STRATEGIC OUTSOURCING OF BHARTI

AIRTEL LTD

SUBMITTED TO

SUBMITTED BY

Professor Amar Sapra

Indian

Institute

Bangalore

GROUP 15
of

Management,

TUSHAR ANAND
PAVANI
MANISH PANDEY
M V SAI CHAITANYA
1511405
MADHAVI RONGALI

1511216
1511388
1511407

A CASE ANALYSIS OF STRATEGIC OUTSOURCING OF BHARTI AIRTEL LTD

1. Do you think Bharti should enter the outsourcing agreements outlined

by Gupta? What do you see as advantages and disadvantages of such
agreements? How do the different outsourcing agreements work
towards building these core competencies?

NEED FOR OUTSOURCING:

HIGH CUSTOMER GROWTH RATE:
The Given the then scenario, the telecom industry is growing at 17% per
annum and wireless industry is at 125% per annum. This requires a serious
catching up with heavy investment in Network infrastructure, manpower, spectrum
and technology. With the increasing competition, the revenue of the industry is
mainly concentrated in achieving economies of scale by increasing the
subscription base of their networks. This results in brining costs down, while
increasing the market at the expected growth rate. An extreme situation to be for
an independent company, like Bharti.
Without outsourcing Bharti would be forced to achieve either IT or network
efficiency alone, besides compromising on their core strength of operations. Being
in the fast changing technological industry, heavy investments are needed to cope
up with the upcoming technology. This calls for the firm with expertise in meeting
the future demands.

PROPOSAL

1: Outsourcing responsibility of build-up, maintenance and

servicing of the telecom network to equipment vendors, like Nokia, Siemens and
Ericsson.

ADVANTAGES:
1. NETWORK CAPACITY : The vendors are expected to
requirements of the Bhartis demand in various circles it operates.

meet

the

2. USAGE LINKED COST STRUCTURE: The fee is charged as per the

usage, thus eliminating unwanted costs involved. The capacity of the demand
has to be altered as per the existing demand, and Airtel has nothing to do with
the capacity increments or decrements, as long as the vendors meet the
requirements of the terms and conditions.
3. MAINTENANCE: Under this agreement, the vendors are responsible for
maintaining the network in good operating and maintenance conditions of the
equipment.

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A CASE ANALYSIS OF STRATEGIC OUTSOURCING OF BHARTI AIRTEL LTD

4. QUALITY CHECK: A strict SLAs (service level agreements) are put in place
to check the performance of the outsourced vendors. Network quality measures
like number of call drops, incomplete calls, etc will be the Unit of measurements
as per the SLA agreement
Penalties & Rewards as
per defect UOM

Quality control &

achieved as per tems
and conditions

Equipment suppliers
SLAs

5. CONFLICT OF INTEREST: Vendors may sell the technological equipment

required, while Bharti would want maximum coverage with little investment. This
conflict of interest between Vendors and Bharti can be resolved with the pay as
per minute usage.
6. GOAL ALIGNMENT: With new model, the goals of Bharti to achieve
maximum RMS (Revenue Market Share) as well target of vendors to gain
maximum profit of contract were aligned together.
7. EXCESS CAPITAL: An additional 40% of required capacity is required to
meet the unexpected demands. This can be avoided with the model of
outsourcing to vendors, who now bear the risk of demand fluctuations while
maintaining the required capacity.
8. REDUCED TIME DELAY: With the dedicated vendor establishment, the
time required to setup the infrastructure in the fast changing technological
industry can be minimized and the new technology can be adopted faster, which
will give the first mover advantage in the industry.
9. FOCUS ON CORE COMPETENCIES: Bharti core competency being
Operational excellence, it has got the resources and time to improve on it, while
the other essential requirements can be taken care by the outsourced model.
10. REDUCTION IN AUCTION COST: Since the GSM tech is open standard,
any vendor with the technological capabilities can be a part of the vendor list.
11. RISK DIVERSIFICATION: Outsourcing reduces the risk of capital
investment in technology, which becomes obsolete in short span of time.

DISADVANTAGES:
1. EXCESSIVE
VENDOR
DEPENDENCY: Bad operations and
maintenance will lead to bad customer experience. The brand name of Airtel,
is at stake but not of partners.
2. LIMITATIONS: Deal with a vendor, means shutting doors on a vendor
who have better access to technology.
3. TIME PERIOD: Agreements are unaltered for a period of three years, as
per the terms and conditions.

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A CASE ANALYSIS OF STRATEGIC OUTSOURCING OF BHARTI AIRTEL LTD

4. EMPLOYEE DILEMMA : Existing employees of Airtel, will find difficult to

adjust to the new companys rules and regulations. Cultural issues related to
Indian way of treating an employee and MNC culture may arise.
5. EXISTING TECHNOLOGY: Already acquired or existing technology will
have to be transferred to the new vendor, who may find it not functioning as
per his requirements.

PROPOSAL 2: Outsource IT activities to IBM

ADVANTAGES:
1. CORE COMPETENCY : Outsourcing will help them to focus on their core
areas leaving to non-core activity to someone who has expertise in that.
2. FRAGMENTED BUBBLES OUTSOURCING : Many partners for various
requirements, and some small partners for additional non-standard
requirements. By bringing everything under one partner, Bharti will be able to
solve this problem.
3. AVOID HUGE INVESTMENTS : To meet Bhartis requirements and to pace
up with the competition, it is required to adopt new technological capabilities,
which requires huge investments. By outsourcing to IBM this investment
expenditure will be passed to IBM.
4. RISK SHARING : With a revenue sharing model Bharti is converting all the
fixed to cost to variable and thus sharing the risk with IBM.
5. REDUCED OPERATIONAL COST & RECRUITMENT COST : By not
maintaining the IT systems, its cutting down on the human resources required
for them trimming down the organization size which reduces the cost.
6. QUALITY & EFFICIENCY : IBM will be able to provide better quality and
efficiency as their core competence lies in it.
7. REVENUE SHARING MODEL : This model of sharing revenues with IBM,
decreasing proportion with increasing revenues works in Bhartis favor. There is a
chance that, if it grows too fast, it might have to shell a higher amount than the
cost it would have had to bear in case doing everything in house. But still its
worth the deal.

DISADVANTAGES:
1. OTHER VENDOR APPLICATION CONCENRS: Looking at current
practice of having many non-standard vendors for some specific applications.
With outsourcing there was concern that IBM wont manage this 3 rd party
software.
2. INFORMATION SECURITY: By giving complete control to IBM, Bharti
will bear a risk of Information Security because all the data centers and
serves will be managed by IBM.
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A CASE ANALYSIS OF STRATEGIC OUTSOURCING OF BHARTI AIRTEL LTD

3. LESS CONTROL & FLEXIBILITY: With outsourcing, Bharti will have

to work with standard offerings of IBM and IBM might not be keen to address
smaller issues and requirements. Without an in-house team Bharti will lack
flexibility to manage ad hoc IT requirements.
4. RISK OF OVERDEPENDENCY: Bharti will be completely dependent
on IBM and migration to different vendor after contract expiry might be
difficult. And it may give IBM a bargaining power in future.
2. If you were Bharti, what major concerns would you have about entering
an outsourcing agreement with IBM? With Ericsson, Nokia, or Siemens?
OUTSOURCING AGREEMENT WITH IBM:
1. ABILITY TO HANDLE GROWTH: The sole reason for IT outsourcing is
because of its inability to handle the projected growth. If IBM could not handle
the sudden increase in the capacity, or unable to meet the requirements of the
growth rate, it may result in poor customer satisfaction, thus dilute the brand
Airtel, not IBM.
2. INFORMATION SECURITY: The complete control of IBM, means that
Bharti should be willing to take the risk of sharing the sensitive information,
which is critical for the customer loyalty.
3. LESS CONTROL AND FLEXIBILITY: Bharti will be having less control
of the information flow, and IBM may not be in a position to entertain smaller
issues and requirements raised by Bharti. The lack of in house team means, lack
of flexibility to manage ad hoc IT requirements.
4. OVER DEPENDENCY: Airtel, is completely dependent on IBM for all its
core processes, which means it will be more difficulty to change the vendor,
with time. This will shift the bargaining power towards IBM in future.
5. CULTURAL AND WORK DIFFERENCES:
If the proposed outsourcing should take place, Bharti is required to send 270
of its IT employees to IBM. This sudden expansion of IT team, may create problems
for IBM to provide sufficient infrastructure to the new employees to work for.
Employees would be now considered as working for IBM, who are subject to
the new rules and regulations of the IBM. Apart from the organizational objectives,
employees are also forced to meet the technical expertise of the new organization,
which has pioneered in developing its core capabilities. Besides the view,
employees are now unsure of their future prospects in the new company.
OUTSOURCING AGREEMENT WITH ERIC SSON, NOKIA OR SIEMENS:
1. VENDOR DEPENDENCY: Bad operations and maintenance will lead to
bad customer experience. The brand name of Airtel, is at stake but not of
partners.
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A CASE ANALYSIS OF STRATEGIC OUTSOURCING OF BHARTI AIRTEL LTD

2. LIMITATIONS: Deal with a vendor, means shutting doors on a vendor

who have better access to technology.
3. TIME PERIOD: Agreements are unaltered for a period of three years, as
per the terms and conditions.
4. EMPLOYEE DILEMMA : Existing employees of Airtel, will find difficult to
adjust to the new companys rules and regulations. Cultural issues related to
Indian way of treating an employee and MNC culture may arise.
5. EXISTING TECHNOLOGY: Already acquired or existing technology will
have to be transferred to the new vendor, who may find it not functioning as
per his requirements.
Apart from the individual concerns, there are a few common issues, which Bharti
might face with the model of outsourcing: like

TECH ADAPTATION : The 3G network launch needs a huge additional

infrastructure and work force. If the existing vendors, are not capable of adopting
the tech, this will force Airtel to be behind technology, while the competition may
have the first movers advantage.

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