Strategic Outsourcing: Opportunities and Challenges for Telecom Operators

Strategic Outsourcing: Opportunities and Challenges for Telecom Operators

Varadharajan Sridhar (Management Development Institute, India)
DOI: 10.4018/978-1-60566-148-3.ch001
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Abstract

Telecom operators have a wide variety of functions to perform including marketing of telecom products and services, managing their networks, providing after-sales customer service, and innovating new products and services in tune with fast changing technologies. Though until recently the telcos have kept their core network management functions in-house, there are recent announcements of large scale outsourcing of network management functions. As operators, especially those providing mobile services, have evolved from offering voice services to advanced data and video services, the Information Technology (IT) services required for appropriate management of these vale added service offerings have also become complex. Some carriers have also outsourced their IT functions to large IT services vendors. In this chapter we deliberate the reasons for strategic outsourcing such as core competency, production economies, and transaction costs as presented in the literature and analyze these in the context of outsourcing model pioneered by an Indian mobile operator. We also explain vulnerabilities and risks associated with these outsourcing contracts and measures to be taken by the firm to mitigate their effects.
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Introduction

Outsourcing is defined as the process of commissioning part or all of an organization’s assets, people, and/ or activities to one or more external service providers (Lee, 2006). Lee (2006) further points out that since outsourcing can make organization either agile and proactive, or sluggish and reactive, it is just not an operational decision but a strategic one with far-reaching consequences.

Quinn & Hilmer (1994) point out the following two strategic outsourcing approaches used by chief managers of organizations:

  • 1.

    Concentrate the firm’s own resources on a set of “core competencies” where it can achieve definable preeminence and provide unique value for customers.

  • 2.

    Strategically outsource other activities—including many traditionally considered integral to any company—for which the firm has neither a critical strategic need nor special capabilities.

By doing the above, firstly, the firms maximize return on internal resources. Second, well developed core competencies provide formidable barriers against future and present competition. Third, the firms that outsource are able to fully utilize the external supplier’s investments, innovations and specialized professional capabilities to their advantage. Fourth, this joint strategy decreases risk, shorten cycle times, lowers capital and operating expenditures for the firm.

Through out 1990s, large firms in the United States first began outsourcing non-core information technology (IT) services to large companies domestically, preferring to have these services provided securely and reliably from outside, rather that building up in house expertise. Outsourcing work mainly included software application development and maintenance.

Typically the IT services and their associated processes tend to be human intensive and are traditionally outsourced to countries where the labor costs are lower and from where the services could be delivered remotely without sacrificing quality and efficiency (Sridhar & Bharadwaj, 2006). Referred to as offshoring, the organization’s products and services in this case are provisioned from locations in other countries (Davis, et al.,2006). Examples of such offshore outsourcing areas include customized software development, package software implementation, software product testing, customer care support services, IT infrastructure management and back office operations.

US companies expanded off-shoring through partnership, acquisitions and local subsidiaries. Thus they followed a less risky and more strategic approach of alliances by keeping the control with them. Their sourcing strategy more closely resembled the “in-sourcing” strategy of traditional offshore investments for global manufacturing. Sridhar & Bharadwaj (2006) discuss details on the model of growth of IT and IT Enabled Services outsourcing industry.

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