1. Why do companies go for IT outsourcing?

Try to justify Guptas proposal in that

context.
Managing the firms IT capital expenditure and save cost: Outsourcing reduces the uncertainties in
capital expenditure. Bharti could be able to solve its capital expenditure and reduce its cost
by handing over the buildup and management of Bhartis telecom and IT network to the
vendors. As payment to telecom network equipment vendors is based on erlangs used by
Bharti which excludes the unused capacity, so it would be able to save $300 to $400 million
from the requirement of maintaining 30% to 40% excess capacity.
Transfer of equipment investment risk to vendors: Rapid changing trends in telecom industries leads
to frequent obsolescence of equipment. The risk of this could be transferred to the vendors.
Gaining competitive advantage: Under the effect of competitive telecom environment and faced
with exponential growth, outsourcing helps in gaining a competitive advantage. Outsourcing
enables companies to have access to world class capabilities and to leverage global
knowledge base. Bharti would be able to tap in expertise of Ericsson and IBM and thus
providing world class mobile services.
To focus on core business processes: Companies choose to outsource to focus on their core
business processes so that they can delegate other processes to external agencies. Bhartis
core competency was in operations and not in IT design. To support its growth it required a
compatible and scalable IT infrastructure (Business-support software and hardware
architectures, customer management systems and telecom network systems and software).
Outsourcing suffices the same. IBM would buildup, maintain and service Bhartis core IT
infrastructure whereas telecom network equipment vendors (Nokia, Siemens, and Ericsson)
would provide, install and maintain network capacity- erlangs. Bharti can use its expertise
and resources to concentrate on core areas of value added services, branding, product
innovation, pricing, and marketing.
Reduction in Human Resource Cost: There would be a reduction in cost due to transfer of IT and
network staffs to vendor companies.
To tap the brightest minds: Talented IT or telecom guy general prefers to work for worlds top
multinational firms, larger in capacity and reputation rather than working for any local
upcoming operator. Outsourcing helps the firm to indirectly tap their potential and
capabilities. Bharti aimed to increase base stations to 40000 in 2007 from 50000 in 2004. By
2007 Bharti expected to connect 5161 towns from 1400 towns using GSM technology which
required hiring 2000 to 3000 people to build and maintain base stations. It would be difficult
for them to hire the best and brightest without outsourcing.
2. Assume Siemens, or Nokia, is considering the proposal from Bharti. Should they
agree? Justify your stand. What would be the risks if they agree?
Seeing the opportunity that the vendors had due to booming telecom market in the country, they
should agree to the proposal. It would give them the opportunity to do more business with a
major company like Bharti. That would be a great mix of vendors technology and Bhartis
operational excellence and a lucrative option for both the parties. Also, since Bharti would now
be more dependent on the infrastructure of the vendors, it would give them higher bargaining
power in the future if they dont feel satisfied with the business with Bharti. Working with Bharti

Group ID: B4

would also send positive signals to other operator companies like Idea, Tata, Reliance etc., that
these vendor companies would be interested in doing business with Indian operators. This will
create more opportunities for the vendor companies to increase their operations in the very
rapidly growing telecom space.
There was a major risk that Nokia or Siemens might get stuck with big investments in network
equipment that they would have made on Bhartis behalf in case Bharti did not use the
equipment. There would also be the risk of absorbing 800 of Bharti employees. These
organizations were small in numbers of employees in India and it would be difficult to handle
sudden expansion in the work force. Another risk would be to manage the new employees as
there was a big difference between the organizational culture, values and systems of Bharti and
its vendors. In addition to that, working with other vendors like IBM would come out as a
challenge as it would be difficult to maintain the fairness among different players due to their
personal interests.
3.

Two types of contract have been proposed in the case. What would be the salient
differences in the contract provisions for these two types?

Outsourcing Contract with Nokia, Siemens,

and Ericsson
Handing over responsibility for the build-up,
maintenance, and servicing of the telecom
network to equipment vendors. (Nokia, Siemens,
and Ericsson).
The vendor will provide Bharti with network
capacityerlangsin accordance with Bhartis
projected erlang requirements in each of the circles
in which Bharti operates

Bharti would pay the vendor a fee according to

the amount of erlang capacity installed.
Payment will be done for the actual capacity used
by Bharti Customers
SLAs to ensure the quality of Bhartis services
include measures of network capacity and
network quality.
Agreement is to be for an initial period of 3 years,
subject to renewal by mutual agreement.
Vendors would have to absorb around 800
network staff from Bharti.

Outsourcing Contract with IBM

To outsource the build-up, maintenance, and
servicing of Bhartis core IT infrastructure to
IBM.

IBM will provide Bharti with complete and

comprehensive end-to-end management service
for supplying, installing, and managing all of its
hardware and software requirements as concerns
the basic IT architecture of the company and all of
the applications needed to operate it
Payments Revenue Sharing
Percentage of revenues share would decrease as
overall revenues increase.

SLAs to ensure the quality of Bhartis services to its

employees and end customers include quality
control such as hotline customer satisfaction and
new application implementation delays .
5-year contract renewable for another 5 years

IBM would have to absorb around 270 IT staff

from Bharti.

Group ID: B4