Infosys Consulting In 2006 Ba401

Infosys Consulting in 2006 : Leading the Next Generation of Business and Information Technology Consulting

IT Service Industry : Overview

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

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 today is a global leader in the “next generation” of IT and Consulting• Named India’s Most Respected Company in the Businessworld 2006

survey for the fourth consecutive time• Adjudged “India’s Best Managed Company” in a study conducted by

Business Today and A.T. Kearney• Forbes: “Infosys is a role model for companies everywhere in financial

transparency.”• “Dream company to work for” in India and amongst the “100 best

places to work for in IT” in the US• Amongst the first companies in world to be certified at CMMI Level 5• BusinessWeek: Amongst the top 3 IT Services companies in the world• Wired rated Infosys among its top 40 companies that have reshaped

the global economy.

Exceptional Financial Performance Increase in number of Active Clients Strong Growth in Employees

Rev

en

ue

($

M)

Em

plo

yee

s

Act

ive

Cli

en

ts

Applying GDM+ across the services spectrum

FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

June 10, 2006© Infosys Technologies Limited 2005-06

41.1%

Application Development and Maintenance

Management Consulting

Business Process Management

IT Outsourcing

Systems Integration

Enterprise Solutions

Technology Consulting

Technology-enabled BPR

Software Re-engineering

People Organization Infrastructure Process Quality

Infosys Global Delivery Model

2006

2001

1981

1996

* New services is defined as services other than Application Development, Maintenance, Re-engineering and Products

New services* as % of revenue

37.7%35.4%

29.6%

24.9%22.8%

Infosys is a global leader in Consulting and IT Services

Mejor empleador, Mejor universidad

corporativa

Mejor gobierno corporativo

Empresa mejor gestionada

Líder en Tecnología Bancaria

Recognition

Achievements:

USD 4bill. + global revenues (2008)Europe represents over 25% of this figure

~ 32 billion USD market cap (NASDAQ:INFY)

Over 30% annual growth for the last 6 years

Global workforce of 100.000+

More than 450 clients, mostly Fortune 2000 companies

7 of the largest world companies are Infosys customers

Over 87% of projects on-time on-budget

More than 90% recurring customers

Global leader in quality practices CMM5, 6-Sigma, Malcolm Baldridge

Infosys is a global leader in Consulting and IT Services

199284

389551

775

1156

2002 2003 2004 2005 2006 2007

REVENUES FROM FINANCIAL SERVICES ($ M)

CAGR aprox. 40%

KEY FIGURES

More than 154 active clients (en su mayoría Global Fortune 2000)

More than 13.000 employees in 31 development centres around the world

6 of the 7 largest US banks

4 of the 5 largest European banks

3 of the 4 largest Australian banks

Banking and Capital Markets

Other Segments

37.8%37%

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 ModelDefinition

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 SourcingFramework

Customer Value

12

3

Innovation to Meet New

Customer Needs

4

Infosys Technologies – Business Performance

CAGR 43%

CAGR 45%/30%

33% 33% 32% 32%EBITDA

Margin %

Infosys Technologies – Business PerformanceRevenue by Industry Revenue by Geographic Market

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 TechnologiesIndia

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

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 – 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

Infosys Consulting – Company Organization

• Building a Unique Culture• Recruiting the Right People• Creating a Differentiated Approach• Rewarding Employees

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” ModelDefinition

• 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 clientsLarge 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

MM

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

ICIInfosys

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

Thank YouQ&A