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.
- Silicon Valley's 19 Coolest Places to Work
- Is Windows 8 Development Worth the Trouble?
- 8 Books Every IT Leader Should Read This Year
- 10 Hot Hadoop Startups to Watch
- Slideshow: 7 security mistakes people make with their mobile device
- iOS vs. Android: Which is more secure?
- 11 sure signs you've been hacked
- CIOs Deliver Productivity Breakthroughs with Intelligent Digital Signage Retailers have long recognized the influence that digital signage provides over a shopper's point-of-purchase decision making process.
- ERP in the Cloud and the Modern Business View IDC's White Paper, to review IDC CloudTrack Survey findings, gain expert insight into the challenges and opportunities the cloud presents, and determine...
- Study: Total Economic Impact of Google Apps Employees can work faster and IT spending can decrease when companies switch to Google Apps, says a commissioned study by Forrester Consulting. Going...
- Protecting Digitalized Assets in Healthcare Healthcare providers face an urgent, internal battle every day: security and compliance versus productivity and service. For most healthcare organizations, the fight is...
- Top 4 Digital Signage Fails Join RMG Networks for a look at four of the most common reasons digital signage fails in corporate businesses. Learn about strategies to...
- Increasing the Value of Your Reports and Dashboards Learn how incorporating other analytical capabilities such as predictive modeling and visualization can increase the value of your reports and dashboards by providing... All Management White Papers | Webcasts