Infosys held their 3^rd annual analyst meet in Boston on the 30^th of July. There was none of the usual hullabaloo about growth in revenues or the usual marketing speech that characterizes such events. Instead, Infosys focused on talking about initiatives around Agile, updates about their Edge portfolio and Cloud-based offerings. So, where are they on their 3.0 journey? What have they got right? What more needs to be done?

3.0 update

Infosys’ 3.0 strategy stretches over at least 7 years (both 1.0 and 2.0 lasted about 15 years each) and they are at the tail end of year 2 of the journey. Infosys 3.0 is driven by a focus to be more client-centric by focusing on non-linear growth and increasing stickiness through a vertical-specific go-to-market strategy. This will be supplemented by increasing geographical closeness to clients and supported by a deepening of their horizontal technology portfolio. The ultimate aim is to totally revamp their revenue mix with a heavy focus on driving growth through consulting and products, with objectives to derive 40% revenues from consulting & SI, 20% from products, and the remaining 40% from their traditional basket of business IT service offerings.

What we heard and how that reflects in the Annual Report for the FY ended March 2013:

• Consulting & SI is doing remarkably well and contributed about a 30% of Infosys’ revenues for FY13. The addition of Lodestone has added muscle to their consulting business and this service line may well cross the target of 40% revenue contribution within the next year or so.
• Business IT services still dominates overall revenue contribution and accounted for about 63% of total income for FY13. Their budding infrastructure testing services is an interesting amalgamation of RIM (remote infrastructure management) and testing services and is witnessing good traction in the market. The addition of this service line makes Infosys highly relevant for large clients wanting to consolidate their vendor portfolio and who are looking at suppliers with end-to-end capabilities.
• Products, platforms and solutions business is poised for further growth but contributed just about 6% of total revenues for FY13. Infosys’ innovative play to address the white-space between core systems through their Edge portfolio of offerings, sold via a myriad range of pricing options, is a well-timed play and one that, if they get right, can propel the company away from the ‘offshore vendor’ tag and into the league of truly innovative IT services vendors out there.

What they are doing right

Infosys has got its focus correct, for now, and is taking a cautious but right track towards achieving their goals. In a few areas, we were genuinely impressed:  

• The Edge Platform has a great story.  We found it particularly interesting to hear their play around their Edge portfolio, and the conscious decision to refrain from developing a ‘skin’ or user interface that sits atop core systems but actually concentrating on bridging the gap that exists between these systems, and enabling them to ‘talk’ to each other. This provides a unified view of the clients’ business, enables faster time-to-market of innovative services like mobile payments, enabling of multiple sales channels and advanced analytics capabilities. The multiple pricing and licensing options for these solutions, along with ‘trial’ versions made available for limited time, makes it easier for clients to test the waters before diving head-on.   We recommend clients who are using Infosys, but who have not explored opportunities with the Edge platform, to take another look at the possibilities.
• We see a high level of confidence in the consulting business.  The traction around their consulting business also showcases the result of years of focus in this area.  Its probably no surprise that Infosys hopes to compete with the Deloittes and Accentures of the world, but they are seeking to do it with a different value proposition that stems from their IT-centric model. Unlike other competitors, consulting is not being used as a foot in the door to push outsourcing services even though it does offer ample opportunities for cross-selling.  As Forrester’s 2012 Business Technology Transformation Wave noted, they still have room for improvement against some of their larger competitors.

What needs to improve

Despite these strengths, we see some areas where we’d like to see more improvement, and these primarily relate to Infosys’ conservative nature as an organization:

• Growth outside of the core.  Despite the heavy focus on driving growth across the service lines, the company still remains heavily dependent on the US market which accounts for almost two-thirds of total revenues. More needs to be done to find growth in emerging markets in APAC, MEA and part of Europe where the technology markets are witnessing rapid growth. They need to make more investment to develop sales channels across emerging markets to drive growth.
• The change must move faster in some areas. Although Infosys plans to reduce the dependence on bread-and-butter application services business, this segment still accounts for a major chunk of revenues. On the other hand, growth in consulting and SI is sweeping ahead of expectations. There is a need to balance out this disparity since both these lines, that today account for about 95% of revenues, are primarily discretionary spend which is the first to get hit in tough economic times. There is a visible move towards offerings that address the problems of aligning IT to business needs, but we don’t see much evidence of drastically new messaging and sales initiatives.
• Put the cash to work in areas that align with digital disruption. Infosys is also sitting idly on a massive pile of cash that can be used to make strategic acquisitions to build geographic presence in emerging markets, expand near-shore delivery footprint and add strength to their growing product portfolio that will get them that much closer to being a truly global organization.   Infosys has historically been slow to acquire new competencies through acquisition (Lodestone is a notable exception), and this conservative approach might work well in a talent model. But in a technology marketplace marked by rapid digital disruption (cloud, mobile, social, analytics) we’d like to see more evidence that Infosys is putting its money to work to jump-start the changes.