Dr. Jai Menon, CIO of Bharti Televentures hasn’t driven a truck in his life before, but metaphorizes his on-demand experiment at his company around the truck. Menon’s truck has three parts: the cabin represents internal-facing systems like intranet, email, knowledge management, financial system, workflow and HR systems that are required to steer the business. The payload—squatting at the rear and influencing the performance considerably—is the customer-facing IT systems such as billing, customer relationship management (CRM), fraud management and data warehousing. The wheelbase represents information infrastructure such as data centers, networks and security policy that connects the two.

Unlike in the real world, Menon is making sure that his truck gets serviced—on demand—as he drives it. And Menon is particular that all the parts get serviced from a single dealer. In this case it happens to be IBM. It simply means, IBM will take care of entire IT requirements of Bharti from desktops to servers, applications, data-centers and designing its IT roadmap for the future.

The Business Payoff
“We believe the next big thing in technology isn’t technology itself, but a better way to make it work,” says Colleen Arnold, General Manager, IBM Communications Sector, worldwide. He is also the initiator of the IBM-Bharti deal.

The reasons why Bharti decided to outsource its IT requirements are compelling in terms of the group’s ambitious plans. In the last three years, Bharti’s mobile subscriber base has grown from 1.35 million to nearly 7 million. Sunil Mittal, the company’s Chairman is bullish on reaching the 25 million mark in a span of two years. All these together mean that Bharti will need a huge and complex IT infrastructure, which should work seamlessly. But, this is not its core focus to work on. Result: Bharti did the obvious; it got hold of IBM to handle the job.

Menon says, “We need world-class IT infrastructure as we are on an explosive growth rate for next couple of years. With the IBM partnership, we will draw an IT roadmap with a state-of-the-art infrastructure to support Bharti’s existing and new business operations. The agreement will transform the business as it is capable of diligently servicing the needs of millions of customers.”

Structuring The Deal
It took 15 months for Bharti Tele-Ventures and IBM to ink the deal, a benchmark in the industry now. As Menon explains, any on-demand model has three dimensions: Scale, Scope and Cost. Bharti did not predefine the number of issues that IBM has to address. It is a broader umbrella where all the IT systems and services are covered.

Tomorrow, if the telecom regulator changes policy, the resulting IT changes that would be required will be taken care of by IBM. Suppose Bharti wants to integrate its customer database so as to service the customer in a certain way then IBM does the execution. Menon’s team, along with IBM procures the business requirements from each of the divisions of Bharti and then prepares an annual IT plan. Such a plan is flexible to adapt to alterations in the requirements. The plan classifies the requirements into two broader heads: Transformational and Practical Projects. Transformational projects involve transforming IT and creating a robust architecture. Practical projects are those can be quickly executed.

Bharati has a governance mechanism in place wherein IBM’s work will be monitored at various levels of hierarchy. The company has drawn up internal benchmarks to compare its IT infrastructure against other industry players.

Under the provisions of the agreement, the current 250 employees involved in operation and maintenance of the IT infrastructure of Bharti have been transferred to IBM. Further, IBM has added 200 of its employees to manage Bharti’s IT infrastructure. With the new structure in place, Bharti has been able to tap global talent that IBM has brought in. The team on ground has telecom-domain professionals from Australia, U.K and the U.S. “The equation now is not how much IBM can sell us but how much IBM can drive Bharti’s revenue,” Menon emphasizes.

Getting the Metrics Right
It is important for a company to get its ‘On demand’ strategy right. At Bharti, Menon and his team went through multiple iterations before coming up with the final on demand model. Typically IT outsourcing deals are based on time and material basis. In the telecom sector, some of the companies have even gone ahead to link their payments (to the service providers) with the number of subscribers. That is, if the IT cost per subscriber is X, then the total IT cost for the year is X multiplied by the total number of subscribers. In result, CAPEX will be huge as the subscriber base increases.

While drawing up this strategy, Menon noticed that as the number of subscribers grows in India, the average revenue per user (ARPU) is decreasing. “If the ARPU is decreasing, having a fixed IT cost doesn’t make sense. Once we add another 10 million subscribers to our existing base, it is obvious that the ARPU will be lower than what it is today. In that case, having a fixed IT cost structure you will be actually losing money.”

What Menon was looking for was a predictable IT cost model. He took a bold step and conceptualized what he calls as the ‘ultimate model for on demand in terms of financials’. He linked IT with revenue. So Bharti does not have to worry about issues such as yearly budgets, change in technology, the geography of operations or sizing of equipment. “No matter what subscriber base size grows to, what the ARPUs are, and what product I offer in the market place, my annual IT cost works out as a percentage of the revenue,” says Menon.

The percentage-linked revenue payment is modeled to decrease with the increase in Bharti’s revenues. Based on estimates agreed between Bharti and IBM, the total deal for the first five years is estimated to be in the range of $250 to $ 275 million; for a 10-year period, the total deal is likely to be in the range to $700 to $750 million.

Structuring such a deal was obviously a paradigm shift from the traditional ones. It required innovativeness from both IBM and Bharti. “The fear of buying too much IT isn’t there because now my IT cost is expressed as a percentage of revenue. It is in fact a ‘reward-sharing model’,” says Menon, “The beauty of this shrinking percentage revenue model is that if I have to grow to 25 million subscribers in 24 months, I do not see any additional IT costs in the CAPEX investments.”

The CIO Role after On-Demand
“This entire outsourcing is not done for cost saving at all,” Menon stresses. Bharti will retain the freedom to define its IT architecture. Menon has set up a strategic business unit called the Architecture Review Board (ARB), which is focused on defining how technology can be deployed to create other business differentiators in the marketplace. On a quarterly basis, this board draws up plans of what needs to be done on the IT front which would keep Bharti’s competitors at bay.

The IBM deal has allowed Menon to get away from attending to the day-to-day IT needs of the organization. Be it integrating a particular database or installing new software, Menon makes sure he doesn’t get caught up in the routine. IBM will manage it for him.
In fact, he is in an investing mode these days. He is looking at various new technologies that can be implemented at Bharti to improve the business processes. For example, he is talking to various vendors that provide encryption tools in order to enable financial transactions over the mobile. “The deal allows me and my team to engage in business on the business table,” he quips.

Changing Hats
Throughout his career, Menon has been alternating between technology and business roles. While working at BellSouth, the IIT-Delhi graduate watched the company move up the growth curve to become a mature telco. He was a witness to some of the IT and telecom technology decisions that the company made that didn’t go anywhere. From his experience at BellSouth it was pretty clear to him that one has to place an architecture upfront in the growth cycle; else integrating silos of IT systems would pose a challenge.

Menon was handpicked by Bharti chairman Sunil Mittal in October 2002 and was given a mandate “to be creative in using technology to add value to Bharti’s business.” Menon left his high-profile job with BellSouth in Atlanta, U.S., and moved to Delhi and stepped into Bharti at a very early stage of its growth. Being a young company, Bharti does not have any detracting legacy systems.

However, most of the company’s back-end growth had been inorganic and it was important not to have a siloed IT structure. So the first thing Menon did was to integrate the IT functions under him and create an IT community of practice for the whole group, using XML and web services middleware to integrate all the systems and applications.

Menon recalls, “When I met Sunil Mittal in mid-2002, Bharti was at a point of inflection, just about to take off the trajectory. What we needed was a strong partner who will take us up the growth-graph. The partner needs to bring in three things: a blue print of open standard space architecture, world class resources with strong telecom domain knowledge providing end-to-end accountability, and an on-demand technology construct.” Finally, the IBM deal happened.