Lahore School of Economics

Date: 14
th
September, 2014

Submitted by:
Naveed Akbar
Qasim Nasir
Mirza Adeel Baig
Ammar Saeed
Arslan Sarwar

Program: PMBA-III

Section: A

WAC Number: II

Strategic Outsourcing at Bharti Airtel Limited

Page 1


Case executive Summary:

The case is about the problems being faced by the Bharti Airtels management regarding the
failures in managing their operations related to telecommunication network system and software,
customer management information system VAS services being provided by Bharti Airtel to their
customers and internal business support software and hardware architectures, which includes
internal programs like HRM, financial databases and system due to abruptly changing and
growing market in the telecommunication sector of India and because of the reason management
of Bharti Airtels is facing problems related to budgeting and tendering with the vendors, as per
their Joint managing Director Mr. Akhil Gupta the budgeting and tendering with their vendors is
taking too much time of the management and also the bandwidth that is needed somewhere else.
Bhartis customer base has been increasing 100% per year and competition in the market is
getting tough day by day with this IT software and hardware which can support the new
application to be competitive in the market is highly needed by the telecom companies which
causes the huge IT expenditure, as mentioned in the case that Bharti spent $15 to $20 million in
the IT equipment which is not supporting the new application in the market and eventually the
management is making decision to through it away.
Problem faced by Akhil Gupta:

AKhil Gupta Joint managing Director of Bharti Airtel was thinking to go for outsourcing
contracts with Bhartis vendors including Ericsson, Nokia and Siemens which are Bhartis
telecom network equipment suppliers and with IBM which is Bhartis vendor for IT equipment
like mainframe computers, IT architecture and installation of hardware and software
requirements. Both of the contracts are of unique in nature and nowhere in the world every
before IT vendors the equipment providers and their operators have made this kind of contract
because of the reason that the interest of both the companies are reverse in nature. IT vendors
would like to sell more and more new IT equipments to the telecom companies and the Telecom
companies like Bharti would be interested in using minimum equipment that can work with full
efficiency and can give 100% results in the longer run. Because of the different nature of the

Page 2


contracts that Gupta is thinking to make with IT vendors no one is supporting Gupta on this he is
facing heat from their share holders, internal management was also against these contracts as
they claim that IT vendors do not have any experience to deal with Bhartis or any telecom
industrys operations it was Bhartis specialty.
Root cause and symptoms of the Problem:

The root cause of problem being faced by Bhartis Airtel was unable to cope up the
frequent and rapid change in demand by the market consumers as the consumer base in IT
market has been increased from 4.5 million subscribers to 54 million subscribers from 1989 to
2003 along with that in the same era the competition in the IT market after the labialization of
Indian telecom market getting really tough as in 2003 get low by 3 to 4 cents (USD)/min which
causes the 50% reduction in revenues in three years small companies has been shut down only
companies who has got advantage of economies of scale and larger customer base were survived
in that fierce competition due to which company has to counter with huge IT expenditure all the
time, as capital expenditure planning are becoming nightmare for the management.
Another core problem was related to human resource management as with the constant
growth and competition in the market it was becoming difficult for Bharti to retain the core talent
the best and the brightest and with the growing market share Bharti needs around 2000 3000
people to accompany the network development in the year 2004, the bright people of the market
would rather go for the multinational firms which are larger in size and reputation compare to the
local company like Bharti Airtel so talent hunting and specially retaining is becoming the key
challenge for the Bharti due to which company was left with average performing people.
Other than these Bhartis budget management issue, capital expenditure management
problems, failure of IT equipment to meet customer needs are the symptoms of above mentioned
problems.


Page 3


Short term and Long term problems:

In short run Bharti was facing problems as:
Due to rapid growth in the market it is becoming difficult to manage the network
expansion which was causing the problem of too much time and effort consumption of
management for the budgeting and tendering process for the network expansions.
The IT technology is getting change with too much speed plus the consumer demand is
changing rapidly due to which the IT expenditure is becoming another major issue for the
Bhratis management due to issue of incompatibility of the IT equipment with the new
application being lunched in the market.
Equipment efficiency is also another issue for Bharti Airtel as company needs to add 20
to 30% excess capacity all the time which causes like $300 - $400 million to company
due to limitation of the equipment.
Delay in the implementation of excess capacity was another major issue and company
cannot afford to lose their customer base due to this.
Long term Bhartis Airtel Prblems was:
Managing the human resource and retaining the best talent.
Getting competitive in the market by getting economies of scale as the margin per call are
getting squeeze day by day due to huge competition.
To work on IT equipment to avoid fragmented bubbles of outsourcing.
Decision facing the Gupta:

As a result of above mentioned problems Gupta has been forced to think about getting
operational services outsourced from their equipment vendors as the company cannot deal with
the huge equipment expense every time they need excess capacity or there is a new application in
the market which is not getting support from available IT equipment. He wanted to be in contract
with the vendors like Ericsson, Nokia and Siemens for network capacity enlargement and actual

Page 4


payment for the excess network capacity be made only when the capacity is up and running and
has been used by Bhartis customers and in case of IBM the installment of mainframe, software
and hardware architecture for that IBM will get certain percentage from revenue.
Causes of the Problem:
To be success Bharti needs to be successful to continue to be competitive. They must continue to
focus on the services they are providing and stay ahead of the competition. With the threat of
new entrants in the Indian market Bharti must be constantly on the look for way they must
improve. Another way Bharti could be successful is to continue their distribution network. With
them having the top vendors such as Ericsson, Nokia, and Siemens, backing their company they
can capitalize off of them. Customers generally have brand loyalty. If they find any one of
Bhartis vendors superior that other vendors such as LG, then those customers will become
repeated buyers of Bharti because of their vendor connection. Bharti will also be successful in
the Indian market if they provide through their vendors excellent technologies. Technologies that
will allow customers to have 3G or 4G, text messaging, very minimum dropped calls and be
energy efficient. Since the Indian market is growing and the culture is changing, having their
information tools available to them through their phones helps them become effective as well.
With Bharti trying to remain successful in this market that they have been dominating, can they
develop new competencies by learning from their vendors they outsource their work to?
Is Outsourcing a Good Move for Bharti?
Being that Bharti core competency does not lay in IT or network services they should definitely
follow Guptas plans to outsource those activities to their vendors. Gupta knew that Bharti
needed an IT network that could grow with them. . In the Harvard Business School case,
Bharti Airtel Limited, Dr. Jai Menon stated that There was a problem of scalability in our
system. With the rapid growth, we would soon be making decisions that could not be altered
later on, and for that we might be sorry. (Applegate, Austin, & Soule) Bhartis IT designs was
in one of three categories, telecom network systems, customer management information systems,
and business supported software and hardware architectures. All of which was not apart of their
core competency of operations. Also Bharti was having difficulties in hiring retaining the best
and brightest in the IT related field. This was because grow in the industry was so rapid not

Page 5


lonely in India but all across the world employees as well as future employees had opportunities
to work for companies that were not only catering to the Indian market. Outsourcing is not only a
wise way to handle areas Bharti may find difficult but it also allows them to be competitive in
Indias telecommunication market. Outsourcing can give Bharti the competitive advantage but it
also come with disadvantages associated with it.
By Bharti outsourcing their IT and network services, this would allow for them to focus on new
trends in service as well as focus on their customer needs in order to set them apart from their
key competitors. With outsourcing Bharti will have less people to manage. Outsourcing their
business process but the burden on Ericsson, Nokia, Siemens, and IBM, on how to manage and
work with people for various business units. Another advantage that outsourcing brings to Bharti
is lower cost. The outsource vendor can produce hardware and software cheaper than Bharti can.
Bharti was faced with this issue went they spent millions of dollars on software and hardware
that became obsolete with a couple of years. The outsourced vendor could handle this issue
because they have the expertise and knowledge on the process it takes on developing code and
having the right hardware to fit their needs. There is a need for Bharti to stay ahead in the highly
competitive telecom market. Outsourcing will ensure that new products would developed faster
and the time will be reduced to get the product or service to there customers. With Bhartis lack
of knowledge in developing IT it would be time and cost consuming for them to try a new
technology and putting it on the market themselves. They could also have missed opportunities if
their competitors put the new product on the market first.
While outsourcing sounds like a good idea that not only Bharti should follow but all companies.
So why doesnt all companies outsource their key business like IT? The reason that companies
think twice before outsourcing is because of outsourcing disadvantages. One disadvantage of
outsourcing is the employees that work for the company that outsourcing their work will either
lose their job or have to work for the vendor that is doing the outsourced work. Along those same
lines is by Bharti being a Indian company and many of their vendors are multinational
companies there will be many culture difference for Bharti employees to deal with. Not only in
the way business is handled but with companys norms, communication barriers, and best
practices. Another disadvantage that Bharti could experience with outsourcing is if the company
that they outsource their business to loses their labor force or goes bankruptcy they are left to

Page 6


find a new vendor. If IBM begins to cut their workforce in half Bharti could not do the work
themselves because they are not trained nor to they know how to run the IT business. That to
also poses as a disadvantage. Bharti has no control of their IT system or their network services.
There by leaving them out in the cold. If Bharti is only outsourcing to gain competitive
advantage should not only be their motivating factor. Bharti should use outsourcing to gain new
core competencies. They should work closely with their vendor so they can learn to the jobs
efficiently and effectively. By leaving such critical services such as IT could become a threat to
Bharti. If they dont fully use outsourcing to help them in the areas they are not proficient in. In
this regard, the challenges that the company is facing are:
Keeping pace with expansion:
Bhartis customer base is growing at 100% per year. It has its mobile operations currently in 15
circles out of 25 in the country and its fixed line operations in 6 circles. So it is a huge challenge
to keep pace with the expansion.
Capital expenditures and the risk:
They are facing a severe capital expenditure problem. They couldnt run new software on the
equipment they purchased 2 years ago and it is no longer useful. They require a reliable,
predictable usage linked cost structure. They want to buy fewer boxes but get maximum
capacity and coverage to stay competitive.
IT Requirements:
They need an IT network that could scale up to match the size of the organization it projected to
become in few years. There is a problem of scalability in their system. Their IT infrastructure is
further complicated by incompatible IT system it has inherited through acquisitions and as a
result it is facing need of huge IT investment to get things in right place.
Human resources issue:
It is becoming difficult for the company to hire more and more people and retain the best and the
brightest of them.

Page 7


Staying competitive:
By 2002-03, Indian market has grown highly competitive. Due to fall in ARPU (average monthly
revenue per customer unit), players fought to capture new subscribers. With industry
consolidation, the focus is switching from having a national footprint to the ability to provide
value-added services. Operations need 2.5G or 3G technologies and this transition requires a
major capital investment. Other players like Tata and reliance had competitive advantage of
having strong capital resources over other operators.
Focusing on core competencies:
Their core competency is in operations and not in IT design. They look increasingly to its
vendors to provide expertise in integrated systems design.

Decision Criteria and Alternate Solutions

The decision criteria for the core problem of Bharti Airtel Limited include the following
elements.

1. Level of Investment

The decision would obviously be dependent upon the level of capital expenditure involved.
As the case states the company was concerned regarding the financial requirements for
expansion, so the level of investment would definitely be an important decision criteria for
deciding between the alternate solutions.

2. Managements acceptability

Secondly other decision criteria would be the managements acceptability of the solution, as
mentioned in the case some people in the company management were of the view that
outsourcing would mean giving the companys jewels to the outside.

Page 8



3. Time constraint

Thirdly, the time required would also be important decision criteria for deciding between the
alternate solutions. As stated in the case the difference in the time, requirement for expansion
identified and the time taken to come up with the capacity is important for the company.

4. HR acceptance

Lastly, the acceptance of the people being affected with the decision would also be one of the
essential criteria. As stated in the case the employees of Bharti Airtel may not accept
themselves being transferred out of the company.


Alternate Solution 1: The Company should go for outsourcing of its network with Nokia,
Ericsson and Siemens and its IT infrastructure with IBM.

By outsourcing they can obtain the following advantages pertaining to the above issues and
requirements:
Cost control and reduction:
Bharti would pay the vendor a fee according to the amount of erlang capacity installed. The
actual payment for network capacity will be made only when the capacity is up and running and
has been used by customers. This overcomes the immediate demand for capital. This also
excludes payment for unused capacity at any point in time.
Transfer of asset:
The asset is transformed to the Bharti, after completion, which increases the asset value that the
company is holding in balance sheet.


Page 9


Access to new expertise and technologies
The firms that outsource are able to fully utilize the external suppliers investments, innovations
and specialized professional capabilities to their advantage.
Quality control:
In order to ensure the quality of Bhartis service to its employees and end customers, the
vendors services will be subjected to a number of quality controls specified in the service level
agreements (SLAs). Also because of penalty and reward linked to quality, vendors will ensure
quality level which otherwise would be burden of Bharti.
Competitive advantage:
By handing over all the responsibility of managing the IT equipment and Telecom network
equipment, they can focus on the areas like marketing, operations and increase their efficiency.
Well developed core competencies provide formidable barriers against future and present
competition.

There is no need to hire human resource for telecom network and IT equipment management,
which is a financial burden for the company. The other option available for Bharti is to
continue on its own and deal with the situation of expanding customer base. But this may be
possible for some time and after crossing certain limits, it may become difficult for the company
to operate and may lead to decrease in the expansion or the growth. One more option is
outsourcing of only one of the IT equipment management or telecom equipment management.
This may result in the problem of good coordination. So they should go for outsourcing of the
both equipment management.
There can be some disadvantages of the proposed decision like:
1. Both the buyer (the firm) and the seller (the outsourcing contractor) entail some risks with
respect to price, quality, time or other key terms of the contract.
2. The risk of the excessive dependence upon the vendors may be there because the company
may lose any other better opportunities that they may come across in future.
Page
10


3. Since the vendors are bigger and international companies, the cultural differences may arise.
4. Since hardware and software applications are provided by different vendors, getting into
agreement with one only vendor may lead to no longer have access to certain creative new
applications.
5. Because there is no priority of any such deal, it will be difficult to arrive on feasible cost of
deal and revenue sharing model.
These can be mitigated or reduced by including them under some clauses there by providing
flexibility. The quality of the service can also be controlled by including them in Service Level
Agreements (SLAs). For example: Bharti agrees to pay IBM a share of its revenues and this
percentage of revenue shared will decline as the overall revenue increases.

Alternate Solution 2: The Company should avoid outsourcing both its network and IT
infrastructure and should focus on expansion through its own investment.
The advantages of this solution would be that, the company would be able to keep close control
over its operations. Secondly, Bharti Airtel would be able to avoid risk associated with relying
too much on its vendors. Thirdly, the company would be able to avoid acceptability issues of its
employees and keeping its culture and values intact.
However, the disadvantages associated with this decision are more, as the company would not be
able to curtail its capital expenditure. Secondly, the company would fail in eradicating the
conflict of interest that is there between the company and its vendors. The company would not be
able to keep its pace with the expansion required. The company may not be able to maintain its
100% increase in network base per year. Lastly, the company will not enjoy synergies that would
originate due to outsourcing.
Recommendations:

The plan of action that we have devised would come under joint managing director Gupta who is
responsible for budgeting and tendering. The recommended course of action will be the alternate
Page
11


solution one as we can address all the major issues incorporating the company in this solution.
The time would be as per the requirements of the company and that would be under the signed
agreement between the vendors. The Company would go for outsourcing of its network with
Nokia, Ericsson and Siemens and its IT infrastructure with IBM. By outsourcing they can obtain
the following advantages mentioned. The recommended plan would incorporate outsourcing,
time restraints and other issues are also addressed with the following solution and its
implementation method.
Solution and implementation

The core problem lies with the competition that the company faces in future and currently the
expansion requirement of the company as massive growth has been seen in this sector which
calls for being competitive in the market. In order to grab the opportunity there costs attached to
it which diminish the profits. The recommended solution and its implementation have to be in
accordance with the companys short term and long term goals.
Keeping in view the cost structure, the issue of the cost control and reduction, would come under
the specifications mentioned with the vendors as company would pay the vendor a fee according
to the amount of enlarge capacity installed. The actual payment for network capacity will be
made only when the capacity is up and running and has been used by customers. This overcomes
the immediate demand for capital. This also excludes payment for unused capacity at any point
in time.
There will be asset transformation as after completion, which increases the asset value that the
company is holding in balance sheet. There will be access to new expertise and technologies as
the firms that outsource are able to fully utilize the external suppliers investments, innovations
and specialized professional capabilities to their advantage.
In order to ensure the quality of Bhartis service to its employees and end customers, the
vendors services will be subjected to a number of quality controls specified in the service level
agreements (SLAs). Also because of penalty and reward linked to quality, vendors will ensure
quality level which otherwise would be burden of Bharti.
Page
12


There will be a competitive advantage as they will be handing over all the responsibility of
managing the IT equipment and Telecom network equipment so then they can focus on the areas
like marketing, operations and increase their efficiency. There is no need to hire human resource
for telecom network and IT equipment management, which is a financial burden for the
company.
In this way all the problems will be addressed keeping in view the management and HR
acceptability the time constraints and the level of investment required.
Contingency Plan:
In this case where Akhil Gupta has been making a very critical decision of outsourcing the core
operational services from their vendors there are couple of risk involve that could lead towards
the failure of the projects which are:
Different interest for the vendors and the operators, as vendors wanted to sell more and
more gadgets while the operating companies like Bhrati wanted to keep the same
technology that could work with 100% efficiency.
2
nd
the vendors are also not so much happy about the contracts they are doing to save
their reputation and to retain their valued customers.
Internal resistance to Bharti from their management and share holders.
So keeping all the factors in consideration Gupta needs a contingency plan as well in case the
plan A about going for the outsource the operations doesnt work due to any of the reason.
A contingency that Gupta can go for is to hire some intelligent minds what on the back could
work on R & D to make improvements in their process efficiency working alongside with the
outside vendors so as if in case their vendors would fail to deliver Gupta would have their people
to start over with new team to run their operations as people are not goanna come back in case of
vendor failure so for the Gupta need to make some cards in hand so that if wore could happen
they still have some key people in hand which can manage a new team.
Firstly the transition of the operations from companys employees to the outsourcing suppliers is
very critical and important in this case as well because when people came to know the they are
not working in the company they will lose their interest and wont work with full attention for
Page
13


the smooth transition of the jobs to the outsource vendors and it is not like the outsource vendor
can take up from day one, so to avoid this the transition time would be like 8-12 months in which
employees can easily find their replacement of the job.
Sources to support Recommendations:
As per the service triangle from the text book (Chase Jacobs, 2004) it shows that the customer
are the core of any business and organizations are revolve around the customers, so keeping the
service triangle into consideration if Bharti would not go for the outsourcing it will ultimately
hearts their customer base company could not be able to provide up to the mark services for their
clients.
As per the study of Michael F. Corbett The outsourcing Revaluation describes the pros and
cons related to the outsourcing (Corbett, 2004), it describes that outsourcing will change the role
of the managers it will shifted towards the integrating activities from operational activities
process leadership will attain from the outsourcing.
It does save a lot of cost for the company by the reduction of overheads, creates operational
control over the process, risk management (Bucki).
Bibliography

Bucki, J. (n.d.). About.com. Retrieved from about.com:
http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm
Chase Jacobs, A. (2004). Operations Management. The McGraw-Hill Companies, Inc.
Corbett, M. F. (2004). The Outsourcing Revaluation. Dearborn: getAbstract compressed knowledge.