Strategic Outsourcing at Bharti Airtel Limited

Sanjay Jharkharia

Indian Institute of Management Kozhikode
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Bharti: History and Background
‡ Sunil Mittal founded Bharti in 1995 ‡ During liberalization Bharti won the govt. tender and launched ³Airtel´ ‡ First private provider in Delhi ‡ In 1998 Bharti was India¶s first private provider to turn on profit ‡ In 2002 Bharti went public on NSE and raised $172 million in its IPO ‡ 91% of all mobile users in India ‡ First private telecommunications service provider to launch national/international long-distance service ‡ Able to take advantage of economies of scale
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Bharti Management and Organization 4 .

Prepaid vis-à-vis 40% Postpaid 5 . ‡ Indian operators chose to sell mobile phones and mobile telephone services separately.Indian Market for Telecommunications ‡ In 1989. India adopted 3G technologies and provided value added services like data transmission. there were 4. SMS.2 million telephone subscribers ‡ In 2003 the number was 54 million. ‡ 8th largest telecom network in world ‡ By 2003. ‡ 60% . Ring Tones etc.

This was a major capital investment challenge for any telecom sector 6 .Market Competition ‡ By 2002-03 mobile rates were as low as 3 to 4 US cents per minute ‡ Average monthly revenue was fallen by 50% per customer unit ‡ Bharti operated in both fixed and mobile segments ‡ With industry consolidation the focus was shifting to provide value added services.

This network spanned 24000 km and connected almost all major cities 7 . Focused on providing excellent customer service through error free service.Bharti s Telecommunication Network ‡ Bharti had a 25% market share in 2003 ‡ Growth in both wireless and wire line sectors was expected to be exponential as Bharti obtained licenses to achieve nationwide coverage ‡ Bharti operations was structured into 3 strategic business units: 1) Mobile Services ± 64% of Bharti revenues. cost efficiency. 2) Long-Distance. Group Data and Enterprise ± 30% of Bharti revenues. innovation in new products and services.

Provided wire-line bases telephone services in six circles and broadband services in all major economic centers ‡ 10% of revenues pertains to inter-segment eliminations Airtel¶s Revenue Breakup 8 . Broadband and Telephone Services ± 16% of Bharti revenues.Bharti s Telecommunication Network Contd 3.

Mobile Network Architecture 9 .

Bharti network covered 1400 towns using GSM ‡ Target: GSM system up in all 5161 census towns by 2007 ‡ This required an increase in the number of Base Stations from 5. deployed in partnership with Singtel (SEAME-WE 4) 10 .Technology and Development ‡ By March 2004.000 increase in headcount ‡ Started deploying EDGE (Enhanced Data rates for GSM Evolution) in major cities ‡ Network reach through fiber optic cables.000 (Mar µ04) to 40.000 (Mar µ07) and an additional 2.000-3.

Bharti¶s Relations with vendors ‡ Bharti had number of relationships with network suppliers like Nokia. Siemens. Ericsson ‡ Bharti was comfortable working with many suppliers as everything is ³plug and play´ ‡ Environment was also very competitive between telecom vendors ‡ Issues in the industry ± Vendors always tries to sell more equipment ± A typical network uses only 60% ± 70% of installed capacity ± Around 35% excess capacity to keep one step ahead of customer demand ± Delay between the time the need for additional capacity is identified and the time it could be up and running Bharti¶s Interest: Maximum Coverage with minimum number of equipment Vendor¶s Interest: Profitability through maximum sale of equipment 11 .

IT & HR Requirements ‡ The telecom network systems and software ± related to basic functioning of telecom connection and switching system ‡ Customer management information systems that allowed for collection of data on customer use. service quality ‡ Business support software and hardware architectures including internal programs such as billing. or for a local upcoming operator like us?´ said by Gupta 12 . security. user programs etc ‡ IT issues: ± The IT systems of acquired companies are incompatible with existing systems ± Certain applications like fraud management are not provided by its existing vendors like IBM. ‡ HR issues: ³Would you rather go work for one of the world¶s top multinational firms. large in size and reputation. HP. Sun Microsystems etc.

and servicing of the telecom network to equipment vendors ± Ericsson. The responsibility for maintaining the network in good working rests with equipment supplier In order to ensure the quality of service. network capacity provided by equipment suppliers will be subject to a number of quality controls specified in SLAs 13 . Nokia and Siemens ± The agreement is to be for an initial period of 3 years subject to renewal by mutual agreement.Bharti s Proposed Deal ‡ Build-up. ownership of the assets responsible for producing that capacity belongs to Bharti. maintenance. The vendor will provide Bharti with network capacity.erlangs in accordance with Bharti projected requirements Once erlang capacity is installed.

and managing all of its hardware and software requirements and all of the applications to operate it ± It includes all internal customer service and all negotiations with external software and hardware suppliers ± It includes maintenance of all hardware and software. ± IBM services will be subject to a number of quality controls specified in SLAs ± Bharti will pay the share of its revenues which will progressively decline as overall revenue increases 14 .Bharti s Proposed Deal ‡ Build up. fraud management. maintenance. data warehousing. including those provided by other vendors such as security. and servicing of its core infrastructure to IBM ± IBM will provide end-to-end management service for supplying. HRM etc. installing. business intelligence.

around 270 IT staff and 800 network staff could be transferred out of Bharti´ 15 .The Dilemma The Bharti personnel presently carrying out tasks would be taken over by vendors ³Should the proposal be accepted by the vendors.

IBM may not be able to work fairly with other vendors ‡ Staff may not want to be transferred.Reactions at Bharti ‡ The reaction was not highly supportive Operations IT HR ‡ As operations is Bharti core competency the outsourcing of network management and operations is not acceptable ‡ The hardware applications not supported by IBM wont be available. or perhaps the vendors may not want to take them 16 .

Absorbing hundreds of Bharti employees / Working Culture Difference .Vendor Reactions Network and Equipment Vendors .They have to be fairly sure of Bharti future revenues .Concerns to get stuck with important investments in equipment .On the other hand vendors also does want to miss the opportunity to work with Bharti which is growing very fast IBM .IBM was also hoping that the signs are right and Bharti would be a ³winning horse´ 17 .

IT Outsourcing Pros for Bharti ‡ It is not the core competency of Bharti ‡ Strategic outsourcing of non core activities will help the company to focus on distinctive competencies ‡ Specialists will be able to perform the activity at a lower cost because they are able to realize economies of scale ‡ Quality of the activity performed by the specialists will be better ‡ Clearly defined performance metrics ‡ Existing incompatible IT systems 18 .

IT Outsourcing Cons for Bharti ‡ Hardware and Software not supported by IBM will be of no use ‡ Accessing services of other vendors ‡ Transfer of 270 employees 19 .

Network Outsourcing Pros for Bharti ‡ Technological Superiority is essential for competitive advantage ‡ No expertise in installing such a huge network ‡ Utilizing economies of scale ‡ Carefully defined performance metrics 20 .

nearly 800 ‡ Loss of control ‡ Wastage of installed capacity ‡ Outsourcing a core competency. operations management 21 . transfer of staff.Network Outsourcing Cons for Bharti ‡ Huge Capital Investments for Network Equipment and Installation if not outsourced ‡ HR issues.

Absorbing employees of Bharti will lead to integration issues Since the future growth projections of Bharti are very promising.Vendor¶s Risk and Returns 1. Risk of investment in specialized assets which would be rendered useless if Bharti fails 2. vendors will most likely make huge profits from these alliances 22 .

Proposed Deal with Vendors ‡ Vendors provide network capacity and paid only for running Capacity ‡ Unused Capacity ± No Payment (Vendors can have problems here) ‡ Capacity Ownership with Bharti. Maintenance with Vendor ‡ SLAs signed with vendors for quality control etc ‡ Renewal after 3 years Microsoft Office 23 .

etc ‡ Ability to process 1.5 million new customers per month ‡ Bharti to pay IBM a share of revenues which will progressively decline as revenue decreases (IBM can have problems here) ‡ Renewal after 5 years 24 . installation. maintenance and management of IT infrastructure ‡ SLAs for quality control.Proposed Deal with IBM ‡ IBM to provide end to end supply.

What happens if new IT system is needed? 25 .Proposal Implications on Bharti Advantages ‡ Reduced capital investments ‡ Better services ‡ Can focus on other competencies ‡ Increases flexibility ‡ Can expand easily Open Issues ‡ Transfer of Bharti employees to Vendors ‡ Cultural Synergies? ‡ Fear of losing competence ‡ Exposure of Core competency to vendor ‡ Over dependence on IBM and vendors.

‡ Absorbing hundreds of Bharti employees? Cultural synergy? ‡ Loss of large business opportunity if they turn down the offer ‡ Deal could improve market share in India IBM Dilemma ‡ Major and unfamiliar investment risk in IT ‡ Forecast of Bharti¶s revenue over next 5-10 years a problem.Proposal Implications on Partners Vendors Dilemma ‡ What If Bharti do not use the equipment after installation? Huge investment risks. ‡ There success was dependent on Bharti¶s success 26 .

Kralijic¶s Supply Matrix S U P P L Y R I S K Bottleneck Strategic Item Non Critical Item Leverage Item PROFIT IMPACT 27 .

Kralijic¶s supply matrix ‡ Network equipment lie in the Leverage Item grid ±They have low supplier risk ±High Profit Impact ±Hence Bharti has the bargaining power ‡ IT architecture lies in Strategic Item grid ±It has high supplier risk (only IBM) ±It has high profit Impact 28 .

It will help in transition of work .IT Equipment Outsourcing Analysis Advantages Disadvantages ‡ System not in control of Bharti ‡ Over dependence on IBM ‡ Software & Hardware incompatible with IBM can¶t be used ‡ Reduced flexibility Lower cost Better services Can focus on other competencies Can expand easily Recommendation As IT architecture lies in Strategic Item grid . Bharti should have developed strategic alliance instead of outsourcing 29 Employees should be retained with Bharti only and may be gradually shifted to IBM in a span of 2-3 years.

Network equipments ‡ Telephonic network components are Modular products ‡ They are designed to be easily plugged ‡ Very critical for the functioning of the system ‡ Easily available 30 .

Network Equipment Outsourcing Analysis Advantages ‡ ‡ ‡ ‡ ‡ Lower cost Better services Provides flexibility Can expand easily Reduce lead times Disadvantages ‡ System not in control of Bharti ‡ No incentive for Vendors ‡ Bharti had a core competency in Network management ‡ Increased risk for vendors Recommendation ‡ Cost saving should be shared with vendors which will encourage vendors ‡ Employees should be retained with Bharti only and may be gradually shifted to Vendor in a span of 2-3 years. It will help in transition of work culture and prevent overburdening of vendors. 31 .

high in IT Threat from substitute products CDMA/WML 32 .PORTER: STRATEGIC ANALYSIS Threat of new entrants Low Bargaining power of buyers High RIVALRY AMONG EXISTING FIRMS HIGH Bargaining power of suppliers Low in Network.

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