Can outsourcing create innovative business models?
September 24, 2010
In the last blog I explained how outsourcing helps innovation. In this blog I will discuss how outsourcing can help companies to come up with new and innovative business models using Bharti Airtel as an example.
Bharti Airtel is India’s largest Telecom service provider had following set of requirements in growing their business all over India and globally:
Provide high quality customer service
Add new customers without increasing capex and decreasing total cost of ownership
Reduce the calling fee to the customers
Manage end-to-end business processes using latest Information Technology
Manage and grow telecom network capacity along with the growth of customers
How did Bharati Airtel achieve all the above goals?
Airtel outsourced everything except marketing, customer service, and finance. Airtel outsourced all their business processes to IBM to manage it. By using IBM’s IT infrastructure and standardized business frameworks, Airtel reduced their capital expenses and increased the quality of customer experience. Airtel outsourced their telecom networks to Ericsson and Nokia. Ericsson agreed to get paid by the usage of their network infrastructure instead of upfront payment. This again reduced Airtel’s capital expenses.
By outsourcing their capital intensive tasks to their partners, Airtel concentrated in acquiring new customers and managing them efficiently. Airtel managed to acquire new customers without investing in new IT and telecom infrastructure and it gave them a significant competitive advantage over their competitors. Using IBM’s expertise in customer faced IT business processes Airtel managed to give superior customer service to their customers. By adding new customers with fixed cost Airtel reduced their service fee to their customers and this made their customers to use their phones more frequently which directly benefits Airtel’s profit margin.
As the late business guru C.K. Prahalad explained in his landmark book The Fortune at the Bottom of the Pyramid emerging markets need new and innovative business models to make profit by targeting poorest people. Airtel successfully created a innovative business model by outsourcing all capital intensive services to third party vendors and kept core competencies within their company. Their business model also helped them to get into new businesses telemedia and digital TV. Globally Airtel is the third largest mobile operator and in India it owns more than 30% of mobile market.
So the answer is YES, outsourcing helps companies create innovative business models, Airtel is one example and I am sure you can find several other companies use outsourcing to create innovation in their businesses.