Motivation and Learning Objectives of the Case. The $ 50 Billion IT-BPO industry is today the growth engine for the Indian economy. A majority of the $50 Billion is from outsourced work from developed markets, mainly US, followed by Europe. The global IT industry is highly competitive and Indian firms are facing stiff competition from countries like China, Mexico, Brazil a>and Thailand. To be able to sustain its growth the Indian IT firms need to diversify and capture new markets and move to high value add segments where Indian companies are not seen as strong contenders.
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It is against this back drop that we analyze the restructuring in the second largest IT Company in the country, Infosys Technologies Limited. In October 2007, Infosys Technologies Limited had announced the reorganization of its business units and broadening of its senior management team to anticipate changes in the global IT Industry and differentiate vis-à-vis its competitors. The changes were brought about to have an increased focus on growth markets including India and on “R&D and commercialization of IP” and to consolidate its consulting skills
These were important changes at the organization level and merit an in-depth analysis which would enable us to understand how a top IT company works in terms of sensing new market opportunities. This study would allow us to understand as to how a company is able to look at its own strengths and weakness and realign itself to be able to leverage its strengths to utilize the opportunities available and negate the threats it is facing.
IT Industry Development and Current Scenario
Changing economic and business conditions, rapid technological innovation, proliferation of the internet and globalization were creating an increasingly competitive market environment that was driving corporations to transform the manner in which they operate.
The role of technology has evolved from supporting corporations to transforming them. The ability to design, develop, implement and maintain advanced technology platforms and solutions to address business and client needs has become a competitive advantage and a priority for corporations worldwide.
Outsourcing the development, management and ongoing maintenance of technology platforms and solutions has become increasingly important. Companies were increasingly turning to offshore technology service providers to meet their need for high quality, cost competitive technology solutions. As a result, offshore technology service providers have become critical in the industry and continue to grow in recognition and sophistication.
The Indian IT companies offered advantages that others were trying to but were not able to till this point. These advantages include
High quality delivery
Significant cost benefits
Abundant skilled resources
In addition to the above factors, the government’s favorable tax norms in various states, special facilities like SEZ etc make India financially the most attractive country for IT compared to the other possible destinations. (Exhibit 1)
Effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable services
Increase depth and breadth of service offerings to provide a one-stop solution in an environment where corporations are increasingly reducing the number of technology services vendors are using
Develop and maintain knowledge of a broad range of existing and emerging technologies
Demonstrate significant domain knowledge to understand business processes and requirements
Leverage in-house industry expertise to customize business solutions for clients
Attract and retain high quality technology, professionals, infrastructure (or facilities) throughout the business cycle.
About Infosys Technologies Ltd
Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, we are a global leader in the “next generation” of IT and consulting with revenues of over US$ 4.5 billion.
Infosys defines designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers.
Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The 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.
Infosys has a global footprint with over 50 offices and development centers in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 105,453 employees as on September 30, 2009
Corporate Level Strategies of Infosys
Analysis of Infosys Technologies Limited
Infosys Technologies Ltd analysis for its strengths, opportunities and threats is as below:
Organization Structure: Concept of IBU and its Success
Infosys is primarily a software application development and maintenance company. Software programmers were able to leverage past experience most effectively if they concentrated on one industry. To achieve these economies of experience, the primary organizational construct within Infosys was the industry business unit (IBU). In the early years, an IBU might serve only one customer.
The company assigned new employees to an IBU and they tended to stay there for several years. Through several promotions, an employee could reach the position of account manager, earning responsibility for maintaining relationships with clients, ensuring client satisfaction, and selling additional work.
The structure effectively featured a large number of small business units, kept people feeling empowered. Each IBU was effectively a separate company in itself and would look at it own expenses, revenue and employee compensation and benefits. This was a huge success and was responsible for the phenomenal growth over the years.
Drivers for Change
The following section is based on the discussion with Mr. Altaf Vohra, an Senior Manager at Infosys:
Two main drivers for the change can be identified:
The growth opportunities available in the non-US, non- Europe Markets.
The need to increase the presence in the high value add segment like Consulting
Reduced Focus on US Markets
It was clear that the US markets were not to be focus area. Two major erasons were sited by him
The US market, a very open one in that it is easy for different country players to enter the market. So the threat from the other developing countries like China, Mexico and Brazil were immense. So even though there were huge growth opportunities in US, the company was looking to expand into other markets.
On the other hand the European and Southeast Asian markets were closed markets in that they did not accept outsiders easily. This was a natural entry barrier as well as huge opportunity in that when the market was broken into it could be captured easily and there was a natural barrier for others to not be able to enter easily.
Changing Business Model
Over the years, Infosys Business Model has evolved to suit the needs of the market and it has been able to match up to the market expectations and keep up its phenomenal growth. But the company cannot continue with the current model and needs to ensure that the future business focus is on high value add services. These include SASS, Consulting.
Problems in Current Structure
The current structure had certain inherent drawbacks that were preventing the company from exploiting the new opportunities that presented themselves. These include:
A closed IBU structure which was not conducive for inter domain expertise development which was necessary for consulting services.
Lack of expertise in dealing with the European markets. So the company was unable to negotiate or close deals and so losing was out to competitors.
No department to capture the growth opportunities in the domestic Indian market.
Lack of sufficiently large IP ownership which was necessary to be able to capture the markets in the Southeast Asia, as a result of insufficient spending on R&D. (Exhibit 6)
Restructuring in 2007
Having realized the problems with the current structure, Infosys restructured itself to help broaden its customer base and strengthen its current portfolio through scale benefits. The new opportunities will leverage the strengths of the next generation of leaders at Infosys.
Highlights of the Changes Made:
Business units realigned: Forms 8 vertical Industry Business Units (IBUs) and 5 Horizontal Business Units (HBUs) that cut across all the vertical units as below:
Increased focus on growth markets: The New Growth Engines (NGE) unit has been formed to expand business in Australia, China, Japan, Middle East, Canada, South America and Latin America
Separate business unit to focus on India
Increased focus on R&D and commercialization of IP
Broaden Senior Management Team
The Finer Changes
Each of the 6 verticals from BCM to RETL had two separate divisions which were identified by the suffix D or X to signify US and non US units respectively.
So BCMD and BCMX were now formed with BCMD looking after US market and BCMX looking at non-US markets.
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