Shift the risk of outsourcing: Build-Operate-Transfer has been saved
Shift the risk of outsourcing: Build-Operate-Transfer
Scale with the BOT business model
As a risk-shifting alternative to traditional outsourcing, many multinational organizations are adopting the Build-Operate-Transfer (BOT) model. Neither in-house nor conventionally outsourced, BOT preserves control by enlisting a partner to stand up, stabilize, transform, and eventually transition new service centers back to the organization.
- How the BOT business model preserves control
- Why consider a BOT?
- How does a BOT work?
- Case study highlights
- Why now?
How the BOT business model preserves control
The world of service delivery is constantly evolving. For multinational organizations, navigating through disruptive market forces and rapidly shifting needs of enterprise infrastructure can mean exploring innovative service delivery models that balance the development of in-house capabilities and leveraging of external expertise.
Traditional outsourcing is a well-recognized driver in reducing costs and increasing service levels while enabling a business to focus on its core functions. Building in-house provides the opportunity to retain control and develop service capabilities internally.
Within a BOT business model, a company can enlist the help of a partner to stand up, stabilize, transform, and eventually transition back the delivery center. Leveraging a Build-Operate-Transfer approach can bring market-leading expertise to a complex service delivery solution and allow for an organization to still access and eventually acquire new service delivery capabilities. Particularly in times when preserving liquidity and building resiliency are of critical importance, the BOT approach can provide control to a company without having to sacrifice return on value or time to maturity.
Why consider a BOT?
Your organization has decided to move forward with a new or enhanced service delivery model. You have concerns over having the wherewithal to stand up a captive center on your own, but you still want to retain more control than a complete outsourcing solution. Or you want to enhance existing offshore operations, but you don’t have the capacity.
Enter the BOT business model, a hybrid option that offers the ability to acquire essential business capabilities and the advantages of outsourcing without sacrificing control, time, and resources to build on your own.
How does a BOT work?
Until the transfer of assets or staff, BOTs can look like a traditional fixed or time-and-materials project agreement financially, depending on a client’s business objectives and existing outsourcing presence. However, awareness of and leadership perspective on the following commercial elements can be helpful before entering negotiations:
- Individual phase pricing: Ideally, each phase of the BOT is separately priced, the intent being that the client can agree to a fixed or time-and-materials-based price for the initial phase, then agree to remaining phases after an initial operating model is laid out.
- Outcome-based pricing: Aligning financial responsibility with the achievement of milestones is an approach to mitigate risk for the client. The transfer of operations to the client, for example, can be a complicated process and, often, the phase that determines the success of a BOT.
- Cost accounting and timing: One of the benefits of the BOT business model is a potential up-front capital reduction or cost structure involving amortization of capital investment. Assuming the service provider owns physical assets, licensing agreements, or other real property used for service delivery, the pricing structure can reflect these advantages.
- Key provisions: Building in key provisions and optionality into the contract can help keep doors open for the client and incentivize the delivery partner to continuously improve. Including contract “offramps” after milestones (for example, a stop mid-transfer provision), can help protect against unforeseen enterprise or external circumstances. Provisions around the protection of IP throughout the duration of the BOT can be a significant benefit and should be negotiated up front.
The client perspective
Looking beyond outsourcing, but needing the flexibility to grow at a higher velocity than what’s organically possible, clients are increasingly turning to BOT business models today. The BOT approach can compress time to maturity, and therefore time to value, while still reducing dependence on third parties.
Companies that may not have both the capabilities to stand up and transform a delivery center and the capacity to prioritize over competing programs can leverage the BOT business model. The ability to respond promptly to market demands or contractions is advantageous in today’s environment. The BOT model enables flexibility to quickly scale up or down or even more easily pivot toward other priority initiatives.
The vendor perspective
One of the crucial requirements for a BOT is finding the right service delivery partner, and until recently, vendors often shied away from the model. In the early and mid-2000s, a majority of vendors were in the beginning stages of achieving the brand and scale that they enjoy today. Unless for strategic purposes, entering a new industry, or gaining functional capabilities in an attractive space, providers have been selective in entering BOT relationships.
However, service providers today have seen revenue growth cannibalized by recent innovation around robotics, automation, and cognitive technology. To help offset a decline in top-line revenue, today’s service providers have been increasingly willing to explore a hybrid model that clients view as more strategic.
This renewed intersection of client interest and vendor willingness to invest into a BOT approach can help foster the resurgence of this hybrid service delivery model.