BUSINESS STRATEGY

STRATEGIC ANALYSIS OF INFOSYS
SUBMITTED TO: PROF. G.K SRIKANTH
SUBMITTED BY: MADHUSUDAN MOHAPATRA ENROLLMENT NO – 09BSHYD0419 3RD SEMESTER, SEC - A

2010

IBS HYDERABAD

CONTENTS

PAGE NO.
03 04 04 08 12 13 13 15 16 17 19

INTRODUCTION ………………………………………………………………… ENVIRONMENTAL SCANNING ………………………………………………. EXTERNAL ENVIRONMENTAL – PESTEL ANALYSIS……………. OPERATING ENVIRONMENT………………………………………… PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)…………………. INFOSYS …………………………………………………………………………. INFOSYS BUSINESS LINE……………………………………………… MCKINSEY’S 7 S MODEL ON INFOSYS………………………………. SWOT ANALYSIS OF INFOSYS………………………………………… ANALYSIS OF STRATEGY OF INFOSYS……………………………. REFERENCES……………………………………………………………………

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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
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

Political

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 Englishspeaking 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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Environmental

Energy efficient processes and equipments: Companies are focusing on reducing the carbon footprints, energy utilization, water consumption, etc.

Positive

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

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OPERATING ENVIRONMENT

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1.

Market Size More than 80% of revenues come from exports and only 20% from domestic market.

Fig: Revenues from domestic and exports (in USD billion) Indian IT industry contributed around 5.8% Indian GDP in FY 2009.

% of Indian GDP
7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 % of Indian GDP

Fig: Contribution of IT industry to Indian GDP

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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 Major Clients – Domestic Major Clients – Global (Export Market) US Govt., British Govt., Australian Govt., Saudi and Kuwait Govt. AIG, Bank of America, UBS, JP Morgan, Barclays, Goldman Sachs, Morgan Stanley British Telecom, AT&T, SingTel, Telstra, Vodafone Ford Motors, GM, Exon Mobile Pfizer, Wal-Mart, British Airways British Telecom is Infosys largest client contributing to 6.9% of Infosys revenue.

Sector

Govt. and Public Railways, LIC, MMRDA, Sector Companies BMC, BPCL, ONGC BFSI HDFC, ICICI Bank, Citi Financial India, NSE, BSE, MAX New York Life, India Bulls Finance Airtel, Vodafone, Reliance Communications Tata Motors, Tata Steel, L&T, RIL Pantaloon India Ltd, Tata Sky, DLF, Apollo Hospital

Telecom Manufacturing Others

Recent Announcement of large IT Projects

4. Suppliers
1. Employees/ Professionals 2. Manpower suppliers like Manpower ITES, Quest, MaFoi, etc.
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PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)
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

Low BARGAINING POWER Shift OF SUPPLIERS: From high Very High 1. Due to slow down during recession, job to low cuts, lay offs and bleak COMPETITIVE IT outlook. RIVALRY: High 2. Current surge in the 1.Commoditized Offerings market for new 2.Low cost, little projects after recession differentiation & in US, demands for IT Positioning professional and 3.High Industry Growth lateral hires have 4.Strong competitors & increased few no. of large 3. Availability of a large companies number of talented pool - Freshers and lateral IT professionals Medium 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.

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

Infosys is highly dependant on North America and Europe which constitute 90% of its revenue.

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

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BFSI and Manufacturing contribute more than 50% of Infosys. So the focus must shift from BFSI sector to other sectors revenue.

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

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

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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, DeRisking 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

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