2010.

6. Economic Attractiveness due to cost advantage and

other factors.

Positive

Positive

Negative

Positive

Negative

Positive

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Social

Social

1. Language Spoken: India has the second largest English-

speaking scientific professionals in the world, second only

to the U.S. English medium being the most accepted

medium of education. Thus India boasts of large English

speaking population.

2. Education: It is estimated that India has over 4 million

technical workers, over 1,832 educational institutions and

polytechnics, which train more than 67,785 computer

software professionals every year.

3. Working age population

Highly Positive

Highly Positive

Positive

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Technological

1. Telephony:

a. India has the world’s lowest call rates (1-2 US

cents).

b. Expected to have total subscriber base of about

500 million by 2010.

c. ARPU for GSM is USD 6.6 per month.

d. India has the second largest telephone network

after china.

e. Teledensity of India is 49.50%

f. Enterprise telephone services, 3G, Wi-max and

VPN are poised to grow.

2. Internet Backbone: Due to IT revolution of 90’s,

Indian cities and India is well connected with

undersea optical cables.

3. New IT Technologies: Technologies like SOA, Web

2.0, High definition content, grid computing etc and

innovation in low cost technologies is presenting new

challenges and opportunities for Indian IT industry.

Highly Positive

Positive

Positive

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Legal

1. IT SEZ Requirement: IT Companies can set up SEZ

with minimum area of 10 hectares and enjoy a host of tax

benefits and fiscal benefits.

2. Contract / Bond requirements: Huge debates

surrounding the bonds under which the employees are

required to work, which is not legally required.

3. IT Act: Indian government is strengthening the IT act,

2000 to provide a sound legal environment for companies

to operate especially related to security of data in

transmission and storage, etc.

4. Companies operating in Software Technology Park

(STPI) scheme will continue to get tax-benefit till 2010.

Positive

Negative

Positive

Negative

Environmental

Energy efficient processes and equipments:

Companies are focusing on reducing the carbon

footprints, energy utilization, water consumption, etc.

Positive

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OPERATING ENVIRONMENT

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1. Market Size

Fig: Revenues from domestic and exports (in USD billion)

Fig: Contribution of IT industry to Indian GDP

0

1

2

3

4

5

6

7

2004 2005 2006 2007 2008 2009

% of Indian GDP

% of Indian GDP

More than 80% of

revenues come from

exports and only

20% from domestic

market.

Indian IT industry

contributed around

5.8% Indian GDP in

FY 2009.

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Fig: Number of employees in Indian IT Sectors (Direct Employment) till FY 2009.

2. Market Share

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3. Customer Profile

Sector Major Clients – Domestic Major Clients – Global (Export

Market)

Govt. and Public

Sector Companies

Railways, LIC, MMRDA,

BMC, BPCL, ONGC

US Govt., British Govt.,

Australian Govt., Saudi and

Kuwait Govt.

BFSI HDFC, ICICI Bank, Citi

Financial India, NSE, BSE,

MAX New York Life,

India Bulls Finance

AIG, Bank of America, UBS, JP

Morgan, Barclays, Goldman

Sachs, Morgan Stanley

Telecom Airtel, Vodafone, Reliance

Communications

British Telecom, AT&T,

SingTel, Telstra, Vodafone

Manufacturing Tata Motors, Tata Steel,

L&T, RIL

Ford Motors, GM, Exon Mobile

Others Pantaloon India Ltd, Tata

Sky, DLF, Apollo Hospital

Pfizer, Wal-Mart, British Airways

Recent Announcement of large IT Projects

4. Suppliers

1. Employees/ Professionals

2. Manpower suppliers like Manpower ITES, Quest, MaFoi, etc.

British

Telecom is

Infosys

largest client

contributing

to 6.9% of

Infosys

revenue.

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PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)

Low

Shift

From high Very High

to low

Medium

COMPETITIVE

RIVALRY: High

1.Commoditized Offerings

2.Low cost, little

differentiation &

Positioning

3.High Industry Growth

4.Strong competitors &

few no. of large

companies

THREAT OF SUBSTITUTES:

1. Other offshore locations such as Eastern

Europe, Philippines, Mexico, Brazil and

China are emerging and posing a threat to

Indian IT industry because of their cost

advantage as salary and other costs will be

lower there. However this should have an

impact only in medium to long term.

2. Price quoted is also a major differentiator,

the quality of products being same.

THREAT OF ENTRY:

1. Low capital requirements

2. Large Value Chain, Space for small

enterprise

3. MNCs ramping up the offshore

capacity and employee strength in

India

BARGAINING POWER

OF SUPPLIERS:

1. Due to slow down

during recession, job

cuts, lay offs and bleak

IT outlook.

2. Current surge in the

market for new

projects after recession

in US, demands for IT

professional and

lateral hires have

increased

3. Availability of a large

number of talented

pool - Freshers and

lateral IT professionals

BARGAINING

POWER OF BUYERS:

1.Large no. of IT

companies looking for

IT projects - resulting in

high competition for

projects.

2.Decline in IT

expenditure: Indian It

sector is dependant on

USA, Europe and BFSI

in particular for major

share of its revenue. With

the recent financial crisis

in USA and Europe, the

new spending from these

has reduced considerably

3.For existing products

and services, the clients

continues old companies

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INFOSYS:

INFOSYS BUSINESS LINE

Fig: Revenue Break up by Geography (2009-2010)

Infosys is highly

dependant on North

America and

Europe which

constitute 90% of

its revenue.

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Fig: Infosys revenue break up by industry segment (2009-2010)

Fig: Revenue break up by services offered in FY 2009.

BFSI and Manufacturing

contribute more than 50%

of Infosys. So the focus

must shift from BFSI sector

to other sectors revenue.

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MCKINSEY’S 7 S MODEL ON INFOSYS

Leadership Style: Infosys believes that leadership is one of the most essential ingredients of

organizational success which is provided by its chief mentor Mr. N R Narayanmurthy.

Leadership is based on high business vision and supportive style. Hence emphasis is given on

developing leadership qualities among employees in Infosys. For this purpose it has established

“Infosys Leadership Institute” for grooming the budding mangers from the beginning. That’s

why Infosys is ranked tenth in global survey for best leaders because it invests time, effort and

money in leadership development, and has "a talent pipeline that can feed this growth."Top

management’s open door policy, continuous sharing of information, inputs from employees in

decision making and making personal rapport with employees are some of the key factors in the

organization. We have also seen there is a smooth transition from Mr. N R Narayanmurthy to

Mr. Nadan Nilekani and then to Mr. Krish Gopalkrishnan. With out any adverse effect on the

company outlook and each one proved worth during their tenure. This shows leadership being

carried forward to others in the hierarchy instead of being holding one person the key position

for long time unlike other organizations.

Staff: Since it is a knowledge based industry, it focuses on quality of human resources. Out of

total workforce, about 90 percentages are engineer. At the entry level, it emphasizes on selecting

candidates who find the company’s culture satisfying, superior academic records, technical skills

and high learnability. The company emphasizes on training and development of it s employees

on continuous basis and spends around 3% of revenue on up gradation of employee’s skills and

50% as employee cost. It maintained highly matured process oriented training methodology and

infrastructure.

Strategy: Infosys has adopted client focus approach for achieving growth. Its objective is to

focus on limited number of large and medium organizations throughout the world. In order to

cater to the client, it emphasizes on custom built soft wares. Another differentiating factor is it

quotes for premium margin. The company doesn’t negotiate on margin beyond a certain limit

and sometimes walk out rather than compromise on quality for low cost contract. Hence it has

differentiated it self as quality driven model not cost driven model. It has strong engagement

with existing clients. It also focuses on value added services to new clients. It also focuses on

increasing geographical base by planning to expand through Infosys China in China, Eastern

Europe and Czech Republic through Infosys BPO, Infosys Australia in Australia and in Latin

America through Infosys Mexico. Infosys also focuses on enhanced solutions through

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consulting, Business Process Management, System Integration and Infrastructure Management.

It has also deep industry knowledge in BFSI, Telecommunications and Manufacturing Sectors. It

also invests on brand building through media and Industry analyst events etc. It also believes in

organic growth through risk aversion and enhancement through new technology innovation with

various partners.

Shared Value: The shared values include C- Customer Delight, L – Leadership by Example, I –

Integrity and Transparency, F – Fairness, E – Excellence (CLIFE).

Structure: The organizational structure at Infosys includes free form, Flexible Team structure,

equality among employees etc.

Skills: Infosys has employed domain specific and technical certification, competency building

measures. It has been CMMi level 5 for process capabilities. It has devised strategy for achieving

break through performance results using the balance scorecard.

SWOT ANALYSIS OF INFOSYS:

Strengths:

Leadership in sophisticated solutions that enable clients to optimize the efficiency of their

business.

It has proven “Global Delivery Model”. (GDM).

Commitment to superior quality and process execution.

Strong Brand and long term client relationship.

Status as an employer of choice in 2004.

Ability to scale up.

Innovation and leadership.

Weakness:

Excessive dependence on US for revenues – 67% revenue from USA

Excessive dependence on BFSI sectors for revenues.

Weak player in Indian market. Only 1% revenue from India. Low as compared to TCS.

Low R&D spending as compared to other global IT companies. Only 1.3% of total

revenue.

Rising wage bill. 42.9% to 44.8% of revenue.

Low expertise in high end consultancy and KPO.

Opportunities:

Domestic market to grow by 20%. Expanding into new geographies like Europe, Middle

East, Latin America, China etc.

Cash Rich (around USD 1 Billion)

Acquiring companies to increase expertise in consultancy, KPO and package

implementation capabilities.

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Opening new offices and development centers in cost advantage countries such as Latin

America and Eastern Europe.

Aggressive strategy of expansion of ADMs, BPO, and software products into emerging

markets.

Diversification into new areas such as aviation, telecom and health care.

Threats:

The economic pressure, rising wage, pricing pressure in India and abroad.

Intense completion in market for technology services could affect cost advantage.

High dependency on a small number of clients and loss of major clients could impact

adversely.

Failure to complete fixed priced, fixed time frame projects on time. So the company

needs to shift to Time and Money kind of projects.

Indian currency fluctuation

Termination of client contracts can be terminated without cause or little notice or penalty.

ANALYSIS OF STRATEGY OF INFOSYS:

Corporate level Strategies:

Global Delivery Model: Producing where it is most cost effective and selling where it is

most profitable.

Moving UP the value chain: Getting involved in a software development project at the

earliest stage of the life cycle.

PSPD Model: Predictability of Revenues, sustainability of revenues, Profitability, De-

Risking for Risk Management.

Actions Taken

Expansion into low cost countries like Mauritius, Philippines, Thailand, Mexico etc.

Improved Quality capabilities - CMMi Level 5

Emphasis on delivering high value services

Currency hedging for predictability of revenues.

Investing heavily in training centers.

Generic Strategies:

Low cost Global delivery Model (24/7)

Little differentiation in low-end services of value chain. High differentiation in high end

services in value chain like software products and package solutions.

Focus on Quality, Customer relationship management, timely delivery.

Market Penetration and Development Strategies:

Current Markets: USA and Europe

Current Products: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and

retail) and software products (financial products Finacle).

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Recommendation: As most large clients in US and Europe are cutting costs post

recession, Infosys needs to be more aggressive on cost and quality front.

Since these are fast developing IT market, Infosys needs a paradigm shift in focus from

US and EU markets to markets such as India, Middle East, Eastern Europe and Latin

America, China, Philippines.

Result of strategy: Unlikely to yield good results.

Product Development and Diversification Strategies:

Current Market: USA and Europe

New Product: Consultancy and package implementation services in relatively growing

sectors esp. healthcare, life sciences and aviation sector, and KPO services.

Recommendation: Concentrate on building expertise in these domains by strategic

acquisitions.

Changing Brand image from low value service provider to high value service provider.

Result of Strategy: Likely to have good result. (better the company acquired, the better

the result for Infosys) and long term strategy to change brand image interms of

diversification.

Other Strategies by Infosys:

Concentration: 90% of Infosys revenues from American and European nations.

Vertical Integration: Infosys made a bid to 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.

Future Strategies to be followed by Infosys:

Global sourcing strategy is aligned with business strategy.

Enhancing operational efficiency and delivering 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.

Consolidation and Strategic acquisitions are essential for future growth of revenues.

Shift in focus from low cost advantage to high quality services.

Quick adoption to high growth markets is necessary.

Provide high end services in value chain.

Consolidation among key IT players.

Compromise on High margin for sustainable growth.

In order to increase revenue growth, only organic growth will not help the company.

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REFERENCES:

IT/ITES – Market and opportunities – IBEF (Indian Brand Equity Foundation).

NASSCOM Strategy review – 2009, 2008.

Annual and Quarterly report of Infosys – 2009 – 2010, 2008 – 2009

Emerging Destination for IT/ITES industry – NASSCOM & KPMG.

www.infosys.com

www.moneycontrol.com

www.nasscom.org

www.nasscom.in

www.indianembassy.org/indiainfo/india_it.htm