U.S. companies that outsourced their technology work to the Indian firm impose one’s share on the damage from an apparent fraud and anticipate headaches ahead

By Moira Herbst

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Details of the stunning fraud at Indian outsourcing giant Satyam are still trickling loudly. On Friday, Jan. 9, former Chairman Ramalinga Raju was arrested, the company’s stem was delisted, and its board of directors was liquidated. It’s unclear whether the $2.1 billion-a-year company will survive. But worried as they are, Satyam’s current customers cannot abandon the company overnight; in the tech-services business, the operations of the client and service provider be able to be deeply intertwined.

Now companies like General Electric (GE) and Nestlé are hard at work assessing their exposure to risks if Satyam goes under. No. 1 on the priority inventory is determining how much of their business’ knowledge has been documented and can easily be handed over to another outfit—and how a great deal of is locked up in the heads of Satyam’s staff.

The pattern intent of shifting IT work like programming and database management to outfits like Satyam was to not including on travail costs. The savings for divers companies has been 15%-20% without interruption their IT budgets. But for Satyam clients, a potentially expensive and complex action of disentanglement is beginning.

Figuring on the outside the knowledge-transfer process "is not for the faint of heart," says John McCarthy, an analyst for Forrester Research (FORR) in Cambridge, Mass. "In the best case, they be able to transfer the documentation [to another firm], on the contrary if not, they have to look to the [employees] of Satyam." And once the firm gathers its intellectual property, it has to decide whither else to entrust it.

Satyam has about 550 to 600 clients; those contacted for this item did not want to talk about their business through Satyam. About 237 accounts spend more than $1 million annually with the company and 52 accounts spend more than $10 million. About 23% of its revenues approach from the manufacturing sector; 21% from telecom, knowledge technology, and media companies; 10.5% from retail; and 7% from health care and pharmaceuticals, says McCarthy.

How plenteous trouble these clients are in for, though, depends not on their particular industries but the types of operations they have outsourced to Satyam. Firms in the greatest danger are those who have contracted with Satyam for running "charge critical" systems and services —intent IT operations core to the assembly’s functioning, says Peter Bendor-Samuel, most eminent executive of the Everest Group, a Dallas outsourcing consultancy.

These systems include prudent decisive SAS and Oracle (ORCL) databases that control, instead of example, a company’s accounts due and receivables. "These are lifeblood issues to a company," says Bendor-Samuel. "They’re pretty complicated and scary things to manage. [Satyam clients] are sweating each minute of every day to get it done."

Some companies are in good in a higher degree shape to handle the process than others, says Steve Martin, a partner and co-owner of Pace Harmon, a San Francisco-based outsourcing advisory firm serving Fortune 500 companies. "Best-practices companies complete a good job documenting" business apprehension, says Martin. "Those who put on’t won’t have one orderly or prime mover transfer."