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Tuesday, October 26, 2004

Infosys, Outsourcing –Next Frontiers

John Heilemann writes in Business 2.0 - Accenture and IBM,Watch your back, Infosys is racing ahead . Excerpts:

Nilekani's consulting gambit exhibits both in abundance. It's based on a premise that Infosys's outsourcing model is not only a cheaper mousetrap but also a better one. "Like Dell , l Wal-Mart , we've created a genuine business-model innovation," he says. "We've created a new way of organizing workers without regard to distance." Having firmly established Infosys's back-end credibility in code writing and system integration, Nilekani sees the front end -- consulting and services -- as its next frontier. "It's like Wal-Mart getting into groceries or Dell getting into printers," he says. "On top of our global delivery model, we're adding these new capabilities at the point of customer contact."

On competition - The incumbent IT services giants face a rocky road themselves. "They have the relationships and domain knowledge," he says, "but their delivery models are obsolete. For them the challenge is to retool, to adapt to our model, to take costs out of their supply chains. And we think that transition will be more painful for them than ours will be for us."

Nilekani may be right about that, but Infosys has more than one transition on its hands. In India, where the company has long had the pick of the litter when it comes to hiring engineers -- every year Infosys receives an astonishing 1 million job applications -- competition for talent is intensifying and wages are rising. At the same time, countries such as Russia and China are likely to emerge as players in the worldwide tech economy, undercutting India as a provider of low-cost engineering. Finally, there's the possibility that this year's outsourcing controversy in the United States was only a mild preview of a full-scale backlash to come -- one that could include protectionist measures designed to kneecap Infosys and its compatriots.
Infosys's chances of turning into the kind of dynamo Nilekani has in mind looks high. It's not merely the company's history that makes me think so, or even its CEO's manifest strengths as strategist and leader. Instead it boils down to tidal forces that are destined to transform tech. With the cost of communications falling constantly, IT software and services will become truly global markets. (As Nilekani puts it, "We're on the verge of a global supply chain, whether it's for products or people.") And India, with its educated, English-speaking labor pool, will become one of the world's major IT powers. Given all this, it seems to me that Infosys is simply on the right side of history. I can't think of a company better situated to capitalize on these changes now unfolding.
I would think that the same factors hold good for the other India based IT majors like TCS , Wipro and Satyam , as they have laid out distinctive plans to capitalize on the circumstances in India and the opportunities globally.

Fortune's David Kirkpatrick covering Infosys and its CEO Nandan. Excerpts:
Nilekani believes his company's move into consulting foreshadows a transformation that will remake the entire global industry. "We think the future is building a foundation of global delivery and combining that with world-class consulting skills," he says. The new consultants, for example, will work with customers to remake a company's supply chain with a more intelligent application of IT. "But because the execution is done in India they can spend more time and thought on the business problem," he says, referring to the much lower costs available to companies that take advantage of Indian programmers. "So we can deliver superior value." Nilekani has formulated a new acronym for what he thinks his company is practicing—the Global Delivery Model, or GDM, by which he means considering any country or region fair game for sourcing work. He explains: "People are realizing that outsourcing is a genuine business innovation. It's a smarter way of delivering value by leveraging workforces all over the world. Today, fine, this is predominantly in India. But it could be in any part of the world."
"GDM has been made possible by technology and process. The world has gotten wired," he says. But he also notes that Indian outsourcing firms like his did something akin to what Japanese automakers did in the 1950s. While W. Edwards Deming developed his theories about manufacturing and quality in the U.S., it was companies such as Toyota that first took him seriously. Now look who leads the global industry. Nilekani says Infosys and several other Indian software firms similarly adopted U.S. ideas about how to write software of demonstrable quality consistently and with crystal-clear documentation. Many of these techniques had not received sufficient attention from American software and services companies. Nilekani concedes that Indian firms had to be better in order to get in the customer's door. "We have brought in superior predictability of output along with the cost benefits," he says. "We bring the project in on time. You can go to sleep at night." He claims Infosys already has more knowledge about business processes than any of its Indian competitors. "Operational excellence is not a commodity—it's a differentiator. Look at Dell, or Wal-Mart. Ten years ago they weren't into groceries, or gas. They have a business model which is efficient, to which they can add new product lines."
"Incumbents like IBM or Accenture have all the consulting stuff but very little GDM," he explains. "Their challenge is to reach the same endgame. But think of the structural problems—they have to rebalance their entire global workforce, which causes intense conflict internally. The more they recruit in India the more disquiet it causes in their existing employee base. "It's not that I have to get that big. My customers just have to know that the opportunity exists. I have a lot of customers who also have long-standing relations with the incumbents. Now they're going back to them and saying you have to give me that same deal that Infosys is giving me."
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