Fraud At Satyam Means That How CIOs Do Outsourcing Needs To Be Rethought
Didn’t we solve that whole outsourcing thing years ago? Specifically aren’t the IT and the Finance departments on the same page when it comes to not only IF we should outsource some of the IT work, but also HOW it should be outsourced? If this is true, than what does the Satyam scandal mean for your IT / Finance relationship?
The Satyam Scandal
Just in case there is anyone out there who doesn’t know what happened at Satyam, perhaps a quick review is in order. Satyam Computer Services is based in India, has a work force of 53,000 and operations in 66 countries. They were very successful and served more than a third of the U.S. Fortune 500 companies.
Back in January the then CEO of Satyam, Ramalinga Raju, revealed that he and his CFO had been conducting a massive fraud – they significantly inflated its earnings and assets for years. Basically they were losing money hand over foot. In January they revealed that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent. Poof!
Impact Of The Fraud
What this means for firms that do outsourcing business with Satyam is that the firm might fold any day (perhaps you are one of these firms!). All of a sudden, outsourcing contracts that had appeared to be solid now seem to be not so solid. Most firms that outsource their work don’t necessarily have a good contingency plan for what to do if their outsourcing partner is suddenly unable to perform the work.
What Needs To Be Done
The Satyma scandal should serve as a wake-up call to CIOs everywhere. Oursourcing can never be done the same as it’s been done in the past. Here’s what needs to change:
- Finance Needs To Play A Role: the IT department is responsible for making sure that the outsourcing company has the needed technical skills, but the Finance department needs to play a bigger role to make sure that the outsourcing firm can stay in business over time.
- More Baskets For Your Eggs: it’s time to start to diversify your outsourcing activities in order to lower your risk profile. Detailed technical work needs to be moved around every so often so that not just one vendor knows how to do the work.
- Update Your Contracts: create shorter contracts that are more flexible. Make sure that you are not tied to a given outsourcer for too long just in case things start to go wrong – you might want to move your work to another outsourcer quickly.
Final Thoughts
India has now had their version of Enron / Worldcom. Hopefully it will serve as a wakeup call for all CIOs who outsource their work that greater due diligence needs to be done even as the world continues to move faster. By working more closely with Finance, CIOs can apply IT to enable the rest of the company to grow quicker, move faster, and do more.
Questions For You
When you selected an outsourcer, did you do a detailed financial due diligence on them? Was your finance department involved? Has your finance department remained involved in evaluating the health of your outsourcer(s)? Do you have a contingency plan in place that you could us if your outsourcer went out of business? Leave me a comment and let me know what you are thinking.
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What We’ll Be Talking About Next Time
Data Security. There I said it. It sorta lays there like a big lump of coal and everyone in the company stands around looking at it wondering who’s responsibility it is to do something about it.
Nobody, including CIOs really wants to touch it for one very simple reason: it’s a losing proposition…
