Outsourcing Excellence Award – Best Offshore – Nortel Networks and Wipro
The year: 1991. Nortel Networks was growing rapidly and could not find enough skilled resources in the United States and Canada to meet its “significant requirements for product development,” reports Jag Sharma, VP, Global Procurement. The global telecommunications equipment company solved this problem in a revolutionary new way: it looked to India for help.
Nortel and GE were the first two American companies “who saw the potential for leveraging global partners,” observes Sanjay Gupta, Senior Vice President for Telecom Solutions, Wipro.
Nortel selected Wipro Ltd. because the supplier had the specialized knowledge to design, develop, test, and deploy telecom software and hardware. “They had a skilled engineering resource pool that they managed professionally. That gave us the confidence they would come through and deliver,” says Sharma.
Back then, Sharma reports there were “a few people who were a little bit concerned” about sending the work offshore. There was a “slight hesitation about the risks we would be taking going to India,” recalls Sharma. “But there were people at Nortel who understood what Wipro could offer.”
Nortel believed in its novel solution. The length of this contract was 16 years.
Wipro had worked with Indian IT and telecom companies throughout the 1980s and “in 1991 had global aspirations” to utilize its design capabilities working with companies outside India. “It was a good fit,” says Gupta. “We had the happy consequence of finding a buyer who was looking for a good match. And the timing was right.”
Within a year, the relationship “grew leaps and bounds” because of Wipro’s performance, according to Sharma. Sixteen years later, at a time when offshoring has become almost commonplace, all of the hesitation has melted away. “Today we all recognize what our outsourcing partner offers us,” adds the Nortel executive.
The Transition Period
Nortel started with one small project to learn how to work with an offshore service provider. Back then, the original transition took 18 months. Today, Wipro has reduced the transition time for new projects to just three months because it uses Six Sigma processes.
At the outset, Nortel set up a communications network in India so Wipro employees would be connected as though they were a part of Nortel. Then the partners set up a hardware lab in Bangalore on the Wipro campus so Wipro engineers could test the products they were developing locally.
Working Together for 16 Years
Over the years, Wipro’s role has expanded. Today Wipro is working on more than 20 different processes for Nortel as well as working on enhancements for certain products including wireless communications, VoIP, optical, and multi-media communications.
Originally, Nortel’s top architects worked on the high-level design; Wipro employees performed the actual code testing under Nortel guidance. Now, Sharma says Nortel is comfortable giving Wipro total ownership of the product. “Now they have product architects within their teams who have system-level understanding of our products. This allows them to take end-to-end responsibility,” the Nortel executive continues.
Gupta says the relationship has morphed from a hunt for affordable talent to the sourcing of specific tasks. Recently, Wipro added advisory services to the mix. He says Wipro is helping Nortel enter emerging markets and determine what new products to launch. “We now have a joint go-to-market strategy,” he says. “We’re going to the global market as partners. The goal is to build the right products under the Nortel brand so each of us can be successful.”
By now they have the work stream streamlined. Project managers at Nortel and Wipro lay out who is going to do the high-level design and validate the code. Then there’s the new-product introduction process. “This is a very detailed process that defines the steps things have to go through before they are ready for customer deployment,” explains Sharma. Each product has a design prime who’s the product owner. This Wipro employee understands the requirements and manages his or her team.
At any given time 15 percent of Wipro’s Nortel team is working at one of Nortel’s North American primary research locations. When their stint is over, another group takes their place. “This helps information flow and shares technical know-how so that Wipro employees are able to develop full knowledge of the product,” says Sharma. Nortel has found employees who have been in North America are able to do better work in India. In addition, they impart the knowledge to the larger Wipro population.
Nortel executives travel to Bangalore annually. And teams launching a new project meet once a year.
From the outset, Nortel has always worried about security; it routinely monitors and audits all its outsourcing partners. Sharma says Nortel feels “completely secure with Wipro; it feels like you are in a Nortel building. They keep our work totally insulated, which is a key requirement for us.”
Nortel’s policy has been to work with multiple suppliers. “We can’t depend on just one supplier in case we run into problems,” he says. But the Wipro relationship “has grown more significant because they have done such a good job. They have certainly earned the work that has gone to them because their work is professionally completed on time and to our expectations,” reports Sharma.
Governance
Project managers for Nortel and Wipro perform weekly and monthly reviews at all levels to monitor the projects.
“We always have an incentive on the Wipro end,” says Sharma. “We set it up so Wipro is able to receive incremental bonuses if they exceed their service level agreements.” There are no penalties.
Sharma says there have been very few disputes; in his opinion “this shows Wipro’s professional management. If there is a perceived conflict between two project managers, they refer the issue to Sharma and Gupta; “we sit across a table and understand why there is a disagreement. Then we resolve it,” Sharma reports. However, he says this happens rarely. Most of the time, the managers have been able to resolve issues on their own.
Business Benefits
Sharma says Nortel reduced its cost “by at least 50 percent.” The telecom company has taken the savings and invested the money in its own research and development. “Offshoring allows us to do many more products for the same dollars,” he explains.
Offshoring has given Nortel business flexibility, which was a big benefit when the industry experienced a cyclical downturn in 2000. “Wipro has been able to scale both up and down. The telecom industry went through a rough phase over the last few years; Wipro has been able to respond to our needs as we grew dramatically at first and then had to pare back. Now we are on a growth path again. If we hadn’t outsourced, we would have had to cut back even more projects than we did. We were able to get more work done on those fixed dollars,” says Sharma.
Offshoring has also helped Nortel compete in a changing and very competitive industry. “At the end of the day, our partnership with Wipro helps us compete much more cost effectively. Today, more of our competitors are not from North America. To compete we have to have similar cost structures and we have to understand how their markets operate. Wipro has helped us with both,” says Sharma.
One specific competitive advantage: Nortel has faster time to market for its products at reduced operating costs, thanks to offshoring.
Why This Relationship Works:
- The buyer provides ongoing training. “We want to keep Wipro on the technology curve with us,” Sharma says.
- Both sides demonstrate flexibility. Sharma says if Nortel agrees it needs 10 resources on a product and for a few weeks it needs extra help and an eleventh hand, “Wipro will not hesitate putting on the eleventh employee and not worry first about whether we will pay them or not. By the same token, we have tried to reciprocate if something has to be changed on their end. As much as you try to cover everything in a statement of work, it’s almost impossible to cover every possibility. That’s where the spirit of cooperation and understanding come in. We both make adjustments in keeping with the shared goal of what is expected for this product.”
- The buyer is determined to keep the relationship successful. Gupta attributes the relationship’s longevity “to Nortel’s commitment to this partnership.”
- The supplier is committed to the buyer’s success. “The Wipro people feel they are part of the Nortel family; they truly want to see Nortel succeed. Even though they wear Wipro badges, they know Nortel products well and understand where Nortel is headed,” says Sharma.
- Communication is two-way. “There are long-term benefits when two people are willing to listen to each other with open minds,” says Gupta.
- Early on, the two partners determined how this relationship fit into Nortel’s overall corporate strategy. “We articulated this vision throughout both organizations,” says Gupta.
- The partners understand and act on change. “We knew business doesn’t stay static,” says Gupta. “We constantly ask ourselves: This was a good idea in 1991. But is it right today?”
- The subject matter helps. Gupta says this relationship would be a lot harder if they were working on a banking project, which has localized rules that change from place to place. Telecom technology, like VoIP, is market neutral. “This makes it much easier to have an offshore relationship. We can do this anywhere in the world that understands the technology,” says Gupta.
Sharma thinks it is remarkable that this outsourcing relationship is still healthy after 16 years, prospering through the ups and downs of the telecom cycle. “We are one of the pioneers in this kind of offshoring relationship. Our relationship helped put India on the map. Nortel benefited immensely, but so did Wipro,” Sharma says.
“We are one big happy family working for a common cause. That’s a great feeling to have,” adds Gupta.
Lessons from the Outsourcing Journal:
- Being a pioneer is brave. Believing it is possible is crucial.
- You raise your chances for a successful long-term relationship when both buyer and supplier are committed to the other’s success.
- One reason this offshore relationship works is because 15 percent of the Indian employees are working with the buyer in its North American labs. The travelers rotate. This improves employee performance and helps spread the technical knowledge.
- Being able to scale is crucial in a cyclical industry like telecom. Outsourcing helps the buyer survive at the far ends of the cycle–at the top where they can’t find enough labor and at the bottom when they need to cut costs.
- Long-term business relationships work if the partners together look at changing the relationship to reflect current business conditions.