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Bindhya Narayanan Roll No. 31 PGDM International Business Batch 2012-14 22 July 2013

Business Policy Assignment Infosys Company Analysis

Table of Contents
Introduction ............................................................................................................................................ 3 Infosys Product and Services Portfolio ................................................................................................... 4 Infosys Subsidiaries ................................................................................................................................. 4 Geographic Scope ................................................................................................................................... 6 Profitability.............................................................................................................................................. 7 Achievements.......................................................................................................................................... 7 Financial Analysis - Infosys ...................................................................................................................... 8 Porters Five Forces ................................................................................................................................ 10 Mckinseys 7S Model ............................................................................................................................ 11 SWOT ANALYSIS OF INFOSYS: ............................................................................................................... 12 Infosys in Comparison with TCS ............................................................................................................ 13 ANALYSIS OF STRATEGY OF INFOSYS: ................................................................................................... 15

Business Policy Assignment Infosys Company Analysis

Introduction
Infosys is a global leader in consulting, technology and outsourcing solutions. As a proven partner focused on building tomorrow's enterprise, Infosys enables clients in more than 30 countries to outperform the competition and stay ahead of the innovation curve. Ranked in the top tier of Forbes 100 most innovative companies, Infosys with $7.4bn in annual revenues and 155,000+ employees provides enterprises with strategic insights on what lies ahead. We help enterprises transform and thrive in a changing world through strategic consulting, operational leadership and the co-creation of breakthrough solutions, including those in mobility, sustainability, big data and cloud computing. In 1981, seven engineers started Infosys Limited with just $250. From the beginning, the company was founded on the principle of building and implementing great ideas that drive progress for clients and enhance lives through enterprise solutions. For over three decades, we have been a company focused on bringing to life great ideas and enterprise solutions that drive progress for our clients. Infosys has a growing global presence with more than 155,000 employees worldwide, across 67 offices and 69 development centers in the United States, India, China, Australia, Japan, Middle East, and Europe.

Business Policy Assignment Infosys Company Analysis

Infosys Product and Services Portfolio

Infosys Subsidiaries
Infosys Lodestone Infosys Lodestone is headquartered in Zurich. The global consulting firm advises international companies on strategy and process optimization as well as IT transformation. With a valueintegration approach, Infosys Lodestone pursues a value-adding combination of management and IT consulting. Infosys Lodestone's advisory services are primarily geared to the life science, chemical and financial services industries as well as the investment, automotive and consumer goods sectors. Infosys Technologies (Australia) Pty. Limited Infosys Technologies (Australia) Pty. Limited is the Australasian subsidiary of Infosys. We provide expertise to some of the world's major banks and enterprises to ensure their applications meet the highest standards of regulatory compliance, governance and security. Locally headquartered in Melbourne, we have offices across Australia and New Zealand. With nearly 2,000 local employees, we collaborate with colleagues all over the world to help leading organizations from Australia and New Zealand build tomorrow's enterprise. Infosys BPO Limited Infosys BPO Limited, the Business Process Outsourcing subsidiary of Infosys Limited, was set up in April 2002. Infosys BPO focuses on integrated end-to-end outsourcing and delivers transformational benefits to its clients through reduced costs, ongoing productivity improvements, and process re4

Business Policy Assignment Infosys Company Analysis

engineering. We operate in India, the Czech Republic, Poland, Mexico, Brazil, USA, Australia, China and the Philippines. As on June 30, 2012, Infosys BPO employed 23,288 people. Infosys Tecnologia do Brasil Ltda In October 2009, Infosys established the Brazil delivery center in Nova Lima/MG with growing services in Rio de Janeiro and Sao Paulo. Our mission is to be a respected Brazilian corporation that provides best-of-breed business solutions, leveraging technology and global infrastructure, delivered by best-in-class people co-sourced from Brazil. Our vision is to achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large. One of the fastest growing subsidiaries of Infosys, we have a huge potential in the enterprise applications market of Latin America due to increasing IT spend and booming economy of the region. Infosys Technologies (China) Co. Limited Infosys Technologies (China) Co. Limited, headquartered in Shanghai, is a wholly-owned subsidiary of Infosys Limited. Infosys China was established in 2003 with the vision of becoming a world-class delivery hub, offering global consulting and IT services. With a blend of global and local talent, we have the breadth of skills, languages, and coverage that companies need in a global partner. We have the distinction of being the first company in China to receive certification in CMMI Level 5 (v1.2) global process quality standard. We are also certified in ISO 27001, the global benchmark for data security operations. Infosys Technologies (Shanghai) Co. Limited Infosys Technologies (Shanghai) Co. Limited, registered in 2011, is a 100% subsidiary of Infosys Limited. Infosys significantly expanded its strategic investment in China by laying the foundation for its new state-of-the-art campus at Zizhu Science and Technology Park in Shanghai in 2011. The new campus will be spread over 15 acres and developed over a period of three years. With an overall seating capacity of 8,000 employees, the campus will have advanced facilities for software development, labs, data centers, training facilities, food courts, a 1500-seater auditorium, gym, and other recreational facilities. It will be the largest overseas software development center of Infosys, adhering to the highest environmental standards. Infosys Technologies S. de R. L. de C. V. The Mexico Delivery Center was established in August 2007. Located in Monterrey, Infosys Technologies S. de R. L. de C. V. is a wholly-owned subsidiary of Infosys with local leadership and bilingual workforce - proficient in English and Spanish. It delivers IT and BPO services to clients in North America, Latin America and Europe. It serves more than 30 global and local clients (6 of them in secure development centers) across industries. It offers a range of services that include application development and maintenance, infrastructure management, application testing, PMO, BPO, ERP and support services with multiple engagement 5

Business Policy Assignment Infosys Company Analysis

models. It is committed to the highest standards in security and processes and is ISO 27001, ISO 9001:2008 and SSAE 16 certified. Infosys Public Services Inc. Infosys Public Services Inc. is a U.S.-based subsidiary of Infosys. We help healthcare and public sector organizations transform, innovate, and optimize to build tomorrow's enterprise. We do this by bringing cross-industry ideas and practices to transformation initiatives, accelerating time-to-market with readymade industry solutions, and ensuring clients derive value from investments through systematic execution.

Geographic Scope

Business Policy Assignment Infosys Company Analysis

Profitability

Achievements
Infosys has consistently been honored by clients, industry bodies, media and other influencers. Forbes ranked Infosys 19th among the world's most innovative companies. Infosys was identified as one of the top 25 performers in Caring for Climate Initiative by UN Global Compact and UN Environment Program the only global consulting and technology major in the list. Infosys ranked No.1 among the best managed companies in Asia Pacific in the annual Euromoney Best Managed Companies in Asia survey, 2013. Infosys has been voted India's most admired company in The Wall Street Journal Asia 200 survey every year since 2000. We were recognized as a top performing global partner by Procter & Gamble (P&G). Our Software Development Block 1 at Pocharam campus in Hyderabad, India, was awarded the highest LEED rating the fourth Infosys building to win a Platinum rating (taking the total Platinumcertified building area at Infosys to over 1 million sq. ft.) Infosys won the Oracle Excellence Award for Specialized Partner of the Year North America in both Financial Management and Human Capital Management categories, at Oracle OpenWorld 2012. Oracle also recognized Ricoh, our partner, with an Oracle Excellence Award: Eco-Enterprise Innovation.

Business Policy Assignment Infosys Company Analysis

Financial Analysis - Infosys

Our total income increased to Rs. 36,765 crore from Rs. 31,254 crore in the previous year, at a growth rate of 17.6%. Our software export revenues aggregated to Rs. 35,932 crore, up by 17.8% from Rs. 30,514 crore in the previous year. Out of the total revenue, 63.8% came from North America, 21.8% from Europe, 2.3% from India and 12.1% from the Rest of the World. Our revenues from India have increased to Rs. 833 crore from Rs. 740 crore, with a growth rate of 12.6%. The share of the fixed-price component of the business was 40.0%, compared to 39.3% during the previous year. Our gross profit amounted to Rs. 15,103 crore (41.1% of revenue) as against Rs. 13,419 crore (42.9% of revenue) in the previous year. The Profit Before Interest, Depreciation, Taxes and Amortization (PBIDTA) amounted to Rs. 11,015 crore (30.0% of revenue) as against Rs. 10,061 crore (32.2% of revenue) in the previous year. Sales and marketing costs were 5.1% and 4.6% of our revenue for the years ended March 31, 2013 and March 31, 2012, respectively. General and administration expenses were 6.0% and 6.1% of our revenues during the current year and previous year, respectively. The net profit before exceptional item and tax was Rs. 12,274 crore (33.4% of revenue) as against Rs. 11,096 crore (35.5% of revenue) in the previous year. We seek long-term partnerships with our clients that will enhance their value while addressing their IT requirements. Our client-centric approach has resulted in high levels of client satisfaction. We derived 97.8% of our consolidated revenues from repeat business. We, along with our subsidiaries, added 235 new clients, including a substantial number of large global corporations. The total client base at the end of the year stood at 798. During the year 2012-13, we added 23.11 lakh sq. ft. of physical infrastructure space. The total available space as on March 31, 2013 stands at 316.44 lakh sq. ft. The number of marketing offices as at March 31, 2013 was 69 as compared to 65 in the previous year.

Business Policy Assignment Infosys Company Analysis

Mar2013 3676500 3898200 2574900 1323300 1236000 1235700 911600 1007200 Mar2012 3125400 3308300 2119100 1189200 1167600 1167400 847000 926400 Mar2011 2538500 2653200 1697000 956200 882200 882100 644300 718300 Mar2010 2114000 2206200 1378100 828100 747400 747200 575500 656200 Mar2009 2026400 2114000 1373000 741000 671600 671400 581900 651300

Net Sales Total Income Total Expenditure PBIDT PBIT PBT PAT Cash Profit

Net Sales
4000000 3000000 2000000 1000000 0 Mar-2013 Mar-2012 Mar-2011 Mar-2010 Mar-2009

PAT
1000000 800000 600000 400000 200000 0 Mar-2013 Mar-2012 Mar-2011 Mar-2010 Mar-2009

PBT YOY Growth rate

32%

18% 11% 6%

Mar-2013

Mar-2012 9

Mar-2011

Mar-2010

Business Policy Assignment Infosys Company Analysis

Turnover YoY Growth

23% 20% 18%

4%

Mar-2013

Mar-2012

Mar-2011

Mar-2010

Porters Five Forces

Threat of Substitutes

Bargaining power of supplier

RIVALRY AMONG FIRMS

Bargaining Power of Customers

Barriers to Entry

THREAT OF ENTRY: Low 1. Low capital requirements 2. Large Value Chain, Space for small enterprise 3. MNCs ramping up the offshore capacity and employee strength in India BARGAINING POWER OF BUYERS: Shift from High to Low 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 BARGAINING POWER OF SUPPLIERS: Very High 10

Business Policy Assignment Infosys Company Analysis

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

Mckinseys 7S Model

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. Thats 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 managements 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 companys culture satisfying, superior academic records, technical skills and high learnability. The company emphasizes on training and development of it s employees on 11

Business Policy Assignment Infosys Company Analysis

continuous basis and spends around 3% of revenue on up gradation of employees 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 doesnt negotiate on margin beyond a certain limit and sometimes walk out rather than compromise on quality for low cost contract. Hence it has differentiated itself 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 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. 12

Business Policy Assignment Infosys Company Analysis

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 Opening new offices and development centres 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.

Infosys in Comparison with TCS

Infosys Infosys has come to be the gold standard in the Indian IT industry's success. From humble beginnings in 1981, the company today is the second largest exporter of software services from the country. It is known globally for its world-class management practices and work ethics. It has been making conscious and constant efforts to move up the software value chain and offers services like software development, maintenance, technology consulting, testing and package implementation. Infosys offers all these services through its highly integrated and widely acclaimed global delivery model. TCS TCS is the largest software company in Asia, having a wide range of offerings and catering to industries like banking and financial services, manufacturing, telecom, and retail. The company was one of the pioneers of the much-acclaimed global delivery model and has the largest employee base (238,583 at the end of FY12) in the Indian software sector. It has grown its revenue and net profit between FY07 and FY12 at average annual rates of 21% and 20% respectively.

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Business Policy Assignment Infosys Company Analysis

Comparison 1. Annual outlook: Infosys has given a muted sales outlook for fiscal 2013-14, citing a challenging global economy. It said dollar revenues are likely to grow between 6 and 10 per cent in fiscal 2013-14, lower than estimates of 9 to 13 per cent. The poor forecast disappointed investors and sent Infosys shares down 21 per cent. TCS, which does not give out an annual sales outlook, has said the company will grow faster than industry body Nasscom's 12-14 per cent projection for fiscal 2013-14. 2. Sales: Fourth quarter sales at Infosys were flat sequentially at Rs. 10,454 crore, up 0.3 per cent. The numbers were better for TCS, which reported a 2.2 per cent sequential growth at Rs. 16,430 crore. On a year-on-year basis, TCS' Q4 revenue grew 24 per cent, while Infosys reported an 18.1 per cent rise. 3. Revenue strategy: Infosys has struggled to implement a strategy of generating a higher proportion of revenue from its own software platforms, and its market share has been essentially flat for the past two years. By contrast, TCS has focused on more traditional outsourcing services. 4. Business volumes: TCS grew its business volume by 4.4 per cent from the previous quarter, compared with 1.8 per cent growth at Infosys. 5. Net profit: Infosys' fourth quarter net profit at Rs. 2,394 crore is a 1.1 per cent growth sequentially and a 3.4 per cent growth year-on-year. At Rs. 3,597 crore, TCS saw its net profit surge 22.1 per cent year on year and 1.3 per cent sequentially. TCS SWOT Strength: Ability to win and execute large, billion-dollar outsourcing contracts, increasingly viewed by customers in the same league as IBM and HP. Weakness: Made progress in commoditised services, but still lags some peers and multinational rivals in high-end consulting offerings.

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Business Policy Assignment Infosys Company Analysis

Opportunity: Best positioned among all Indian vendors to disrupt the global league of IBM-HPAccenture. Threat: People-led linear growth means Cognizant can beat it, and there are no visible leaders beyond N Chandrasekaran. That could pose a big challenge. Infosys SWOT Strength: Early positioning as high end differentiated player thanks to Nandan Nilekani and NR Narayana Murthy, investors and customers prefer the company for its established processes and predictability. Weakness: Lagging peers in making strategic, 'game-changing' acquisitions, consulting business has not delivered the results, losing price premiums, lost its No.2 position in the US market to Cognizant last year. Opportunity: Best positioned to replicate the Accenture model from offshore, a game-changing acquisition in a new geography could help the company raise its profile. Threat: Ongoing visa abuse case and federal investigations in the US could affect brand and business, management transition from founders to professionals, rival Cognizant could overtake the No. 2 position.

ANALYSIS OF STRATEGY OF INFOSYS:

Corporate level Strategies: Global Delivery Model: Producing where it is most cost effective and selling where it is most profitable. Moving UP the value chain: Getting involved in a software development project at the earliest stage of the life cycle. PSPD Model: Predictability of Revenues, sustainability of revenues, Profitability, De-Risking for Risk Management.

Actions Taken Expansion into low cost countries like Mauritius, Philippines, Thailand, Mexico etc. Improved Quality capabilities - CMMi Level 5 Emphasis on delivering high value services Currency hedging for predictability of revenues. Investing heavily in training centres.

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: 15

Business Policy Assignment Infosys Company Analysis

Current Markets: USA and Europe Current Products: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) and software products (financial products Finacle). 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 in terms 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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