Infosys Presentation

Heaven KimShruti Yadav

Eric ChinAdam SchindlaFlorent Heidet

October 31st, ‘07

International Trade & Competition in High-Tech

http://www.infosys.com/default.asp

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 – Business Performance

CAGR 43%

CAGR 45%/30%

33% 33% 32% 32%EBITDA

Margin %

Infosys Technologies – Business Performance

Revenue 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 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)



Gross Margin

Net Income Margin

Infosys 42% 26%

Wipro 33% 19%

TCS 46% 22%

USD (Mil)

Performance Comparison



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



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

Infosys Presentation

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