The Vodafone-IBM Deal Reflects Changing CIO Mindset Towards IT Outsourcing

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Vodafone India Ltd, India’s second-largest mobile-phone services company, on Tuesday renewed a multi-million-dollar agreement with International Business Machines Corp. (IBM) to manage information technology (IT) services support for its infrastructure and applications.

Below are excerpts from a Greyhound Research Freemium Research Note. The complete Research Note is available here.

IBM India refused to comment on the deal size, but estimates by research firm Greyhound Research put the value in the range of $750-$850 million and expected to cross $1 billion by 2023.

“It is critical to note the current contract is 25% bigger compared to the first one signed in 2007 ($600 million)—but there’s more to it. In 2007, the value of $600 million stood atRs.2,364 crore (calculated using the rate of $1=Rs 39.4). Per current exchange rate, $750 million stands at Rs.5,000 crore (calculated using the exchange rate of $1=INR 66.7),” said Sanchit Vir Gogia, Chief Analyst and CEO of Greyhound Research.

So, has the mindset at large tech-dependent companies like Bharti Airtel and Vodafone India changed?

Yes, says Anshoo Nandwaani, Vice President and Principal Analyst at Greyhound Research.

“Strategic outsourcing is dying a natural death and being replaced by cloud and managed services delivery methods to leverage the cost and delivery benefits arising out of these delivery models—this impacts both deal size and term.

This means the focus for most end-user organisations is now increasingly on automation, intelligence and delivering differentiated customer experiences. In addition, there has been a rise of fixed-price contracts.

In the fast evolving IT market, companies do not want long-term attachments; they prefer to obtain smaller contracts that enable them to renegotiate more frequently in order to reduce costs.

Even in the Bharti-IBM deal, Airtel leveraged these newer delivery models to better manage money and time spent on servicing its existing infrastructure and application portfolio. The deal focused on the customer experience (read analytics) to help Airtel launch new products and services. Analytics and big data have been proven to add significant business value for telcos globally.

With the renewed deal, IBM India will be expected to help Vodafone India deliver multiple digital transformation outcomes in the areas of automation and efficiency, experience and engagement, and sales and revenue.” she adds.

Source: Live Mint

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