Assessing Strategy Strategic Actions | Evaluating Strategy
Assessing Strategy Strategic Actions report elaborates the strategic dimensions and actions with their implications of an organization, Infosys. It is an Indian multinational company established in 1981 by seven engineers with only $250 and in the last three decades has become one of India’s biggest IT solution providers with a market capitalization of $30.8 billion in March’13 (Money Control, June 2013).
This phenomenal growth has been due to its brilliant business strategy and great focus on implementing the same. Infosys has followed the strategy of developing and maintaining business using its innovative ideas presented as its products and services. This Strategy has been modified over the period of time to suit the current business scenario and with the developments in the offerings of the competitors.
Thus, Infosys after analyzing all the pros and cons implemented its new business strategy based on all the developments in the industry in the last decade, called Infosys 3.0 Strategy (First Post, April 2013). This strategy has covered all aspects of growth and is presented in great details in this report.
The aim of this report is to understand the strategic dimensions of an organization and understand the strategic actions and their implications. The company chosen for this analysis is an India based multinational company, Infosys.
Infosys, which was earlier called Infosys Technologies till 2011, is headquartered at Bangalore. Seven engineers, after resigning from Patni Computer Systems, started ‘Infosys Consultant Private Limited’ in 1981 with only $250. These seven engineers who co-founded today’s Infosys are: N. R. Narayana Murthy, S. D. Shibulal, S. Gopalakrishnan, K. Dinesh, Nandan Nilekani, N. S. Raghavan and Ashok Arora. With a market capitalization of $30.8 billion in March’13, Infosys was the sixth largest publicly traded company (Money Control, June 2013).
Infosys has 69 sales offices, with only 2 in India and 67 abroad. Also it has 32 global software development centers in India and 55 in other countries, making it a total of 87 global software development centers. It has made 4 major acquisitions in the last decade as a part of its business strategy to grow inorganically.
Infosys was started with the aim of building and implementing great ideas that enhance lives through enterprise solutions and drives progress for clients.
“Responsibilities extend beyond the business” is the belief that is garnered at Infosys. This is the belief that led to the establishment of Infosys Foundations The vision statement of the company is:
“To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people.”
Mission statement of the company is:
““To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large.”
Offerings by Infosys
The values system of Infosys consists of:
- Customer Delight – to always be innovative and delighting customer with the business solutions and services
- Leadership (Lead by example) – to lead the business solution by example
- Integrity – to be truthful and honest in all transactions
- Fairness – to be fair with all the stakeholders
- Excellence – to strive to be the best in the industry by pursuing excellence
Apart from these, there are four major initiatives taken from Infosys:
In 1996, to support the underprivileged sections of the society, Infosys Foundations was established. Incorporated first in Karnataka, it was extended to Tamil Nadu, Andhra Pradesh, Maharashtra, Odisha and Punjab (Infosys Annual Report FY 2012-13).
With an aim of exploring and establishing educational and co-creational opportunities with a number of national and international institutes, Academic Entente (AcE) was established as an arm of Infosys’ Global Academic Relation team. This collaboration was also extended on conferences, research, technological, globalization initiatives, etc. fronts (Infosys Annual Report FY 2012-13).
Infosys labs was the product of collaboration of Research Labs and Global Innovation Hubs. (Infosys Annual Report FY 2012-13).
In February 2009, Infosys set up Infosys Prizes to honor engineers, scientists, researchers and social scientists in India on an annual basis (Infosys Annual Report FY 2012-13).
The culture of Infosys lies in the Spirit of Innovation and the continuous personal & professional development of its employees. The implementation methods of these are – Infosys Leadership Institutes & Training Programs.
- Being a startup by seven engineers, Infosys focused on delivering a single product based on one technology only in one market
- It was highly centralized with low formalization and complexity.
- In 1989, Infosys lost some of its key accounts which led to drastic changes in its business strategy.
- In the period after liberalization, Infosys started catering to various market segments and numerous clients leading to a fantastic growth.
- Infosys launched its IPO in 1992 and had to undergo a lot of process streamlining as they had to adhere to the new guidelines.
- This led to splitting the company structure into functional units which led increasing complexity, moderate formalization and moderate degree of centralization.
- Infosys has become too big to carry on with the existing structure and was bound to implement decentralization. IBUs were created, each concentrating on a particular sector
- To account for the geographic growth opportunities, the IBU concept was further refined by enlarging the role of the second line of business leaders in 2007
To understand the strategic actions and its implications, first we should know the company’s position on all business parameters. The best way to do this is:
Assessing Strategy And Strategic Actions | Evaluating Strategy
- Infosys, now ranks among the top three Indian Offshore companies by continuously delivering high quality products and services, driven by innovative ides (First Post, April 2013)
- Infosys has one of the largest pool of IT professionals on the globe with approximately 1,56,700 employees (Money Control, June 2013)
- Innovation is one of the key strengths of Infosys which drives all their services. To enforce this further, Infosys has dedicated more than $100 million to support and implement innovative ideas
- Infosys enjoys 98% of its business from repeat clients or existing customers out of which, 12 are $100 million plus business providers (Money Control, June 2013)
- With $4 billion cash in hand and no debt, Infosys can make some really big acquisitions in the European and other improving markets
- Leadership: Mr. S.D. Shibulal has taken over the leadership of the company as the CEO from April 2011, which has not worked in the favor of the company. Under his leadership the company has not been able to meet the client expectations and the profit margins and growth has been deterring
- Infosys’s gross margin has dropped from 41% last year to 37% in FY12-13. After withdrawing the EPS the company is expected to grow with below industry average rate of 6 to 10%
- Pricing has also dropped by 3% on an annual basis, which is expected to go down even further this year (First Post, April 2013)
- Infosys can face cash erosion with intangibles worth more than $2 billion
- Big data, mobility and cloud are the emerging new technologies in which Infosys is also investing (First Post, April 2013)
- Infosys has a good opportunity with enough cash in hand to acquire more firms in the coming years to grow inorganically and leverage from their clientele
- Infosys has a huge advantage of the best-in-breed man power, which would be huge advantage in the coming times
- Global slowdown in the economy has been the biggest threat in the last decade for Infosys
- Companies in these difficult times are looking for business solution providers, who can provide consolidated business solutions. Competitors like Cognizant and Accenture are stealing the market share by understanding this requirement and delivering the best solutions in this format
- Business Strategy
Existing Business & Customers
FY 12-13 was a low decibel year for Infosys. The total income increased by 17.6% and software export revenues increased by 17.8% over last year. North America with a contribution of 63.8% in the total income was the biggest market for Infosys followed by Europe contributing 21.8% of Income. Infosys had only 2.3% of its income from the domestic market and the remaining12.1% was from the rest of the world. The domestic revenues increased by 12.6% over last year (Infosys Annual Report FY 2012-13).
97.8% business was given by existing customers with only 235 new clients added to the portfolio in FY 12-13. This showcases the need to focus on new business acquisition and developing better Business Development team in the next fiscal year to atleast maintain, if not improve the standing of Infosys in the Indian IT Industry (Infosys Annual Report FY 2012-13).
The main highlights of the business strategy of Infosys are:
- Infosys has client-focused strategy which has helped it to grow significantly year on year
- Its focus is on the limited number of large organization across the globe
- Infosys has been commanding premium margins from this big clients which has now been dropping in the last couple of years
- Infosys has an image of quality lead company than a cost differentiated company
- Infosys has been acquiring new firms in the last decade of increase its business and diversify:
- 2003: Expert Information Services, an Australia based IT services company acquired for $23 million
- 2009: McCamish Systems, an Atlanta based company acquired for $38 million by Infosys BPO
- 2012: Portland Group, again an Australia based provider of strategic sourcing and category management services acquired for AUD 37 million by Infosys BPO
- 2012: Lodestone Management Consultant, an Switzerland based company acquired for $345 million
- Infosys has added new service offerings to its bucket like business process management, consulting, systems integration, infrastructure management, etc. which has led to become the major contributors in its growth
- It has also focused on creating deep industry knowledge base by pursuing alliances and acquisitions
This is the Business Strategy of Infosys which has now been influenced by the competitions response to it. To understand this let’s look at the major competitors of Infosys:
Tata Consultancy Services Limited
Established in 1968, Tata Consultancy Services Limited is an Indian multinational IT services, business solutions and consulting company. It is headquartered in Mumbai and operates across 44 countries through its 199 branches across the globe (TCS Annual Report FY 2012-13).
In the Indian IT industry, TCS is the largest company in terms of market capitalization. It has a long list of acquired companies and has made a profit of 13.6% over prior year, which in absolutes is very high compared to Infosys.
Infosys and TCS have a lot in common in terms of business strategy. Both are trying to consolidate their offerings in terms of services products and services to become a business partner of their client rather than just a business solution provider. Also, both of these companies are the largest recruiters in India.
Wipro Limited was established 1945 and is another Indian multinational which started business in providing information technology (IT) consulting and outsourcing service in early 1980s company. Headquartered in Bangalore, Wipro has close to 145,000 employees present in 57 countries catering to over 900 clients (Wipro Annual Report FY 2012-13). It is the third largest IT services company in India and grew by 18.2% in last fiscal year (Wipro Annual Report FY 2012-13). Wipro has a very industry specific strategy for each vertical it serves and has deep knowledge of each function it caters to. Thus the strategy is to lead in some segments to acquire market share
Cognizant Technology Solutions Corporation
Established in 1994 and headquartered in New Jersey, Cognizant is an American multinational company. It specializes in information technology, business process outsourcing and consulting services. Due to its fast growth during the 2000s, Cognizant has become one of the Fortune 500 company in 2011 (Cognizant Annual Report FY 2012-13).
Cognizant Technology Solutions Corporation acquired 17 companies in the last twenty years to take the inorganic growth route to gain market share. The acquisitions were in different geographies and the strategy was to build business with the existing clients of these companies. Out of these 9 were American companies, 5 European and 3 Indian companies. Cognizant has grown by 20% in the last fiscal year, faster than Infosys and industry standards.
Thus, the top competitive firms in the Indian IT industry are trying to developing new business by being innovative and customer focused, align their products and services with the new technologies like big data and cloud, and grow inorganically by acquiring firms across the globe.
The renewed business strategy of Infosys is referred to as ‘Infosys 3.0 Strategy’. This strategy has the following directives (Infosys Annual Report FY 2012-13):
Infosys will now try partner its clients in their business process improvements rather than just being a business solutions provider. This would be possible by possible by providing transformational business solutions to the clients
- According to the changing market needs and scenario, Infosys will focus more on the development and process of incorporating the new technologies like big data and cloud in their business solutions
- The IBUs providing learning and business platforms solutions has been identifies as the growth engine by Infosys
- Since the clients now want consolidated business solutions, Infosys has now consolidated its services into the following four verticals:
- Retail, Logistics and Life Science
- Energy, Utilities, Communications and Services
- Financial Services and Insurance Infosys has grouped its offerings into three groups:
- Business Operations (maintenance, infrastructure management, application development, etc.)
- Business Transformation (systems integration, consulting work, enterprise solutions, etc.)
- Business Innovation (products, platforms and solutions)
- Infosys with its deep pockets is set to acquire more companies with their clientele in different geographies to grow inorganically
Apart from these, since Infosys ahs 98% of its business from existing clients, it has decided to expand the scope of its business with them by introducing new and innovative products and services, for which they have kept aside a sum of $100 million.Conclusion
The global economy is gradually getting out of the slowdown and the business is again starting to develop. The IT and ITES sector in India has become the growth engine of India’s economy and is bound to grow at a high rate in the next fiscal year (NASSCOM Annual Report 2013). Thus, Infosys in light of these facts has decided to switch to Infosys 3.0 strategy to leverage the most out of this period of growth and business development.
Thus, Infosys 3.0 strategy focuses on maintaining business from its repeat clients, generating business from the existing clients by providing innovative and new services and products, developing new clients, acquiring firms in different geographies to expand its presence and take on the clientele increasing portfolio of services and invest in new technologies which would led to develop collaborated products and services, not just only IT solutions (Indian Brand Equity Foundation (IBEF) Report, August 2013).