Strategic outsourcing at Bharti Airtel


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Strategic outsourcing at Bharti Airtel

  1. 1. Case Study Strategic outsourcing at Bharti Airtel Submitted by: Kanika Agarwal Rini Rajan Asma Hameed Samrat Chowdhary Ritesh Kumar
  2. 2. Introduction  In March 2004, Airtel signed a deal with IBM for a 10 year partnership arrangement for an “on demand” business transformation with payments based on a predetermined percentage of Bharti’s revenues.  In July 2004 Bharti signed 3 successive deals with its telecom vendors for the transfer of buildup and management of its telecom network to vendors like Ericsson, Nokia & Siemens.  “Reverse Outsourcing” – Bharti an Indian company outsourced its telecom & IT network to the West.  Bharti’s core competency lies in network operations , company needs to outsource when it does not have it because it has to manage capital expenditure for its operations thus it focused on core and saved its cost.
  3. 3. Arrangement  Telecom vendors made on basis of installed capacity  Structured in two parts  Outlining network design & Installation  Concerning maintenance & running of network once installed
  4. 4. Network design and installation  Bharti would pay its vendor acc to capacity installed or capacity used by customers.  Ownership of assets rests with Bharti & maintenance responsibility with service providers.  Investments for passive infrastructure such as towers, air conditioners and generator sets with telecom equipment would be handled by Bharti  Thus Bharti shared sufficient risk on network planning & execution
  5. 5. Agreement Involving Maintenance of the Network  Vendors responsible for maintenance of network so vendors established network operations centre(NOC)capable of monitoring activity in the networks  Vendors guaranteed a high quality of service for Bharti’s customers  Several SLA were made (service level agreements) to take care of quality of customer satisfaction
  6. 6. Agreement with IBM  Based on revenue sharing over a period of 10 yrs ( 5 years renewal clause) and maintain Bharti's IT network in exchange for a portion of Bharti’s revenues  IBM looked at 2 key factors  No of Bharti’s subscribers  No of Bharti’s employees / agents  The no of subscribers acts as a major impact to Bharti’s gross revenues
  7. 7. IMPLEMENTATION Few complications  One problem was related to material imports which usually were monitored by the government on the basis of invoices.  In the arrangement with IBM no invoices existed and billing was separate from the importation.  Bharti had to then create invoices and reconcile them with the bills calculated on the basis of the new agreements.  Internal communication required to clarify the limits of agreement with IBM and also the process of handling the requests. Most challenging issue – Transfer of personnel as people were more attached to working in Bharti’s organization environment and they had the option to return to Bharti.
  8. 8. Why outsourcing • Huge capital expenditure needed to help growing customer base. • Rapidly changing trends in telecom industry leads to quicker obsolescence of equipments. • Keep the IT applications that are used to tackle competition in-house. • Risk diversified by involving three vendors instead on one. • Proper governing mechanism should be in place.
  9. 9. Advantages  Uncertainties in capital expenditures kept low.  Transferring equipment investment risk to vendor.  Pay for use and avoid excess capacity wastage.  Lower Human resources cost due to their transfer to vendor companies.  High bargaining power for Bharti, due to high competition between service providers.
  10. 10. Vendor concerns  Unused capacity will earn nothing, but necessary for operations.  Inability to increase prices to cover the increased risk.  Absorbing Bharthi employees.  Uncertainty in growth of Bharti.  Issue of scope for IBM  Cultural difference