Infotech Lead India: Outsourcing services are offered through various delivery models; onsite consulting, onsite execution and the innovative new model is Build – Operate and Transfer (BOT) model. The BOT model has been successful in the infrastructure and construction industries. Omnitech InfoSolutions talks about BOT opportunities in India.
Overview
The dynamics of today’s political, economic and technological environment have driven many organisations to focus energy and resources on core business activities and outsource non-core functions to partner organisations with complementary strengths. Critically, organisations need to adapt their IT functions to focus on innovation in an increasingly competitive business environment.
Indian organisations have long been providing offshore services to help achieve efficiencies and synergies that reduce cost. The new paradigm is not only about cost now; innovation is fostered in order to add real value while still allowing customers to retain control of their IT projects. There are many regions where offshoring is successful; however Indian organisations have a particular advantage from skills availability, communication capability and of course the cost effectiveness of the Indian model. Outsourcing services are offered through various delivery models; onsite consulting, offsite execution and the innovative new model is Build – Operate and Transfer (BOT) model.
The BOT model has been very successful in the infrastructure and construction industries. The vendor for example, builds a highway or bridge, operates it for a period of time and later hands over to a government agency. It is important to note that this model rests on specialists (read domain firms) who bring in best practice knowledge and skill-sets for setting up the project. The model works on outsourcing the early stages of a project’s execution to the specialists and once the project starts running smoothly it is taken over and run by someone else, in this case the government.
Defining BOT
BOT means that while the partner builds the facility, hires the employees, gets the operation running for a certain period of time (usually a period of 3-5 years), the client remains a major service consumer. The partner then hands over the operations to the client after the agreed period. During the contract period, the partner and the client work closely with a senior client representative monitoring the operations. At the time of transition, the partner is suitably compensated.
Thus the BOT model provides an opportunity for clients to create an Offshore Center (OC) – built and operated as per their specific requirements at much lower risk as compared to building their own captive center. It can also design staged processes to suit business needs and priorities. The staged process helps the client to evaluate any risks involved and also assists with feasibility analysis prior to making a larger commitment. This model offers the client rights to acquire the operations of the centre at the end of contract period, if they wish to do so.
Relevance
This model has gained significance in recent times in the Business Process Outsourcing (BPO) industry. India has established itself as an ideal destination for offshoring, with many global organisations establishing themselves and developing relationships with Indian companies. Many organisations are keen to embrace this offshoring model, but fear the risks of doing so without a reliable partner. For these organisations, finding a partner who can take the risk out of early establishment is critical. BOT is the ideal model for reducing risk whilst delivering a solution that can be integrated and run in-house.
In the Knowledge Process Outsourcing (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 suited to this model are Biotech, IT, Service Industries and Manufacturing. In India progressive PSU’s (Public Sector Units) are strong candidates to adopt this model in the near future. Increasingly organisations from large corporate to small and midsize companies are actively engaging this model due to its inherent advantages including cost control and efficiencies, ownership model and risk mitigation.
BOT Model Scenarios
An organisation wishes to commence business in a country where they do not have a presence. They would engage a local company to reduce the risk of its venture into the new geography.
An organisation does not have expertise in a particular process, and wants to build a specialised and dedicated resource pool to address this. Here the organisation will engage a mature partner who has expertise and knowledge in this area.
The important factors to be addressed in a BOT model are
Who has the controlling stake when the project starts? How would the board be structured?
How will decision making power on the board be distributed and decided?
What are the key criteria and milestones for project success?
Key points involved in executing a BOT model
An organisation executes a feasibility study on the approach – assess the feasibility of a standalone project versus the BOT model. If the outcome is that the BOT model is the best way forward then;
Service providers are shortlisted and a dialogue is initiated with them.
The parameters are shared with the service providers and discussed to ascertain willingness to proceed with such an arrangement. It is very important to find a mature service provider with the right domain knowledge and expertise to ensure a successful outcome and return from the investment.
The initial agreement is signed which details the nature of the contribution of each of the participants. It also confirms the duration of the project and when the transfer of the project and rights will occur. This is referred to as the `put’ or `call’ options i.e., whether one of the participants to the venture would put their shares to be taken up by the other or will they call for the shares of the other partner.
Key advantages that this models offers
As per Gartner analysis, CIOs, IT leaders and business leaders in aggressive industries should incorporate such models where offshore partners 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 supplementing their development, production and the delivery of final products and services. The other key advantages this model offers are:
Opportunity to capture market share rapidly or address a critical need in a short period of time.
Advantage of not getting distracted while setting up a new capability / Facility.
Being able to continue to focus on the organisation’s core competency.
Opportunity of accessing best in class skill-sets.
Conservation of capital expenditure.
Cost effective outsourcing during the initial period of build out and operating.
Reduced operating risk and knowledge retention when related to sensitive processes, and
Ability to launch a complete end-to-end solution in short duration.
In summary, the BOT model helps organisations increase time to market, reduce risk and build best in class operations. The partnership enables the client to leverage the partners’ established capabilities and best practices, whilst integrating company processes and culture. This gives them better control in managing the business operations at optimised cost and minimal risk. Being able to then transfer the operation back into the organisation means there is choice for management going forward – either take the capability back in-house, or continue with the partner.
Increasingly, clients globally are demanding the BOT model and it is now being referred to as the preferred model in the BPO space. With many companies adapting this model, BOT is the next big wave in offshoring to monitor over the coming years.
By Omnitech InfoSolutions
