“One bad apple doesn’t spoil the whole bunch,” goes the old saying. With the Satyam debacle on our minds, this is certainly an adage worth remembering. Unfortunately, news accounts and opinion pieces are carrying notes like this:
Far beyond Satyam, it raised fears that similar problems might lurk in other Indian companies, particularly in its vaunted outsourcing industry. – NY Times, January 8, 2009
Let’s hope that’s not the case. How wise would it have been if, when Enron’s follies were revealed, Indian and other global investors decided that they should stop investing in and relying upon all oil and gas companies? Or worse yet, if they had decided all American companies were, as a result, suspect?
I can’t vouchsafe that no other Indian company will similarly fall – but neither can I do so for any other American company, or British, or French, or German or…
Those who know India only from a distance see all Indian outsourcers the same. Those who know them more intimately, however, have always known there was a suspect culture at Satyam. They were certainly never regarded as in the same league with the Big Three: Tata, Infosys, and Wipro. Moreover, even among the second and third tier Indian outsourcers they were widely regarded as having an overly-aggressive culture – promising too fast, explaining too glibly. While this was by no means proof that a billion-dollar shenanigan was going to take place, it did mean that sophisticated observers were not completely surprised by this outcome – just as many who knew the sharp-elbowed, predatory culture at Enron were not as shocked as the rest of the world at its ultimate fate.
I have known and worked with Indians for over a decade and I love them as individuals and as a people. They hold dear all the things that we Americans hold dear: life, liberty, and the pursuit of happiness (even though they’d use different words to describe those values). Moreover, Indians are a Horatio Alger story for our times. They pulled themselves up from poverty and are making themselves a world economic power. A lot of the affinity between India and America perhaps owes to our common ancestry as outposts of the British empire and heirs of its finer ideals. But even more of it owes, I think, to our common humanity and shared belief that honest hard work can make a better world.
If anyone wants to say that these Indian companies aren’t subject to sufficient scrutiny, then let him take a look at how well U.S. oversight agencies have done in the last few years (Fannie Mae has had more oversight than any other business on earth and how well has that worked out?). And then consider that if you want to know why Satyam’s auditors didn’t catch this sooner, you can reach out to an office of theirs near you because you’ve probably heard of them: PriceWaterhouseCoopers.
Let us not paint India with a Satyam brush. It’s not fair, and we wouldn’t want it done to us.
Tags: India, offshoring, outsourcing, Satyam
January 11, 2009 at 12:17 am |
Hi Mike,
The Satyam fiasco has come as a huge shocker for all Indians. Satyam was one of the most respected and dream companies for many Indians. There confidence has been shaken. Satyam was big time into Insurance. How do you think would Satyam’s Clients react to the entire episode. Will they stick to Satyam or would they rather run away?
January 11, 2009 at 10:32 am |
I believe the swift action of the Indian government (arresting the CEO and replacing the board of directors) will help stabilize the immediate situation. Most customers have no dealing with the senior management and are satisfied with the over 50,000 Satyam employees who do the work. Customers will want their operations to continue without interruption. Whether Satyam will survive as an independent company is too hard to predict at this point. What is relatively certain is that the work being done by Satyam employees will probably continue to be done, whether in the name of Satyam or some other Indian vendor. Enron is often mentioned as a parallel to Satyam, but another useful case could be the Tylenol scare in the 1980’s. Several people in Chicago died from contamination and Tylenol’s sales collapsed. However, Tylenol’s reaction to the crisis, including their swift development of “tamper-proof” packaging, led to recovery in which Tylenol’s leadership position in the market was reestablished. If it was possible for Tylenol, it’s possible for Satyam. No matter what happens to the company, however, the work will still need to be done and employees will be needed to do it…so I believe Satyam’s employees should be flexible of mind while maintaining a solid confidence that the future will be good to them in their individual careers…whether at Satyam or elsewhere.
January 13, 2009 at 11:09 am |
Hello Mike
The recent Satyam scandal coupled with the Mumbai terrorist incident and the global financial meltdown will cause insurance companies to be more risk adverse about off-shore outsourcing. Many will be faced with some hard operational decisions to be made about whether to go off-shore or stay local.
Insurance companies tend to be in a different position compared to manufacturing firms when it comes to risk management and transparency. Faced with intense government scrutiny and more regulation of their operations, financial service firms are now under the regulators microscope. Unlike a manufacturer’s offshore outsourcing operation that may fail and disrupt its supply chain, insurance companies stand to lose money, securities, policyholder data, intellectual property, competitiveness and slowed down time when it suffers an event like this. Large scale system projects may be halted as well.
Offshore outsourcing will be viewed more cautiously by shareholders and the overall general population. For the less advanced customers in the middle market who have limited history with outsourcing, going off-shore may have become a much more difficult decision..
January 13, 2009 at 11:25 am |
Steve, if insurers do begin to reduce offshoring, as you predict, it will be interesting to see if they simultaneously begin to outsource more. I raise this possibility because I believe insurers would serve themselves better by outsourcing more functions but have in recent years often used offshoring as a way to preserve a DIY culture and forestall outsourcing.
January 17, 2009 at 3:33 pm |
Hello Mike,
Any comments about how the Satyam stock would perform on the Stock Markets. Since the entire Satyam episode, the Satyam stock has came down more than 80%. Not only the employees, but the shareholders also have been adversely affected due to the fiasco. Do you think it would go north now or it would further drift southwards?
January 17, 2009 at 3:46 pm |
Gaurav, I’ve never been much of a stock picker. And certainly in this case, the stock price is going to reflect the actions that everyone (Satyam, the Indian government, Satyam customers) takes – and those actions are being revealed only day by day. Just yesterday, State Farm cut off its relationship with Satyam, laying off 400 Satyam employees (see http://www.InnovationInInsurance.com for link to article with details). It will take time to see whether other Satyam customers will follow suit. Most consultants and pundits have been counseling Satyam customers to give at least a few weeks before making any decisions about their business but it appears State Farm at least wasn’t buying that advice. I have heard that some of Satyam’s competitors have been aggressive about urging Satyam customers to switch. Again, these events are unfolding day by day so the ultimate outcome is hard, at least for me, to predict. I certainly hope the best for Satyam’s 50,000 employees who did nothing to deserve this situation.
January 18, 2009 at 3:08 pm |
Mike,
I don’t believe many insurance companies fear outsourcing as they appear to buy a fair amount of software, maintenace, implementation services and project management from domestic suppliers.
The larger fear may come from off-shore outsourcing where many India companies face key employee retention challenges. The client’s work quickly suffers when valuable employees leave the firm. The Satyam situation could easily impact ongoing client work and I know key Indian competitiors are closely tracking.
Quality resource competition in India is quite fearce. I experienced key employees resinations from our off-shore team with no notice given to me or the customer. While key employee retention is not a unique challenge to the IT industry, especially in softwre development , this can become a source of real concern, especially for multinationals or where key resources are located in remote geographies. Hiring and training these employees takes an enormous amount of time and energy.
In India, the software outsourcing industry has a large number of technical nomads creating a merry-go-round of hires and resignations for employers.
January 18, 2009 at 3:44 pm |
Steve, your comments are always informative and helpful. Thanks. By the way, however, when I pondered whether insurers might outsource more in your scenario I was speaking of the outsourcing of line of business functions (including wholesale IT) rather than individual IT functions. The primary outsourcing I see taking place in insurance is merely supplementing the IT staff (including IT labor arbitrage) – your first paragraph mentions examples of this. I’m looking for the day when insurers outsource all back-office functions, and some front-office functions, on the same scale as they now outsource distribution (i.e. to independent agents). In other words, an evolution toward virtual insurance companies where the insurer focuses on the insurance issues (e.g. pricing, risk selection, financing) and rely on quality external firms for all service/fulfillment issues (e.g. policy administration, billing, routine claim settlement, accounting). In banking, by contrast, many community banks do not even have an IT department, relying entirely on world-class vendors to provide that function – which they do very effectively. More and more of these banks are trending this direction because there are savings to be garnered through the economies of scale and scope achieved by the vendors. This is a step beyond where we currently are in insurance, but not out of sight or reach.
January 19, 2009 at 4:31 am |
In my opinion the Satyam situation will do nothing to detract from the attractiveness of the talented and diligent Indian IT workforce. This does represent something of a blemish on the reputation of “India, Inc” but I think most industry participants view it in the same “one apple” sense that Mike describes. In the end, Satyam shareholders will suffer the most, Satyam employees will do fine, the India brand will suffer marginally, and perhaps – just perhaps – a winner out of this will be Western-based IT services providers who use India as a base for service delivery.
February 1, 2009 at 8:10 am |
Hello Mike, I agree with you that Insurers would outsource more. As the operational expenses are burgeoning owing to multiple factors, insurers are beginning to identify the need to go for lean operations. The insurers no longer should handle activities that are non-core to their business strategy, and which are labor intensive. Successful insurers are slicing out such activities from their workflow. These activities are outsourced to such specialist providers, which manage the same in a cost effective manner for the insurer.