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Raja Simhan T.E.

It's brick-and-click from brick-and-mortar. The tech industry is taking a brick from the construction sector to follow the build, operate and transfer (BOT) model to make IT business click. Talk of a solid model for success.

IT and construction seem as far apart as clicks and bricks, but interestingly enough, the business model of one is working pretty well for the other, it appears.

Take, for instance, the build, operate and transfer (BOT) model which is common in the civil and construction engineering business, especially in the maintenance of highways, expressways and airports. This model is now slowly becoming popular with US-based tech firms planning to enter India.

IT firms such as Cognizant Technology, iNautix and J.D. Edwards entered India using such a model, and more multinationals will follow suit, feel IT industry watchers.

Let's take a look at what the BOT model entails. Here, a company enters into an agreement with another firm to build the latter an asset, including manpower, own it for a certain period, and then transfer the asset to the firm, for which it gets a fixed income for the agreement period.

The software industry has grown significantly in India using various operational models. These include the staff augmentation model where people sent resources onsite, the project model where software companies undertook assignments on a project-to-project basis, and the offshore development centre (ODC) model for global corporations worldwide.

Large ODCs have been set up using many routes — organic growth-led development centres such as American Express, Aetna and Metlife, joint ventures such as the ones set up by companies with Nasdaq, Cisco and MasterCard, and the BOT model, say sources.

All these ODC models seem to be catching up in the marketplace. However, the BOT model seems to be picking up fast with at least two instances in the last one month — AIG taking that route with Polaris, and J.D. Edwards with Covansys, the sources say.

In a bid to reduce time to market and also reduce costs for new software products, J.D. Edwards recently announced its new investment in development capacity through an agreement with the US-based Covansys Corporation, which also has a large offshore development centre in India. The agreement is to provide additional development resources and to establish a development centre for J.D. Edwards in Chennai, says Covansys.

By adopting the BOT route, J.D. Edwards has immediately tapped resources consisting of 60 additional full-time Covansys developers.

This will enable J.D. Edwards to reduce the time it takes to deliver new products, while maintaining the quality of its collaborative commerce software, the company says.

Importantly, J.D. Edwards will use Covansys' development operations in Chennai to reduce the initial costs associated with the establishment of a new plant.

In addition to benefiting customers worldwide, the agreement will enable J.D. Edwards to provide its Asia-Pacific customers with specialised, regional software development and services, says Covansys.

A team of developers based in Chennai will support J.D. Edwards' high value-add development teams in the US and focus on quality assurance, testing and maintenance. By shifting these responsibilities, J.D. Edwards will not only increase its testing capabilities by 30 per cent, but it will also be able to redeploy its internal testing and maintenance team towards strategic, new software development.

The US-based Cognizant was one of the first software multinationals to adopt the BOT route to enter India. The company, having a strong offshore capability in India, has seen both sides of the BOT model, having been incubated by Satyam Computers in 1994 when it was founded as Dun & Bradstreet Satyam Software. A few years later Cognizant incubated the iNautix, formerly a Credit Suisse First Boston company, facility at Tidel Park in Chennai.

Advantages on offer

Says Lakshmi Narayanan, President and COO, Cognizant, in the BOT model, the incubator starts the relationship with the incubated in the ODC mode, earmarking exclusive infrastructure resources such as bandwidth, networks, systems and office space. It enters into a contract with the incubated client for a pre-defined period with clearly-labelled Service Level Agreements.

The BOT model provides seed resources across levels for all the key functions in the technical and support arenas for jump-starting operations. Cognizant, for instance, provided Project Managers, Project Leaders and Team Members along with personnel from Quality, Corporate Communications, Human Resources, Finance, Administration and System Support for iNautix). It undertakes project execution and management, and ensures that the deliverables are on time and of the highest quality.

It also helps the incubated client identify resources for all the functions and transitions the client to become a separate entity by itself, he says.

For the services of the incubator, the incubated client pays for the regular project execution, and over and above the management fees for incubating.

According to Lakshmi Narayanan, the BOT model helps large corporations to jump-start their operations in crunched-cycle time and enjoy all the benefits of an established company, including recruiting from the best campuses, benefiting from the CMM Level 5 processes, and enjoying the brand equity of the incubator. "It is like leveraging all the best practices and learned lessons of a successful company during the most critical part of a company — the formative years, and building upon it thereafter," he says.

Both Cognizant and iNautix have been highly successful with the BOT model. iNautix, for example, had the benefit of Cognizant's brand equity in college campuses (during recruitment) and got the day one slot in IIMs, and was even ranked among the top 10 employers in IIMs along with Cognizant. Cognizant, iNautix and i2 Technologies were the only three software companies among the top 10 that year in IIMs, says Narayanan.

According to industry sources, the BOT model has worked well in the IT services space and is now being seen as a preferred model in the BPO space with companies such as Aviva taking that route.

With issues pertaining to IP and security better taken care of through BOT, it looks like one will see more such BOT ventures in the IT services and BPO space.

Call centres in the picture

Says the COO of a Chennai-based call centre firm, the BOT model in his industry should catch up in a few months.

A number of multinationals in the call centre industry plan to enter India through the BOT route, he says.

The BOT model works very well in the call centre industry.

First, the company can set up a presence immediately, say in a month or so compared to a few months, or even a year, to have in place the physical asset and the necessary manpower.

Second, the multinational has the option to acquire the incubated firm, if convinced that a presence in India is justified, or just walk out of the country without losing anything substantial — asset or manpower.

"A lot of customers abroad are asking us for setting up a presence in India using the BOT model. We hope to see large deals in the next few months," he says.

raja@thehindu.co.in

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