Details of the stunning fraud at Indian outsourcing giant Satyam are still trickling out. On Friday, Jan. 9, former Chairman Ramalinga Raju was arrested, the company’s stock was delisted, and its board of directors was liquidated. It’s unclear whether the $2.1 billion-a-year company will survive. But worried as they are, Satyam’s current customers cannot abandon the company overnight; in the tech-services business, the operations of the client and service provider can be deeply intertwined.

Now companies like General Electric (GE) and Nestlé are hard at work assessing their exposure to risks if Satyam goes under. No. 1 on the priority list is determining how much of their business’ knowledge has been documented and can easily be handed over to another outfit—and how much is locked up in the heads of Satyam’s staff.

The original intent of shifting IT work like programming and database management to outfits like Satyam was to save on labor costs. The savings for many companies has been 15%-20% on their IT budgets. But for Satyam clients, a potentially expensive and complex process of disentanglement is beginning.

Intellectual Property

Figuring out the knowledge-transfer process “is not for the faint of heart,” says John McCarthy, an analyst for Forrester Research (FORR) in Cambridge, Mass. “In the best case, they can transfer the documentation [to another firm], but if not, they have to look to the [employees] of Satyam.” And once the firm gathers its intellectual property, it has to decide where else to entrust it.

Satyam has about 550 to 600 clients; those contacted for this article did not want to talk about their business with Satyam. About 237 accounts spend more than $1 million annually with the company and 52 accounts spend more than $10 million. About 23% of its revenues come from the manufacturing sector; 21% from telecom, information technology, and media companies; 10.5% from retail; and 7% from health care and pharmaceuticals, says McCarthy.

Lifeblood Issues

How much trouble these clients are in for, though, depends not on their particular industries but the types of operations they have outsourced to Satyam. Firms in the greatest danger are those who have contracted with Satyam for running “mission critical” systems and services —meaning IT operations core to the company’s functioning, says Peter Bendor-Samuel, chief executive of the Everest Group, a Dallas outsourcing consultancy.

These systems include managing critical SAS and Oracle (ORCL) databases that control, for example, a company’s accounts payable and receivables. “These are lifeblood issues to a company,” says Bendor-Samuel. “They’re pretty complicated and scary things to manage. [Satyam clients] are sweating every minute of every day to get it done.”

Some companies are in better shape to handle the process than others, says Steve Martin, a partner and co-owner of Pace Harmon, a San Francisco-based outsourcing advisory firm serving Fortune 500 companies. “Best-practices companies do a good job documenting” business knowledge, says Martin. “Those who don’t won’t have an orderly or efficient transfer.”

source: economic times

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