BUSINESS STRATEGY

STRATEGIC ANALYSIS OF INFOSYS

SUBMITTED TO: PROF. G.K SRIKANTH
SUBMITTED BY: MADHUSUDAN MOHAPATRA

ENROLLMENT NO – 09BSHYD0419

3RD SEMESTER, SEC - A

2010

IBS HYDERABAD
CONTENTS PAGE NO.

INTRODUCTION ………………………………………………………………… 03
ENVIRONMENTAL SCANNING ………………………………………………. 04
EXTERNAL ENVIRONMENTAL – PESTEL ANALYSIS……………. 04
OPERATING ENVIRONMENT………………………………………… 08
PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)…………………. 12
INFOSYS …………………………………………………………………………. 13
INFOSYS BUSINESS LINE……………………………………………… 13
MCKINSEY’S 7 S MODEL ON INFOSYS………………………………. 15
SWOT ANALYSIS OF INFOSYS………………………………………… 16
ANALYSIS OF STRATEGY OF INFOSYS……………………………. 17
REFERENCES…………………………………………………………………… 19

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INTRODUCTION
In an increasingly globalised world, significant complexity and uncertainty is getting attached to
the unprecedented economic crisis. The Indian economy was also impacted by the recessionary
trends, with a slowdown in GDP growth to seven per cent in 2008. The focus and exponential
growth in the domestic market has partially offset this fall and insulated the country, resulting in
net overall momentum. The IT and ITES industry in India has today become a growth engine for
the economy, contributing substantially to increase in the GDP, urban employment and exports,
to achieve the vision of a “Young and resilient” India. During these years, the sector maintained
its double digit growth rate and was a net hirer. This growth has been fueled by increasing
diversification in the geographic base and industry verticals, and adaptation in the service
offerings portfolio. While the effects of the economic crisis are expected to linger in the near
term future, the Indian IT and ITES industry has displayed resilience and tenacity in countering
the unpredictable conditions and reiterating the viability of India’s fundamental value
proposition. Consequently, India has retained its leadership position in the global outsourcing
market even during recession time.

The Indian IT and ITES industry achieved revenues of USD 71.7 billion in FY2009, with the IT
software and services industry accounting for USD 60 billion of revenues. During this period,
direct employment reached nearly 2.23 million, an addition of 226,000 employees, while indirect
job creation touched 8 million. As a proportion of national GDP, the sector revenues have grown
from 1.2 per cent in FY1998 to an estimated 5.8 per cent in FY2009. Software and services
exports (including BPO) are expected to account for over 99 per cent of total exports, employing
over 1.76 million employees. While the current mood is that of “cautious optimism,” the industry
is expected to witness sustainable growth over a two-year horizon, going past its USD 60 billion
export target in FY2011. While the industry has significant headroom for growth, competition is
increasing, with a number of countries such as Brazil, Mexico, Philippines etc. creating enabling
business environments aimed at replicating India’s success in the IT and ITES industry. Hence,
concentrated efforts are required by all stakeholders to address the current challenges, to ensure
that India realizes its potential, and maintains its leadership position.

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 ENVIRONMENTAL SCANNING
EXTERNAL ENVIRONMENT - PESTEL ANALYSIS

1. Political Stability: Indian political structure is Positive

considered stable enough and Govt. of India has set up a
National Task Force on IT and software development to
examine the feasibility of strengthening the industry.
2. U.S government declaration that U.S companies that will
Political outsource I.T works to other locations other than U.S Negative
will not get tax benefit.
3. Government owned companies and PSUs have decided
to give more IT projects to Indian companies. Positive
4. Terrorist attack or war.
Negative

1. Global IT Spending (Demand) from USA will increase Positive

in FY 2010.
2. Domestic IT Spending (Demand): The Indian domestic Positive
market will grow by 12.9 percent through 2013. Negative
Economic 3. Currency Fluctuation.
4. Real Estate Prices: Decline in real estate prices has Positive
resulted in reduction of rental expenditure.
5. Attrition: After U.S recession in 2008-2009, companies
are on a hiring spree and there is a revival of the job
Negative
market, attrition rate is going to be high in 2010.
6. Economic Attractiveness due to cost advantage and Positive
other factors.

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 1. Language Spoken: India has the second largest English- Highly Positive
speaking scientific professionals in the world, second only
to the U.S. English medium being the most accepted
Social medium of education. Thus India boasts of large English
speaking population.
Social 2. Education: It is estimated that India has over 4 million Highly Positive
technical workers, over 1,832 educational institutions and
polytechnics, which train more than 67,785 computer
software professionals every year.
Positive
3. Working age population

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 1. Telephony: Highly Positive
a. India has the world’s lowest call rates (1-2 US
cents).
b. Expected to have total subscriber base of about
500 million by 2010.
c. ARPU for GSM is USD 6.6 per month.
Technological d. India has the second largest telephone network
after china.
e. Teledensity of India is 49.50%
f. Enterprise telephone services, 3G, Wi-max and
VPN are poised to grow. Positive
2. Internet Backbone: Due to IT revolution of 90’s,
Indian cities and India is well connected with
undersea optical cables.
3. New IT Technologies: Technologies like SOA, Web Positive
2.0, High definition content, grid computing etc and
innovation in low cost technologies is presenting new
challenges and opportunities for Indian IT industry.

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

1. IT SEZ Requirement: IT Companies can set up SEZ Positive

with minimum area of 10 hectares and enjoy a host of tax
benefits and fiscal benefits.
2. Contract / Bond requirements: Huge debates Negative
Legal surrounding the bonds under which the employees are
required to work, which is not legally required.
3. IT Act: Indian government is strengthening the IT act,
2000 to provide a sound legal environment for companies Positive
to operate especially related to security of data in
transmission and storage, etc.
4. Companies operating in Software Technology Park Negative
(STPI) scheme will continue to get tax-benefit till 2010.

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OPERATING ENVIRONMENT

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

Fig: Revenues from domestic and exports (in USD billion)

Indian IT industry
contributed around
% of Indian GDP 5.8% Indian GDP in
7 FY 2009.

3 % of Indian GDP
2

0
2004 2005 2006 2007 2008 2009

Fig: Contribution of IT industry to Indian GDP

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Fig: Number of employees in Indian IT Sectors (Direct Employment) till FY 2009.

2. Market Share

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 3. Customer Profile

Sector Major Clients – Domestic Major Clients – Global (Export British

Market) Telecom is
Govt. and Public Railways, LIC, MMRDA, US Govt., British Govt.,
Infosys
Sector Companies BMC, BPCL, ONGC Australian Govt., Saudi and
Kuwait Govt. largest client
BFSI HDFC, ICICI Bank, Citi AIG, Bank of America, UBS, JP contributing
Financial India, NSE, BSE, Morgan, Barclays, Goldman to 6.9% of
MAX New York Life, Sachs, Morgan Stanley Infosys
India Bulls Finance revenue.
Telecom Airtel, Vodafone, Reliance British Telecom, AT&T,
Communications SingTel, Telstra, Vodafone
Manufacturing Tata Motors, Tata Steel, Ford Motors, GM, Exon Mobile
L&T, RIL
Others Pantaloon India Ltd, Tata Pfizer, Wal-Mart, British Airways
Sky, DLF, Apollo Hospital

Recent Announcement of large IT Projects

4. Suppliers
1. Employees/ Professionals
2. Manpower suppliers like Manpower ITES, Quest, MaFoi, etc.

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 PORTER’S FIVE FORCE MODEL (INDIAN IT INDUSTRY)

THREAT OF ENTRY:
1. Low capital requirements
2. Large Value Chain, Space for small
enterprise
3. MNCs ramping up the offshore
capacity and employee strength in
India

Low BARGAINING
BARGAINING POWER Shift
OF SUPPLIERS: POWER OF BUYERS:
From high Very High 1.Large no. of IT
1. Due to slow down
companies looking for
during recession, job to low
IT projects - resulting in
cuts, lay offs and bleak COMPETITIVE high competition for
IT outlook. RIVALRY: High projects.
2. Current surge in the 2.Decline in IT
market for new 1.Commoditized Offerings expenditure: Indian It
projects after recession 2.Low cost, little sector is dependant on
in US, demands for IT differentiation & USA, Europe and BFSI
professional and Positioning in particular for major
lateral hires have 3.High Industry Growth share of its revenue. With
increased 4.Strong competitors & the recent financial crisis
3. Availability of a large few no. of large in USA and Europe, the
number of talented companies new spending from these
has reduced considerably
pool - Freshers and
3.For existing products
lateral IT professionals
and services, the clients
continues old companies
Medium

THREAT OF SUBSTITUTES:
1. Other offshore locations such as Eastern
Europe, Philippines, Mexico, Brazil and
China are emerging and posing a threat to
Indian IT industry because of their cost
advantage as salary and other costs will be
lower there. However this should have an
impact only in medium to long term.
2. Price quoted is also a major differentiator,
the quality of products being same.

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INFOSYS:
INFOSYS BUSINESS LINE

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

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

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

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

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

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MCKINSEY’S 7 S MODEL ON INFOSYS

Leadership Style: Infosys believes that leadership is one of the most essential ingredients of
organizational success which is provided by its chief mentor Mr. N R Narayanmurthy.
Leadership is based on high business vision and supportive style. Hence emphasis is given on
developing leadership qualities among employees in Infosys. For this purpose it has established
“Infosys Leadership Institute” for grooming the budding mangers from the beginning. That’s
why Infosys is ranked tenth in global survey for best leaders because it invests time, effort and
money in leadership development, and has "a talent pipeline that can feed this growth."Top
management’s open door policy, continuous sharing of information, inputs from employees in
decision making and making personal rapport with employees are some of the key factors in the
organization. We have also seen there is a smooth transition from Mr. N R Narayanmurthy to
Mr. Nadan Nilekani and then to Mr. Krish Gopalkrishnan. With out any adverse effect on the
company outlook and each one proved worth during their tenure. This shows leadership being
carried forward to others in the hierarchy instead of being holding one person the key position
for long time unlike other organizations.
Staff: Since it is a knowledge based industry, it focuses on quality of human resources. Out of
total workforce, about 90 percentages are engineer. At the entry level, it emphasizes on selecting
candidates who find the company’s culture satisfying, superior academic records, technical skills
and high learnability. The company emphasizes on training and development of it s employees
on continuous basis and spends around 3% of revenue on up gradation of employee’s skills and
50% as employee cost. It maintained highly matured process oriented training methodology and
infrastructure.
Strategy: Infosys has adopted client focus approach for achieving growth. Its objective is to
focus on limited number of large and medium organizations throughout the world. In order to
cater to the client, it emphasizes on custom built soft wares. Another differentiating factor is it
quotes for premium margin. The company doesn’t negotiate on margin beyond a certain limit
and sometimes walk out rather than compromise on quality for low cost contract. Hence it has
differentiated it self as quality driven model not cost driven model. It has strong engagement
with existing clients. It also focuses on value added services to new clients. It also focuses on
increasing geographical base by planning to expand through Infosys China in China, Eastern
Europe and Czech Republic through Infosys BPO, Infosys Australia in Australia and in Latin
America through Infosys Mexico. Infosys also focuses on enhanced solutions through

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consulting, Business Process Management, System Integration and Infrastructure Management.
It has also deep industry knowledge in BFSI, Telecommunications and Manufacturing Sectors. It
also invests on brand building through media and Industry analyst events etc. It also believes in
organic growth through risk aversion and enhancement through new technology innovation with
various partners.
Shared Value: The shared values include C- Customer Delight, L – Leadership by Example, I –
Integrity and Transparency, F – Fairness, E – Excellence (CLIFE).
Structure: The organizational structure at Infosys includes free form, Flexible Team structure,
equality among employees etc.
Skills: Infosys has employed domain specific and technical certification, competency building
measures. It has been CMMi level 5 for process capabilities. It has devised strategy for achieving
break through performance results using the balance scorecard.

SWOT ANALYSIS OF INFOSYS:

Strengths:

Leadership in sophisticated solutions that enable clients to optimize the efficiency of their
business.
It has proven “Global Delivery Model”. (GDM).
Commitment to superior quality and process execution.
Strong Brand and long term client relationship.
Status as an employer of choice in 2004.
Ability to scale up.
Innovation and leadership.
Weakness:

Excessive dependence on US for revenues – 67% revenue from USA

Excessive dependence on BFSI sectors for revenues.
Weak player in Indian market. Only 1% revenue from India. Low as compared to TCS.
Low R&D spending as compared to other global IT companies. Only 1.3% of total
revenue.
Rising wage bill. 42.9% to 44.8% of revenue.
Low expertise in high end consultancy and KPO.
Opportunities:

Domestic market to grow by 20%. Expanding into new geographies like Europe, Middle
East, Latin America, China etc.
Cash Rich (around USD 1 Billion)
Acquiring companies to increase expertise in consultancy, KPO and package
implementation capabilities.

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 Opening new offices and development centers in cost advantage countries such as Latin
America and Eastern Europe.
Aggressive strategy of expansion of ADMs, BPO, and software products into emerging
markets.
Diversification into new areas such as aviation, telecom and health care.
Threats:

The economic pressure, rising wage, pricing pressure in India and abroad.
Intense completion in market for technology services could affect cost advantage.
High dependency on a small number of clients and loss of major clients could impact
adversely.
Failure to complete fixed priced, fixed time frame projects on time. So the company
needs to shift to Time and Money kind of projects.
Indian currency fluctuation
Termination of client contracts can be terminated without cause or little notice or penalty.

ANALYSIS OF STRATEGY OF INFOSYS:

Corporate level Strategies:

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

Low cost Global delivery Model (24/7)

Little differentiation in low-end services of value chain. High differentiation in high end
services in value chain like software products and package solutions.
Focus on Quality, Customer relationship management, timely delivery.
Market Penetration and Development Strategies:

Current Markets: USA and Europe

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

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 Recommendation: As most large clients in US and Europe are cutting costs post
recession, Infosys needs to be more aggressive on cost and quality front.
Since these are fast developing IT market, Infosys needs a paradigm shift in focus from
US and EU markets to markets such as India, Middle East, Eastern Europe and Latin
America, China, Philippines.
Result of strategy: Unlikely to yield good results.
Product Development and Diversification Strategies:

Current Market: USA and Europe

New Product: Consultancy and package implementation services in relatively growing
sectors esp. healthcare, life sciences and aviation sector, and KPO services.
Recommendation: Concentrate on building expertise in these domains by strategic
acquisitions.
Changing Brand image from low value service provider to high value service provider.
Result of Strategy: Likely to have good result. (better the company acquired, the better
the result for Infosys) and long term strategy to change brand image interms of
diversification.
Other Strategies by Infosys:

Concentration: 90% of Infosys revenues from American and European nations.

Vertical Integration: Infosys made a bid to acquire a European major Axon consultancy
to improve its business in European markets, but finally called off the deal due to high
valuation. Otherwise, Infosys has always believed in organic growth.
Innovation: The Software Engineering and Technology Labs (SETLabs) at Infosys is the
center for applied technology research in software engineering and enterprise technology.
Future Strategies to be followed by Infosys:

Global sourcing strategy is aligned with business strategy.

Enhancing operational efficiency and delivering value added services.
Structuring processes and services into modules thus leading to enhanced flexibility and
productivity.
Aggressive focus on ERP solutions like Oracle and SAP.
Expand into high end consulting.
Consolidation and Strategic acquisitions are essential for future growth of revenues.
Shift in focus from low cost advantage to high quality services.
Quick adoption to high growth markets is necessary.
Provide high end services in value chain.
Consolidation among key IT players.
Compromise on High margin for sustainable growth.
In order to increase revenue growth, only organic growth will not help the company.

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REFERENCES:
IT/ITES – Market and opportunities – IBEF (Indian Brand Equity Foundation).
NASSCOM Strategy review – 2009, 2008.
Annual and Quarterly report of Infosys – 2009 – 2010, 2008 – 2009
Emerging Destination for IT/ITES industry – NASSCOM & KPMG.
www.infosys.com
www.moneycontrol.com
www.nasscom.org
www.nasscom.in
www.indianembassy.org/indiainfo/india_it.htm

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