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Category: Offshore outsourcing
September 1st, 2009
SmartPlanet: 3 of 4 executives say outsourcing necessary to maintain bottom line
Three out of four executives believe outsourcing is imperative for helping companies hold up their bottom line in the current economy, according to a new study.
Nearly the same amount agree that money saved by switching some processes to an outsourcing partner — IT, finance, human resources, customer service, etc. — can be applied toward growth.
Three of five execs indicate that outsourcing could make businesses more “agile and flexible.”
Agree or disagree? Read the whole article on SmartPlanet’s Business Brains blog, then sound off.
August 26th, 2009
IBM, Wipro, Tata, Infosys win BP IT outsourcing deal
IBM and a band of Indian outsourcing companies have won a 5 year contract to manage and run BP’s enterprise applications.
The financial terms of the deal were not disclosed in a statement, but BP, a large oil and gas company, is handing out multiple IT contracts in a move to improve business processes.
IBM officials maintain they won the largest chunk of the contract and appears to be responsible for SAP maintenance across BP as well as the company’s integrated services desk.
We’re told that IBM will handle maintenance for BP’s SAP apps. Accenture had touted running BP’s SAP apps, which essentially run the oil company. Accenture will maintain SAP development responsibility. BP CIO Dana Deasy said in a statement that IBM was selected as a strategic vendor for SAP maintenance and system development.
BP spent the last year consolidating its IT vendors for application development and maintenance.
Among the other winners of the BP deal:
August 13th, 2009
Ask the Leadership Coach: Outsourcing from both sides of the divide
Leadership coach John M. McKee addresses the effects of global outsourcing. He answers emails from a dedicated employee who was recently let go, and a CEO who is trying to balance the costs and benefits. For more posts like this see TechRepublic’s IT Leadership blog.
After 17 years with the same company, I was recently terminated. I was told it was part of a company-wide downsizing; but many of us who were affected think it’s more about sending more business overseas where people will work for like $8 a day. I know this is going on across many industries. Here’s my question: Don’t business owners realize that they’re only hurting themselves with this kind of action? Consumers support the companies they believe in and who care about their communities. At some point nobody’s going to be left working in this country any longer. Who will buy their products then? Why is this so hard for CEOs to understand?
Paul in Chicago
June 11th, 2009
U.S. CTO: Infrastructure growth needs private sector investment
The technology backbone of the United States needs a major overhaul and government alone can’t do it, the nation’s first chief technology officer said today. It’s going to take a cooperative effort, including a massive influx of “hundreds of billions” of private capital dollars, for the U.S. to catch up to its global peers.
CTO Aneesh Chopra delivered a keynote address this morning at the Consumer Electronics Association’s Digital Downtown event in New York City. The U.S., he said, is “dead last” on the global stage when it comes to the tech infrastructure and yet bandwidth usage in the U.S. is expected to increase five-fold by 2013.
“We’ve stood still while the rest of the world has caught up or exceeded us,” he said.
The U.S. is going to have to bring “all stakeholders to the table” for this discussion, he said. “We want equity, growth, application value…we have multiple public priorities, and the bulk of capital [investment]…will be a private sector endeavor.”
In his keynote, Chopra outlined the four areas, or “pillars,” of growth in need of attention: harnessing the potential for economic growth; innovation and policy reform in areas such as energy and education; increasing secure connectivity across the nation; and using “retail 2.0″ strategies in government efforts, such as in employment and social services.
April 22nd, 2009
Report: Fraud and deception at Satyam was deep
The fraud and deception at Satyam Computer Services in India was so in-depth that it included dual accounting books, thousands of forged invoices, thousands of unnecessary employees and dozens of fake bank statements, according to court records analyzed by the New York Times.
Through the deception, managers, auditors and an adviser were able to create a perception that the company was “carrying out huge volumes of business” so it attract potential customers and investors, according to the NYT. All the while, cash was flowing into the hands of those who architected the deception.
In January, Satyam co-founder B Ramalinga Raju resigned from the company - India’s fourth largest outsourcing company - after admitting that this was an estimated $1 billion cash hole in the company’s balance sheet. Within days, Raju’s brother and company co-founder Rama Raju had been arrested, as well, and the company’s full board of directors were let go.
In addition, the company’s auditors are also facing charges. The Times, quoting from the court documents, reports:
The company’s auditors, S. Gopala Krishnan and Srinivas Talluri, who have been suspended from PricewaterhouseCoopers, both received figures from Satyam’s banks that were in “great variance with the figures provided by the management” but certified Satyam’s accounts anyway, the bureau said. In return, the bureau claims, the auditors received an “exorbitant audit fee” over and above the market rate.
Earlier this month, Satyam was sold to Venturebay Consultants, a subsidiary of Indian outsourcing firm Tech Mahindra. Venturebay Consultamts will pay $352 million for new shares representing a 31 percent stake in Satyam. From there, Satyam will make a public offer to buy another 20 percent of shares to reach a 51 percent controlling stake.
April 13th, 2009
Satyam sold: Tech Mahindra highest bidder
Satyam Computer Services, which had been rattled by accounting fraud, has been sold to a unit controlled by Tech Mahindra, an Indian outsourcing firm.
Satyam had put itself up for auction a few weeks ago. The company installed new management following at $1 billion accounting fraud. Venturebay Consultants, a subsidiary of Tech Mahindra, will pay $352 million for new shares representing a 31 percent stake in Satyam. From there Satyam will make a public offer to buy another 20 percent of shares to reach a 51 percent controlling stake.
In a statement, Satyam chairman Karin Karnik said:
On behalf of all Satyamites and their families, we congratulate Tech Mahindra on being the highest bidder. The selection of the highest bidder, in a fair, open and transparent process, signals a new stage for the Company in its progress towards stabilization and growth. We hope this will infuse greater confidence and comfort amongst customers, who continue to be happy with Satyam’s excellent service delivery. This event ought to dispel the anxiety of all stakeholders as it re-positions the Company’s commitment to revival and good governance.
Satyam’s next big challenge is keeping its customers in the fold. For sure, Satyam is more stable today. According to the auction orders, which were overseen by an India judge and that country’s equivalent of the Securities and Exchange Commission, Tech Mahindra was chosen because it met the following requirements:
- Good corporate governance;
- Social responsibility;
- Experience managing an IT services firm;
- A track record managing distressed operations;
- And a profitable strategic plan.
Satyam said that no bid was within at least 90 percent of Tech Mahindra’s bid. Tech Mahindra, which is controlled by utility vehicle giant Mahindra & Mahindra, now becomes India’s fourth largest IT firm.
Also see Bloomberg’s report on the sale.
April 1st, 2009
Forrester's U.S. IT spending forecast cut: Will 2010 show a rebound?
Forrester Research is now projecting 2009 IT spending to fall 3.1 percent, compared to the 1.6 percent decline the research firm had projected.
Forrester Research—along with Gartner—is the latest to cut its projections for 2009 following bleak fourth and first quarters (see full report). In many respects, the economy is confirming Forrester’s subdued outlook. As expected computer equipment is expected to take the biggest spending hit in 2009. In fact, the only positive growth area in Forrester’s forecast is outsourcing (and that’s because it cuts costs).
The wild-card here is Forrester’s assumption that there will be a late 2009 and 2010 rebound. Forrester analyst Andrew Bartels writes:
Computer equipment purchases will continue to bear the brunt of cutbacks in tech investment, but purchases of network equipment, software licenses, and IT consulting services will also drop. As the US economy starts to recover in late 2009, IT purchases will revive strongly, with strong growth projected for 2010.
Given that IT budgets are almost monthly and companies have no shot at providing guidance can a 2010 rebound really be on the table? After fall, Forrester has cut its U.S. IT spending forecast four consecutive quarters.
Here’s a look at Forrester’s money slide and my notes:
A few nuggets from Forrester’s view behind the numbers:
- The credit crunch is killing IT capital expenditures. Forrester writes:
Companies large and small have been shut out of credit markets, and even those that still have access to bank loans, markets for commercial paper, or corporate bonds often have had to pay much higher interest rates. Businesses have responded by going into a cash-hoarding mode, with big and dramatic cutbacks in all forms of capital investment. Since many IT goods are in the capital budget, IT markets have taken a disproportionate share of the capital investment collapse.
- Computer and communications equipment spending in the U.S. will decline 6.7 percent and 7.7 percent, respectively, in 2009.
- Software purchases will decline slightly. Forrester sees all three categories rebounding.
- There was a breakdown of computer equipment revenue among key vendor in the fourth quarter. Only NEC showed revenue gains, up 7 percent. Storage is expected to recover quickly.
- For communications equipment only Cisco showed a gain in the calendar fourth quarter. Video conferencing and next-gen (4G, 3G) networks will be a bright spot.
- Software vendors mostly showed revenue gains in the fourth quarter. Hot software areas include: Virtualization, IT asset management, business intelligence and business process management tools.
- And the final item on Forrester’s report can be summed up in one word: India. Forrester’s recap of the outsourcing market shows Infosys, Tata Consultancy, ACS, Accenture, CSC, Wipro and IBM global services as showing revenue gains. You can argue that all of those players are big India players—the only difference is that some of the companies call India their home field.
March 30th, 2009
Fujitsu America CEO makes mid-market enterprise bet
Fujitsu America will kick off April 1 as an integrated IT systems player with a game plan to target mid-market enterprise customers and large corporations in industries such as retail, financial services, government, manufacturing and health care.
Last September, Fujitsu announced plans that it would create Fujitsu North America Holdings to aggregate its consulting, systems and transactions units together into an IT services, software and hardware company.
The combination makes Fujitsu America more an IT services player in the U.S., Canada and Latin America. Parent company Fujitsu, based in Japan, is one of the top four IT services companies in the U.S. and roughly on par with Accenture in terms of revenue.
We caught up with Fujitsu America CEO Farhat Ali (right) ahead of the move. Here are some snippets of our conversation:
First off, Ali wasn’t able to discuss the Sun-IBM merger chatter. If you recall, Fujitsu has been rumored to be the most likely buyer of Sun’s server business. After all, Fujitsu manufactures Sun’s servers, sells systems that run on Sun’s Sparc chip and may be an ideal buyer should IBM want to unload a commodity hardware business.
With that tidbit off the table, here’s a look at Fujitsu America’s game plan.
March 27th, 2009
Accenture: Some clients are operating without annual budgets
For a few months now, it seemed as if enterprise technology spending was a month-to-month affair. Accenture confirmed that theory, noted that “some clients are still operating without approved annual budgets” and cut its outlook for the rest of the year.
Simply put, uncertainty reigns. A quarter of 2009 is gone and the annual budget is still in flux at some companies.
Accenture operating chief Steve Rohleder made the annual budget comments on its fiscal second quarter earnings conference call. The company reported earnings of 63 cents a share in its fiscal second quarter, a penny better than Wall Street estimates (statement). However, Accenture’s revenue was $5.27 billion, below estimates of $5.54 billion. Rohleder said:
Clearly the global marketplace has shifted dramatically over the past few months. Beginning in January we saw heightened marketplace uncertainty which led to a systemic pause in certain segments of the market. This resulted in three factors affecting our consulting business.
First, clients have started differing decisions about new work which has resulted in a slow down in converting our pipeline to revenue in the quarter.
Second, the small extensions and add-ons that normally come through each quarter did not come through at the rate we have seen historically in fact some clients are still operating without approved annual budgets.
And third, in some cases clients have asked us to work with them on reducing the run rate on existing consulting projects.
Accenture’s read on its client base goes something like this:
- Consultants are being used for “sustained cost reduction and operational improvement.” CEOs are driving these efforts.
- Big custom projects have been delayed, but there is demand for SAP and Oracle services.
- Customers are looking to cut IT infrastructure costs and data security and privacy, compliance and cost cutting are en vogue.
- Application outsourcing remains strong. In fact, outsourcing demand overall is strong. Seven of Accenture’s top 10 bookings in the quarter for outsourcing were with existing clients.
Simply put, there is a lot of IT work that needs to be done, but there’s a mass pause. Accenture CEO Bill Green added:
When people came back to work after the holiday in January and things just slowed down. If you would look at what happened from mid-December through the beginning of January as it relates to the economy it was very profound and there is a whole life going on this, people came back to work, people just took a pause and the pause that had been I think what we described last time was during the headlights became sort of an institutional thing as everybody said they are uncertain about what direction the economy was going to go in.
And one of the comments Steve made is, some of our clients they don’t even have their ‘09 budgets finalized yet. So, if you think about that, really what we are trying to account for here is that, that just the plain uncertainty.
Green continued:
To be perfectly blunt about it, I was shocked at the difference between January and December. December was a very good month, frankly. The difference between, you know, December and January, and if you have talked to companies across industries, you will find this out by talking to everybody. It was profound.
When asked whether things have improved in March Green noted that companies are now recasting their 2009 priorities. Meanwhile, many clients have laid off workers and that makes priorities—and who will actually do the work—fuzzy.
Given the cross currents it’s not surprising that Accenture is expecting fiscal 2009 revenue growth to be flat to up 4 percent. Earnings for the year are now expected to be in the range of $2.60 a share and $2.67 a share. Accenture had forecast $2.78 a share to $2.85 a share for the year.
March 25th, 2009
Union: IBM layoffs accelerating as employees vent
IBM’s employees’ union is delivering blow-by-blow accounts of Big Blue’s layoffs tonight.
The Wall Street Journal reported earlier Wednesday that IBM is looking to cut about 5,000 positions mostly in its global business services unit as it shifts work to India (Techmeme).
According to the Alliance@IBM site, 1,674 jobs have been cut in application services with employee reports filtering in. IBM’s employee union reckons that 4,000 U.S. jobs are on the chopping block.
Among some of the notable comments:
A letter regarding the transition of work in the Hartford Insurance account:
“Starting next week several Hartford delivery teams will be working directly with fellow IBM team members from India to begin the second phase of our Global delivery solution planned for the Hartford account. The teams will be engaged in a multi-week effort to facilitate knowledge transfer to prepare for migration of specific work activities to global delivery counterparts later in 2009. Your continued support and leadership is critical to ensure our overall success and to ensure we continue to deliver high quality cost effective solutions that IBM committed to the Hartford. Please ensure you and your teams actively support this effort.”
And.
I work for IBM Asia Pacific Region and currently with IBM Australia - a 26-year veteran with IBM. Just been told that I am terminated along with many others here, although the region kept reporting increase in business results!
And.
1st line manager confirmed last week that there will considerable pressure to cut jobs, regardless of current staffing levels, workloads etc. Even if a dept. is under budget they will have to cut staff. Hope they remember to be generous with those severance packages - especially considering some of the directions given to us by our managers.
And.
I’m an IBM employee who is often frustrated by the secrecy at the top and IBM’s unwillingness to be honest about the layoffs…. err, resource actions. However, I don’t think IBM is immune from the global economic forces that are leading to a more global workforce, the shifting of jobs from high-paying countries to lower-paying companies,etc. Do you really expect IBM to be the only company not having layoffs in this economy?
March 17th, 2009
India paper: Satyam has lost 46 customers
Satyam has reportedly lost about 46 customers out of 600 since its massive financial fraud surfaced.
India’s Economic Times reports that these Satyam customers have moved to rival outfits. The news isn’t unexpected as a few CIOs had mentioned their intentions to ZDNet off record.
The paper reported that customers such as Abu Dhabi Bank, Applied Materials, State Farm Insurance and Sony are some of the big names that have moved out projects or are in the process of leaving Satyam, which has been rocked by financial fraud.
These disclosures are likely to surface as potential buyers conduct due diligence on Satyam, which is seeking to sell a 51 percent stake in the company.
While losing 46 customers isn’t trivial, Satyam appears to be hanging on to most of its base. For perspective, Satyam became India’s Enron and only lost about 8 percent of its customers. It’s unclear whether that customer loss tally speaks to the difficulty getting out of outsourcing deals or faith in Satyam.
March 9th, 2009
Wanted: Bidders for 51 percent stake in Satyam
Interested in a 51 percent stake in Satyam Computer Services? Here’s your big chance.
The company said on Monday that it will begin screening interested bids for a 51 percent stake in the company until March 12 (statement).
The offshore outsourcing firm has been rattled by fraud and now has new management and financing. For now it is putting itself up for bid (see all Satyam posts).
Here are the details:
- Under Indian securities rules interested bidders must make a public offer for a 20 percent stake with the option to go to 51 percent.
- The deadline to register your interest in bidding is March 12 at 5 p.m. Indian Standard Time.
- Any bidder that has registered to bid will get a request for proposal (RFP) and have to submit an expression of interest in the company.
- You’ll also have to prove that you have funds of about $290 million available to you.
- Eligible bidders will be short-listed and given access for due diligence under a non-disclosure agreement.
- Satyam says the process “for selecting a bidder shall be overseen by a former Chief Justice of India or a former Supreme Court judge appointed by the Company.”
If interested, see the Satyam site. If you pretend you’re an institutional investor you get to see more of the process. I didn’t express an interest given I don’t have the $290 million lying around (and wouldn’t pay that for Satyam anyway).
March 3rd, 2009
Survey: U.S. gains favor as outsourcing location
Chief financial officers at technology companies are increasingly seeing the U.S. as their most favored outsourcing destination in 2009, according to a survey by consulting firm BDO Seidman.
Among key findings from the 2009 BDO Seidman Technology Outlook Survey:
- Manufacturing (54 percent) and IT services and programming (46 percent) were the two functions most commonly outsourced offshore;
- 62 percent of CFOs at tech companies say they outsource services or manufacturing;
- 22 percent say that the U.S. is the outsourcing destination most likely to be considered in 2009 followed by China at 16 percent and India at 13 percent;
- 19 percent of those surveyed have no interest in additional outsourcing.
Why the switch? BDO Seidman reckons that the global economic bust, Satyam’s fraud and terrorist attacks are curbing outsourcing in India. Nevertheless, 50 percent of CFOs mention India as their most common non-U.S. location. In China, the big worry is supply chain and shipping costs and the survey reflects those concerns–19 percent cite China as the most common non-U.S. location down from 46 percent a year ago.
Among those issues, the economic picture appears to be the biggest problem. To wit: 42 percent of CFOs said their companies have operations outside the U.S. compared to 79 percent a year ago. Twenty-nine percent of those CFOs cite economic uncertainty as the main reason they aren’t expanding abroad.
February 28th, 2009
Is the call center finally coming onshore?
We had a great discussion a few weeks’ ago regarding the USA’s potential to take on more sourcing work, with increasing unemployment and downward wage pressures. I’ve made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work. And where better to start than the call center?
Bottom-line, President Obama should take a leaf out of Margaret Thatcher’s book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline. I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM - she closed down unprofitable coalmines during the 80’s recession, and encouraged businesses to set up call centers in depressed British cities. Now there are over 650,000 call center employees across the UK. Wages in the UK are competitive for qualified staff - and they don’t command ridiculous healthcare premiums. (I just saw one main healthcare insure just increased its premium by 20% this year). While there are some good investment ideas inthe stimulus package, I would have liked to have seen some focus on business service support areas - as we discussed here.
Protectionist sentiment is swelling. The Buy America provisions in the stimulus bill are symbolic of the increasing resentment towards jobs and work going overseas. I have already seen this provision included in some sourcing RFPs from healthcare organizations and other companies benefiting from bailout money, or with significant public sector influence.
With over two-thirds of Americans filing first-time unemployment claims for the week ending February 21 to bring the total to over 5.1 million, this tide will surely rise. Over the past decade there had been considerable leakage of domestic customer service agent seats to offshore locations. Customer service is returning back to the country, literally. Inspired by the Canadian model and technological advances, customer care is increasingly being delivered from rural America.
The customer service rep is the organization’s ambassador to the caller. The human voice provides the company’s human face. Much of the time when the customer calls it is because something has gone wrong. If the caller cannot understand the agent due to accent issues and/or communicative styles, the problems are compounded. The caller can become agitated and the company may wind up losing a customer. In the present economic environment, just hearing a foreign accent could trip the trigger. Losing dollars chasing dimes is not wise.
Earlier in this decade, there was a mad dash for the low-wages on offer in India - and more recently the Philippines and low-cost Latin American countries such as Peru and Nicaragua. Everything was thrown over the wall once telecommunications technology and the associated costs became less of an issue. A Mercedes Benz owner was furious when connected with an offshore agent, “How can somebody help me with problems related to my car when they have probably never even driven one?”
Like Britain in thn 1980’s, Canada has also explored ways to grow its economy, concludingthat the stability of the nation and its people were major assets. It was determined that the call center industry to serve the American market presented an excellent opportunity. Beginning in the late eighties, strategic initiatives were put in place involving tremendously unified efforts by all levels of government and higher education. These efforts were initially intended to address economic woes of unemployment in traditional industries and leverage the value of the Canadian dollar.
The programs proved to be successful, particularly in more rural areas. The Canadian turnover rate was consistently a third of US. As there was less competition in rural areas from other industries for workers, there was far greater retention and a seasoned experienced workforce developed.
American providers have noted the formula along with being able to take advantage of the lower cost of living in many rural areas. Additionally, wages are lower with a reduced turnover rate adding to the value proposition. Human resources consultant FurstPerson reports in its 2008 Call Center Recruiting and Compensation Survey that the average cost of attrition per agent is $5,466.32. Consequently, call center providers are increasingly leveraging opportunities in areas with smaller cities, particularly in the Midwest.
One such provider is West Direct headquartered in Omaha, Nebraska (the oft-dubber “call-center capital” of the US). The business model is based on having 39 contact centers around the country, mostly in cities with populations ranging from 50,000 to 150,000. West Direct also employs home-based agents.
By offering telecommute positions; a much wider net can be cast to attract agents in outlying areas. The employee saves time on commuting and the cost of fuel. The employer is able reduce the costs of a seat in a brick and mortar center while frequently attracting high quality employees at a lower wage. It is common for the churn rate to be in single digits for home-based agents.
Technology, high-speed connections, and Web based applications has enabled companies to tap into rural America with its strong work ethic. Customer care can be domestically delivered at an attractive price point with callers being greeted by a fellow American. I’ll wager $100 we have new call center development in Michigan before 2009 is over.
February 5th, 2009
Satyam saved? Company names CEO; Lands financing
Indian outsourcing firm Satyam, which is reeling from accounting fraud, said Thursday that it has named an insider as the new CEO and lined up $130 million in financing to keep operations running.
In a statement, Satyam said A.S. Murty will become the new CEO. Murty has been with Satyam for 15 years and most recently headed the company’s leadership development group. Murty also led Satyam’s delivery group so will at least be well versed in customer service. Satyam board member Deepak Pareck said it was clear that the new CEO had to come from within.
Last month, Satyam revealed massive financial fraud and has been reeling ever since. The company’s biggest two missions are stabilizing the business and convincing customers to stick.
Also see: Satyam: resignations, appointments and YouTube videos
While Murty knows Satyam’s operations well it’s unclear how the appointment will be received. Satyam (all resources) also appointed two outsiders as “special advisors.” The company appointed Homi Khusrokhan, the former Managing Director of Tata Chemicals, and Partho Datta, the former Finance Director of the Murugappa Group, to offer expertise as the company tries to recover. Both will work for free. Datta’s big task will be sorting out Satyam’s books in what the company calls “completing the complex financial restatement exercise.”
Perhaps more importantly, Satyam secured about $130 million in financing for working capital. Satyam said:
The loan, along with healthy collections, will help the company manage several short-term financial challenges. Satyam also reaffirmed that January salaries (globally) and mid-February salaries (US-based associates) have been met from internal accruals. (US-based associates are paid every two weeks.).
For now, Satyam has stabilized the company enough to give it a shot. It remains to be seen if Murty can prevent customers from leaving.
January 28th, 2009
Clock ticks for Satyam as customers eye exit
Offshore outsourcing provider Satyam–now known as India’s Enron–is looking for buyers, close to naming some new leadership and struggling to find its footing as a going concern. Meanwhile, customers are watching closely and readying plans to leap.
For instance, State Farm has said that it is leaving Satyam. Customers are predictably mum about their plans, but the anecdotes suggest that CIOs are planning to jump ship. Computerworld confirmed that State Farm is leaving Satyam, but did offer one ray of sunshine: General Electric is staying with Satyam for the time being. The operative words there are “time being.”
Rest assured GE is pondering its options.
Satyam’s rivals–Wipro for instance–say they aren’t actively poaching Satyam customers, but will listen to potential clients that make inquiries. Yeah right. In fact, I talked to one CIO, who shall remain nameless, who is a Satyam customer. He says Wipro and others called him within minutes of the Satyam news.
He says that Satyam’s fraud is worrisome to say the least. He’s left with one question: If Satyam can’t manage its internal processes and procedures how can it manage yours? (He’s asking the same about his auditor, PriceWaterhouse, who happens to be the same as Satyam’s).
Also see: Satyam: resignations, appointments and YouTube videos
- Satyam scandal: Arrests and new board members
- Satyam fallout: Should customers stick? Full text of chairman’s stunning letter
- Satyam – Can anything be trusted in Raju’s resignation letter?
So what is this CIO of a multinational company doing?
He’s standing pat–for now. In a perfect world he would have bailed on Satyam already, but there are contracts, implementation roadmaps and plan Bs to be created. Satyam thus far is still meeting its obligations so he has some time. The best case is that Satyam gets acquired by another company that can service customers.
Although he hasn’t looked at Satyam’s legalese specifically, he was confident he could break the deal. A massive fraud can do that. The rub: He needs a plan B to move away from Satyam. Offshore outsourcing deals aren’t like hot-swapping a Dell server for one from IBM or HP.
Simply put, there may be some pain involved with moving away from Satyam to another provider. And pain requires planning. The upshot: That contingency planning is happening as we speak. The Satyam exodus may have not started en masse just yet, but the months ahead are likely to be rocky for the outsourcing outfit.
Satyam obviously sees the train wreck ahead. That’s why it is scrambling to hire new management, find a potential buyer and keep customers in the fold. Satyam’s fraud caught customers by surprise, but the escape plans are being formulated. In other words, the clock is running out for Satyam.
January 14th, 2009
Beware of Satyam ambulance-chasers
I’ve been inundated with questions from Satyam’s competitors who have all been eagerly circling the beleaguered service provider’s clients over the past week. As discussed in my recent post “Satyam: It was like riding a tiger, not knowing how to get off without being eaten“, I do not believe customers can easily sever their existing services relationships with Satyam without significant issues re-badging personnel, losing critical operational staff, and the expense of transferring H1B-Visas. It often takes clients two-to-three years to establish an effective working relationship with their service provider and we are concerned with the advice several service providers are giving Satyam’s clients that switching will be quick, easy, uneventful and at minimal incremental cost.
While the future of Satyam hangs in the balance, my advice to clients is to remain patient in the short-term before evaluating their future options. Yes, clients should be concerned and seek reassurances from Satyam regarding any imminent service delivery issues. However, they should disregard the propaganda coming from several of Satyam’s competitors and the mainstream media, where many business publications are eager to tarnish the image of offshore outsourcing.
Should Satyam be acquired (which I believe likely), then there may be few compelling reasons to move to alternative service providers in the short-term. However, should Satyam start to lose critical staff and it’s execution suffers significantly, then clients may have little choice but to jump ship and go through the switching pain. My view is that customers can afford to wait for at least a few weeks to evaluate the situation. It does appear that the Indian government is likely to lend some short-term support to the ailing service provider as it struggles with short-term financial liquidity, so there should not be major cause for panic at this time.
January 9th, 2009
Satyam scandal: Arrests and new board members
Brothers Ramaling and Rama Raju, former chairman and former managing director and CEO, respectively, of Satyam Computer Services have been arrested and the company’s full board of directors has been let go as authorities in India begin their investigations of an alleged $1 billion fraud, according to Bloomberg. Corporate Affairs Minister Prem Chad Gupta told reporters:
The developments so far indicate that the current board of Satyam has failed to do what it was supposed to do. The government is committed to punish everyone found guilty, including the auditors.
At a press conference in Hyderabad, the city where the company is based, authorities said the brothers have been detained on charges that include forgery, breach of trust and criminal conspiracy. Officials also have seized documents and the nation’s accounting body is investigating auditor PricewaterhouseCoopers LLC’s local unit. The brothers will appear before a magistrate within 24 hours but are not eligible for bail, officials said. Their offenses carry a maximum sentence of 10 years.
In a statement, the company said that it welcomed the government’s intention to appoint 10 nominees to replace the current board as a way “to ensure uninterrupted operations and restore the confidence of all employees, customers and shareholders across the globe.”
Officials have said that concerns about the audits raise concerns that are bigger than the scandal itself, which is being compared to the Enron scandal in the U.S.
Officials with the Securities and Exchange Board of India said they have a memorandum of understanding with officials at the U.S. Securities and Exchange Commission to share information but that the case falls under Indian jurisdiction. Shares of Satyam trade on the New York Stock Exchange, meaning it is also regulated by the SEC. Noting that the U.S. can launch its own investigation, Gupta told reporters that U.S. investigators “don’t have to talk to us or seek our permission. They have their legislations, we have ours. It is not overlapping.”
Separately, analysts are suggesting that the company could be snagged by competitors quickly. According to a report on ZDNet Asia, Satyam - India’s fourth biggest outsourcer holds contracts with 185 Fortune 500 companies - has annual revenue of more than $2 billion but that there’s no trust in the company right now - one of the other reasons that the full board needs replacing.
Previous coverage: Satyam management: We’re staying; Unveils crisis plan
January 8th, 2009
Satyam management: We're staying; Unveils crisis plan
Updated: Satyam on Thursday said its top management team is staying despite the revelation that founder and chairman Ramalinga Raju cooked the books.
In a statement, Satyam followed up on a day that included a stunning letter from Raju revealing a $1 billion cash sink hole and other fraudulent acts.
Ten of the most senior executives of Satyam, including interim CEO Mr. Ram Mynampati, gathered at its headquarters in Hyderabad, have collectively committed not to resign from the company which has approximately 53,000 associates. Approximately 40 other top managers from various geographical regions - known as the “Leadership Council” - have also given their commitment to remain in the company.
The goal of this band of 10 is to navigate Satyam through the crisis and keep customers. The pledges to stay on board from top management are designed to “assuage concerns of various stakeholders in a highly fluid and challenging situation.”
It remains to be seen if the current management team can keep customers. The executives sticking around include: Ram Mynampati, interim CEO; Subu D. Subramanian, Head, Manufacturing & Automotive;
T.R. Anand, Head of Telecommunications, Infrastructure, Media & Entertainment and Semiconductors; Keshab Panda, Head, Europe, Energy & Utilities; Virender Aggarwal, Head of Asia Pacific, India, Middle East, Africa; Manish Mehta, Head, SAP & Testing Practices; A.S. Murthy, Head, Global Delivery and Global Leadership Development; Murali Venkataramani, Head, Commercial; Hari Thalapalli, Head of Marketing; and S.V. Krishnan, Head of Human Resources.
Update: Satyam held a press conference on its plan to navigate the fraud fallout:
In a nutshell, Satyam management’s plan is to:
- Create a task force to keep the business running;
- Reach out to customers to assure them that Satyam will meet its business commitments;
- Assure employees;
- “Ascertain Satyam’s liquidity position’;
- And strengthen corporate governance.
Also see:
January 7th, 2009
Satyam fallout: Should customers stick? Full text of chairman's stunning letter
Indian outsourcing company Satyam has cooked books, a $1 billion cash sink hole and its chairman and founder B Ramalinga Raju has fabricated figures. Meanwhile, Merrill Lynch has bailed on being an adviser to the company and shares of the firm were down 90 percent or so in premarket trading before being halted. What do you do?
If you’re a Satyam customer the developments (Techmeme) are worrisome to say the least. For sure, competitors such as Wipro, Tata and others are bound to benefit. Will Satyam’s employee base be motivated to keep customers happy? Anyone that has read the full text of Raju’s letter (below) outlining fraud has to take pause. Can you honestly trust your infrastructure with a company that has been as dismantled as Satyam?
The Satyam fiasco has been brewing for weeks as Vinnie Mirchandani, Anshu Sharma, Dennis Howlett and Brian Sommer have noted.
Also see: The Satyam saga worsens – terribly so
Satyam - The sharks are circling
Satyam crashes with $1 billion cash hole
Dennis Howlett foreshadows the potential customer exodus:
This latest scandal raises the specter of a possible customer mass exodus. In a conversation I had with compliance colleague Francine McKenna, she said: “Satyam already had credibility problems with the World Bank. If things are really as bad as they are claiming then the company’s long term future is in serious doubt.” Both of us are shocked at the scale of the problem because it seems inconceivable that PricewaterhouseCoopers, the company’s auditors did not know what was going on.
Satyam in a statement said it “obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation.” If you are a customer you have to be thinking the way forward is the exit. Next question: How long will it take you to bail on Satyam and what are the contractual obligations? Leaving Satyam may not wind up being the best idea once you analyze the possibilities, but you have to at least ponder such a move (click to enlarge chart).
Let’s look at Raju’s letter (emphasis mine):
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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