In Through The Outsourcing Door
Nandan Nilekani aims to turn his software company, Infosys, into the first genuinely global IT services powerhouse. Should Accenture and IBM be nervous?
By John Heilemann

(Business 2.0) – For a guy whose professional activities generate such passionate and polarized reactions in two of the largest countries on earth, Nandan Nilekani cuts a strikingly unprepossessing figure. With his boxy suit and black mustache, the 49-year-old CEO of outsourcing giant Infosys looks like a small-town bank manager and sounds like a business school professor, rattling on about "global delivery models" and "execution engines." Make no mistake, Nilekani is forceful, articulate, and at times a bit cocky. ("We are among the early inventors of the way the world is going to do business.") Yet to cast him as either a hero or a villain seems an act of willful perversity.

Perversely or not, Nilekani has been cast as both. In India, where Infosys has emerged as the second-largest software exporter (behind Tata, the GE of India), he's widely seen as a symbol of the country's burgeoning high-tech miracle. In America, by contrast, Nilekani is virtually unknown. But the practice his company pioneered has become a target of scorn—blamed by politicians and anxious workers for siphoning precious white-collar jobs from a faltering economy. And that makes Nilekani, by the transitive property, a threat to U.S. prosperity.

Naturally, Nilekani is happier with the first image than the second, but the role he aspires to would transcend both and is more ambitious than either. What Nilekani wants is to turn Infosys into a new kind of IT services conglomerate—one that can deliver, on a worldwide basis, low-cost software and high-end consulting in a single irresistible package. In other words, he wants to turn himself into the Sam Palmisano of India. The hurdles confronting him in this quest are large and undeniably daunting. But given his history and the forces of globalization, I wouldn't bet more than a single-shot latte against his pulling it off.

Nilekani has repeatedly overcome long odds. As a kid growing up in the 1970s in a village near Bangalore, he beat out hundreds of thousands of rivals for a coveted spot at the Indian Institute of Technology in Bombay (now called Mumbai). After graduating, Nilekani considered what he calls "the soft option" chosen by so many gearhead Indians—heading for the United States. Instead he stuck around and co-founded Infosys at the age of 26. As he told me over breakfast recently on a visit to New York, the decision defied all logic: "In 1981, the concept of outsourcing hadn't been developed. And India was not entrepreneur-friendly; our government was socialistic."

A decade later, everything began to change. India embarked on its historic program of economic liberalization—lowering trade barriers, reducing taxes, embracing globalization. And soon the tech boom kicked into gear. For Nilekani's company, these developments fueled a dizzying ascent: In 1999, its sales having climbed to $121 million, Infosys became the first Indian IT firm to go public in the United States. Yet unlike so many boom-era supernovas, Infosys not only survived but thrived when bubble turned to bust: Last year its sales, incredibly, surpassed $1 billion. "After the boom," Nilekani explains, "people no longer invested in technology as an act of faith. They started focusing on reliability, return on investment, and value for money, which is exactly what we deliver."

Leaner times may have been a boon to Infosys's bottom line. But they also ensured that its modus operandi would become a subject of controversy. With U.S. job growth limping along at painfully anemic rates and a presidential campaign playing out against that backdrop, it was all but inevitable that fingers would be pointed at outsourcing and its champions. Even so, the sight of everyone from Lou Dobbs to John Kerry decrying the phenomenon took Nilekani by surprise. "Certainly we recognized a backlash was possible," he says to me, slowly shaking his head. "But did we think it would be a topic in the election? No, we did not."

As the debate raged on last spring, Nilekani made an announcement: Infosys was investing $20 million to start a new consulting subsidiary headquartered in Fremont, Calif., with plans to hire 500 American workers in the next few years. To many observers, the move seemed a ploy to placate the critics of outsourcing—to recast Infosys's image from job stealer to job creator. But although I have no doubt after talking to Nilekani that image repair was part of the story ("It's important to us to be good corporate citizens," he says earnestly), I'm also sure there's more to it than that. To think otherwise would be to lowball his moxie and his ego.

Nilekani's consulting gambit exhibits both in abundance. It's based on a premise that Infosys's outsourcing model is not only a cheaper mousetrap but also a better one. "Like Dell, like Wal-Mart, we've created a genuine business-model innovation," he says. "We've created a new way of organizing workers without regard to distance." Having firmly established Infosys's back-end credibility in code writing and system integration, Nilekani sees the front end—consulting and services—as its next frontier. "It's like Wal-Mart getting into groceries or Dell getting into printers," he says. "On top of our global delivery model, we're adding these new capabilities at the point of customer contact."

It would be easy enough to conclude that Nilekani is suffering from delusions of grandeur. IT consulting and services are people businesses, in which perception and reputation matter greatly. They are businesses dominated by the likes of Accenture, BearingPoint, and IBM—large, powerful, deep-pocketed outfits with armies of experienced professionals and sprawling networks of relationships in boardrooms around the world. A number of Infosys's Indian rivals, such as Wipro and Tata, have already attempted to seize a chunk of this lucrative territory. And what they've learned so far is that gaining ground is much simpler said than done.

Yet while grandeur may be one of Nilekani's goals, deluded he is not. He knows just how crucial the human factor is. That's why, in launching Infosys Consulting, the first thing he did was hire an all-star team to run it, full of consultants from Deloitte, EDS, and IBM. He's also aware that, nevertheless, Infosys faces what he calls "a difficult road ahead." But he can and does take comfort from the fact that the incumbent IT services giants face a rocky road themselves. "They have the relationships and domain knowledge," he says, "but their delivery models are obsolete. For them the challenge is to retool, to adapt to our model, to take costs out of their supply chains. And we think that transition will be more painful for them than ours will be for us."

Nilekani may be right about that, but Infosys has more than one transition on its hands. In India, where the company has long had the pick of the litter when it comes to hiring engineers—every year Infosys receives an astonishing 1 million job applications—competition for talent is intensifying and wages are rising. At the same time, countries such as Russia and China are likely to emerge as players in the worldwide tech economy, undercutting India as a provider of low-cost engineering. Finally, there's the possibility that this year's outsourcing controversy in the United States was only a mild preview of a full-scale backlash to come—one that could include protectionist measures designed to kneecap Infosys and its compatriots.

And yet, for all that, I like Infosys's chances of turning into the kind of dynamo Nilekani has in mind. It's not merely the company's history that makes me think so, or even its CEO's manifest strengths as strategist and leader. Instead it boils down to tidal forces that are destined to transform tech. With the cost of communications falling constantly, IT software and services will become truly global markets. (As Nilekani puts it, "We're on the verge of a global supply chain, whether it's for products or people.") And India, with its educated, English-speaking labor pool, will become one of the world's major IT powers. Given all this, it seems to me that Infosys is simply on the right side of history. I can't think of a company better situated to capitalize on these changes now unfolding.

I know, I know, execution is everything, and Nilekani could screw that up. But he hasn't so far, which leads me to conclude: IBM and Accenture, watch your backs.

Tough Crowd

Infosys faces an uphill battle in matching the large ranks of consultants its rivals already have.

Source: Business 2.0 research