Infosys - Success Story

Table of Contents

OBJECTIVE 3
BACKGROUND 3
STRUCTURE 3
MANAGING DECENTRALIZATION IN LARGE COMPANY 3
WORK CULTURE 4
MANAGING PEOPLE AND CUSTOMER 4
CREATING FLEXIBILITY 5
DISTRIBUTION OF DECISION RIGHTS 5
LEADERSHIP BY EXAMPLE 5
TRANSPARENCY 5
TECHNOLOGY 6
RECRUITING AND ENHANCING INTELLECTUAL CAPITAL 6
LEARNABILITY 6
KNOWLEDGE MANAGEMENT 7
GOVERNING INTELLECTUAL CAPITAL 7
DESIGN 7
FIT TO IT ENVIRONMENT 7
SCALABILITY 7
STRATEGY MODELS OF AND FOR 8
A BALANCED APPROACH 8
STRATEGY IMPLEMENTATION PROCESS 9
SUMMARY 9
APPENDIX 1: ORGANIZATION STRUCTURE………………………………10
REFERENCES 11

Objective

This report has been written with an objective to study, analyze and assimilate the reasons for the success of Infosys as an organization. The reasons for its success will be identified as located in its structure, technology, culture, design, fit with the environment etc. Overall this study aims at projecting the strengths of Infosys in structural and functional arenas which have contributed in building up Infosys as a successful organization.

The report starts with general introduction of Infosys and its background. We then present the holistic account of various initiatives taken by Infosys in various fields and how these initiatives helped Infosys in taking the lead with respect to other IT companies. In concluding part we try to generalize the success formula of Infosys with respect to other IT companies in India.

Background

Powered by Intellect, Driven by values - is the trademark signature of the company which has created history in Indian IT market. Infosys (NASDAQ: INFY), an Indian software services company with its headquarter in Bangalore in sprawling campus of around 35 acres is dream success story. Infosys Technologies Ltd. was co-founded in 1981 by 7 professionals with a collective amount of $250 including N. R. Narayana Murthy (now non-executive Chairman) and the current CEO Nandan M. Nilekani. By 2000 Infosys had become third largest software company in India with a market capitalization of over $10 billion and revenues in excess of $200 million and net income of more than $60 million. By August 2006 when Infosys completed its 25 years, it was second largest software company in terms of market capitalization, almost neck to neck with TCS the biggest software services company of India. Growing consistently at the rate of around 70% Infosys has become darling of Indian stock market and the first Indian company to be listed on the NASDAQ.

Infosys has currently over 70,000 people and is still growing. The company operates in 8 different countries, with primary offices in 50 major cities worldwide. One could easily dismiss Infosys’s story as that of just Information Technology Services Company in a developing country that was fortunate enough to exploit the Y2K opportunity at the turn of the century. However, Infosys’s story suggests that there is much more than serendipity at play here. It is a story of an enterprise that has systematically built up a post-modern, scalable enterprise for harnessing intellectual capital in the new information economy. Intellectual capital is evident everywhere at Infosys. It is embedded in the continually evolving software development practices that have earned it the highest level of certification – "Level 5" of the Capability Maturity Model (CMM) – from the Software Engineering Institute (SEI), Carnegie Mellon University, a distinction conferred on only a handful of companies around the world. Intellectual capital is also apparent in the impressive array of frameworks that guide Infosys’s business operations, including the widely mimicked "Global Delivery Model" that the company pioneered and perfected. And, it surely pervades the sprawling campus in Bangalore, India, that acts as a crucible for the creation and deployment of knowledge.

Structure

Managing decentralization in large company

Often companies have been successful when they were small in size but as their size grows it become increasing difficult to manage. Decentralization is one such solution but effective decentralization demands capable managers at various tiers, de-risking and full proof autonomy. Let’s look how Infosys managed decentralization of such a huge company.

Infosys had taken a leaf out of GE, a company that inspires Infosys a lot. GE did it by creating small organizations within it. Similarly Infosys also created smaller groups within the organization to take advantage of decentralization and the protection of the larger brand name. But by doing it right Infosys now has flexibility as well as scale. For example; the company has identified three tiers of leaders who will articulate the founder 's vision and values to their teams and groups. The board members, including Murthy, are personally grooming the 30-odd Tier-1 leaders, a few of whom have also been sent to Ivy League schools. Infosys is hence in position to scale its operation since they have competent middle managers.

The second step was to create integrated business units (IBUs). More than 14 IBUs have been created in the last seven years in industries such as Retail, Automotives, Banking, Communication, Manufacturing, Insurance, and Transportation etc. These IBU’s have all the properties of the larger company but because it is so small, it can be more nimble. Moreover each IBU is headed by Delivery Head who is responsible for all the sales, transaction and business related with that IBU. Each IBU has their own sales team which is responsible for marketing and creating new business. The vertical structure has also taken Infosys closer to its objective of becoming a consulting company. Most consulting companies are vertically aligned; focusing on a domain helps them to develop intellectual capital. Infosys, too, wants to come up with readymade solutions for a specific industry. Today retail is already working on identifying 5-6 such solutions which can be resold. For instance, one of the solutions it is working on is for a specialty retail store in the West, which orders products from many places including the Far East. Infosys IBU system worked well because each IBU were designed in such a way so as to create healthy competitive environment within company. Inter IBU sports and cultural events are regular features to increase competitiveness within IBU’s.

Very recently, Infosys has announced the restructuring of the organization which is still under implementation. This is being done keeping the following objectives in mind:

• To create a One Infy experience that will enhance their transformational capabilities. • To enlarge and deepen the customer base and strengthen the current portfolio • To restructure units to leverage scale and reduce the friction to market • To continue the focus on vertical markets and provide business solutions leveraging technology, using their global development centres. • To develop the next generation of leaders for the corporation as a whole

Work Culture

Managing People and Customer

Infosys has an effective process to help its employees and customers cope with the cultural issues in a transition to the Global Delivery Model. The process facilitates smooth functioning of cross-partner teams. It promotes better understanding of work culture differences, and awareness and appreciation of different cultural backgrounds. The organizational impact of offshore and near shore development leaves a footprint on process orientation, collaborative working styles and project management. Infosys ' processes deal effectively with all three kinds of change. Infosys conducts extensive cross-cultural training of staff at Infosys covering cultural acclimatization, client business and organization overview, technical environment and processes specific to the client, creating non-intrusive interactions for the client

Creating Flexibility

To provide flexibility and informal touch to its work culture Infosys came up with HR policies that allowed compensatory day offs, monthly parties and annual “all-hands” meeting where all the senior and junior employees sit together and share ideas and suggestions. Infosys informally introduced the norm of calling the first names without adding any title such as “Sir” etc. Infosys has state of art recreational facilities such as swimming pool, gymnasium, pool tables and other sports. This created an informal culture in the organization where in employees enjoyed coming to office. Infosys also came up with session for Yoga and meditation to help its employees to cope up with stress. Other initiatives taken by Infosys to improve its work culture include “On Time” initiatives, “Infoscions Petit Day” and other such cultural events which helped employees in relating to the organization.

Distribution of decision rights

In such a context, traditional distinctions between principals and agents begin to blur. "Knowledge workers" are not merely deskilled agents who are "paid to do and not to think." Governance processes designed to harness mindlessness in mass production firms can stifle active intellectual engagement of knowledge workers. Explaining the problems that a traditional bureaucracy generates, Mr. Pai pointed out once "Size inhibits freedom. Bright, young people want to work in smaller companies. They don’t want to be part of a large team or work for a large company. So, Infosys needs to retain the flexibility, speed, collegiality and openness of a small company.” Infosys attempts to preserve the attributes of a small company even as it grows by ensuring that decision rights remain with those who possess relevant knowledge – its front-line workers. Such an emphasis results in inverting the traditional hierarchy. People who are at the bottom take decisions based on their knowledge. Underlying such autonomy is the responsibility of using information to arrive at superior decisions.

Leadership by example

What role can top management play if front line knowledge workers make most decisions? Surely, managers cannot be the keepers of content as was the case with managers governing mass production environments. At Infosys, managers are part of a larger process of mutual mentorship; a process that the founders hope will create an institution that survives them. The effectiveness of such mentorship depends upon how junior people perceive the role of top management those under them. Infosys managers known this and hence they believe in “leading by example”. On the other, they learn from the very employees that they teach. Such a co-mentoring approach has generated a depth of leadership that pervades all levels of Infosys’s hierarchy.

Transparency

Investors are naturally now wary of new economy companies and demand copious financial information on which to base their investment decisions. Such a demand for transparency has increased even more in the wake of recent events at companies such as Enron. Always mindful of the need to be transparent about its financial health, Infosys has proactively adopted the highest international financial standards. In 1994-95, it was the first Indian company to adopt stringent US GAAP for financial accounting and to include complete and detailed disclosures of its accounts and activities in its annual statements. Also, it was the first Indian company to publish audited quarterly statements and release its annual statements promptly after the end of its financial year. Now, Infosys reports its financial performance in compliance with the generally accepted accounting principles in seven other countries besides India – Australia, Canada, France, Germany, Japan, UK, and USA – to satisfy the transparency requirements in different parts of the world. Not only is Infosys transparent about its financial health, but it also reveals the extent to which its corporate governance processes satisfy the good governance recommendations of advisory bodies in these countries.

Infosys has leveraged its pursuit of transparency into an international brand. After embracing the US GAAP financial reporting standards, Infosys became one of the first Indian companies to list its equity on the NASDAQ, the home of the world’s most well-known technology companies. Infosys not list on the NASDAQ to raise funds. Infosys had enough cash and could have funded our growth from internal resources. It was strategic initiative to create brand awareness outside India. When everyone talked in terms of market capitalization, Infosys concentrated on building brand image. Infosys was also the first in India to publish the value of its human resources in its annual statements. It was also the first to implement an employee stock options plan for all its employees. The very act of valuing, celebrating and rewarding the contribution of its employees provides a strong signal that Infosys is an intellectually and emotionally stimulating employer. It’s not a surprise that Infosys has been consistently finding place in the top ten list of “Best Indian Company to work for”

Technology

Most bricks and mortar companies report the value of their physical assets on their balance sheet. However, at Infosys, it is customary to report the value of its intangible or intellectual assets as well. Infosys uses conservative measures to value its intellectual capital. For instance, the value reported in the balance sheet does not account for the constant accumulation and application of domain or technology specific knowledge. It does not include the stock of knowledge that is continually replenished by the ongoing education process or refined through the sharing of best practices across the company. Furthermore, the reported value does not fully capture the options value inherent in the bodies of knowledge that are created through systematic management within Infosys.

Recruiting and enhancing intellectual capital

As one walks through the company’s campus, it is clear that intellectual capital is continuously being upgraded. In the middle of the sprawling University like campus of “Infosys City” is an imposing structure where Infoscions receive training regularly. New entrants enter a 14-week educational program, which not only socializes them into the Infosys culture and value system, but also provides them with relevant technical and managerial skills. A bulk of the technical education is carried out by a 50-person strong Education and Research Center (E&R). The E&R faculty includes senior Infoscions and experienced professionals from outside the company. In addition to training Infoscions, the E&R center also performs research on new technologies and pilots them as they emerge.

Learnability

The flexibility required to continually upgrade individual knowledge is already inherent in the type of people Infosys recruits. Specifically, Infosys emphasizes criteria that are collectively referred to as ‘learnability’ — the ability of an individual to derive generic conclusions from specific situations and then apply them to a general class of unstructured situations. Learnability is important for several reasons. First, by encouraging employees to ‘think and do’, it preserves the soul of a small company within a larger one. Second, such ability is key to function effectively in a rapidly changing world wherein individuals create new knowledge even as they exploit the old. More importantly, learnability is necessary to manage the rapid career progression that can occur within Infosys.

Knowledge management

Learnability is both stock and flow. It ensures that individuals accumulate knowledge as a natural byproduct of everyday activities. Yet, for the entire company to be scalable, it must be able to leverage this knowledge across all its employees. To accomplish this objective, Infosys has now instituted an integrated approach to the management of knowledge.

To accomplish these objectives, a central Knowledge Management group currently facilitates the entire process by developing, deploying and maintaining the underlying technology infrastructure. Accordingly, Infosys’s KM initiative has as its four pillars: people, content, process and technology. Together, these four pillars comprise the architecture that guides the creation, transfer and reuse of knowledge at Infosys.

Governing Intellectual Capital

Historically, hierarchies have been governed by agents (such as the board of directors and top management) bearing fiduciary responsibilities towards their principals (shareholders). This principal-agent relationship is true of post-modern corporations as well. However, there is an added layer of complexity when intellectual capital is involved because such capital lies distributed amongst employees. Just as shareholders can vote or decide to buy or sell equity thereby determining the fortunes of a company, these employees too can influence the value proposition that a company offers by determining the extent and quality of their intellectual contributions.

Design

Fit to IT environment

It is not surprising that Infoscions demonstrate a keen sense of their accomplishment and optimism for the future. When asked to comment on Infosys’s journey and how it has impacted its ability to respond to future challenges, Mr. Dinesh, one of the founding members and a Director, had this to say: Each time we encountered a fundamental challenge, we viewed it as an opportunity to transform the company. We know that the future will pose new challenges. We don 't know which capabilities we might need. But, we are confident that we will be able to develop these capabilities and meet these challenges. This confidence stems from a unique capability to evolve continually with the fluid IT environment within which Infosys operates. Continuity and change are inherent in Infosys’s operations as it uses the very technological and organizational capabilities that it has built as platforms to explore and exploit emerging opportunities. In particular, Infosys has created a malleable and responsive learning organization that continually uses its experience to replenish and transform its stock of resources and capabilities. Infoscions use the term “scalability” to refer to their ability to grow from past experiences even while maintaining the integrity of operations. Clearly, scalability encompasses notions such as core and dynamic capabilities. In addition, scalability refers to Infosys’s ability to grow not just in terms of revenues, profitability and head count, but also across cultural value systems and value chains.

Scalability

Scalability is a particularly important concept for IT enterprises. More information is created in the very consumption of information in an IT environment. Consequently, firms developing and using information technologies confront an intensely dynamic world. Specifically, technology and customer needs are in a constant state of flux and are manifest in accelerating cycle time to market. Moreover, businesses are inherently global with value creation occurring across different cultural systems – a factor that further enhances the scope and complexity of operations. In such a fluid and complex world, survival and growth depends upon an ability to adapt to the exigencies of the present even while preparing for the future and maintaining commitments to the past. At the individual level, such scalability is apparent in an Infoscion concept called “learnability”, a critical element of Infosys’s technology of work’. Learnability refers to an ability to generalize from specific concepts to create knowledge that can be applied to a more general class of situations.

Yet, to sustain such scalability, it has to be built into other elements as well. At Infosys, scalability is apparent in its organizational practices, strategy models and governance processes. Organizational scalability is apparent in the software development methodologies that Infosys has painstakingly developed over the past 25 years. These methodologies are as much rules for creating software based on past experiences as they are rules for making process improvements to meet future challenges. Infosys’s strategy models guide these efforts. These are models "of" what has worked in the past to guide current actions as well as models "for" dealing with situations that might arise in the future. Governance processes also have such a dual nature. Transparency alludes to both a state that Infosys has reached as well as a state that has to be maintained. Infoscions implicitly understand that without attaching an additional verb-like attribute to the noun "transparency", their governance process would be meaningless. In sum, scalability lies in Infosys’s ability to encapsulate its past experiences in such a manner that its accumulated stock and associated flows result not in the perpetuation of Infosys as it is, but, instead, in the transformation of the company as it evolves. Scalability is manifest not just in Infosys 's strategy models, but also in its technology of work, the ways in which it organizes as well as in its overall governance processes. In other words, Infosys is an organization that is perpetually “in the making.”

Strategy Models Of and For

It appears to be second nature for Infoscions to offer a "model" in response to queries pertaining to their strategy. Whether it is “global delivery” or “customer relationship”, Infoscions have models that encapsulate past experiences for future use. In this sense, these models are frameworks "of" Infoscions’ experiences that serve as frameworks "for" realizing their aspirations.

A balanced approach

Models are useful, but their proliferation can result in fragmentation. To prevent such fragmentation, Infoscions rely on an overall model called the PSPD Model. This model emphasizes predictability, sustainability, profitability and de-risking. The four strategic goals encapsulated in the PSPD Model are, in turn, accomplished through a set of sub-models and guiding principles. For instance, the Relationship Model plays an important part in ensuring predictability and sustainability of revenues. This model emphasizes the creation of long-term relationships with each client. Indeed, over 85% of Infosys’s business is generated from repeat customers.

The Global Delivery Model plays an important role in ensuring profitability. The logic underlying this model is to shift a major portion of project execution from costly “on-site” client locations to relatively cheaper “off-shore” locations in India. In addition to reducing costs of operation for Infosys, the model also allows Infosys to leverage the time difference between India and its major markets in US and Europe, thereby reducing project execution time. De-risking is accomplished by adopting a conservative financial policy that seeks to balance risk with profitability. Such a conservative approach is apparent in the high internal rate of return to estimate payoffs from new initiatives. It is also apparent in the low debt that Infosys carries
Infosys also manages its projects portfolio to minimize risks. During mid- and late nineties, Infosys deliberately restricted revenues generated from Y2K projects to be less than 25% of annual revenues so that earnings and growth potential would not be impacted once year 2000 passed. Also, Infosys limits its exposure to any specific client to less than 10% of annual revenues. Such deliberate management of risk was one reason that Infosys’s performance was somewhat shielded despite the global meltdown in the dotcoms sector. In sum, the PSPD model has built-in checks and balances to ensure that Infosys scales up in a manner that is sustainable and without having to take on unnecessary risks.

Strategy Implementation Process

To be sure, Infosys has put in place several processes to study, debate, and review and coordinate strategic initiatives and operational priorities. These processes unfold in several forums, of which the Board of Directors (BOD) is one. The BOD is so constituted that its members are able to couple issues that are unfolding outside Infosys with those that are unfolding inside. A group of reputable outsiders, including academicians, ensure that Infosys is not blindsided by external events. Seasoned internal directors who are responsible for specific areas within the company compliment the understanding of these external directors. It is very telling that these internal directors can easily assume each other 's roles, illustrating a leadership process that is not only distributed but is holistic as well. Assisting the board in defining, negotiating, and coordinating operational priorities is Infosys’s Management Council. This council consists of 34 members and includes the BOD and department heads. The Council also includes nine representatives from the younger generation at Infosys, 23-25 year-old employees who constitute the “Voice of the Youth”. The Management Council meets frequently to discuss market trends, resource needs and resource deployment issues. The Council’s role in cross-functional coordination and communication is especially important given the decentralized decision making at Infosys. A nine-member corporate planning group acts as a liaison between top executives and middle managers. Besides these forums, the Strategy and Action Planning event (STRAP) is another forum that deals with topical issues facing Infosys. Infosys departments enjoy considerable autonomy to develop and implement strategic and operational initiatives. However, the core implementation process is essentially the same across the company

Summary
Infosys has a great impact on Indian IT industry. Infosys set up the path for other IT companies to follow. Global delivery model which was pioneered by Infosys in now put into practice by many Indian software service companies. In fact GDM is often said to be responsible for such a rapid growth in Indian IT sector. Infosys also showed the Indian companies the importance of transparency and ethics in business. The greatest asset that Infosys has today is that of brand value which it has built by its ethical practices. Today many Indian IT companies are following the practices which have been developed and adopted by Infosys. Infosys was the first company to get registered at NSADAQ in its quest for being a global company, since then we have seen many Indian companies who have got listed in NASDAQ. Many companies realized the importance of international accounting practices and adopted GAAP after witnessing the success of Infosys in US market. Work culture that’s prevalent in Indian IT industry is mainly adopted from Infosys culture. In a nut shell we can say the Infosys serve as a model Company that any Indian IT company can emulate. It has shown that honesty, innovation, transparency and dynamism are instrumental in making a company a truly global company.

Appendix 1: Organization Structure

References

1. http://www.iipi.org/Conferences/Hawaii_SW_Conference/Nithya%20Presentation.pdf
“Building Successful Software Companies in Developing Countries
– The Case of India and Infosys.”
– Author: Nithya Radhakrishnan

2. http://www.infosys.com

3. http://www.businessweek.com/technology/content/jun2006/tc20060616_007306.htm

“Passing the Baton at Infosys”

4. http://economictimes.indiatimes.com/Infotech/Software/Infosys_restructures_organisational_structure/articleshow/2493924.cms

“Infosys restructures organizational structure”

5. Understanding Theory and Design of Organizations, Richard Daft, India Edition, Thomson, 2007
6. Infosys Technologies Limited: Unleashing CIMBA, Chatterjee, D. Idea Group Inc, pp 1-16, 2005
7. Towards a Knowledge-Sharing Organization: Some Challenges Faced on the Infosys Journey, Mackie B.G., Idea Group Inc, pp 1-15, 2003

References: “Infosys restructures organizational structure” 5. Understanding Theory and Design of Organizations, Richard Daft, India Edition, Thomson, 2007 6. Infosys Technologies Limited: Unleashing CIMBA, Chatterjee, D. Idea Group Inc, pp 1-16, 2005 7. Towards a Knowledge-Sharing Organization: Some Challenges Faced on the Infosys Journey, Mackie B.G., Idea Group Inc, pp 1-15, 2003