IIM LUCKNOW CASE STUDIES

INFYBEAMINFOX CORP PRICING DIGITAL SOLUTIONS

MATHEW VARGHESE

IPMX09031

MAYANK AGARWAL

IPMX09032

PRATISH SRIVASTAVA

IPMX09051

Introduction
On theIt was a bright sunny morning of October 2013. Maxx Kohler, the engagement
manager at InfyBeamInfoX Corp, one of the leading Information Technology(IT) services
firm of the country, just finished meeting with representatives of Pecunia Ltd, a Swedenbased banking corporation, about how InfyBeamInfoX could support its banking (business)
operations across the multiple countries it functions in. The previous engagement with
Pecunia Ltd has always been robuststrong and fruitsuccessful. He checked the appointment
schedule of Pratt Striker, the Chief Information Officer(CIO) of InfyBeamInfoX, with
whom he shares a great rapport. During the meeting, Maxx shared the initial requirement of
the project, which stated that Pecunia Ltd. plans to implement an ERP system in a phased
manner and project duration would be two2 years.

Although InfyBeamInfoX has

successfully implemented major IT projects for Pecunia Ltd in the past, they had managed
to capture the business of only around $5 million per year, which is just 10 % of the total of
Pecunia Ltds budget for IT operations. This project could help them increase the wallet
share by around 4 %. Given the event INFYBEAMINFOX CORP. wins this contract and
delivers it successfully, they would be in an advantageous position to gain a greater
proportionshare of a more profitable and high value-added business.

InfyBeamInfoX Corp - A background

With annual sales of around $5 billion and net profits exceeding $1 billion for the financial
year ending in 2013, INFYBEAMINFOX CORP. provided a full IT and consulting services
including development, customization, re-engineering and maintenance of personal and
network computing. Based out ofin Bangalore, INFYBEAMINFOX CORP.

has had

100,000 employees and multiple development centers.

INFYBEAMINFOX CORP. had humble beginnings in September 1985. The founders
wanted to build an organization where advancement is based on merit. Over the years,
founders followed their principle not only making INFYBEAMINFOX CORP. one of the
most admired companies in India but also to gain legendary status in the industry.
The cCompany went through various phases of development. It started with an offshore
outsourcing model then it focused on maintenance contracts for legacy systems, but over
the years it beganstarted providing an end-to-end solution and currently is focusing on a
more high-end solution such as consultancy and ERP implementation.

PECUNIA LTD.
PECUNIA LTD. was one of the leading consumer products good companies in the USA.
Formed in 1912, PECUNIA LTD. is the market leader in food and beverages industry. In
past few years, PECUNIA LTD. has invested heavily in IT to optimize its operations.
Currently, PECUNIA LTD. is working ERP implementation to streamline its processes.
PECUNIA LTD. maintained extensive and mission critical IT systems across the USA.

Based on the initial estimate it would take two2 years and. PECUNIA Ltd. had set the same
timelines with INFYBEAMINFOX CORP.

IT industry in India
According to the survey by India Brand Equity Foundation (IBEF) India is the world's
largest sourcing destination for the information technology I(IT) industry, accounting
for approximately 67 per cent of the US$ 124-130 billion market1. The industry employs
about 10 million peopleworkforces. More importantly, the industry has led the economic
transformation of the country and altered the perception of India in the global economy.
India's cost competitiveness in providing IT services, which is approximately 3-4 times
cheaper than the US, continues to be the mainstay of its Unique Selling Proposition (USP)
in the global sourcing market. However, India is also gaining prominence regardingin terms
of intellectual capital with several global IT firms setting up their innovation centers in
India.
The IT industry has also created significant demand in the Indian education sector,
especially for engineering and computer science. The Indian IT and ITeS industry is divided
into four major segments IT services, Business Process Management (BPM), software
products and engineering services, and hardware.
Enabling employement for about 10 million people, the industry led the countrys and
altered how the world perceived Indias economic activity. India also is the biggest source
of providing cost effective IT services in the global sourcing market, which is around 3 to 4
times cheaper than the workforce in US. In the recent times , India also made its mark in the
1 (India Brand Equity Foundation, IBEF, Business Opportunities in India,
n.d.)

global map of providing intellectual capital with several firms of Indian origing establishing
their own innovation centers in the country.
The growth of IT services also saw a commensurate growth in the education sector,
particularly in fields of computer science and electronics. The sectors of IT and ITeS ( IT
Enabled Services) are broadly divided into four segments IT services , Business Project
Management , software products and hardware.

Pricing of a Project in IT industry

Pricing of a project in information technology sectorIT industry has multiple components.
This includes effort required to complete a project, travel cost, another cost that is a cost
which is incurred by the supplier but is not reimbursed by the client and other revenues that
areis cost incurred by the providsupplier and reimbursed by the customerlient. An
eExample of other cost is training cost of resources, which is not reimbursed by clients. An
eExample of other revenue is mobile bill repayment, which is compensatreimbursed by
clients.
To calculate the price of a project, first total effort for completion of the project is
calculated. To calculate effort complete project can be broken down into deliverables and
effort for each deliverable or module can be compualculated. Exhibit 1 shows effort break
up for the project.
Once effort for deliverables is calculated, project management effort is calculated and
added to project effort. Exhibit 2 shows project management effort breakup at month wise
level.

Once the total effort is calculated, effort at each role is calculated. Exhibit 3 shows various
functionroles for company INFYBEAMINFOX CORP. and the their billing rate at onsite
and offshore.
As per INFYBEAMINFOX CORP. policy, for 1 to 10 offshore resources, there should be
one1 onsite resources. For 1 to 5-software/senior software developer, there should be one1
team lead. The pProject manager can be shared with other projects and should be based
Exhibit 2.
Exhibit 4 shows a number of billable hours per day and number of billable days per month.
A nNumber of hours and billable days are used to prepare a schedule.
Company INFYBEAMINFOX CORP. has a default profit margin (PAT) of 30% for
projects. Based on corporate finance policy, minimum PAT can be 10%. In case ABCMaxx
decides to go for Profit after Taxes (PAT) below 25%, then he needed approval from his
Delivery head and Finance head. In recent past company has workedgone with the profit
margin of 20% due to increased competition.
Billing rate for resources are revised on an annual basis, and rate of growthincrease is 3%.
Change in the rate on year on year basis is subject to agreement between company and
client. To gain competitive advantage company has waived off rate change in past years for
few of the projects. The rRate change is not a necessamandatory activity but should be
considered if no proper reason for waiving it off is given.
The other component of pricing was travel cost. Travel cost was for travel of onsite
resource to the client location. Apart from this monthly mobile bill on an average was $100,
which was reimbursed by the client. Because of new technology, ABCMAXX was
supposed to decide if he will train his resources internally or through a third party. In case

he chooses to go for an external vendor then cost of training per resource will be $500, but
clients won't reimburse this costthis cost wont be reimbursed by clients. In case
ABCMAXX chooses to go for internal training then training will take one month longer.

Pricing options available to INFYBEAMINFOX CORP.

Driving his way back to home, ABCMAXX brainstormed on various pricing and
positioning options that could be chosen by INFYBEAMINFOX CORP. to boost up his
chances to win the contract. For narrowing down to any pricing option, the prerequisite was
to study the cost structure of INFYBEAMINFOX CORP. . He knew that most of the
expensecosts incurred in a project are related to resource effort cost. Travel, another cost,
and other revenues costs were almost negligible.

Option 1
The fFirst choiceoption that ABCMAXX thought was to go with default PAT of 30%
(Exhibit 2), but he felt that going with option might reduce his chances of winning the
contract because of higher price and past record from competitor analysis (Exhibit 4).

Option 2
The sSecond option was to keep the PAT at 30% but dont increase billing rate on year on
year basis. In this process, INFYBEAMINFOX CORP. has to bear the increase in salary of
employees and other operating cost increase. This would result in initial high cost and more
revenues during 1st year but reduced revenues and lower profit margin in the second year.

The cClient might be reluctant to pay a higher price during the first year because of
extendedlong realization period.

Option 3
AnoOther option he thought was to reduce the PAT to 20% and increase resource billing
rate by 3% on year on year basis. This option will help in reducing the initial cost and
would assisthelp in justifying the cost of the project to the customer, but the option would
increase the risk of any changes in requirement and project risk to INFYBEAMINFOX
Corp.

Exhibit 1
Effort requirement at Full- time equivalent (FTE) basis for each role
Senior
Syste
ms
Engine
er
Deliver
y

Progra
m
Analyst
Deliver
y

Tech
Lead
Deliver
y

Tech
Lead
Deliver
y

PM
Deliver
y

SPM
Deliver
y

Lead
Consulta
nt
Consultin
g

Resourc
e Type

Test
Engine
er

Test
Analyst

Unit

Testing

Testing

Syste
ms
Engine
er
Deliver
y

Tec
h
Arc
h
Tec
h
Indi
a
Offs
hor
e

Country

India

India

India

India

India

India

USA

India

India

USA

Revenue
Type

Offshor
e

Offshor
e

Offshor
e

Offshor
e

Offshor
e

Offshor
e

Onsite

Offshor
e

Offshor
e

Onsite

1-Jan-15

1-Feb-15
1-Mar15

0.5

0.5

1-Apr-15
1-May15

0.5

0.5

1-Jun-15

0.5

1-Jul-15
1-Aug15
1-Sep15

0.5

0.5

0.5

1-Oct-15
1-Nov15
1-Dec15

0.5

0.5

0.5

1-Jan-16

0.5

1-Feb-16
1-Mar16

0.5

0.5

1-Apr-16
1-May16

0.5

0.5

1-Jun-16

0.5

1-Jul-16
1-Aug16
1-Sep16

0.5

0.5

0.5

1-Oct-16
1-Nov16
1-Dec16

0.5

0.5

0.5

Exhibit 2
Standard rate card for INFYBEAMINFOX CORP. at role basis for different PAT
Rate per hour for PAT @
30%
(Default)
20%
10%
Test Engineer

$30.00

$28.00

$25.00

Test Analyst

$38.00

$35.00

$30.00

Systems Engineer

$33.00

$30.00

$27.00

Senior Systems Engineer

$37.00

$34.00

$30.00

Program Analyst

$42.00

$40.00

$38.00

Technology Lead

$48.00

$44.00

$40.00

Technology Lead (Onsite)

$90.00

$81.00

$72.00

Project Manager

$60.00

$55.00

$50.00

Senior Project Manager

$75.00

$65.00

$60.00

$150.00

$120.00

$100.00

$80.00

$75.00

$70.00

Lead Consultant (Onsite)

Technology Architect

Exhibit 3
Billable days details

Billable days

Billable hours per

day

YoY increase in
rate

21

3%

Exhibit 4
Predictive Analysis based on price range

References

India Brand Equity Foundation, IBEF, Business Opportunities in

India. (n.d.). Retrieved from India Brand Equity Foundation Web
site: http://www.ibef.org/industry/information-technology-india.aspx
Kevin Lane Keller, P. K. (2014). Marketing Management. Pearson.
Porter, M. E. (2000). Competitive Strategy .
Thomas Nagle, J. H. (2010). The Strategy and Tactics of Pricing: A
Guide to Growing More Profitably. Routledge.