Is Infosys on the right track?

by Prashant Salwan. The author is a professor at IIM, Indore

When Infosys completed its 25th year, one of the major announcements it made was to invest $125 million in training facilities for 2006-07. Investment in employee development is not new, but it is vital when we talk of industry profitability and competitive strategy.

Infosys has shown good growth in turnover, and its revenue per customer is higher than that of Tata Consultancy Services, but in terms of revenue per employee, it is still below TCS and Wipro, and far behind international giants like IBM and Accenture.

In overall terms, TCS has the lowest ticket rates and is best at getting big accounts, Infosys has the high net margin and Wipro is strong in aggressive inorganic growth. The market regards Infosys as the best, as can be seen from its market capitalisation-to-revenue ratio in 2005-06 - this is 10.21 for Infosys, 8.49 for Wipro, 7.22 for TCS, 1.42 for IBM, 1.47 for Accenture and 0.7 for EDS.

If Infosys is to continue doing well as India expands its presence in the global offshoring market (it is around 53 per cent today) and achieves the McKinsey target of $75 billion by 2010, it will have to make some changes in its strategy.

Infosys' maximum growth in 2005-06 is in north America (64.8 per cent), but consolidated global figures show this region accounts for a lower 51 per cent of world growth in IT.

In terms of service lines, "development and maintenance" accounts for 54 per cent of Infosys' growth in 2005-06 whereas "business process management", for instance, grew by just 4 per cent and "engineering services" by just 1.8 per cent.

Apart from the threat low-cost destinations like China and Vietnam pose, multinationals like IBM and Accenture are also ramping up their Indian operations and pose a stiff challenge.

Emerging automation trends like intelligent technology infrastructure that manages itself, and other such trends can render the people-heavy model of Indian companies irrelevant and obsolete.

Also, the Indian education system churns out armies of doers and order-takers and not thinkers. Hence, there is a need to upgrade the skills of employees while moving up the value chain.

Infosys needs to train its employees so that it can move up the value chain and become a business transformation specialist like Accenture. One option is to go in for M&As in domain-specific consulting.

Though banking, financial services and insurance accounts for 36 per cent of Infosys' growth in 2005-06, the potential is a lot more since this accounts for almost 60 per cent of technology spending.

Original story