Executive Summary
Infosys, a leading firm in the Indian Information Technology Enterprise
Services (ITES) industry, was started in 1981 by seven people with USD $250,
and today is a global leader in the "next generation" of ITES, with
revenues of USD$ 5.4 billion. The geographical current target market of Indian
ITES is the U.S. and Europe . The Indian ITES providers serve a few big blue
chips (most of which are banks BFSI) and governmental agencies in this
geographic location.
The target market and industry segment create dependencies which the
industry, and Infosys as part of the Industry, have to overcome. Infosys and other
players in the industry provide their services based on the global delivery
model, which for cost reasons requires that most of the personnel is physically
located in India
This offshore physical location limits the product range the company
can deliver, or at least that which clients perceive it can deliver. This
perception has implications on Infosys and on the industry’s brand. Large
international competitors such as IBM and Accenture have established stronger
brands, which makes clients perceive that these companies can best perform in
higher value services. These large competitors are strong in high value
services and are now expanding in the outsourcing area using GDM.
Competition arises also from companies from countries other than India
Situation Analysis
Environment
Introduction to
the Indian IT and ITES Industry
Infosys Technology SA is a leading firm in the Indian ITES industry.
India ITES, as a segment of the global
ITES, is advancing more and more from a back-end service location to a global
innovation hub. The industry contributes to around 5, 2% to India’s USD 1 trillion
GDP and provides
direct and indirect employment to hundreds of thousands of people (IBEF 2010). A
few major players and many small firms compete for the
fast growing revenues in the global target market. Infosys Technology SA,
Infosys for short, is one of these large players and is perceived as the most
admired company in that industry segment (Infosys 2010.)
The Target
Market
The target market has to be analyzed first, for a better
understanding of the industry potential and environment. First, the analysis of the industry’s revenues
by geographic locations will provide the best insights for sensing the market
potential. The picture the geographic
market analysis delivers is that the
U.S. and Europe (mostly the UK), with a share of the industry’s global revenue
of 67% and 25% respectively, continue to be the key markets for the Indian ITES
industry. Only 7% of the revenues are originating in the APAC region. It is
obvious that the Indian ITES is highly depended on the U.S. and the UK
Analyzing the Indian ITES industry’s revenues by the industry segment
consuming them, it becomes obvious that the industry is highly depended on the financial
sector BFSI. The India ITES industry generates more than 40% of the industry’s global
revenues, with sales in the BFSI segment of the global economy presented in
Figure 1. (IBEF 2009.) The BFSI almost faced a worldwide collapse in 2008.
Figure 1: IT
Services: Anchor Segment for the Sector
Screen clipping taken:
12/01/2011, 16:57
Note:
Figure provided by IBEEF’s survey of information
technology September 2009.
Both dependencies affect all players in the India ITES and Infosys
is not exempted from that fact yet. Other Industry segments rich in prospects
are telecommunication and manufacturing. They can be developed for increasing
revenue and reducing risk. Revenues can also be generated by exploring mature
markets in other geographic regions such as EMEA and APAC.
The analysis of the industry’s revenues by single customer profiles
provides information about each single client’s importance. The majority of the
clients of the India ITES industry are international blue chips. A few hundred
of the large international business giants and large governmental agencies are existing
clients of Indian ITES companies. There are still many new prospects as well as
new service areas within the existing clients which can provide great growth
opportunities to the industry (IBEEF 2010.)
Political
Issues
Economic
Conditions and Trends
In the year 2010, the economic stabilization process brought results
in all of the major large mature markets and the global economy is growing again.
The GDP growth in the U.S. was 2% in 2010 and is expected to be 4% by 2011. In
central Europe , the growth of GDP was even
higher with the German economy growing at a year’s rate of 4%. In 2011, the GDP
growth in Germany
There are many other factors and economic trends that positively influence
the demand for IT services of Indian ITES companies and so global spending in
the sector will grow explosively in the next years. A large part of that growth
will be driven by the BRIC countries (Brazil ,
Russia , India , and China
European IT spending is expected to increase in 2011, getting the European
IT market back on a successful course. 2011 will see an increase in turnover
for IT devices, software, and IT services of 3.9% to 314 billion Euros. According
to the European Information Technology Observatory in Berlin :
"Companies across Europe
are now catching up on IT investments that they had postponed during the
economic crisis" (EITO Special Report 2011).
The growing demand for IT investment immediately after the crisis will
be a strong boost for the Indian IT sector. The global crisis has increased
managerial awareness for efficiency, and has emphasized and enforced the global
trend for cost savings and lean organization. Outsourcing to low cost countries
has gained in popularity. The economic attractiveness of the Indian IT service
industry, due to its cost advantages and specialization, has increased in the
crisis. So, the economic crisis was a door opener for the Indian IT
industry.
Indian domestic IT spending demand will increase by 26% and will
reach USD 25 billion by 2011 (EITO.) The strong growth in India India
The growing domestic revenues will boost Infosys’ total growth and
will reduce pressure for growing in the German market. Finally, currency fluctuation is a kind of
controllable risk on export revenues but it can be eliminated by focusing on
domestic revenues. All these reasons might force Infosys and the other IT
giants to revise existing business strategy and even adjust operations in order
to focus domestically. The European
expansion can degrade to second-best strategy.
The attrition rate in the Indian IT industry has increased after the
global recession has been almost overcome. Some salary increases will be
unavoidable in India in the
IT large campus metropolises such as Bangalore
This continued trend of increasing domestic salaries threatens to
deteriorate a major competitive advantage of the Indian IT industry and consequently
it can be expected that Indian IT giants will move into other Indian geographic
areas in order find less costly resources. However the cost advantage of offshore outsourcing will
remain sustainable (NASSCOM 2003.)
Social and Cultural
Values and Trends
Technical and Environmental Issues
The Internet backbone is highly developed in India India India
Innovation and development in IT offer new opportunities to the Indian
ITES industry. New technologies such SOA, Web 2.0, social media,
high-definition content, grid computing, cloud computing, and innovation in low
cost technologies offer new chances and challenges to global IT giants. It’s
therefore no surprise that some companies, including Infosys with its
engagement, have already developed completely new services for developing new
markets, in cooperation with players of the advertising sector (Infosys 2010.)
Energy efficient processes and equipment are opening new business
chances and challenges for the Indian IT industry. Companies are focusing on
reducing the carbon footprints, energy utilization, water consumption, and
develop new technology and services for doing this. Software design and
creation as well IT services have to enforce firms to put environmental
discipline on their business processes.
Technology and technological changes are the basis for business and
new business for Indian IT companies. If the IT firms anticipate new trends in
technology and respond timely to those trends with innovation, they can expect to
be the next market leaders. Missing an IT trend can push a technology company
out of business.
Legal Issues
Governmental support and overseeing will continue to boost growth in
the Indian ITES industry. The Indian government is strengthening the IT act
2000 to provide a robust legal environment for companies to operate in (Indian
government 2010.) Legislation related to the security of data in
transmission and storage is a permanent focus of attention of the Indian
administration. Companies operating in a Software Technology Park (STPI) scheme,
have gotten sizeable tax benefits in the past and might continue to get them.
Also, IT companies can set up SEZs (special economic zones in India
The bonds under which employees are required to work create large
debates in the Indian legal world. These contract/bonds debates will negatively
influence the IT companies until the labor market will be more standardized (Seth
Associates 2011.)
Summary of Environment
and Implication for Infosys’ Strategy
The summary of environmental factors, and the opportunities and threats
they provide, will reveal their impact on Infosys’ strategic development. The economic
crisis has highlighted the dependency of the Indian IT industry on the U.S. and
UK
The BRICS and their demand for IT spending are rapidly growing. Infosys
has to capitalize a stake of that growth; in fact, it must focus on this competitive
field for defending the brand superiority the firm currently enjoys.
The product and service lines of Infosys have to be permanently
extended to react on new technical trends. Anticipation of such trends and
innovation in responding to them can result in market leadership. Operations
strategy and operational process definitions need to be adjusted to new
environmental adjustments.
Industry
Classification
and Definition of the Industry
Infosys is a large player in the Indian IT ITES industry. Te firm is
a global player considering as its relevant markets are primarily those of the U.S.
and the UK
The IT and ITES industry includes three subcategories: project-based
services, outsourcing, and support/training services. Project-based services
include consulting and systems integration. Outsourcing comprises business
process outsourcing (BPO) services, information services (IS) outsourcing,
network and desktop outsourcing, and other services. Support and training
consists of hardware deployment and support, software deployment and support,
and information technology (IT) education and training. Figure 2 provides the world-wide
ITES revenues per services category (Gathers 2009.)
Figure 2: World computer
services spending, by foundation market (in billions of dollars)
Note: Information as of Commercial
Services (Cathers D., 2009). Retrieved March 6, 2010
from Standard & Poor’s NetAdvantage.
The project-based services segment includes business consulting, IT
consulting, systems integration, network consulting and integration, and custom
application development. The biggest provider of these types of services in
2008 was International Business Machines Corp. (IBM 2010). Not too far behind
was Accenture Ltd., the second largest provider in this service category (Accenture
2010.) The outsourcing segment comprises BPO, IS outsourcing, network and
desktop outsourcing, application management, hosted application management, and
hosting infrastructure services. A high compound annual growth rate is
projected for the sector. Again, IBM was the largest vendor in the outsourcing
space in 2008. The last segment, support and training, is the smallest of the three and includes
hardware deployment and support, software deployment and support, and IT
education and training, with IBM again as the biggest provider (IMB 2007b.)
Some of the IT service providers are independent enterprises, engaged
mainly in the services business. Others are affiliated with diversified firms
such as computer hardware and/or software vendors. The hardware and software
vendor that expanded in the IT service market is IBM, which is also the global
leader in the IT service segment (Gathers 2009.)
The North American Industry Classification System (NAICS) and
Standard Industrial Classification (SIC) classify industries for research and
comparison. The SIC includes IT services under the major group 73, which is for
business services. The first SIC code in the IT services group is 737. This
represents a main group that is analyzed in smaller groups of service
categories such as 7371 Computer Programming Services, 7373 Computer Integrated
Systems Design, 7375 Information Retrieval Services, and 7376 Computer
Facilities Management Services (IBIS World, 2010).
Indian ITES industry
players
The rise of Indian IT service (outsourcing) companies originates in
the international offshoring trend of the past century. This trend has affected
industries involved in natural resources, textiles, automotive manufacturing,
and, most recently, IT services. The main reason for this trend was cost
savings. Also, for many other reasons, the demand for offshore IT services has
risen quickly in India
The largest Indian IT services providers are Tata Consultancy
Services Ltd., Infosys Technologies Ltd., and Wipro Ltd. They have evolved into
billion-dollar companies. They serve multinational corporations and offer a global
delivery model (GDM) that rivals solutions offered by leading global players
such as IBM, Hewlett-Packard Co. (HP), Computer Sciences, and Accenture Ltd.
Standard & Poor’s
industry surveys estimate that Tata (TCS), Infosys, and Wipro generated
combined services revenues of about $14 billion in fiscal year 2009. However,
the surveys make clear that the combined revenues from all three still add up
to only about one-quarter of the revenues from IBM’s Global Services unit in
2008 (Gathers 2009.)
Indian IT service providers can be considered a separate part of the
ITES global industry. Based on their competitive advantages they will continue
to grow and expand their market share. They will continue establishing offices in
client markets where IT needs arise and campuses in developing countries
seeking talents.
Porters 5
Forces in the Indian ITES Industry
Rivalry Among Existing
Competitors
The market is dominated by a few number of large ITES firms, which
are the strongest competitors in the industry, but there are many other small
firms operating in the market. Some of the large competitors are Tata (TCS),
Wipro, Infosys, Satyam, HCL Technologies, Financial Technologies, IBM, Tech
Mahindra, and Capgemini India
Figure 3: Indian
IT industry revenue breakout by organization in 2009.
Note: Figure 3 provided by IBEF 2009
The industry is fast growing and the competition for market share is
strong. Firms in the industry compete
with low cost offers and commoditizing offerings for getting projects, with
only little differentiation in positioning. This schema of competition is same
in the domestic and global market. Infosys is differentiating itself based on
value adding and quality leading strategy, but it also faces pressure from growing
price competition. The conclusion is that rivalry among existing Indian IT
firms is very high.
Threat of New Entrants
Not many barriers exist for new entry into the global IT market in
general and into the large mature western economies in particular. It is, in
fact, very easy for new competitors to enter the market of IT services because
only a small capital investment is required for market entry. Additionally, large
multinational companies build a large value chain, providing space for market
entry to new IT enterprises. The multinational corporations are often ramping
up IT capacity and employees’ strength, and create new chances and challenges for
new entrants into the IT service market.
On the other hand, for acquiring large IT projects a significant firm
size is often a prerequisite. This fact is a significant growth barrier for
small firms because they cannot get the large IT projects that provide stable
revenue flow and often high margins. Cooperation with large players and
specialization can help small companies to overcome these barriers. The
analysis can conclude that new market entrants pose a competitive threat.
Threat of Substitute Products
The Indian IT industry has acquired an international reputation as a
supplier of high quality and affordable IT services and products. The vast
success of the industry has driven rival countries with similar salary and wage
structures to imitate India Philippines , and China
Another advantage of these new offshore locations is that they are geographically
and even culturally closer to mature western markets. The eastern European ITES
companies, for example, could pose a particular threat to Indian IT for the western
European and Russian markets.
The consequence of these substitutes is that prices quoted for
projects will be the major differentiator, while the quality of products and
services will be perceived as being same as that of Indian companies. However,
the threat of substitutes should have an impact in the global market only in
the medium to long term, when the new entrants will have reached maturity. The
conclusion is that there is a medium threat from substitutes.
Bargaining Power
of Suppliers
Suppliers of the Indian IT industry services are the professionals
working as employees for organizations. Other suppliers are certain manpower
suppliers such as Manpower ITeS, Ma Foi, which are searching the market for
qualified professional, helping organizations in the hiring process. The suppliers
in this industry do not have much bargaining power.
The opposite is true in this industry. IT services firms with a good
image, such as Infosys, can choose the best candidates out of the vast country’s
specialist pool. However, when the markets improve and the demand for Indian IT
services accelerates, the employee attrition rate increases with the
consequence that higher salaries have to be paid by firms to qualified
employees.
The impact of higher salaries on the industry’s profit in such a period
is, however, not significant as the organization is able to respond to higher
demand by increasing sales prices. India Europe
requires a pool of local talents for front-end operations, which can be hired
with a moderate effort (Gathers 2009.)
Bargaining Power
of Buyers
No intermediaries are required for placing Indian IT and ITEs. The buyers
with whom the Indian IT organizations are dealing are end users. There are several factors that provide significant
bargaining power against ITES suppliers to end users.
The large number of ITES companies competing for IT projects results
in higher rivalry pressure and a tendency for lower offers and smaller margins.
The Indian ITES sector is dependent on the U.S. and BFSI in particular for the majority
of its revenues. With the recent financial crisis, new spending from these has been
reduced significantly. The large decline in IT expenditures increases
competitive pressure and the tendency toward lower margins.
On the other hand, the nature of the IT services that Indian firms
are offering tends to create a stable relationship between client and supplier.
Clients typically continue with their current suppliers for the existing
products and services even in recession periods.
The conclusion can be drawn that the bargaining power buyers have in
this industry is high and that it has significant impact on the firms’ and
industry’s profits.
The Industry’s Strategic
Development
Competition in the Indian IT service industry is very high. The IT industry
is based on technology advantages. Innovation is very important, a fact that makes
the threat of substitutes very high. Strengths have to be fully capitalized in
the strategy of Indian IT companies. Cost advantages, the main strength, can be
used to extend the breadth of service offerings to end-to-end solutions,
including high-end services.
Other strengths have to be fully capitalized by the industry for
competing in the international IT services market. Scalability
is easy as more than half of India India
The industry has to utilize opportunities and focus on a greater
scope for product innovation, increase the focus on high end work such as consulting
and KPO, shift the focus on domestic demand for IT services as the market grows
at 26%, and extend its scope to service domains other than BFSI, such as transportation,
infrastructure, and so on. The services
the Indian IT industry provides are perceived as being mainly low value IT
services, a fact that has to change. Companies in the industry have to move higher
in the value chain in the IT services.
Potential threats have to be anticipated and calculated in the
strategy. The shrinking margins due to rising wage inflation, the increased
competition from foreign firms such as Accenture and IBM, the increased competition
from low-wage countries such as China and Indonesia
The analysis applies to Infosys and to all
companies in the industry.
Infosys Organization
Organization Objectives
Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by
seven people with USD $250. Today, according to its webpage, Infosys is a
global leader in the "next generation" of IT and consulting with
revenues of USD $5.4 billion as of September 2010.
The vision guiding
the company is expressed as: "To be a globally respected corporation that
provides best-of-breed business solutions, leveraging technology, delivered by
best-in-class people." (Infosys 2011.)
The mission
guiding the company’s objectives and strategies is expressed as:
"To achieve
our objectives in an environment of fairness, honesty, and courtesy towards our
clients, employees, vendors, and society at large" (Infosys 2011.)
The organization’s offerings span business and technology
consulting, application services, systems integration, product engineering,
custom software development, maintenance, reengineering, independent testing
and validation services, IT infrastructure services, and business process
outsourcing.
Infosys is a global player. The global delivery model (GDM), a
master piece pioneered by Infosys, is applied for all of the company’s business
lines. The GDM is based on the philosophy to produce where costs are lowest and
most skills are located and to sell where the revenues are the highest and the most
prospects are present. The GDM makes the
organization’s clearly stated objectives attainable. It is the main pillar that
lays consistency between operations and strategy.
Organization Leadership
Infosys’ basic philosophy can be summarized with its chairman of the board and chief mentor N. R. Narayana Murthy‘s public statement:
“The primary purpose of corporate leadership is to create wealth
legally and ethically. This translates to bringing a high level of satisfaction
to five constituencies - customers, employees, investors, vendors and the
society-at-large. The raison d'être of every corporate body is to ensure
predictability, sustainability and profitability of revenues year after year.” (Infosys
2011.)
Shared values are an important part of Infosys’ organizational
culture. Highly consistent with the organization’s vision, they are integrated
in all key leadership’s aspects. Some of the core values are listed below,
though the list is not exhaustive. Customer delight is a commitment to
surpassing customer expectations. Pursuit of excellence is a commitment to
strive relentlessly to become the best. Leadership by example is a commitment
to set standards in operations and in the entire industry. Fairness is a commitment
to be objective in judging business interests, thereby earning trust and
respect. Integrity and transparency is a commitment for doing ethical business.
Strong leadership is one of the most essential ingredients of organizational
success. Benefitting from the Indian social values and its own history, Infosys
developed a predominantly supportive leadership style highly consistent with
its vision, core values, and philosophy. For this purpose, the organization has
established the “Infosys Leadership Institute” for developing strong leadership
qualities among employees and for maintaining a consistent leadership culture. The
organization leadership strength can be summarized with this Infosys statement:
“Corporate
governance is a reflection of our culture, policies, our relationship with
stakeholders, and our commitment to values. Infosys has been a pioneer in
benchmarking its corporate governance practices with the best in the world.” (Infosys
2011.)
Organization Structure,
Culture, Skills
The organization has adopted a flat matrix organizational form but in
practice, the organization appears as a star form organization, devoid of
hierarchies. Everyone is known as associates irrespective of his formal position
in the organization. The organization
form fit perfectly with the main business subject, which is software
development and IT services. Software
development and ITES is undertaken through teams and the constitution of these teams
is based on the principle of flexibility.
As the firm is rapidly growing in both geographic location and
business segments, some limits can be posed by the organization form. Constraints and weaknesses of the
organization form and inconsistencies of this with the strategic plan can be sources
for dysfunctional conflicts in the structure of the organization.
Infosys is in the knowledge-based industry and consequently focuses
on the quality of human resources. Out of its total personnel, about 90% are
engineers. At the entry level, the organization emphasizes selecting candidates
with superior academic records, technical skills, and a high level of learning
ability. The organization takes a wide range of initiatives and efforts for enhancing
competencies.
Apart from internal initiatives such as knowledge management,
Infosys has been CMM-Level 5 certified for its process capabilities. Infosys
has entered the Balanced Scorecard Hall of Fame for Executing Strategy for
achieving breakthrough performance results using the Balanced Scorecard (BSC).
Organization Financials
Infosys is represented globally with development centers in India , China ,
Australia , the Czech Republic , Poland ,
the UK , Canada , and Japan
The organization is rich in cash, its revenues are growing, and
profits are satisfying. However, some deeper analysis in the revenue structures
reveals a high risk related to the organization’s financials. Infosys’ revenues
are dependent on the U.S. and European (primarily UK
Furthermore, by considering
the revenues broken up by customers’ industry segments, it becomes obvious that
the organization depends highly on the BFIS segment. The BFIS and telecom
segments contribute to more than 50% of company’s revenue. That strong dependency
on the U.S. and on the BFIS segment poses a threat on the company’s stability
and growth. Corrective actions are necessary on a strategic level. The business
focus must shift from the BFSI segment and from the U.S. to other segments and
to other geographic locations. Central Europe and Germany
Infosys Marketing Strategy
The consistency of the
strategy with sound marketing principles will be investigated in this section
and potential exceptions to marketing principles will be assessed. The
objectives of the marketing strategy and its consistency with the objectives of
the firm will then be investigated. Finally, the marketing mix variables and
their appropriateness for the target market and the marketing objectives will
be investigated.
Analysis of
Target Markets
Infosys as a global player has adopted a client-focused strategy to
achieve growth. Rather than focusing on numerous small organizations, it
focuses on a limited number of large organizations throughout world.
Infosys has focused on expanding the nature and scope of engagement
for existing clients by increasing the size and number of projects and
extending the breadth of its service offerings. For new clients, it provides
value-added solutions by leveraging its in-depth industry expertise. It
increases its recurring business with clients by providing software
reengineering, maintenance, infrastructure management, and business process
management services, which are long-term in nature and require frequent client
contact.
Infosys plans to establish new sales and marketing offices,
representative offices, and global development centers to expand its
geographical reach. It has an increased presence in China
through Infosys China , in
the Czech Republic
and Eastern Europe directly and through Infosys BPO, in Australia through Infosys Australia , and in Latin America through Infosys Mexico
In a conclusive summarization, it can be stated that the target
market of Infosys is well defined and aligned with strategy. It is large enough to be profitably served
and it has long run potential. Infosys still can expand geographically and it
can increase business from existing and new clients. In addition, Infosys pursues alliances and
strategic acquisitions to take advantage of emerging technologies. Infosys sales
can grow, and market share and profits can increase.
Analysis of Marketing Mix Variables
This section provides an analysis of the marketing mix variables, their
internal consistency, and their consistency with the target market.
Product, Service, Brand
In this section, an analysis will be done of what services are being
sold, and what the width, depth, and consistency of the firm’s product lines
are. The question will be investigated whether the firm needs new services to
fill out its product line or even if any product(s) should be deleted. Several facts
have to be taken into account before jumping to any conclusions, as services
defer from goods in many aspects (Peter-Donnelly 2007.) Figure 4 shows revenues by service line and
reveals a dependency on ADM, which is a rather low value service. The second, consulting
service and package implementation, is a service located higher up in the value
chain.
Figure 4: Infosys revenue by service offered, as a
percentage of the total. 
Note: ADM is the
largest revenue category, as retrieved from Infosys fact sheet 2011. http://www.infosys.com/investors/reports-filings/quarterly-results/2010-2011/Q3/Documents/fact-sheet.pdf
Screen clipping taken:
17/01/2011, 15:20
Investigation of
revenues by industry segment makes analysis and conclusions more robust.
Figure 5: Infosys revenue by industry segment as a percentage of the
total, with BFSI having the major percentage.
Note: BFSI
generates the largest amount of revenue, retrieved from
Infosys fact sheet 2011.
Screen clipping taken:
17/01/2011, 15:20
For a better picture of the service
lines and the brand, the revenue structure on customer basis is investigated. Figure 6, with Infosys revenue by client
size, highlights that revenues are generated by repeated sales to a few large
customers. Revenue stability is the positive aspect of that fact and risk of
dependency is the negative aspect.
Figure 6: Infosys revenue by client size. 
Note: Repeated sales to a few large clients
dominate revenues, as retrieved from Infosys fact sheet
2011.
Note: Repeated sales to a few large clients
dominate revenues, as retrieved from Infosys fact sheet
2011.
Screen clipping taken:
17/01/2011, 15:20
Figure 7: Infosys revenue by geographic region shows a dependency on
the U.S. but this is a fact for all companies in the Indian IT industry.
Note: U.S.
and UK
Screen clipping taken:
17/01/2011, 15:20
The organization’s offerings span business and technology
consulting, application data maintenance (ADM), systems integration, product
engineering, custom software development, maintenance, reengineering,
independent testing and validation services, IT infrastructure services, and business
process outsourcing. The organization expands its wide range of services
through enhancing its solution set. Infosys focuses on emerging trends, new
technologies, specific industries, and pervasive business issues that confront its
clients.
In recent years, the organization has added new service offerings
such as business consulting, business process management (BPM) or outsourcing
(BPO), systems integration, and infrastructure management. Some of the new
services are major contributors to its growth. However, a dependency on ADM
revenue is clear on the P&L, which poses a threat as the new entrants, from
low cost countries, can provide ADM at even lower cost. Thus, Infosys has to
continue and progress the process of new service offerings because the organization
is competing in a rapidly changing environment.
Infosys focuses on services by developing deep industry knowledge.
The organization has industry-specialized expertise in the manufacturing, telecommunications,
retail, transportation, and logistics industries, but the major focus is on the
expertise of the financial services segment.
In the financial services industry, Infosys is successfully creating and
distributing a specialized software line. However, a dependency on the BFSI
industry segment is visible in the P&L, which poses a threat because this
segment suffered an almost worldwide collapse in 2008.
Other dependencies such as the dependency on the U.S. and the UK
On the other hand, Infosys emphasizes quality throughout their
entire services and product lines and uses the “quality focus” and the “value
adding“ strategy as a differentiating factor for its premium margins. Thus, the final conclusion is that service
lines are consistent with pricing (Infosys 2011).
Promotion Mix
Infosys brand equity is high because the organization is constantly
investing in enhancing brand visibility. Infosys invests in the development of
its premium brand identity in the marketplace by participating in media and
industry analyst events, sponsorship of and participation in targeted industry
conferences, trade shows, recruiting efforts, community outreach programs, and
investor relations.
Personal selling is for
Infosys the most powerful promotional element. Infosys has educated and
organized powerful sales force teams, which acquire projects and maintain
relationships with clients. This way of communication is typical for companies
providing complex services and it is appropriate as it can lead to sales.
There is consistency in the promotion and product and pricing
variables. The company does not negotiate over margins beyond a certain limit
and sometimes prefers to walk out rather than compromise on quality for
low-cost contracts. This has helped in building an image for a quality-driven
model rather than a cost-differentiating model.
Placement
Infosys’ sales force is well organized. Sales organizations are located
in regions heavily populated with prospects and they receive substantial support
and coordination from India
The project execution utilizes the GDM. In execution, the GDM works
with a small but highly skilled team that collects the customer requirements
and aligns the communication onsite, and a large offshore team. Most of the
services related to systems is produced by the offshore team. The teams are
well educated in the GDM and the project operations. The GDM is a well
functioning model for specific types of services such as ADM and BPO.
On the other hand, the GDM is not appropriate and attractive for
high value consulting services where the presence of consultants at the client
is highly necessary. Highly complex services, that is, services requiring an immediate
response from the client make the physical presence of the personnel that provides
the service absolutely necessary. These kinds of services are also the services
located at a high level of the value chain, and result in the firm’s good reputation
and large margins (Krajewski L., Ritzman L.)
The higher an IT service firm wants to go on the service value
chain, for establishing status and gaining high margins, the closer to its clients
it has to operate. The operations on the customer side, however, require a large
number of on-site consultants. The GDM, which is an Infosys strength, seems on
the other hand to limit the organization’s service line options and so, if the
organization wants to expand in new kinds of high margin services, it has to
hire locally on a grand scale and change its operating model.
The final conclusion can be that the way Infosys is distributing and
delivering its current services is typical in the Indian IT industry. The
organization delivers a service at right time and the right place to meet
customer needs and to excel in the market. However, improvements can be made in
the distribution as technology progresses. Cloud computing, new social media, and
social commerce could also provide new chances and challenges in IT service
distribution; in fact they could lead to entirely new business.
Pricing
Prices at Infosys are calculated per each project after considering a
minimum required margin. In order to serve its clients, the organization
focuses on quality and on adding value to the customer through expertise.
Pricing is not used as a competitive advantage by Infosys. A competitive differentiating
factor for Infosys is focusing on quality and earning premium margins. This means
that the firm does not negotiate over margins beyond a certain limit and
sometimes prefers to walk out rather than compromise on quality for low-cost
contracts. This has helped in building an image for a quality-driven model
rather than a cost differentiating model. The organization’s success proves
that this kind of pricing is in full agreement with the target market and the
cooperate strategy.
INFOSYS SWOT ANALYSIS
Strengths
·
Organization
o
Vision, values, culture, mission,
objectives, organizational structure consistency
o
Leadership in sophisticated solutions that
enable clients to optimize the efficiency of their business. Innovation and
leadership
o
Ability to scale
o
Strong financials and richness in cash
·
Brand and service
o
Proven service operations “Global Delivery Model”
o
Commitment to superior quality and process
execution
o
Strong brand and long-standing client relationships
o
Status as an employer of choice
·
Pricing focused on margins is reflected in the
strong financials.
|
Weakness
·
Organization
o
Low R & D spending as compared to
global IT companies – only 1.3% of total revenues
o
Rising wage bill – 42.9% to 44.8% of
revenues
o
Marketing research and information is not
systematically integrated into the marketing strategy
·
Brand and service
o
Low expertise in high-end services such as consultancy
and KPO
o
Dependency on client’s contracts, which can
be easily terminated
o
Short term risky revenue streams.
·
Promotion
o
No strong promotion in
o
Promotion mix not exhausted
·
Placement (distribution)
o
Excessive dependence on U.S. for revenues –
67% of revenues from U.S.
o
Excessive dependence on BFSI sector for
revenues – 36% of revenues from BFSI
o
Weak player in the domestic market: only 1
% of revenues from
o
Only one distribution channel - direct
sales - available.
o
GDM limits possible services lines
|
Opportunities
·
Domestic market set to grow by 26%.
·
Expanding into new geographic locations –
Europe,
·
Acquiring companies to increase expertise
in consultancy, KPO, and package implementation capabilities (Infosys is cash
rich)
·
Establishing development centers (operations)
in cost-advantage countries such as those in Latin America and Eastern Europe
·
Strengthening the presence in markets to be
developed
·
Enhancing software sales for adding safety
in the revenue’s streams
|
Threats
·
Intense competition and emerging of
substitute offshore regions in conjunction with often weak economic environments
increases pricing pressure. These trends combined with a tendency for rising
wages in
·
High dependency on a small number of
clients, with the loss of any one of the major clients being able to significantly
impact business
·
High dependency on the U.S. market and BFSI
·
Foreign competitors can gain power in the
domestic market, pushing the company out of the domestic business
·
Failure to complete fixed-price, fixed-time
frame contracts within budget and on time
|
Actions and
strategic insight derived from the SWOT are described below. A growth strategy with
offering ADM and BPO into emerging markets – India, EU, and the Middle-East
uses strengths and develops new opportunities. The same is true for developing new
industry verticals such as airlines, telecom, and healthcare by offering them
existing expertise such as BPO and ADM. The
development of new products and services, and offering them in new markets or
industry verticals, is a very aggressive alternative.
Overcoming
weakness through opportunities is the next action. Use cash richness for acquiring
companies in domains such as KPOs, IT consultancy of package implementation,
BFSI, retail, manufacturing, and telecom or geographic areas such as EMEA and
APAC.
Mitigating threats by resolving weaknesses is the next action. Resolve
weaknesses that put the business at threat through divestiture. Particular
business verticals or geographic areas which cannot be developed can be divestiture. This can increase efficiency and support
brand equity.
IBM SWOT ANALYSIS
A comparison with the most respected competitor in India India India India
Strengths
·
High-end services in the value chain
·
Technology and quality advantage
·
Expertise of several years
·
Expertise in several verticals
(transportation, aviation, healthcare, etc.)
·
High capital to expand through large
acquisitions
·
Strong global brand
|
Weakness
·
New working environment
·
Not used to very high attrition rates
·
New to low cost services model
·
Lower number of highly talented workforce
·
Late entry into India
·
Late entry into market segment
|
Opportunities
·
Domestic Indian market set to grow by 26%
·
Can provide more services to global clients
from lost location
·
Replicate the low cost model of Indian IT
companies
·
Can provide low-end services of the value
chain from India
·
Global growth of the economy after slowdown
|
Threats
·
The economic environment, pricing pressures,
and rising wages in
·
Intense competition in the market for
technology services could affect cost advantages
·
Currency fluctuations
·
Brand may not benefit from GDM involvement
|
IBM poses a competitive threat to
Infosys in the talent and sales markets.
Problems Found in
Situation Analysis
Problems and their Core Elements
The primary problems in the Infosys SWOT analysis that will have
strategic implications are related to the organization’s dependencies:
-
Dependency on the U.S. and UK
-
Dependency on BFSI
-
Dependency on a few large
clients
-
Dependency on the offshore
service delivery (GDM)
Another problem can arise if the high growth of Indian IT spending
compels the company to abandon underdeveloped markets such as Germany Germany
Strategic Alternatives for Action
Several business strategies can be combined for achieving Infosys’ objectives.
Infosys is India
A growth strategy has to be the new focus of Infosys. The
possible strategic alternatives for growth and their consequences will be analyzed.
The Ansoff’s matrix provides a well structured strategic overview.
The Ansoff’s Matrix
Current Market
|
New Market
|
|
Current Product
|
Market Penetration Strategy
|
Market Development Strategy
|
New Product
|
Product Development Strategy
|
Diversification Strategy
|
Market Penetration
Strategy:
For developing a penetration strategy, Infosys needs to expand in
existing markets with current products and services. Infosys can consider the U.S.
and the UK as their main
current markets as central Europe and APAC are
after all not yet developed markets. The organization’s current products are
the service lines ADM, BPO, KPO, consulting services in BFSI, and their product
line of financial software (FINACLE). The penetration strategy means to
encourage existing customers to utilize further its services or to gain new
customers in these markets. A typical variable the penetration strategy uses is
the price - by applying price reduction in any form. But there are limits to this
alternative for Infosys.
Infosys differentiates itself using quality leadership, and thus price
is not its competitive advantage. The
strategy of adding value to customers by providing strong expertise requires
excellently skilled and thus costly employees. Penetration using the price
variable contradicts the organization’s tradition and management preference as
expressed in its corporate vision. The introduction of that strategy can confuse
clients, cause brand dilution, and harm Infosys’ brand equity.
Infosys can increase market share in the current markets by
strengthening promotion, emphasizing brand, and optimizing distribution channels.
New distribution channels can also be introduced. A potential variant can be to
sell services in cooperation with long term local partners. As an example, an
agreement can be made with partner Oracle where Infosys pays a commission to Oracle
for each project Oracle is acquiring for Infosys.
Market Development
Strategy
The global financial turmoil of 2008 and 2009 and the potential
disruption of the BFSI industry has flashed into Infosys management, making
obvious the risk posed on the organization from the over-dependencies on the U.S.
and the financial segment. As a result, the market development strategy has
been intensified. The market entry initiatives in the APAC region have been
progressed. China and Australia India , the Middle-East, and Central
Europe .
Product Development
Strategy
The organization’s current main products are the service lines ADM,
BPO, KPO (Knowledge Process Outsourcing), consulting services (mainly in BFSI) and
their product line of financial software (FINACLE). The strategy of product
development is to be applied in the current markets of the U.S. and the UK
The new product development strategy can resolve existing strategic
issues and can aid the organization to grow further. The issues in this
strategic context are related with the dependencies of Infosys products on GDM
and existing products. As mentioned in
the SWOT analysis, GDM facilitates overcoming geographical distance and produces
excellent results for certain kinds of services such as ADM. It does not help
move upwards on the service value chain by offering high margin services very
close to the customer. These kinds of services require resources present at the
customer location.
Another reason for reducing Infosys dependency on GDM is related to the
Indian labor market development. The strong growth in India will rapidly change India
Products Infosys can focus on for moving upwards on the value chain
are consultancy and package implementation services in relatively well-growing
sectors, especially in healthcare, life sciences, aviation, and KPO services. A
recommendation is for Infosys to concentrate on building expertise in these
domains by strategic acquisitions. Innovations based on emerging technology are
always an option for a technology company.
Diversification
Expanding with new products in a new market is for Infosys an
aggressive strategy with high risk. Take for example an expansion in new markets
such as Germany , India , the Middle-East, and Australia
Competitive Advantage Strategy
The completive advantage strategy of Infosys should be considered in
conjunction with its growth strategy. As mentioned, Infosys emphasizes quality
and builds a strategy of competitive advantage focusing on quality. The
organization will benefit from that strategy in developing western European
markets such as Germany and Belgium
Infosys should enforce its quality-based competitive strategy and perfecting
the marketing mix for being highly consistent with this strategy. Quality is
and should continue to be the first strategic pillar for Infosys’ success
Value Based Strategy
A value based strategy though strong expertise is already the second
strategic pillar of Infosys’ success. Infosys,
based on its philosophy, focuses on developing and delivering superior value to
customers and considers that approach as a way to achieve organizational
objectives. Following this, the organization seeks to build long-term
relationships with its customers by offering superior value using the value based
strategy. While the company leads in
quality in the specific types of services it offers, more effort has to be made
in moving upward in the service value chain. While doing this, attention has to
be given to service quality in order to keep the brand consistent.
Implications for Strategy Development
The three types of strategies analyzed lead to practical implications
and operational results. The competitive advantage strategy based on quality
and the value adding strategy based on expertise are existing strategies of
Infosys that have to remain. Keeping both strategies, Infosys has to focus on
growth in new markets with its current services lines. In addition to this,
Infosys has to move into higher value services either through service innovations
or through adjustments of existing operations.
Selecting
and Specifying Strategic Alternatives
In the last step of the analysis, the strategic alternatives have to
be operationally defined, assessed, and their implementation has to be
blueprinted. In this section, only alternatives for growth will be analyzed because
the value based strategy and the competitive benefit strategy of Infosys can
remain as they currently are.
Diversification is risky for Infosys and will not be chosen as an
option. Market penetration, however, is not an option for Infosys if it is
based on price. Any price reduction can dilute the brand and harm the
organization in the long term. Improvement can be made in communications and in
distribution. The involvement of new technology in both areas can benefit the
company. Infosys has a very low presence on Twitter and Facebook, not to
mention other social media in which CIOs have membership.
Also, distributing services based only on the GDM is efficient but
appropriate only for a few services mostly located in the low value service
area. Investing closer to the client and prospect facilities can bring the
organization’s image closer to that of a high value service provider. This will
have implications in the product portfolio.
New Product Development
New product development is an alternative that is always relevant for
a high tech firm. Innovation in the technology or in the process is a matter of
sustainability. The current product portfolio of Infosys contains a large cash
cow: ADM. The second is consulting and revenues from their financial software.
It contains stars: BPO and consulting services, as well as a few question marks:
testing services, and it does not contain goods, as Figure 4 shows. Coming new services and innovations will be
the new question marks for Infosys.
Innovations in the service
line have to follow current technology’s advancement and anticipate current
trends. The following ideas can be designed and introduced for testing on the current
market:
·
Digital consumers
·
Pervasive computing
·
Emerging economies
·
Sustainable tomorrow
·
Smarter organizations
·
New commerce
·
Healthcare economy
Infosys can develop these seven focus areas that present
opportunities for IT-led innovation in building tomorrow’s enterprise (Infosys
2011.)
New Markets
New markets for Infosys can be India ,
the Middle-East and Central Europe . Special
attention has to be given to India
and Germany.
Developing India
The development of the domestic market is a high priority for
Infosys. India UK
markets to the fastest growing market, but it also has to make sure it will
attract new talent in India
Developing
Germany
Competition to be expected is high from Indian as well from international
companies such as IBM and Accenture. These two companies are well established
in Germany India
ADM is a service that mostly follows after a software package
implementation has been completed. Because IBM and Accenture and some other “Big
Five” companies lead in the package implementation area, taking on the ADM services
seems like a natural extension of the original package implementation project. These
companies have the best chances to gain the ADM project immediately after the
implementation project is completed.
Knowledge of the German language is essential for commercially advancing
in Germany
Two alternatives are now worth considering for Infosys: developing a
German presence or buying a local company. The first alternative involves organic
growth. It implies growing with the values and culture of the organization. This
alternative has some constrains, the main one of which is access to highly
skilled resources. Infosys is competing in Germany on the talent market with
the “Big Five” and IBM, which enjoy a high brand reputation. This alternative
can become expensive.
The second alternative is even more difficult. There is high competition
in acquiring a good potential through M&A and the movement is also
expensive. In addition, the new company has to be integrated into the Infosys
world. If the culture difference is high,
the alternative can lead to a complete failure.
The first
alternative is the most preferable one.
Summary
Infosys has to expand into new geographic areas as well as into new
prospects in existing geographic areas to reduce its dependency on the U.S. – UK
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