Infosys: Company Snapshot: Infosys is a multinational information technology organization and is one of the most admired IT organizations in the

country. Established in the year 1981, it has now grown to be the second largest IT company in India. The recent market capitalization stands at Rs. 1, 000 Bn with the operating profit of Rs. 58 Bn on a revenue of Rs. 203 Bn. Like the other Indian IT companies Infosys has a very young workforce with an average age of employees being 26. It has the second largest workforce amongst the IT companies with an employee base of around 1.03 lakh across 25 locations. It offers a full bouquet of services which includes technology services, business process outsourcing (BPO), consulting and also developing and maintaining customized software for business. Infosys has been in the forefront in recruiting new employees from global talent locations. Infosys pioneered the Global Delivery Model (GDM) which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk. The organizations structure is divided into finance, planning, marketing, quality, HR, education and research and information systems. The software delivery apparatus which focuses on individual global account consist of Geographic units (Geos), integrated business units (IBUs) and Enterprise Capability Units (ECUs). A network of quality managers deploy quality checks across various units and ensure adherence.

Winning Strategies

1. Highest Margins among all the companies in the Indian IT Industry

Infosyss focus on improving the skill level of the employees has enabled it to charge relatively higher billing rate as compared to its Indian peers resulting in industry leading margins. Infact it has one of the largest training facilities capable of training 15200 employees annually and these training programs are benchmarked against US institutes. Table: Comparison of margins of Tier 1 IT companies Infosys 36.7 TCS 24.8 Wipro 22.9

Operating Margins

The software industry in developed markets is characterized by low profit margins on account of high cost of labor. Since India has a large talent pool which is available at a fraction of what it cost is in the developed markets, it results in the high profit margins for the Indian IT companies. 2. Innovative Pricing Strategy Infosys uses a new pricing model apart from the ones which are adopted by TCS. a. Ticket Base Pricing: Under this strategy, a customers pay will be based on certain parameters such as whether the client request or ticket that is raised is for a small enhancement in the software application, a big enhancement or a bug-fix. This is a prudent strategy to be followed considering the nature of projects carried out in India, which typically revolves around maintenance and support. It helps in reducing costs for the clients. The success of this strategy would depend on the volume it would generate and spread of margins the company can enjoy. 3. Moving up the value chain IT/ITES space offers a huge opportunity for growth to the Indian IT players. However going forward the margins of the Indian IT companies are expected to come under pressure due to the diminishing talent pool. Thus the players now need to reduce their dependence on traditional service line and become end to end IT service providers. In this direction, Infosys has invested in higher end service lines such as consulting, infrastructure management and system integration. Table: Growth rate of Infosys in various IT service lines FY08 51% 26.7% 5.5% 3.1% FY07 53.5% 23.5% 4.9% 2.6% Growth Rate 27.8% 52.4% 50.5% 64.5%

Application Development and Maintenance Consulting Services and Package Implementation Infrastructure Management System Integration

Testing Services Others

8.4% 5.3%

7.7% 7.9%

46.9% -10.5%

The focus on other service lines has increased sharply, with reduced concentration on traditional service lines. Moving up the value chain, Infosys will be able to differentiate itself from plain vanilla offshore players and thereby be counted as a major force in the global IT industry. Caution 1. Over Dependence on North America and Europe for revenues Geography wise, major portion of total revenue for Infosys comes from the U.S and Europe i.e., 95%. Among the top 3 Indian IT companies, dependence of Infosys on these two geographies for revenues is the highest. Thus it is susceptible to adverse economic conditions and events such as the current global crisis. Table: Percentage of Revenues from USA and Europe for the top 3 Indian IT companies and for the industry TCS 54.8 29.8 Infosys 62 28 Wipro 44 28 Industry 60 31

Americas Europe

However the company over the years the company has constantly reduced its dependence on North America by bringing the share down from 73% in 2003 to 62% as of today. Conclusion: Infosys has been gradually reducing its dependence on traditional service line (i.e., application development and maintenance service). It is slowly diversifying to become an end-to-end IT solution provider for its clients. This will benefit Infosys as non-traditional service lines are expected to grow faster as compared to the traditional ones. Infosys enjoys higher margins on account of its relatively higher billing rates and effective cost management. Going forward it is expected to maintain its margin because of increased contribution from high-end services such as consulting which will bring in more revenues.