Infosys to Buy Lodestone for Manufacturing and Life Sciences Expertise

G00239652

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Summary

Infosys will gain management consulting, SAP implementation and European manufacturing and life sciences capabilities through its planned acquisition of Lodestone, but must still address integration and global coverage gaps.

News Analysis

Event

On 10 September 2012, Infosys announced plans to acquire Lodestone Holding, a Swiss-based consulting firm. The all-cash 330 million Swiss franc ($345 million) deal is expected to close in October 2012 and will bring about 750 experienced consultants to Infosys.

Analysis

The acquisition brings Infosys closer to achieving Tier 1 consulting status, but falls short of the global coverage needed to compete effectively with Accenture, Deloitte and IBM across management consulting and system integration.

Gartner estimates that about 70% of the Lodestone staff focus on SAP implementation and upgrades while 30% primarily deliver management consulting services. Buying Lodestone brings Infosys strong expertise and resources in three specialized and competitive areas:

  1. Management consulting: Lodestone’s management consulting skills are established and well-regarded in the markets it serves. For example, Lodestone has delivered key operational consulting projects in supply chain management such as sales and operations planning and operational excellence.

  2. Specialized SAP implementation capabilities: Beyond commodity SAP ERP implementation expertise and resources, Lodestone brings strong and specialized experience in implementing SAP, notably global business transformation (i.e., template/pilot projects) enabled by SAP, Lodestone’s CTSM Add-on Suite and SAP Quality Management in the life sciences sector.

  3. European manufacturing: Lodestone’s vertical focus within manufacturing has helped it win impressive manufacturing clients in life sciences, automotive and industrial manufacturing. The location of its operations and consulting staff have also helped Lodestone secure clients in countries, such as Germany, that can be difficult to penetrate for providers headquartered outside of Europe.

Infosys will need to overcome three challenges to make this acquisition successful:

  1. Staff retention and integration: Lodestone focuses on face-to-face collaboration, and its management consulting approach is tightly integrated with its SAP functional and technical expertise. In Infosys these skills sit in different groups, and are mostly located in global delivery centers. Infosys will need to provide incentives and overcome cultural differences to prevent Lodestone’s management consulting talent from joining the growing operational consulting practices of other global services firms, specifically accounting/audit firms.

  2. Client retention and integration: Lodestone primarily delivers its service on-site while Infosys uses a global delivery model. Infosys must incorporate the benefits of global delivery to the right degree to retain clients.

  3. Expansion: Three quarters of Lodestone’s expertise is located in German-speaking Europe. Infosys will need to determine how it will expand these skills globally to other major markets.

Recommendations

  • Lodestone manufacturing clients: View the acquisition as positive but watch for and assess staff retention and integration plans. If Infosys pushes Lodestone consultants to drive BPO or application management services too aggressively, staff with specialized skills may leave.

  • Potential manufacturing clients: Include terms and conditions in agreements with Infosys that ensure the right staff are engaged in the project. Negotiate the ability to approve project resources, especially in areas such as SAP Supply Chain Management and Quality Management.

  • Infosys manufacturing clients outside of Europe: Be cautious. The deal does not bring significant resources or experience in delivering supply chain operations or SAP implementation in North America, Asia/Pacific or Latin America. Infosys’ existing consulting and SAP capabilities will continue to address these regions.

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