Heaven Kim Shruti Yadav Eric Chin Adam Schindla Florent Heidet October 31st, ‘07 International Trade & Competition in High-Tech.
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Heaven KimShruti Yadav
Eric ChinAdam SchindlaFlorent Heidet
October 31st, ‘07
International Trade & Competition in High-Tech
IT Service Industry : Overview
Source: IDC
CAGR 7%
CAGR 7%
Fragmented market
• On-shore incumbents are still larger: IBM, Accenture
• Off-shore players growing : TCS, Wipro, Infosys Technology
• 47% Annual growth (2003 vs. 2004)
• Still 0.8% market share
IT Service Industry : Value Chain – Current
Software Service/Product
VendorIT Consulting IT Department
(CIO, CTO, COO) Business Users
Supplier Enterprise Customer
• SAP• Oracle• Infosys
• Accenture
Large Enterprises
• Insurance, banking, & financial , 30%
• Telecom, 20%• Manufacturing, 13%• Retail, 8%
Pure Play Pure Play
End-to-end Service Provider
• IBM• EDS
• CSC• Cap Gemini
IT Service Industry : Value Chain – Emerging
Software Service/Product
Vendor
IT Department (CIO, CTO, COO) Business Users
Supplier Customer
Internet Service Provider
IT Department (CIO, CTO, COO) Business Users
SaaS
Web 2.0
• Salesforce.com
• SugarCRM
• Google• Microsoft
Small/Medium Businesses
Individual Users
IT Service Industry : Transformation
Trigger
Experimen-tation
Convergence
1 Change in Technology
2 Change in Customer Needs
1 Off-shore Biz Model (incl. GDM)
2 SaaS (Software as a Service)
3 Enterprise 2.0
After the DotCom Crash
Disruptive Business Models
?
Change in Customer Needs Change in Offerings
• More demanding in ROI• Get more out of tech
investment• Rapid adaption /modification• Specific point solutions
• Invest in new technologies on faith and without strong links to ROI measurements (Over-purchase!)
• Off-shore IT services• SOA (Service-oriented
Architecture) & Web services
• Applications as services
• Traditional enterprise application packages
• Homogeneous infrastructure
IT Service Industry : Transformation
Infosys Technologies – Company Background
• Started in 1981 for $225• Built up in 1980s and 90s through customized
software solutions, developed in offshore (Indian) development centers
• Also develops and markets software products• Flagship product is ‘Finacle’, a modular banking
solution for retail, corporate and banks• Grew mostly through new business contracts,
acquisition of smaller IT service providers, and alliances with larger companies.
Infosys Technologies – Business Model
“The process of breaking projects down into their
logical components and then
distributing those components to
locations (onsite, nearshore,
or offshore) where they can be delivered at
maximum value.”
Global Delivery Model
Definition
38 global development centers
•20 in India•18 in the US, the UK,
Australia, Canada, China, Mauritius and
Czech Republic.
Lower CostFaster Implementation
Lower RiskMeasurable
Vehicles
Modular Global Sourcing
Framework
Customer Value
1
2
3
Innovation to Meet New
Customer Needs
4
Infosys Technologies – What are the Competitive Advantages?
Global Delivery Model•Global development
centers•Right Talents
Open/transparent & performance-driven culture
Excellent training program
Customer relationship
Flat organizational structure
Right reward system (stocks, career visions)
Domain knowledge
Brand/reputation
Abundant supply of low-cost scientists
and engineers
Infosys Technologies
India
Cost & quality
advantage coming from
GDM and low-cost
labor
Infosys Technologies – Sustainable? : vs. Current Competitors
On-shore Incumbents Other Off-shore Players
• Trying to adapt GDM while maintaining their existing business model & organizational structure
• Adding more off-shore workforce through M&A or expansion
• However…
• Can NOT completely migrate to GDM because…
• It can jeopardize existing businesses
• There is fundamental organizational difference (i.e. Hierarchic vs. Flat) which would make it hard to attract right talents for GDM
• Already offering the same services by copying the tangible part of business model
• 24/7 services• Global offices• Competing for the
same talents• However…
• Still behind Infosys in terms of operational excellence because…
• Infosys’s core competency is ‘People’ and supporting system to attract/keep talents
• Intangible assets and congruence of the whole system are hard to copy (e.g. Culture, HR, reputation)
On-shore Incumbents Other Off-shore Players
Infosys Technologies – Sustainable? : vs. Current Competitors
Gross Margin
Net Income Margin
Infosys 42% 26%
Wipro 33% 19%
TCS 46% 22%
USD (Mil)
Performance Comparison
Infosys Technologies – Sustainable? : vs. Current Competitors
On-shore Incumbents Other Off-shore Players
Infosys Technologies – Sustainable? : vs. Potential Competitors
They are disruptive not only to incumbents but to off-shore players
SaaS
Web 2.0
• Significantly easier & faster implementation
• Very low up-front capital investment
• User-focused, not buyer-focused : self-service IT
• Very cheap or free funded by Ad model
• No need to have expensive IT service providers
• Very low entry barrier
• Force incumbents to change product & pricing
Infosys’s competitive advantages no
longer sustainable
Infosys Technologies – SWOT AnalysisStrengths Weaknesses
Opportunities Threats
Significance of Impact
H High
M Medium
L Low
• Operational excellence to deliver GDM
• Capability to attract & keep talents
• Strong financial• Strong relationship
with Large Corporations
• More cost/speed conscious customers
• Market growth• Higher awareness on
off-shore model
• Over-reliance on US economy
• Limited position in value chain (i.e. No presence or relationship with consulting business)
• Wage inflation due to competition on talents (15+% / year)
• Newer disruptive business models (i.e. web services, web 2.0)
H
H
H
M
M
M
H
M
L
L
M
Infosys Consulting – Company Background
• Started in April 2004 with initial investment of $20M• Chose a wholly-owned subsidiary model• Led by former leadership of Deloitte Consulting India • Focused on the Global Delivery Model (GDM) and
more cost-competitive consulting rates• Integrating the business consulting and technology
implementation lifecycles • Engagements sourced from parent company and
existing client base of Infosys Technologies
IT Consulting Market Context & Structure
• Subset of overall IT services market • Projected single-digit growth of 5% • Largely fragmented market with 2 key segments:
• On-shore consulting and IT services players (Accenture, IBM, Capgemini, EDS)
• Off-shore IT services players (Wipro and TCS)
• Largest shares held by Accenture and IBM
Infosys Consulting – Business Model
“Integrate the business consulting
and technology implementation lifecycle. ‘1-1-3’ model gives one
client one ICI resource onsite, one
Infosys Tech resource onsite, and
3 Infosys Tech resources offshore.”
“1-1-3” Model
Definition
• On-shore management
consulting talent•On-shore liasons
•Off-shore resources
Lower blended rates
Faster Implementation
Integration
Vehicles
“1-1-3”combined with GDM
Customer Value
1
2
3
Infosys Consulting – What are the Competitive Advantages?
“1-1-3” Model•Blend on/off shore
•Cost efficient
Strong operational
skills
Access to Infosys Technologies
clients
Large supply of low-cost
IT/process resources Cost & speed
advantage coming from “1-1-3” and GDM model
Unique, blended model Easier to
integrate offshore with
onshore
Infosys Consulting – ICI vs. Current Competitors
On-shore Incumbents Other Consulting Players
• Trying to adapt GDM while maintaining their existing business model & organizational structure
• Adding more off-shore workforce through M&A or expansion
• However…
• Can NOT completely migrate to GDM/”1-1-3” because…
• It can jeopardize existing businesses
• May be brand equity erosion
ICI Experiencing Revenue Growth
Revenue (USD Mil)$54
$36
$5.30
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
FY05 FY06 FY07E
• High double-digit year on year revenue growth
• Approximately 2/3rds of revenue from the United States
• Key industries: Retail, Transportation, High Tech, Banking, Energy/Utilities
• Reflects steady growth in number of clients:
• 25 clients in FY05
• 54 clients in FY06
• 89 clients in FY07
But Increasingly Dim Profitability Results
• Infosys still deems Infosys Consulting to be in “investment phase.”
• Potential causes: •cheaper blended rates
•expensive on-shore resources
•Learning curve in managing consulting business economics
Net Income & FCF
($8.10)($9.40)
($28.20)
($30.00)
($25.00)
($20.00)
($15.00)
($10.00)
($5.00)
$0.00
FY05 FY06 FY07
Net Income (Loss)
Infosys Consulting vs. Current CompetitorsOperational Scale & Performance
On-shore Incumbents
Other Off-shore Players
ICI Accenture IBM BCSRevenue ($M) $54 $11,856 N.A. Employees 209 126000 60,000
ICI WCS TCS Revenue ($M) $54 N.A. N.A.Employees 209 5,000 34,000
Still a marginal player vis.a.visconsulting units of both the on-shore as well as off-shoremajors.
Infosys Consulting – SWOT AnalysisStrengths Weaknesses
Opportunities Threats
Significance of Impact
H HighM
Medium
L Low
• Unique blended model
• Access to Infosys clients
• Strong in operations
• More cost/speed conscious customers
• Market growth• Open up new segment
of market
• Low brand equity
• Inexperience with consulting relationships
• Challenge attracting top consulting talent
• Easy replicability of model
• Increasing IBM/ACN presence in India
• Culture clash with Infosys Technologies
H
M
M
M
H
M
H
M
M
M
M H
Infosys Consulting: Cost or Profit Center?
Key Challenges
Needed Responses
• Approaching profitability or break even• Collaborating effectively with Infosys Technologies • Impending replication of ICI business model by others • Find firm, differentiated place in industry value chain
• Revisiting pricing and/or cost structure• Integrate client management with Infosys Technologies • Use ICI to monitor client trends & the “next big thing.” • Capitalize Infosys “flat world” aura to achieve positioning
What is ICI’s place in the Infosys Technologies Portfolio?
Moving forward… : Infosys’ StrategyInfosys should leverage ICI ,
1)To strengthen its position in current market, and 2)To prepare for further industry transformation
ICI Infosys Technologies
More Value from Existing
Customer Base
Strategic Alliance with
Emerging Competitors
• More wallet share from current customers
• Integration rather than expansion
• Stronger relationship through involving higher-level decision making
• Provide more agile and customized solutions
• Antenna to sense changes in the market
• Influence customers’ strategic moves
• Relationship building with emerging players
• Acquire them as customers or partners
• Develop capabilities to offer right services/products in the long-term
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