SAS Institute: A Different Approach to Incentives and People Management Practices in the Software Industry

Harvard Business Review Case Analysis Prod. #: HR6-PDF-ENG

SAS Institute: A Different Approach to Incentives and People Management Practices in the Software Industry

Case intro:

The SAS Institute is a large, growing software company headquartered in the Research Triangle in North Carolina. Founded more than 25 years ago, it has evolved a unique approach, given its industry, to developing and retaining talent including using no stock options or phantom stock and not paying its salespeople on commission. The CEO and Vice President of Human Resources must decide how well their current management practices will continue to serve them as the company gains greater visibility and faces an increasingly competitive labor market.

Case analysis:

SAS Institute is the largest privately owned software company in the world that has been in existence for over 35 years. One of the main reasons for the company’s continued success and growth is its unique work culture and people management practices. But now the management is facing a challenge of attracting and recruiting a talented work force that could help it build and maintain its intellectual capital. The management must also decide whether to maintain its unique approach to pay and other people management practices in an increasingly competitive labor market.  

SAS maintains focus on the people – both customers as well as employees. The product development process at SAS is primarily driven by customer wants, feedback and insights and the company tries to provide a high level of customer service. Evans and Lindsay (2005) refer to this as the “value-creation process which is most important to running the business and maintaining or achieving a sustainable competitive advantage”[1]. I found a similar customer focus at General Electric where I had to analyze and justify the importance of every task from the customer’s perspective, and reduce inefficiencies or chances of errors, which is one of the core principles of Six-Sigma. The customer focus has given SAS a distinct advantage over its competition in terms of the range of its product line and level of integration.

SAS has further strengthened its value-creation processes with its unique recruitment, people management, compensation, benefits and performance management policies, which Evans and Lindsay (2005) refer to as “support processes that provide the infrastructure for value-creation processes”[2]. The organization culture at SAS is flat, informal and family-friendly. The company believes in “treating everyone fairly and equally”[3] and creating a good work environment. SAS encourages an open door policy, open communication and minimal hierarchy. It is important to encourage open communication within the company in order to address any concerns that can prevent it from achieving its goal. A good work environment will definitely help SAS in attracting and recruiting the best talent.

Goodnight believes that “if you take care of the employees, the employees will take care of the company”. SAS’s commitment to employee welfare is reflected in the benefits it provides such as on-site medical facilities, gyms, Montessori day care, insurance, elder care counseling, flexible work schedules, scholarships to children of employees, help with housing and subsidized cafes. This has been one of the contributing factors to SAS’s low employee turnover rates – less than 4% annually, in an industry characterized by high attrition rates and has also helped the company gain a good reputation. Caproni (2012) explains this as the “reciprocation rule” to influence people which can be simply stated as “if you give me something, I will feel obligated to give you something in return”[4].

Frequently, employee benefits come at a cost of low pay scales, which could also pose a challenge in attracting and retaining the best talent in the industry, if the competitors are offering much higher compensation packages. Infosys also faced a similar challenge attracting entry-level employees because their compensation packages were the lowest amongst its competitors, but the benefits offered were better. So they had to restructure their compensation and benefits plans to match the pay scales of their competitors.

The organizational culture at SAS also strongly emphasizes collaboration, teamwork, cooperation and mutual respect. In an effort to retain employees, there are frequent cross-functional transitions and re-assignment of employees. This is a contrast with the culture at Matsushita where the CEO had promoted internal competition by creating divisions based on products. As stated by Yoshino and Endo (2005), “employee loyalty was cultivated at division level and young staff recruited as trainees typically spent all or most of their careers within the division in which they started”[5]. Initially, it worked well for Matsushita, however with time, the divisions developed their own subcultures, had intense internal rivalry and later posed a major challenge to transforming and uniting the organization. SAS Institute has also developed a strong culture and sometimes, that can hinder re-engineering and transformation efforts.

At SAS, internal promotions, employee referrals and hiring for “cultural fit” are given a higher preference when recruiting people. Although this has worked well for the company so far, it could encourage nepotism and pose as another challenge in recruiting the best talent in the industry. Cha and Chatman (2003) state that “it makes sense to hire people who will fit the culture, possibly even trading off some immediate skills necessary for the specific entry job for better culture fit”, but they also warn about the “similarity-attraction effect” whereby people recruit others similar to them and not necessarily the best talent. While working at Accenture, I found that the organization made a conscious effort to recruit people from different age-groups, gender, ethnicity, educational background (like engineering, commerce, arts etc.), and work experience and considered “diversity as a critical strength”[6]. The reasoning behind this was that a diverse team could produce better ideas, perspectives and solutions than a team comprised of members with homogeneous backgrounds, which I found very effective. SAS will also need to consider altering its recruiting strategy for diversity to continue its growth and become a global organization.

SAS focuses on long-term commitments instead of short-term profits, both in business as well as employee recruitment. As a result, the employees trust the organization and have confidence in the long-term success of the organization and are able to focus on the quality of their work. The company is also open to risks and experimentation and gives employees the freedom to innovate and explore their ideas and creativity to come up with new products. Both these strategies have worked well for SAS in supporting its competitive strategy of developing customer-driven products and can help in attracting competent and innovative talent. 

SAS does not outsource and uses very few contract workers. This has benefited the company in terms of high quality products, but as other competitors reaping the benefits of lower labor costs, management at SAS might need to rethink their strategy for cost-effectiveness. In terms of compensation, SAS does not provide stock options or financial incentives. As SAS grows globally, it might need to revisit these criteria as stock options and financial incentives (such as joining bonus or commissions) are a way of attracting the best talent in some countries and paying them as per their capabilities and expectations.

For performance management, I agree that the strategy adopted by SAS of giving frequent feedback on performance instead of an annual appraisal is very effective and is being adopted and implemented by many organizations. Also SAS’s philosophy of assuming that their employees are intrinsically motivated works well for them because they select employees that are professional and self-starters, but it may not work well with a non-professional or hourly compensation based employees.

Most of SAS’s people management policies and work culture have worked well for the organization in the past and will continue to do so. But some will need to be revisited to sustain competitive advantage. SAS had a global revenue of $2.43 billion in 2010. The outsourcing policy has been realigned with the SAS Alliance Outsourcing program in order to maintain the competitive advantage. By maintaining focus on the customers and employees SAS has maintained customer loyalty as well as high employee retention and has been voted as the “Best Company to Work for”, for the second consecutive year by Fortune Magazine in 2011. As the organization grows, re-structuring, delegation and leadership development might be required at the managerial level to meet the demands of an evolving market.

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[1] Evans, J. R., & Lindsay, W. M. (2005). Principles of Six Sigma. In An Introduction to Six Sigma & Process Improvement. (1st ed.). (p. 29). South-Western.

[2] Evans, J. R., & Lindsay, W. M. (2005). Principles of Six Sigma. In An Introduction to Six Sigma & Process Improvement. (1st ed.). (p. 29-30). South-Western.

[3] Pfeffer, J. (1998). SAS Institute: A Different Approach to Incentives and People Management Practices in the Software Industry. Harvard Business Review, 6, 5

[4] Caproni, P. J. (2012). Gaining and Using Sustainable, Ethical Power and Influence. Management Skills for Everyday Life: The Practical Coach, 166-168.

[5] Yoshino, M. Y., & Endo, Y. (2005). Transformation of Matsushita Electric Industrial Co., Ltd. 2005 (B). Harvard Business Review, 905413, 2-4.

[6] Nanterme, P. (n.d.). Inclusion & Diversity at Accenture. Accenture. Retrieved from http://www.accenture.com/us-en/company/people/diversity/Pages/index.aspx

 

Infosys Technologies SWOT analysis from a Marketing Management perspective

       I.            Introduction

A.    Company Background

Infosys Limited is a global business consulting and an Information Technology (IT) solutions company, headquartered in Bangalore, India. It went public in India in 1993 and got listed on the United States of America (USA) NASDAQ in 1999. Infosys Limited was founded in 1981 by Narayana Murthy and six other people. Infosys has more than 156,000 employees. It has a global footprint with sales offices in 30 countries and development centers in India, US, China, Australia, UK, Canada, Japan and many other countries. Infosys competes in the Software and Information Technology Services and Consulting industry and focuses on providing IT expertise, software design, development and maintenance services as well as on-site management and other IT functions to its customers.

B.     Orientation toward Marketplace

Infosys uses the “Marketing Concept” to orient itself towards the marketplace and achieve organizational goals. Marketing concept is based on the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.

a.      Target Market

Infosys’ target market includes the Fortune 500 companies in USA and UK that are looking for innovative IT solutions and services at low cost. Infosys has created business units within the organization to achieve economies of experience based on the industries of its clients. It has 8 Industry Business Units (IBUs) and 5 Horizontal Business Units (HBU)^[1]. Each IBU is concentrated on a particular sector which makes it customer focused. Recently, Infosys has reorganized to also focus on its clients in emerging economies. It has formed a New Growth Engines unit that will look at emerging market regions like Australia, China, Japan, Middle East, Canada, South America and Latin America, and an India-focused arm. This customer-centric strategy has made Infosys more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets.  

b.      Customer Needs

Infosys has always maintained focus on its client’s needs and developed technological solutions to help its clients efficiently manage their operations, transform their business and realize revenue opportunities. Since its inception, Infosys has focused on delivering innovative business solutions and services that make their clients more competitive. As an example of creative marketing, in the 1990s, Infosys was the pioneer of the Global Delivery Model (GDM) based on utilizing the best global resources with the lowest associated cost and at the highest possible quality. This made its clients realize the potential of offshore outsourcing to better utilize their existing IT budgets to develop systems that support the business demands, while reducing costs. Infosys has been successful in correctly anticipating and adapting to the changing needs of its clients.  In an effort to align itself with its customer’s evolving needs, Infosys’ organizational strategy has evolved from the systems management era from the 1990s to IT service management adoption in the 2000s, and now to business service management in the last few years as shown in the adjoining diagram. Infosys has developed strong brand recognition through its quality services with 93% projects delivered on time and on budget, far above the industry standard of 30%[2]. This has allowed it to consistently retain over 95% of its clients[3].  

c.       Integrated Marketing

Infosys attracts the best talent globally and potential employees undergo extensive interviews to determine their cultural fit with the company values. The company realizes the importance of “internal marketing” and continuously trains its employees to be able to understand and relate to their customers’ needs, while building and developing new products and processes to help the customers grow and succeed. Employees also have performance incentives directly linked to the customer feedback for their respective projects. Infosys also engages in “external marketing” through advertising in leading newspapers, financial magazines and also through submissions of white papers and case studies highlighting its innovative business solutions that enabled its clients to achieve higher efficiencies and profits. This integrated marketing strategy has enabled all of the company’s departments to work together towards serving the customer’s interests.

d.      Profitability

Infosys is in a strong financial position with revenue of almost $7 billion in 2012 and a net profit of $1.2 billion[4]. Infosys has been consistently enjoying not only financial success, but also a very high price-equity ratio that gives it an excellent valuation on the stock markets and a blue chip status. This implies that it has the capital to expand, and also the basis to leverage potential investors. Infosys’ consistent financial performance helps in strengthening its position in the marketplace as a strong business partner and is attractive to present and future clients and employees.

    II.            Mission Statement Analysis

Infosys’ vision is “To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people” [5]. Its mission is “To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large”[6]. Client focus is at the center of its C-LIFE core values:

“Client value – To surpass client expectations consistently

Leadership by example – To set standards in our business and transactions and be an exemplar for the industry and ourselves

Integrity and transparency – To be ethical, sincere and open in all our transactions

Fairness – To be objective and transaction-oriented, and thereby earn trust and respect

Excellence – To strive relentlessly and constantly improve ourselves, our teams, our services and products to become the best”

In the IT industry, there are many companies that over-promise and under-deliver with projects that are delayed extensively, are over-budget or which do not meet quality standards. In its mission statement, Infosys communicates that it provides what clients value most in a service provider – honesty and transparency in operations. At the same time, it also communicates that it provides the best business solutions and the best people, also what matters most to its customers. The implied promise to the customer is that Infosys is seeking long-term strategic business partnerships with its clients, based on honesty, integrity, exceptional work ethic and trust, which will enhance the client’s business while addressing their IT requirements.

In its vision and mission statements, Infosys has placed highest importance on gaining the respect of its customers and surpassing their expectations. In this sense, I would say that Infosys is customer focused instead of product focused.         

 III.            SWOT Analysis

1.      Strengths

Infosys has strong brand recognition in the IT industry in India and abroad. It was the first Indian company to list on a US Stock Exchange. It is ranked among the 50 most respected countries in the world by Reputation Institute’s Global Pulse 2009. It has also been voted most admired Indian company in the Wall Street Journal Asia since 2000. It has been consistently voted as the “Best Employer” in India. It benchmarks its services against internationally recognized quality standards including CMM level 5, ISO 9001-2000. Infosys also ranked 32nd globally in the most innovative companies around the world survey conducted by Business Week joined with The Boston Consulting Group.[7] It was also recognized in a number of other categories including corporate governance, creation of shareholder value, corporate social responsibility and innovation[8]. Infosys has used these awards and quality certifications effectively in their marketing campaigns and advertisements. The strong brand identity has definitely helped Infosys in attracting high quality employees as well as new clients.

One of Infosys’ key strengths has been its ability to add new business offerings and mould itself to suit changing market and customer requirements. It has added services such as independent software testing and enterprise applications to its offerings and re-organized itself along the verticals or industries of its clients. This has enabled Infosys to gain superior expertise and knowledge within the vertical. Infosys uses this industry-specific expertise to publish case studies, white papers and client testimonials in recognized journals and magazines such as Harvard Business Review. Client testimonials are also published on its website, which help to further market its credibility, knowledge and customer focus.

Infosys also has a very strong corporate culture. Infosys management focuses on nurturing a “family-oriented” culture where each employee is called “Infoscion” (Infosys family member) which breeds loyalty and motivation in employees. Their advertisements for employee recruitment often carry personal testimonials by Infosys employees talking about their experience and excitement about working for India’s best software company in a challenging environment for big Fortune 500 clients, which is a good marketing tactic for attracting enthusiastic engineers who have just passed out of college and are eager to join to workforce.

2.      Weaknesses

Although Infosys attracts some of the best talent, it has a problem retaining the talent due to the low compensation structures. Infosys faces the highest attrition rate of 16% in the Indian software industry^[9]. These attrition numbers are thrice as much as the general industry rate^[10]. With an increasing number of international firms such as IBM, Microsoft, Accenture, and Deloitte competing with Infosys for hiring from the same pool of software engineering professionals, the gap between the demand and availability of skilled manpower in India and abroad is likely to increase further. The high attrition rate and low compensation packages affect Infosys’ marketing strategy to attract new and lateral talent. Clients are also concerned about losing key people who are working on their projects. Infosys will need to take efforts to retain employees such as hike in compensation structure and increase lateral hiring. 

3.      Opportunities

Infosys has traditionally been averse to acquisitions, held its premium pricing strategy and focused on its core IT enabled services business. However, the recent changes in the corporate leadership in 2011 and slowdown in growth, have prompted a strategic shift towards global expansion and moving up the value chain with consulting and technology partnership. Infosys recently acquired Zurich-based Lodestone Management Consultancy, which gives Infosys a profitable and strategic SAP customer base.^[11] Infosys has been successfully marketing the newly added enterprise-level technological skill set to its existing customer base and becoming a strategic business partner instead of simply being a service provider. In the past decade, it has also been shifting its marketing strategy to increasingly offer platform and product solutions coupled with superior service, which are geared towards providing much more value to its clients as a “one-stop-shop” for all their IT needs, getting more clients and delivering high value product and services in a cost-effective way.

4.      Threats

Infosys is competing globally with other Indian offshore technology services firms such as TCS, Wipro, HCL Technologies, and Cognizant as well as international consulting firms such as Accenture, Atos Origin, Cap Gemini and Deloitte for clients as well as human resources. It also competes with divisions of large multinational technology firms such as HP and IBM and software firms such as Oracle and SAP. Business Process Outsourcing firms such as Genpact and WNS Global services and in-house IT departments of large corporations are also its competitors^[12]. Infosys provides a range of proprietary products and support services that can be customized to suit the business needs of its clients across multiple domains such as banking, retail and insurance as described earlier. However, similar bespoke products and services are also provided by its global competitors, so there is a higher threat of substitute products and services with lower switching costs. Differentiating Infosys from its competitors as a high quality and low-cost provider is increasingly becoming a marketing challenge for Infosys, as other companies are following similar business strategies.

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[1] Infosys (n.d.). Infosys - Reorganization to leverage opportunities in a Flat World | Press Releases | Newsroom. Retrieved April 16, 2013, from http://www.infosys.com/newsroom/press-releases/Pages/growing-business-opportunities.aspx

[2] Haour, G. (2007, September). GROWTH - THE INFOSYS PHENOMENON. Retrieved April 16, 2013, from http://www.imd.org/research/challenges/TC070-07.cfm

[3] Infosys (2012). Infosys Annual Report 2012. Retrieved May 25, 2013, from http://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/Infosys-AR-13.pdf

[4] Infosys (2012). Infosys Annual Report 2012. Retrieved May 25, 2013, from http://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/Infosys-AR-13.pdf

[5] Fernando, A. C. (2009). Business Ethics: An Indian Perspective. Chennai, India: Pearson India.

[6] Infosys Ltd. (2011). Infosys Sustainability Report. Retrieved May 25, 2013, from http://www.infosys.com/sustainability/Documents/infosys-sustainability-report-1011.pdf

[7] BusinessWeek (2006, April 24). Global/ World's Most Innovative Companies 2006 : Finfacts Ireland. Retrieved April 16, 2013, from http://www.finfacts.com/biz10/worldsinnovativecompanies.htm

[8] Fernando, A. C. (2009). Infosys Technologies Case Study. In Business Ethics: An Indian Perspective (p. 1.19). Chennai, India: Pearson India.

[9] People Matters - Strategic Human Resource Management, Leadership & Management, HR Magazine India. (n.d.). Retrieved April 16, 2013, from http://peoplematters.in/articles/learning-curve/infosys-suffers-from-attrition-woes

[10] Iyer, S. (2012, July 16). Infosys attrition number is the real shocker | Firstpost. Latest News: Breaking/Live News Today, Latest News India, Politics News, Business/Stock Market News, Sports Updates, Bollywood News and Opinions - Firstpost.com. Retrieved December 14, 2012, from http://www.firstpost.com/business/infosys-attrition-number-is-the-real-shocker-378976.html

[11] Forbes (2012, September 10). News Analysis: Infosys Buys Lodestone for $350M - Forbes. Retrieved April 16, 2013, from http://www.forbes.com/sites/raywang/2012/09/10/news-analysis-infosys-buys-lodestone-for-350m/

[12] Infosys (2012). Infosys Annual Report 2012. Retrieved April 16, 2013, from http://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/Infosys-AR-12.pdf