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Infosys Maintains Focus on Infosys 3.0

NelsonHall recently attended an Infosys analyst event in Europe, where it was briefed by Infosys on progress in its ‘Infosys 3.0’ strategy.

The company is looking to build its Consulting & Systems Integration (C&SI) and Product & Platform Solutions (PPS) businesses while further strengthening its core Business and IT Services (BITS) businesses; the intent remains to derive, by around FY 2017-18, a third of revenues from each of these areas of its business.

Business and IT Services

An ongoing key priority of Infosys is reigniting growth (by Indian standards) and increase profitability in its BITS service lines. The company has acknowledged several times that in application outsourcing it was facing fierce price pressure resulting from competition by several industry peers.

Infosys is using its Strategic Global Sourcing (SGS) unit to target contracts with TCV over $50m, looking at recompletes and new scope opportunities in application outsourcing and IT infrastructure management, also in software testing. In total SGS has around. The company claims it secure 12 large deal wins in Europe over the last 12 months. NelsonHall identified examples of large wins include RWE (application management) and BMW (IT infrastructure services) in Germany and Harley-Davidson (multi-scope ITO) in the U.S.

Initiatives to further strengthen its efficiency and increase its win level include:

  • Increasing its productivity through
    - Investment in automation, either through partners e.g. IPSoft, or through proprietary accelerations. Examples include the  creation of its Infosys Application Management Platform (see NelsonHall’s reporting on Infosys’ application outsourcing capabilities)
    - Creating methodologies and assets e.g. methodologies and processes around agile development and testing
  • New pricing models, away from T&M to technical SLA-based and potentially more business outcome-based: aiming to sell bundled application management, IT infrastructure and BPO services

With its BITS service lines, Infosys is targeting contracts that include a level of transformation along with core run services. It wants to stay away from pure commodity contracts unless they are strategic.

Consulting & Systems Integration

In C&SI, Infosys has already reached its 33% overall revenue target. Some of the achievement has come from the acquisition of Switzerland-based Lodestone Consulting. Click here for more information.

With the acquisition, Infosys has transferred its other consulting capabilities in Europe, mostly in the U.K., to the newly-named Infosys Lodestone. The unit has a headcount of ~1,000 and is a standalone organization within Consulting and Systems Integration. In the U.S., Infosys had formerly announced it was bringing back its consulting capabilities in North America into its vertical units, representing a NelsonHall estimated 4,000 consultants.

Infosys Lodestone reports that since the acquisition, attrition has reduced and Infosys is helping the company recruiting and keeping talent. Go-to-market together with the rest of Infosys is intensifying and Infosys Lodestone reports it is now able to address design and build contracts involving India offshore delivery.

Overall within C&SI, Infosys has a headcount of ~31K worldwide. SAP revenues amount to ~$1bn (and a headcount of ~10,000), of which 30% from consulting (as opposed to systems integration).

Product & Platform Solutions

PPS is perhaps Infosys’ boldest ambition: to increase revenues, currently representing ~5.7% of overall company revenues to ~33%. Infosys’ most mature IP is its Finacle core banking suite, which is currently not seeing growth. The major investment is in developing its Edge family of software products. The platform strategy is still  very much in incubation phase: in FY 2013 it was not profitable.

Infosys’ strategy is to create horizontal products and then contextualize them by vertical. The company is also using parts of Finacle to create horizontal IP. Examples include taking out the digital wallet functionality of Finacle in creating its WalletEdge product.

Infosys is proceeding to a systematic scan of market needs, then identifying market potential and competition level. Once decided on a given opportunity, the company aims to identify a potential client, with which it will co-create an Edge product. It has three methods to do so: 1. Co-create with the client, offering the client a competitive price 2. Create the product with the client and share profits with the initial client from license sales to other clients 3. Co-create and go-to-market together. Examples of the latter case include AssistEdge.

The company claims 80 clients and already $725m in bookings around its PPS assets.

Opinion

Infosys has a dual objective of further strengthening its price competiveness together with providing transformation services.

With C&SI , the company now has a presence in three major geographies U.S., U.K. and Germany where it believes it can now compete with the likes of IBM, Accenture and Capgemini.

Infosys is also being more open about investments to build its PPS portfolio, with around 1,000 engineers now deployed on software development. The 33% objective is bold, but at this stage Infosys remains on the early stages of a journey, with little progress yet to highlight to investors. At this point, Infosys’ share of revenue from proprietary applications is not significantly from competitors, whether onshore or offshore. It is clear that achieving this goal will involve inorganic growth. Lodestone was the first ever substantial acquisition by Infosys: we expect to see more acquisition activity within the next year.

Infosys efforts to complement its labor-arbitrage advantage by investing further automating delivery and building tools and accelerators to increasing efficiency is a path currently being trod by other major service providers. Infosys (as do some other Indian oriented service providers) tends to take a client-dedicated delivery approach, whereas some vendors with an onshore background tend to be more aggressive on sharing tools across clients, also to sharing some level of delivery across clients, usually around specific roles.

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