Bharti: A case study in how to manage outsourcing

Posted by: Steve Hamm on October 15

India’s Bharti Enterprises is one of the most aggressive companies I’ve ever seen, and aggressive outsourcing is a major piece of the company’s strategy. Bharti Airtel, the company’s telecom business, outsources not only IT and call centers but its entire network infrastructure.

I got the inside story on Bharti when I sat down recently with Jai Menon, the company’s director of IT and innovation. He had worked in the US for IBM and Bell South before he was recruited by Bharti to return to India for this job in mid-2002. When he arrived, Menon urged the top executives to outsource all of the company’s traditional information technology. He said Bharti should concentrate on creating and marketing new telecom services. Rather than farming out different technology roles to a handful of companies, though, he decided to pass everything over to one company—in this case, IBM.

That wasn’t a radical departure from the normal outsourcing practice. But what came next certainly was. For the first time ever by any telecom company, Bharti opted to hand network operations over to a third party. In this case it was two parties, Nokia and Ericsson, who split the country.

Another departure from the norm: Rather than paying for services based on hours worked or some other standard method, Menon chose to pay his service providers based on his company’s revenue growth. That way, as Bharti grew and demands on its service providers expanded, their compensation would increase in lock step.

According to Menon, these outsourcing arrangement have been essential to the company’s growth from a tiny entity when he joined to a company with 50 million wireless subscribers now—and growing at 2.5 million subscribers per month.

When Bharti signed its deal with IBM, it was expected to result in payments to IBM of more than $750 million over a period of 10 years. But now Menon thinks the total will exceed $1 billion. That's partly because the scope of the relationship keeps expanding. One key addition is a technology platform for managing subscriptions to new entertainment services which will be operational by the end of the year.

Meanwhile, outsourcing has made it possible for Menon to have a staff of just IT 150 employees, most of whom coordinate with IBM's staff of 2000 and make sure the technology is deeply integrated with Bharti's operations.

If I was a Harvard Business School professor, I'd write this up as a case study.

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