Where does Infosys go after $1-billion milestone?

Infosys Technologies is the poster child of the Indian software services industry—the firm has built a great brand. Yet, as it is about to touch the billion-dollar mark in revenues, significant problems exist alongside. Pankaj Mishra analyses the company’s prospects and says that in order to compete effectively Infosys will have to move quickly, or else the gap between the Global Big Five and Infosys will only widen further

As Infosys gets set to joins the billion-dollar club in 2004, many questions are being asked, along with the admiration. Everyone wants to know what Infosys’ next ‘big leap’ is going to be. Can Infosys do an Accenture, EDS, or even a CSC, for that matter? The answer depends on whether Infosys wants to be in the same league as them, where contract sizes are multiplying into billions of dollars and the offshore delivery mechanism is moving towards commoditisation. Going by Louis V Gerstner’s bestseller, Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround, there will be many big elephants dancing 10 years from now. The question that Infosys has to seriously consider is whether it wants to be a big ‘elephant’, or rather a smart and swift ‘cheetah.’

In another business bestseller, A Business and Its Beliefs, Thomas J Watson defines a successful organisation. He writes, “I believe the real difference between success and failure in a corporation can very often be traced to the question of how well the organisation brings out the great energies and talent of its people.” Infosys has so far been able to achieve excellence by adhering to this basic definition; the challenge is whether it can sustain this adherence, going forward.

Craving to become global

Gopalakrishnan says that Infosys will never be the lowest cost player in the market and will prefer to compete on value and not cost

The very definition of a global company lies not merely in physical operations located across the globe, but in the mindset, culture and positioning acquired by the company over the years—companies don’t become global firms in a fortnight. Before analysing the ‘global’ element in Infosys it may be worthwhile to look at perhaps the most global company in the IT world.

According to Aberdeen Research, IBM’s application management services (AMS) business unit represents the most obvious—but not the only—example of Big Blue’s approach to global delivery. In contrast with pure-play offshore service providers, whose resources tend to be geographically concentrated, IBM’s AMS has 33,000 practitioners in 30 countries. Of the total headcount, 90 percent are IBM employees, and 10 percent are partners and preferred subcontractors who are fully trained in the company’s service methodologies.

On the other hand, Infosys has only now begun expanding into other geographies for establishing development centres. However, Infosys is one of the first Indian firms to realise the importance of hiring local professionals in its client-facing teams.

“About 41 percent of the client facing team is non-Indian and approximately 2 percent of Infoscians are non-Indians. Also, Infosys’ global internship programme InStep has been successful in introducing students from leading global colleges to Infosys,” says Hema Ravichandar, VP HR, Infosys. However, most of the delivery heads at Infosys have been Indians.

According to industry sources, Infosys has chalked out a long-term target of increasing foreigners in its total human resource base; the company is reportedly aiming at a minimum of 25 percent foreigners at overseas offices by 2012. This will go a long way in imparting a true global image to the company.

Many a time Infosys is compared against the likes of Accenture, EDS and CSC, which may not be the right approach. EDS for instance is a $21 billion company chasing billion dollar deals. “We are not there yet. Companies like Accenture and EDS have transitioned from consulting and infrastructure solutions to IT services. We, as an Indian company are moving from application development work to consulting services,” says S Gopalakrishnan, COO and co-founder of Infosys.

“For established offshore companies to become full-service global suppliers, more than mere acquisitions and diversification will be required. It will require fundamental internal changes on their parts—such as allowing greater autonomy to geography business units in the US and other target markets,” says Stephen Lane of Aberdeen Research. Just as today’s successful multinational corporations had to learn to be less hierarchical and centralised and adapt their business and employment practices to local market conditions, so too will pure-play offshore outsourcers.

Re-engineering for growth

Most mainstream IT services players globally believe in vertical orientation rather than running geographic units. This helps them in becoming ‘smart’ players in the verticals they operate in. Infosys has also triggered a restructuring exercise in its solution delivery groups. The strategy is four-pronged:

• Pilot fully integrated vertical industry groups: Infosys has already created retail, automotive and aerospace units.
• Impart more independence to the Europe and Asia-Pacific business units for enhancing business.
• Identify global and key accounts.
• Creation of a new unit focused on Greater China, which includes China, Hong Kong and Taiwan.

Apart from vertical orientation, Infosys will also have to decentralise decision-making amongst people on the firing line. As Gerstner suggests in Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround, it’s wise to move decision-makers closer to the customer to serve that customer better and give decentralised managers control over everything they do so they can take decisions very quickly.

Challenges galore

To become a full-service global supplier Infosys will require fundamental internal changes such as allowing greater autonomy to geography business units in the US and other target markets, says Stephen Lane

Recently, analysts and the Indian media started comparing the exodus at Infosys with the great Wipro exodus that saw the likes of Ashok Soota leave the company. While attrition is nothing unusual in the software services industry, the profile of executives leaving Infosys paints a worrisome picture. Mohan Shekhar, who managed the delivery operations for approximately 47 percent of Infosys revenues, quit recently and is the fourth senior Infosys executive to join iGate Global, run by Phaneesh Murthy, former global sales head of Infosys Technologies. The others are Sanjay Viswanathan, Infosys’ former Europe Head, Jessie Paul, former global marketing head and Madhav Mohan, former Canada head. Several others (according to internal sources), who have either resigned, or are in the process of doing so, include Ramesh Adkoli, Canada and North East American head, Srinath Murthy, South American and Middle East head and Jayant, who is the marketing head for North America.

Analysts are seeing the recent exodus at Infosys, especially the resignations of some delivery heads, as the outcome of the company’s vertical restructuring. With vertical orientation, the importance of delivery professionals will be lessened.

“There have been a few senior people who have left us to pursue entrepreneurial as well as other ambitions and as an organisation we have always respected these decisions. Attrition at senior levels is not a daunting issue. As we grow and move on to become a billion-dollar company, there will be some movement of people,” Ravichandar explains in a standard reply. The attrition rate for Infosys in 2002-2003 increased marginally to 6.9 percent from 6.2 in 2001-2002.

But that’s not all. According to sources, a recent internal HR survey within Infosys brought up some startling facts. The survey revealed that the employee satisfaction rate has dropped from 57 percent last year to around 27 percent this year. And more importantly, around 70 percent of employees said they would like to leave the company within four years.

“Earlier, MNCs were only hiring professionals at the entry levels, basically programmers. But as they are now expanding strategically, they are also hiring professionals who are senior- and middle-level managers in Indian firms, which can explained some part of the management attrition at Infosys,” says Gautam Sinha, CEO of TVA Infotech, a firm specialising in IT recruitment.

For Infosys and many other Indian companies, the challenge lies in maintaining cost competitiveness while simultaneously diversifying into high-value services. Client communication is another daunting challenge faced by offshore service providers like Infosys. Not only are their head offices further away, but they will always be outnumbered in terms of ‘feet on the street’ by rivals like IBM and Accenture in Western countries. This affects their ability to support existing clients as well as to win new ones.

Brand Infosys

Infosys has also been enjoying what analysts and industry observers term as a ‘brand premium.’ “We will never be the lowest cost player, in fact, we have seen instances wherein companies pay different rates to the Indian vendors and we have managed to compete on value and not cost,” Gopalakrishnan says. Amongst all Indian offshore players, Infosys has the best brand recall, next only to the likes of Unisys, CSC and EDS.

Srinivas Uppaluri, who heads global corporate marketing at Infosys, discusses how the company is now being invited by the likes of Wal-Mart to offer solutions. “We are now being increasingly called for large deals where companies like Accenture are co-bidders,” he says. According to him, Infosys cannot match the cash reserves of an IBM and become a follower. What it can do however, is differentiate itself by enhancing the entry barriers and focusing more on verticals.

The company is also becoming aggressive in markets by aligning with CIOs and sourcing heads of potential clients. “Recently, at our customer meet in Milan, we invited over 16 outsourcing heads from various enterprises to discuss CIO issues,” Uppaluri says.

Infosys’ Software Engineering and Technology Labs (SET Labs) is also helping the company in its overall branding strategy. “We have developed a project methodology called Influx, which has helped us in winning projects in several instances,” says Subrahmanyam Goparaju, associate vice president and Head, SET Labs. At SET Labs, Goparaju has also introduced what he calls ‘lead time optimisation solution’, or LTO, which will account for around 13 percent of the company’s revenues, going forward.

Whither Infosys

The biggest question facing Infosys today is not about meeting the immediate challenges of attrition, competition and the tough economic environment, but rather it is about where the company will stand after five to ten years. According to Gartner, Infosys has achieved tremendous growth, but to remain competitive, it must differentiate itself from its competitors, build brand equity and expand its geographic reach. At the outset, these terms may sound too broad, but in practice they have to align with the specific goals that Infosys has.