Infosys has over the years been a pioneer in providing
additional relevant information in its annual reports. Keeping up with the same,
the company has, in its annual report for 2010, given (as additional
information), an Intangible Assets Score Card which makes a very interesting
reading. The same is reproduced below.
1 Infosys Technologies Ltd. — (31-3-2010)
Additional information :
Intangible assets score sheet :
We caution investors that this data is provided only as
additional information to them. We are not responsible for any direct, indirect
or consequential losses suffered by any person using this data.
From the 1840s to the early 1990s, a corporate’s value was
mainly driven by its tangible assets — values presented in the corporate Balance
Sheet. The managements of companies valued these resources and linked all their
performance goals and matrices to these assets — Return on investment and
capital turnover ratio. The market capitalisation of companies also followed the
value of tangible assets shown in the Balance Sheet with the difference seldom
being above 25%. In the latter half of the 1990s, the relationship between
market value and tangible asset value changed dramatically. By early 2000, the
book value of the assets represented less than 15% of the total market value. In
short, intangible assets are the key drivers of market value in this new
economy.
A knowledge-intensive company leverages know-how, innovation
and reputation to achieve success in the marketplace. Hence, these attributes
should be measured and improved upon year after year to ensure continual
success. Managing a knowledge organisation necessitates a focus on the critical
issues of organisational adaptation, survival, and competence in the face of
ever-increasing, discontinuous environmental change. The profitability of a
knowledge firm depends on its ability to leverage the learnability of its
professionals, and to enhance the reusability of their knowledge and expertise.
The intangible assets of a company include its brand, its ability to attract,
develop and nurture a cadre of competent professionals, and its ability to
attract and retain marquee clients.
Intangible assets :
The intangible assets of a company can be classified into
four major categories: human resources, intellectual property assets, internal
assets and external assets.
Human resources :
Human resources represent the collective expertise,
innovation, leadership, entrepreneurship and managerial skills of the employees
of an organisation.
Intellectual property assets :
Intellectual property assets include know-how, copyrights,
patents, products and tools that are owned by a corporation. These assets are
valued based on their commercial potential. A corporation can derive its
revenues from licensing these assets to outside users.
Internal assets :
Internal assets are systems, technologies, methodologies,
processes and tools that are specific to an organisation. These assets give the
organisation a unique advantage over its competitors in the marketplace. These
assets are not licensed to outsiders. Examples of internal assets include
methodologies for assessing risk, methodologies for managing projects, risk
policies and communication systems.
External assets :
External assets are market-related intangibles that enhance
the fitness of an organisation for succeeding in the marketplace. Examples are
customer loyalty (reflected by the repeat business of the company) and brand
value.
The score sheet :
We published models for valuing two of our most important
intangible assets — human resources and the ‘Infosys’ brand. This score sheet is
broadly adopted from the intangible asset score sheet provided in the book
titled, The New Organisational Wealth, written by Dr. Karl-Erik Sveiby and
published by Berrett-Koehler Publishers Inc., San Francisco. We believe such
representation of intangible assets provides a tool to our investors for
evaluating our market-worthiness.
Clients :
The growth in revenue is 3% this year, compared to 12% in the
previous year (in US $). Our most valuable intangible asset is our client base.
Marquee clients or image-enhancing clients contributed 50% of revenues during
the year. They gave stability to our revenues and also reduced our marketing
costs.
The high percentage 97.3% of revenues from repeat orders
during the current year is an indication of the satisfaction and loyalty of our
clients. The largest client contributed 4.6% to our revenue, compared to 6.9%
during the previous year. The top 5 and 10 clients contributed around 16.4% and
26.2% to our revenue, respectively, compared to 18.0% and 27.7%, respectively,
during the previous year. Our strategy is to increase our client base and,
thereby reduce the risk of depending on a few large clients.
During the year, we added 141 new clients compared to 156 in
the previous year. We derived revenue from customers located in 66 countries
against 67 countries in the previous year. Sales per client grew by around 3.7%
from US $8.05 million in the previous year to US $8.35 million this year. Days
Sales Outstanding (DSO) was 59 days this year compared to 62 days in the
previous year.
Organisation :
During the current year, we invested around 2.58% of the
value-added (2.37% of revenues) on technology infrastructure, and around 2.09%
of the value-added (1.93% of revenues) on R&D activities.
A young, fast-growing organisation requires efficiency in the
area of support services. The average age of support employees is 30.4 years, as
against the previous year’s average age of 29.6 years. The sales per support
staff has come down during the year compared to the previous year and the
proportion of support staff to the total organisational staff, has improved over
the previous year.
People :
We are in a people-oriented business. We added 27,639 employees this year on gross basis (net 8,946) from 28,231 (net 13,663) in the previous year. We added 4,895 laterals this year against 5,796 in the previous year. The education index of employees has gone up substantially to 2,96,586 from 2,72,644. This reflects the quality of our employees. Our employee strength comprises people from 83 nationalities March 31, 2010. The average age of employees as at March 31, 2010 was 27. Attrition was 13.4% for this year compared to 11.1% in the previous year (excluding subsidiaries).
Notes:
The education index is shown as at the year end, with primary education calculated as 1, secondary education as 2 and tertiary education as 3.
