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Copy of Strategic Outsourcing at Bharti Airtel Limited

MBA 506 Corporate Information Systems Management February 7, 2012
by

Rethabile Tsekedi

on 20 October 2013

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Transcript of Copy of Strategic Outsourcing at Bharti Airtel Limited

Recommendations
“Not only did we sign a terrific set of deals…
we have redefined the complex vendor-operator relationship
in this industry!” Akhil Gupta, May 2005
Outcome of Proposals
Overall Market
Advantages
“Our business is telecom and nothing else”
– Sunil Mital BAL Chairman, Founder
Market Share & Financial Review
Outsourcing?
Core Competencies
Presentation Outline
1995: Founded by Sunil Mittal with $900 investment
Goal: India's first private mobile telecom service in Delhi area
Won bid for government license & launched telecom service known as “Airtel”
1998: Turned First Profit
Continued acquisition of additional licenses (circles)
1999: Sold 20% interest to private equity firm
2002: IPO
Acquired mobile & fixed line licenses
2005: Anticipated full coverage in India
Key Issues
Disadvantages
SWOT Analysis
Cost Savings
Access to Skills and Talent
Responsiveness
Availability & Security
Human Resource Issues
Vendor Relationships
Responsibility
Dependency
Strengths
Weaknesses
Opportunities
Threats
Leader in Indian telecom market development since liberation of industry
Leader in India mobile market with 25% market share (6 million subscribers)
Customer base growing 100%/year
100% increase in revenues from previous year as of March 2004
Ability to efficiently change CGM supplier
Family run business
Majority of market is still ‘open’ (6 phones out of 100 inhabitants)
Growth in wire line & wireless expected to be exponential over next 18 months
Further development of value added services (text, ring tones, games, etc.)
Outsourcing of network equipment & IT equipment
New in industry & learning as they go
Internal alignment of business strategy & shared vision
Difficult to maintain sufficient network capacity given constant growth & upfront cost
Process to install new capacity is time consuming & too frequent
Multiple non-compatible IT systems inherited
Short asset life of IT hardware
Conflict of interest between Bharti & Vendors
Highly competitive market
Lack of qualified IT hands
Challenge of finding sufficient vendor support for rapid growth
Presentation By Rethabile Tsekedi
Contract Considerations
Design Considerations
Contract Flexibility
Standards & Controls
Scope of Outsourcing
Expected Cost Savings & Rate of Technological Renewal/Improvement
Ethical and Social Considerations in Information Systems

Technology does not stand
“outside” of society,
but instead is a social phenomenon itself,
subject to all the constraints of
other social actors-Kenneth C. Laudon

Market share acquisition & general market expansion
of the Indian Telecommunications Market
Licensing
Marketing
Operations
Collaborative Partnering
Adopt
the
proposals
Indian Business Culture
“India is not a hire-and-fire country”
– Bharti Manager
Family
Time Trust Loyalty
Employer - Employee Relations
Impact of the Emergent Economy
IBM - Core Infrastructure
Comprehensive Service
From Desktop to Mainframe
Negotiations with Hardware & Software Suppliers
Maintenance of all Hardware & Software
Subject to Quality Control
Penalty & Reward Mechanism
Revenue Sharing
Term
Hire 270 of Bharti’s Current IT Staff
Ericsson, Nokia, Siemens –
Telecom Network Equipment
Provide Network Capacity (erlangs)
Bharti pays for what is used by customers, not excess capacity
Bharti Owns Assets
Subject to Quality Control
Penalty & Reward Mechanism
Term
Hire 800 of Bharti’s Current Network Staff
Increase in Telephone Subscribers
2003 Total Industry Revenue: $8.5 billion w/ Annual Growth of 17%
Wireless: 18% of Total Revenue or $1.5 billion/year
Wireless expected to grow to $10.9 billion by 2008
1.5 million + Monthly Cell Phone Sign-ups
Competition
Revenue per customer unit cut in half
Seven major operators: (wireless market)
Bharti – 25%
 Reliance – 19.5% (up to 21% in 2008)
 BSNL – 16% (up to 22% in 2008)
 Hutch – 12%
 Idea Cellular – 11%
 Tato – 2%
 MDNL – 1.3%
New focus on value added services & upgrade to 3G
Financial Review
Growth
Revenue doubled in 1 year to $1.1 billion in 2004
64% from Mobile Services
Economies of Scale
Profit Margin: 2003: -8.3%, 2004: 10.5%
Net income in 2004: $116,900,000
Bharti 2004
Verizon 2011
ROE
ROA
6.45%
4.26%
1.05%
Compare
11.05%
100.58%
CurrentRatio
54.49%
Network Equipment Vendor Proposal (Ericsson, Nokia, Siemens)
July 2004: Deals for transfer of buildup & management of telecom network
Arrangement based on installed erlang capacity
Network design & installation
Maintenance & running network
Shared risk through passive infrastructure investments
IT Equipment Vendor Proposal (IBM)
March 2004: 10 year partnership “on-demand” business transformation
IBM design, build up & maintain Bharti’s IT network
Joint governing body to manage arrangement
IBM conducted extensive analysis prior to agreement
Revenue increase decreases IBM % payment while absolute amount increases
One Year Later
“It’s one of few examples of a real win-win situation, creating partnerships between Bharti and its vendors. The vendors are relieved to see the end of the ‘beauty parades’ and are excited by the large volume of commitment that Bharti was willing to make. For Bharti, at last, we have a predictable cost model.”
- Akhil Gupta
Argue the key case facts & issues from
your stakeholder perspective:
1. IBM
2. Network Providers
3. Gupta & Argument for Outsourcing
4. Bharti Airtel Board of Directors
5. Outsourced Bharti IT Employees
Identify the pros and cons of your perspective.
Group Activity!
Gupta/Outsourcing
IBM
Network
Providers
Bharti Board
Employees
Rewards
Core competence vs. secondary operations
Outsource the risk & headache of hardware
IT solutions often make or break a company
Current structure has "wildly unpredictable expenditures"
Capital expenses would be financed by vendors

Risks
Losing IT employees
Losing control of hardware & network stability
Rewards
Core competence is IT solutions
Opportunity for continuous revenue stream after initial investment
Solutions can be re-used around the world if they work

Risks
Major portion of success relies on a company that IBM has no control over
Taking on & managing a huge number of Bharti employees
Limit of revenue if contract is not resigned
Cultural implications of a completely Indian company
Rewards
Core competence is hardware
Discounted & free reign of hardware installation
Reduction in sales & contract negotiation costs
Bandwidth or extra Erlangs capacity can be sold to other providers

Risks
Capitalization responsibility lies on providers
Demand fluctuation & growth completely relies on Bharti
Major risk to allocation of resources when forecasting is up to Bharti
Rewards
Capitalization of assets is no longer Bharti's responsibility
Focus on core competence

Risks
"Giving away the company"
Network capacity is absolutely critical to success - no more control
If deal doesn't work it will kill Bharti while service providers have other income sources
Cultural family like responsibility to employees
Rewards
Potential for growth into other industries
Work for a global IT industry leader
Global company with relocation options

Risks
Feeling of abandonment from Bharti against cultural norms
Job competition / Not getting re-hired by vendors
Relocation &/or large changes in operating procedures
Importing equipment without invoices
High internal expectations of IBMs services
Transfer of personnel
Implementation Challenges
Full transcript