Friday, September 14, 2007

The outsourcing gambit


A closer look at the $4.2 billion homegrown telecom giant’s big outsourcing gambit suggests several similarities with that of the global fast food icon McDonald’s . The Big Mac does not run restaurants anywhere in the world and outsources everything right from procurement to supply chain management to even making its chicken patties and milkshakes. Instead, Mcdonald’s ’ focus is only to be a slick marketing machine , enticing more and more people to step inside the golden arches. Similarly , at Bharti, it’s IT and network management is outsourced, so is the running of its 6.5 lakh retail outlets across the country, and more than 80 per cent of its customer care call centres.

“Bharti’s strength is brand management , people management and customer management. We went through a list of activities where others were better than Bharti, and decided to let them do it for us. We went to the very best companies in the world. No way in the world would we know telecom equipment better than Ericsson who actually makes them,” Kohli says.

In hindsight, Bharti’s pioneering move would seem like a no brainer given the market conditions in 2002-03 .

Bharti was the dominant private sector player in mobile communications but was up against state run behemoths such as MTNL and BSNL and nearly half a dozen ambitious private sector rivals. Bharti had to scale up massively and yet remain twinkle toed. “In 2004, there was enormous competitive pressure on Bharti and it had to constantly keep an eye on regulatory changes. That can really stretch the management’s bandwidth . The Bharti-IBM deal freed up the management to focus squarely on customer acquisition and delighting them,” says Ashish Kumar, relationship director, at IBM for Bharti.

What differentiates Bharti’s outsourcing deal with vendors such as IBM, Ericsson and Nokia Siemens is the revenue share model instead of the conventional fee-based service. “We follow a tiered revenue approach whereby our rewards are directly linked to the growth in Bharti’s topline,” explains IBM’s Kumar. All the quality parameters are customer oriented and there are penalty and bonus clauses built in.

IBM has a dedicated army of 1200-1300 employees servicing Bharti, and almost 80 percent of the people resources at Ericsson and NSN service Bharti’s infrastructure. Today Bharti does not have on its rolls too many people with high operational skill sets in the areas of IT and infrastructure management . “Earlier we had a team of 100 people running the networks. Today it has been pared down to the bones. There are just a handful of people at Bharti who look after the governance and review of our partners,” says Kohli.

“As Bharti focusses on brand management , Ericsson on the other side is rolling out Bharti’s internet protocol (IP) based core network, so that they are ready to fire on all cylinders wherever the new 3G telecom policy is announced ,” explains Ericcson’s Granryd.

The Bharti outsourcing deal with Bharti has been so successful for both Ericsson and NSN that between themselves they’ve added close to 150 similar clients across the world. Mittal and the top brass at NSN, Ericsson and IBM say, they that they are inundated with queries from several Fortune 500 companies on their successful outsourcing partnership. Last year, even the venerable Harvard Business School came out with a case study on Bharti’s strategy.
Bharti’s road to outsourced success was not easy. When the decision to farm out IT to IBM was taken, there were more than 250 anxious employees in Bharti’s in-house IT team who worried about their future. All of them absorbed by IBM with a personal assurance from Mittal that they could come back to Bharti within two years if they didn’t like the new set-up at IBM. “Not one has wished to come back,” gushes Kohli.

For IBM too, its relationship with Bharti became a trophy and an example of its new ‘On Demand’ model of customer relationship. Sunil Mittal was invited as the key note speaker at two successive IBM CEO forums in Shanghai and Rome, and at its annual analyst meet in India as well. Earlier this year, in an interview to CD, Virginia Rometty, senior VP, Global Business Services, IBM cited the Bharti deal as a perfect example of business transformation outsourcing.