The business world is being disrupted by the combined effects of growing emerging economies, shifts in global demographics, ubiquity of technology and accountability regulation. Infosys believes that to compete in the flat world, businesses must shift their operational priorities.

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September 27, 2007

Information (a)symmetries in new product introduction

by Kannan Amaresh

I was encouraged by the responses to my earlier post to share further views on the subject of new product introduction, especially those focused on individual consumers. It's about "information asymmetries".

In a flattening world, one of the aspects we talk about is how information asymmetries are going away. If as an enterprise you are clued in to this aspect, you will realize that even your prospective customers are watching your product launch, reviews and so on. Increasingly enterprises will find it difficult to take advantage with information asymmetries even though the product was marketed to a particular geographic or market segment.

We all know how that iPhone introduction was watched on the web by millions of prospective clients. Now with the price reduction done, perhaps without sufficient substantiation [you can read Apple's open letter and make your own conclusion], it looks like a perfect mis-reading of the market, by those who are already iPhone owners and the prospective ones.

Here is my thought – assume I want to buy an iPhone for $399.  At what level of confidence will I be buying this, knowing the established precedence of a potential price reduction of another $100 in about 3 months?

In addition, I had a look at Apple latest 10Q filing to get some numbers on the iPhone, to ascertain whether the price reduction has any bearing on the profitability of the product per se.

• Investment in R&D capitalized: $ 26 millions – amortization over 36 months
• Cash inflow on the first round of sale of iphone: [270000*$444 average price realization] - $120 million – revenue and cost of sales recognition over 24 months
• Store credit at $100 to piggy back other potentially non-moving items: $30 million

By doing rough back of the envelope calculation, my opinion [read.. just my personal opinion] is that on sales of $5million for the quarter, Apple perhaps booked a loss of anything from $350k to $500k.  So obviously they need to focus on increasing incremental sales while compromising on perhaps the forecasted margin.

September 20, 2007

New-economy products with old-economy mindsets

by Kannan Amaresh, Banking Domain Competency Group 

Two recent news items caught my attention.  One, new product introduction of a $20 multimedia handset for Indian Market by a firm from Netherlands and the second one, about Apple iPhone price reduction in the US. While these two may not appear to be connected, they are. For one, Apple, though being a new-economy company, appeared to be following an old economy style of product introduction – initially skim the market with novelty and charge huge premium.  Then with the first round of skim over, push the product broader market to sustain demand.  On the other hand, here is a Dutch firm at the outset bringing out a product for $20 – imagine the potential of marketing this in developed markets for, lets say $50 or so – what will be their margins? Of course this is a very simplistic comparison.  However it brings out the point that enterprises in todays world (more of a flattening world) need to price their product and services while taking global demand and market into account. No longer can you adopt such skimming of the market technique and wait for the consumer base to be loyal to you.

I also went into a lengthy discussion with one of my colleagues around various hypotheses on cost and value curves and how an event like a sub-$25 multimedia handset can trigger cascading impact. Little did I realize that Google, without being in telcom space have revolutionized search marketing and now seen as a powerful mover of consumer business -- imagine if the hardware is this cheap, what would be the potential?  No wonder Google wants to get into the Spectrum business.

Introducing Kannan Amaresh

I have asked Kannan Amaresh to share his thoughts on this blog.

Kannan heads the Banking Domain Competency Group at Infosys.  He has over 14 years of professional experience in the field of banking and financial services.  He has been a consultant with some of the leading banks in the US, Canada, Germany, UK and Australia.  Kannan is the author of several thought papers and has been an invited speaker several prestigious industry events hosted by the Financial Times and academic institutions such as University of Cambridge.

September 19, 2007

"Why Robert Reich is Wrong About Corporate Social Responsibility"

An interesting HBR viewpoint from Mark Kramer about CSR.

Mark Kramer is the co-author, with Michael Porter, of the McKinsey Award-winning Harvard Business Review article, "Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility." 

One of the reasons that CSR is different today than a few years ago is the availability and access to information.  Easy information access makes it easier for consumers to form opinions about responsible (or irresponsible) behavior of companies: Imagine all that gets written about known and "not so well known" corpororate activities in personal blogs and discussion forums.  

While only a small percentage of people will translate their opinions about companies into purchase choices, their opinions will have a substantial impact on the company's brand perception.  It would also have an impact on recruitment and retention.  It is never fun to have to defend your employer's behavior to your friends and family.  

Mark Kramer talks about direct business benefits of CSR and how it is a business reality.

Maybe a better word for "CSR" would be "Corporate Responsibility", because it is not merely "social" any longer.

September 10, 2007

Five Disparate Global Sourcing Objectives: A Conundrum?

We have heard these before and will hear them again in sourcing deal after deal: the list of Objectives from the Global Sourcing initiatives that an organization is embarking on. And in deal after deal, there will be those sighs and groans as the solution team tries to figure out how to reconcile sometimes seemingly disparate objectives into one elegant package:

1. Efficiency with Innovation

Sourcing initiatives typically begin as a means to get the house in order, eliminate inefficiencies, control and lower costs etc. However the benefits desired do not stop once those are achieved and extend to creation of new value through innovation and transformation. Innovation is expected to follow its humble cousin, Operational Efficiencies, as a natural progression and that too in quick succession!

Now, only if the scope coverage, contractual mechanisms and pricing formats were to support this…On the deals I have worked on, I have mostly come across one or two sheet, unformatted response templates when it comes to proposing Innovation, as compared to scores of defined forms for the Operational Efficiency aspects!

2. Quick Transitions with Minimum Disruptions

Companies want to complete transition quickly but do not want transition to impact business. Obviously a quick transition helps in avoiding the dreaded ‘bubble’ and also reduces risks due to attrition (quick transition = less time for people to react). But it could be potentially disruptive to business if it requires more intense effort from key personnel. Traditional outsourcing used to take care of this using a 100% people and asset transfer model (Your Mess for Less)! In case of Global Sourcing (as opposed to just Outsourcing), more creative models are required to reconcile these two disparate objectives.

3. Low Risk with Maximum Savings

Sourcing initiatives are not just driven by a need to save costs, but also by a desire to minimize risks (the latter part is not usually verbalized, but is key in terms of decision criteria). So, while the price point is being watched carefully, enough attention needs to be paid to the service provider’s capabilities to deliver and for both parties to achieve their objectives, esp in a global sourcing scenario. This trade-off between price and risk is not captured in either a typical T&M pricing or a regular Fixed-Price model. New pricing models and deal structures are being discussed and talked about, but are yet to become the norm.

4. Accelerated Results without a Learning Curve

As the business needs become more critical and the urgency increases, there is intense pressure to achieve accelerated results, while avoiding the pitfalls and mistakes made by past adopters of different kinds of sourcing. Companies do not have the time to go through the learning curve, and they pass this pressure through the sourcing eco-system. Additional players, other than just the service provider(s), whether internal or external, are required to take on pivotal roles, both before and after the contract is signed.

5. Capability with Reassurance

Companies want world-class capabilities, and they want ownership and control to the extent possible. Ideally they want both at the same time. No wonder, several of them are still struggling to come to grips with whether to Outsource or set up a Captive as part of their Sourcing Strategy. If only the choice could be made easier for them?

How does one handle the above set of disparate objectives without tying oneself up in knots? At Infosys, we leverage the core principles that are part of the Modular Global Sourcing approach to help optimize across the seemingly disparate objectives and benefits.

September 4, 2007

The GSS principle: It is Global Sourcing, Stupid!

Words are like people - some lose their distinctive flavor over time and some start to get confusing. And some start sounding the same as another: just like a popular theory that several years after marriage, a couple starts looking and talking very similar to each other!

The words i am referring to in this post are 'Outsourcing' and 'Offshoring'! They had distinct identities several years ago, when the world was still a little round. They reflected the Cold War mindset - there was a First World (US and other western developed countries), a Second World (USSR and its communist allies), and a Third World (underdeveloped countries in the eyes of the beholder). Outsourcing was associated with getting work done by a vendor who belonged to the First World; Offshoring was linked to sending some bits and bytes to an emerging Third World country (usually India) that would do it, like, ten times cheaper. The Second World was communist, so they never figured in the equation.

This was the world in which the IBMs and the EDSs of the world prospered, and in which some of the top C-level decision makers in F1000 companies grew up in. And it shaped their thinking and worldview.

Suddenly the World became Flat. It didn't happen overnight, of course, and Thomas Friedman just happened to write about it sooner than others could, but the boundaries started disappearing ever since the Berlin Wall fell, and one day it was like ....poof! Flat as far as the technology eye and the services eye could see...

Words which made sense then, no longer do so now. But some people still hold on to those without realizing that those labels do not fit what they are trying to describe and ask for in the current context.

I met a top level decision maker at a leading telco in the US two weeks ago and there it was,

'...we are going to consolidate our outsourcing services providers', and 'we consider you more as an Offshore services provider'

And in a quarterly presentation from a leading sourcing deal advisory firm...'the offshore market is growing ..., but the outsourcing market and players are...etc.'

One of the first influential organizations to get this nuance was Gartner - three years ago, they stopped having two separate events around Outsourcing and Offshoring, and instead rolled them into one per year, called Gartner Global Sourcing Summit. The nuance they got was simple - it is no longer about 'Outsourcing' and 'Offshoring'; it is all about Global Sourcing. If Bill Clinton were to describe it, he would say, 'It is Global Sourcing, stupid!'

Why is it so? Well, firstly the traditional outsourcing model (your mess for less) and the traditional offshore model (your work for less) are both being replaced by the Global Sourcing model that places an emphasis on doing the work where it makes most sense, sourcing resources from where they are the cheapest and of the best quality, and delivering where there is the best client interface. So, even the erstwhile 'First World' outsourcing companies are being forced to do service delivery from globally distributed locations - IBM and Accenture have added more people in India in the last 2-3 years than anywhere else in the world combined. And companies like Infosys have shown strong propensity to bid for and win large outsourcing deals that they were traditionally not even invited to.

Secondly, technology has made it possible to move most of the services work to global locations and manage/deliver them from remote centers. Technology has also digitized the scope of services so they can be easily disaggregated and then re-aggregated.

Thirdly, offshoring became mainstream and came of age. Thanks to the Y2K crisis and the dot com boom - the quality aspects of the so called Third World service providers came across very strongly. Sourcing to offshore locations and taking advantage of the talent available at a cost basis that was several times lower became a topic of discussion in the corporate boardrooms.

They key shift now is that one of basic aspects that goes with Outsourcing - stepping up to take ownership of deliverables, portfolios and service levels in a fixed price model- is being provided by leading global service providers like Infosys as well. And they are going futher by incorporating transformational solutions as part of a Sourcing relationship, so that the client continues to derive value even into the future.

Going offshore doesn't just mean sending projects or discrete tasks. There are just two kinds of service providers now - those that can take on ownership and deliver work from anywhere in the world and those that cann't.

And I fail to understand why someone would want to limit their sourcing strategy to the traditional models and providers or outsource to a service provider which cannot or does not practice a Global Delivery Model.

Next time you meet a client or give an internal pitch to your colleagues, look them right in the eyes and tell them the truth: Outsourcing and Offshoring are passe terms, they are actually sub-sets of what we should be discussing and talking about, which is Strategic Global Sourcing.

Tell them the GSS Principle: It is Global Sourcing, Stupid!