Strategic Outsourcing at Bharti Airtel Limited

Case Overview
The case presents us with description of Bharti Airtel and talks about the time it was growing
at a rapid rate. It was Indias leading private sector provider of telecommunications services,
covering a wide spectrum comprising mobile, fixed line, broadband and enterprise services.
Bharti Airtel had grown significantly over the last few years; its revenues had increased by
100% during the FY 2003. Bharti Airtel was amongst the leading players in the telecom
Industry and had a 25% market share in the wireless market. The case mentions about the
situation of Akhil Gupta, joint managing director and CFO of Bharti Airtel Limited, who had
the responsibility of overseeing the functional directors of finance, information technology,
special projects, regulatory and secretarial concerns. Bharti Airtel being a large organization
requires extensive IT infrastructure to maintain its internal operations and as well as external
operations such as billing. During this time, because of the rapid growth of the firm, a lot of
management time was being used for issues like negotiating with vendors and budgeting at
quite regular interval because of the fact that the available equipment were becoming
obsolete frequently. This resulted in diversion of the management from the core function of
the firm and focus on customer. This problem was addressed by Akhil, who for the first time
in telecom history suggested the idea of outsourcing its IT services to firms like IBM.

Lead Questions
1. Why do companies go for IT outsourcing? Try to justify Guptas proposal in that
context.
Outsourcing refers to the act of handling out a process of a firm to some third party. It is
most widely used by large firms with wide range of operations. Firms especially go for
outsourcing of those activities which are not its core function but are an integral part of
its functioning and also, carrying it out by itself would incur huge expense. There are a
number of reasons why companies go for outsourcing as statedFirstly, Outsourcing would help to reduce and control operating cost. Outsourcing
reduces the need to hire extra workforce to manage the expanding business. As In case of
Airtel, the rate at which it was growing, a lot of expense was being incurred on procuring
new technology to replace the technology which had become obsolete. Also, they had a
requirement of a large number of work-force to manage these which was a difficult job
because of the company being relatively new and people with the technical knowhow
preferring better technical firms.
Secondly, it would improve companys focus on its core operation. As mentioned by
Akhil Gupta, in case of Airtel a lot of management time was being spent in negotiating
with the vendors. Also, the core competencies of Bharti Airtel were in the field of
network operations, innovation and sales & marketing and had no expertise and
experience in providing services based on IT.
Thirdly, reduce risk. Outsourcing would reduce the risk of technology becoming obsolete
and thus, reduce the sunk cost of the company. As mentioned by Akhil, they had to
constantly interact with vendors and negotiate with them about purchasing new
equipment to replace recently bought equipment. In case of outsourcing the issue of
managing of equipment and technology is on the party that has the contract for it.

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?
Assuming that Nokia or Siemens, is considering the proposal from Bharti, the key factors
that they should keep in mind while coming at a decision are Bharti had a strong position in the market with respect to market share. Thus, going
in a business with it would not be that risky. They would get an opportunity to do
more business with a major player Also, the fact that the initial contract would be of
3 years which is comparatively small period of time, provide an opportunity for
either of the two companies to try the proposal.
Secondly, going in business with Bharti would make them early adopters and would
help them tap the potential of the growing telecom market in India. This would
definitely help them increase their operation and market share in India.
Risk or concerns involved for Nokia or Siemens in accepting the proposal are

One of the concerns of these firms was the investments they had to make in network
equipment. They felt that there was a risk of this investment to become sunk cost
and they get stuck with these network equipment.
Also, there was concern regarding absorbing the hundreds of Bharti employees to
their firm. They felt that the difference in culture of the two firms would affect the
efficiency and working of these employees.

We feel that although there are risks involved in this proposal but the opportunities it
holds exceeds these risks and thus, Nokia or Siemens should accept the proposal.

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 Proposal-I
Outsource to Bhartis key telecom network
equipment vendors, Ericsson, Nokia and
Siemens
Build up ,Maintenance and servicing of
telecom network equipment

Outsourcing Proposal-II
Outsource to IT equipment vendor, IBM

Large number of vendors

Single vendor i.e. IBM

Ownership of assets with Airtel

Maintenance responsibility on service

providers

Sharing of revenue but percentage of

revenues share set to decrease as overall
revenue increases
IBM provide complete and comprehensive
end to end management service

Payment agreement by Bharti in erlangs

excluding the unused capacity

Everything IT infrastructure excluding

telecom network specific networks

Three year contract and renewable under

mutual agreement

Five year contract renewable for another five

years

Quality parameter taken care by service level

agreement

Customer satisfaction and application

implementation delays taken care by SLA

Build up ,Maintenance and servicing of IT

infrastructure