The Hindu Business Line : If one goes out…

But that is a fair-weather situation where the party that promised to deliver exists, has the strength to honour the contractual obligations. What will happen to business processes if a vendor fails to execute mission-critical projects, application s, due to unusual circumstances?

This is the question that bothers many after the Rs 7,136-crore Satyam fraud that sent shock waves to clients about the fate of many projects being handled by the IT major across the globe. Agreed, contract laws are exhaustive and can bring errant companies to book. But the question is: what happens to the immediate business processes?

The Satyam episode has brought this issue into the spotlight, prompting a need to review levels of preparedness, say industry experts.

Threat to business

“A sudden discontinuity, if it is allowed to happen, may of course endanger business. The level of preparedness depends on how proactively one views a situation,” says R.S. Desikan, Chief Financial Officer of Mastek Ltd. The general practice is to put in place a disaster recovery plan and business continuity plan. “While disaster recovery plans are more directed towards natural calamities and data loss due to technical problems, business continuity plans provide for tackling any discontinuity in project execution,” he says.

According to Dr Ganesh Natarajan, Deputy Chairman and Chief Executive Officer of Zensar Technologies and Chairman of Nasscom, clients should choose reliable partners after validating their capabilities carefully. (see box for more views.)

S. Janakiraman of MindTree Consulting also agrees that risks of this nature do exist.

“Normally, most routine projects have a 15-day time lag. This facilitates the restoration of continuity if something goes wrong before the lapse of this buffer time. Alternative vendors can also be hired, if needed,” he says.

Many big vendor contracts may also have a provision that people working on a highly customised or exclusive project may be absorbed by the company, if there is any ‘unwarranted’ situation to ensure continuity. “A piece-meal approach in choosing vendors will be of help,” he says.

Some options

According to B Sambamurthy, Director, Institute for Development and Research in Banking Technology (IDRBT), a premier research centre for banking technology set up by the Reserve Bank of India, financial institutions such as banks prefer to maintain an escrow account of the vendor with a third party to tackle any emergency from the Vendor side.

B.V.R Mohan Reddy, Chairman and Managing Director of InfoTech Enterprises, says all computer companies handling large and reputed clients have a “Business Continuity Plan” and a “Disaster Management Plan” in place.

“Even if there is a catastrophic disaster in that the company instantaneously disappears, IT outsourcing companies have robust plans for the business to continue and as such this is not a big issue,” he says. InfoTech, a leader in engineering services and GIS applications, was approached by the clients of Satyam for possible takeover of the projects the company handles for them.

“The clients have several options in case of emergencies. They can recruit well-trained professionals working on their projects and set up captive units locally. Companies with multi-vendor strategy can divert the work to other vendors in India or elsewhere in the world,” he says. “They can also divest the work to very competent companies in India that can take over the projects very quickly. Finally, they can migrate projects to other vendors as is well laid-out in the contracts in case of such emergencies.”

Transition blues

In case clients want to migrate to another outsourcing company to mitigate the crisis, the contracts suggest a clear way out. “They all have clauses to move to other vendors, captive resources, in case of breach of trust,” points out Mohan Reddy.

But this is a costlier affair. “There is additional cost in retraining people and setting up the facility. This also varies depending on the size and nature of the projects,” he says.

According to Ram Manjeri, Senior Vice-President (Sales and Marketing) of Value Labs, a technology consulting and knowledge process outsourcing company, the direct costs could be minimal. “But there will be serious hidden costs such as loss of productivity, dip in quality of service, schedule slippages, loss of knowledge due to attrition, and time lags in getting the new vendor or in-house team up to speed,” he points out.

Murthy Veeraghanta, Chairman and Managing Director of VSoft, a cheque imaging and data management company, feels that entering into an escrow arrangement with clients increases confidence levels.

“We enter into such arrangements where the source code of the product (updated regularly) is available to the customer in the event of such a failure,” he says.

J.A. Chowdary, Chairman of FICCI (Andhra Pradesh), feels that ideally companies need to split the work among two or more companies located in different geographies.

“In the event of any one company failing to meet its objective, they move to their back-up plan. But in this process, they may lose some time during the transition,” Chowdary says.

According to Ram Manjeri, default by an IT vendor is easier to handle as IT services are backed by people resources and the barriers for shifting to another partner are lower.

“Fortunately, the Indian IT outsourcing services industry has matured over the years and there is no dearth of successful, competent players who can step in to support a company in case of any such crises,” he observes.

He has a word of caution to companies that outsource their IT functions. “Look beyond immediate cost advantages and think long-term to benefit through such engagements,” he says.

“It is important for the in-house team to work closely and understand the vendor’s team at a personal level. This will help the in-house team take over the execution, should the vendor face a crisis,” Ram Manjeri says. It is also important for the client to be aware of what is going on, on the vendor’s side.

It would appear that it is not the end of the world for clients if vendors default. But they should have a well-laid out Plan B ready.

As they say, dig your well before you are thirsty.

kurmanath@thehindu.co.in

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