294 Mehta and Mehta
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The Derisking component was added to the model after an unfortunate incident. In
1992, Infosys had General Electric (GE) as their largest customer accounting for about
40% of its revenues. Realizing their clout, GE exerted pressure on Infosys to bring down
their rates. After one year of intense bargaining, Infosys severed its contract with GE.
Since then, Infosys decided not to be depend on any client for more than 10% of their
business.
Derisking aimed at building risk management abilities, both short term as well as
long term. Murthy explained, “Our derisking model says that we must have a balanced
portfolio of markets, technologies, and practices.” To manage long-term risk, Infosys
maintained a strategic balance in its portfolio of clients, accepting only ones that met
strict guidelines for revenues potential. It reduced the revenue dependence on its largest
client from 15.6% to 6.7% and those of its five largest clients from 43.1% to 29.2%. A similar
balance was maintained in its industry focus. Besides assuring predictable revenues, this
balance ensured a diverse skill set among the company’s professionals. Exhibit 7
summarizes its revenue segmentation by client and industry.
To manage risk in the short run, Infosys formed a risk-mitigation group that
monitored 120 parameters, and made risk-related recommendations on a fortnightly basis.
These parameters included macro as well as micro aspects of various technologies,
customers, and markets Infosys was related with. An internal group of executives met
every fortnight to discuss and analyze the recommendations of the group.
Flexible Organization Structure
In 1998 Infosys realized that its Strategic Business Unit (SBU)-based structure was
incompatible with its scalability strategy. Nandan explained, “Scalability demanded that
Infosys be lithe, agile, and flexible in responding to the new market trends because
emerging market trends could be in any new dimension.” Murthy had a similar opinion:
“We understood the demands of operating in a market where technology changes rapidly
and business models quickly become obsolete. Success depended on our ability to
recognize and assimilate these changes quickly. SBUs didn’t facilitate that.” As a result,
Infosys reorganized its nine SBUs into a highly flexible Practice Unit (PU)-based
structure. The PUs were geographically organized, and each had a dedicated sales and
software delivery infrastructure (Nanda & DeLong, 2001). Support functions such as
finance, quality, and research were centrally located in India.
Global Delivery Model (GDM)
The underlying framework for the new structure was the Global Delivery Model.
Infosys developed the model on the principle of distributed project management, that is,
executing the project at multiple locations with flawless integration. “We wanted to do
the work where it could be done best, where it made the most economic sense, and with
the least amount of acceptable risk,” explained Murthy.
The GDM required the PUs to be distributed globally, each made responsible for
different markets Infosys was operating in. Each PU had a sales arm, a Global Develop-
ment Center (GDC) and a Delivery Unit (DU) attached to it. In addition, Proximity
Development Centers (PDCs) were opened in Boston and Fremont to take care of the
implementation issues in the U.S. market that required close proximity to clients. This
reorganization enabled Infosys to work across multiple time zones on a 24-hour work cycle.