Infosys

Infosys is an information technology service company based in India.

Firm Information

Infosys, formed in July 2, 1981 by Narayana Murthy and six other members:  Nandan Nilekani, N. S. Raghavan, Kris Gopalakrishnan (current CEO), S. D. Shibulal, K. Dinesh and Ashok Arora.  By mortgaging the jewelry of Murthy’s wife for Rs. 10,000 their vision turned into a reality.    Since 1981, it has grown to be a Fortune 500 company and is the first Indian company to make the NASDAQ 100 (largest non-financial companies in the NASDAQ stock change).

Infosys Technologies is an IT services and consulting firm based in Bangalore, India with offices around the globe.  Its offerings spans business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing.  When it comes to information technology, they do anything and everything. In addition, it employees over 90,000 employees and receives over quarter of a million resumes for just 2,500 new positions every year. 

Essentially this firm helps “Fortune 500 companies design, build, and maintain very large business software applications, such as an integrated merchandising solution and a Web-based broker trading platform, and also provides IT-consulting services.”   Due to the growing popularity of outsourcing, Infosys has experienced remarkable growth with its revenue exceeding $2 billion in 2006.  Its stock performance (stock symbol INFY on the NASDAQ) has followed suit, as it has grown about 960% since its IPO in 1999.  It has experienced continuous and substantial growth since 2000 reaching revenues of over $4 billion this year with revenue of US$ 1,142 million in the fourth quarter alone.   It has also been offering dividends to its investors, an action rarely seen in a growth firm.   

Competitive Advantage and Strengths

Infosys and other companies could only enter the international stage when the Indian socialistic government decimated in the early 1990s: trade barriers were lowered, taxes reduced and globalization was embraced.  Not only Infosys but every other major company in India needed these restraints removed for their internationalist dreams to materialize.  Infosys exploited the opportunity and has been on the ascent with great global exposure.

At the heart of Infosys is its Global Delivery Model (GDM), a strategy pioneered by Infosys that lead to global outsourcing.  GDM is the strategy of breaking a task into small parts, and distributing them where the maximum value will be generated.  High education and low-cost talent in India allows Infosys and its GDM to deliver lower costs, better quality and productivity to its customers; three primary reasons why many companies were quickly attracted to the services Infosys continues to provide to this day.

If GDM is Infosys’ heart, then Sparsh (Sanskrit for in-touch) is all the veins that leave and enter the heart.  Sparsh, the information intranet of Infosys, allows every single member of Infosys to be connected at all times.  Sparsh is Infosys’ central information resource serving as an internal social network (just like Facebook), causing a networking effect to take place within; making Sparsh more valuable as more members use it.  Using Sparsh, users can seek out other employees with expertise in a particular subject area to get the best quality of information possible.  Members can exchange ideas by email, bulletin boards and can also hold discussion with tremendous speed. How does Infosys capitalize on this great connection within the company?  This intranet has continued to thrive since its inception in 1996, reducing operating costs and meeting clients’ needs even more efficiently, meaning more money for firm and its investors.

Sparsh is coupled with KShop; a knowledge database where Infosys has book reviews, case studies, even materials, FAQs, tutorials, downloadable software and much more for every employee.  As Infosys grew, organizing the magnitude of information became very difficult giving birth to KShop which is tailored constantly to users’ request.  Due to the nature of Infosys’ business model and the large number of its employees, such technological implantations have only furthered Infosys’ dominant position in its industry and proven to the world that it is a company at the very forefront of technology and efficiency.

To supplement their advantage in the market even more they have formed SETLabs.  The services that Infosys provides are essentially commodity products (products or services that are essentially the same provided by the competitors such as Tata Consultancy, Satyam and Wipro) and SETLabs was formed to combat that weakness. It is a differentiation tool to compete against big players.  SETlabs carries out research and focuses on emerging technology to see what technologies can be used for customers.  SETLabs have increased overall productivity by up to 35%  in many cases.  Not only does this mean better customer satisfaction but also allows Infosys to charge premium rates compared to competitors because of quality.  

Infosys also realized that a company is a family.  Just like parents nurture their children, the Infosys Leadership Institute, the world’s largest training facility, is where Infosys primes and cultures the next generation of Infosys leaders.  This means that employees of Infosys are already in synch with the culture of the company before they are even on the payroll of the company.  This allows productivity of each employee to be 100% from day 1.  Narayana Murhty adds, "In our business the only constant is change. Training is hugely important as it is the only way one can keep in touch with contemporary issues" and this facility allows for that to happen.

Infosys has established itself as a company that delivers top-quality services.  Hence, the Infosys brand has made both prestigious corporations and bright young talent highly attracted to the company.  In addition to brand their share volume of employees also gives them a scale advantage.  It’s the alliances they have formed with the old “big-boys” on the block that give them the X factor in the globalized world.  Infosys has alliances with Motorola, Microsoft, Sun Microsystems and IBM.  Also, the largest companies are proud customers of Infosys.  Since 19 out of 20 companies return to Infosys for business, churn rate is very low.

Future Opportunities

Since the US economy is halting, the rupee in India will also become a weaker currency in the future.  This will prove beneficial to the industry since most of the earnings are in terms of US dollars.  According to Gopalakrishnan this will “…have a positive effect on the revenues as for the Indian companies the cost incurred are only on the salary and the capital infrastructure which is not much if taken on the whole perspective.”  Infosys also realizes that dependency on the US market could be a hindrance to the company in the future so it is taking steps to break into other geographic sectors, including Japan, Germany, and France.  Infosys plans on continuing alliances with other major brands in the future, such as Microsoft.  These alliances have proven to be a profitable strategy for Infosys since its products greatly enhance companies’ efficiency.  The firm also plans on increasing its foothold on mobile internet, e-commerce and VoIP.  In addition, they are planning on some vertical integration allowing them to control all their activities starting from mainframe to the latest broadband technologies.

Threats and Weaknesses

The three major competitors to Infosys are Satyam Computer Services, Tata Consultancy Services and Wipro Technologies.  Infosys has made a point not to compete on price, but rather focus on quality.  So far this strategy has worked, with the churn rate coming in at about 5%.  Despite the focus on quality, Infosys’ main competitive advantage does come from differential costs compared to the firms in the United States.  This advantage will only prove to be temporary, since eventually a price equilibrium will be reached that will eliminate this discrepancy.  Infosys is aware of this, and for that reason, have made it a point over and over again that they will never compete on price but only quality.  Although they benefit from the pricing differences now, they believe they can run their company just as effectively based on the superiority of their products and services in the future.

The second biggest threat is that the majority of the firms profit comes from selling commodity products such as IT services and software development.  This means that customers come to a firm because of price and not quality.  To offset this, Infosys introduced SETLabs to make sure that all their products had an aspect of differentiation even though any IT firm will do the same job that Infosys can do.  Also Infosys needs to increase its sales of high-end services and products to go to the next level.

Opinion

Infosys is a company run by insightful leaders which means that it will always do everything in its power to progress and grow.  The leaders realize that the future of the company is in the hand of the youth which is why they have a training facility in place.  The leaders also realize that a lot of the products they sell are a commodity which is why SETLabs was introduced to differentiate them so price they do not enter in a price war which is hazardous to a company.  The firm’s immediate future looks very bright even with the weaknesses.  However, technology changes very quickly so there is always a risk.  If the future leaders stay insightful and innovative this firm can be a major gravy train for future investors.