Case 15.2 Infosys: The rise of a leading IT giant from India[i]
Founded in 1981 with seed capital amounting to only US $250, Infosys Limited (hereafter Infosys) turned into an international consulting and technology services company with headquarters in Bangalore, India. Infosys was the first Indian information technology (IT) company to be listed on the NASDAQ (National Association of Securities Dealers Automated Quotations, established in 1971). In 2022, Infosys’ workforce consisted of nearly 310,000 employees, operating in 54 countries, and serving more than 1,700 clients across the globe.[ii] Over 42 years, Infosys has transformed itself from an outsourcing agent to a global leader in digital services, achieving sales of US $17.94 billion.[iii] Infosys leverages several strategic alliances with leading organizations to deliver innovative solutions tailored to client’s needs and prides itself on trying to achieve value maximization for its clients. This attitude pays off: 97.5 percent of the firm’s sales result from long-term strategic client relationships.[iv]
Company background
Two years after N. R. Narayana Murthy and six engineers established Infosys in Pune, India, in 1981, the company decided to relocate its offices to Bangalore, the ‘Silicon Valley’ of India. This naming reflects the intended similarity with Silicon Valley, based in California, United States, the world’s leading region for high-tech innovation and development, especially in the IT software sphere. Today Bangalore represents the major hub for India’s IT industry.
Infosys’ strategic relocation to Bangalore turned out to be the right choice. After strengthening its local business, Infosys opened its first international office in Boston, United States, in 1987.
Six years later, in 1993, Infosys was listed on the Bombay Stock Exchange in India. Despite the fact that Infosys’ initial public offering (IPO) was undersubscribed, the stock leaped up 60 per cent on the first trading day. This injection of fresh capital helped accelerating Infosys’ international expansion. At the same time, Infosys created an incentive programme for its workforce, namely the Employee Stock Options programme. In 1994, Infosys opened its first international development centre in Fremont, United States, that was followed by its first European office in the United Kingdom and two global development centres in Toronto, Canada, and Mangalore, India. In 1995, as one of the first companies worldwide, Infosys initiated electronic business, the so-called e-business, and started to apply information and communication technologies (ICT) in support of all operational activities. This approach has become the new standard in today’s business world, as it supports routinized business processes and seeks efficiency gains along the entire value chain. The development and implementation of a global delivery model across all subsidiaries worldwide enabled Infosys “to produce where it is most cost-effective and sell services where it is most profitable”.[v]
In 1998, Infosys started to offer its Enterprise Solutions applications. This software supports organizations in information management activities and business transactions, and covers subject areas ranging from enterprise resource planning to customer relationship management, and business intelligence. The Enterprise Solutions practice achieved sustained success and in 1999, Infosys generated sales of US $100 million and was introduced on the American stock exchange NASDAQ.
Building upon its extensive internationalization programme into countries such as Germany, Sweden, Belgium, Australia, France and Hong Kong and further expansion into countries where it already had some presence, such as the United States and Canada, Infosys doubled its revenues to US $200 million within a 12-month time period. Revenues reached US $1 billion only four years later. Thanks to the sustained growth of its operations, development centres and foreign subsidiaries, Infosys has created a strong international presence. In 2005, Infosys succeeded in placing an international equity offering of US $1 billion from India. At the time of Infosys’ 25th anniversary in 2006, the firm employed more than 50,000 people and had more than US $2 billion in revenues. During the same year, Infosys’ founder N. R. Murthy retired. However, Infosys’ continuous growth was not affected by this change of the guard. With the opening of subsidiaries in Latin America, the appointment of Kris Gopalakrishnan as the new CEO and the addition of 20,000 new employees, Infosys reached more than US $3 billion turnover in 2007. In the following years, Infosys grew at similar speed. In 2009, the Indian firm established its first Latin American development centre in Belo Horizonte, Brazil, and a second in Monterrey, Mexico. By 2010, revenues reached the US $5 billion mark. Since then, an extra US $1 billion in sales has been added on a yearly basis, leading to a sales volume close to US $18 billion in 2022.
This impressive international development of an emerging economy MNE shows growth rates that are out of reach for many MNEs from developed countries. Infosys has become one of the fastest-growing IT companies in the world and the leading provider in business consulting and customized IT solutions in industries ranging from airlines to financial services and life sciences.
Alliances
Infosys aims to “accelerate innovation, increase productivity, reduce costs, and optimize asset utilization”, but does not rely solely on its own strengths; it has joined forces with leading international technology partners.[vi] By forming a strong network, Infosys and its partners generate business value, and reduce implementation risks and time-to-market.[vii]
Infosys distinguishes among three different levels of partnership agreements. The Indian IT firm shares and combines its own Intellectual Property with the technology and services of its ‘global alliance partners’, in order to create and promote Infosys’ business solutions for a wide spectrum of industries around the world. ‘Global alliance partners’ represent the first level of alliances, and include Microsoft for global systems integration, Oracle for customized specialization services, and SAP for systems integration and implementation.
‘Alliance partners’ represent the second level of partnerships. Here, the focus is more on one particular industry or geographic region. In contrast to ‘global alliance partners’, the ‘alliance partners’ solely provide training sessions and technical support. Examples of ‘alliance partners’ are Siemens for Product Lifecycle Management, IBM for tailored software solutions, and HewlettPackard (HP) for global hardware systems integration.
‘Teaming partners’ represent the third level of partnerships, and these involve independent service providers in hardware, software, consulting, sales or distribution. Teaming partners collaborate with Infosys and provide customized solutions to their clients’ needs. Teaming partners are mostly specialists, e.g., ATG, an expert in e-commerce; EMC, a global information infrastructure technologies developer and provider; and Netezza, a leader in data warehouse appliances.
Building tomorrow’s enterprises
With rapid advances in software and computing technologies, Infosys helps its clients reinvent their core offerings, processes, and systems, and empowers them to be ‘digitally enabled.’ Infosys aims not just to find solutions for its clients but to transform them into “Living Enterprises” that are supposedly intuitive, proactive, and responsive.
To effectively transform its clients from being process and product-based organizations t customer centric ones, Infosys has adopted a four-pronged approach to achieve this goal:
- Automating processes to drive efficiencies.
- Optimizing footprint through partnerships.
- Analyzing digitized data for insights.
- Enterprise-wide digitization for expedite offerings.[viii]
Infosys aims to help its client build capabilities and drive outcomes across five core areas – Experience, Insight, Innovate, Accelerate, and Assure. Furthermore, it has 5 operating models that stimulate clients to evolve and navigate to their next innovation or business model. This includes Design studios to accelerate innovation, Technology and Innovation Hubs to provide on-demand in-person collaboration required for enterprise-wide digital outcomes, Agile and DevOps services to help clients strengthen customer centricity, and digital platforms like Infosys Lex to learn from data collected and encode intelligence.[ix]
Sustainability
In addition to focusing on research, innovation and knowledge co-creation, Infosys engages in a wide spectrum of sustainability-related activities. The firm has implemented what it considered to be a ‘sustainable approach to business’.[x] Senior management is exploring the linkages between the firm’s contributions to its stakeholders (including employees, suppliers, investors, business partners, and society at large) and corporate growth. Infosys’ stated ambition is to contribute to an equitable and sustainable digital future by putting ESG at the heart of its business operations.[xi]
In 2011, the firm committed to carbon neutrality across all ‘3 scopes’ of emissions. Scope 1 refers to direct emissions from sources owned or controlled by the firm; scope 2 refers to indirect emissions, e.g., from purchased energy that was associated with emissions when it was itself generated; and scope 3 includes all other emissions associated with the firm’s activities, especially those beyond the firm’s control but related to the use of its products and services. It achieved its carbon-neutral status in 2020 and has continued to remain carbon-neutral for three years in a row. The firm incorporates climate change considerations in every aspect of its operations. For example, it has used grass-roots social development projects to create a unique emission offset program, which has benefited 184,000 rural families. It has also built 35 lakes across its campuses. These lakes hold 330 million liters of rainwater storage capacity, which reduces its dependency on other sources. Furthermore, some of the firm’s solutions boast green innovation. Its Energy-as-a-Service platform provides end-to-end clean energy offerings. And its Sustainable Energy Digital Platform (SEDP) accelerates digitization to enable greater efficiency. Finally, Infosys has engaged in initiatives like Scone, a personal footprint calculator, that encourage individuals to adopt new sustainability-oriented habits.[xii]
The company also nurtures a social vision of doing good through technology, which is supposed to affect the people it hires, it works with, and the people who surround it. The Infosys Tech for good program includes multiple initiatives in the healthcare and education sector. Apthamitra is one such initiative that helps maximize resource utilization in hospitals and medical facilities and has positively affected more than 1.1 million lives. In 2021, this tool was accorded the NASSCOM (premier association of the Indian tech industry) Social Consciousness Award under the Disaster Management Category. One of the company’s goals is to achieve digital skilling at a large scale. Infosys Springboard supports this vision, providing free and accessible programs to 1.8 million learners from Class 6 to life-long learners.[xiii]
Infosys has been recognized as ‘The Most Ethical Company’ in 2021 and 2022. Furthermore, Infosys is a signatory to the United Nations Global Compact (UNGC) and leverages UNGC principles covering human rights, labor, environment, and anti-corruption to build responsible supply chains. Infosys is also positioned as a leader in the United States in Cybersecurity – Solutions and Services. The company’s proven track record as to its sustainability journey makes it one of the only Indian companies to become a global leader in climate action and corporate transparency. In 2019, the UN awarded the firm its prestigious UN Global Climate Action Award.[xiv]
Human resources management
Due to Infosys’ pursuit of rapid growth and the limited number of Indian graduates in computer science in the 1980s, Infosys had to recruit graduates from other programs. These non-computer experts enabled Infosys to widen its talent pool and hence, created diversity among its employees. However, as a consequence of Infosys’ rapid expansion, human resources (HR) management turned out to be a great challenge and the hiring of new employees could barely keep up with the company’s need for highly skilled people. Therefore, as of the early 1990s, Infosys had to improve its personnel recruitment and training approach by strengthening its HR department and implementing an education and research department. Thanks to the Internet and subsequent systems of online recruitment and Intranet development, Infosys has started to link HR practices to general corporate goals.
In 2007, Infosys received 1.3 million applications for 17,000 job positions in India alone. The screening of applicants requires a high degree of automation. Approximately 10 percent of all applicants are invited to take an online test that can be administered simultaneously to 10,000 candidates across several cities in India. Ultimately, less than one per cent of the applicants is invited to join Infosys. The Indian IT firm is one of the most attractive employers in India, but until recently it had remained relatively unknown to international graduates. In order to respond to the increasing global demand for innovative and customized IT solutions, Infosys increased its focus on diversity and launched an international internship program, namely InStep, as well as a corporate program, Campus Connect, associating the firm with universities in India and abroad. The efforts in international recruitment were necessary in order to catch up with Infosys’ international expansion trajectory. For example, in 2007 a total of 98 percent of Infosys revenues were earned overseas, but the firm employed only 3 percent non-Indian employees. Infosys therefore also introduced the Global Talent Program, a recruitment initiative that focuses on international young graduates. In 2006, the first year of the program, a class of 126 new recruits from US universities was sent to India.[xv]
International new recruits as well as Indian ones, with a non-computer science-related background, follow a 16-week training program at Infosys’ education center in Mysore, India, in order to acquire technical knowledge and improve social competencies. Fortune Magazine has dubbed this facility the “Taj Mahal of training centers” as it can accommodate up to 14,000 employees per day for professional education and training purposes.[xvi] At the end of the training period, an online system matches the new recruits’ individual job preferences with the open positions. In the first stage, new employees can exercise selectivity in terms of desired job characteristics, but not regarding the location of their work. However, they can change their initial job position through the usage of a ‘swap portal’, which is also open to more senior employees wishing to apply for internal job openings. To keep track of its employees worldwide, Infosys has set up a personal master data management system called Career Central that saves information about individual skills, education, and certifications.
In 2017, Infosys identified the need for more precise talent allocation to client projects. Minor misalignments resulted in employee churn, and client dissatisfaction and ultimately affected the firm’s bottom line. Previously, talent allocation was done manually and required significant time and resources – more than a million hours of effort a year. To alleviate this problem, Infosys created a Talent Task Force (TTF) – an expert panel that would streamline personnel recommendations, address career aspirations and determine areas where new recruits were needed. The TTF was supported by a new talent management solution that would allow managers to feed their demand requirements into the system and would instantly get the top 10 qualified recommended individuals.[xvii] This system was carefully designed to define talent demand and supply, measure success and enable continuous improvement. The new development fostered internal mobility and 80% of Infosys’ digital project requirements were staffed from within.[xviii]
The Indian IT company is acutely aware of the importance of employee satisfaction, and hence organizes several monthly activities to integrate new recruits into the company and in the (typically) new location where they will reside. Further, Infosys started programs such as HALE (Health Assessment and Lifestyle Enrichment Plan) and HEAR (Hearing Employees and Resolving), two employee-focused initiatives that provide services for the general well-being of each individual. Infosys enjoys high corporate growth rates, but at the same time faces a constant demand for skilled employees. The reason is the company’s high turnover rate, as the average tenure of an Infosys employee is only about two years.[xix] To reduce turnover and build a bond between employees and the company, Infosys is attempting to engage its workers in loyalty programs and to promote a strong corporate culture. The acronym C-LIFE (Customer delight, Leadership by example, Integrity and transparency, Fairness, pursuit of Excellence) represents the values of Infosys that are communicated in form of case studies, discussions, ‘awards for excellence’ events, etc.
Infosys’ new recruits are mostly young, high potentials from India with great ambition to climb the ladder of professional success. Unfortunately, they sometimes overestimate their own potential and may be overly ambitious in terms of the time needed to rise in the Infosys hierarchy. To avoid possible conflicts and later disappointments, Infosys has initiated Career Clarity, a matching program between the new recruits’ expectations on the one hand, and the corporate opportunities on the other.
Infosys introduced an Employees Stock Offer Plan in 1994 as an incentive mechanism meant to increase employee retention and satisfaction. However, in 2003, the Indian IT services provider changed its compensation scheme to a more variable system that links pay with the performance of (a) the individual employee; (b) the business unit he/she works in; (c) the corporation as a whole. Along with a 360-degree benchmarking approach whereby employees assess each other’s performance, Infosys has created a compensation system that relies on both performance measurement and employee engagement.
India’s location advantages
As noted above, Infosys attracts thousands of young graduates each year and has access to a huge talent pool of ‘high potentials’ because India has a youthful population and an increasing number of graduates. The country has the world’s second-largest labour force, with almost 500 million workers, of whom 34 percent are employed in the services sector.[xx] Thus, India offers great advantages as a location, vis-à-vis Western countries. Compared to other emerging economies, Indian labour is not only inexpensive, but the workforce consists of many, well educated university graduates with good English language skills. This makes India a favourite location among MNEs, to offshore and sometimes also outsource, their business operations. In addition, India has become the leading provider in software development and software enabled services. India’s successful growth has been driven by the government’s efforts towards economic liberalization in the 1990s. With the implementation of economic reforms and thus the opening of the Indian market, foreign direct investment has increased from US $165 million in 1991–92 to US $83.57 billion in 2021–22.[xxi]
However, local companies such as Infosys benefit at least as much as foreign investors from India’s location advantages. For example, Infosys sends its Indian employees to clients abroad in order to work on site. Opponents of India’s cheap labour claim this amounts to employee exploitation and the violation of local labour laws. Whether employee exploitation and disrespect for local labour laws actually occur is a highly controversial issue; a trial about visa fraud at Infosys in 2012, called this business practice once more into question: “According to [the] complaint, the company has been illegally using B1 visas in lieu of H1B visas. Unlike H1B visas, which allow employees to work in the US, B1 visas are only meant for visiting conferences or business negotiations.”[xxii] Infosys has since worked on hiring locally. In the year 2021-22, Infosys boasted 92% local hires and has created more than 25,000 jobs in the United States since 2017.[xxiii]
India was ranked 62nd out of 183 economies in the annual study ‘Doing Business’ published by the World Bank in 2019.[xxiv] This study measures the ease of doing business by evaluating key indicators covering ten subject areas (e.g., starting a business, paying taxes and enforcing contracts). The study also benchmarks the results against the other 182 economies. In terms of the Global Competitiveness Index of the World Economic Forum, India was ranked 37 out of 142 countries in 2022.[xxv] The GCI comprises three sub-indices, namely ‘basic requirements’, ‘efficiency enhancers’, and ‘innovation and sophistication factors’, that measure key drivers of competitiveness and allow a comparison between emerging economies such as India and developed countries such as the United States. Together with other emerging economies such as China and Brazil, it is closing the gap with the United States, thereby becoming even more attractive to foreign investors.
The future
After years of extraordinary growth, Indian IT services providers are bound to face more complex market conditions in the future. Rivalry exists among the six major Indian IT companies that are best described by the acronym SWITCH, referring to Satyam (acquired in 2009 by the Mahindra group), Wipro, Infosys, Tata Consultancy Services, Cognizant, and HCL. However, there is also competition from established service providers in the United States (e.g., Accenture) and smaller companies from other emerging economies. Infosys, therefore, has to continue to invest heavily in human capital, in order to make a difference through shared value creation and green innovation.
QUESTIONS
- What are Infosys’ home country location and firm-specific advantages?
- How does Infosys exploit these advantages in favour of its international expansion?
- Select one of Infosys’ international alliance partners and analyse its role as a partner for Infosys. You can use materials available on the Web.
- What is the administrative heritage of Infosys? What roles do (Indian and international) employees play in Infosys’ organization?
- Studies such as the ‘Doing Business’ ranking of the World Bank give important signals to foreign direct investors. Please analyse one additional emerging economy and compare its results with the scores of developed countries. What are the location advantages of that emerging economy? Based on the results of ‘Doing Business’, is it recommendable to exploit these location advantages as a developed economy MNE?
Notes
[i] This case was co-authored by Ms. Jenny Hillemann and Professor Alain Verbeke, Kalpita Reddiar.
[ii] Infosys, Annual report 2022.
[iii] Infosys company information, 2023.
[iv] Infosys, ESG Report 2022.
[v] Infosys company information, 2008.
[vi] Infosys Homepage, Industry, retrieved on 3 April 2012: www.infosys.com/industries/ pages/index.aspx
[vii] Infosys Homepage, Alliances, retrieved 3 April 2012: www.infosys.com/about/alliances/ Pages/index.aspx
[viii] ‘Creating a Value-Based Digital Transformation Journey’, Infosys Consulting Insights (2022): https://www.infosysconsultinginsights.com/wp-content/uploads/2022/03/value-based-digital-transformation_infosys-consulting.pdf
[ix] Infosys company information, 2023.
[x] Infosys Homepage, Sustainability, retrieved on 3 April 2012: http://www.infosys.com/ sustainability/Pages/index.aspx
[xi] Infosys, ESG Report 2022.
[xii] Infosys, ESG Report 2022.
[xiii] Infosys, ESG Report 2022.
[xiv] Infosys, ESG Report 2022.
[xv] Ram Subramanian, ‘Infosys Technologies Limited: The Global Talent Program’, Asian Case Research Journal 12, (2008), 249–73.
[xvi] Infosys company Information, 2011.
[xvii] ‘Tapping into Digital Brain: AI-Powered Talent Management at Infosys’, Case 5-122-003 (KE1222) (14th July 2022)
[xviii] Infosys, Talent Pulse Report (2021)
[xix] Julian Birkinshaw, ‘Infosys: Computing the power of people’, Business Strategy Review (1 December 2008).
[xx] CIA, The World Factbook India, retrieved on 4 April 2012: www.cia.gov/library/publica tions/the-world-factbook/geos/in.html
[xxi] ‘India gets the highest annual FDI inflow of USD 83.57 billion in FY21-22.’ (n.d.). https://pib.gov.in/PressReleasePage.aspx?PRID=1826946
[xxii] ‘Infosys – Jack Palmer visa case trial to start from August 20’, The Economic Times (3 December 2011).
[xxiii] Infosys, Annual report 2022.
[xxiv] World Bank 2019.
[xxv] World Economic Forum, The Global Competitiveness Report 2021–2022.