“ONCE AN IDEA’s taken hold in the brain, it’s almost impossible to eradicate. A person can cover it up, ignore it—but it stays there.” S.D. Shibulal, the new CEO of Infosys, may be able to relate to these lines from the 2010 movie Inception—or “that dream movie”, as he remembers it. In the movie, an agent, Cobb, takes a team of five people into the human subconscious to recast the thoughts of his client’s business rival. His mission is to plant a complex idea in the unknown person’s mind. Shibulal, a sci-fi movie junkie (he claims to have watched everything from 2001: A Space Odyssey to Minority Report), is trying to do a Cobb in the real world: He’s planting a new idea into the collective subconscious of the West.

The idea: Infosys as an IT consulting partner, adept at discussing business with clients across industries. It’s actually a radical shift when you consider that Infosys is seen globally as an outsourcing firm; a U.S. senator called it a “chop shop” in August 2010, and he was just echoing popular perception. Given that Europe and North America contribute to over 85% of Infosys’s revenue, it is an outsourcing company to most of its clients.

The problem for Infosys, is that consulting has taken a back seat all these years, despite the company having been incorporated Infosys Consultants in 1981. Six years later, it even partnered Kurt Salmon Associates to build a consulting presence in the U.S. But the global outsourcing opportunity proved far more lucrative, and that’s where Infosys (27 on the Fortune India 500) finds itself today. (The Kurt Salmon alliance lasted till 1994.) The consulting subsidiary now contributes a mere 3% of revenue. In 2010-11, Infosys Consulting clocked $186 million (Rs 947.7 crore).

The good news is that consulting revenue grew 89% last year. When combined with the customised technology rollouts (called ‘package implementations’), they account for almost a quarter of the company’s $6 billion global revenue. Infosys Consulting, headed by Stephen Pratt, now has more than 100 accounts to build on. For this reason, while the spotlight was on N.R. Narayana Murthy who retired as chairman in August 2011, Infosys integrated consulting with Infosys Technologies. It dropped the word ‘technologies’—the most telling indicator of its ambition.

“Consulting will become a core part of any company’s strategy because of the economic environment,” says K.V. Kamath, the new chairman of Infosys, referring to the developed markets. Most clients have to reinvent themselves, given regulatory and technology changes. “We want to be a partner to that process. Consulting will be woven into everything we do,” he adds. Kamath sees his role as someone who spurs debates in the boardroom, course correct if necessary, but not dictate strategy.

The result is Infosys 3.0. Co-chairman S. Gopalakrishnan began work on its blueprint in early 2010. He set the ball rolling, and Shibulal’s first mission is to realise those objectives. “It was a massive exercise that touched every leader; yet, it was done seamlessly,” says Kamath. A peek at Shibulal’s predecessors helps put his mission in perspective. Under Murthy’s leadership between 1981 and 2002, Infosys built the foundation of world-class processes and quality. By the time he handed over the reins to Nandan Nilekani, Infosys had 11,000 employees and was a benchmark in India Inc. for corporate governance. The Nilekani era up to 2007 is what insiders now label Infosys 2.0, as it scaled up to nearly 31,000 people, generating $3 billion in revenue. Gopalakrishnan, Nilekani’s successor, set the ball rolling into an era beyond IT-offshore delivery in the middle of the financial meltdown. That’s version 3.0.

“Competition is taking the low-hanging fruit that will accelerate the commoditisation,” says Shibulal, referring to price wars in the standard offshore deals. “We are increasing our revenue from consulting and systems integration.”

The billion-dollar question is: How will Infosys 3.0 convert each of its client relationships to large accounts? The beauty of the model is that returns are not fixed, and can create revenue opportunities in the course of the engagement. “Even today, offshoring is their USP,” says Pari Natarajan, CEO of Zinnov Management Consulting, a client advisory. “But, is there icing on top of it?”

There is. Infosys is putting muscle behind a new division that builds products such as Flypp (for Aircel and other telecom outfits), and iTransform (for an undisclosed health care customer). The division, whose most famous creation is Finacle, accounts for 8% of revenue. Infosys believes it can take that to 33% over the next five years or 10, as products piggy-back consulting assignments. When Infosys talks consulting, it means technology consulting, not strategy consulting, like a McKinsey & Co.

If clients embrace Infosys as a consulting partner, the company’s returns per engagement are as good or bad as the business problem it solves. Earlier, it would have taken an application development and maintenance deal, and been paid to ensure reliable support, or it would optimise clients’ operations and cut costs. Now, it is aiming for innovation budgets. “This may involve suggesting and executing new activities in client organisations, or taking their products to market,” explains Subrahmanyam Goparaju, head of Infosys Labs.

Ashok Vemuri, an Infosys board member who heads financial services and the Americas, explains the new order. “If Infosys convinces a banking client to try out its mobile-wallet solution, it first creates a proof of concept. If it is a success, the client pays. We worked on the mobile wallet, and were successful.” In return, Infosys made almost 10 times the money it would have otherwise asked for. “The client determines the value—not us,” he adds. With successes, it also gets word-of-mouth references, which are significant in the consulting landscape.

Neither Tata Consultancy Services nor Wipro Technologies has articulated such an approach, though they have deep knowledge in industries such as banking and energy. The only player which has made this path its own is Cognizant Technology Solutions, since 2006.

TO DIFFERENTIATE, INFOSYS IS TRYING TO HARNESS its built-up knowledge across industries. It began arranging its clients and engagements by industry in 2004. For Infosys 3.0, it consolidated clients by industry under four heads: financial services, manufacturing, energy, and retail. Then, it counts on the collective insight to innovate.

For example, if a buyer walks into a Tesco store in Britain to buy orange juice, he can use his mobile phone to scan the juice section, select his preferred brand, his bank account gets debited depending on the order, and the groceries are delivered to his home. This is happening on the AT&T network. “We want to harness the power of merging the bank, the carrier, and the products,” says Vemuri. For this, Infosys is counting on its retail, banking, and communication units. It then develops products, and that’s where innovation kicks in. There is another advantage—Infosys can apply the learnings of one industry for a client in another.

The transition to consulting has to be calibrated by three groups of employees that function simultaneously. The first group is the sales force for each industry; the second is Infosys Labs and its product development centres; and the third is, the consulting team.

The industry team has to create the consulting account, and faces the hardest part of the transition. It runs the risk of being labelled a mere outsourcing partner. “The engagements have seen a huge change in the past five years,” says B.G. Srinivas, a board member who heads the Europe region and manufacturing industry at Infosys. “We interact with the client’s business heads, chief executives, and chief financial officers more often now than before.” On large accounts, a series of meetings between the client and Infosys can culminate with chief executive officer meetings, when Gopalakrishnan and Shibulal step in. “We are also entering large, complex deals, where the salesperson and the local head of the industry go together,” Srinivas says. These can also come from relationships that the consulting team headed by Pratt have cultivated.

TO ENTER CONSULTING IN THE U.S. and Europe, Infosys needs to tackle giants Accenture and IBM, which are stronger because of their local teams, deeper client relationships, and, hence, a deeper understanding of businesses. They now also have a large presence in India (100,000 or more people) for offshore work to even out the advantage that the Indian IT players once enjoyed. At the same time, the likes of Deloitte are building their India muscle, to deepen technology-strategy relationships with their existing consulting accounts.

B.G. Srinivas: Head, Europe and manufacturing industry.
B.G. Srinivas: Head, Europe and manufacturing industry.
Ashok Vemuri: Head, financial services and Americas.
Ashok Vemuri: Head, financial services and Americas.

With the political environment in the U.S. increasingly against outsourcing, Infosys has had to accelerate its localisation plans. Of the 45,000 people it plans to hire in 2011-12, the bulk of recruits will be in the U.S. and Europe. “That is work in process,” says Kamath. “In the U.S., the focus is on developing all capabilities to put local talent in place.”

This is important for Infosys to be perceived as a global player in the U.S. In the recent past, it has been dragged to court on charges of sending low-level and unskilled employees to the U.S. on B1 visas instead of the requisite H-1B visa. “At the stage of a client pitch, if Accenture offers a 50:50 onshore-offshore ratio to a client in the U.S., while an Infosys comes in with a 30:70 ratio, the client will favour Accenture despite the efficiencies being loaded in Infosys’s favour,” says a Bangalore-based consultant of a global firm. This is because of the political climate in the U.S. For Shibulal to demonstrate a stronger commitment in America, it is crucial to localise.

“As we increase our consulting, we will recruit more people locally,” says Gopalakrishnan. This could be through acquisitions in the consulting space itself, or a buyout for a deeper presence in France and Germany. “We want to fill a geographical hole or a capability hole at the right price.”

The political complications in the U.S. will put more pressure than ever on Shibulal, who has to take Infosys 3.0 to its fruition. His predecessors have been steadfast about high operating margins, even at the cost of growth. Consulting, however, is a risky proposition for two reasons. One is the need to invest in local talent, typically experienced folk, of a consulting pedigree. Read that as reduced scope for wage arbitrage. In addition, Infosys needs to co-create with its clients before and during engagements. It means investing more in products and platforms, sometimes even taking up the project liabilities of a client. This can upset the traditional offshoring math.

This is why equity analysts and consultants are sceptical of whether Infosys can walk the talk—it has a history of being a conservative company. “It is easier for a company that takes risks to become risk-averse, than the other way around,” says the Bangalore-based consultant. “Infosys has a background of being risk averse. So while it has become more flexible with Infosys 3.0, the questions are how it will price and whether it is willing to take on additional risks,” he explains. The company has traditionally chosen its clients based on margins and potential to scale up.

IN THE LONG SHADOW of his predecessors, Shibulal appears a quiet CEO. But apart from his obvious strengths in technology and delivery, his associates allude to his curiosity and desire to explore. Between 1991 and 1996, he left Infosys to join Sun Microsystems—he now calls that a sabbatical. The stint coincided with Sun’s golden era, and Shibulal was the architect of the first ever e-commerce website in 1995. So the sense of discovery isn’t new to him, and Infosys’s latest experiment with consulting looks to be in safe hands. The new management sounds confident about riding the hard path, rather than deepening the traditional strengths. Just as Cobb in Inception said, “Never recreate from your memory. Always imagine new places.”

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