Bharti Airtel's success secret: Reverse innovation
According to a blog post by Govindarajan and Atanu Ghosh, the success of Bharati Airtel started when Sunil Mittal, Chairman, and his team decided to hand over the responsibility for building up and managing the company's telecom and IT network to vendors. With 110 million subscribers, Airtel is the world's third largest telecom operator.
Bharti chose to engage some of the well-known global equipment vendors and service providers to ensure quality services. It chose Ericsson, Nokia, and Siemens, which were key telecom network-equipment vendors, to build up and manage its telecom network. It chose IBM to build and manage the IT network. These proceedings mitigated Bharti's risk.
The vendors for telecom network management were paid only for the capacity utilized by Bharati, not for the equipment. Through the outsourcing arrangements, Bharati considerably lowered its costs while ensuring quality for customers, since vendors had outstanding competencies in their domains.
By transforming the telecom infrastructure, Bharati was able to offer additional value added services like "Music Bharati". Though the company does not produce music, it has created another source for revenue by distributing music via caller ring-back tones, mobile radio and music on demand.
Bharti has innovated a management model - the virtual corporation - that has enabled the company to manage an enormous subscriber base and still grow cost effectively. Bharti Airtel offers mobile telecom service at $.01 to $.05 per minute, perhaps the lowest in the world. Despite very low prices, Bharti has enjoyed compounded annual growth in sales revenues of 120 percent and growth in net profits of 282 percent per year between 2003 and 2010. Its market cap has steadily grown over the same period and stood at around $25 billion as of April 30, 2010.
Bharti Airtel's innovative business model has now become the norm not just in India's telecom industry but also in the telecom industries of several other emerging and developed countries.
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