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Infosys® Technologies Ltd.:

Growing Share of a Customer’s Business
James A. Narus and D.V.R. Seshadri

“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.e., 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 816
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 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’s 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
world-class 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.

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 mid-1880s 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
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’ maintenance 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 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’s 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 rigorously
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

1
Please note that Infoscion manager names, titles, and backgrounds described below have been
disguised for proprietary reasons.
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’s 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 understandin both “American” English and 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
state-of-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
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 e-mail 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. and 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.

2
Please note that while the performance and cost data presented below are representative, they have
been disguised for proprietary reasons.
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 labor 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.m. 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, three programmers would spend an average of 4 hours apiece at an FTE rate of $45 (Rs. 2,070)
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

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.
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 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 software-based 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 academyE&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.4 “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.”

Exhibit 1

Select Photographs of Infosys City in Bangalore

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.
 1

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

 1

Exhibit 3

Average Performance Metrics on Maintenance Projects over Past Five Years

Performance Dimension PFS Target Infosys Results

Quality
 requests delivered with zero defects 90.0% 97.1%
 delivered defects per 1000 person hours 4.9 3.2

Timeliness
 requests delivered on time 91.0% 99.6%
 effort estimation accuracy 83.0% 98.1%

Reliability
 uptime on Infosys maintained systems 94.0% 99.9%
 abend* ratio across Infosys
maintained systems 1.8% .2%

* abend is an abnormal ending of a program