Strategic Outsourcing at Bharti Airtel Limited

OVERVIEW OF THE CASE Bharti- Founded by Sunil Mittal in 1995 to take

advantage of the liberalisation of Indian telecom market Major player in Indian Telecom industry Largest player in growing wireless segment with a quarter of the market share Fast growing with a revenue increase of 100% over 2003 Highly competitive market with focus on volumes against margins Exponential growth expected in next 18 months 

CHALLENGES FOR BHARTI I.T. Challenges IT network scalability to match the size of the organisation IT design not Bharti’s core competency Incompatibility in existing and inherited IT systems High obsolesce cost To face huge up-front investments for getting right architecture 

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CHALLENGES FOR BHARTI Network Challenges Conflict of interest with vendors Industry practice to purchase 30% excess capacity to compensate for estimation error in prediction capacity Increased costs of purchasing and installation at more sites, staff and maintenance 

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HR issues Difficult to retain best and the brightest as talented guys preferred MNC’s with high reputation 

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IS OUTSOURCING A SOLUTION?

ADVANTAGES Fully capitalize on India’s astounding growth

surge Indian Market for Telecom is growing exponentially so outsourcing will help them to match this growth New network set up in any circle takes around 6 months minimum and Bharti not in a situation to loose the subscriber base No need to pay the vendors before their service so it will also improve Bharti’s cash flow cycle

ADVANTAGES OF OUTSOURCING CONTD.. For IT services they will always get the updates

services thereby saving their wastage of money on obsolete softwares Can fully concentrate on providing service to customers Can avoid the problem of hunting for new resources (manpower) required as a part of expanding business – This is currently a problem for HR team End to end management service in case of IT operations 

DISADVANTAGES Core competency in operations being shifted to

vendors It will increase their dependence on vendors. After a period of time they may move on the back foot in negotiation meetings with vendors It is very tough decision in a country like India to lay off or transfer 1000 employees It is a service providing business and it will add one more channel level between customers and company thereby customer satisfaction may get affected No previous deals of such outsourcing has happened and hence risk is high

OUR OPINION

After weighing the pros and cons we recommend Bharti to go ahead with its outsourcing plan

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BHARTI’S CORE COMPETENCIES Achieved Market dominance in Mobile services Provides “error free” customer service with

low call drop rates, broad coverage, cost efficient and innovative in new products and services Provides “end-to-end service” broadband, long distance, videoconferencing and dedicated data and voice line services to business customers Its growing broadband and Telephone Services including Wi-Fi, VPN and Video surveillance Its deployment of EDGE, a 2.5G GSMcompatible technology- can upgrade its

TELECOM AND IT NETWORK OF BHARTI 

IT requirements categories: Telecom Network Systems and Software Customer Management Information Systems Business-support software and hardware

architectures 

CURRENT STATUS Purchased equipment, installation and

maintenance services from Ericsson, Siemens and Nokia Open standard GSM technology enabled them to change their suppliers with relative ease Frequent change of vendors made process of tendering, negotiating and working with the vendors to install the extended capacity tiresome Core competencies was in operations not in IT design hence much of the architecture software and hardware design could be

CURRENT STATUS CONTD.. Contracted with IBM, Sun Microsystems, HP and

Oracle for business support software and hardware architectures and customer management systems Incompatible inherited IT systems Technology changes and requirement changes leading to frequent outdating of equipment and software Established vendors did not provide all the solutions Fragmented outsourcing was not enough to meet all demands 

PATH BREAKING DEAL? Presently in the telecom industry

Network equipment vendor revenue generation is from number of boxes they have sold rather the network coverage it provides According to the proposed deal  This will move the network equipment vendor and operator on same side as the former is paid based upon amount of erlang capacity installed. Here entire responsibility of buildup, maintenance and servicing of the telecom network is given to equipment vendor 

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WHAT THE DEAL MEANS TO IBM?

PRO’S Opportunity to do more business with a major

player like Bharti Since Bharti is expected to grow very fast in the coming years, If IBM didn’t sign this deal it might affect it’s business with Bharti and other operators

CON’S Investing in hardware, software and people on

behalf of Bharti without accurate information about revenues it can generate gives rise to considerable risk Need to accommodate the manpower from Bharti They will be expected to cater to software and hardware applications not presently supported by them

OUR OPINION

Evaluating the pro’s and con’s we recommend IBM should agree to the proposed deal

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