The next 5 years: A successful strategy for Infosys
Infosys wants to change. Founder N.R. Narayana Murthy’s return to leadership last spring signaled Infosys’ willingness to change directions; the question is, will it work? Can the firm find a strategy that moves it closer to IBM and Accenture and widens any positive gaps between Infosys and its India-based peers?
In July, after resuming his role as executive chairman, N.R. Narayana Murthy said the following about Infosys’ future: “The strategy is to focus on opportunities from consulting-led end-to-end solutions, leveraging technology for higher margins, developing intellectual property-based solutions to delink revenues from effort.” Murthy set three broad goals — improving sales efficiency, increasing automation and boosting employee productivity, and rationalizing cost — but early indications show Infosys making the third goal its priority as the company has been moving to a substantial onshore/offshore ratio shift. Currently at a 35-to-65 ratio, Infosys’ goal is a 10-to-90 ratio weighted to low-cost resources, ultimately to preserve margins as the company refocuses on large low-cost outsourcing engagements.
After setting policy, Murthy oversaw executive-level personnel changes, letting go the leaders who had been in charge while Infosys’ India-centric peers outpaced the company (see following chart). Murthy kept some key initiatives, including Infosys 3.0, which could determine how close Infosys moves to market leaders Accenture and IBM. Launched in 2011, Infosys 3.0 is a long-term growth accelerator, especially as it melds transformational consulting with emerging technologies. However, Murthy and his new team must provide time and support, both in building the 3.0 engine and focusing on low-end commoditized engagements.
TBR believes Infosys must take three strategic steps to achieve its long-term goals in current market conditions:
- Build up nearshore Americas capacity and capabilities
Infosys needs to serve the U.S. market better, either with resources on the ground in the U.S. or nearshore in Latin America. The potential growth for any IT company in the U.S., Canada, Mexico and Brazil demands a substantial investment, and India-centric firms cannot rely on the vagaries of the U.S. visa system. Infosys tried to hire mid- to senior level, U.S.-based consultants in the 2000s, but the effort stalled when the company could not find the right people or receive permission from clients to engage in higher-level consulting work. Infosys opened a 200-person BPO center in Atlanta and a 100-person delivery center in Costa Rica in 2013; however, the company still lags in this critical market relative to peers.
- Acquire consulting capacity in Europe
Infosys can continue to serve European clients with outsourcing services based nearshore (in lower-cost European countries such as the Czech Republic and Poland) and offshore, but if Infosys wants to shift its consulting/outsourcing revenue ratio from 35-to-65 to closer to 50-to-50, the company must gain more wallet share from EU clients. Infosys recognized the need to move upstream in Europe when it purchased Lodestone in 3Q12 and committed to reorganization on the continent in 2013, but the company must continue acquiring talent that buys permission to play in the management and technology consulting space.
- Invest in IP
Global leaders Accenture and IBM separate themselves from Infosys and its peers with IT innovation, bringing together strategy and emerging technologies to create tech-enabled solutions specific to customers’ needs. Infosys started down this path through the development of its Edge Platform suite, including BigData Edge, a comprehensive cloud-based offering for aggregating, analyzing and processing analytics data from internal and external sources; but absent a sustained strategic approach through customer-centric, acquisition-enabled or research-driven IP, the company risks seeing commoditization strip out every difference between Infosys and its India-centric peers.