Vendor Accent

Build, Operate, Transfer: the new mantra in outsourcing

Outsourcing services are offered through various delivery models. Of these, the Build, Operate, Transfer model is growing in popularity, says Atul Hemani.

The dynamics of today’s political, economic and technological environment have driven practically all organisations to focus their energy and resources on their core business and outsource the additional functions to partner organisation with complementary strengths. As we all know, the need of the hour is to adapt IT to gain and retain a cutting edge over the increasingly competitive environment.

Indian organisations have the unique advantage of having the right skills, good communication ability, different time zone and most cost-effective execution model. Outsourcing services are offered through various delivery models, including onsite consulting and offsite execution. Now the emerging model is Build, Operate and Transfer (BOT).

The BOT model has been very successful in the infrastructure and construction industry. A company builds a highway or bridge only to operate it for a period of time and later hand it over to a government agency. It is important to note that this model rests on specialists (read domain firms) who bring in the best knowledge and skill-sets for setting up a project. The model works on outsourcing the early stages of a project’s execution to the specialists; once the project starts running smoothly it is taken over and run by someone else like the government.

Defining BOT

BOT means that the client has a right to own the facility, while the third-party vendor builds the facility, hires the employees, gets the operation running for a certain period of time (usually three to five years), and hands over the operations to the client after an agreed period. During the contract period, the vendor and the client work closely, with a senior client representative monitoring the operations. At the time of the transition, the vendor is suitably compensated.

The BOT model gives customers the opportunity and liberty to get an Offshore Centre (OC) built and operated as per their needs, and also set up processes in various stages to suit their business needs. The staged process helps a client evaluate the risks involved and helps them check feasibility before investing in a full-fledged manner. This model gives a customer, if he so wishes, the option of acquiring the operations of such a centre at the end of the contract period.

Some typical outsourcing models are:

• Operate
• Build and Handover
• Build and Operate
• Build, Operate and Transfer.

Apart from the option of transferring an operation or project to the customer after a period of time, the principal difference between build and operate (BO) and BOT is that the building of an operation is based on the customer’s specifications. The infrastructure is set up, the processes are followed, corporate philosophy inculcated, and resources trained and customised as per a customer’s need. Hence, at the time of transfer, the integration of that unit to the parent company becomes smooth.

Popular in BPO/KPO

This model has gained significance in the BPO industry. India has established itself as an ideal destination for offshoring. Globally, companies are looking at India and wish to be present here at the earliest. This holds true for many companies which have considered outsourcing for the first time, let alone offshoring. It is not easy to step into an unknown land on one’s own without the aid of a partner. For companies such as these, looking for a partner to hand-hold the company in the early days, BOT is the ideal model.

In the KPO industry, this model is commonly used for various processes and activities such as IT, R&D, engineering design and business administration. The potential industries for this model are biotech, IT, services and manufacturing. In India, progressive PSUs are strong candidates to adopt this model in the near future. More and more organisations, from large enterprises to SMBs, are actively considering this model because of its advantages such as the lower cost of investment, staged ownership approach, and proof of concept.

BOT is good for:

• an organisation that wishes to commence business in a country where it does not have a base. The organisation would look at getting a local company to reduce the risk of venturing into the new country.
• an organisation that doesn’t have the expertise in that process, and wants to pool-in specialised and dedicated resources to execute it. Here the organisation will tie up with a mature player who already has the expertise and knowledge for it.

Factors to be addressed:

• who has the controlling stake when the project starts?
• what will the composition of the board be?
• which of the partners will have what kind of powers on the board appointments?
• what are the milestones which need to be tracked to ensure that the project is in line with expectations?

Key points in execution

An organisation will have to conduct a feasibility of approach to set up the project on its own or work on a BOT model. If it opts for the BOT model, then service providers are short-listed and a dialogue is initiated with them. The parameters are shared with the service providers, and their intent is ascertained as to whether or not they would be keen to proceed with such an arrangement. It is very important to find an experienced service provider because it should have the right domain knowledge and expertise to help get the optimal return on investment.

The initial agreement is then signed; this spells out the nature of the contribution that each of the participants will bring to the table. It also mentions the time duration for the transfer of the project and rights. These are referred to as the ‘put’ and ‘call’ options i.e., whether one of the participants to the venture will put up its shares to be taken up by another, or whether they will call for the shares of the other partner.

Advantages of BOT

According to Gartner, CIOs, IT leaders and business leaders in aggressive industries should incorporate such models where offshore vendors become an integral part of their industry value-chain. They must begin building relationships with offshore IT services companies that deliver value-added business process services which supplement their development, production and delivery of final products and services.

Major advantages of this model include

• the opportunity to capture marketshare rapidly or address an urgent need in a short period of time
• the advantage of not getting distracted while setting up a new venture
• the ability to continue to focus on the organisation’s core competency
• the opportunity to access the best-in-class skill-sets
• conservation of capital expenditure
• cost-effective outsourcing during the initial period of build-out and operation
• reduced operating risk
• knowledge retention when related to sensitive processes
• the ability to launch a complete end-to-end solution in a short period.

The BOT model helps large corporations to jump-start their operations in crunched-cycle time. They can enjoy all the benefits of an established company, including the brand equity of the service provider, and also leverage all the best practices and learned lessons of the successful company during the most critical phase of the organisation—the formative years—and build upon it thereafter.

Increasingly, clients based in US and UK are demanding that the BOT model be adopted, so it is now being seen as a preferred model in the BPO space. With many companies adapting this model, BOT would be the next big wave in outsourcing to watch out for in the coming years.

The author is Chairman & Managing Director of Omnitech InfoSolutions