Вы находитесь на странице: 1из 19

DIAGNOSES

presents analyses of the

management case by academicians and practitioners

The April-June, 32(2),

2007 issue of Vikalpa had published a Management Case titled “Infosys Technologies Ltd.: Growing Share of a Customer’s Business,” by James A Narus and DVR Seshadri. This issue features responses on the case by Janaki Anant, Achal Raghavan, Avinash Mulky, Sudip Nandy, Shlomo Maital, and Zillur Rahman.

Infosys Technologies Ltd.: Growing Share of a Customer’s Business

James A Narus and D V R Seshadri

of a Customer’s Business James A Narus and D V R Seshadri Case Analysis I Janaki

Case Analysis I

Janaki Anant Principal Solution Architect i-flex solutions Ltd e-mail: janaki.anant@iflexsolutions.com

T his case has multiple dimensions of analysis to it. While there is certainly

an immediate short-term issue of winning the Ariba® e-procurement project

of the existing client, Prairie Four Square (PFS), and gaining an increased

share of the customer’s business that the Infosys team is trying to address, there is also an overall long-term strategic issue that needs to be addressed as well – that of the pricing mechanism based on value that needs to be deployed for long-term sustainability and growth of the relationship. This case offers an insight into the various dimensions of moving up the value chain and increasing the economic value of a customer relationship, identifying the differentiation strategy, communicating the positioning effectively, and the impact of local competition in the global scenario. The case also effectively illustrates the general growth path followed by most Indian software services companies, the issues they face in this progression, the changing scenarios in the global competitive arena, and the relentless pressure to lower costs in a diminishing labour cost arbitrage advantage scenario.

The Case Context: An Overview

Infosys Technologies Ltd. is a $2,979 million company, headquartered in Bangalore, India, providing full range of software services to a global clientele. A highly respected company in the Indian IT services space, Infosys employs over seventy two thousand employees, and has been instrumental in building “Brand India” in the global IT services space. Infosys evolved from inception in 1991 to become a giant in 2007, in four clear stages. Starting with an opportunistic mindset of leveraging global labour arbitrage, the company progressed into providing end-to-end solutions, and further on to

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

127

123 127

domain excellence in the chosen business verticals (Fig- ure 1). Infosys has been associated with PFS for over five years. In fact, PFS is one of its key customers. Infosys has over 65 major contracts with it for IT maintenance services. PFS is a $27 billion company in the US, pro- viding insurance solutions in life insurance space and insurance products for individual and group life, in addition to other long-term care and disability insurance products. It makes extensive use of IT to conduct its businesses and uses the outsourcing model for these services. Its preferred ‘best of breed‘ approach awards contracts to organizations most competent in the speci- fied area of work. In response to increasing market pressures to re- duce costs, PFS has embarked upon a pilot test of ‘sole sourcing’ as opposed to its preferred approach. This was based on the premise that total cost of ownership would reduce due to reduction in downstream costs. The Ariba® e-procurement project is the one for which PFS is seeking a single vendor to handle the customization, implemen- tation, and post-implementation support and mainte- nance.

• PFS is satisfied with the quality of the deliverables thus far, by Infosys.

• On all the key measurement criteria of PFS, Infosys has exceeded the customer expectations. (Exhibit 2 of the case)

• PFS has pro-actively invited Infosys to quote for the JAVA-based Ariba® e-procurement system. The expectations from PFS, with respect to the project

proposal presentation were also quite well-articulated. These can be summarized as follows:

• The competition is from two leading IT consulting firms, Merrimac and Excalibur, who are also the existing service providers, in the high-end consult- ing space.

• Although US-based, these companies are setting up development centres in India, and are thus capable of deriving the same cost advantages as Infosys.

• There is an organization-wide drive in PFS, to reduce costs significantly; so, price will be a crucial deci- sion parameter.

• Infosys will need to demonstrate capability to handle end-to-end solutions.

Infosys–PFS Customer Relationship Status

The following parameters of the strength of Infosys’

relationship with the customer are evident from the case:

• In the minds of PFS’ key decision-makers, (CIO, Robert Peters, from the IT side, and Purchasing Vice President, Kay Bryan, from the business side), In- fosys has a very positive image.

• Infosys has been acknowledged to have moved from an ‘unknown commodity’ to a trusted service pro- vider in the IT maintenance services area.

Figure 1: Stages of Infosys’ Evolution Desired position with Ariba project Current position at PFS
Figure 1: Stages of Infosys’ Evolution
Desired position
with Ariba project
Current
position at PFS
Domains of
Excellence
Greater Value-addition
End to End
Solutions
IT Maintenance
Contracts
Global labor arbitrage
Solutions IT Maintenance Contracts Global labor arbitrage KEY ISSUES Infosys Perspective While there are a host

KEY ISSUES

Infosys Perspective

While there are a host of issues that are faced by the Infosys PFS team, the overarching question is:

How can Infosys present a compelling case to win the deal without reducing their cost-plus targets? The associated issues that would need to be ad- dressed are:

• No prior experience in the insurance space in the implementation of Ariba®.

• Possibility of competitor pricing being similar to that of Infosys, given that this would be a predo- minantly ‘on-shore’ engagement.

• While the current need is for end-to-end solution, IT maintenance services are what Infosys has been offering to PFS over the past five years. What is the best way to demonstrate their capability in the end- to-end solution space, specifically in the high-end area of consulting where competition has a distinct advantage?

• The unstated issues typically faced by Indian soft- ware companies. While Indian software companies are perceived to be good outsourcing destination for

128

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

124 128

labour arbitrage for the low-end services , there could be potential issues arising out of outsourcing high-end strategic services such as consulting and software design, given the perception that these services need a deeper understanding of the local context, and as such are best handled by local companies.

PFS

Perspective

From a PFS perspective, the e-procurement project would be a pilot project for testing the waters for sole sourcing end-to-end IT projects vs. the best of breed . The future IT outsourcing strategy of PFS would hinge upon the success of this project. In addition to price competitive- ness, PFS would therefore look for compelling evidence of advantages of ‘sole sourcing.’

Value Analysis

The case clearly brings out the following four areas where Infosys has added demonstrable and quantifiable value through cost savings.

Re-Engineering Project Assignments

This was a major accomplishment, in which five major maintenance projects for PFS were redesigned, and the

onsite-offshore resource mix was not only optimized, but also the resources were rationalized to achieve improved productivity. The total quantifiable cost sav- ings on account of this were to the tune of $12,96,000. This achievement clearly illustrates how Infosys has gone beyond just offshoring to increased efficiencies and effectiveness in addition to being able to consolidate and have a relook at the assignments. The graph below (Figure 2) shows the cost savings and Table 1 shows the computational basis for the cost savings.

Data Corruption Prevention Subroutine

This is another critical area where cost savings can be achieved through good diagnostic skills and solution implementation—The PFS batch system running after 5 a m and the consequent data corruption events being eliminated by Infosys identifying the problem, writing, and successfully implementing a system shutdown subroutine. The pre- and post-scenarios of writing and imple- menting the subroutine and the associated costs are as shown in Table 2.

Record Comparison Algorithm

Infosys team proactively wrote an algorithm that sig-

Figure 2: Reengineering Project Assignments—Cost Savings $11,040,000 $- Year 5 $11,040,000 $5,760,000 Year 4
Figure 2: Reengineering Project Assignments—Cost Savings
$11,040,000
$-
Year 5
$11,040,000
$5,760,000
Year 4
$16,800,000
$7,200,000
Year 3
$24,000,000
$-
Year 2
$24,000,000
Year 1

$- $5,000,000

$10,000,000

$15,000,000

$20,000,000

Total Costs Cost Savings over previous year

$25,000,000

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

129 125

129

Table1: Basis for Computation

Year

Onsite

Offshore

Onsite

Offshore

Total

Cost Savings over Previous Year ($)

Resources

Resources

Costs ($)

Costs ($)

Costs ($)

Year 1

250

0

24,000,000

-

24,000,000

Year 2

250

0

24,000,000

-

24,000,000

-

Year 3

75

250

7,200,000

9,600,000

16,800,000

7,200,000

Year 4

75

100

7,200,000

3,840,000

11,040,000

5,760,000

Year 5

75

100

7,200,000

3,840,000

11,040,000

-

Total Cost Savings

12,960,000

FTE cost onsite per annum ($)

96,000

FTE cost offshore per annum ($)

38,400

nificantly improved the record comparison efficiency by 56 per cent and also reduced the processing time. Con- sidering that end of month is a critical time for a lot of activities, this release of CPU time could be used for some other jobs. Given that a delay in regulatory reporting attracted a heavy penalty of approximately $360,000, the increased efficiency reduced the probability of delay to just about 1 per cent. While the available data does not lend itself to proper quantification of the savings, one could ap- proximate it to $3,600 per month or $43,200 per annum. (computed as $360000*.01*12) This clearly demonstrates the commitment of Infosys in adding value proactively, as well as its capability to improve and fine-tune process efficiency.

Reduction in Disability Claims Reserves

The Infosys team re-engineered and automated some manual processes in claims submissions, and payments, and streamlined the entire claims process. This resulted in a reduction of the claims reserves. While the data available is not adequate to come up with any concrete numbers in cost savings, one could safely estimate that given the cost of capital at 10 per cent, the reduction of $14,00,000 in reserves could create a saving of $1,40,000.

Table 2: New Subroutine Implementation

 

Before

After

No. of corruption events PFS hours idled [ 125*4*24] Programmer repair hours [ 3*4*24] Technical assistant repair hours [ 1*1*24] CPU time in seconds [ 15*24] Cost savings ($) PFS staff Idle time ($) Programmer hours ($) Technical assistant hours ($) CPU time ($)

24

0

12,000

0

288

0

24

0

360

0

504,000

12,960

960

140.40

Total cost savings

518,060

What Infosys team demonstrated once again is their ability to re-engineer and streamline a business process.

Recommendations

Clearly, Infosys has delivered significant value in the relationship, much beyond the contractual terms. The value proposition of Infosys and the proposal presen- tation should be predicated on bringing out the follow- ing points in a compelling manner:

• Consistently high performance Demonstrated by not just ‘meeting’ but ‘beating’ customer performance targets on the three vital dimensions of quality, timeliness, and reliabil- ity.

• Customer commitment and delivery of value Demonstrated by quantifiable cost savings in excess of $13 million, over the five years of relationship

• Pursuit of increased productivity at all times through Resource rationalization Removal of process inefficiencies

• Organizational capabilities of providing end-to-end solutions Experience in other accounts

Customer testimonials in the other Ariba imple-

mentations

• People and process strength in JAVA

• Globalization of their workforce and access to ex- pertise. To effectively address the concern of PFS on Infosys’ ability to stretch and move up from maintenance ser- vices to more high-end consulting and process engineer- ing services, Infosys should illustrate effectively, how it has, in a limited yet powerful way, brought these skills to board in each of the key accomplishments (Table 3). Further, Infosys could propose “Pilot” / “Proof of Concept” approach to demonstrate the capability, to- gether with a pricing model and payment terms that are

130

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

126 130

Table 3: Key Accomplishments and Benefits

Accomplishments

Benefits

Skills Demonstrated

Reengineering

project assignments

Data corruption prevention subroutine Reduction in disability claims reserves Record comparison algorithm

Cost savings through increased productivity rather than just offshoring Cost savings through reduction in down time Reduction in cash reserves Timely submission and release of end-of-month CPU time

Resource rationalization and productivity improvement Problem diagnosis, analysis, and resolution Process re-engineering Process improvement and fine-tuning

predicated upon the success of the “Pilot” module. This would demonstrate Infosys’ commitment and confidence. Infosys should move up from “transaction selling” to “consultative selling” and instead of reducing its

Case Analysis II

Achal Raghavan Vice President – Business Development Sundram Fasteners Limited Bangalore e-mail: achalraghavan@yahoo.co.in

T his case deals with the challenge Infosys is facing

in terms of convincing its customer—Prairie Four

Square Insurance (PFS)—to entrust it with the

customization, installation, and maintenance of a Java- based Ariba® e-procurement system. This project is a typical value-added, “end-to-end solution” assignment that Infosys would love to get its hands on, involving both consulting expertise and day-to-day operational excellence. Infosys has already established its credibility with PFS as an outstanding IT maintenance service provider, but has no track record with them as a “solution” pro- vider. It is competing with Merrimac Consulting and Excalibur Consulting – both of whom are leaders in the operations consulting domain, and are among the top 15 consulting firms worldwide. But they suffer from the converse weakness – i.e., they do not have any experi- ence in IT maintenance, which is Infosys’ area of strength. Infosys now has to figure out a strategy and a communication plan, aimed at convincing PFS that Infosys can be entrusted with this critical high-end e- procurement project. Success in this project will unlock tremendous potential for larger jobs within PFS, and also act as a launch-pad for winning similar jobs with other customers. It is, therefore, a bid of high strategic signifi- cance for Infosys.

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

margins in order to win the deal, should show the value in quantifiable terms and all the other long-term benefits they bring to board and position themselves as “part- ners” rather than as an “outsourcing vendor.”

“part- ners” rather than as an “outsourcing vendor.” The “Value Chain” Imperative In many ways, this

The “Value Chain” Imperative

In many ways, this case is representative of the strategic crossroads at which the Indian IT industry leaders find themselves today. They clearly realize the need to climb the value-chain, and break free from the commoditiza- tion that has inevitably taken place in the offshore out- sourcing and IT maintenance markets. They have been successful so far in leveraging the cost arbitrage that Indian manpower provided them; but rapidly escalating wages in India, emerging shortages in talent, and the strengthening rupee exchange rate have all combined to make that model incapable of providing aggressive future business growth which is in line with past performance. The Indian IT giants now need a strategy to repo- sition themselves as firms which can play competently all across the value chain – from high-end consulting (of the Excalibur and Merrimac kind), down to “getting their hands dirty” with maintenance jobs. Industry history is against them; customers like PFS have long favoured the “horses for courses” approach – working on the basis that the thorough-bred (and expensive) race horses at the high end cannot (and should not) be used for “hauling the bulk load” of IT maintenance, which is apparently best left to the mules of the industry.

131 127

131

The “Expanding the Pond” Imperative

Ram Charan and Noel Tichy, in their excellent book, Every Business is a Growth Business 1 , have talked of companies expanding their market (or “pond”) by look- ing out constantly for the emerging new needs of their existing, and new customers. They argue that this is the best way for companies to ensure continuous and pro- fitable growth. If the companies continue to play in the familiar “current customers’ current needs” quadrant, they will inevitably succumb to commoditization and pricing pressures, and die. In this particular case, PFS has found that it needs a radical overhaul of its procurement practices and processes, in order to reduce costs and grow its business profitably. This is a “new need” felt by PFS, and Infosys, by virtue of its excellent track record in fulfilling the customer’s existing need for IT maintenance, has been invited to bid for the e-procurement project. If it suc- ceeds in this bid, Infosys would succeed in “expanding the pond,” paving the way for future growth with PFS and other customers.

The Challenge: “Strategic Repositioning”

How does Infosys go about achieving a strategic repo- sitioning of its competencies in the eyes of Prairie Four Square Insurance? Kay Bryan, Purchasing VP at PFS, says Infosys is delivering “outstanding maintenance work.” But she, and Robert Peters, CIO, PFS, need to be convinced that Infosys can “handle the strategic and conceptual consulting portion” of the project. In a con- verse manner, they also wonder if Merrimac or Excalibur can handle the maintenance portion, while they can do justice to the consulting portion. Clearly, the tasks ahead for Infosys are the follow-

ing:

Reinforcing the positives of the current brand equity with PFS – as a maintenance expert

Putting across a compelling case which addresses all the anxieties of PFS with respect to Infosys’ consulting capabilities. If Infosys succeeds in doing this, other things being equal, its familiarity with the inner workings of PFS, the credibility built over the years as “people who deliver,” and the working relationships established with various PFS functions ought to swing the decision in its favour

1 Charan, Ram and Tichy, Noel M (1998). Every Business is a Growth Business, New York: Three Rivers Press.

132

– assuming, of course, that the pricing is competitive. From PFS’ perspective, it is clear that while pricing is important, it is the end-to-end competencies which would ultimately influence the choice of the vendor.

The Strategic “Sales Pitch”

Let us now look at the key elements of Infosys’ strategic “sales pitch” – the core communication, or “mantra”, that Rahul and Jaspal need to highlight in the critical meeting with Robert Peters and Kay Bryan just three weeks away. What should be their overall communica- tion strategy? Here are the core elements of the “sales pitch”:

Infosys’ evolution: Start with a crisp summarization of the four phases of Infosys’ evolution (or development) as an organization, each representing a “distinct market offering and value proposition”:

• The first phase was during the 1980s – when Infosys relied on the classical offshore outsourcing model, leveraging on the labour arbitrage available in India.

• The second phase, in the early 1990s, saw Infosys move up the value chain to maintenance contracts for legacy systems. This included the programming work required to take care of the much-spoken about “Y2K” (Year 2000) doomsday scenario.

• The third phase, in the late 1990s, was the period when Infosys truly focused on the high-value “so- lutions” end of the business – offering consultative services such as design, customization, business process reengineering, and installation.

• The fourth (and current) phase is where Infosys is moving further up into a high level of domain knowl- edge for specific industries – where Infosys is able to leverage on its knowledge to offer highly custom- ized solutions. Typically, Infosys has been concen- trating on segments like insurance, healthcare, and retailing – where IT applications are crucial to the client’s survival and growth. The key communication objective behind this intro- ductory pitch is to convince PFS that high-end consult- ing solutions are nothing new to Infosys; that the com- pany has been operating in this domain for nearly a decade; and that the e-procurement project that PFS is considering now is something akin to what Infosys has been doing in the third phase of its evolution – from the late 1990s. In short, PFS is not going to be the guinea pig for Infosys to practise on. More importantly, PFS can take

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

128 132

comfort from the fact that Infosys has already been focusing on Insurance as one of its growth avenues for the past several years. The competency pyramid: Represent (to PFS) the mix of competencies required to do justice to the e-procurement project as a pyramid with three layers; link each layer powerfully with a corresponding strategic business requirement of the customer:

• The bottom layer is the ability to design and set up a system which can maintain and process huge volumes of data with fail-safe measures against a breakdown or data loss. Remember that PFS, as an insurance company, depends on its ability to “pro- cess, analyse, and act upon tremendous amounts of diverse data on an ongoing basis”.

• The middle layer is the ability to re-engineer existing methods and processes, in order to respond to the customer faster, and at a lower cost. Remember that PFS’ founder Stephen Neely and his partners built the company’s insurance business by “offering fair prices, personalized and friendly service, and prompt and equitable resolution of all claims”. In the highly competitive insurance industry, PFS can only sur- vive and grow through relentless introspection, and continuous improvement in its speed of response to customers.

• The top layer is the capability to add value as a consultant and business partner, who will help PFS succeed in its business (insurance) through insights on emerging customer needs, benchmarking, and saving money for PFS through operational optimi- zation techniques. The stability of the pyramid: Emphasize the fact that the stability of this pyramid primarily depends on the robustness of the bottom layer (huge volumes of data, to be processed through fail-safe systems). If that layer is shaky, or if it crumbles under the weight of customer demands, the whole business model of PFS will be in jeopardy. An insurance company with data integrity issues is as good as a plane flying with zero visibility, and all cockpit instrumentation showing suspect readings. The middle layer (reengineer for faster response, at lower cost) is the next layer of stability, which depends on the robustness of the data base below. The top layer (strategic consul- tancy and partnership) depends on the stability and strength of the two layers below for its very existence. The top layer is clearly a vital competence – but for the long term. The idea behind this portion of the pitch is

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

to remind PFS that ground-level competencies are vital to successful implementation of high-level strategies. The real life success stories: For each layer of this pyramid, illustrate Infosys’ suitability and competence with real- life examples from its work done in the past for PFS, or some other client. For example, Infosys has success- fully delivered results beyond PFS’ expectations in five major re-engineering projects in the past. It has gone beyond mere “offshoring” and has delivered improved employee productivity. Provide vital case data to rein- force this achievement. Focus also on some of the other key projects from the past – the data corruption preven- tion subroutine, the record comparison algorithm, re- duction in disability claims reserves, etc. In each case, show Infosys‘ exceeded customer expectations’ and added value through the creative thinking of its people. The “rolling start: Emphasize the advantage Infosys enjoys over Merrimac and Excalibur, in terms of its deep “insider’s knowledge” of PFS’ systems and processes from the past years of association. This familiarity trans- lates to zero time wastage in acclimatization, and a “rolling start” to the project. This means huge savings to PFS. The right emphasis: Avoid over-emphasizing the excel- lent past track record in IT maintenance at PFS; this is already a “given” as far as PFS’ evaluation of Infosys is concerned. Dwelling excessively on that domain will reinforce PFS’ concerns about Infosys’ ability to handle the consulting end of the project, thereby sabotaging its chances of winning the order. Focus instead on the specific steps Infosys has been taking to strengthen its in-house consulting talent pool in this domain. In the words of Robert Peters, the CIO at PFS, Infosys has been “hiring well-seasoned people from the top consulting firms as well as from the top MBA programmes worldwide.” Infosys has also been “bolstering their consulting resources and in-house train- ing”. Provide specific details of these steps, to give confidence to PFS that Infosys means business, and is constantly working on enhancing its all-round capabi- lities. At an individual level, Rahul, the Infosys Engage- ment Manager, has acquired a decade of work experi- ence in Excalibur. Mention this fact at an appropriate place. Execution excellence: Provide in-depth detail on how Infosys plans to organize its team both in the US and in India to work on this e-procurement project. Focus on the people and their track record and competencies.

129 133

133

IT solutions, ultimately, are people-intensive projects.

Seeing is Believing

By good coincidence, Laura Ewing, President, PFS, is visiting Infosys at Bangalore shortly, along with a ven- dor management team. Lalitha, the Infosys Delivery Manager for PFS, is on the right track when she talks about taking advantage of this visit to give PFS a com- plete tour of Infosys—its world-class training facilities, specific examples of JAVA projects executed in the past, and meetings with Infosys personnel with consulting experience. Seeing, after all, is believing – even in the rarefied atmosphere of IT consulting.

Case Analysis III

Conclusion

This case brings out in good detail the nuances in- volved in large companies in the IT field moving up the value chain. The Infosys example can very easily be extrapolated to other Indian IT giants who are also jockeying for a slot in the global consulting arena. The existing consulting firms of long standing would do everything they can to prevent the entry and growth of the hungry newcomers. Success would ultimately accrue to those companies which deliver lasting value as partners, by helping their customers succeed in their end markets.

by helping their customers succeed in their end markets. Avinash Mulky Professor, Marketing Indian Institute of

Avinash Mulky Professor, Marketing Indian Institute of Management, Bangalore e-mail: avinashgm@iimb.ernet.in

T his case describes an opportunity that Infosys

Technologies Ltd., has received, to bid for a new

project involving an end-to-end solution in the

e-procurement area with one of their major current clients—Prairie Four Square Insurance (PFS) — a large, US-based insurance company. Five years ago, PFS had selected Infosys as a sole supplier for outsourcing IT maintenance and had awarded it three pilot contracts. The contracted work involved routine tasks such as cleansing corrupted data, correcting software flaws, and running programme and system tests. Infosys had performed so well in these initial projects, that over the next five years, it had received a total of 65 contracts from PFS which covered higher value maintenance work like application development, business process reengi- neering, installation of some packaged solutions, etc. Although Infosys had an excellent reputation at PFS in the area of maintenance projects, it had yet to make an entry into the prestigious, high margin, end-to-end “consulting” projects with this client. PFS had hitherto favoured a “best of breed” approach under which it awarded IT systems work only to those firms that it perceived as the most competent in the concerned cat- egories (system analysis, design, installation, and main- tenance). During the past few months, an internal white paper at PFS had pointed out that the company’s purchasing

systems and activities required urgent streamlining as the costs of order processing at PFS were way above the industry average. The white paper recommended the reduction of the PFS supplier base from 1,200 to just 300 and the implementation of an e-procurement system featuring Java-based Ariba software. Faced with intense pressure from various quarters to cut costs, PFS man- agers chose to drop the “best of breed” approach and instead try out a single sourcing approach to select one vendor for the end-to-end solution of the e-procurement project. They short-listed Excalibur and Merrimac, two leading consulting firms who were well known for their expertise in applying IT to operations management. Since both these firms were known for their preference for “big picture” projects, high cost structure and a weakness in the maintenance area, PFS managers also included Infosys as the third vendor candidate for the e-procurement project. Since its founding in 1981, Infosys has sought to consistently improve its competence and reputation in handling the higher end of the IT business. Over the years, it has moved upwards from global labour arbitrage and IT maintenance contracts to end-to-end solutions and excellence in the chosen domains. Strategic repo- sitioning of this kind must be implemented by capturing projects with enhanced scope from both the existing and the new clients. In other words, Infosys must increas-

134

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

130 134

ingly migrate up the value chain in the IT solution space. An opportunity to do this has just arisen at PFS, where Infosys is being bracketed along with two global con- sulting firms in the choice set for a major project. In the case context, Infosys must now compete with Excalibur and Merrimac for the PFS e-procurement project. The Infosys team must convince PFS management that the firm is not only an excellent supplier of high value maintenance services, but it also has the competence and capabilities to deliver an end-to-end solution compris- ing consulting, process reengineering, customization, and maintenance at a competitive price. The remaining part of this analysis provides the background and ar- guments that the team can use to make a persuasive presentation to PFS for obtaining the Ariba e-procure- ment order.

Challenging Issues in Global Marketing

The marketing success of Infosys (and other leading Indian IT firms) in attracting, satisfying, and retaining international clients is indeed significant and must be viewed against the backdrop of many hurdles which IT firms from India face in the international arena. Some general hurdles faced by firms from emerging markets include cultural differences, threats of protectionism, and a strong currency. A particular hurdle for the Indian IT firms seeking value migration is competition from global consulting majors who are currently well-en- trenched in the IT consulting space and are moving towards cost competitiveness by developing their off- shore capabilities. In this section of the case analysis, data from the case will be used to understand how Infosys is dealing with each of these hurdles.

Cultural Differences

There are cultural differences across countries affecting communication, general understanding, negotiation, attitude towards time and formalization of contracts,

Table 1: Hofstede’s Values for Selected Countries

and preference for partners or suppliers. When engaging in international marketing, it is important for firms to assess the culture in the target country and understand the differences with respect to their own culture. This will help them to adjust to the new culture and conduct business smoothly. The sociological literature contains some important ideas on how to work across cultures. Based on a landmark, multi-nation study, Hofstede 1 reported that countries differed across five dimensions viz. small vs large power distance, individualism vs collectivism, masculinity vs feminity, uncertainty avoid- ance, and long vs short-term orientation. Table 1 gives the rankings on these dimensions for India, the US, and some other countries in which Infosys may conduct business activities. Compared to India, in the US, there is less acceptance of unequal power distribution (less power distance), higher expectation that people must stand up for themselves (greater individuality), greater competitiveness, assertiveness and ambition (more masculinity), greater need to minimize uncertainty by following rules and structure (greater uncertainty avoid- ance), and less long-term orientation. Infosys, which is based largely out of India, serves an international clientele located in the US, Europe, and other countries. Hence, training of employees in work- ing and managing across cultures is very important for the firm. There is considerable evidence in the case that Infosys prepares well for cross-cultural marketing. It has recruited US citizens for boundary spanning sales po- sitions. For example, Rahul Dev, the Infosys Engage- ment Manager, dealing with PFS, was a second genera- tion American of Indian origin who dressed, spoke, and acted like a typical Californian. Infosys also encourages India-based employees to prepare adequately for cross- cultural interaction. Lalitha Krishnan, the Delivery Manager for PFS, based in Bangalore, had travelled in Asia, Europe, and the US. Although a devout Hindu, she consciously attempted to understand the culture of

Country

Power Distance

Individuality

Masculinity

Uncertainty Avoidance Index

Long-Term

Index

Orientation

China

80

20

66

40

118

Japan

54

46

95

92

80

India

77

48

56

40

61

United Kingdom

35

89

66

35

25

Unites States

40

91

62

46

29

Source: www.geert-hofstede.com/hofstede_dimensions accessed on 30th August, 2007.

1 Hofstede, Geert (2001). Culture’s Consequences, Comparing Values, Behaviors, Institutions, and Organizations Across Nations. Thousand Oaks CA:Sage Publications.

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

131 135

135

Dallas, proudly displayed a poster of the Dallas cow- boys—the American football team, and often caught up with Dallas events on the website. To better understand the American culture, she had taken courses at the Infosys Learning Academy. Through a planned rotation of off- shore and onsite assignments, Infosys ensured that a large part of its workforce had exposure to international culture. Sensitivity to cultural aspects of doing business will be even more important to Infosys as it tries to reduce its large dependence on the US by focusing on markets in Europe and Asia.

Threat of Protectionism

When Indian IT firms initially started getting business from clients in the US and other developed nations, their core advantage was their ability to offer high quality work at extremely competitive prices due to the huge difference between the costs for local vs Indian employ- ees. The offshore model developed by Indian IT firms further added to their cost competitiveness since only

a small onsite team needed to be maintained and the rest

of the work could be done offshore in India and else- where at a much lower cost. Spurred by the economic gains from the initial contracts, over the years, more work was outsourced from the developed countries, particularly the US, leading to some highly publicized

job losses. This has created a backlash and at least one state legislature in the US has passed a law preventing state governments from outsourcing. Calls for abolition of free trade agreements and the imposition of tariffs on imported services have also been heard. The issue is particularly sensitive during periods of economic stag- nation or low growth and during election years. Like other Indian IT firms, Infosys must address the protectionist sentiment. While continuing to use its offshoring strength, the firm must focus on communi- cating its service quality, timeliness, reliability, and savings delivered and downplay its offshore activities. It should develop an excellent presentation and mount

a public relations campaign describing how it is helping

to improve the competitiveness of the US firms. Infosys

must also highlight its investments in the US in terms of development centres, marketing offices, and the US nationals employed. Finally, Infosys may team up with other Indian IT firms under the NASSCOM banner to lobby with the Federal government for maintaining the status quo on free trade since many IT and consulting firms of the US have themselves set up development

centres in India expecting to benefit from an open economy on the Indian side.

Strong Currency

The Indian rupee has been appreciating against the US

dollar since 2003. Until 2007, the rise was gradual, but

in the recent quarter, the rupee has appreciated by more

than 7 per cent. Such a sudden rise is bound to affect the bottom line of Indian IT firms including Infosys since more than half of their business comes from the US. In order to contain the impact of the rise in the rupee against dollar, Infosys will need to increase its billing rates for new customers and new contracts by at least 3-4 per cent. It will also need to bring down its depend- ence on the US market to under 50 per cent while in- creasing the customer base in Europe and other coun- tries. Another strategy to contain the effects of a rising rupee would be to slow down the rise in employee costs. Press reports indicate that the annual wage hike in the IT industry has been to the order of 13-15 per cent which has been managed through pricing. Further sharp rises in the rupee will put pressure on the ability to manage wage hike impacts through pricing. Indian IT firms are already exploring alternatives for slowing down the increase in wage costs. Press reports indicate that some large IT firms are recruiting non-engineering graduates and training them to fill positions usually offered to engineers since they believe that these graduates will be more cost-effective.

Moving Up the Value Chain

The development of the Infosys business over the years displays a conscious effort to move up the value chain. As it begins to target the very top end of the IT business which is currently the stronghold of global consulting firms like Excalibur and Merrimac, Infosys needs to substantially upgrade both its competencies and its reputation for business consulting, especially for pro-

viding end-to-end solutions. It must particularly increase its capabilities in front-end analysis and system design, and improve its software knowledge. Infosys has al- ready started hiring experienced consultants from com- peting firms. In fact, Rahul Dev, who deals with PFS, was hired from Excalibur where he had worked for over

a decade. It can continue with this strategy of hiring

experienced consultants from other leading firms after

putting in place socialization processes to orient new hires to Infosys values and systems. Infosys may also explore inorganic growth in business consulting by

136

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

136 132

acquiring a mid-sized firm which has a strong reputation in consulting.

Cost Savings for PFS

The case provides data on four projects in which Infosys has offered cost savings to PFS over and above the contract terms. Let us calculate these cost savings by examining the projects one by one (A to D).

Re-engineering Project Assignments

In the course of the teleconference between the key members on the PFS team at Infosys, Jaspal Singh mentioned that he was particularly proud of the way the team had redesigned project assignments so that fewer personnel were required over the years starting from year 2 of the project. Table 2 provides the calcu- lation of the savings to PFS through reengineering project assignments which work out to a substantial sum of

$12,960,000

Data Corruption Prevention Subroutine

Infosys engineers had written a subroutine to shutdown the PFS batch programmes at 5 a m. Earlier, PFS faced problems whenever their batch processing continued beyond 5 a m as this corrupted data and online shutdown system led to idling of about 125 PFS employees for up to four hours. Calculations regarding the benefits of the Infosys’ initiative to PFS are shown in Table 3.

Record Comparison Algorithm

Infosys engineers working on the PFS projects have written an algorithm which improved the PFS record comparison processing efficiency by 56 per cent and processing time by eight hours. This helps PFS in timely submission of reports to state insurance commissions and reduces the probability of PFS being fined for late

submissions. Table 4 shows the savings to PFS from the record comparison algorithm

Reduction in Disability Claims Reserves

Infosys has helped PFS to reduce the cash reserves required for paying the disability claims. This was achieved by streamlining and reengineering the claims submission and claims payment process. The reduction in cash reserves was to the extent of $14 million. The savings to PFS in this regard are shown in Table 5.

Knowledge Transfer Time Savings from Sole-sourcing

In case PFS decides to award the Ariba e-procurement project to Infosys on a sole-sourcing basis, Infosys will be involved with the Ariba software right from the beginning of the project and will therefore not require any knowledge transfer time to update their program- mers on the technical aspects of the system as they enter the maintenance phase. Since it roughly takes 5 pro- grammers about 12 weeks to master an Ariba system installed by someone else, the savings from the elimi- nation of knowledge transfer time are expected to be 5 x (12/4 months ) x $8,000 per month which is equal to

$120,000.

Persuading PFS for Capturing IT Business

An analysis of the case data gives the impression that although Infosys has offered great value to PFS in the course of its current projects, its share in the PFS’ IT business is quite small. A stretch goal for Infosys may be to capture at least 50 per cent of PFS’ IT spend. In order to achieve this, Infosys must be seen as a major partner by PFS. The sales approach required for achiev- ing a partnership relationship between a client and a vendor has been termed as Enterprise Selling 2 . The

Table 2: Savings to PFS from Reengineering Project Assignments

 

Year 1

Year 2

Year 3

Year 4

Year 5

Number of US-based employees

250

250

75

0

0

Number of India-based employees

0

0

250

100

100

Annual cost of US-based employees

PFS

250 x $8000 x 12= $ 24 Mn

75 x $8000 x 12 = $ 7.2 Mn

Annual cost of India-based employees

250x $3200 x 12 = $ 9.6 Mn(3)

100 x $3200 x 12= $3.84 Mn (4)

100 x $3200 x 12=$ 3.84 Mn

Total employee cost during the year

$24 Mn(1)

$16.8 Mn (2)

$3.84 Mn

$3.84 Mn

Savings for PFS from transferring personnel to India

 

(1)–(2) = $ 7.2

Mn(5)

Savings from reassigning personnel in India

(3)-(4) =$ 5.76 Mn (6)

Total savings to PFS from reengineering project assignments

A = (5)+ (6) = $12.96 Mn

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

133

137

137

Table 3: Savings to PFS from Data Corruption Prevention Subroutine

Category of Employees involved in Data Corruption

Programmers

Technical Assistants

PFS Workers

No. of employees involved No. of incidents Time involved per employee (hours) FTE costs per hour Savings from subroutine

3

1

125

24

24

24

4

1

4

$45

$40

$42

3 x 24 x 4 x $45 =

1x 24 x 1 x $40 = $960 (2) B=(1) + (2) + (3) = $ 517,920

125 x 24 x 4 x $42= $504,000 (3)

 

$12,960

(1)

Total savings to PFS from subroutine (excludes minor saving in CPU time)

 

Table 4: Savings to PFS from Record Comparison Algorithm

 

Monthly penalties for late submission to State Commission Probability of late submission each month Amount saved per month Annual Savings from algorithm

 

$360,000

0.01

$360,000 x 0.01 = $3,600 (1) C=$3,600 x 12 = $43,200

Table 5: Savings to PFS from Reduction in Disability Claims Reserve

Reduction in cash reserves Cost of capital for PFS (%) Annual savings from reduction in claims reserve

$14,000,000

10

D= $14,000,000 x 0.1 = $1,400,000

Table 6: Total Cost Savings to PFS over and above Contract Terms

Savings from re-engineering project assignments (A)

$12,960,000

Savings from subroutine to prevent data corruption (B)

$517,920

Savings from record comparison algorithm

$43,200

Savings from reduction in claims reserve (D)

$1,400,000

Total savings to PFS A to D

$14,921,120

enterprise selling approach requires immense trust between both parties based on a clear understanding that partnering will bring significant mutual benefits. Enterprise partnerships are usually successful when there is some match between the cultures of the two parties. Such partnerships are also more successful when the top managers of both firms are in touch and trust each other. Based on the stretch goals Infosys has in mind for its business from PFS, a case could be made that Infosys must use enterprise selling techniques in getting the Ariba e-procurement order. The top management of Infosys has an opportunity to meet senior PFS managers during their forthcoming visit to the Infosys campus in Bangalore. Infosys board members must use this oppor- tunity to forge closer links with the PFS President and discuss the formation of a long-term partnership be- tween the two firms. At the same time, the onsite duo of Rahul Dev and Jaspal Singh must highlight to PFS in Dallas that the two firms have many value-based similarities and that the savings of nearly $15 million for PFS over and above the contract terms are an indi-

2 Rackham, N and DeVincentis, J (1998). Rethinking the Sales Force. New York: McGraw Hill.

138

cation of the quality of concern for its client that Infosys brings into a relationship. The Ariba project can also be seen as a situation where a consultative selling approach needs to be used. Consultative selling occurs when the salesperson brings superior knowledge and problem solving capabilities to the sales opportunity in order to create superior value for the client. Superior value is created by thoroughly understanding the client’s processes, constraints, and needs and developing appropriate solutions. Such ac- tivities are akin to consulting and therefore this ap- proach is called the Consultative Sales Approach. Rahul Dev and Jaspal Singh must convince PFS that Infosys has the required capabilities in the consulting arena to provide an end-to-end solution using the Ariba soft- ware. Their presentation must highlight the backgrounds and project experience of Infosys consultants who will be assigned to the Ariba project. They must highlight the fact that the large number of maintenance projects that Infosys has carried out for PFS over the past five years have provided Infosys employees with a great deal of knowledge about how PFS operates, knowledge that will come in extremely handy in the consulting phase

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

138

of the project. Additionally, Dev and Singh must high- light the expertise that Infosys has acquired on Ariba software in the three ongoing projects for other clients. Finally, Infosys must quote the right terms while seeking an order and use transactional selling tactics. The major items of discussion will be the terms compris- ing price, time schedule for completion, important mile-

Case Analysis IV

Sudip Nandy Chief Strategy Officer WIPRO Ltd. e-mail: sudip.nandy@wipro.com

I n the management case, Infosys is facing an inter-

esting business situation. The company has been

performing exceedingly well as an offshore IT

services vendor at Prairie Four Square (PFS) Insurance over the last five years. Based on this strong track record, PFS is now considering Infosys as a potential partner for an end-to-end Ariba e-Procurement System Project. This is a chance for Infosys to establish itself as not just an offshore partner competing on cost advantage and quality of service delivery, but also as a thought partner with business skills to help the PFS managers respond to business challenges. This case analysis discusses var- ious aspects of the way the Infosys account team can respond to this strategic growth opportunity at PFS. The PFS managers have two objectives while mak- ing the choice of an IT outsourcing partner for this project – one, to ensure that the IT partner has the skills and the capability to implement an end-to-end solution, and two, to find the lowest cost at which this can be done. On the ground, Infosys already has a strong position to convince PFS of its low cost and high service quality proposition. However, the other two IT consulting com- panies are stronger in terms of showcasing a consulting capability for end-to-end solution development. To win this business opportunity, Infosys needs to do away with the tendency of its managers to package and present its excellent performance on ongoing PFS projects – the performance metrics and case histories of cost savings that Infosys teams have consistently brought to PFS. To get to a winning position, the Infosys proposal needs to pitch that it has developed consulting led end-

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

stones, and proposed commitment of staff both onsite and offshore. Infosys will need to consider the rising rupee while presenting the pricing for implementation and maintenance. It may consider a hike in the imple- mentation price to about $2,075,000 and the maintenance of the end-to-end solution to around $410,000 per an- num.

of the end-to-end solution to around $410,000 per an- num. to-end capability required to deliver on

to-end capability required to deliver on this project. In this context, the following need to be the key elements of the Infosys proposal:

Discuss the evolution of the Infosys business model – moving from labour cost arbitrage to focus on specific market opportunities, to more complex business capability, and most recently to specific industry ability/domain excel- lence. The PFS managers view Infosys as an outstanding vendor for ‘offshore outsourcing of IT maintenance projects.’ It is necessary to position Infosys as bringing specific domain and consulting-led capability to deliver IT services. Infosys PFS account team needs to reach out internally to collect relevant facts on consulting capa- bility at Infosys. The proposal should seek to first es- tablish this high level view in the minds of PFS man- agers. Discuss Infosys’ specific capability and experience at man- aging end-to-end e-procurement system projects over the last one year. Discuss specific challenges faced in customi- zation, installation, and maintenance of the project and how Infosys teams have responded to these challenges. Infosys PFS account team needs to collect relevant facts and prepare at least one case study from these ongoing projects. The proposal needs to highlight the cross-in- dustry capability required to work on an e-procurement system project. This will help Infosys drive the point that even though it may not have past experience of such a project for an Insurance client, it has the expertise to deliver on other industry clients. It will be ideal if Infosys could arrange a reference-check call with one of its clients on such a project.

135 139

139

Discuss the operational cost savings possible for PFS in detail. The operational cost of the current PFS procurement systems is $ 78 per order processed, much higher than the industry average of $ 45 per order processed. The proposal needs to highlight the significant opportunities to cut operational costs for PFS. Infosys can bring in the perspective on how it has managed to bring cost savings to PFS well in excess of their expectations. Specific numbers will help:

• 500 technical people are working at Infosys on the PFS account, at $ 4,800 per month differential costs per FTE between the US and India, and this saves PFS about $ 25-28 million a year. It is possible that the PFS IT budget will be at a 4-5 per cent of the turnover, which comes to well over $ 1 billion a year. Thus, Infosys has already brought a 2-3 per cent reduction in the PFS IT budget through a successful working offshoring model. It is a saving not easy to match for the US-focused players like Excalibur and Merrimac Consulting, which are not experi- enced at working with the offshore model. Howev- er, this is a saving PFS would have expected from Infosys. It is probably important to put a perspec- tive on how much has Infosys achieved in terms of cost savings over and above this amount.

• Using the data in Exhibit 2 would help. In addition, substantial cost savings from 150 Infoscions “freed up” through productivity gains brought by the Infosys delivery team. This means savings of about $ 6 million a year.

• Another key initiative that Infosys has carried out at PFS is the reduction in average number of cor- ruption incidences from 24 to 0. From the data available, this has meant savings of about $ 0.5 million in terms of idle time of PFS employees due to these incidents.

• In addition, there is the saving by ensuring that the state commissions do not penalize PFS for delay in delivering compliance analyses each month. The savings are not substantial from a number point of view, but enable PFS to complete 1,800 jobs on the last night of each month.

• Taken in perspective, for every $ 25 million savings PFS expects from handing work over to Infosys, it has got an additional quantifiable saving of $ 6-7 million, which is a substantial additional 25 per cent over time! The company should not try to undercut on price

to win this project. There are two key reasons for saying this – one, the key challenge for Infosys to win this project is to manage the end-to-end customization and implementation challenge, and not the cost challenge; and two, with its excellent track record at PFS, it does not need to give any strategic price discount to improve its chance of winning this project. It is likely, however, that in the first year, Infosys’ price quote for this project will be close to the bids likely to come in from Excalibur and Merrimac Consulting. This would be the case since a substantial part of the implementation phase of the project would be done onsite – where the cost differential between the two firms may be small. However, Infosys can beat the price quoted by the competitors for maintenance of the project, and also justifiably claim that PFS will get additional cost savings every year. The one key point to highlight will be the business gain for PFS from Infosys’ ability to cut down the ‘knowl- edge transfer time’ of the project. The gain for PFS will be more from a faster deployment of the e-procurement system, and for PFS business managers, this will be substantial. The point will clearly be in Infosys’ favour even if the scientific estimation of business gain may not be possible as part of this proposal. The Infosys team can do some thinking on the proposed team structure for this project. Infosys should include higher billing rate resource(s) from the consult- ing team of Infosys, and bill such resource(s) at higher consulting charge-out rates.The proposal should men- tion the technical expertise of the Infosys team but not oversell that as PFS managers are already aware of it. The presentation strategy for Infosys should be to bring a senior Infosys consulting team member to join the account management team for this presentation. It should emphasize its philosophy of valuing long-term relationships with customers and employees over the short-term profits. With the above as the key tenets of its proposal, Infosys should keep the discussion focused, cut out the parts that the PFS managers already know, not over- emphasize the cost-saving aspect of working with Infosys as much as the part on the capability of Infosys for bringing the right skills to deliver on this project. Infosys is hosting a team from PFS on its campus in Bangalore before the presentation on this proposal to the CIO and Purchase Managers of PFS. It is important to resist the temptation of taking the visiting PFS team through the

140

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

140 136

specifics of Infosys’ approach to this project. The PFS CIO and Purchase Managers should be the first ones to know the Infosys proposal on this opportunity in detail. The Infosys team in Bangalore, however, can use this visit to make the point on consulting focus, training ability, and new hires from consulting backgrounds at Infosys. It is all right as long as that pitch is generic, but Infosys should not talk of specifics during this visit. Looking beyond this project, the Infosys senior management needs to think through the challenge of moving up the value chain at their established customer accounts. Long-term customers like PFS have come to recognize Infosys and other top India-based outsourcing providers such as Wipro and TCS, for their cost advan-

Case Analysis V

Shlomo Maital Academic Director TIM-Tel Aviv, Israel e-mail: smaital@mit.edu

T he Infosys Case enables focused action-learning

discussion of the theory and practice of three

related topics: (a) implementing strategic change

that is both top-down and bottom-up; (b) defining customer value propositions to find powerful “reso- nance”; and (c) migrating the company’s strategy, com-

petencies, and business model upward, away from the area of commodities and into the area of high-margin services. These topics, I believe, lie at the core of the management dilemmas that many global companies face. Let us begin with the issue of migrating up the value chain. “Simplify,” Einstein admonished. To simplify: There are only two basic growth strat- egies.

Same to more: Sell the same product or service to more people. This is what most organizations call as a growth strategy. It seeks to boost the share of the market.

More to same: Sell higher-value higher-margin products and services to the same clientele, to escape commoditization. This is what Infosys seeks to do and this is what their bid for the PFS contract in- volves. The case embodies nearly all the key issues involved in a “more to same” or ‘share of wallet’ strategy.

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

tage, high quality of service delivery, and business models focused on building long-term customer relationships. These companies have worked hard to establish that position with their long-term customers. These compa- nies are facing the marketing challenge of convincing their long-term customers of their consulting ability and industry-focused domain strength. It is an interesting challenge to bring together the low cost, IT service delivery model perfected by these companies, and the high-end consulting-led business model that focuses on business value for the customer with cost being less important. These companies are working hard at getting this transition right, and hope that they will eventually get there.

This is a difficult strategy to implement. It involves radical change within the organization, to align capa- bilities with a new value proposition. And from my experience, the hardest part is not gaining new higher- margin business from the existing clients, but getting used to turning down business from new clients. Infosys has to learn to do this regularly if it is to successfully execute this ‘more to same’ strategy. I believe, the com- pany is already doing this. I was told by a senior Infosys executive that Infosys has 400 clients and that it is rather unusual for it to accept the new ones; the case must be exceedingly powerful for it to do so. This is “more to same” in its highest form. Peter Drucker once said, business strategy is not what the organization does, but what it chooses not to do. By the same token, businesses are best judged not by their clientele, but by the customers they decline. The key benefit of ‘more to same’ is that it builds client loyalty. It is known to be an order of magnitude more expensive to gain a new customer than to keep an old one, in general. This is an important rationale for ‘more to same.’ Infosys has not only deliberately kept its focus primarily on the existing customers, but has also single- mindedly focused on the key industries: banking, finan- cial services, insurance, healthcare, retailing. Inevitably,

141

141

a ‘more-to-same’ share-of-wallet strategy must do this. Infosys’ customer value proposition is summarized by Narus

a ‘more-to-same’ share-of-wallet strategy must do this. Infosys’ customer value proposition is summarized by Narus and Seshadri in three words: “Business domain excellence”— “We understand your business, as well as or better than you, and we can prove it by helping you make your business more smooth, efficient, and pro- fitable.” This excellence cannot be achieved everywhere, in all industries. It must be focused, and hard choices must be made. Infosys has made them. Many companies do not. And it must above all be proven in the field. The challenge for Infosys in winning the Ariba

contract is to convince its PFS client that, once a ‘body shop’ operation for PFS, Infosys is indeed able to move upward into ‘stratospheric’ regions dominated by heavy- weights like EDS, IBM, and Accenture. IBM once built its advertising campaign around the slogan “You never go wrong with IBM.” PFS executives would incur sub- stantial risk by going with Infosys. The customer value proposition has to be so powerful, so compelling, that

it would overcome this obstacle. In Robert Peters, PFS

CIO, Infosys has an ally who likes their past work. But competition is stiff. And a classic dilemma arises:

Whether to compete head-to-head with competitors who may price their bid on cost? The answer is: No. ‘Compete on value, not on cost. Create added value and charge for it.’ Infosys has to find a way to communicate the value created by it in the past, well beyond its ‘contrac- tual obligations’ and establish that all this was possible due to its superior domain competencies. What constitutes a compelling, winning value propo- sition? Anderson, Narus and Rossum (2006)* * distin- guish between three types of value propositions (see Table 1): (a) one that dumps all benefits on the table, like a smorgasbord buffet (an approach used by many companies); (b) favourable points of difference, an ap- proach that stresses key differentiators, running the risk that the differentiator the client seeks is not precisely the one being promoted by the selling organization; and (c) resonating focus – one or two key points of difference, that answer the question, “What is most worthwhile for our firm to keep in mind about your offering?” “What really matters to you?” At times, clients cannot answer that question. It takes a very good listener and observer to find out. “This (Ariba project) is as much a consulting project

* Anderson, James C; Narus, James A and Rossum, Wouter van (2006). “Customer Value Propositions in Business Markets,” Harvard Business Review, March, 84(3), 1990-99.

as an IT project,” Purchasing VP, Kay Bryan, said. Infosys, led by Rahul and Jaspal, built the case for sole-sourcing. They understand the more-to-same share-of-wallet strat- egy and see veins of gold at PFS, in future contracts for ERP, CRM, and financial systems. It is crucial that the operations managers, not only senior management, at PFS, understand the strategy clearly. It is they, in the end, who will determine its success or failure. This case illustrates two issues that I believe are often underplayed. One is the hidden value of the more-to-same strat- egy – it tremendously energizes the people in the sup- plier firm, by giving them major challenges and expect- ing them to rise to them. One sees it here in this case. Managers often oscillate between the two poles: the high stress of tackling jobs for which they may be under- qualified, and the boredom of tackling jobs they have done repeatedly in the past. Faced with a choice, or- ganizations should pick the former. This case shows, in part, why. Two, it is the crucial point that by sharpening and honing a resonant customer value proposition, not only is the organization more likely to win the bid, but it is far more likely to succeed once it wins it, in supplying what customers want and need and in ensuring that everyone in the supplying organization knows what is needed. While working with a global high-tech organiza- tion, let us call it XYZ Ltd., I recently had some of their development managers do the following exercise:

“Please stand. Take the role of a major customer. Say who you are (name any suitable manager of the major customer). Now, state, in just a few words, why you buy the product of XYZ. What is the resonant focus?” My managers had great difficulty. We then had a long discussion about what data they lacked and needed, and how they could acquire it. It is clearly understood that ‘selling’ a resonant customer value proposition is only the first step. The next crucial step is to deliver what that proposition promises. Infosys has a remarkable “Global Delivery Model.” In service businesses, only if operations excel- lence is aligned with value propositions will the ‘more- to-same’ strategy truly work. This case is an indication that Infosys indeed can deliver what it promises PFS. The final key point made by Anderson, Narus, and von Rossum (2006), is this: Defining customer value

142

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

142

propositions is the job not solely of marketing manage- ment, but in fact, is the responsibility of senior manage- ment. Lurking in the background of this case, or perhaps even in the foreground, is the fine hand of the Infosys

founder and Chairman, Narayana Murthy. The combi- nation of top-down and bottom-up or middle-up busi- ness strategy is a winning one.

bottom-up or middle-up busi- ness strategy is a winning one. Table 1: Types of Value Proposition—

Table 1:

Types of Value Proposition— Towards “Resonating Focus”

Value Proposition

All Benefits

Favourable Points of View

Resonating Focus

Consists of:

All benefits customers receive from a market offering

All favourable points of difference a market offering has relative to the next best alternative

The one or two points of difference (and perhaps, a point of parity) whose improvement will deliver the greatest value to the customer for the foreseeable future What is most worthwhile for our

Answers the customers’ questions:

Why should our firm purchase your offering?

Why should our firm purchase your

offering instead of your competitor’s? firm to keep in mind about your

Requires:

Has the potential pitfall:

Knowledge of own market offering

Benefit assertion

Knowledge of own market offering and the next best alternative

Value presumption

offering? Knowledge of how own market offering delivers superior value to customers, compared with the next best alternative Requires customer value research

Source:

Anderson, Narus and van Rossum (2006).

Case Analysis VI

Zillur Rahman Assistant Professor Department of Management Studies IIT Roorkee e-mail: yusuffdm@iitr.ernet.in

T he case covers the basic challenges and issues in

front of Infosys Technologies Ltd. to compete for

customization, installation, and maintenance of

a JAVA-based Ariba e-procurement system at Prairie Four Square (PFS) Insurance. PFS Insurance is one of the leading providers of individual life, group life, medical and dental, and long-term care and disability insurance in the US. The PFS sales exceed $27 billion and it serves 50 million individual, institutional, and corporate cus- tomers in the US. The problem started when there was relentless pressure from the Wall Street to cut costs dramatically; this led to the outsourcing of the offshore part of its IT maintenance activities. Infosys was con- sidered for the project. The difficulties of the company to prove its credibility is highlighted in the case.

• Acknowledgement. I am thankful to all students of marketing in MBA batch of 2008 for extensively discussing the issues involved. My special thanks to Mr. Apoorv Bhatt of the same batch for helping me prepare this solution.

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

Challenging Issues in Global Marketing

Cross–Cultural Differences

Infosys has to implement and maintain the project in the US. The working culture of the US and India is different and so, it may be difficult for the employees to gel with the PFS employees. Similarly, if, the project was in Japan, understanding the requirement of the client would have been difficult for the Infosys employees because of the language problem. They would have had to learn Jap- anese.

Maintenance at Vendor’s Site

In case the maintenance work has to be carried out entirely at the vendors’ end, it would be very expensive for both the parties. It would incur more cost for PFS as it has to pay $8,000 in the US against $3,200 in India resulting in a net increase of $4,800 per person per month.

139

143

137

144

143140141142

145

138

143

Marketing at Vendor’s Site

Marketing at vendor’s site is not feasible as infosys employees are not familiar with the US market and may face difficulties. Also, cultural differences might pose some problems.

Repositioning and Brand Building

Till now, Infosys has been considered only as a main- tenance provider. These projects have been low value- adding and price-sensitive. Now Infosys needs to project itself as a company providing end-to-end solution to PFS’ procurement process. Infosys does have experience in similar projects in healthcare industry, which needs to be highlighted. This would help in gaining a greater share of the customer’s IT expenditure.

Global Competition

Players like Excalibur and Merrimac Consulting are among the top 15 consulting firms of the world parti- cularly when it comes to applying IT to ERP, process engineering, and logistics. Infosys needs to prove the quality of their work in the same field.

Quantifiable Cost savings

Time to Market Savings

Time to market savings is saving the cost incurred in timely delivery. The target delivery time for PFS is 91 per cent while that achieved by Infosys is 99.6 per cent. This timely delivery helps PFS to process and analyse data at the right time and on an ongoing basis. If the data are delayed, the loss to the company would be enormous as it serves around 50 million customers who could have switched to competitor on not receiving the timely service. This is a great advantage for Infosys.

Reduce Learning Curve Time

The advantage of timely delivery by Infosys helps the PFS in reducing the Learning Curve which in turn can be helpful in achieving an early completion of the project thus reducing the cost to the company.

Transfer of Surplus Infoscions to other PFS Projects

The transfer of surplus manpower is never mentioned in the contract. So, if Infosys is delegating the workforce to some other project, it is saving the cost of PFS as the company does not have to spend on manpower in that project.

Saved Cash Reserves

Streamlining and reengineering of the claim manage-

ment process helped PFS complete the related tasks faster and more accurately. Thus, through Insurance Regulation, PFS was allowed to reduce its cash reserves by 10 per cent.

Saving the Cost of Project Proposals

PFS is saving on time and cost incurred in choosing the right candidate for a proposed project by delegating each project to Infosys.

Knowledge Transfer Time for Sole Sourcing

Knowledge transfer time is the time required to make

a programmer up-to-date on technical details, if they

enter the project at the maintenance stage (not from the beginning). It would take five programmers around 12 weeks (with FTE costs being USD 8000 pm) to master

an Ariba e-procurement system that another vendor had

installed. The total costs involved in this case would be:

5 programmer X 3months X $8,000 pm = $ 1, 20,000 Thus, the knowledge transfer time saving for the company would be around $ 1, 20,000 due to sole sourcing.

Infosys Team’s Ability to Deliver End-to-End Solution

Credibility

The Infosys team can prove its credibility in the e-pro- curement software by showing their past records in the maintenance of software and client referrals.

Saving on Procurement

Infosys can show the initiation of three e-procurement software in one year including two for retailers and one for a healthcare organization in the US and Europe. The outcome of the project is not yet known but the company has already been able to save $ 100,000 per year in the healthcare organization by switching the company’s change order procedures.

Effective Resources

Infosys has effective resources for the implementation and maintenance of the e-procurement software as they were already working on three projects of the same nature.

Well-developed Training Infrastructure

Infosys has a well-equipped training infrastructure which can be helpful in imparting training on the JAVA-based Ariba e-procurement software to the PFS employees. The company has an Education & Research Group which organizes training sessions and gives demonstration of JAVA projects that they have successfully completed in

144

INFOSYS TECHNOLOGIES LTD.: GROWING SHARE OF A CUSTOMER’S BUSINESS

144

the past. This gives an edge to the company.

Required Technical Expertise

The Infosys team comprises of people who can handle the routine maintenance tasks such as cleansing corrupt- ed data, correcting software flaws, and running pro- gramme and systems tests. They would also be able to complete higher value maintenance-related work, such as application development, business process reengi- neering, installation of certain packaged solutions, pro- gramme management, and technology consulting. Also each project is completed under the guidance of a Delivery Manager, Engagement Manager, Account Manager, and a Senior Programmer. The required expertise is thus available with Infosys for looking after a project effi- ciently.

Proven Skills

Redesigning the maintenance projects. Infosys has prov-

en skills in the maintenance projects. By redesigning the maintenance projects, the company is able to reduce the size of the development team from 250 to 75 (onsite) and 100 (offshore) thus saving $12 million p.a. approximate- ly:

250 members X $ 8,000 p.m.

=

$ 20,00,000 p.m.

- 175 members X $ 8,000 p.m. = $ 14,00,000 p.m.

+ 100 members X $ 3,200 p.m. = $ 3,20,000 p.m.

Total savings = ~ $ 1 million p.m. = ~ $ 12 million p.a.

Writing a subroutine. Writing a subroutine which au- tomatically shuts down the batch programmes at 5 a m saves around $ 500,000 spent to reconstitute the corrupt- ed data, the details of which are given in the case.

Improved efficiency. The team has been able to improve the record comparison processing efficiency by 56 per cent and the processing time by eight hours. This again has helped in building the brand for Infosys.

This again has helped in building the brand for Infosys. It isn’t reasonable to ask that

It isn’t reasonable to ask that we achieve perfection. What is reasonable is that we never cease to aim for it.

VIKALPA • VOLUME 32 • NO 4 • OCTOBER - DECEMBER 2007

145

— Atul Gawande

145