Strategic Outsourcing at Bharti Airtel Limited

Topics: Cost, Service level agreement, Management Pages: 5 (1532 words) Published: December 7, 2008
(a). Problem Essay:

The main problem Bharti Airtel Limited facing is “How to manage its capital expenditures for its operations and how to face the expected exponential growth and a competitive environment.” The challenges that the company is facing are 1. Keeping pace with expansion:

Bharti’s 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.

2. Capital expenditures and the risk:
They are facing a severe capital expenditure problem. They couldn’t 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.

3. 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.

4. 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.

5. 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.

6. 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.

By analyzing the above problems, the position statement on the main problem they are facing is derived.

(b). Decision Essay:
The decision that they are facing is whether to go for outsourcing or not. The decision I recommend is that they should outsource their telecom network equipment and IT equipment management to their vendors. The arguments that support the decision are

Telecom network equipment management outsourcing:
The Industry practice is to purchase about 30% to 40% excess capacity in order to keep one step ahead of customer demand and to compensate for the estimate error of models. For Bharti, this would actually represent $300 million to $400 million. Financial requirements were not Bharti’s only concern; there is also the delay, which the firm could ill afford given its rapid growth, between the time that the need for additional capacity is identified and the time that the additional capacity could be up and running. The process of planning, tendering, financing, purchasing and installing would take anywhere from six months to a year.

IT equipment management outsourcing:
Bharti has contracts with IBM, Sun Microsystems, HP and oracle for business support software and hardware and customer management systems. It is further complicated by the fact that they inherited other IT systems through acquisitions. As a result they were facing huge up-front investments in IT in order to get the right architecture in place and ready to support its growth over the next 10 years. One of the main purposes of the network management outsourcing is to have suppliers assume certain classes of investments and risks, such as Demand variability. So the above arguments recommend the outsourcing of their operations to cope up with the increasing...
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