What makes IT industry juggernaut TCS supplement its multiple city centres in India with new facilities in China, Uruguay and new locations in Central and Eastern Europe? Or what makes a smaller IT and BPO firm like Zensar articulate and adopt a multi-shore strategy with offsite onshore services from Slough in UK, nearshore faciities in Gdansk in Poland and offshore centers in China and India?
The simple answer could be to hedge our bets, protect future profits from spiralling Indian wages and send a political message to Western European countries petrified by the spectre of job losses. However all these are only peripheral because the reality is that it just makes sound business sense.
The cultural affinity that can be exploited partly by having local consultants in each country and language speaking Eastern and Central Europeans for studying complex processes prior to actual outsourcing is an asset that a three-shore model effectively exploits. As the Indian IT and BPO industry matures and clients trust us with not just their peripheral or "context" processes but also their mission critical or "core" processes and applications, the margin of error in understanding the customer is getting smaller with every new project.
Since the fall of the Iron Curtain, most of the Central and East European countries have seen economic stability and growth, and the insistence on English as well as German or French language education in many Central European countries such as Romania Poland, Hungary and the Czech Republic is a clear sign of their desire to emulate India's record, with our 17 per cent IT services in the total exports basket, only matched by Ireland with just under 20 per cent.
The costs too are not very different with a recent Deutsche Bank report suggesting that engineers in Bulgaria are actually cheaper than China and India while Romania is comparable and Poland, Hungary and Czech are not substantially more expensive, making it very viable for small centres with a focus on process and transaction outsourcing to come up as an effective complement to offshore applications development and maintenance centres.
So what does the future hold for the way work will be procured and transacted by visionary firms? Client needs will continue to be gathered onsite at their premises though the growth of modelling tools will probably help clients to convert their implied needs to models that can be shared on the Internet with their outsourcing partners. Much of the initial design will then be done interactively through offsite and near-shore consultants and once there is mutual agreement on what needs to be done, the process management or application development or support will be handled either by technology or remote workers who will be more invisible than today. Is that a perfect model and a recipe for doing away with the problems created by Bangalore traffic and SEZ brouhahas? Sure, if the offshore workforce can work from home - the true and final benefit of multishoring!
1/02/2007
Outsourcing: a fair share
Outsourcing has long been viewed as an excellent option for companies looking to reduce costs and streamline their finance and accounting operations. However, it’s not for everyone and despite the advent of so-called Software as a Service (SaaS) solutions, it is far from being a popular choice.
According to Mark O’Neil, commercial director of Independent Growth Finance (IGF), small companies have the most to gain from outsourcing, making them the most enthusiastic when it comes to its adoption.
IGF specialises in payroll management and invoice factoring – the two services most commonly outsourced by small and medium companies – with what O’Neil sees as clear and immediate benefits.
‘Outsourcing gives the smaller business access to specialist IT systems and personnel they couldn’t otherwise afford,’ he explains. ‘It also allows them to get on with what they do best – generating sales and running the business – while we apply best practices to the running of their payroll and sales ledger.’
The benefits from outsourcing other finance and accounting (F&A) functions, though, are less clear cut, especially in larger companies.
In a recent survey conducted by analysts Nelson Hall, a third of respondents had outsourced basic processes such as credits and collection, but, despite almost half the finance directors questioned saying they were ‘highly concerned’ about the cost effectiveness of in-house F&A services, few had embarked on more comprehensive outsourcing projects.
Loss of control, together with concerns over data security and compliance, were cited as key reasons for this reluctance. And these concerns are not addressed by the introduction of online solutions, as customers continue to run their finance operations themselves using remotely hosted applications.
Such services are only just starting to appear, but most include other, more traditional outsourcing components. They also tend to be aimed at smaller companies, or at accounting professionals servicing smaller owner-managed clients, as with Online50 for example, and Twinfield.
Indeed, according to the Nelson Hall survey, larger companies are more likely to implement their own shared service centres rather than outsource or sign up to any of the new online products.
Some 60% of the companies surveyed had already opted for the shared services route, or were intending to take this approach. This figure is endorsed by a similar study undertaken by the Hackett Group, which found that 65% of large organisations are happy to go down the shared services route, compared with just 4% prepared to consider other forms of comprehensive F&A outsourcing.
Interestingly, such centres often make use of the same online portals and other web technologies that underpin the SaaS solutions.
An increasing number are also hosted offshore and are often joint ventures, with at least part of the supporting infrastructure outsourced to a specialist partner, as with the NHS Shared Business Services, established in partnership with UK outsourcer Xansa (see case study – Shared services for NHS).
However, the shared services approach is seen as a safe option, addressing concerns relating to both traditional outsourcing solutions and the emerging nature of many of the SaaS technologies. It also enables customers to steer around the marketing hype surrounding the delivery of the newer services, as outlined in a recent Gartner report, Hype cycle for business process outsourcing 2006.
The Gartner report finds that buyers feel subject to ‘consistent and pervasive hype’, making it difficult to decide what is available and who can deliver it, with many of the services currently on offer more than five years away from true market maturity.
Goodman jones plumps for Online tools
Chartered accountancy firm Goodman Jones LLP needed a more efficient way of serving its customer base. Conventional software packages were either too slow or unsatisfactory, so it finally chose Twinfield and its zero-installation, zero-maintenance, online service. ‘We need to connect our people and clients any time, anywhere,’ explains Philip Woodgate, business systems partner. ‘We couldn’t do that with traditional accounting systems.’
The ability to access the service from any internet-enabled PC was key to its decision to use Twinfield. Moreover, it eliminates concerns over version control. ‘With Twinfield, client accounts always reflect the current position because there is only one version of the books,’ says managing partner Larry Philips, who also points to the lack of any need to maintain the supporting hardware or software as a major benefit. ‘Time spent running machines is time we can’t put into direct client work,’ he argues.
Possible future benefits include being able to give clients simple dashboards to monitor key performance indicators identified by Goodman Jones, and delivering real-time data to client staff in the field.
NHS committed to Shared services
Since its launch in April 2005, NHS Shared Business Services has grown rapidly. The public/private partnership enables NHS trusts to outsource their finance and accounting functions to an independent service, part-run by Xansa. Individual trusts aren’t mandated to join NHS Shared Business Services; however, there are huge benefits in doing so.
According to Mike Withy, director of finance and accounting at Xansa the UK’s leading specialist in this field significant economies of scale from a shared infrastructure are one such benefit, along with reliable delivery of standardised best practice. Client trusts can also use the outsourced Oracle database for other applications.
NHS Shared Business Services supply finance and accounting services to 103 organisations in 56 trusts across the UK. It guarantees a minimum 20% saving on existing operational costs, as well as 2% efficiency savings year on year. In the past year it delivered average savings of 34%, a figure it hopes will rise significantly as more trusts join. Former NHS chief executive Sir Nigel Crisp says: ‘My aim is for the NHS to be at the forefront of efficiency, and NHS Shared Business Services gives us a tangible way to demonstrate that commitment.’
According to Mark O’Neil, commercial director of Independent Growth Finance (IGF), small companies have the most to gain from outsourcing, making them the most enthusiastic when it comes to its adoption.
IGF specialises in payroll management and invoice factoring – the two services most commonly outsourced by small and medium companies – with what O’Neil sees as clear and immediate benefits.
‘Outsourcing gives the smaller business access to specialist IT systems and personnel they couldn’t otherwise afford,’ he explains. ‘It also allows them to get on with what they do best – generating sales and running the business – while we apply best practices to the running of their payroll and sales ledger.’
The benefits from outsourcing other finance and accounting (F&A) functions, though, are less clear cut, especially in larger companies.
In a recent survey conducted by analysts Nelson Hall, a third of respondents had outsourced basic processes such as credits and collection, but, despite almost half the finance directors questioned saying they were ‘highly concerned’ about the cost effectiveness of in-house F&A services, few had embarked on more comprehensive outsourcing projects.
Loss of control, together with concerns over data security and compliance, were cited as key reasons for this reluctance. And these concerns are not addressed by the introduction of online solutions, as customers continue to run their finance operations themselves using remotely hosted applications.
Such services are only just starting to appear, but most include other, more traditional outsourcing components. They also tend to be aimed at smaller companies, or at accounting professionals servicing smaller owner-managed clients, as with Online50 for example, and Twinfield.
Indeed, according to the Nelson Hall survey, larger companies are more likely to implement their own shared service centres rather than outsource or sign up to any of the new online products.
Some 60% of the companies surveyed had already opted for the shared services route, or were intending to take this approach. This figure is endorsed by a similar study undertaken by the Hackett Group, which found that 65% of large organisations are happy to go down the shared services route, compared with just 4% prepared to consider other forms of comprehensive F&A outsourcing.
Interestingly, such centres often make use of the same online portals and other web technologies that underpin the SaaS solutions.
An increasing number are also hosted offshore and are often joint ventures, with at least part of the supporting infrastructure outsourced to a specialist partner, as with the NHS Shared Business Services, established in partnership with UK outsourcer Xansa (see case study – Shared services for NHS).
However, the shared services approach is seen as a safe option, addressing concerns relating to both traditional outsourcing solutions and the emerging nature of many of the SaaS technologies. It also enables customers to steer around the marketing hype surrounding the delivery of the newer services, as outlined in a recent Gartner report, Hype cycle for business process outsourcing 2006.
The Gartner report finds that buyers feel subject to ‘consistent and pervasive hype’, making it difficult to decide what is available and who can deliver it, with many of the services currently on offer more than five years away from true market maturity.
Goodman jones plumps for Online tools
Chartered accountancy firm Goodman Jones LLP needed a more efficient way of serving its customer base. Conventional software packages were either too slow or unsatisfactory, so it finally chose Twinfield and its zero-installation, zero-maintenance, online service. ‘We need to connect our people and clients any time, anywhere,’ explains Philip Woodgate, business systems partner. ‘We couldn’t do that with traditional accounting systems.’
The ability to access the service from any internet-enabled PC was key to its decision to use Twinfield. Moreover, it eliminates concerns over version control. ‘With Twinfield, client accounts always reflect the current position because there is only one version of the books,’ says managing partner Larry Philips, who also points to the lack of any need to maintain the supporting hardware or software as a major benefit. ‘Time spent running machines is time we can’t put into direct client work,’ he argues.
Possible future benefits include being able to give clients simple dashboards to monitor key performance indicators identified by Goodman Jones, and delivering real-time data to client staff in the field.
NHS committed to Shared services
Since its launch in April 2005, NHS Shared Business Services has grown rapidly. The public/private partnership enables NHS trusts to outsource their finance and accounting functions to an independent service, part-run by Xansa. Individual trusts aren’t mandated to join NHS Shared Business Services; however, there are huge benefits in doing so.
According to Mike Withy, director of finance and accounting at Xansa the UK’s leading specialist in this field significant economies of scale from a shared infrastructure are one such benefit, along with reliable delivery of standardised best practice. Client trusts can also use the outsourced Oracle database for other applications.
NHS Shared Business Services supply finance and accounting services to 103 organisations in 56 trusts across the UK. It guarantees a minimum 20% saving on existing operational costs, as well as 2% efficiency savings year on year. In the past year it delivered average savings of 34%, a figure it hopes will rise significantly as more trusts join. Former NHS chief executive Sir Nigel Crisp says: ‘My aim is for the NHS to be at the forefront of efficiency, and NHS Shared Business Services gives us a tangible way to demonstrate that commitment.’
New Study Shows Outsourcing Saves Time & Money for Small Business Owners
Small businesses can reduce time spent on payroll by 30 per cent and
prevent costly penalties by outsourcing
TORONTO, Oct. 16 /CNW/ - Entrepreneurs who think they're saving money by
sweating the details of payroll in-house are in fact spending 30 per cent more
time for the privilege, according to the ADP Price of Payroll Study, an
in-depth look at 150 small businesses across Canada. According to the study,
outsourcing payroll would save many small businesses nearly one-third of the
time it takes to manage payroll operations, which translates to $939 in
savings each year.
"The ADP Price of Payroll Study is all the justification a small business
owner should ever need to start outsourcing," said Angela Haier, vice
president, small business solutions, ADP Canada. "Cost-conscious entrepreneurs
will be surprised to learn that when it comes to payroll, the do-it-yourself
mentality, quite literally, doesn't pay."
The Study
ADP Canada commissioned Environics Research Group to survey 150 small
business owners across Canada who process their payroll in-house using a
variety of software programs. The study compared the time and related cost for
small businesses to do in-house payroll each year versus outsourcing the task
to ADP.
The Results: Outsourcing Saves Small Businesses Time and Money
According to the ADP Price of Payroll Study, the amount of time small
businesses spend on payroll processing, when translated into dollars, is
significant:
<<
- Small businesses spend 11.7 hours per employee each year on payroll
processing.
- That means the surveyed companies, who had a median of 13 employees,
spend 152 hours processing payroll annually.
- ADP examined the tasks it assumes or simplifies for a company of this
size when it processes its payroll, and determined that outsourcing
reduces up to 30 per cent of the hours - saving the average small
business (with 13 employees) 42 hours each year - or one full week
worth of work.
- The median salary of the surveyed employees responsible for payroll
was $35,000 plus benefits, or $21.90 per hour. Therefore a small
business spends $3,331 annually to process payroll in-house.
- A 30 per cent payroll time reduction from outsourcing translates to a
savings of $939.
>>
Hidden Costs of Handling Payroll In-House
The ADP Price of Payroll Study also uncovered hidden costs that aren't
typically factored into the hard costs of processing payroll in-house:
<<
- In nearly half (43 per cent) of all businesses studied, a very senior
person (e.g. Owner, President, CEO, Controller, VP Finance) is
spending valuable time on payroll administration.
- Forty-three per cent of owners also admit to spending time fixing
errors in their payroll when using an accounting software program.
- Eleven per cent of those surveyed said that they have received a
penalty from the government for late payment of remittances when
processing payroll on their own. The median amount of the fine was
$500.
>>
prevent costly penalties by outsourcing
TORONTO, Oct. 16 /CNW/ - Entrepreneurs who think they're saving money by
sweating the details of payroll in-house are in fact spending 30 per cent more
time for the privilege, according to the ADP Price of Payroll Study, an
in-depth look at 150 small businesses across Canada. According to the study,
outsourcing payroll would save many small businesses nearly one-third of the
time it takes to manage payroll operations, which translates to $939 in
savings each year.
"The ADP Price of Payroll Study is all the justification a small business
owner should ever need to start outsourcing," said Angela Haier, vice
president, small business solutions, ADP Canada. "Cost-conscious entrepreneurs
will be surprised to learn that when it comes to payroll, the do-it-yourself
mentality, quite literally, doesn't pay."
The Study
ADP Canada commissioned Environics Research Group to survey 150 small
business owners across Canada who process their payroll in-house using a
variety of software programs. The study compared the time and related cost for
small businesses to do in-house payroll each year versus outsourcing the task
to ADP.
The Results: Outsourcing Saves Small Businesses Time and Money
According to the ADP Price of Payroll Study, the amount of time small
businesses spend on payroll processing, when translated into dollars, is
significant:
<<
- Small businesses spend 11.7 hours per employee each year on payroll
processing.
- That means the surveyed companies, who had a median of 13 employees,
spend 152 hours processing payroll annually.
- ADP examined the tasks it assumes or simplifies for a company of this
size when it processes its payroll, and determined that outsourcing
reduces up to 30 per cent of the hours - saving the average small
business (with 13 employees) 42 hours each year - or one full week
worth of work.
- The median salary of the surveyed employees responsible for payroll
was $35,000 plus benefits, or $21.90 per hour. Therefore a small
business spends $3,331 annually to process payroll in-house.
- A 30 per cent payroll time reduction from outsourcing translates to a
savings of $939.
>>
Hidden Costs of Handling Payroll In-House
The ADP Price of Payroll Study also uncovered hidden costs that aren't
typically factored into the hard costs of processing payroll in-house:
<<
- In nearly half (43 per cent) of all businesses studied, a very senior
person (e.g. Owner, President, CEO, Controller, VP Finance) is
spending valuable time on payroll administration.
- Forty-three per cent of owners also admit to spending time fixing
errors in their payroll when using an accounting software program.
- Eleven per cent of those surveyed said that they have received a
penalty from the government for late payment of remittances when
processing payroll on their own. The median amount of the fine was
$500.
>>
New Study Shows Outsourcing Saves Time & Money for Small Business Owners
Small businesses can reduce time spent on payroll by 30 per cent and
prevent costly penalties by outsourcing
TORONTO, Oct. 16 /CNW/ - Entrepreneurs who think they're saving money by
sweating the details of payroll in-house are in fact spending 30 per cent more
time for the privilege, according to the ADP Price of Payroll Study, an
in-depth look at 150 small businesses across Canada. According to the study,
outsourcing payroll would save many small businesses nearly one-third of the
time it takes to manage payroll operations, which translates to $939 in
savings each year.
"The ADP Price of Payroll Study is all the justification a small business
owner should ever need to start outsourcing," said Angela Haier, vice
president, small business solutions, ADP Canada. "Cost-conscious entrepreneurs
will be surprised to learn that when it comes to payroll, the do-it-yourself
mentality, quite literally, doesn't pay."
The Study
ADP Canada commissioned Environics Research Group to survey 150 small
business owners across Canada who process their payroll in-house using a
variety of software programs. The study compared the time and related cost for
small businesses to do in-house payroll each year versus outsourcing the task
to ADP.
The Results: Outsourcing Saves Small Businesses Time and Money
According to the ADP Price of Payroll Study, the amount of time small
businesses spend on payroll processing, when translated into dollars, is
significant:
<<
- Small businesses spend 11.7 hours per employee each year on payroll
processing.
- That means the surveyed companies, who had a median of 13 employees,
spend 152 hours processing payroll annually.
- ADP examined the tasks it assumes or simplifies for a company of this
size when it processes its payroll, and determined that outsourcing
reduces up to 30 per cent of the hours - saving the average small
business (with 13 employees) 42 hours each year - or one full week
worth of work.
- The median salary of the surveyed employees responsible for payroll
was $35,000 plus benefits, or $21.90 per hour. Therefore a small
business spends $3,331 annually to process payroll in-house.
- A 30 per cent payroll time reduction from outsourcing translates to a
savings of $939.
>>
Hidden Costs of Handling Payroll In-House
The ADP Price of Payroll Study also uncovered hidden costs that aren't
typically factored into the hard costs of processing payroll in-house:
<<
- In nearly half (43 per cent) of all businesses studied, a very senior
person (e.g. Owner, President, CEO, Controller, VP Finance) is
spending valuable time on payroll administration.
- Forty-three per cent of owners also admit to spending time fixing
errors in their payroll when using an accounting software program.
- Eleven per cent of those surveyed said that they have received a
penalty from the government for late payment of remittances when
processing payroll on their own. The median amount of the fine was
$500.
>>
prevent costly penalties by outsourcing
TORONTO, Oct. 16 /CNW/ - Entrepreneurs who think they're saving money by
sweating the details of payroll in-house are in fact spending 30 per cent more
time for the privilege, according to the ADP Price of Payroll Study, an
in-depth look at 150 small businesses across Canada. According to the study,
outsourcing payroll would save many small businesses nearly one-third of the
time it takes to manage payroll operations, which translates to $939 in
savings each year.
"The ADP Price of Payroll Study is all the justification a small business
owner should ever need to start outsourcing," said Angela Haier, vice
president, small business solutions, ADP Canada. "Cost-conscious entrepreneurs
will be surprised to learn that when it comes to payroll, the do-it-yourself
mentality, quite literally, doesn't pay."
The Study
ADP Canada commissioned Environics Research Group to survey 150 small
business owners across Canada who process their payroll in-house using a
variety of software programs. The study compared the time and related cost for
small businesses to do in-house payroll each year versus outsourcing the task
to ADP.
The Results: Outsourcing Saves Small Businesses Time and Money
According to the ADP Price of Payroll Study, the amount of time small
businesses spend on payroll processing, when translated into dollars, is
significant:
<<
- Small businesses spend 11.7 hours per employee each year on payroll
processing.
- That means the surveyed companies, who had a median of 13 employees,
spend 152 hours processing payroll annually.
- ADP examined the tasks it assumes or simplifies for a company of this
size when it processes its payroll, and determined that outsourcing
reduces up to 30 per cent of the hours - saving the average small
business (with 13 employees) 42 hours each year - or one full week
worth of work.
- The median salary of the surveyed employees responsible for payroll
was $35,000 plus benefits, or $21.90 per hour. Therefore a small
business spends $3,331 annually to process payroll in-house.
- A 30 per cent payroll time reduction from outsourcing translates to a
savings of $939.
>>
Hidden Costs of Handling Payroll In-House
The ADP Price of Payroll Study also uncovered hidden costs that aren't
typically factored into the hard costs of processing payroll in-house:
<<
- In nearly half (43 per cent) of all businesses studied, a very senior
person (e.g. Owner, President, CEO, Controller, VP Finance) is
spending valuable time on payroll administration.
- Forty-three per cent of owners also admit to spending time fixing
errors in their payroll when using an accounting software program.
- Eleven per cent of those surveyed said that they have received a
penalty from the government for late payment of remittances when
processing payroll on their own. The median amount of the fine was
$500.
>>
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
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, and hands over the operations to the client after an agreed period
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
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
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, and hands over the operations to the client after an agreed period
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
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