2518d1158570272 Human Asset Management Infosys Management Human Assets Infosys Mp

8/6/2019 2518d1158570272 Human Asset Management Infosys Management Human Assets Infosys Mp

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MANAGEMENT OF HUMAN ASSETS AT INFOSYS *

Our assets walk out of the door each evening. We have to make sure that they come back the next morning. (Narayana Murthy, CEO Infosys).

At a time when organizations are debating the strategic importance of their human resources,Infosys, a consulting and software services organization, includes its human resources on its

Balance Sheet to affirm their asset value1. Mr. Mohandas Pai, the Chief Financial Officer ofInfosys, provides a rationale for this practice:

Investors examine financial and non-financial parameters that determine long-termsuccess of a company. These new non-financial parameters challenge the usefulness ofevaluating companies solely on traditional measures as they appear in a typical financialreport. Human resources represent the collective expertise, innovation, leadership,entrepreneurial and managerial skills endowed in the employees of an organization. Ourrepresentation is based on the belief that intangible assets provide a tool to our investorsfor evaluating market-worthiness of Infosys.

As a know ledge-intensive company, Infosys recognizes the value of its human assets inmaintaining and increasing its competitive posit ion. At the sa me time, Infosys realizes that theseassets can easily walk aw ay, as competitors in India and abroad covet its IT talent.Consequently, the challenge facing Infosys is: How can it attract, retain and develop its humanassets in a highly competitive and dynamic environment? The answer to this question may liein the management of the 9000 plus Infocians (as the employees are referred to), and that ofmany more to be hired in the future.

Overview

Infosys, one of Indias leading information technology (IT) services companies, uses anextensive non-U.S. based (offshore) infrastructure to provide managed softw are solutions toclients w orldw ide 2. Headquartered in Bangalore, India, Infosys has seventeen state-of-the-artsof tware development facilities throughout India and one development center in Canada. These

* Sumita Raghuram (Assistant Professor of Management, Fordham University, New York) wrote this caseto facilitate classroom discussion rather than to illustrate either effective or ineffective handling of abusiness situa tion. The case has benefited from the inputs of many key employees at Infosys.

Copyright , 2001 Sumita Raghuram.

1 For details about the accounting model used to calculate human asset value please See Appendix A.2 For details about their products please see Appendix B.


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enable it to provide quality, cost-effective services to clients in a resource-constrainedenvironment.

Through its w orldw ide sales headquarters in Fremont, California (and 19 other sales officeslocated in the United States, Canada, the United Kingdom, Belgium, Sw eden, Germany,Australia, Japan, and India), Infosys markets its services to large IT-intensive businesses.During fiscal 2000, Infosys derived 78.0% of its revenues from North America, 14.8% fromEurope and 1.4% from India. Although most Infosys revenues are from the United States,Infosys maintains a diversified client base, w ith its largest client representing 7.2% of f iscal 2000revenues. As of March 31, 2000, Infosys had approximately 194 clients. This client basecomprised of mainly Fortune 500 companies, grow ing Internet companies, and othermultinational companies. As a result of its commitment to quality and client service, Infosys hasa high level of repeat business. For fiscal 2000 and 1999, existing clients from the previousfiscal year generated 87.0% and 90.0%, respectively, of Infosyss revenues 3.

History

Seven software professionals founded Infosys in 1981 w ith the goals of leveraging sw eat equity

and creating w ealth legally and ethically in India. This was a daunting task in a country w herethe government w as allegedly more concerned w ith redistributing w ealth than creating it. Mostof Indias commerce w as owned and controlled by an oligarchy of families to w hich Infosys hadno ties.

Infosyss competitive advantage has historically been derived from low w age costs in Indiarelative to service providers in the United States and Europe. Their initial foray into the USmarket w as through a company called Data Basics Corp. as a body-shop or on-site developerof software for US customers. Later, in 1987, Infosys formed a joint venture w ith Kurt SalmonAssociates to handle marketing in the US. These initial entries into the US market w ere astepping stone for Infosys grow th in later years. 4

The years betw een 1981 and 1991 were not easy for Infosys w hich aimed to create large-scalesof tware factories in India using contemporary technology, methodology and softw are tools.How ever there were many obstacles. First, data and satellite communications w ere not readilyavailable in India. Second, importation of equipment from abroad was difficult and expensivebecause of high tariffs. Third, the premium at w hich one could value shares in an IPO w asdecided by a govern ment of ficer, not by the market, and it w as generally low ; hence, equity w asnot a viable option for f inancing. Debt equity w as the only remaining option. 5

In 1991, partly from International Monetary Fund pressure and shrinking currency reserves, theIndian govern ment began liberalizing the economy. The of fice through which an IPO was valuedwas abolished and the market w as allow ed to decide what the stock premium w ould be. Thegovernment also abolished duty on all imports brought in for export purposes and foreign

investment w as allow ed. This governmental change brought both new opportunities and newthreats to Infosys, opportunities to raise capital and threats f rom increased competition.

3 Annual Report 2000.4 Infosys: Can they make it? Business World 7-21 November 1998, p. 19-22.5 Ten Minutes with NR Narayana Murthy, NASDAQ/AMEX International Magazine , Issue 24, September1999.


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In 1993, Infosys went public on the Indian stock exchange w ith a market capitalization of $10million. Infosyss initial public offering (IPO) raised approximately $4.4 million in grossaggregate proceeds. In 1999 Infosys was listed on NASDAQ w ith a market capitalization of $10billion6. A NASDAQ listing w as significant for Infosys in many w ays. As Nandan Nilekani, co-founder and COO of Infosys explains, We w anted to be recognized as a global company, and itwas imperative that w e were listed on the largest and deepest capital markets in the w orld.Infosys expects NASDAQ trading w ill attract global investors and thus raise the capital it canuse for future grow th. A NASDAQ listing also helps Infosys in other ways. For example, it helpsit build brand equity that enhances the companys visibility beyond the India. It also enablesInfosys to offer employees stock options overseas. This w ill enable Infosys to attract top-notchtalent globally.

The liberalization of the Indian economy also brought unprecedented competition to India. Suchmultinational corporations as IBM, Sun Microsystems, and Motorola could leverage their vastfinancial resources to compete for Indias most valuable resources, its people. MNCs couldprovide the Indian people w ith never before available salar ies and compensation competitive ona global scale. 7 Competition for IT talent w as further aggravated in 2000 by the increase in thequota of H-1 visas that allow organizations to hire professionals overseas.

Leadership and Culture

Most of the current human resource practices at Infosys result from the vision of the leaders andthe culture that they have created. Narayana Murthy, know n for his leadership and vision is thepublic image of Infosys. His leadership style is humble and straight-forward, quite uncommon inthe w orld of Indian business. Narayana Murthy believes in sharing wealth w ith his employeesand in leading by example. In a know ledge-based business like Infosys, he sees the importanceof consistency in rhetoric and action in empow ering employees. Narayana Murthy is creditedwith creating a culture of closeness and empow erment at Infosys. His management style, rareamong Indian business leaders, is based on w estern management. 8

The other founding members of Infosys contribute their ow n specialties. Though less know n,they each play a critical part in shaping the culture and running the operations at Infosys. Theseunique personalities, w ith their particular strengths, create the basis for a uncommon culture atInfosys. Infosys was voted Indias most admired company by a January 2000 survey in The Economic Times .9 According to Narayana Murthy, what Infosys has on its side is youth, speed,and imagination, and [they] are constantly innovating in every area of [their] operation. 10 Thefounders efforts have been paying off. According to a California-based management consultantworking in India, Infosys has been critical in changing the mind-set of India. 11 Transparency isone of the important values held by Infosys. A practice illustrative of this value is its very earlydecision to adopt the US GAAP standards, the most stringent standards, for reporting itsfinancial results.

6 Infosys, T he First Indian Company to Trade on NASDAQ, Forbes 23 August 1999, p. 22.7 The Lightening Spark, Silicon Technology and Business Magazine , August 1998, p. 50-51.8 Joshi, Rahul. Infosys Ha s Completed the Infancy Stage. The Economic Times 3 January 2000.9 Infosys voted Indias most admired company, followed by HLL, Wipro. The Economic Ti mes 3 January200010 Ten Minutes with N.R. Narayana Murthy NASDAQ/AMEX International Magazine 24 September 1999,p. 13.11 Start Up: From India To America. Forbes 23 August 1999, p. 22-23.


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Hema Ravichandar, the Senior V-P of Human Resources, sums up the characteristics of theculture that distinguish Infosys from its competitors:

Our emphasis on transparency and communication sets us apart from the prevalentfamily owned businesses operating in India at. Our emphasis on getting the employeesemotional buy-in into the company distinguishes us from the MNCs that have recently

entered the Indian business scene.

The attempt to ensure emotional buy-in is evident in their ef fort to provide a self-sufficient w ork-environment for their employees. Infosys inaugurated its facilities in Bangalore under the nameof Infosys City in November 2000. Spread over 44.225 acres, it is claimed to be the largestsoftware services campus in the w orld. It has t he largest `video w all' in Asia w hich allow s forvideo conferencing simultaneously f rom multiple centers. The existing buildings also form part ofthe Infosys City. The City contains food courts that serve Chinese, North Indian, South Indianand Western cuisine. A state-of-the-art gym, golf course, pool tables, table tennis tables anddance-f loor are already in place. The sauna, grocery s tore, an Infosys Store, 50 000 square feetsw imming pool and a lake w ith paddling boats w ill soon be part of the City. The eco-friendlycampus now has 3,500 trees, w ith another 2,500 more w hen the City is complete. The

landscape includes stone paths, rose beds, bamboo clusters w ith benches beneath them,fountains, and water recycling plants. Besides the enticing w ork environment, Infosys providesstate of the art technology to its employees. For example, PCs used by Infocians are upgradedevery two years.

Management of the Hum an Resource Assets

As of March 31, 2000, Infosys had approximately 5,400 employees. The current employeestrength represents a grow th rate betw een 40-50% since 1996. Of these about 86% areengaged in sof tware development (including trainees) and the other 14% are in support services.57% of the employees are aged betw een 20-25 years, 31% are aged betw een 26-30 years andthe other 12% are over 31 years of age. Approximately 85% of the employees are males and15% are females.

Infosys invests heavily in its programs to recruit, train and retain qualified employees. Furthermanagement believes that Infosys has established a reputation as one of the most preferredemployers for software engineers in India. Elsewhere in the sof tware industry around employeeattrition rate is around 30%; Infosys boasts an employee attrition rate of only 9.8%.

Selection

The first step in the strategic management of a companys human resources is selection ofassets with skills and potential consistent w ith its business requirements. Infosyss businessrequirements are flexibility and innovation. Accordingly, it has developed clear selection criteriaconsistent with this business need. Selection is based on individuals ability to learn, academicachievement, conceptual know ledge, as w ell as temperament for (and fit w ith) Infosyss culture.Further, because of Infosyss reputation as a premier employer, it can select f rom a large pool ofqualified applicants w ithin India. Competition a mong applicants is intense.

One selection criteria in particular stands out: the Learnability . At Infosys, learnability isdefined as the ability of an individual to derive general conclusions from specific situations andthen apply them to a new unstructured situation.


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P.S. Srivathsa, the Senior Manager of Human Resource Development, adds:

Learnability is considered an important criterion because the project life cycle is shortand technology is changing rapidly so the ability of the person to take the conceptlearnt in one setting and to apply it to another is very important. At Infosys learnability isassessed through written tests that include mathematical and analytical questions geared

towards asse ssing the aptitude of a person to derive generic patterns from a situation.For its entry-level positions, Infosys focuses its recruiting ef forts on s tudents w ith excellentacademic background from engineering departments of Indian schools. The first step in thehiring process is manpow er planning, w here the numbers are determined. This planning usual lytakes place 20 months ahead of the hiring process . Recruitment includes campus interviews, aswell as inviting applications over the Internet, new spaper ads, through job fairs, and HRconsultants. The initial screening is based on such criteria as academics and experience. In1999, 185,000 resumes w ere processed and, after the initial sc reening, w ere reduced to 40,000resumes. The shortlisted applicants undergo a selection test.

The test comprises tw o main components: arithmetic reasoning and logical reasoning. Becauseof time pressures involved in testing the large volume of candidates across the country, thereading comprehension section has been eliminated, cutting dow n the testing time to one hour.Tutorials or coaching classes offered by third parties are popular among individuals w ho w ish toprepare for these competitive tests. Infosys has a question bank system from w hich questionsare picked randomly for each test center. Those w ho score above the cut-off in the selectiontest are called for an interview .

Interview s are conducted jointly by the human resource managers and the technical manager.At the interview stage screening criteria used are aspirations, expectations, flexibility,presentation skills, and communication skills. In 1999, 10,000 candidates were interview ed, andoffers were extended to approximately 3,330. Of these, approximately 2,050 accepted.

Rejected candidates may reapply af ter 9 months. People do come back and, if they have pickedup the necessary skills, they are hired.

Training and Development

At Infosys, training and development is the next step in building its human assets where theobjective is to match the available skills and abilities to its business requirements. In theheadquarters at Bangalore, the education and research center is housed in a building that cantrain 1,000 software engineers simultaneously. It comprises f ully equipped classrooms, labs w ithvideo-conferencing units, individual faculty rooms, and a 30,000 square foot library w ith acapacity for 10,000 books. In addition, under construction are a management developmenttraining center and a Wireless Center for Excellence to be built by Nortel Networks. TheWireless Center is expected to be the e-commerce research center w ith a capacity for 650people w orking on research in w ireless Internet capabilities.

The education and research department of Infosys offered 241 courses in 1998-1999, includingcourses in business, database management, e-commerce, quality systems, programminglanguage (e.g., Java, C++), netw orking concepts, software development, languages (e.g.,French, Japanese), interpersonal skills (e.g., communication) and managerial skills (leadership,team management, negotiation). Full time faculty teaches 75% of these courses; professionalsteach 10% of the courses and outside vendors offer rest of the courses. The full time faculty


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comprises 40 individuals from academics and industry. The human resources departmentsupplies additional 5 facilitators, w ho provide the soft-skills training; the quality controldepartment delivers the training for quality.

All fresh technology entrants receive 14.5 w eeks of training: 3 days of orientation (e.g. corporateculture, customers), 5 weeks of foundation courses (e.g., programming, systems development,interpersonal skills), 7 w eeks of technology courses (e.g. C++, UNIX, HTML) and 2 w eeks ofgroup project. In 1998-99, 1750 new entrants received the basic training. In addition, training isprovided as a part of the continuing education. In 1998-99, 2000 employees received training asa continuing education: about 8 days/person in technical and softw are engineering, 1.5days/person in managerial skills, and 3 days/person in project management.

Beyond entry-level training, people may nominate themselves for the scheduled courses. Closeto 100 courses are offered each quarter, with duration from 1 day to 6 days. Most courses arepresented in classrooms, some in labs. In addition, course may be offered on request.

Training needs are assessed through various mechanisms; the objective is to fine-tune them tobusiness needs. First the corporate management deter mines segment-w ise technology

requirements. These expectations are communicated to the education and research department.So, for instance, the education and research department may be informed of the requirement for500 people w ith know ledge in Internet technology in the near f uture. Specific skill needs such asinterfacing w ith Microsof t or Java may be determined through a deeper analysis. Typically,about 3-6 months advance notice is provided.

Training needs may also be assessed through the regular planning meetings. In these meetings,the expected projects for the coming year are forecasted. These projections determine skillrequirements (e.g., 300-400 project managers for 500 projects). Based on current skillavailability and skill demand, training needs are determined. The education and researchdepartment also tracks specific technologies; the number of requests for the technology fromclients may also determine course-offerings.

Infosys also offers training and development support to academic institutions by providingexposure to industry, in the form of sabbaticals at Infosys, training programs, and sharingcourseware.

Careers

Charged w ith the responsibility of developing human assets in a fast paced environment, careermanagement at Infosys faces tw o challenges: a shift from a focus on technical expertise in thecareer to a focus on management expertise, and the speed w ith which this refocusing must beaccomplished.

Nandita Gurjar, the Corporate Development Manager describes the first challenge as follow s:Management skills have become increasingly relevant for Infosys because of its ever-increasing volume of business as well as its shift towards consulting business. As thenumber of projects to be handed has increased, the demand for project managementskills in goal setting, communication, coaching, delegation and team management hasal so increased. Invariably the technical personnel are chosen to move to a managementtrack. This choi ce is ironic in some ways because the better an individual is in technicalskills (such as writing code) the more likely he/she is to be moved away from using the


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technical expertise into a management track requiring management expertise. Technicalexpertise provides an individual legitimacy and respect from co-workers making them anatural choice as a team leader. Within a short time span the team leaders are requiredto manage projects, clients and the people working on these projects. It, therefore,becomes necessary for the individual to abandon their technical expertise somethingthat has been very salient to their identity in the course of education and early career,when they aspire to be smart techies, and start collecting a repertoire of managerialcapabilities.

While developing management skills by attending management development programs2-3 years ago was one of the nice things to do; it has now become a business necessity.The nature of management skills required is further complicated by the fact that atInfosys, managers are also required to mange from remote. Team members are spreadgeographically and may not meet each other or the team leader for a year or perhapsnever. As hiring overseas gathers momentum, the demands may be further exacerbatedby the fact that team members may belong to different backgrounds and may notcompletely understand the organization and the country culture.

The second challenge facing career management is the compression in career, an effect ofthe speed at w hich employees must move f rom one stage in their career to another. The newhires are very young (22 years old) and they are put under managers who are 24 years old. At30 these employees are managers of managers. At 35 an individual can potentially become avice-president. Management skills become necessary at a very early stage in the life andcareer of an individual at Infosys. Rapid change is a constant challenge. Nandita summarizesthis challenge as follow s:

It is a challenge to teach a 24-year-old to become a manager. The young individualbelieves, I have not yet grown, but you are saying, you have to do it. Just when youbecome used to something you are pulled out of it and it is time to move on to somethingelse. Those who can cope with this change emerge as leaders (perhaps at the age of 32);others fall back and become comfortable where they are. The whole career developmentprogress in Infosys is therefore comparatively shorter than in other companies.

To address the pressing need for management development, Infosys has put in place sometraining programs. These include:

First time manager program: This is a 5-day program for new managers, designed tochange a manager's mindset f rom an individual to a more managerial one, w here the focushas to shift from managing individual performance to managing team perf ormance.

The manager of managers program : The program is geared tow ards teaching managerialskills (such as delegation, team manage ment) to more senior managers.

Infosys leadership program: The program emphasizes the dynamic environment outside of

Infosys and the adaptation to its environment. Once again, the objective is to create a mind-shift for the senior managers , from looking inw ard at the internal operations to becomingaw are of external change factors.

Compressed careers bring w ith them another challenges: stress and burnouts. Withtechnology-assisted communication devices (e.g., Palm pilots, cell phones and home computers)employees are multi-tasking, even in meetings. The potential for s tress is enormous, intensifiedby the time zone diff erences that make the employees accessible around the clock. Thus,


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working around the clock, coupled w ith extensive travel and minimal time to manage w ork andnonw ork needs may cause many employees in the future to burnout.

Performance Appraisal

Perfomance appraisal is a rigorous comprehensive process at Infosys, tied to the futuredevelopment of the individuals skills and capabilities. First, an evaluation of personal skills iscarried out for the tasks assigned to an individual during the appraisal period. The criteria usedto evaluate performance on tasks are derived from the business goals and include: timeliness,quality of w ork, customer satisf action, developing others, know ledge dissemination, peersatisfaction in the team, increased business potential, and developing optimal task solutions.The evaluation of personal skills and abilities is carr ied out for the follow ing: learning andanalytical ability, decision making, team leadership, change management, communication skills,teamw ork, planning and organizing skills. Each cr iterion is described and measured on a 5-pointscale. Further, each of the scale points are anchored to descriptions of expected behavior 12 .

Performance appraisal is carried out semi-annually, in July and January. 360-degree appraisalis carried out for all employees. Appraisals are sought from peers, direct supervisors,

subordinates and customers. A minimum of 6 to 7 appraisal reports are collected for eachemployee. All appraisal forms are completed on-line and the data is maintained in a centraldatabase. The appraisal information is used to identify training courses and otherdevelopmental interventions. Future objectives for both task accomplishment and individualskills development are based on the results of the semi-annual evaluation.

Compensation

We compensate our human asset s in three ways. We add learning value throughtraining and development and appraisal practices. We add emotional value throughinitiatives directed towards supporting employees with their work and personal needs,and we add financial value through monetary compensation. (Hema Ravichandar,Senior Vice President Human Resource Development).

Although Infosys faces strong domestic and international competition for its human assets,through enticing offers from competitors, the compensation level at Infosys equals the averageindustry level for each country. It is neither above market nor below the market level. The beliefis that financial value, w hen combined w ith learning and emotional values, yields a totalcompensation greater than that offered elsew here in the industry.

Infosys is one of the first Indian companies to offer stock option plans to their employees. 13 Currently Infosys offers three option plans that cover all Infosys employees:

1994 Employees Stock Offer Plan : Established in September 1994, the plan provides for theissuance of 6,000,000 w arrants to eligible employees.

1998 Stock Option Plan : Infosyss 1998 Stock Option Plan provides for the grant of non-statutory stock options and incentive stock options to employees. A total of 1,600,000 equityshares are currently reserved for issuance pursuant to the 1998 Plan. Unless terminated sooner,the 1998 Plan w ill terminate automatically in January 2008. All options under the 1998 Plan w ill

12 Please see Appendix C for description of one such scale.13 The Lightening Spark, Silicon Technology and Business Magazine, August 1998, 50-51.


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be exercisable for ADSs represented by ADRs.

1999 Stock Option Plan : The 1999 Plan provides for the issue of 6,600,000 equity shares toemployees. A compensation committee comprising a maximum of seven members administersthe 1999 Plan. Options w ill be issued to e mployees at an exercise price not less than the FairMarket Value. Fair Market Value means the closing price of Infosyss shares on the stockexchange w here there is the highest trading volume on a given date and if the shares are nottraded on that day, the closing price on the next trading day. Under the 1999 Plan, options mayalso be issued to employees at exercise prices that are less than Fair Market Value, only ifspecif ically approved by the members of Infosys in a general meeting. 14

In addition such statutory benefits as pension, medical and leave, Infosys also offers a loanprogram that e mployees find very attractive. Loans may be taken for pursuing a degree programsuch as an MBA, or to meet such personal needs as purchasing a car or a house. The interestrate varies (4% for a car purchase and 0-4% for house purchase). To date, almost all loanshave been repaid.

Infosys Overseas HRM

Overseas, the main thrust of human resource management at Infosys has come from its GlobalDelivery Model. The objective of this model is to support customers using virtual teams thatspan geographic locations. Recently, how ever, the focus has shifted from producing at low estcost and selling at maximum price to producing at locations that provide other benefits. Forexample, production demands arising from customer needs in Canada, London or the USA mayrequire that production be carried out in that specific country. Or, in another instance, the dotcom customers require latest technical expertise that may not be available in India, so thatdevelopers must be h ired from Silicon Valley in California.

Currently, the greatest need at Infosys is to hire people at all overseas locations, with about1000 hires in the next year in the US and 100 in Canada. Before the NASDAQ listing, Infosys

could not pay overseas hires, because Indian stock options are not fungible. How ever, since1999, Infosys has been recruiting actively in North America (including Canada). A drawback thatInfosys f aces in attracting candidates is that it has very low brand equity in the US. TheNASDAQ listing helped build the brand equity for Infosys in its ow n immediate market, but tomost people it is still re latively unknow n

The recruitment strategies being used at the campuses in the U.S. are similar to those used byall other companies. These include lobbying w ith campus career centers, giving talks to studentgroups, sending email campaigns, participating in career fairs, etc. How ever, certain aspects ofthe recruitment unique to Infosys offer it a recruiting advantage.

Prasad Tadimeti, the HR manager of Infosys , USA describes these recruiting practices:

We offer to provide extensive training, that few other companies will offer. The trainingincludes classroom training and mock projects. After a year our employees are as goodas the best Bachelor of Science computer scientist in the world. Subsequently,employees have the opportunity to sign up for any course as a part of their continuouslearning process. With an increasing hiring rate, Infosys plans to set up training facilitiesin US itsel f. The other aspect of recruitment that provides an advantage to Infosys is our

14 Infosys, Annual Report 2000, p.155


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willi ngness to hi re anyone with any reasonable math or science background (for example,economics, math, statistics, physics or chemistry. This is a departure from the hiringpractices of other firms that focus on the traditional computer science, computerengineering, and electrical engineering backgrounds. This approach to hiring is attractinga lot of attention. Given our proven track record of training non-computer backgroundpeople in India, we can do it again here, as long as there is some degree of analyticalbackground in the curriculum and the person has a good GPA.

Although learnability is an important criterion for hiring even in North America, the written testused in India to screen out applicants cannot be used in the USA. Instead, the screeningcriterion is a GPA of 3.0. This compares to a 70% cutoff used by Infosys for students fromIndian universities. The other characteristics considered important are interpersonal skills andcommunication ability, ab ility to w ork under pressure and to travel extensively. While hiring inNorth America, Infosys particularly emphasizes communication and interpersonal skills,because of their experience that candidates in North America possess these more thancandidates in India. In contrast employees hired in India are stronger in technical skills. A teamcomprising both skills is therefore very advantageous, and can potentially create learning fromeach others skills.

Subject know ledge is a distant third or fourth level criterion, based on an assumption that, if theperson has applied his/her mind to understand a concept in his/her ow n discipline, then it is notvery probably difficult to teach the person software programming.

Overseas, Infosys maintains the same compensation strategy as in India, namely, that they arenot industry leaders in pay. To attract candidates they emphasize the entire employmentpackage. Features of the package include career advancement opportunities, long term careers ,

job challenge, training opportunities, autonomy and more early career responsibility comparedto competitors.

Culture has so far not been a major barrier in Infosys ability to do business in India. Prasadprovides insight into one significant difference in the managerial approach.

The employment relationship in Indian businesses is implicit in that there is a mutualunderstanding that the manager will act in the best interest of the employee. Severalemployment related issues are left implicit - short-term needs may not be fulfilled with theexpectation that benefits may be forthcoming in the long run. The employment isexpected to last a long time period. Even if performance is sub-par, efforts are made tohelp the person by either transferring to another line of business or by providing remedialtraining. In the Western context, on the other hand, employment contracts are moreexplicit. Employees may want to know the performance criteria and the performancegoals against which they will be evaluated. They are less tolerant of ambiguity in therelationships and expectations have to be met instantly for trust to be generated. Thisdifference in expectations from the employment relationship is a challenge that Infosys isfacing and expects to continue facing a s it diversifies in to a global company with heavier

influx of different cultures.

Future Plans

Infosys plans to maintain its grow th rate in India and to expand overseas. It has already set up asoftware development center in Toronto and plans to set up more centers soon. It plans to hiresubstantial number of employees over the next few years in its overseas offices (e.g., 100employees in Toronto by mid 2001).


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As a part of its grow th strategy, Infosys is exploring possible candidates for acquisitions inUnited States. Infosys believes that pursuing selective acquisitions of IT services and softwareapplications f irms could expand its technical expertise, facilitate expansion into new verticalmarkets, and increase its client base.

As part of its business strategy Infosys is gearing to move up the value chain and provide end-to-end solutions to clients 15 .

Infosys w ill have to achieve these objectives in the face of many cha llenges 16 . These includeincreased global competition and labor cost, rapid growth, and increased employee diversity.As Infosys expands overseas, it w ill experience increased competition f rom firms w ith potentiallylow er labor costs and w ith a greater ability to respond to changing cl ient IT preferences.Historically Infosys labor costs have been low er than those of service providers in the UnitedStates and Europe. How ever, because wages in India are currently increasing at a faster ratethan in the United States, Infosys will experience shrinking profit margins in future. The rapidgrow th of Inofsys challenges its ability to transmit its corporate culture worldw ide as well as itsability to attract and retain skilled personnel. Overseas hires and acquisitions w ill result inInfosys experiencing increased employee diversity of cultures. Increased diversity w ill also

come from a diff erent set of skills required for expansion into consulting business.

Infosys human resource management practices w ill have to be assessed in light of thesechallenges. What adjustment will Infosys have to make to harness its human assets as theymove in to the future?

15 For details about Infosyss strategy please see Appendices D.16 For details of competition and risk factors please see Appendix E & F.


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Appendix A

Lev and Schwartz Human Capital Accounting Model

Infosys places an asset value on its human capital based on an accounting model put forth byBaruch Lev and Aba Schw artz. Lev and Schwartzs model is based on human capital theory,which recognizes human capital as one of several forms of holding w ealth for a businessenterprise, such as money, securities and physical capital. In this model of accounting, humancapital is treated like other forms of earning assets and thus is an important factor explainingand predicting the future economic grow th of the company.

Lev and Schw artzs accounting model is based on the measurement of human capital using theformula, V r = Tt=r I(t)/(1+r) t-r, w here Vr = the human capital value of a person r years old; I(t) =the persons annual earnings up to retirement; r = a discount rate specific to the person; T =retirement age. The formula uses an earnings prof ile, w hich is a graphic mathematicalrepresentation of the income stream generated by a person. Typically, earn ings increase w ithage. As the person reaches retirement age, productivity declines as a result of technologicalobsolescence and health deterioration. This model postulated in 1971 remains largely unusedas a result of criticism from Accounting professionals w ho argue that human capital cannot bepurchased or ow ned by the firm and theref ore would not be recognized as an asset. Additionally,critics of human capital theory state that labor force does not have a service potential;meaning employees are paid for rendering current services and no asset is formed by thesepayments. Regardless, this model is one of few that exist to value human capital, a source ofknow ledge for companies. While very basic, the Lev and Schwartz model provides a means bywhich to disclose human capital values to stakeholders. 17

The Lev & Schwartz model has been used by Infosys to compute the value of the humanresources as of March 31, 1999. The evaluation is based on the present value of the futureearnings of the employees and on the follow ing assumptions:

1. Employee compensation includes all direct and indirect benefits earned both in India andabroad.2. The incremental earnings are based on group/age have been considered.3. The future earnings have been discounted at 25.32% (previous year 26.95%), this rate

being the cost of capital for Infosys. Beta has been assumed at 1.48 based on average betafor software s tocks in the US.

17 Lev, Baruch and Aba Schwartz. On the Use of the Economic Concept of Human Capital in FinancialStatements. The Accounting Review 44(1971): 103-110.


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As of March 31 2000 1999No. ofEmployees

Value of humanresources (Rs. inlakhs)

No. ofEmployees

Value of humanresources (Rs. inlakhs 1lakh=1,000,00)

Production 4,292 196,513.84 2,854 76,984.25Support Technical*

450 8,165.20 389 7,168.97

Support Others 647 19,062.73 523 10,416.525,389 223,741.77 3,766 94,569.74

* Note: Support - technical includes trainees, employees in R&D activities and supportpersonnel allocated to production.

2000 1999Number of employees 5,389 3,766Value of human resources 223,741.77 94,569.74Total revenue 92,146.48 51,273.84Softw are revenue 88,232.37 50,889.12Employee cost 33,455.91 16,605.64Value-added 72,330.70 37,411.49Net prof its excluding extraordinary income 28,594.86 13,291.54Total revenue/Human resources value (ratio) 0.41 0.54Total software revenue/Human resourcesvalue (ratio)

0.39 0.54

Value-added/Human resources value (ratio) 0.32 0.40Value of human resources per employee 41.52 25.11Employee cost/Human resources value (%) 14.95% 17.56%return on human resources value (%) 12.78% 14.05%


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Value-added statement

Year ending March 31 2000 1999Total revenue 92,146.48 51,273.84Less:

Softw are and development expenses (other thanemployee costs and provision for post-sales client support) 12,916.31 9,326.92

Administration expenses (other than provisions) 6,854.47 4,535.43Subtotal 19,815.78 13,862.35

Total value-added 72,330.70 37,411.49

Applied to meetEmployee costs 33,455.91 16,605.64Provision for post-sales client support 209.63 219.19Provision for bad and doubtful debts and doubtful loansand advances

94.03 39.87

Provision for contingencies 333.00 666.00Provision for e-investing the company 350.00 -Provision for investment in subsidiary - 705.96Inco me tax 3,970.00 2,294.00Dividends (including Dividend tax) 3,303.65 1,331.83Retained in business 30,614.48 15,549.00

72,330.70 37,411.49The figures above are based on Indian GAAP financial statements.

_________________________ Source: 1999-2000 Annual Report


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Appendix B

Products

Infosyss services include software development, maintenance and re-engineering services, e-commerce and internet/intranet consulting as w ell as dedicated OSDCs f or certain clients. Ineach of its service offerings Infosys assumes full project management responsibility for eachproject it undertakes.

Dedicated Offshore Software Development CentersInfosys has pioneered the concept of dedicated Offshore Softw are Development Centers(OSDCs) in w hich a software development tea m that is dedicated to a single client usestechnology, tools, processes and methodologies unique to that client. Each dedicated OSDC islocated at a company facility in India and is staffed and managed by Infosys. Once the projectpriorities are established by the client, Infosys, in conjunction w ith the clients IT department,manages the execution of the project. By focusing on a single client over and extended timeframe, the dedicated OSDC team gains a deeper understanding of the clients business and

technology and can being to function as a virtual extension of the clients sof tw are team.

The Indian offshore development model became popular in the mid-1990s as a method ofdividing sof tw are project activities between a service providers offshore software developmentfacility and a clients on-site location. This model contains many features that are attractive to ITconsumers w ho are primarily located in the United States, Europe and Japan. These featuresinclude: (i) access to a large pool of highly skilled, English-speaking IT professionals, (ii)relatively low labor costs of IT professionals offshore, (iii) the ab ility to provide high-quality ITservices at internationally recognized standards, (iv) the capability to w ork on specific projectson a 24-hour basis by exploiting time zone diff erences betw een India and client sites, and (v)the ability to accelerate the delivery time of larger projects by parallel processing differentphases of a projects development. While some U.S. and European companies have

commenced their ow n operations in India, most large corporations have opted to form strategicalliances w ith local Indian IT companies to reduce the risks and start-up costs of operations inIndia.

Infosys has a long history of executing projects betw een its clients sites in North America,Europe and Asia and the companys offshore software development facilities in India. In atypical software development or re-engineering assignment, Infosys assigns a small team of tw oto five IT professionals to visit a clients site and determine the scope and requirements of theproject. Once the initial specifications of the engagement have been established, the projectmanagers return to India to supervise a much larger team of 10 to 50 IT professionals dedicatedto the development of the required softw are or system. A small team remains at the clients siteto track changes in scope and address new requirements as the project progresses. The clients

systems are then linked via satellite to Infosyss facilities enabling simultaneous processing inas many as four offshore software development facilities. Once the development stage of theassignment is completed and tested in India, a team returns to the clients site to install thenew ly developed softw are or system and ensure its functionality. At this phase of theengagement, Infosys will often enter into an ongoing agreement to provide the client w ithcomprehensive maintenance services from one of its offshore sof tware development facilities. Incontrast to development projects, a typical maintenance assignment requires a larger team of10 to 20 IT professionals to travel to the clients site to gain a thorough understanding of allaspects of the clients system. The majority of the maintenance team subsequently returns to


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the offshore software development facility, w here it assumes f ull responsibility f or day-to-daymaintenance of the clients system, w hile coordinating w ith a few maintenance prof essionalswho remain stationed at the clients site.

By pursuing this model, Infosys completes approximately 68% of its project work at its offshoresoftware development facilities in India. Its project management techniques, risk managementprocesses and quality control measures enable it to complete projects seamlessly acrossmultiple locations w ith a high level of client satisfaction. Cert ified under ISO 9001, TickIT and atLevel 5 of the Capability Maturity Model, Infosys r igorously adheres to highly evolved processes.These processes govern all aspects of the software product life cycle, from requirements totesting and maintenance.

Infosys has invested in redundant infrastructure w ith warm backup sites and redundanttelecommunication capabilities w ith alternate routings to provide its clients w ith high servicelevels. Additionally, Infosys utilizes tw o telecommunications carriers in India and has installed inits principal facilities multiple international satellite links connecting w ith netw ork hubs inFremont, California and in Quincy, Massachusetts. A different ocean cable connecting Europeand the United States serves each of these hubs. Moreover, Infosys has installed w ireless links

among its f acilit ies in Bangalore and intends to install w ireless links among its other Indianfacilities by the end of 2000.

Software DevelopmentInfosys provides turnkey software development w ith projects varying in size. These includedevelopment of new applications or development of new functions for existing applications.Each development project typically involves all aspects of the software development process,including definition, prototyping, design, pilots, programming, testing, installation andmaintenance. In the early stage of a development project, Infosys personnel often work at aclients site to help determine project definition and to estimate the scope and cost of the project.Infosys then performs design review , softw are programming, program testing, module testing,integration and volume testing primarily at its ow n facilities in India.

Softw are MaintenanceInfosys also provides maintenance services for large legacy software systems. Maintenanceservices include minor and major modifications and enhancements (including Year 2000 andEurocurrency conversion) and production support. Such systems are either mainframe-based orclient/server and are typically essential to a clients business. Infosyss IT professionals take anengineering approach to software maintenance, focusing on the long-term functionality andstability of the clients overall sys tem. Infosys performs most of the maintenance w ork at its ow nfacilities using satellite-based links to the clients system. In addition, Infosys maintains a smallteam at the clients f acility to coordinate support f unctions.

Software Re-Engineering

Infosyss re-engineering services assist clients in migrating to new technologies w hile extendingthe life cycle of existing systems that are rich in functionality. Projects include re-engineeringsof tware to migrate applications from mainframe to client/server architectures, to extend existingapplications to the Internet, to migrate from existing operating systems to UNIX or Window s NTor to update f rom a non-relational to a relational database technology. For companies w ithextensive proprietary software applications, implementing such technologies may requirerewriting and testing millions of lines of software code. Infosys has developed provenmethodologies that govern the planning, execution and testing of the softw are re-engineeringprocess.


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New ServicesInfosys is also focused in certain new service areas such as (i) Internet consulting, w hichincludes developing applications for Internet/intranet solutions and e-commerce solutions; (ii)Euro conversion, w hich assists clients in making their systems Euro compliant; and (iii)engineering services, which include software product design. For example, Infosys recentlydeveloped an integrated e-commerce online shopping site for one of its US clients, whichinclude four different systems and gave the company complete cycle responsibility for theproject.

____________________________ Source: Infosys 2000 Annual Report


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Appendix C

Performance Appraisal

Example of one Behaviorally Anchored Rating Scale

Timeliness (includes the ability to plan, schedule and track the assigned, in such a manner thatthe w ork flows as envisaged and the w ork is completed on time).

A Way aboveexpectations

Displays abilities to plan, schedule and track w orkindependently. Accomplishes w ork w ell in advanceresulting in being able to contribute tow ards otheractivities of the project.

B+ Exceeded expectations Displays ability to plan, schedule and track w ork.Accomplishes w ork w ithin allocated time.

B Met expectations Displays ability to plan, schedule and track w ork. Ableto meet project deadlines.

B- Met expectations w ithassistance

Needs assistance in planning tracking w ork. Unable tomeet project deadlines independently.

C Below expectations Not able to plan, schedule and track w ork for most ofthe assigned responsibilities. Severe impact on theproject deadlines.


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Appendix D

Infosys Strategy

Business Strategy

Pursue world-class operating mode l. The management believes that one of the most criticalcontributing factors to Infosyss success has been its commitment to pursue high-qualitystandards in all aspects of its business, including deliverables to the customers, humanresource management, investor relations, planning, finance, physical and technologicalinfrastructure, sales and marketing.

Invest heavily in human resource s. Infosys believes that its continued success will depend uponits ability to recruit, train, deploy and retain highly talented IT professionals. Even as the field ofsoftware engineering has been attracting the best and brightest Indian students, managementbelieves Infosys has become, for Indian engineering graduates, one of the most sought afteremployers.

Focus on managed software solution s. Since its inception, Infosys has dedicated itself toproviding managed software solutions, many of which are offered on a fixed-price, fixed-timeframe basis. By taking full project management responsibility in every project, Infosys providesits clients high-quality, cost-effective solutions w ith low risk.

Capitalize on a well-established offshore development mode l. As one of the pioneers of theoffshore software development model, Infosys has made significant investments in itsinfrastructure and has developed the advanced processes and expertise necessary to manageand successfully execute projects in multiple locations w ith seamless integration.

Maintain disciplined focus on business and client mi x. Infosys provides a wide range of softwareservices and maintains a disciplined focus on its business mix in an effort to avoid service or

client concentration. Beginning in fiscal 1996, Infosys aggressively sought to minimize its clientconcentration and to accept as clients only those that met strict guidelines for overall revenuepotential and profitability.

Growth Strategy

From fiscal 1994 to fiscal 2000, Infosys experienced compounded annual revenue and netincome grow th rates of 62% and 73%, respectively, and grew from approximately 480 ITprofessionals to approximately 4,625. The follow ing are the key elements of Infosyss growthstrategy:

Broaden service offering s. To meet all of its clients IT needs, Infosys strives to offer a

comprehensive range of services by continuously evaluating new and emerging technologies.

Increase business with existing client s. In fiscal 2000, Infosys provided software services formore than 190 clients in the United States, Europe, Australia, Asia and Japan.

Develop new client s. Infosys pursues several new client development strategies.

Increase revenue per IT professiona l. To increase its revenue per IT professional, Infosyscontinually focuses on building expertise in vertical markets, refining its software development


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tools and methodologies, and s toring and disseminating experiential know ledge in order toimprove efficiency and productivity.

Expand and diversify base of IT professional s. Management believes that a critical element ofInfosyss growth strategy is its ability to increase its base of IT profess ionals.

Pursue selective strategic acquisition s. Infosys believes that pursuing selective acquisitions ofIT services and software applications firms could potentially expand Infosyss technicalexpertise, facilitate expansion into new vertical markets and increase its client base.

____________________________ Source: Infosys Annual Report 2000


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Appendix F

Risk factors

Management of growth. Infosys has experienced significant growth in recent periods. Thecompanys revenues in fiscal 2000 grew 68.2% over f iscal 1999. As of March 31, 2000, Infosysemployed approximately 4,625 software professionals worldw ide with 17 softw are developmentfacilities in India, and one global development center in Canada, operationalized in fiscal 2000.In comparison Infosys employed 3,160 employees in 11 facilities as of March 31, 1999 and2,190 in nine facilities as of March 31, 1998. In fiscal 1999, Infosys approved major expansionsto its existing facilities and the building of new facilities. Infosyss inability to manage its growtheffectively could have a material adverse effect on the quality of the companys services andprojects, its ability to attract clients as well as skilled personnel, its business prospects, and itsresults of operations and f inancial condition.

Political and economic environmen t. During the past decade and particularly since 1991, theGovernment of India has pursued policies of economic liberalization, including significantrelaxation of restrictions on the private sector. The current Government of India, formed inOctober 1999, has announced policies and taken initiatives that support the continuation of theeconomic liberalization policies pursued by previous governments and has, in addition, set up aspecial IT task force to promote the IT industry. However, the speed of economic liberalizationcould change, and specific laws and policies affecting IT companies, foreign investment,currency exchange rates and other matters affecting investment in Infosyss securities couldchange as w ell.

Government of India incentives and regulatio n. Infosys benefits from a variety of incentivesgiven to softw are firms in India, such as relief from import duties on hardw are, a tax exemptionfor income derived from software exports, and tax holidays and infrastructure support forcompanies, such as Infosys, operating in specially designated Softw are Technology Parks.There can be no assurance that these incentives w ill continue in future.

Restrictions on US immigration. Infosyss professionals w ho work on-site at client facilities in theUnited States on temporary and extended assignments are typically required to obtain visas. Asof March 31, 2000, substantially all of Infosyss personnel in the United States w ere workingpursuant to H-1B visas (745 persons) or L-1 visas (218 persons). Although there is no limit tonew L-1 petitions, there is a limit to the number of new H-1B petitions that the United StatesImmigration and Naturalization Service may approve in any government fiscal year. In years inwhich this limit is reached, Infosys may be unable to obtain the H-1B visas necessary to bring itscritical Indian IT professionals to the United States on an extended basis. The US Governmentreached this limit in March 2000 for its fiscal year ended September 30, 2000 and in May 1999for the fiscal year ended September 30, 1999. While Infosys anticipated that such limit w ould be

reached prior to the end of the US governments fiscal year and made efforts to plan accordingly,there can be no assurance that Infosys will continue to be able to obtain a sufficient number ofH-1B visas. Changes in existing US immigration laws that make it more difficult for Infosys toobtain H-1B and L-1 visas could impair its ability to compete for and provide services to clientsand could have a material adverse effect on the its results of operations and financial condition.

Dependence on skilled personnel; risks of wage inflation. Infosyss ability to execute projectengagements and to obtain new c lients depends, in large part, on its ability to attract, train,motivate and retain highly skilled IT professionals, particularly project managers, software


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engineers and other senior technical personnel. An inability to hire and retain additional qualifiedpersonnel w ill impair Infosyss ability to bid for or obtain new projects and to continue to expandits business. Infosys believes that there is significant competition for IT professionals w ith theskills necessary to perform the services offered by the company. There can be no assurancethat Infosys w ill be able to assimilate and manage new IT professionals effectively. Any increasein the attrition rates experienced by Infosys, particularly that of experienced software engineersand project managers, w ould adversely affect Infosyss operational and f inancial results. Therecan be no assurance that Infosys will be successful in recruiting and retaining a sufficientnumber of replacement IT professionals with the requisite skills to replace those ITprofessionals w ho leave. Further, there can be no assurance that Infosys will be able to re-deploy and retrain its IT professionals to keep pace w ith continuing changes in IT, evolvingstandards and changing client preferences. Historically, Infosyss wage costs in India have beensignificantly low er than wage costs in the United States for comparably skilled IT professionals.How ever, at present w age costs in India are increasing at a rate faster than in the United States.In the long-term, w age increases may have an adverse effect on Infosyss prof it margins unlessit is able to continue increasing the eff iciency and productivity of its professionals.

Infrastructure and potential disruption in telecommunications. A significant element of Infosyss

business strategy is to continue to leverage its eight softw are development centers in India andto expand the number of such centers in India as w ell as outside India. Infosys believes that theuse of s trategically located netw ork of software development centers w ill help in many ways. Itwill provide it w ith cost advantages, the ability to attract highly skilled personnel in variousregions, the ability to service clients on a regional and global basis and the ability to provide 24-hour service to its clients. Pursuant to its service delivery model, Infosys must maintain activevoice and data communication betw een its main of fices in Bangalore, the offices of its clients,and its other software development facilities. Although Infosys maintains redundant softw aredevelopment facilities and satellite communications links, any significant loss of the companysability to transmit voice and data through satellite and telephone co mmunications w ould have amaterial adverse effect on its results of operations and f inancial condition.

Risks associated with possible acquisitions . Infosys intends to evaluate potential acquisitions onan ongoing basis. As of the date, however, Infosys has no understanding, commitment oragreement w ith respect to any material future acquisition. Since Infosys has not made anyacquisitions in the past, there can be no assurance that the company w ill be able to identifysuitable acquisition candidates available for sale at reasonable prices, consummate anyacquisition, or successfully integrate any acquired business into its operations. Further,acquisitions may involve a number of special risks. These include diversion of managementsattention, failure to retain key acquired personnel and clients, unanticipated events orcircumstances, legal liabilities and amortization of acquired intangible assets, some or all ofwhich could have a material adverse eff ect on the companys results of operations and financialcondition. Under Indian law , except in certain limited circumstances, Infosys may not make anyacquisition of, or investment in, a non-Indian company w ithout RBI and, in most cases,

Government of India approval. Even if Infosys does encounter an attractive acquisitioncandidate, there can be no assurance that RBI and, if required, Government of India approvalcan be obtained.

_____________________________ Source: Infosys 2000 Annual Report

2518d1158570272 Human Asset Management Infosys Management Human Assets Infosys Mp

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