Posts Tagged ‘IBM’

Why Airtel changed IT outsourcing strategy that impacted IBM

April 4th, 2014

Indian telecom service provider Bharti Airtel has changed its IT outsourcing strategy that impacted enterprise IT major IBM in a big way. But the deal announced on Wednesday did not surprise many infotech analysts.outsourcing38 interacted with select IT analysts on the IBM-Airtel IT deal. Several analyst firms did not comment because this is a company policy issue. Sharing some of the comments here:

Obviously the scenario of the market nowadays is not the same than in 2004.

Contracts of this length (10 years) are currently not that common, companies don’t want these long term attachments anymore – with the IT market changing faster and faster, they prefer to obtain smaller contracts that enable them to renegotiate more frequently in order to reduce costs.

Regarding IBM getting just 50 percent of the contract, this is the new reality of the market. Indian IT companies are now much more structured and have improved their service quality in the past years, while they keep offering lower costs compared to big traditional IT companies such as IBM.

Airtel has taken a pragmatic and obvious approach for the contract with IBM as business priorities in the telecom industry has changed substantially over the last 10 years.

Revenue sharing model is fading considering the size of Bharti Airtel. The operator had 4 million subscribers when the revenue sharing based contract with IBM was signed in 2004. The main objective for operator at that time was to scale up operations to support rapid increasing subscriber base.

However, it has grown more than 60 times in subscriber base since 2004 and now the scale is too big for Bharti for a revenue sharing model. Although not disclosed by IBM/ Bharti, we believe the revenue sharing component must have reduced significantly due to the above reason.

IBM Bharti Airtel IT deal
Rising customer expectations and economic challenges demand new vendor relationships. Recent Forrsights data indicates that around 90 percent of Indian firms have a top business priority to address the rising expectations of customers and improve customer satisfaction.

The declining ARPU, rising customer expectations coupled with tough economic situation in the country has forced operators to look beyond “subscriber base” theory to become “customer obsessed” to improve bottom-line growth.

While Airtel views IBM as a strong established IT partner to run and manage infrastructure, the operator appears to be in the need of new business technology partners to help engage customers in the key moments of their day with the ultimate goal to serve and retain them.

Strategic Outsourcing (SO) is dying a natural death and being replaced by Cloud and Managed Services – this impacts both deal size and term. Strategic outsourcing deals are increasingly being replaced by cloud and/or managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models.

This deal is a classic example where the end-user organization – Bharti Airtel in this case – is leveraging these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio.

The deal focuses on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and Big Data capabilities have been proven to add significant business value for telcos globally.

IBM India is expected to use its analytics portfolio spanning Unica, SPSS, Cognos among others to help Bharti Airtel enhance customer experience and launch new products and services. While this is surely a lofty task but one of the key reasons that makes this ‘a winning deal’ for IBM India.

Though IBM has refused to comment on the deal size, Greyhound Research estimates the deal has been inked in the range of $750 – $850 million for a period of five years. Greyhound Research predicts the deal to touch $1 billion over the next five years with incremental focus on Analytics and Big Data.

Let’s compare this deal in the right context – Bharti Airtel of 2014 is not the same organization as 2004. At the time when this deal was inked in 2004, Bharti Airtel was in a hyper growth mode and needed extensive support from an external IT vendor to support the rapid growth and also build internal capabilities to support the IT setup.

Bharti’s business has grown 10x over the past decade India (remember, this renewal only impacts the IBM Bharti deal in India and not other international markets) – between 2004 and 2014, the subscriber base has grown from 4 million to 200 million. The company is now in a relatively mature stage where it needs to effectively run (read maintain) what it has built as part of its IT setup over the past decade and only add incrementally.

Gartner said IT services is forecast to total $964 billion in 2014, up 4.6 percent from 2013. IT services buyers are shifting spending from consulting (planning projects) to implementation (doing projects), and Gartner analysts expect steady growth in the IT services market as the economic outlook, and along with it investment sentiment, improves.

IBM will follow up with other IT deals. Will more telecoms follow Airtel that is building in-house IT capabilities to reduce cost burden? It will be a big for IT companies such as IBM, HCL Technologies, Tech Mahindra, Wipro, TCS, etc.


Wipro gains at IBM’s expense in Bharti deal

April 3rd, 2014

Indian IT companies have taken big chunks of a large technology outsourcing contract that has been sliced up by Bharti AirtelBSE -1.17 % into four parts, leaving IBM with only a portion of a deal it completely owned for a decade. Outsourcing36

WiproBSE 0.03 % is a big beneficiary from the renegotiation of what used to be regarded as the defining technology outsourcing contract in India – at nearly $300 million a year over 10 years, it represented a bold choice by Bharti Airtel to entirely outsource its IT needs, and for IBM it was its most lucrative deal in India.

A Mumbai-based company is close to winning one of the carved-out portions while Bharti Airtel is yet to take a decision about a part dealing with its wireline operations, according to several people familiar with the negotiations.

In a joint statement on Wednesday, IBM and Airtel said they have signed a new pact, this time for five years, with Big Blue selected to manage the IT infrastructure and applications for Airtel’s operations in India.

Sources said that the new deal is worth $500-550 million ( 3,000-3,300 crore) a year for IBM. Moreover, while under the previous contract IBM would get a share of annual Bharti Airtel revenue, the new one is based on usage.

“Wipro has won the network maintenance part of the contract,” a highly-placed source with direct knowledge of the matter told ET. The source declined to give the size of the deal that Wipro had won and ET could not independently ascertain the size of the deal. Wipro declined to comment.

The Airtel-IBM contract has acquired a high profile for several reasons. Besides the nature of the deal and its size, it is a marquee one for the US company – it was a forerunner to the two other ‘strategic outsourcing’ contracts from Idea CellularBSE 0.52 % and Vodafone. Analysts are of the view that IBM will have a lot of convincing to do when the deals with Idea and Vodafone come up for renewal in 2017 and 2019, respectively. Such was the importance of the Airtel contract for IBM that its CEO Virginia Rometty visited India to persuade Sunil Bharti Mittal. The previous 10-year deal lapsed on March 31.

A source told ET that the fundamental difference between the last time and the current deal was that the telecom giant would retain significant control over the operations. “Airtel wants to chart out the strategy and the direction based on the company’s overall goals and targets, it wants to rely on its IT partners only for execution,” the person said.

Airtel declined to comment on whether Indian IT firms had won parts of the contract.


IBM’s loss in Bharti IT outsourcing deal a gain for TCS, Tech Mahindra

April 1st, 2014

In what could be one of the biggest blows for Big Blue, telecom services player Bharti-Airtel has restructured its contract with IBM, giving away work to Indian information technology (IT) services entities, Tata Consultancy Services (TCS) and Tech Mahindra.Outsourcing31

The restructuring has also meant IBM’s share in the $2-billion landmark IT outsourcing deal would come down significantly. IBM is likely to get about $500 million worth of outsourcing contracts from Airtel, after the renewed contract that was signed last week, said sources in the know. An announcement is likely within the next couple of days.

According to the earlier contract, IBM’s share of revenue was $250-300 million a year. After the renegotiation, the size has come down to $100-$125 million a year. The tenure of the deal has also been brought down to five years, instead of the earlier 10 years.

A Bharti-Airtel spokesperson declined comments on the issue. And an email sent to IBM India did not elicit a response.

“The re-negotiation has been going on for a long time now. The idea is to carve out a smaller portion of the deal for IBM and also get on board other vendors, based on capabilities and niche speciality in certain technology. IBM will not go away completely from the contract. They have been managing this for long,” said a source close to the deal discussion.

The contract size of TCS and Tech Mahindra could not be confirmed. An email sent to TCS came back with the reply: “We do not comment on market speculation.” An email sent to Tech Mahindra did not elicit any response.

Sources said the fresh deal would not mean the total size of the contract would increase. “Bharti is looking for a medium-term outcome and in a few years, they may also ease out IBM completely. The strategic change is that they have chosen two other vendors, which means Bharti wants cost efficiency,” said Alok Shende, founder director and principal analyst, Acsentius Consulting.

In the renewed contract, the key areas of work for IBM would be data services and increasing cost efficiency.

The IBM-Bharti deal was a landmark deal in the telecom space when signed in 2004. Though a total outsourcing contract, it was also based on revenue sharing. The deal size was $750 million. It kept going up, as Bharti-Airtel’s customers grew. In 2004, when the first contract between IBM and Airtel was signed, Airtel had four million subscribers, and now, Airtel has more than 200 million users.

Though there have been reports that the IBM deal was getting reduced due to some ‘violation of business-process guidelines’, analysts feel that should not be the sole reason for the overhaul. “Telecom players are going through a tough time. They are under tremendous pressure. This is more of an innovation call where Bharti wants better cost management. Besides, if there are players who are ready to give a better pricing, then why would Bharti hold on,” said an analyst on condition of anonymity.

From a deal perspective, Bharti Airtel is following a trend that is being witnessed globally, where large deals are being broken into smaller sizes, as companies prefer to work with more than one vendor. Not only do companies manage to get a good pricing advantage, but also access to niche technology firms.

For IBM though, the deal being broken is bad news. For Big Blue, the Bharti contract was a showcase deal. Not only was it a landmark deal in terms of the size, but was also the first IT outsourcing deal from the telecom sector in India.

After this, IBM also signed a contract with Idea Cellular worth $800-900 million, which comes up for renewal in 2019-20, and with Vodafone, which is worth $1 billion.


Airtel to continue outsourcing to IBM in $550-million deal

March 31st, 2014

India’s largest telecom service provider Airtel is set to extend its outsourcing deal with the US-based IBM for another five years.

The deal is expected to be in the range of $550-600 million, making it the largest outsourced project by an Indian telecom company since the telecom scam broke four years ago.outsourcing1

A person involved in the negotiations told Business Line that the contract is expected to be signed in a few days as the earlier one expires this month. The previous 10-year contract was for about $750 million but was gradually scaled up to about $2 billion because of the accelerated growth of Airtel’s subscriber base. Spokespersons of both Airtel and IBM refused to comment on the deal stating that they do not discuss details of confidential client contracts.

The new deal will involve work in the areas of cost efficiencies, data services as well as better customer experience. The earlier deal was based on the revenue-sharing model and when the contract was signed, Airtel’s subscriber base was about 4 million which has now gone up to 200 million. The primary reason for outsourcing during the original agreement was to have an IT partner, which could help Airtel scale up. Initially, the deal was viewed with some scepticism because of its complexity, but eventually it turned out to be a benchmark for other telcos who were in the market to strike similar deals.

Changes galore

Once the deal came up for renewal, the drivers had changed completely. Airtel’s primary concern was no longer about scaling up the number of subscribers but about other needs such as data services, enhanced customer experience and bringing down costs. Also, the software and hardware component of the total outsourcing is no longer part of the new round of negotiations as they have already been set up and the requirements may be only incremental. Hence, the deal size will be between $100 million and $125 million a year compared with about $200 million earlier.

The earlier deal, signed in 2004, was for a period of 10 years but Airtel had the option to walk out after five years. Both the companies are learnt to have decided to stick to the same parameters and keep the tenure of the contract initially for five years.


IBM bags outsourcing contract from Adani

March 18th, 2014

Global information technology giant IBM is understood to have bagged a large IT outsourcing contract from diversified business conglomerate Adani Group.

As a part of the total outsourcing contract worth Rs 300 crore, the US-headquartered company would provide infrastructure management as well as application development and maintenance services for a period of four-five years, highly placed industry sources told Business Standard.Outsourcing4

Apart from IBM, its global rival Hewlett-Packard as well as Indian IT services company Wipro were also in the fray for the contract, touted as one of the largest deals in Indian domestic IT outsourcing markets in  recent years.

IBM India declined to offer any comment for this story. “IBM does not discuss details of confidential client contracts,” a company spokesperson said in an email reply. An email sent to the Adani Group did not solicit any reply. The domestic IT outsourcing services market in India had been under pressure during the last couple of years, with large enterprises either cutting down or deferring their spending decisions largely because of weakness in the domestic economy.

According to a recent performance review by industry body Nasscom for FY14, the domestic IT-BPM services (excluding hardware) revenue is expected to grow 10 per cent to reach Rs 1,14,800 crore in FY14. Of this, the IT services segment is expected to grow at 9.7 per cent to touch Rs 72,700 crore. “Economic uncertainties, slowdown in decision making, inflation, rupee volatility as well as the 2014 elections among others are impacting the discretionary spend for both, the government and enterprise sector,” Nasscom had said in the performance review report.


Cloud Adoption and Managed Service Providers Fuel Global Momentum for IBM PureSystems

February 3rd, 2014

As organizations look to consolidate their existing data centers and shift more of their workloads to thecloud, IBM (NYSE: IBM)  announced that this trend has helped fuel the growing momentum for the IBM PureSystems family of expert integrated systems, which have now shipped more than 10,000 units through the 4th Quarter of 2013.


Another aspect of this trend is that as more organizations embrace cloud computing, they are looking to Managed Service Providers (MSPs) to help them quickly develop and deploy cloud based services in a more secure and economical way. These MSPs – many in key regions such as India, Brazil and China – are increasingly turning to IBM PureSystems over other vendors’ offerings in order to transform their data centers and provide the IT infrastructure that meets the needs of their clients.

Global Clients Embrace PureSystems

ABC Capital, one of the largest financial companies in Mexico, faced a difficult server consolidation project. After considering other vendors including HP, Dell and Oracle, ABC Capital chose to consolidate its entire IT infrastructure onto IBM PureFlex.

“In order to become more competitive in the market, ABC Capital was looking to build an infrastructure that could support the mobile technology and social network requirements of our customers,” said Sergio Mendoza Alvarez, Director of Technology for ABC Capital. “The integration of our platforms using IBM PureFlex will allow us to meet these goals and reduce the migration time for our multi-core systems, from two years to seven months.”

The flexibility and ease of deployment that PureSystems delivers has been one of the key reasons for the rapid adoption by organizations like ABC Capital in a wide variety of global regions.  For example:

·   FleetRisk Advisors, a business unit of Omnitracs Inc., provides advanced analytics solutions for fleet management and logistics. With a solution that includes IBM PureData System for Analytics, FleetRisk Advisors built a cloud-based, software-as-a-service (SaaS) platform that enabled it to help reduce fleet-related accidents by 20 percent and support a 200 percent growth in the number of clients it serves.


  • India’s Pvt Ltd, a leading Knowledge Process Outsourcing (KPO) provider, which co-designs highly targeted knowledge solutions and operates global knowledge centers located in Chile, China, India, and Romania, has chosen IBM PureFlex to enable an IT infrastructure that supports a private cloud environment and virtual desktop infrastructure for nearly 2,000 users. IBM worked with its business partners Avnet EM Asia and Tech9labs on this project.
  • India’s Karunya University has selected IBM PureFlex to improve online student services by more effectively processing applications, such as handling online enrolment, exam scheduling, virtual campus management, and more.
  • eWell Technologies (HangZhou) Co., Ltd., an independent software vendor (ISV), needed to develop a hospital-based information integration platform for its master patient index solution. With the PureApplication System, eWell can now offer its customers a standardized platform to better monitor both inpatient hospitalization and outpatient services. eWell is partnering with IBM on Hospital2.0, a revolutionary plan to expand the Chinese healthcare industry ecosystem.
  • TCL Multimedia Technology Holdings Limited, ranking among the world’s top 3 leading Television producers by revenue, has chosen an IBM PureSystems solution over Oracle EXADATA, Huawei Cloud center, EMC and Dell.  The company will use PureSystems to better manage its big data challenges and gain stronger insights into their business, helping TCL streamline business processes, increase profitability and support growth and innovation.
  • Fortnox, a provider of Internet-based applications in Sweden was able to reduce IT costs by as much as 50 percent, enhance service availability and flexibility, accommodate business growth and minimize staffing requirements utilizing an infrastructure built on IBM PureSystems.
  • Japan’s Taiho Pharmaceutical Co., Ltd utilized IBM Flex System to develop a desktop cloud platform for the tablet PCs used by more than 700 members of the company.

Ecosystem of Partners Key for PureSystems Adoption

For IBM Business Partners, PureSystems creates a new opportunity to help clients solve the complexity of enterprise IT, reduce costs and encourage innovation. From resellers to distributors and ISVs, more than 2,200 Business Partners are supporting IBM PureSystems, while more than 370 ISVs have created application patterns and virtual appliances that can be downloaded for PureSystems. This includes leading solutions from some of the world’s largest ISVs, from ERP systems to applications for the banking, marketing, healthcare and energy industries.

A Family of PureSystems to fit Client’s Needs

The IBM PureSystems portfolio offers clients an alternative to current enterprise computing models, where multiple and disparate systems require significant resources to set up and maintain. The entire portfolio is configured to make cloud computing easy for clients and includes:


  • Flex System provides the building-block elements for clients who want to custom build and tune configurations to their specific requirements.
  • PureFlex System, which provides a preconfigured hardware system and enables organizations to more efficiently create and manage an infrastructure.
  • PureApplication System, which integrates pre-configured software and industry patterns to help organizations reduce the cost and complexity of rapidly deploying and managing applications.
  • PureData System models, which are optimized for delivering data services to today’s demanding applications with simplicity, speed and lower cost.


Sears Canada taps IBM for outsourcing; will lay off 1,345 associates

January 16th, 2014

Sears Canada Inc. has entered into an arrangement with IBM to have the supplier take over the work currently performed at three internal Sears customer contact centers. The outsourcing move will take place over the next nine months and affect 1,345 employees.


“The changes we are making to our Customer Contact Centres will allow us to streamline the support structure of our organization while enhancing the overall customer experience,” said Doug Campbell, president and CEO, Sears Canada Inc. “Our partner will bring tools and technologies that will allow us to operate more effectively without the ongoing investment in and maintenance of legacy proprietary systems. This will provide our customers with the benefits of up-to-date technology and enable us to focus on our core retail business, the area where we believe we have the greatest opportunity to maximize the value of the company.”

Additionally, 283 employees at Sears Canada’s logistics arm will be laid off effective immediately, the company said.

Sears Canada is 51%-owned by Sears Holdings Corp. “These types of decisions are not made without considerable thought and deliberation,” said Campbell. “We are planning for the future of Sears Canada and taking steps now that will allow us to continue serving customers as a viable national retailer coast to coast in stores and through our Direct channel now and in the future.”


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