Bharti Airtel Case Study - Essay Example

Bharti Airtel Case Study Question 1: What must Bharti do well to succeed in the Indian mobile phone market? What are Bharti's core competencies? Bharti is one of the pioneer companies to start mobile communications business in India. In order to tap the immense opportunities of the Indian market, the company must embark upon the following strategies. Firstly, the company must widen its network coverage to each of the 23 telecomm circles in the nation to get a pan India presence. It should follow a penetration strategy as the profitability in the Indian market is defined by the number of users. Secondly it must adopt new technologies like 3G, which would help in providing better value added services to its customers. In order to gain a strategic footprint in the market Bharti must focus on its core competencies. These include the following: 1. Economies of Scale. 2. Nationwide coverage 3. Expertise in operating in the sector 4. Access to skilled workforce 5. Formidable brand image Question 2: Do you think Bharti should enter the outsourcing agreements outlined by Gupta? What do you see as advantages and disadvantages of such agreements? Outsourcing as a business practice has been used by numerous organizations across the world. Bharti also plans to outsource some of its non-value chain based activities to different vendors who are known to have considerable expertise in handling these operations. Certain advantages and disadvantages associated with the decisions are stated below: Advantages 1. Reduces pressure on the operating margins 2. Cost Reduction 3. Allows firms to use their resources on core business activities (Lampbell & Bhalla, 2008, p.2-6) Disadvantages 1. Increased dependence on external vendors 4. Reduction in ability to introduce innovations in outsourced business processes (Lampbell & Bhalla, 2008, p.6) In the wake of the above stated analysis it is imperative for Bharti to get into an outsourcing deal as it would help the company to focus only on its core business activities. The present model of outsourcing of the company (revenue sharing) would help in generating greater accountability to its vendors to provide excellence in operations. Question 3: How do the different outsourcing agreements work towards building these core competencies? Lampbell & Bhalla (2008) proposed four models of outsourcing. These models are stated below- 1. Captive Centres 2. Build-Operate and Transfer (BOT) 3. Dedicated centres for off shoring 4. Fee-for Service based relationships (Lampbell & Bhalla, 2008, p.6) The captive centre model helps organizations to keep control over costs, enhance the learning curve of employees and promotes innovation (Lampbell & Bhalla, 2008, p.6). Expertise and knowledge driven talent pool forms two of the major core competencies of Bharti. The use of this model would help in enhancing the efficiencies of these two very critical core competencies. BOT model also puts up an option of transferring the assets and ownerships from the vendor on a later date as specified in the mutual agreement. Benefits of this model include cost control, scalability, enhancement of knowledge curve and skill transfer (Lampbell & Bhalla, 2008, p.6).This model would help Bharti towards the betterment of its core competence of economy of scale. The benefits of Dedicated offshore centres model include low cost of setting up a facility, reduction of political pressures and increased focus on capitalization of external skills (Lampbell & Bhalla, 2008, p.6).The use of this model would help Bharti in reducing its overall cost of operations including fixed costs as well as to enhance the learning curve of the organization. Fee-for Service based relationships model an organization gets the benefits of incurring zero set up costs for its facilities at very low levels of financial risk (Lampbell & Bhalla, 2008, p.6). This model would help Bharti in achieving its core competence of enhancing its coverage areas at low costs. Question 4: Outsourcing is fairly independent of economic cycles. It grows in bad times because firms want to cut costs, and it grows in good times because firms want to focus on growth.” What changes in the environment (internal and external) have resulted in an outsourcing becoming a viable alternative for Bharti. One of the major reasons for companies to outsource is that organizations generally want to cut down their focus on their non-core activities. This has resulted in the popularisation of outsourcing. Outsourcing helps organizations to increase their focus and use their resources towards their core business activities. It also helps sharing business risk with its vendors. Bharti started its operations in the Indian market when the market was in its infancy with massive regulations in place that prevented the entry of foreign players. With the passage of time the Indian market has considerably evolved with large number of competitors entering the market. The advent of competition has enhanced the need for organizations like Bharti to focus on adding greater value in its service offering. This calls on the need to introduce greater innovations in new technologies as well as to cut down on costs as profit margins have dipped considerably after the government decided to open up the Indian market to foreign players. All these factors have created pressure on the organization to cut focus on building innovations as well as to retain the best employees. Outsourcing serves to help the company in achieving its goals of focussing on innovations. Question 5: If you were Bharti, what major concerns would you have about entering an outsourcing agreement with IBM? With Ericsson, Nokia, or Siemens? Some of the major concerns faced by Bharti while entering into an outsourcing deal with the above stated companies are as follows: Firstly several quality issues would emerge while handling critical networking aspects to the vendors. Secondly the model of outsourcing at Bharti was an entirely new concept in the industry. Thirdly, Bharti may face employee related issues as employees may not be comfortable to shift under the payrolls of the vendors who have a different corporate culture. Finally transfer of IT related processes to IBM would render most of its applications and instruments useless as they would not be supported by IBM’s software’s. Question 6: How would you structure the agreements to address your concerns and capture any advantages you have identified? The main concern in entering into an outsourcing deal is quality related issues. In the agreement with Nokia, Simmens and Ericcson the company has outlined certain quality related aspects or guidelines which must be followed by its vendors. This would tend to sort out the issue of quality to a very large extent. Secondly the contracts are spread over a particular time frame whose renewal would be subject to the extent of efficiency shown by the vendor in operating and managing its business processes. In case of IBM the company has entered into a revenue sharing agreement which would also put responsibility on IBM to deliver greater efficiency in executing the processes. All these would help Bharti to curve out the strategic advantages of outsourcing while keeping a check on quality related issues. Question 7: Assume the role of IBM or Nokia? What major concerns would you have about entering an agreement with Bharti? How would you structure the agreement and the government mechanisms? The major concern faced by IBM would be in the area of revenue sharing. In order to determine its own profit margin the company must have a quantitative estimate of the future earnings of Bharti. The issue assumes significance as IBM would have to incur capital expenditure whose break even would depend solely on the revenues of Bharti. In order to structure the agreement IBM would have to seek a revenue projection from Bharti for the next ten years. As regards to Nokia, the company would be faced with two major issues. Firstly it would have to absorb numerous employees of Bharti in its organizations. This assumes a challenge considering the difference in work culture in the two organizations. Secondly the company would also face risk in incurring a capital expenditure which might be rejected by Bharti. In order to address these concerns Nokia should seek an explanation from Bharti as regards to the risks associated and the corresponding guarantees from Bharti with regards to the future use of the equipments and the risks associated with the capital expenditure and future break even. Question 8: One, year later, what are the unique aspects of Bharti’s deal with IBM? One year later there can be both positive as well as negative effects of the deal. On the positive side, revenue margins may exceed the projected values which would increase the revenue margin of IBM. On the negative side, technology transfer issues may emerge which may lead to hazards in executing business in an efficient manner. This aspect assumes significance as Bharti’s profit would be affected by the performance of IBM to a considerable extent. Finally revenue projections are based on macro economic factors which may not be favourable and may affect the profitability of the firms. Changes in economic scenarios may reduce the profit margins of Bharti which would also affect the profitability of IBM. Question 9: One, year later, what are the challenges associated with Bharti’s contract with IBM? What are the key success factors that will ensure the sustainability of the relationship? What do you think the relationship will look like in 5 years? The key success factors for Bharti’s deal with IBM are as follows: 1. Achievement of projected revenues 2. Smooth transfer of technology 3. Favourable macro economic conditions After a period of five years the agreement the relationship between the two companies would depend on the extent to which the key success factors have been successfully achieved. Favourable achievement of key success factors would ensure better revenue margins as well as efficiency and innovation which would go a long way in defining the success of this relationship and vice versa. Reference Lampel, J & Bhalla, A. 2008. Embracing realism and recognizing choice in IT offshoring initiatives. Kelly School of Business. Business Horizons (2008) xxx, xxx—xxx. Read More