The Biz of Coding

Narayan Murthy tells McKinsey Quarterly why Infosys rules against Accenture & IBM

by Ujwal Tickoo on August 18th, 2006

The McKinsey Quarterly carries an interview of Mr. Narayan Murthy, the highly respected Chairman and Chief Mentor of Infosys Technologies (INFY), who is about to retire on August 20, 2006.

You will need an McQ account to access this interview. One issue Mr. Murthy addresses in this interview is why he thinks Infosys will continues to do better than IBM and Accenture even though these companies are building big development centers in India. He explains that it is no more about cost arbitrage and still consider Indian Tech Majors WIPRO and TCS to be his main competitors.

The Quarterly: But the boom in offshoring has also inspired US-based services companies such as Accenture to open up operations in India—essentially to compete with you on your own terms in your own backyard. What will this mean for Infosys?

Narayana Murthy: …We’re well positioned against…big…IT services companies, such as Accenture, IBM Global Services, and EDS. Their customers…have a greater awareness that Indian companies can offer very high-quality application-development and IT-consulting services at much lower cost. The US IT services firms are under tremendous pressure from their customers to demonstrate better value for money…they are now here—to lower their costs.

But their coming here doesn’t change the basic economic difference between their businesses and ours. Typically, in the application-development work we would do for an average client, about 70 percent of the effort is done in India or another cost-competitive country. Our general and administrative expenses are centered primarily in India and are about 7.5 percent of revenues…the US companies that are our competitors, despite a strong presence in…India, by and large have the majority of their workforce in the United States…So the economics differ.

…The multinationals have to compete here for the talent and then train the people. There are many processes that have to be built up over a period of time to do that effectively. And of course, just having talented employees trained to deliver services is not enough. We have developed tools, methodologies, processes, and the management expertise for providing services to clients across geographic distances. We develop software in a geographically distributed way, in collaboration with customers. Our approach takes advantage of the 24-hour workday. It’s not just a question of renting a building and hiring a few people and then saying to customers, "The shop is open." So for now, our primary competitors will continue to be India-based companies, such as Tata Consultancy Services and Wipro.

Narayan Murthy’s reply to McQ’s question is a lesson in Strategic Management. His reply explains the underpinnings of Resource Based Strategic thinking — how companies with seemisimilar businesses achive different results due to fundamental differences in deployment of their resources. The Processes for:

• Talent acquisition and training
• Understanding of Customer’s business (more results in lesser costs) and technical requirements (actual IT solution required)
• Working in 24 hours cycles

are key to the sucess of Indian IT firms: Infosys, WIPRO, and TCS.

POSTED IN: Competition, IT, India, Information Economy, Product Management, Strategy, TCS, WIPRO