Satyam clients look at exit options

Satyam clients are already busy looking at alternative suppliers, while Satyam rivals are looking to snap up business, according to analysts.


Satyam, the shamed Indian outsourcer that claims to have 185 customers of the Fortune 500 largest US-based companies, has left clients “in the lurch,” according to Forrester analysts.

“Both clients and employees will desert Satyam as a result of competitive wooing," wrote analysts Sudin Apte and John C. McCarthy, in a briefing document titled 'The future of Satyam as an independent entity is in doubt'. "Many (Satyam) employees told Forrester that … they will weigh their options almost on a daily basis."

“Large and small clients alike will look to other suppliers they already work with as an immediate fallback position as the confusion continues. More than half a dozen providers have already called Forrester to discuss competitive strategies for taking over business in joint accounts.”

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Katie Ring, principal at analyst group The Bathwick Group, agreed. “Most large organisations use more than one Indian vendor and so should be negotiating for increased capacity, if necessary, with Satyam’s competitors. All organisations should also be undertaking an audit of live offshored projects and reviewing risk mitigation strategies.”

This is likely to be a complex task, with crisis throwing up issues of capacity and quality, as well as contracts and corporate governance. Research by Bathwick among Satyam customers found the company was “expensive for an offshorer, but it did deliver high quality projects and could provide clients with access to a wide range of skills,” according to Ring

Other outsourcers deliver equally high quality work , but CIOs looking for an alternative supplier will be keen to do their due diligence.

Both Forrester and Gartner have offered initial advice.

Gartner said Satyam customers should:

  • Closely monitor ongoing engagements and prepare contingency measures for potential service disruptions in the short to medium term while Satyam's position is clarified and potential management changes or staff turnover ensue.
  • Evaluate offering "retention bonuses" directly to some key Satyam staff on your critical projects.
  • Create a scenario plan with key action steps. Scenarios include staff or management disruption, shorter-term contract renegotiation, potential switching costs and vendor options, exit-clause terms, and long-term engagement and vendor viability.

Forrester advised customers to:

  • Monitor the current SLAs on Satyam’s performance. Large clients will have a number of key performance indicators that can provide insight into whether or not the financial mess has become a distraction for the rank and file employees. The most crucial measure to watch will be attrition as this will have the biggest impact on the firm’s ability to deliver.
  • Catalogue IP and domain expertise. One specialized aspect of the inventory review will be to list all of the potential business knowledge that is locked up in the heads or the work of Satyam staff. Organizations may want to go as far as to potentially offer jobs or incentives to Satyam staff as part of the knowledge transfer back in-house or to competitors.
  • Review the contracts and exit clauses. The most basic crutch that firms have to lean on is their contract. Careful attention should be paid to clauses covering the transferring of work and IP ownership.

"I think Satyam is in a very dire situation," said Peter Bendor-Samuel , CEO of Everest Group, a US-based consulting firm. It will be difficult for a white knight to step in and rescue Satyam.

Under Indian law, he said, minority shareholders in companies are protected in such a way that their shares can only be bought out at the average weighted cost of a company's stock over the past six months. "There's no way that anyone is going to buy Satyam at that price point," Bendor-Samuel said.

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