Infosys® Technologies Ltd.
Infosys® Technologies Ltd. : Growing Share of a Customer’s Business James A. Narus D. V. R. Seshadri* March 2004 * James A. Narus is Professor of Business Marketing, Babcock Graduate School of Management, Wake Forest University in the U. S. A. D. V. R. Seshadri is Visiting Professor at Indian Institute of Management Bangalore, India. We gratefully acknowledge the significant contributions of Infosys executives and managers in providing case information. CASE QUESTIONS TO ADDRESS 1.
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Looking beyond the immediate Ariba e-Procurement System project, what challenging issues related to global marketing does this case pose for Infosys? 2. What quantifiable cost savings not specified in project contracts has Infosys delivered to PFS during the past five years? 3. What “knowledge transfer time” cost savings can PFS expect from sole sourcing the Ariba e-Procurement System project? 4. How can Infosys’ PFS Account Team persuasively sell the firm’s ability to deliver a superior end-to-end solution for the Ariba e-Procurement System project? 2 Infosys® Technologies Ltd. Growing Share of a Customer’s Business “In summary, we encourage Infosys to compete for the customization, installation, and maintenance of a JAVA-based Ariba® e-Procurement system here at Prairie Four Square (PFS) Insurance,” stated PFS Chief Information Officer (CIO) Robert Peters. “As part of this project, you would work not only with our information technology (IT) group on internal system tasks but also with our purchasing department to select and certify vendors, standardize all product codes and order processing procedures, and integrate certified vendors? billing processes with our accounts payable systems.
Be aware that you will be competing head-to-head with two leading IT consulting firms; so, you will have to demonstrate that you can handle all aspects of the project in a superior manner. Furthermore, given our CEO? s drive to cut costs significantly, I urge you to „sharpen your pencils? before you quote a price on the project. Let? s schedule your project proposal presentation for three weeks from today. ” And so concluded a one hour briefing that CIO Peters and his colleague, PFS Purchasing Vice President Kay Bryan had given to Infosys Engagement Manager, Rahul Dev, and Account Manager Jaspal Singh.
During that briefing Peters and Bryan had outlined plans to move all company acquisitions of products and services online and provided operational details on how they would like to see the system function. As Rahul and Jaspal walked down the main corridor of PFS? Dallas headquarters building and toward the street, they nodded to each other in delight over the unexpected opportunity that had just presented itself. “Although Infosys has successfully increased the number of major IT projects it conducts for PFS to 65, we? ve only managed to capture around United States (U. S. ) $ 30 million (i. . , Rs. 1. 38 billion Indian rupees) in annual business out of their annual IT total spend of $1 billion (Rs. 46 billion) even though we could ideally handle up to 45% of that total spend. Moreover, most of the projects that we have undertaken have been low value-added, price sensitive business. This project requires an end-to-end solution. If we win it and deliver a high quality solution, we will be in an advantageous position to gain a greater share of their more profitable, high value-added business. We must put together a convincing case for employing Infosys,” Rahul insisted.
Background Infosys Technologies, Ltd. With annual sales of over Rs. 35 billion ($750 million) and net profits exceeding Rs. 9 billion ($200 million), Infosys Technologies, Ltd. provides a full range of IT and consulting services including the development, customization, reengineering, and maintenance of personal and network computing, mainframe, and Internet-based information systems. Based in Bangalore, India, Infosys employs over 17 thousand people (Infoscions in company parlance) worldwide, sustains 8 development centers in India, and operates 24 marketing offices across the globe.
Its sprawling Infosys City campus in Bangalore includes modern office buildings, state-of-the-art computer facilities, training classrooms, a gymnasium and sauna, a golf course and tennis course, and a power generation system (see Exhibit 1 for photographs). The firm also maintains a business continuity and disaster recovery facility on the island of Mauritius. Often referred to as the “Microsoft of India”, Infosys had humble beginnings in July 1981. Reportedly, Chairman Narayana Murthy and six entrepreneurial friends borrowed $250 from their wives to form the company (see Exhibit 2 for their names and titles).
In doing so, they wanted to make a profound statement – wealth could be created ethically and honestly. Furthermore, they wanted to build an organization where advancement was based on merit. At the time, their vision was seen as nothing 3 short of revolutionary in that India was not seen as the home of high tech industries, state-run rather than privately held enterprises were the norm, corruption was commonplace in Indian business dealings, and people often got ahead because of who they knew or were related to rather than what they were capable of accomplishing.
Over the years, the seven founders followed their principles not only making Infosys one of the most admired companies in India but also gaining almost legendary status in the community. Although they are multimillionaires, the founders have lived modest lives. For example, they are routinely seen taking public transit, participating in local events, and taking their children to public schools. Furthermore, they have devoted time and effort to improving social welfare in India and have contributed considerable funds to charities. During the 1980? several factors converged to make Infosys wildly successful. The Indian Government decided to target IT as the source of significant economic development. To spur such development, the government eliminated significant “red tape” associated with new business formation, offered free or low-cost access to infrastructure (e. g. , buildings and data transmission lines), and granted frequent “tax holidays. ” Simultaneously, General Electric (GE) made global outsourcing respectable and allayed fears about potential risks by moving significant business to Indian subcontractors.
Other major international corporations quickly followed suit. To tap the large pool of competent and IT-savvy professionals in India, Infosys issued lucrative stock option plans for all employees. Soon, the most talented programmers and managers from across India were queuing up for a chance to work for Infosys. The firm has experienced four phases in its development, each entailing a distinct market offering and value proposition. In its first decade, Infosys relied on an offshore outsourcing model.
Playing the “global labor arbitrage” game, Infosys benefited from the availability of low-cost and worldclass IT professionals in India. As a rule of thumb, the salary for a software engineer in India could be 40% to 50% lower than a comparable individual in the U. S. or Europe. This resource cost advantage enabled Infosys to bid on and win lucrative contracts for labor intensive, low value-added “back-office” work such as data entry, transaction processing and analysis, and customer billing and accounts payable monitoring.
In the early 1990? s, the Infosys business model opportunistically evolved to focus on maintenance contracts for legacy systems. Much of this work entailed preventative and corrective software programming in the anticipation of year two thousand (Y2K) anomalies. Although these projects allowed Infosys to gain a reputation for its programming capabilities, the work was not seen as glamorous and ground-breaking as those associated with emerging technologies and systems such as the Internet.
Beginning in the late 1990s, Infosys redirected its priorities away from selling discrete maintenance projects and toward the marketing of end-to-end solutions and in particular those involving consultative services such as design, customization, business-process reengineering, and installation. By doing so, Infosys executives believe that they can better create and share customer value. To begin with, internal research has found that over 60% of IT costs are locked in during the period from design to installation.
Managers have also come to realize that involvement during the initial stages of the life cycle of a system acquaints Infosys personnel with software logic, architecture, and codes. This saves significant costs over engaging a client during the maintenance phase in that Infosys personnel do not have to spend days if not weeks gaining a clear understanding of how the system is meant to work. From a revenue and profits standpoint, Infosys managers have also discovered that although the design-related phases only account for 20% of potential revenues from an account, they drive the remaining 80% of future revenues from that account.
Lastly, and perhaps most importantly, selling end-to-end solutions enables Infosys to grow by gaining greater share of a customer? s business. This is an essential pathway to growth for Infosys in that over 80% of its revenues come from existing and loyal customers. 4 In recent years, Infosys business model has evolved again, this time emphasizing greater focus on specific industries. This metamorphosis can be attributed to increasing diversity of IT system requirements and different rates of IT spending growth across industries.
Rather than pursuing all potential clients with uniform market offerings, Infosys now seeks business domain excellence. This entails offering highly customized end-to-end solutions to a limited number of potentially high profit market segments that have “mission critical” IT applications. Among the targeted industries are insurance, health care, and retailing. Prairie Four Square Insurance Prairie Four Square Insurance is one of the leading providers of individual life, group life, medical and dental, and long-term care and disability insurance in the U. S.
Stephen Neely founded PFS in 1882 in Dallas, TX, to serve overlooked ranchers, farmers, and shopkeepers in North Texas. As a symbol for his fledgling company, Neely selected the “prairie four square”, a modest though resilient housing design that was common in Texas at the time. The style of home is seen as representative of the South West and the government has designated many of these homes that have survived from the mid1880s as national historic landmarks. Neely believed the prairie four square captured the spirit of his enterprise – “to provide reasonably priced, reliable, long-term shelter and security for families”.
An etching of a well-known prairie four square from the Dallas area serves as the logo of the company and appears on all of its stationery, brochures, and advertising. Neely and his partners quickly established a reputation throughout the South West for offering fair prices, personalized and friendly service, and prompt and equitable resolution of all claims. In particular, ordinary ranchers and farmers believed that in times of crisis, PFS and its representatives were among the best friends you could have on your side.
As a result, PFS grew to become one of the largest insurance companies in the South West and later in the Mid West. A series of acquisitions and mergers during the late 1900s expanded PFS reach to the East and West Coasts. Today, PFS sales exceed $27 billion (Rs. 1. 2 trillion). It serves over 50 million individual, institutional, and corporate customers in the U. S. PFS maintains extensive and mission critical IT systems across the U. S. As an insurance company, it must process, analyze, and act upon tremendous amounts of diverse data on an ongoing basis.
Among these data include: actuarial tables, billings, claim requests and payments, customer profiles and addresses, government rules and regulations, health care provider identification, investments, treatment, and payment codes, and vendor information. To handle this data, PFS relies on an amalgam of IT technologies – mainframes for batch processing, office computers for online analyses, and network systems that utilized the Internet and several private extranets. To protect proprietary information, PFS policy had long required that most of this work be done internally.
Although PFS occasionally relied on the services of top IT consulting firms to complete short-term and focused strategic projects, the overwhelming majority of its IT work has been done in-house. As a consequence, the firm? s IT infrastructure, staffing, and costs ballooned during the 1980s and 1990s. Relentless pressure from Wall Street to cut costs dramatically and the highly publicized successes of GE, prompted PFS senior management to outsource offshore portions of its IT maintenance activities.
Five years ago, they selected Infosys as the sole supplier in an outsourcing pilot test, awarding it three maintenance contracts. Pleased with Infosys? performance, PFS has outsourced more and more projects to them over the years. Today, Infosys has over 65 major contracts with PFS. And, the scope of these projects is far broader than the original three. Not only do Infosys people handle routine maintenance tasks such as cleansing corrupted data, correcting software flaws, and running program and systems tests, they also complete higher value maintenance-related work such as application development, business process reengineering, installation of certain packaged solutions, program management, and technology consulting. Although Infosys remains the sole supplier of outsourced IT maintenance work to PFS, its status has functioned as a form of “golden handcuffs”, limiting the type of projects PFS awards. Overall, PFS has favored a “best of breed” approach to IT systems work awarding contracts to those firms seen as the most competent in specific categories (e. g. , knowledge management, systems architecture, maintenance).
For example, when it comes to strategic and conceptual projects (e. g. , IT system design, integration of IT and telecommunications systems, role of IT within the organization), senior managers have long favored the top consulting firms – Accenture, EDS, and IBM Global Services. PFS? rationale for the approach is twofold. First, it ensures that work goes to the one supplier most able to complete it. Second, it keeps any one vendor from gaining too much leverage over PFS because they are the only ones who know how the entire IT system works.
Clearly, PFS senior management saw Infosys as an outstanding vendor for “offshore outsourcing of IT maintenance projects. ” PFS e-Procurement System Project PFS senior management strongly advocated using IT wherever possible to increase the level of customer service and to lower operating costs. Within the past few months, a company “white paper” had indicated that the purchasing department was one area where IT could make significant contributions in lowering operating costs. Traditionally, purchasing had been decentralized at PFS with each group having the authority to acquire supplies, equipment, and services as it saw fit.
This resulted in a confusing array of contradictory and Byzantine purchasing practices across the firm. Each year, the company bought over 10,000 different items from some 1,200 suppliers. According to cost analysts in the white paper, the average cost to process an order at PFS was $78. This far exceeded the industry average of $45 per order. To remedy the situation, the white paper recommended that PFS reduce its supplier base to some 300 firms and implement an e-procurement system featuring JAVA-based Ariba software.
Senior managers called upon CIO Peters and Vice President Bryan to follow up on these recommendations. Reviewing the situation, Peters and Bryan realized that an overhaul of PFS purchasing practices and procedures would be needed. “This is as much a consulting project as an IT project,” Kay Bryan said, alluding to the old Hammer and Champy adage, „If you automate a bad process, you end up with a faster bad process.? We will have to address a series of critical issues before we begin to order products and services online. Among our key concerns are the following. How should purchasing processes and practices be standardized across all company units? ? How could purchase orders be aggregated across all company units to increase company leverage in price negotiations? ? How can PFS standardize the process of specifying requests for quotes (RFQs) and placing orders? ? How can the Ariba e-Procurement system be integrated with the reengineered purchasing process? ? Which vendors should be certified for inclusion in the e-procurement system? Which criteria should be used for selection?
How could PFS integrate and synchronize its purchasing systems with order processing procedures at all of the certified vendor firms? ? Should PFS use electronic funds transfers to pay for orders? ” The strategic nature of the project led Peters and Bryan to initially conclude that PFS would need to call on the services of a top IT consulting firm. Contacting the leading consulting firms about the project, Peters and Bryan observed that none of them seemed to possess strong capabilities and competencies in all aspects required for an end-to-end e-procurement solution.
Normally, that finding would have reinforced PFS? best-of-breed approach to vendor selection. However, given the required 6 integration both within PFS internal groups and across outside suppliers, Peters and Bryan believed that a pilot project where one firm received the entire contract was in order. If the pilot proved to be successful, PFS might award more sole sourcing end-to-end IT projects in the future. In short order, Peters and Bryan had narrowed candidates down to two prospective vendors – Excalibur and Merrimac Consulting.
Excalibur Consulting, which is based in Chicago, and Merrimac Consulting, which is based in Fairfax County Virginia, are among the top 15 consulting firms in the world. Pundits agree that they are the leading operations consulting firms, particularly when it comes to applying IT to issues such as enterprise requirement planning (ERP), process engineering, logistics, and purchasing. In general, both consultancies prefer to work on “grand strategy” and highly conceptual “big picture” projects. Historically, their weakness has been in ongoing IT systems maintenance.
As most of their people are based in the U. S. , their labor rates have been non-competitive. Moreover, they had a tendency to avoid low value and low profit projects such as maintenance and therefore did not have requisite expertise. “As I understand it”, Peters opined, “Both firms have just opened large facilities in the Bangalore area. My guess is that they are doing so to get a piece of the „offshore IT-system maintenance outsourcing business?. To date, PFS has not employed either firm for any large-scale or long-term IT projects.
If we ask them for a proposal on the e-procurement system project, I wonder if they will submit a low-ball price quote on an end-to-end solution in order to get a foot in the door of our maintenance work? ” “Perhaps we should ask Infosys to prepare a proposal on this project as well,” Peters stated. “Five years ago, they were an unknown commodity to us and we gave them a chance. Over these years, their work has exceeded our expectations both in terms of quality and costs. More importantly, they may have a big advantage over Excalibur and Merrimac – Infosys? aintenance work has exposed their people to all aspects of our IT system as well as to how we do business. As a result, they will be farther down the “learning curve” at the beginning of the project. That might translate into better work more quickly which will yield significant cost savings for PFS. I have also read recently in the Wall Street Journal and The Financial Times of London, that Infosys has been hiring well-seasoned people from the top consulting firms as well as from the top MBA programs worldwide. As well, they appear to be bolstering their consulting resources and training in-house.
My guess is that they are trying to secure higher value added and profit business. ” The two agreed to ask Infosys to submit a proposal for the project. “This should be an interesting acquisitions exercise”, Kay Bryan reflected. “Excalibur and Merrimac have an outstanding reputation for operations consulting. They will have to demonstrate that they can deliver the maintenance portion of an end-to-end solution. Infosys, on the other hand, clearly does outstanding maintenance work. They will have to show that they can handle the strategic and conceptual consulting portion of the project.
I wonder which of these firms will provide the most compelling case that they can „stretch? their competencies and capabilities to deliver an end-to-end solution that meets our requirements? ” Demonstrating and Documenting Capabilities1 On the way back to Infosys offices, Rahul and Jaspal brainstormed ideas for their presentation to PFS while relating their career experiences. It was a typical hot summer day in Dallas. Rahul, a second generation American from the Bay Area in California, was somewhat fatigued and dehydrated from the weeklong 95°F plus (35°C) temperatures.
Although he routinely attended Indian association meetings to 1 Please note that Infoscion manager names, titles, and backgrounds described below have been disguised for proprietary reasons. 7 maintain his cultural identity, and had traveled to India many times, Rahul dressed, spoke, and acted like a typical Californian. He had received his B. S. in Computer Science from the University of California, Berkeley and his MBA with a concentration in Finance from Stanford University. Following graduation, Rahul worked for Excalibur Consulting in Chicago for 10 years.
Five years ago, he joined Infosys, working initially out of the Boston office. While he hadn? t yet adjusted to the Dallas weather, he welcomed his new location because it afforded him the opportunity to closely follow his favorite pastime, Dallas Mavericks® basketball. Jaspal, a Sikh from Patiala, India, was clearly in his element, even though he sported a turban, jacket and tie, on such a hot day. “I find the heat invigorating,” Jaspal told Rahul, “It makes me want to take on tough projects”. Jaspal too had had an interesting set of career experiences. He had received his B.
E. in Electronics and Communications Engineering from the University of Punjab. An entrepreneur at heart, Jaspal started and operated a successful value-added reseller (VAR) business in Mumbai for seven years. Three years ago, opportunities to sell his business at a profit and join Infosys presented themselves simultaneously and he took advantage of them. After several months of training, Jaspal accepted an international assignment in Dallas. This has been his first time living outside of India and he has worked hard to adjust to his new environment. Fortunately, Jaspal? new wife and the small Sikh community in Dallas have made him feel at home, encouraging him on while enabling him to practice his religion and customs. Along with a number of Indian, Australian, and British colleagues, Jaspal could always be found bright and early on Sunday mornings in a Dallas park near his home playing cricket. “In order to prepare a compelling case for Infosys, we are going to have to assemble all available performance metrics and case histories of our ongoing work at PFS,” Rahul reasoned. “In contrast to competing firms, we have an advantage — Infosys personnel diligently and igorously gather, document, and analyze such data on an ongoing basis. As I see it, we will need to do the following during our presentation. First, we will have to demonstrate to PFS managers that Infosys performance has exceeded their expectations. We can do this by documenting not only quality of our efforts but also the added value that Infosys has delivered. Second, we will have to provide evidence that Infosys can handle all aspects of an end-to-end solution, and in particular, those that fall outside of our traditional IT system maintenance activities.
Third, we are going to have to present logical arguments that convince PFS managers that the entire e-procurement system project should go to a single vendor. Let? s gather up the information we have at our disposal here in Dallas. Then, I would like to schedule a teleconference call with our PFS team members in Bangalore. Working together, I? m confident we can put together a winning case for Infosys”. The PFS Account Team As Infosys thrives on highly collaborative relationships with loyal customer firms, its sales and marketing efforts not surprisingly are organized around strategic accounts.
An engagement manager, whose office is located in close proximity to the customer? s headquarters, is responsible for all Infosys personnel and resources, both in India and the client? s country, that serve a given customer firm. Assisting him or her in the client? s country is an account manager. The account manager coordinates “front office tasks” such as routine face-to-face client contact, onsite technical support, contract negotiations, project fulfillment, and trouble-shooting, among many others. A staff of technical engineers and business consultants support the engagement manager and account manager in the client? country. For example, some 150 Infoscions assist Rahul and Jaspal in serving PFS in the U. S. Back in Bangalore, a delivery manager supervises all “back office operations” such as data processing and analysis, research and analysis, programming concerns, and in-depth technical assistance, among many others. The delivery manager, in turn, draws upon a senior programmer. This person is responsible for all technical aspects related to client IT systems. These four individuals – engagement manager, account manager, delivery manager, and senior programmer – constitute the core of each strategic account team. The delivery manager for PFS is Lalitha Krishnan. Lalitha received her BS in Computer Sciences from the Indian Institute of Technology in Kanpur and her MBA from the Indian Institute of Management in Bangalore. For over 15 years, she worked on IT system projects for Tata Consultancy Services. During that time, she traveled extensively in Asia, Europe, and the U. S. completing a wide variety of software implementation projects. Married to the Vice President of Marketing at Hindustan Levers Ltd. , Lalitha is the mother of two young children. She has worked for Infosys for 10 years.
As delivery manager, Lalitha is responsible for over 500 programmers and technical people in Bangalore who are assigned to the PFS account. In addition, she is in almost daily contact not only with her counterpart Infoscions in Dallas but also with PFS IT managers. Lalitha has long maintained that she must live daily in two cultures. A quick scan of her office in Bangalore reveals the clash of cultures. A devote Hindu, Lalitha has a framed illustration of the god Balaji (i. e. , Lord Venkateshwara) and a photograph of her family on one side of her desk.
Occasionally during the day, she takes time to meditate and pray, seeking enlightenment and peace of mind. On one wall of her office, Lalitha proudly displays a large poster of the Dallas Cowboys® American football team. And, on the side of her desk, she has taped the red, white, and blue bumper sticker, “Don? t Mess with Texas”. To help her relate to her counterparts at PFS, Infosys constantly streams local news headlines from Dallas across her office computer. Before she starts work each morning, Lalitha also makes it a point to check up on local Dallas events on DallasObserver. com.
Lastly, to better communicate with PFS managers, Lalitha has taken several courses at the Infosys Learning and Development (LnD) Center to better understand American culture. Ravikiran Gowda, a senior programmer, is Lalitha? s top assistant. In his late 20s, Ravi has his B. E. and M. S. in Mechanical Engineering from Ramiah College of Engineering in Bangalore. Ravi is a prototypical “computer nerd”. To begin with, he claims to have within his reach at all times, every stateof-the-art electronic device known to man including a mobile phone, a personal digital assistant, a tablet computer, a multifunction electronic watch, among many others.
Ravi immerses himself perpetually in computer codes, not only current client software but also the latest releases from major software vendors. When he is not working on projects, Ravi often appears to be enraptured by an endless parade of videogames. Teleconference Call2 At 6:00 a. m. (6. 00 hours) the next morning, Rahul initiated a hastily arranged teleconference call with Jaspal in Dallas, and Lalitha and Ravi in Bangalore. They started so early because Bangalore is 11 hours ahead of Dallas. So for Lalitha and Ravi it was 5:00 p. m. (17. 00 hours). The colleagues saw nothing unusual in this.
In fact, dedicated Infoscions routinely put in long hours, extending the day both in the morning and evening to accommodate their counterparts on the other side of the globe. Following pleasantries and a review of PFS business, they turned their attention to the prospective, Ariba e-Procurement System project. Each took a turn suggesting arguments that would enable Rahul and Jaspal to demonstrate and document the case for awarding the project to Infosys. Team Support. Rahul opened the discussions announcing that Infosys senior management would assist the PFS account management team by assigning a number of support personnel to the project.
Among these individuals would include a program manager, three business analysts, a technical specialist on Ariba programming, a product specialist familiar with e-Procurement software, a 2 Please note that while the performance and cost data presented below are representative, they have been disguised for proprietary reasons. 9 development analyst, and a technical analyst. In addition, the Enterprise Solutions Group would contribute a team skilled in executing the company? s award winning “Package Implementation Methodology. ” This would insure that the Ariba e-Procurement software is up and running in a flawless manner in short order.
Lastly, a technical specialist from Ariba would assist during the sales presentation and implementation phases of the project. However, Rahul sagely pointed out that Ariba personnel would likely support the competition in a similar manner. Overall Quality of Infosys Work. Lalitha carefully summarized Infosys performance over the past five years on its portfolio of PFS maintenance projects. “As you can see from the chart in my last email message (See Exhibit 3), we evaluate our work on three dimensions – quality, timeliness, and reliability. There are two metrics for each dimension. Each metric is an average across all projects.
We provide these to PFS managers online in the form of what we call a „CIO Dashboard?. During each of the past five years, Infosys has exceeded PFS targets by a wide margin,” Lalitha concluded. Reengineering Project Assignments. “One of our accomplishments at PFS that I? m particularly proud of relates to how we redesigned five major maintenance projects,” Jaspal commented. “Beginning in year two of our engagement at PFS, Infosys took charge of those projects. In years past, PFS had employed 250 people to complete them. Each of those employees was assigned exclusively to one project.
Once we learned the nature of project tasks, we began to move some of them to Bangalore. In year three of our engagement at PFS, we had 75 people working on the projects in the U. S. and 250 in India. At this point, we began to scrutinize the manner in which these tasks were completed and to question whether the tasks could in fact be completed at the same quality levels using fewer people. We reengineered the processes for each project and assigned remaining employees across several projects. Thus, in years four and five of our engagement at PFS, we have used 75 Infoscions in the U. S. nd 100 in Bangalore to complete the redesigned tasks. The surplus 150 Infoscions in Bangalore were transferred to other PFS projects at “no extra charge” to PFS. Given that the costs of a fulltime equivalent (FTE)3 are $8,000 per month (Rs. 368,000) in the U. S. and $3,200 per month (Rs. 147,200) in India, the resource reductions represent a significant benefit for PFS. Perhaps more importantly, it demonstrates that at Infosys, in contrast to many of our Indian and Chinese competitors, improving employee productivity rather than just gaining labor savings from moving people offshore, is our key goal and value proposition!
And, I can back up this claim by demonstrating that reengineering project processes and employee tasks are key competencies of the Infosys human resources department. ” Data Corruption Prevention Subroutine. “PFS runs two major IT systems off a common database,” Rahul pointed out. “One uses a mainframe computer to run millions of routine data processing tasks in „batch fashion? from the hours of 11 p. m. (23. 00 hours) until 5:00 a. m. (5. 00 hours). The second entails some 125 networked, personal computers (PCs) that PFS employees use to complete a variety of tasks from 5:00 a. . until 11 p. m. Prior to Infosys? work at PFS, batch programs occasionally ran later than 5:00 a. m. When this happened, it would corrupt the data being used from the central database and shutdown the online system, idling 125 PFS workers for at least 4 hours. To remedy the problem, Infoscions wrote a subroutine that automatically shutdown all batch programs at 5:00 a. m. ” “What cost savings did our efforts deliver to PFS? To begin with, we reduced the average number of corruption incidents per year from 24 to 0. Each time a corruption event occurred in the past, 3
A fulltime equivalent or FTE represents the number of hours a fulltime employee would be expected to work during a given period of time. It measures the total amount of employee time required for a project taking into account that some employees work on several projects at once. The costs of an FTE estimate direct labor and other overhead charges required to support the work. Please note that all FTEs presented in this case have been disguised for proprietary reasons. 10 three programmers would spend an average of 4 hours apiece at an FTE rate of $45 (Rs. ,070) per hour reconstituting the data. These programmers would be assisted by a technical support person for one hour at an FTE rate of $40 (Rs. 1,840) per hour. At PFS, 125 employees would be idled for 4 hours at an FTE rate of $42 (Rs. 1,932) per hour. Running programs to reconstitute the corrupted data would take some 15 seconds at a central processing unit (CPU) time rate of $. 39 (Rs. 1. 80) per second. More importantly, we demonstrated to PFS early on in the engagement that Infoscions had the ability to diagnose problems and write subroutines to correct them,” Rahul asserted.
Record Comparison Algorithm. “Along similar lines, I had an opportunity to write a critical algorithm for PFS last year that improved record comparison processing efficiency by 56% and processing time by 8 hours,” Ravi added. “On the last day of each month, PFS is required to complete a series of “compliance” analyses on all of its customer accounts and report their findings to the Insurance Commissions of each state within which they operate. The analyses match the type of insurance plan to fees charged as well as compare actual payments to customers versus plan stipulations.
If they fail to deliver the reports to each state commission by the first day of each new month, the states penalize PFS on average $360,000 (Rs. 16. 5 million). My contacts at PFS tell me that there is about a 1% probability that they will not complete and submit the required reports on time each month. ” “Coincidentally, I ran across a new algorithm that addressed this very problem in a computer science journal. I was able to write a program around this algorithm for PFS. With an additional 9 hours of time, PFS eliminated the likelihood that they would not make their deadlines on time.
In the process, Infosys saved PFS 8 hours of CPU time each month in the process. With the additional CPU time, they are able to complete another 1800 jobs the last night of each month. Although I assume that the 1800 jobs are value-adding in the sense that they either reduce company costs or increase revenues, I cannot attribute specific monetary amounts. ” Reduction in Disability Claims Reserves. “Two years ago, we helped to reduce the cash reserves that PFS must have on-hand at all times to pay disability claims by $14 million (Rs. 645 million),” Jaspal noted. We accomplished this by streamlining and reengineering not only the claims submission process but also the claims payment process. As part of this redesign, we moved what had traditionally been a manual process online. With a more efficient process, PFS completed the related tasks faster and more accurately. In accordance with insurance regulations, PFS was allowed to reduce its cash reserves. At a cost of capital at around 10%, PFS achieved significant savings. I think that this is a simple but persuasive anecdote in that it demonstrates that Infosys can effectively reengineer payment processes.
Obviously, this skill will be essential in the case of an e-procurement system. ” Benefits of Sole Sourcing. “PFS will reap significant benefits from sole sourcing the project to Infosys,” Rahul insisted. “Most importantly, by being involved from day one in the project Infosys will be able to forgo the „knowledge transfer time? required to bring programmers up-to-speed on technical details of the system had they entered at the maintenance stage. By our best estimates, it would take 5 programmers around 12 weeks to master an Ariba e-Procurement system that another vendor had installed and customized.
As those programmers would be based in Dallas, their FTE costs would be $8,000 per month (Rs. 368,000). When we entered the maintenance phase, Infosys would accrue additional savings in that we would be in a far better position to quickly track down the source of any software problems. Of course, at this time it would be impossible to predict what those problems might be and to assess a monetary cost savings to their resolution. ” Ongoing Ariba e-Procurement Projects. “According to my colleagues here in Bangalore,” Lalitha interjected, “Infosys has initiated 3 end-to-end Ariba e-Procurement system projects within the year.
Two of them are for retailers and one for a healthcare organization. One retailer and the healthcare organization are located in the U. S. while the other retailer is in Europe. So, we do have some limited 11 experience with such work. Although it? s too early to assess the outcomes of those projects, we do know that things have gone well to date. And, in the case of the healthcare organization, we have already been able to save them $100,000 (Rs. 4,600,000) per year by switching the company? s „change order? procedures (i. e. , the alteration of a previously processed order) from a manual to an online softwarebased system.
However, I fully expect that PFS will question whether our experience in retail and healthcare is applicable to the insurance industry. At the same time, our two competitors will undoubtedly tout their many online procurement system design and implementation projects and pronounce that purchasing-related consulting falls within the „sweet spot? of their core competencies and capabilities. ” Vendor Management Team Visit. “Serendipitously,” Lalitha continued, “PFS President Laura Ewing and a vendor management team, will be visiting Infosys in Bangalore next week.
The vendor management team is comprised of middle level IT and purchasing managers who deal with us on a regular basis. I wonder if we can use their visit to demonstrate that Infosys has the capabilities to deliver an end-to-end solution on the Ariba e-Procurement System project? We plan to provide all team members associated with the PFS project five weeks of JAVA training here in Bangalore. Therefore, we could take our PFS visitors over to the Infosys Education and Research (EnR) Group and have them sit in on several JAVA training sessions as well as demonstrations of JAVA projects that we have successfully completed in the past.
While they are visiting the E&R block, we might also go over the consulting portion of our employee training programs and introduce them to some of our new hires who come to Infosys with considerable consulting experience. ” At the conclusion of the teleconference call, the four PFS account team members agreed that they had made significant progress and agreed to search for additional documented cost savings that Rahul and Jaspal could use in their presentation. Preparing for the Presentation
In the next few days after the teleconference call, Rahul and Jaspal worked together with their cost analysts to put together a proposal plus price quote for PFS. To meet Infosys profit requirements, they determined that the cost-plus price of the implementation phase of the project – purchasing process redesign, vendor selection and training, package customizations, integration with PFS enterprise requirement planning (ERP) system, installation, and “burn-in” – should be $2 million (Rs. 92 million). As for the maintenance portion of the end-to-end solution, the team estimated a price of $400,000 (Rs. 18. 4 million) per year. “As all of this work will have to be done in Dallas,” Rahul stated, “My guess is that our costs will be similar to those of the two IT consulting firms competing for the business. As they have not done any major projects for PFS in recent years and are interested in demonstrating their newly developed system maintenance capabilities, our competitors may choose to price significantly below cost. I wonder if we should take an aggressive stance and cut our price significantly below our normal cost-plus fee. ” With a little less than two weeks to go, Rahul and Jaspal continued to piece together a highly persuasive presentation. We need to win this business and deliver a high quality solution as it will open the door to other highly lucrative projects at PFS,” Rahul reiterated. “For example, I understand that PFS plans to implement in the near future new ERP, customer relationship management (CRM), and financial analysis systems. We most certainly will want a piece of that action. ” 4 Please note that these prices have been disguised for proprietary reasons. They do not represent the actual prices that Infosys managers quoted on this project. 12 Exhibit 1 Select Photographs of Infosys City in Bangalore
Exhibit 2 The Seven Founders of Infosys and Their Current Positions Mr. N. R. Narayana Murthy – Chairman of the Board and Chief Mentor Mr. Nandan M. Nilekani – Chief Executive Office, President and Managing Director, Chairman-Management Council and Member of the Board Mr. S. Gopalakrishnan – Chief Operating Officer and Deputy Managing Director, Member of the Board Mr. K. Dinesh – Director and Head of Human Resources Development, Information Systems, Quality & Productivity and Communication Design Group, Member of the Board Mr. S. D. Shibulal – Director and Head – Customer Delivery and Member of the Board Mr.
N. S. Raghavan – Retired Mr. Ashok Arora – Left the company in 1989 Exhibit 3 Average Performance Metrics on Maintenance Projects over Past Five Years Performance Dimension Quality PFS Target Infosys Results ? requests delivered with zero defects 90. 0% ? delivered defects per 1000 person hours 4. 9 97. 1% 3. 2 Timeliness ? requests delivered on time ? effort estimation accuracy Reliability ? uptime on Infosys maintained systems ? abend* ratio across Infosys maintained systems * abend is an abnormal ending of a program 91. 0% 83. 0% 99. 6% 98. 1% 94. 0% 1. 8% 99. 9% . 2%