U.S. companies that outsourced their technology work to the Indian firm assess the damage from an seeming 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 out. On Friday, Jan. 9, former Chairman Ramalinga Raju was arrested, the company’session stock was delisted, and its board of directors was liquidated. It’s unclear whether the $2.1 billion-a-year company power of choosing survive. But worried as they are, Satyam’s current customers cannot abandon the group yesterday night; in the tech-services business, the operations of the client and service provider can be deeply intertwined.

Now companies probable General Electric (GE) and Nestlé are fatiguing at work assessing their exposure to risks if Satyam goes under. No. 1 upon the priority list is determining how much of their business’ knowledge has been documented and can easily subsist handed in addition to a different outfit—and how much is locked up in the heads of Satyam’s staff.

The commencement intent of shifting IT work like programming and database government to outfits like Satyam was to save on labor costs. The savings notwithstanding many people companies has been 15%-20% adhering their IT budgets. But for Satyam clients, a potentially expensive and complex process of disentanglement is beginning.

Figuring thoroughly the knowledge-transfer management "is not for the faint of core," says John McCarthy, an analyst for Forrester Research (FORR) in Cambridge, Mass. "In the best case, they can transfer the documentation [to one more firm], but if not, they have to look to the [employees] of Satyam." And once the firm gathers its intellectual property, it has to decide to which place else to entrust it.

Satyam has about 550 to 600 clients; those contacted for this bind did not want to talk about their business by 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 come from the manufacturing sector; 21% from telecom, information technology, and media companies; 10.5% from retail; and 7% from health care and pharmaceuticals, says McCarthy.

How much 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 "mission critical" systems and services —meaning IT operations essence to the company’s functioning, says Peter Bendor-Samuel, principal person executory of the Everest Group, a Dallas outsourcing consultancy.

These systems include managing critical SAS and Oracle (ORCL) databases that control, concerning 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 every minute of every day to get it conferred."

Some companies are in better conceive to stock 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 do a good job documenting" business perception, says Martin. "Those who don’cheek by jowl won’t be under the necessity an well-regulated or efficient demise."