Business Continuity Strategies for Satyam Customers Going Forward Zinnov Jan 2009
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Agenda
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Satyam Till Date
2
Risks Ahead
3
Going Forward
4
Zinnov Services
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Recent events at Satyam has created a period of uncertainty for all customers and there is need for business contingency plan Satyam board announces the decision to buy stake in MAYTAS infrastructure a company owned by the promoter family of Satyam for $1.3Billion Dec 16 2008
Dec 17 2008
Satyam calls of the MAYTAS deal as a result of investor revolt and says will focus on core IT business and will not Diversify
Satyam announces a board meeting on Dec 29th in wake of investor revolt and says will consider buy back to prop up investor sentiment
World Ban confirms an 8 year ban of Satyam for data theft and bribery
Sale of Pledged shares of promoters results in the promoter stake in Satyam coming down to less than 5%
Dec 18 2008
Dec 23 2008
Jan 3 2009
Dec 28 2008
Jan 7 & 8 2009
Dec 19 2008
Post MAYTAS U-turn, Upaid files motion against Satyam and promoters for $1.1Billion claiming fraud.
4 Board members resign in wake of MAYTAS controversy and board meeting in postponed to Jan 10TH 2009. Market Speculation talks of hostile take over by peers
Mr. Ramalinga Raju resigns and cites financial irregularities in the book of accounts to the tune of $1.5 Billion. Lack of liquidity and payroll thus putting employees in jeopardy
Unfolding Events at Satyam
• Liquidity situation at Satyam is precarious with their being a massive crunch of funds to run daily operations and pay employees going forward
• Employee morale dramatically impacted with the disclosures and employees looking at salvaging careers and looking at future options. • Government Regulators have stepped in to ensure investor interests are protected.
There are multiple risks customers need to be vary about and take proactive steps and de-risk themselves from any potential threats to their business High Probability Risks Faced by Satyam’s Customers
Delivery discontinuities
Team attrition
Increased cost of operations
Not enough time to make seamless transition Risks
Risks
End customer dissatisfaction
Loss of IP
Loss of domain expertise
Satyam may get acquired/file bankruptcy due to liquidity challenges going forward
Reduced Quality of Service
According to Zinnov there are five possible scenarios' customers can explore to emerge out unscarred from here onwards Road Ahead for Customers
Exercise BOT
Exercise BOT over next few months and plan captive setup The location of BOT depends on the city of operations, team size, capital expenditure involved in setting up the center etc.
Exercise ‘Right to Hire’
Grow Other Vendor Partnerships
Establish Fresh Vendor Partnerships
Repatriate Work to HQ/Other Centers
Hire Satyam employees by soliciting interest Customers can talk to other service providers to rebadged employees and function as usual with minimal business risk Rebadging of employees can be to another service provider or existing captive center
If customers have multisourcing strategy then increasing the scale of other vendors to perform similar services Enter into fresh contracts with existing suppliers and gradually reduce the team size at Satyam
Customers can evaluate new vendor partnerships who can provide best in class service New vendor selection process can be a long process but this will be more strategic in nature
Customers can move work back to HQ or other global locations depending on the team size and type of work being executed at Satyam This should be a last resort to customers as this can have an impact on cost
Companies can exercise ‘Build-Operate-Transfer’ and transition employees seamlessly to setup their own captive/existing operations Exercise BOT
Exercise ‘Right to Hire’
Grow Other Vendor Partnerships
Captive Setup • Companies can plan to setup new captive center/transition employees to their existing captive operations
Benefits • In the current economic situation companies having their own captive setup with scale are having numerous advantages:
– Cost escalation has significantly come down – Talent and operations in India are already matured
– Management overheads are significantly down for managing captive operations compared to few years ago
– Domain expertise within the team is retained for longer period of time
– Better governance and control over the delivery
New Vendor Partnerships
Repatriate Work to HQ/Other Centers
Key Risks
• Carefully understand legalities to be followed to exercise BOT given the situation • Low percentage of key resources might agree to transfer to captive center • Lack of setup process knowledge resulting in timeline crunch Impact on Cost
• Capital investment for captive setup can be in a few million dollars depending on the size of operations • Cost of running the captive center can overshoot the current financial plans for next 12 months Best Practices
• Build trust in the team by constant/transparent communication process • Hire the senior/middle management employees • The reporting structure of the India team should be clearly defined • Compensation and benefits needs to be well planned and executed
Companies can exercise ‘Right To Hire’ and rebadge employees to other service providers Exercise BOT
Exercise ‘Right to Hire’
Grow Other Vendor Partnerships
Solicit Interest of Key employees at Satyam
Scaling of delivery team
Offer roll-out
New Vendor Partnerships
Repatriate Work to HQ/Other Centers
Key Risks • In case of transfer of employees to a new vendor; time taken for the service provider identification and contract structuring can be long • Low percentage of key resources might agree to transfer to captive center • Fitment of Satyam talent with in other service provider can be cultural challenge Impact on Cost
• Billing rates of new service provider can be
Right To Hire
vary depending on the reputation, scale, capabilities of the vendor Best Practices Re-badge employees to captive/vendor and form core team
Build process capabilities
Knowledge transfer to other team members
• Build trust in the team by constant/transparent communication process
• Hire the senior/middle management employees • Billing rates with the new service provider has to be carefully negotiated • Explore newer engagement models which help in managing cash flow effectively • Employee transfer has to governed by SEZ/STPI regulations
Clients can enter into a strategic partnership with existing vendor partners to scale their operations with the vendor and gradually reduce the team size at Satyam Exercise BOT
Exercise ‘Right to Hire’
Grow Other Vendor Partnerships
Decision to ramp-up alternate vendor partnership
New Vendor Partnerships
Repatriate Work to HQ/Other Centers
Key Risks • Time taken to ramp-up the team with the other vendor partner might be longer than expected • Existing vendor partners do not have the domain expertise/capability/scale required
Contract renegotiation with the alternate vendor Impact on Cost
• Cost of the other vendors might be higher than that of Satyam Hiring of core team and ramp-up
• Replicating the IT infrastructure might involve capital expenditure
Gradual downsize Satyam team
Abandon Satyam Relationship and strengthen other vendor relationship
Best Practices • Demand executive management buy-in at the other vendor • Renegotiate a contract which can cover them from any such future incidents • Explore newer engagement models which help in managing cash flow effectively • Hire few key Satyam employees to ensure knowledge continuity
Clients can de-risk their offshoring portfolio by identifying new vendors and entering into partnership Exercise BOT
Exercise ‘Right to Hire’
Grow Other Vendor Partnerships
New Vendor Partnerships
Repatriate Work to HQ/Other Centers
Key Risks
• Attrition within Satyam will effect the New vendor selection
deliverable as the new vendor partnership initiation will take time • Business continuity risks can prove to be fatal due to delay in transition and knowledge transfer mechanism
Contract Structuring Impact on Cost
• Opportunity cost involved during the new Hiring of core team and scale
vendor identification, contract will be very high
Best Practices Gradual downsize Satyam team
Abandon Satyam Relationship and strengthen new vendor relationship
• Access to credible vendor comparison information to make strategic decisions faster • If the company has a captive center in India then leverage the local management team expertise to setup and manage partnerships • Work with sourcing advisors to shorten the time required for the process and leverage their process expertise for transition
Moving projects to HQ or other global centers is the last resort clients should to take to move out of the current situation Exercise BOT
Grow Other Vendor Partnerships
Exercise ‘Right to Hire’
New Vendor Partnerships
Repatriate Work to HQ/Other Centers
Risks
a Free up resources at HQ/Other global locations
• Resources at HQ are working on critical projects cannot be moved to the repatriated projects immediately • Reverse KT may not be possible because of attrition at Satyam
Impact on Cost d Abandon Satyam relationship and team
Repatriate Work
Reverse KT and Project transition b
• Cost impact can be very severe depending on the % of work repatriated
• Opportunity cost due to relocation of critical resources on these projects is difficult to quantify Best Practices
Stabilization and scale at HQ/other global locations c
• Analyze the portfolio of projects at Satyam and repatriate only the most critical projects to HQ at first wave • Identify other global centers which can absorb the load of Satyam projects • Have a project transition and KT mechanism defined and have Satyam teams actively participate in the same
Zinnov can help clients in multiple ways to mitigate risks and ensure business as usual Zinnov Services Zinnov can help clients setup their own subsidiary in India. Zinnov will act as a liaison and help client to setup their operations. Zinnov will also provide operational support during the entire phase of setup and execution
Captive Setup
Zinnov can help Satyam clients in reviewing the existing contracts and suggested the way forward. The contract review can be due-diligence process to understand the next steps to be taken Zinnov also has deep domain expertise in negotiating new contracts with vendors
Contract Review/Negotiation
Zinnov can help clients in identifying best in class vendor for specific service offering Zinnov will follow a robust RFI, RFP process to identify the vendors and rank them based on expertise, billing, human resources, management stability, process etc.
Vendor Selection
Zinnov can help clients during the entire transfer process. The process of communication, messaging, offer roll-out and transfer will be managed by Zinnov Zinnov will also help in conceptualizing and implementing the HR process required for
Human Capital Consulting
effective operations of the center
Engagement Model Analysis
Zinnov can help clients understand the costs involved in each of the strategies over a period of next 3 – 5 years. This will help clients choose the best optimal solution keeping in the best interest of business. Zinnov will also suggest risk mitigation strategies in each of the areas
Source: Zinnov Analysis
Thank You ! Zinnov Contact www.zinnov.com Further insights: www.zinnov.com/blog
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