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Date Created: 02/14/15
MGS 611 INDIVIDUAL CASE ANALYSIS CASE 1 Bharti Airtel Strategic Outsourcing Dilemma Yashwanth Santhanam50124483 Introduction Bharti Airtel is one of the largest telecom network provider in India It was started in 1995 with an initial budget of 900 Its primary services include Mobile services Long distance data and enterprise networks Broadband and telephone services Mobile services form the major component of their business accounting for 64 while long distance network and Broadband services form 30 and 16 respectively The company is on a rapid expansion path which has posted several obstacles to the top management These obstacles form the basis for our investigation in this case Identify Challenges In 2003 India was still in the expansion phase of its telecommunication footprints Bharti Airtel being the first stabilized telecomm provider was gifted with a large growing market with a huge potential for economies of scale With the advent of mobile technologies like GSM and 2G the role of telecomm companies has changed from just providing service to value addition to the customer These exciting prospects have triggered Airtel into rapid development of its infrastructure in order to capitalize the market But scaling up within the stipulated time presented Airtel with several underlying difficulties which had to be addressed quickly Firstly as the telecomm footprint of the company grew inside the country the cost associated with development of the facilities grew substantially Airtel had to constantly create RFP and invite companies for tenders periodically every 12 months In 2004 Airtel wanted increase its presence from 1400 to 5161 towns by 2007 This required them to increase their base stations from 5000 to 40000 thereby increasing its manpower by 2000 to 3000 resources Secondly the market has seen an increase in number of telecom players in the country Companies like BSNL Tata and Reliance with a strong capital quotient pose a bigger competition for Airtel This has resulted in reduced call rates and other value added charges associated With the services provided by telecomm companies Competition has also led Airtel to realize another major challenge time Thirdly being a telecommunication company infrastructure forms an integral part of their operations Airtel needs to constantly upgrade its hardware and software to keep pace With the technological advancement in order to maintain customer confidence The equipment costs aggravate With the use and throw methodology followed by Airtel Finally the industrial standards for telecommunication companies emphasizes on maintaining an additional 30 of its infrastructure as buffer for servicing customers during high demand periods This in itself poses a major challenge for Airtel as it would result in inefficiency in utilization of its resources to the fullest Identify alternatives Airtel s processes have been modularized into two separate functional units namely telecom networks and core IT infrastructure The huge budget incurred and the constant effort spent on formulating contracts on a frequent basis has prompted Akhil Gupta to think about outsourcing Airtel s processes He proposed outsourcing the building maintenance and servicing processes of its telecom network preassociated vendors like Ericsson Nokia and Siemens Similarly he also proposes to outsource processes revolving around core IT infrastructure to IBM one of the leading hardware and software vendor Enumerate Pros Cost Reduction and time saving by domain expertise Airtel s primary specialization is in its operations of telecommunication networks But nonasset specific activities like setting up of power stations building of infrastructure adding efficiency to the existing infrastructure can be outsourced to companies Whose sole focus revolves around this This would reduce wastage of resource and saves cost for Airtel on the longer run Moreover the vendors are veterans in their domains Which further stabilizes the efficiency of operations Tapping on process disaggregation Bharti Airtel has been in the industry for over a decade Most of the IT processes related to customer management and business processes are codified and standardized in the market Moreover they have already classified their functionalities into core IT infrastructure and telecom network to instill modularity in their operations As already mentioned in the case most of the work done in the telecom network segment are generic that requires lesser skill level tacit knowledge and higher information intensity Germinate towards strategic partnership Currently Airtel is associated with Ericsson Nokia Siemens and IBM in an arm s length relationship from the supplier relationship ladder Airtel s top management is yet to realize the potential of ascending the relationship level with its vendors Huge cost incurred on constantly drawing up newer tenders with newer vendors can be alleviated On the longer run this would also serve as a framework to build a trusted partner in the market Reduced Risk for Customer By outsourcing its noncore processes Airtel directly makes the supplier IBM or EricssonNokiaSiemensresponsible for the risks associated with the project This would reduce the burden on Airtel and can steer them towards focused development of their business Sound boundary conditions in contracts Though the governance pre and post contract cost increases for Airtel during outsourcing it gives a firm hold for Airtel on its supplier According to the case for both IBM and EricssonNokiaSiemens the contract has covered all the foundation change and governance characteristics This can translate into efficient measurement tool for Airtel Enumerate Cons The proposal for outsourcing was not positively appreciated by both the Client perspective The initial concern for Airtel is the proposition of losing its core competency by outsourcing its operations This might result in emergence of potential competition from the vendor side Moreover relying on a single vendor may result in hostage situation for Airtel Structural risk As discussed in the case the middle management was concerned about relying on just IBM tools for their daily operations As the market is considered to be opportunistic this may be detrimental for the company s growth While outsourcing to a different country issues related to Geographical Language and Cultural distances can create friction for the client while settling in And according to the contract Airtel has to let some its employees to be permanently be part of vendor s rm which is an overhead for the human resource department Vendor perspective Though having a bigger role in the relationship looks profitable the risks associated with the uncertainties of the market hinders vendor s confidence On the longer run the vendor may miss out on other deals as he has to allocate most of his effort on the strategic partnership Moreover assimilating Airtel s customers into their system may create an overload on their payroll Formulate Agreement One of the major concern for both Airtel and its vendors are the movement of employees from Airtel to the vendor s rm Airtel can hold its employees so that it can have a control over its proprietary knowledge The second impending aspect to be considered for Airtel is to ascend the role of vendor This can be done by encouraging the addition of a Relationship scorecard This would enable both the Airtel and its vendors to have a clear picture of the impact of their process on the entire business Secondly the management at Airtel is concerned about losing core competency to offshoring vendors This is a very important aspect of the offshoring process which has to be included in th e document This has to be covered in the foundational characteristics of an SLA agreement Airtel should have found a boundary between their core and fringe processes Thirdly the agreement should leverage all the pros associated with outsourcing the operations and core IT infrastructure processes Telecommunication Networks EricssonNokiaSiemens Foundational characteristics Service level Objective Both Airtel and Ericsson should be ready to enthusiastically share the cultural values Process Ownership plan As the top management is concerned about losing the core competency a separate clause should be added to safeguard the patented operational mechanism devised and followed by Airtel CTO should be directly regarding the operations is their backbone process Service level contents The key issues faced by Airtel are to rapidly increase their footprints The fundamental goal behind offshoring is to increase efficiency of use and higher quality of network SLA Measures 9 Number of dropped calls 9 Number of incomplete calls 9 Percentage of facility left unused during the timeslot 9 Dropped calls to total calls ratio for a time period Penalties 9 It is not practical to expect an 100 adherence to SLAs hence the agreement will set a minimum permissible level say 3 9 If any of the above measure deviates more than 3 then the supplier will have to provide free service for a small period of time based on severity 9 The vendor s relationship score card will be deducted and this would lead to more competition for the vendor Rewards 9 Points will be added to the vendor s relationship score card this would improve the chances of the vendor to become a strategic partner in the immediate future 9 Bonuses will be provided in addition to the operational and maintenance charges paid to the vendor Change and Government characteristics As the target market is constantly expanding at a rapid pace the agreement should be reviewed So Core IT Infrastructure IBM One of the major issue for Airtel with respect to core IT infrastructure is huge cost incurred in replacing Instead outsourcing will replenish and optimizes the asset and inventory management process Service Level contents The relationship between IBM and Airtel is formulated in such a way that all the processes other than network related are to maintained and run effectively by IBM And according to the model in order to maintain the quality IBM will host hotlines for customer satisfaction and new application implementation delays SLA Measure Customer feedbacks Number of customer complaints Hardware to software failure ratio Penalties Repeated complaints should result in entrance of newer supplier for the services This would help Airtel to tap into the huge potential of the market At the same time it will help them check the expenditure and uphold quality IBM will be contractually bounded to invest in customer marketing campaigns in an attempt to rebuild lost customer confidence Rewards Based on the success rate of the customer retention for the various processes handled by IBM it will be recognized as a strategic partner with equal stakes in the development activities Provide waive off on their monthly bills associated with their telecom costs in their Indian captives to recognize their efforts Also create a standing testimonial for their efforts and help them develop their business horizon by recommending to friends in the industries Thus I conclude by supporting Airtel s decision to offshore its network and core IT infrastructure to help in cutting down cost and adding efficiency in the stipulated time Also on the longer run this symbiotic relationship Will eventually develop strong business allies across the market
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