* Bharti Airtel aimed to be a low cost provider in the highly capital intensive telecom industry. They needed to keep pace with the rapid growth of their customer base, which was growing at almost 100 percent per year. Their strategy was to acquire new customers and achieve low cost per minute, but it required huge capital investments. * They outsourced everything and concentrated only on marketing, sales and distribution. They redefined the core activities in telecom industry and concentrated all their resources in acquiring and retaining customers. There were two parts to the Outsourcing deal between Bharti and telecom vendors. First was build up, maintenance, and servicing of the telecom network to equipment vendors Nokia, Siemens and Ericson. Then there was the deal with IBM to provide all in all IT solutions. 1) Advantages of Outsourcing their Network management to Ericsson, Nokia, & Siemens: * Keeping pace with network expansion due to faster installations. * Freed the management of time consuming budgeting, tendering, financing, purchasing and installing process.
They could now focus on core competencies of the company. * Shift from short-term agreements with equipment vendors to long term commitments to get better bargains and service. * Bharti will pay for network capacity (erlangs) only when it up and running. No need to pay for unused capacity. This solved the problem of conflict of interest between Bharti and the network suppliers. * Increased flexibility, no need to make huge capital investments will enable transferring of the risk to the network supplier. No Production costs( no capital investments, no labor costs), reduced Transaction costs as no need for new tenders every six months( reduced search & contract costs, reduced enforcement costs because of implementation of relational governance, lower adaptation costs because of pay for use model) * They were able to achieve Predictable Cost Model, no unplanned expenditures. Use the savings in capital expenditure in focusing on new customer acquisition, building new services etc. Disadvantages of deal with Ericsson, Nokia, & Siemens: The project might be difficult to manage and become increasingly complex because of the involvement of 3 vendors to provide the network management. * There might be resistance from the existing employees to get transferred to vendor companies because of the cultural barriers that may arise. * There is a chance of developing rivalries among the 3 vendors if the margins and competition starts getting stiff. * Wastage of installed capacity. * It will increase their dependence on vendors. After a period of time they may move on the back foot in negotiation meetings with vendors. No previous deals of such outsourcing has happened and hence risk is high Advantages of end to end IT management Outsourcing deal with IBM: * Airtel can now concentrate on their core business activities of marketing and sales. * Revenue sharing agreement thus there was big incentive for IBM to make the outsourcing deal a success. Reduced opportunism by the vendor. * Solved the scalability issue. * Avoid major increases in capital expenditures in IT. * Gain access to IBM’s rich talent pool, IBM’s expertise in IT. They can work together to create new products and services. (Value added services). * No Production costs ( no capital investments, no labor costs), reduced Transaction costs (reduced search & contract costs, reduced enforcement costs because of implementation of relational governance, lower adaptation costs because of revenue sharing model). Disadvantages of deal with IBM: * Excessive dependence on IBM and if they are not able to provide many innovative solutions, then Airtel won’t be having any option to go with a new vendor. There was a concern that the applications not supported by IBM may become obsolete * Revenue sharing was a new model which Airtel and IBM were trying for payments. As both of them didn’t have any experience in it, there was a considerable risk because of the unforeseen uncertainties. 2) How would you structure the agreements to address your concerns and capture any advantages you have identified? Structure of Agreement with IBM * There should be some provision of fixed and minimum costs for the revenue share in the agreement. IT applications not supported by IBM should be available to ensure they don’t get obsolete. * The terms and conditions in the contract should be flexible enough to cover the changing environment dynamics over the period of 10 years. * Furthermore not all the details of the partnership can be written in the agreement. So a joint governing body should be formed to manage the arrangement and resolve the issues. * Agreed metrics to measure the quality of IT services provided by IBM. Structure of Agreement with Ericsson, Nokia, & Siemens: Network and Operations Management should be transitioned to the vendors in a phased and planned manner under constant observation. * To tackle the concern of cultural barriers while working for the vendors, the Airtel employees should be absorbed on the same TnCs as they were working in Airtel. * Further recruitment of new employees should be the responsibility of vendor. * The expectations and duties of all the 3 vendors should be properly outlined and explained to prevent development of unnecessary tensions and unhealthy competition among them. The vendors should be continuously monitoring the networks and provide rapid response once the issue has been identified by them. * To be fair with the vendors if the network capacity remain unused for a major period of time, some part of payment should be done to them or it can be redeployed at other sectors. What measurements, rewards and penalties, and other governance mechanisms would you design for these two different agreements? With IBM * Strategic Alignment Measurements Process Performance Metrics – % of orders not delivered within the promised date, % of inaccurate and incomplete orders, Percentage of escalated cases, Through output. * Metrics to measure innovation – No of innovative ideas provided over a period of time. Ericsson, Nokia and Siemens * Performance Measurement and Quality Metrics – Call drop rate in the peak hours, Call drop rate over a cellular circle, Average Issue Resolve time, amount of time (measured in milliseconds) taken by data to travel from one location to another across a network etc.
Penalties on the vendor if the performance of a cellular circle is not good over a period of time due to high call drops. * Customer Experience and Satisfaction Measurements -Network Availability, Call Accessibility measure eg. how many customers fail to make a call in the first attempt , Call Retainability, voice quality etc. * Management of Resources – Utilization of resources, Amount of time taken to meet request or demand, Capacity of the resource etc. Reward and appreciation for the employees who are able to solve the issues in minimum time. * Risk assessment – Security over the network etc.