Opinion: The Satyam fraud has important ramifications for outsourcers
Computerworld - The financial fraud perpetrated by Satyam Computer Services executives could trigger near-term disruptions across the outsourcing and IT industries. Ramalinga Raju, the company's founder and chairman, resigned last week. He has admitted to inflating Satyam's cash balances and the credit amounts it was owed while understating its liabilities. This scandal has many ramifications for Satyam's customers as well as those of other outsourcing companies.
1. The challenges of transitioning Satyam's services to new vendors
As of this writing, the viability of business-continuity efforts under way at Satyam (including a government takeover of the company's board and rumors of a bailout) remains highly uncertain. Following last week's announcement of the fraud, some Satyam customers have started shifting engagements to other outsourcing vendors. However, the inherent challenges of transferring processes between vendors — a complex undertaking under ordinary circumstances — will be compounded by the following potential conditions:
- Transition timelines that are inordinately compressed because of Satyam's questionable longevity
- Contractual disputes regarding the exercise of termination rights
- Inaccessibility to a legacy vendor preoccupied with its preservation
Accordingly, customers should prepare for exceptional disruptions to steady-state services during vendor transition, particularly if Satyam had been the single source for such services. These challenges may be compounded further if Indian vendors observe recent requests from the influential trade organization Nasscom to refrain from hiring Satyam employees.
2. The emergence of build-operate-transfer programs in response to challenges with captive entities
Satyam customers that currently operate captive entities in India may wish to have these entities hire the Satyam personnel engaged on their accounts. However, such efforts may run afoul of the customers' contractual nonsolicitation obligations to Satyam, and renegotiations of these provisions, if protracted, would not be feasible.
Furthermore, Satyam customers that do not currently operate captive entities in India are likely to find that there is insufficient time to create such operations. In response to these limitations, the industry may turn to "build-operate-transfer" agreements, under which new outsourcing vendors would hire the Satyam employees (in a manner that does not breach their customers' nonsolicitation obligations) to operate the outsourced services for a defined period, after which the outsourced operations may be transferred to captive entities of the respective customers.
3. Disruptions to customers of other outsourcing vendors
The disruption of outsourced services will not be limited to Satyam's customers: Current customers of other outsourcing vendors can also expect near-term impacts on their outsourced operations. Apart from the inevitable strains to these vendors' infrastructures as they accommodate business from Satyam, customers may see the most experienced and skilled personnel on their engagements reassigned to the transition of former Satyam accounts. In addition to vigilantly monitoring service-level agreements, existing customers may mitigate such disruptions by exercising their contractual protections regarding personnel experience requirements, skill sets and attrition rates.
- Mobile First: Securing Information Sprawl Learn how the partnership between Box and MobileIron can help you execute a "mobile first" strategy that manages and secures both mobile apps...
- AIIM Trendscape: The New Mobile Reality This AIIM Trendscape report shares data, expert opinions, and a unique perspective on the impact of cloud and mobility in the enterprise, surfacing...
- Empowering Your Mobile Workers A modern mobile IT strategy is no longer an option, it is an absolute necessity. Here's how some of the nation's most progressive...
- Mobile Content, Collaboration & IDC's 3rd IT Platform: The Next Frontier for the Mobile Enterprise IDC focuses this article on talks about the new IT platform. This 3rd IT Platform will be the new wave for about the...
- What should I look for in a Next Generation Firewall? SANS Provides Guidance With so many vendors claiming to have a Next Generation Firewall (NGFW), it can be difficult to tell what makes each one different....
- Why Are Customers Really Deploying an NGFW? It seems every IT Security expert is talking about the NGFW, but what are people really doing? This webcast covers 5 real-world customer... All Management White Papers | Webcasts