The Hindu Business Line : Now, it's your turn!

The build, operate and transfer model appears to hold less appeal now for software services companies. But taking the baton from them are the BPOs. eWorld tracks the preference scene.

It's your play, from now on - VINO JOHN

The BOT (Build, Operate and Transfer) model that was employed extensively by multinational clients in the early years of the offshoring wave of software services to India was in the news recently.

A couple of multinational clients exercised the transfer option and took over the operations from the Indian vendors. European life insurer Aviva recently exercised the transfer option with one of its BPO vendors 24/7 Customer, to take over and run the delivery centre in Bangalore, which was set up in 2003. But it also signed a new deal with 24/7 Customer, again on the BOT model, to set up a delivery centre in Chennai.

Similarly, in January, Dendrite International took over the offshore development centre run by Aztec Software in Bangalore for the past three years, by exercising the transfer option.

This led us to explore the status and dynamics of the BOT model in the prevailing software services environment and to establish whether this continues to be in vogue.

At a glance

So what exactly is BOT?

Borrowed from the infrastructure industry, the BoT concept was employed by the telecom industry way back in 1993-94 for upgrading the networks of Mahanagar Telephone Nigam in Mumbai and New Delhi. Further, as outsourcing began towards the end of the past decade, the Indian IT services industry borrowed the BOT concept and several variants of BOT emerged over a period of time.

Typically, in the IT scenario, the third party vendor builds the development operations for the client, runs it for an agreed time period (usually between three and five years) and finally hands over the facility with employee resources to the client, as and when the latter exercises the transfer option. Depending on the terms of the deal, a vendor may get compensated when the transfer takes place.

The BOT concept gained momentum towards the beginning of the offshoring/outsourcing wave. With the realisation of the cost-benefits, quality processes and the talent pool that India offered, there was a rush from multinationals to test the offshore waters for the first time. While some of them managed to set up their captives here on their own, other companies looked at partners in India, to set up and help them manage their operations.

The concept worked well for both the sides, as the vendors were able to command higher rates and could leverage BOT as one of the models to work and retain certain blue chip client relationships. And by handing over the mandate to the vendor, the clients felt that they were saved the teething troubles and nitty-gritty associated with setting up the operations.

Further, the downturn in 2001-02 accelerated the pace of such deals as vendors looking for stability in uncertain times went ahead and worked up such deals.

However, as offshoring became mainstream and the industry bounced back, the Indian vendors appear cautious in revisiting the BOT concept, as client replacement is a key issue.

Dalliance with BOT

Aztec Software took to BOT because the industry environment was such that billing rates were not attractive and not many deals were struck. "Aztec signed up Dendrite because it was a large client, and we needed such a client then," says Aztec's Chief Technology Officer, V. Govindarajan. Finally, when the transfer option was effected, Dendrite's contribution to Aztec's revenues was around 10 per cent.

"It is like raising a baby and handing it over later," he says. "When a transfer is effected, you not only lose revenues, but also the people whom you had mentored," says Govindarajan, adding "the company is not encouraging BOT deals anymore and moreover, there are hardly any requests for a BOT these days."

But, neoIT's senior director, S. Sabyasachi, admitting that not many BOT deals have happened in the past two years, feels that the concept may stage a comeback later this year as many of the clients, who have been outsourcing for the past three to five years, may want to have their own captives here.

Many top tier and mid-size companies are not keen on the BOT model as it impacts their topline growth unless it helps them get into newer verticals or launch new offerings three years down the line, Sabyasachi adds.

The BOT model would be successful only if the client manages to retain all the people it takes over, post BOT.

"There are only a few instances where BOT has been successful," says N. Krishna Kumar, CEO of MindTree Consulting's services business. MindTree believes in a variant of the BoT model — build, operate and transition, wherein instead of transferring the entire resources (employees) to the client, the vendor would transfer a key set of resources and the client would build on that.

"The build, operate and transition model will be successful, provided the vendor and the client select the resources jointly," Krishna Kumar adds.

MindTree has been working with a couple of clients on the BOT model, but the clients have never exercised the T option. Further, Krishna Kumar says MindTree would look at BOT deals that are dictated by the regulatory environment, wherein the client is required to retain certain type of work in-house.

BPO, a different kettle of fish

Unlike software services, interestingly, the concept appears to have worked well for the business process outsourcing (BPO) firms. BPO firms, who are seen to have gained greater comfort in executing such deals, still swear by the BoT model.

The renewal of Aviva's engagement with 24/7 Customer to expand its operations further in Chennai by setting up a 1,800-people unit is a case in point.

Says S. Nagarajan, chief people officer, his company has gained expertise in the model.

BOT ensures steady revenue stream for several years, but may turn counterproductive if the client is not fully involved in building and running the operations.

While many clients are adopting a wait and watch approach, the serious client goes for such a deal structure when they want to have their captive here, Nagarajan says. Moreover, the captives themselves are going third party these days, he adds.

Like 24/7, Intelenet Global Services has successfully transferred its unit to one of its US clients in recent years and has signed up another on the BOT model. "When the T option was exercised, it did not impact us as the client was pretty small," says Sandeep Agarwal, vice-president, Sales, Solutions and Transition at Intelenet.

"We are not saying no to BOT as we would not like to lose business," he says, adding most American clients prefer to go the BOT way.

Arup Roy, Analyst at Gartner, says BOT is very much in demand in the high-end BPO space such as analytics and knowledge process outsourcing (KPO), where companies are looking to enter India to set up captives.

Clearly, while the BOT model has diminished in importance in software services, it continues to retain its fancied status among BPO firms.

vishwa@thehindu.co.in