Tag: Infosys

The Changing Pecking Order and Emerging Irrelevance of the WITCH Group Term | Sherpas in Blue Shirts

As most in the global services industry know, the acronym WITCH stemmed from the fact that the large, India-based, offshore-centric service providers – Wipro, Infosys, TCS, Cognizant, and HCL Technologies – had quite similar delivery models, sales strategies, risk appetite, and growth trajectories, which essentially placed them in a single bucket.

However, Everest Group’s recently released annual assessment, “The Changing Pecking Order of the Indian IT Service Provider Landscape, revealed that the relevance of the collective term WITCH is fast diminishing as market conditions are forcing differentiation among these players.

Indeed, stark divergence among this group, as evidenced by Cognizant’s capture of the number two spot away from Infosys (see chart below), is clearly emerging.

WITCH ranking

Per the latest financial results released by these offshore majors (ending March 31, 2013), TCS and Cognizant continued to outgrow their peers on a yearly basis – both in terms of size and growth – by adding revenue that was higher than, or almost at par with, the cumulative incremental revenue of Infosys, Wipro, and HCL. Their clear vision and strategic bets, as compared to the prevailing internal confusion of the other WITCH players, is paying off.

What is leading to this segregation within the WITCH group?

  • TCS is continuing to excel on the back of its broad-based growth and aggressive penetration in the European market
  • Cognizant’s approach of keeping margins lower via a higher investment in sales and marketing spend is fetching  benefits
  • HCL is capitalizing well on the ongoing churn in the industry, and is exploiting the anti-incumbency against the traditional service providers. While this makes HCL’s growth narrow and focused largely on infrastructure services, it’s paying off for a short-term strategy
  • Infosys and Wipro are struggling with their internal, company-specific issues, (i.e., strategic confusion, weakening brand recognition, legal issues, and senior level exits).

The ultimate questions are:

  • Will the irrelevance of the collective WITCH term become more visible in the future? Will the different strategic gambles of each service provider lead to huge variances in their success rates?
  • Will the return of Infosys’ retired co-founder and former chairman Narayana Murthy help it make a comeback to the levels of TCS and Cognizant?
  • To what extent will the ongoing challenges of a few of the WITCH group players create opportunities for mid-sized players – such as Genpact, one of the key players in the FAO space, and Tech Mahindra (the combined entity) which has credible enterprise applications and infrastructure management offerings – to capitalize on their niche capabilities?

We expect to witness further changes over the next few years in the pecking order in the overall industry, and the formation of new groups cannot be ruled out. This is likely to be driven by inorganic growth, key strategic investments, service provider consolidation, and aggressive sales strategies.

For drill-down data and insights into pecking order changes in the Indian IT Service Provider Landscape by size, verticals, and geographies, please see Everest Group’s newly released viewpoint, “The Changing Pecking Order of the Indian IT Service Provider Landscape.”

Infosys Acquires Lodestone: It’s Not about the Money; It’s about Sending a Message | Sherpas in Blue Shirts

With over US$4 billion in cash reserves, Infosys had a history of keeping analysts on their toes speculating on the moves it would make. However, after its botched attempt to acquire Axon (which HCL won in a competitive bid), Infosys chose to sit on its money pile for so long that some bored analysts joked that the cash would hatch into chicken!

Infosys has experienced a fair amount of criticism recently due to its below par performance compared to its peers. With good news few and far between, Infosys had to set the ball rolling in the endeavor to resurrect its image as a market leader. Let’s take a look at its acquisition of Lodestone – a Zurich-based management consultancy that advises international companies on strategy, process optimization and IT transformation – fares not only from an overall strategic perspective but also from an image management perspective.

Geography focus: Europe

With three quarters of Lodestone’s revenue coming from Switzerland and Germany, there are no prizes for guessing Infosys’ geographic focus. Alongside European logos, Infosys will acquire local leadership, language skills and reputation in a market (Continental Europe) that has been traditionally tough for Indian service providers. It is not surprising that this acquisition follows Cognizant’s purchase of Galileo earlier this year, which enables it expansion in France, and Wipro’s acquisition of a Citibank’s datacenter in Meerbusch (Germany).

Our verdict: A good move. Infosys was not gaining traction with its strategy of organic growth in Europe. Has it done enough to position itself in Europe? No. It will have to thread together a string of pearls (products, business consulting, systems integration, etc.) through acquisitions to even convey the message that it has truly arrived in Europe. Lodestone is not going to be the silver bullet for all of Infosys’ ailments in the region.

Competency focus: SAP consulting

With a post-acquisition turnover of more than US$1 billion in SAP programs, Infosys positions itself among the top players in this area. SAP is one of the fastest growing programs within Infosys, and this move should help cross-pollinate market access and expertise between Infosys and Lodestone. However, Infosys has demonstrated visible sluggishness in its ability to manage growth with increasing size due to its single-minded focus on margins. Will it fail this challenge too?

Our verdict: Not likely, because SAP consulting is indeed a high-margin business, which makes this acquisition very much in line with Infosys’ stated strategy.

Financials of the acquisition

This is an area in which even the strongest Infosys bashers must give it credit. Looking at the revenue multiples paid by service providers for some of their recent acquisitions:

    • HP-Autonomy: 11x
    • HCL-Axon: 2.2x
    • Wipro-Infocrossing: 2.6x
    • TCS-Citi BPO: 1.9x
    • Infosys-Lodestone: 1.6x

Our verdict: Cautious, but a good deal. However, it remains to be seen how many successful acquisitions Infosys can make with this scrupulous strategy. I believe Infosys will need to acquire multiple companies to bolster its high-margin strategy; and that will require it to go shopping with an eye on its competitors who have shown themselves to be much more aggressive.

Infosys famously walked out of the Axon deal (and lost out to HCL) by refusing to negotiate its price ceiling. And its intense focus on the premium pricing of its services has led to further entrenchment of this “non-negotiable” image among its clients, as it has chosen to walk away from projects rather than budge on pricing. Burdened by this image, Infosys can pick only one from the following two options:

  1. Be apologetic about what it has done, and go back to the negotiation tables with competitive pricing for clients and open purse strings for acquisition targets
  2. Show aggression and speed in acquiring high-margin capabilities, and push ahead with its stated strategy, i.e., to increase its revenue share from value-added, high-margin services

The latter is what its leadership says it is doing. And I think that strategy is spot on. That is why I believe the highlight of this acquisition is not the money Infosys spent on it, but rather more about the message it is trying to send – Infosys is still in the game.

The news on the grapevine is that Infosys already has a lineup of targeted acquisitions in various stages of maturity. It will be interesting to see Infosys’ next move as it attempts to push ahead in what has been a challenging period.

Infosys: Not Guilty… But Not Yet Out of the Woods | Sherpas in Blue Shirts

On August 20, 2012, the Alabama District Court dismissed the whistleblower retaliation lawsuit initiated by Jack Palmer against Infosys. Interestingly, the judgment also ordered the plaintiff to bear the court costs, further underlining the emphatic rejection of the lawsuit. Yet in the face of this particular win for Infosys, it is important to understand the implications of the judgment for Infosys customers and investors, and for the offshore IT services industry as a whole. Should all concerned breathe a sigh of relief, leave this chapter behind, and move on to other important business? Unfortunately, no – at least not yet!

Infosys’ legal troubles are far from over. Earlier in August, Satya Dev Tripuraneni, a California-based former Infosys employee also filed a lawsuit against Infosys for whistleblower retaliation. While the judgment in the Palmer case provides encouragement to Infosys, we must take into account that the Tripuraneni lawsuit was filed in a different jurisdiction with a different judge, and has a different set of facts.

The second and more important thing to keep in mind is that the judgment in the Palmer case only exonerates Infosys from any wrong doing in response to the whistleblower’s lawsuit. It does not provide any additional clarity on the underlying issue of visa misuse by Infosys. This is currently the subject of a federal criminal investigation, and the outcome is likely to have a more direct impact on the company and the broader services market.

Unlike the whistleblower case, Infosys is on potentially weaker footing on this issue, as it admitted that the Department of Homeland Security found errors in a significant percentage of Form I-9 employer eligibility verifications with respect to employees working in the United States. An unfavorable outcome from the investigation could prove quite serious, as the consequences extend well beyond a financial fine to possibly include reputational damage, a drop in market valuation and stock price, and a shift of client work away from Infosys. The implications may also impact other Indian heritage service providers with by proxy negative reputation overhang.

The favorable resolution of the Palmer case brings much needed good news to Infosys and other India-based companies, and Infosys itself can take a deep breath and feel somewhat validated in the position it has taken to date. However, the dark clouds of the criminal investigation continue to loom ahead, and Infosys – and by extenstion the industry – is far from out of the woods.

Which WITCH? Switches in the Indian IT Majors’ Rankings Line-up | Sherpas in Blue Shirts

Although five years ago it was difficult to differentiate among the WITCH (Wipro, Infosys, TCS, Cognizant, and HCL) providers, Everest Group last year identified a variety of clearly emerging and meaningful distinctions in its May 2011 examination of the top five Indian IT providers.

Our just released second annual analysis, Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group, found that the top ranked provider in each of the dimensions we evaluated – financial performance, industry vertical performance, and geographic performance – remained the same, but the rankings among the five have shifted. While the rankings are not necessarily the most effective gauge of current capability or future success, the position shifts tell important, company-specific stories.

So which of the WITCHes is where in our 2012 (April 2011 through March 2012) analysis? Let’s take a quick look.

WITCH Leaderboard FY 2012

Financial Performance

TCS retained the top spot in terms of total revenue, exceeding US$10 billion for the 12 months ending March 31, 2012. It also widened the enterprise revenue gap with #2 Infosys by ~ US$1 billion, as compared to last year (the total gap is now over US$3 billion). Cognizant’s 29% revenue growth is significantly higher than that of the other Indian IT majors, and the company, which overtook Wipro on enterprise revenue rankings last year, seems to be on track to overtake Infosys to become the second largest WITCH major. On a quarterly run rate basis, this may happen as soon as the coming quarter.

Infosys continues to be the most profitable. Note: We don’t believe that being the most profitable translates to being the most successful. Sustainable growth and success is rooted in a prudent balance of short-term profitability and longer-term investment priorities.

Industry Vertical Performance

In BFSI, TCS retained its #1 ranking with more than US$4 billion in revenues, Cognizant overtook Infosys’ #2 place at the table, and HCL is showing good momentum. But it’s also important to note here that the Indian IT majors stack up differently in the BFSI sub-verticals. For example, TCS and Cognizant are the leaders in the insurance applications outsourcing space, while Wipro marginally edged out Infosys on recent insurance industry wins, growth, client quality, and investments in domain solutions and intellectual property.

Cognizant again topped the leader board in the healthcare and life sciences space with a practice that is nearly three times the size of second-placed Wipro’s. And although Infosys’ healthcare practice is fourth in terms of revenue (US$385 million), it is also the fastest growing among the WITCH group, with 42% year on year growth. TCS’ rapid growth rate in healthcare indicates that there may be a rank change with Wipro in coming quarters.

In energy and utilities, Wipro not only retained its #1 position but also significantly increased the gap between itself and #2 Infosys, in large part due to its acquisition of SAIC’s oil and gas services business in early 2011. Interestingly, we see TCS inching closer to Infosys in this space.

Geographic Performance

While TCS won the top spot in both North America and Europe, it’s an interesting mixed bag among the other WITCH players in the two regions. Cognizant has overtaken Infosys in North America, rising to the ranks of #2, and now only lags TCS’ North American revenue by $325 million. In Europe, all providers except Cognizant achieved higher growth than in North America, with Wipro and Infosys coming in second and third, respectively.

To read a detailed analysis of the what’s and why’s of our WITCH group rankings, please download the complimentary report at: Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group.

Musings and Pontifications after Infosys’s BPO Event | Sherpas in Blue Shirts

Infosys’s BPO Colloquium late last week, in Boca Raton, Florida, was a good event and a nice chance to catch-up with old friends. A couple of day’s worth of sessions covering a wide range of forward-looking topics yielded several standouts for me. They are not necessarily new trends but, rather, greater progress on key themes that used to seem further away.

First, the overall level of conversation is so much more advanced than even three years ago. The state of the art for global services has clearly advanced, and almost everyone is now focusing on how to take things to a new level. Questions and strategies are more multi-layered, with less of an underlying hope or expectation that there is a single, simple, optimal-for-all answer. True services strategies with enterprise-wide thinking are no longer the rare exception – the “sign a deal and save some money quick” mentality has matured into a more thoughtful and strategic mindset.

Second, the march of technology into BPO is both unavoidable and a force that will create significant variation and differentiation among BPO solutions and service providers – and not just three to five variations but hundreds. While labor arbitrage continues to be an anchor of business cases, technology is what provides the opportunity to change the equation and better respond to business needs. And technology is going to take many, many forms – tools with which to suck value from data or plug gaps in existing functionality, service integration platforms, small-scale platforms (five-30 users), large scale platforms (SaaS), industry-specific platforms, mobility capabilities, etc.

Quite simply, many of today’s technology plays require more meaningful investment (not to mention new skills and management disciplines) than has been true in legacy BPO. And service providers – none of which can be, if they ever really were, everything to everyone – will have to pick and choose where they invest, which in turn will guide the areas in which they become distinctive and higher value-add. So what started more than a decade ago as a fairly universal proposition around cheap, skilled, and abundant labor is being quickly redefined by technology, leading to much greater variation in competencies than we have seen to date.

Finally, it is good to see Infosys putting more definition and precision around its Infosys 3.0 vision. This has advanced a fair bit in the last three to four months and will continue to do so as it works through the implications of increasing its focus on platform-type business models and more closely linking its consulting and systems integration businesses. From my perspective, the key thing to watch with Infosys (and every other service provider) is what significant investments it makes, in which areas, and how those are intended to advance the business model – industry focus, client segmentation, role of technologies, end-to-end process approach, pricing and service structures, etc.

The next level of investments is becoming far more differentiating than the ramp-up investments of several years ago, which focused on setting up centers in the right places to support FTE volume growth. Most of the emerging investments will naturally benefit some clients (those to whom the solution applies), while providing little, if any, value to other clients (e.g., does a retailer care if a new banking platform is receiving investment?).Overall, a lot to look forward to as BPO settles into the next phase of maturity. The rapid growth of BPO was led by the fairly universal pursuit of labor arbitrage, but the real innovation is just now getting started (not to mention the need to continue changing!).

Overall, a lot to look forward to as BPO settles into the next phase of maturity. The rapid growth of BPO was led by the fairly universal pursuit of labor arbitrage but the real innovation is just now getting started (not to mention the need to continue changing!)

As Infosys Considers Purchasing Thomson Reuters’ Healthcare Business, it’s Time for a Thought Experiment | Sherpas in Blue Shirts

The Business Standard a couple of weeks ago reported that Infosys is close to acquiring Thomson Reuters’ healthcare division in a US$700-750 million transaction. To be clear, I have no concrete evidence that Infosys will make this acquisition or is in fact seriously considering it. However, the industry rumors and news articles pose a fascinating and interesting puzzle.

On the surface, this potential acquisition seems strange and somewhat out of character for Infosys, which has until now eschewed growth through acquisition, preferring instead to grow rapidly through organic methods. An organization that has held resolutely firm to its talent excellence model and avoided distractions in related fields now seems to be preparing to break with past practices and enter the software and analytics space, in which it has little experience. A rich puzzle indeed – what factors could explain this change in approach?

As we begin this thought experiment, let us first consider why Infosys may be considering this bold move. Infosys is facing the unpleasant specter of a maturing industry in its core service offerings. Industry growth rates are slowing, the terms of competition are shifting, and other firms such as TCS and Cognizant are threatening to displace it as the industry leader.

Infosys, which led the way in pioneering the high quality labor arbitrage services space, finds itself – as does the rest of the industry – coming to grips with the limits of the model. The great fear is that clients will start pressuring price and, in so doing, bring down the impressive margins Infosys and other players have been able to post over the last ten years. In addition to pricing and margin issues, the industry faces growing pressure from its client base to increase the value of its offerings beyond labor arbitrage.

Infosys may feel the Thomson Reuters acquisition creates a mechanism to address these issues in two important ways. First, it may provide a way for it to best Cognizant and TCS by moving further into the attractive, highly growth-oriented healthcare vertical. Perhaps it believes that Thomson Reuters’ substantial healthcare customer and revenue base, and its IP, will immediately make it an even more important industry player, and provide an effective base into which is can cross sell its traditional services.

Second, it may see the acquisition as a way to gain a working book of business and instant learning’s in the services industry’s holy grail…the non-linear business. For those of you who are not familiar with the term, “non-linear business” refers to services businesses that are not priced and measured by labor but instead by a product or outcome. It is thought that a move to this type of business model can reignite growth and protect providers from price and margin pressure. Thomson Reuters’ book of business looks to be chock-full of non-linear software and analytics offerings that may provide the basis for Infosys’ acceleration into these types of business models. The cream on the cake may be Infosys’ belief that it can take substantial cost out of Thomson Reuters’ business model by applying its formidable ability to move much of the production work to its proven talent factories in low cost India.

Now let us explore some of the challenges Infosys will face if it chooses to consummate the transaction. It will quickly find vast dissimilarities between the healthcare business and its traditional service lines. In a talent factory or consulting service line, operational excellence is driven by building a highly leveraged talent pyramid, with focused investments on productivity tools and a large recruiting engine that can continuously supply a steady stream of cheap new talent. On the other hand, software and related businesses leverage highly specialized talent teams, and they rigorously attempt to keep as stable as possible.

The investment philosophies and strategies between the two types of models are also very different; service providers think in terms of investments in sales and account teams with quick pay offs, while software-related firms make larger bets in IP which are monetized over years and sometimes decades. There are marked disparities between their channels to market and sales mechanisms, with service providers minimizing marketing dollars in favor of high-powered problem solving teams and software firms investing lavishly in marketing product positioning and utilizing aggressive order taking sales forces. Finally, the stakeholder groups that purchase and utilize the respective services and products are different and often unrelated, making cross selling between services and products a challenging and frequently unrewarding experience.

As we reflect on the implication of this thought experiment, it is clear that Infosys and the overall services industry face high stakes and business changing choices. They must make bold moves to mitigate the effects of the maturing services industry, but doing so may lead them into spaces in which they have little experience and whose synergies they hope to exploit prove challenging to capture.

With such a conundrum, and it will be interesting to see what Infosys does with Thomson Reuters’ healthcare business and how other providers address similar pressures as they look to evolve their business models and client relationships.

Sneak “PEAK” into the Banking Applications Outsourcing Service Provider Landscape | Sherpas in Blue Shirts

Per our observations of the evolution of the service provider landscape before and after the recession, the single most important factor we have seen for creating differentiation in the IT applications outsourcing (AO) market is significant strengthening of vertical/domain expertise. And recognizing the need for “vertical-specificity” in the AO market, earlier this year we launched an annual research initiative focused on assessing market trends and service provider capabilities for AO in the banking, financial services, and insurance (BFSI) vertical.

One of the first results that emerged from this research initiative was the Everest Group PEAK Matrix for large banking AO contracts. In a research study released earlier this week, we analyzed the landscape of AO service providers specific to the banking sub-vertical. In a world in which everyone and their uncle delivers AO services to financial services clients, this report examines 22 service providers and establishes the Leaders, Major Contenders, and Emerging Players in the banking AO market.

PEAK Matrix

As we congratulate the five Leaders (Accenture, Cognizant, IBM, Infosys, and TCS), and acknowledge the capabilities and achievements of the Major Contenders and Emerging Players, we also want to highlight three inter-related market themes that suggest the PEAK Matrix in 2012 for large banking AO relationships may look significantly different:

Buyer-driven portfolio consolidation: Most banks currently use a complex collection of service providers for their applications portfolio. Decentralized decision-making, global expansion, and large-scale M&A introduced further complexity into their portfolios. Rationalizing the portfolio creates a less complex sourcing environment, enables strategic partnerships with service providers, and also delivers meaningful financial benefit (our analysis indicates that the financial benefits of utilizing fewer service providers can be as much as 22-28 percent on an annualized basis). As more buyers join the portfolio consolidation bandwagon, the larger/more established service providers are winning at the expense of their smaller competitors.

The Matthew effect: Buyer-driven portfolio consolidation is giving rise to the Matthew effect which (in sociology) states that, “the rich get richer and the poor get poorer.” In the context of the banking AO landscape, the Matthew effect translates to “the big get bigger.” Banking AO buyers are placing disproportionate emphasis on domain expertise as a key decision-making criteria for selecting their service providers. Scale influences a company’s appetite to invest in developing vertical/micro-vertical-specific domain expertise, which in turn determines market success, which ultimately impacts growth and scale. This vicious circle of scale fueling scale is increasing the polarization in the marketplace, and could further widen the gap between the Leaders and the Major Contenders and Emerging Players.

Accelerating M&A: In response to the Matthew effect, as the Major Contenders and Emerging Players seek to achieve the next level of growth, mergers, acquisitions, and alliances will accelerate. M&A will play a significant role in service providers looking to achieve quantum leaps in capability and performance. The M&A activity is likely to significantly alter the landscape in the coming months to create a new set of Leaders and Major Contenders, In fact, since we finalized the Banking PEAK, Emerging Player  Ness Technologies  has already changed ownership.

Given the above three market forces, how much will the landscape of service providers you bank on (pun intended) change in the months to come? Only time and we can tell. Keep watching this space for more!

Related Reports:

The “Waking Giant” Sequel: How Mid-Market HRO is Emerging as a True Growth Platform | Sherpas in Blue Shirts

Is it wrong to plagiarize yourself? In 2008, Everest Group published a report entitled “Understanding the Waking Giant: The Mid-Market and FAO” highlighting how mid-market companies had turned the corner from point solutions in finance and accounting outsourcing (FAO) to adoption of more robust and integrated multi-process FAO solutions. In turning to HR outsourcing (HRO), the mid-market has traditionally been a big consumer of various point solutions including payroll, 401K administration, contingent labor, etc. But today we see clear evidence that mid-market companies have brought the same approach to their HR function, noticeably increasing their adoption of robust and integrated multi-process HR outsourcing (MPHRO) and Benefits Administration Outsourcing (BAO.) In fact, this client segment is quickly becoming the growth platform for many of the market leading HR service providers.

In our ongoing research into both the HRO and BAO spaces, the share of new contracts signed by mid-market companies (3,000-15,000 employees) continues to grow. In fact, mid-market MPHRO deals represented roughly 61 percent of all the deals inked in 2010. We saw the same upward tick in the BAO market, with 71 percent of all BAO deals involving mid-market clients. As a result, service providers are really taking notice and making moves specifically to target this growing opportunity.

What’s driving the mid-market in this direction? Take your pick of factors:

  1. By consolidating with fewer service providers, companies can reduce the cost of managing their HR processes and gain benefits from increased integration and analytics
  2. Regulatory changes affecting health and welfare (H&W) benefits are driving many companies to seek support in figuring out what needs to be done and how to do it
  3. HR technology isn’t a strategic investment area for most firms. Leveraging technology owned or developed by service providers is seen as a plus for both short- and long-term cost savings and business impact
  4. The choice of mid-market MPHRO and BAO solutions are more attractive now than ever before

Two important delivery model changes have also increased the appeal of MPHRO and BAO for mid-market companies. In both areas, use of global sourcing has gained traction. First, and not surprisingly, this has come at a time when mid-market companies continue to be under immense pressures to further reduce operating costs while simultaneously optimizing the overall effectiveness of their HR operations. Centralization and integration through offshore delivery centers align with such drivers.

Second, many service providers’ increasing focus around building leveraged and repeatable technology-driven components to their HR offerings, be it SaaS, Cloud, or platforms, is proving to be a justifiable investment. In 2010, about 70 percent of all new MPHRO deals signed involved some type of platform solution, and 71 percent of those involved mid-market buyers.

The strategy to focus on mid-market clients is paying off for some service providers. Three of Everest Group’s five MPHRO 2011 Star Performers – ADP, NorthgateArinso, and Infosys – drive significant portions of their MPHRO business from mid-market clients. Further, each of these providers grew their share of the overall MPHRO market in 2009-2010.

Both ADP and Mercer, major players in the MPHRO and BAO markets respectively, have successfully deployed mid-market strategies, although they are very different in nature. In fact, each firm, as we heard during their recent annual analyst events, continue to invest in sales programs, service offerings, and relationship models specifically targeting this growth opportunity. Mercer leveraged its acquisition of IPA to open doors with mid-market clients, and to align its delivery model with the specific needs of this segment. ADP, which has always had significant payroll offering success in the mid-market, has successfully expanded its footprint with some of these clients into the MPHRO space.

To successfully tap into this segment, HR service providers will need to be on top of the rapidly changing mid-market competitive landscape, delivery requirements, technology solutions, and sales engagement models. With all this going on, dare I say the mid-market will prove to be the “Waking Giant” for the evolving MPHRO and BAO markets?

Will the U.S. Government “Arthur Andersen” Infosys? | Sherpas in Blue Shirts

US v Infosys

As is well-documented at this time, a whistle blower and current Infosys employee has brought suit against Infosys claiming that Infosys has criminally manipulated U.S. immigration law to allow it to bring large numbers of employees into the United States to do work under visas that do not allow such activities. This in turn led the U.S. Citizenship and Immigration Services to launch a criminal investigation of Infosys.

This brings to mind a notorious case in which the government’s criminal investigation of accounting firm Arthur Andersen related to its conduct at Enron created unintended consequences. Andersen was subsequently found not guilty; however, the government’s enthusiastic pursuit of the case and aggressive use of its position “to protect the public good” created an environment in which Arthur Andersen went out of business. The investigation and subsequent closing of Andersen caused massive disruption in the Anderson audit base, put tens of thousands out of work and destroyed the lives of thousands of Andersen partners.

Infosys is unlikely to be put out of business, but I think there is a warning which should be applied to this emerging, but eerily similar, situation. As the criminal probe progresses, one could imagine that the consular officials overseeing issuing visa’s in India cast a jaundiced eye over Infosys visa applications. If Infosys starts to be seen by these consular officials as a criminal organization, or at least practicing overly aggressive strategies in applying for visas, we could see increased scrutiny of Infosys’ visa applications, which could create a scenario that might impede Infosys’ normal operations. Such a scenario is not altogether unbelievable given the current political climate with 9 percent unemployment and the early stages of a presidential election brewing, which could drive populist rhetoric on such issues. Should this behavior indeed transpire in part or in whole, it would have a substantial effect on Infosys’ ability to conduct operations as normal in the United States. Costs would rise, knowledge transfer could be delayed or forgone and Infosys’ ability to find and capture new work could be impacted. No wonder Infosys stock price is down today.

The worst case scenario is that a more aggressive posture by U.S. immigration officials on top of an environment that is already unfriendly could spread to Indian heritage service providers and outsourcers in general. At this time it is too early know if what scenario will unfold, but the situation deserves close attention. Like the Arthur Andersen situation, we may find well-intentioned and vigilant public employees operating in a time of high political tension create unforeseen and negative consequences well beyond the intended scope of the investigation and without regard to what the actual resolution of the investigation turns out to be.

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