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neoIT 2004. All rights reserved | www.neoIT.com
Build, Buy, BOT – Business Models for ITeS-BPO Players
Build, Buy, BOT – Business Models for ITeS-BPO Players
What Works & What Doesn’t?
Avinash VashisthaManaging PartnerneoIT
Nasscom-Businessworld Summit: Infocom 2004
2nd December 2004
© 2004 neoIT. 22
AgendaAgenda
! About neoIT! Ownership Models
! Types! Financial Comparisons
! Current BPO Landscape! Key Challenges in Offshore BPO! Understanding The Models! Overcoming Ownership Challenges! Key Takeaways
Agenda
© 2004 neoIT. 33
About neoITAbout neoIT
© 2004 neoIT. 44
neoIT - Company Fact SheetneoIT - Company Fact Sheet
75+ offshore sourcing (captive & third-party) transactions. 60% IT : 40% BPO 50% Third party : 50% Captive/Acquisition.
Client Engagements
04 Offshoring Lifecycle Methodology; A5 Portfolio Assessment Methodology; neoQA Supplier Due Diligence Process; M5 Program Governance Framework
Proprietary Frameworks and Methodology
Experienced global advisors located in demand & supply marketsGlobal Advisory Coverage
Maximize savings, lower risk and enhance performance by providing advisory and management services across the entire offshore lifecycle: strategy, sourcing and governance
Globalization (Offshore) Lifecycle Management
65+ trusted advisors and support professionalsExperienced Team
Deep knowledge about markets and supplier capabilities, expertise and reputation for Tier 1 and Tier 2 MNC and offshore suppliers in over 50 countries. This information is updated through audits, interviews, briefings and research.
Unmatched Market & Supplier Knowledge
Global 2000 & Fast Growth Mid-MarketPrestigious Clients
$250M in 2002; Over $1billion in 2003. Expect $2 Billion in 2004.Engagement Value
© 2004 neoIT. 55
Addressing Client NeedsAddressing Client Needs
STRATEGY GOVERNANCESOURCING
Global 2000/ Governing BodiesPerformance Management
Financial Management Contract Management
Relationship ManagementResource Management
Risk Management and Custom Research
Global 2000/ Governing BodiesPerformance Management
Financial Management Contract Management
Relationship ManagementResource Management
Risk Management and Custom Research
Global 2000Global Portfolio Analysis
Offshoring/Outsourcing AuditGlobal Market Assessment
Application/Business Process AnalysisOffshoring Business Model Analysis
Offshoring-Corporate Strategy AlignmentOffshoring Financial Analysis
Risk AssessmentOffshore Roadmap
Business Case AnalysisTransition and Governance Strategy
New Opportunity AssessmentAcquisition Target SearchCorporate Due Diligences
Global 2000Global Portfolio Analysis
Offshoring/Outsourcing AuditGlobal Market Assessment
Application/Business Process AnalysisOffshoring Business Model Analysis
Offshoring-Corporate Strategy AlignmentOffshoring Financial Analysis
Risk AssessmentOffshore Roadmap
Business Case AnalysisTransition and Governance Strategy
New Opportunity AssessmentAcquisition Target SearchCorporate Due Diligences
Global 2000 – SourceGlobal Supplier Identification
RFP PreparationBid Evaluation
Supplier ShortlistingSupplier Due DiligenceContract NegotiationsTransition Planning
Term Sheet Sign-OffContract Sign-Off
Global 2000 – SourceGlobal Supplier Identification
RFP PreparationBid Evaluation
Supplier ShortlistingSupplier Due DiligenceContract NegotiationsTransition Planning
Term Sheet Sign-OffContract Sign-Off
Private Equity/VCAcquisition Target Search
IT and BPO Acquisition StrategyMarket Due Diligence
Company Due DiligenceCustom Research
Private Equity/VCAcquisition Target Search
IT and BPO Acquisition StrategyMarket Due Diligence
Company Due DiligenceCustom Research
Governing BodiesCountry/ State Strategies
IT/ITeS Policy AdviseOutsourcing Committees – SBPOA, SIGSecurity & Privacy Governance Advise
Custom Research
Governing BodiesCountry/ State Strategies
IT/ITeS Policy AdviseOutsourcing Committees – SBPOA, SIGSecurity & Privacy Governance Advise
Custom Research
Global 2000 – BuildCountry SelectionCity/Site SelectionCompany Set Up
Company Infrastructure Build OutCompany Resource Build Out
Global 2000 – BuildCountry SelectionCity/Site SelectionCompany Set Up
Company Infrastructure Build OutCompany Resource Build Out
STRATEGYSTRATEGY SOURCINGSOURCING GOVERNANCEGOVERNANCE
© 2004 neoIT. 66
A Global Consulting FirmA Global Consulting Firm
neoIT is a premier boutique global consultancy with a presence in key demand markets such as the US, Europe and Australia and key offshore markets such as India, China, Thailand and the Philippines. Through this expansive global delivery model, neoIT is able to effectively service its Global 2000 clients while maintaining an unequaled body of knowledge on client demand trends, global supplier capabilities and the critical success factors supply markets need to address to generate foreign direct investment and stimulate services exports.
United StatesneoIT Headquarters (6); San Ramon, CA Advisors based in California(3), Michigan(1), Connecticut(1) and New York(1) Partners/Consultants based in California(2) and Connecticut(1)
Office Location Advisor Location Partner/Consultant Location
IndianeoIT Asia Headquarters (35) – BangaloreAdvisors based in Delhi(1), Chennai(1)
United KingdomPartners/Consultants based in London(1)
AustraliaPartners/Consultants based in Sydney(2)
PhilippinesneoIT Regional Office(2) - Manila, The Philippines
ChinaPartners/Consultants based in Shanghai(1)
Czech RepublicPartners/Consultants based in Prague (1)
NetherlandsPartners/Consultants based in Amsterdam (1)
VietnamPartners/Consultants based in Ho Chi Minh City (1)
ThailandPartners/Consultants based in Bangkok(4)
© 2004 neoIT. 77
Ownership ModelsOwnership Models
© 2004 neoIT. 88
Understand Various Ownership ModelsUnderstand Various Ownership Models
-
• Dedicated staff, equipment, and facilities• Long-term multi-supplier contracts with
medium risk sharing• Shared processes
Third Party Sourcing
• Dedicated staff, equipment, and facilities• Long-term contract with some risk sharing• Shared processes
• Center shared by multiple clients• Multiple owners • May turn internal cost center into profitable
enterprise
• Wholly owned center• Established by one entity and then transferred
to another
• Wholly owned center• Proprietary processes and equipment• Established by the corporation
Description
• Carreker – Mastek• TRW – Satyam• Wipro - GE• Stream - Tracmail
Joint Venture or Spin-out (JV)
• Wipro – Nortel, Lucent, Transco, DoCoMo
• Cognizant – Amgen• Patni – Motorola, GE
Dedicated Center (DC)
• P&O (Zensar)• IDLX/Efunds (HCL)
Build-Operate-Transfer (BOT)
• GE, Lucent, Amex, Dell• Intel, SAP, Microsoft, i2• Thomson Financials• AOL
Do-It-Yourself (DIY)
ExamplesOwnership/Control
Ownership Models
© 2004 neoIT. 99
And Compare FinancialsAnd Compare Financials
Financial comparison amongst three models –Sourcing, Captive, BOT
Model Comparisons
© 2004 neoIT. 1010
Current BPO LandscapeCurrent BPO Landscape
© 2004 neoIT. 1111
Offshore BPO EcosystemOffshore BPO Ecosystem
Carreker, TRW, MasterCard
Inautica, Sitel, Aviva, P&O
Nedloyd
GE, Amex, Standard
Chartered, AXA
Pure Play Offshore BPO “Contact”
Pure Play Offshore BPO “Transaction”
Global Pure Play“Process”
Global IT services Vendors
Offshore IT Services Vendors
JointVenture
CaptiveCenter
BOT/BTO
ACS, Accenture, IBM, Convergys
Convergys, Hewitt
Infosys, Satyam, Patni, HCL, Wipro, iGate,
Mphasis
EXL,WNS
Spectramind, Daksh, ICICI One Source,
HTMT
BPO Ecosystem
© 2004 neoIT. 1212
Evolving Landscape of BPOEvolving Landscape of BPO
Analytics
LogisticsUnderwriting
Treasury OperationsSCM Operations
Credit & Risk
Full Process Outsourcing
Multiple Process
Outsourcing
Customer Contact
Rules-based ProcessingTransactional Data EntryData Entry
Valu
eVa
lue HR
Procurement
BPO Landscape
Strategic ImpactStrategic Impact
TRADITIONAL BPO TRANSFORMATIONAL BPO
© 2004 neoIT. 1313
Indian BPO market by ServiceIndian BPO market by Service
1614
520
31 11
1330
0
200
400
600
800
1000
1200
1400
1600
1800
Customer Care Back OfficeProcessing
Digital ContentDevelopment
Transcription Others0%
10%
20%
30%
40%
50%
60%
70%
2003 CAGRSource: IDC 2004
In $
milli
on
Indian Marketplace
© 2004 neoIT. 1414
Challenges Challenges
© 2004 neoIT. 1515
The Usual Offshore BPO ChallengesThe Usual Offshore BPO Challenges
Management of Suppliers &Operations, Program, Transition (process migration & training)& Risk – Data & Physical
DifficultyDefiningOpportunity& Objective
DifficultyDifferentiatingSuppliers (business domain expertise) &Locations
Legal andContractualIssues
Lack of Internal Readiness
Infrastructure– datacomm, facilities, public works
Offshore Challenges
© 2004 neoIT. 1616
Key Drivers & Challenges Per ModelKey Drivers & Challenges Per Model
OS8 Drivers Challenges Drivers Challenges Drivers Challenges
Captive BOTThird Party
COSTS
CONTROL
STRATEGY
• Large CAPEX• Availability of
funds• Build own vs.
lease space• Costly expats• Prolonged
breakeven
• Future scalability of operations
• Lower cost / seat with higher financial outlay
• In-house mgmt• Control of HR
practices• Retention of
core processes• Easy transition
with colleagues
• Decision-making issues between host and offshore
• Continued commitment to aggressive transition plans
• Flex to operate core BPO and Ops IT
• Can drive financial savings in the medium term
• Continued exec. sponsorship
• Incorporating ongoing IT projects and non-servicing processes into initiative
• Low investment• Opportunity to
negotiate rates• Opportunity to
move suppliers• Can demand
discounts
• Strict SLA mgmt ensures you pay for what you get
• Lower day-to-day mgmt focus required
• Can drive commoditized offshoring
• Quick wins by moving simple & non-core processes
• High termination charge
• Higher effective charge rates due to performance bonuses
• Cost of attrition
• Resource allocation may not be as promised (sharing key resources)
• Exerting control over HR policies
• Long-term savings not addressed
• Piece-meal transition impacts TCO
• Low investment
• Opportunity to negotiate rates
• Flexibility to reduce termination penalties
• Flex to transfer only people & processes
• Flex to drive establishment of policies
• Transition simple processes first, and complex ones post transfer
• Building brand post transfer
• Retention of key personnel
• Expensive transfer costs
• Letting go of key personnel who don’t wish to continue
• Continued exec. sponsorship
• Incorporating ongoing IT and non-servicing processes into initiative
Drivers & Challenges
© 2004 neoIT. 1717
Key Drivers & Challenges Per ModelKey Drivers & Challenges Per Model
OS8 Drivers Challenges Drivers Challenges Drivers Challenges
Captive BOTThird Party
RISK
QUALITY
CULTURE
• Protect domain expertise, IP, process improvements
• DR/BCP in-house
• Opportunity to scale up ops with initiatives
• Brand attracts & retains talent
• Direct control over quality and related people issues
• Smooth & faster transitions b/w colleagues
• Global work culture permeates
• Legal/ statutory compliance
• Mgmt of DR/BCP onsite impacts SLAs
• Fallout of aggressive transition plans
• HR policy customization
• Expatavailability
• Attracting & Retention of key personnel
• Little risk with non-core processes
• DR/BCP is a contractual obligation linked to pricing
• Quality of service linked to price ensures high accuracy
• Supplier obliged to provide process improvements
• No day-to-day management of cultural issues
• Limited ability to move high risk or complex processes
• IP sharing; data privacy
• Regulatory compliance
• Quality of resources
• Attrition• Preferred client
status not always guaranteed
• Culture may not match with Client Company
• Industry benchmarking inflexibilities
• Ability to reengineer IT apps reduced
• Flex to drive establishment of OOMC culture from the beginning
• Drive IP and data privacy standards from inception
• Drive recruitment from inception
• Implement corporate quality initiatives
• Transition effectiveness
• DR/BCP impacted if supplier doesn’tprovide separate site
• Initial challenges in rationalizing a mixed culture to corporate culture may affect retention
Drivers & Challenges
© 2004 neoIT. 1818
Ownership Models – Key ChallengesOwnership Models – Key Challenges
Captive BOTThird Party
RisksRisks
Corporate Strategy
Corporate Strategy
QualityQuality
ControlControl
CultureCulture
Cost Savings
Cost Savings
• 90% of captives more expensive than other models – Prolonged BREAKEVEN
• High Effective Charge Rates & Termination Costs
• High Brand Building Costs & Retention of Key Personnel
• Carrying Out Aggressive Transition
• Supplier Incapability to Provide DR/BCP facility
• IP Protection & Data Privacy
• Continued Executive Sponsorship
• Continued Executive Sponsorship
• Piecemeal Transitioning Impacts TCO
• Decision Making Between Onshore/Offshore
• No Control Over HR Policies
• Retention of Key Supplier Personnel
• Industry Benchmarking Inflexibility • Industry Benchmarking
Inflexibility• Preferred Client Status
Not Guaranteed
• HR Policy Optimization • Cultural Mismatches• Supplier-Client Culture
Rationalization
Key Challenges
© 2004 neoIT. 1919
Understanding ModelsUnderstanding Models
© 2004 neoIT. 2020
Assess Objectives and ComplexitiesAssess Objectives and Complexities
Operational Efficiency Transformation
Low
Hig
h
PROCESSRedesign,
integrate, or extend
TECHNOLOGYImprove or
offload existing process
PEOPLELowest
cost
INNOVATIONNew way of doing business
Source: IDC, neoIT
Objectives
Proc
ess
Com
plex
ity
Complexities
© 2004 neoIT. 2121
Understand Factors Influencing Each ModelUnderstand Factors Influencing Each Model
" Quick startup with simple, non core processes and can later add complex, judgment based processes post transfer
" Can transition primarily non-core, non-judgement based or simple processes; limiting impact of offshoring
" Can approach with services commoditization perspective
" Can transition both core and non-core processes maximizing the returns of Offshoring
" Can be later converted as a profit center by being a provider
" Suppliers must have a good corporate governance structure and must have demonstrated corporate social responsibility which is in par with onshore location
" Suppliers must have a good corporate governance structure and must have demonstrated corporate social responsibility which is in par with onshore location
" Need to consider factors like social and democratic governance structures in place for choice of location
" Higher risk to Privacy and Security - need to be constantly monitored and protected through contract
" Financial Risks – Breakeven prolonged by moving too slow as sense of urgency is low
" Low upfront investment" High cost savings can be
achieved through out the engagement period
" Modest initial capital investment required
" High cost savings initially, but need to invest during reorganization
" Initial capital investment is high
" Moderate cost savings achieved
" Risks like Privacy and Security can be mitigated
" Financial Risks – Breakeven period may be prolonged during reorganization
" Security and Privacy find adequate attention
" Financial risks – Prolonged Breakeven due to inability to transition quickly may lead to instability
CaptiveCriteria
Cost SavingsCost Savings
Third Party BOT
RisksRisks
Social Responsibility
Social Responsibility
Corporate Strategy
Corporate Strategy
Influencers
© 2004 neoIT. 2222
Understand Factors Influencing Each ModelUnderstand Factors Influencing Each Model
CaptiveCriteria Third Party BOT
" Need to put in high efforts for cultural reorganization during transfer
" Cultural mismatch will exist at some level, may be a problem depending upon the processes offshored
" Communication and relationship management is an ongoing challenge
" Strong cultural affinity to the parent organization
" Strong communication between the teams (onsite & offshore) if Client’s personnel are used effectively
" Efforts need to be put in rebranding after the transfer
" Provides reduced time to market after the transfer
" No brand created in the employer market
" Services availed are commoditized
" Potential to create a strong brand in employer market
" Reduces time to market
" Control and flexibility highly dependent on supplier chosen and contract negotiated
" Knowledge remains with the supplier
" Third party may provide best practices and support that exceed client’s current practices with certifications like COPC, Six Sigma
" Opportunity to learn from the supplier and adopt its best practices
" Flexibility to bring in best practices into the captive center
" Complete control after transfer but risks in terms organizational control remain
" Knowledge and learning get transferred to the Client
" Complete control over the operations and flexibility in approach
" Advantage of retaining knowledge in the long run and protecting IP
QualityQuality
ControlControl
CompetitionCompetition
CultureCulture
Influencers
© 2004 neoIT. 2323
Overcoming ChallengesOvercoming Challenges
© 2004 neoIT. 2424
Overcoming Ownership ChallengesOvercoming Ownership Challenges
" Determine what is the long-term corporate goal and vision" Develop a comprehensive offshore strategy Roadmap, backed up
by Short Term Goals" Determine financial flexibility not from a perspective of current
funds availability alone, but also from a future perspective of what your business will demand in future
" Assess business models from a perspective of a combination of factors, rather than just costs and capital outlay
" Ensure CXO sponsorship remains throughout
Overcoming Challenges
© 2004 neoIT. 2525
Key TakeawaysKey Takeaways
neoIT assists clients in determining the BEST-FIT business model/s on basis of a comprehensive Portfolio Assessment, Strategy Development and Financial Modeling
11
neoIT utilizes proprietary methodology and frameworks to help clients evaluate and implement their Offshore Strategy, across multi-shore locations
12
neoIT assists clients and governing bodies throughout the implementation lifecycle, from strategy to actual realization of desired goals
13
neoIT’s market, and supplier knowledge, operational expertise and experience are unmatched in the industry
14
neoIT is a pioneer in the global sourcing advisory space, with a singular focus on helping clients and governing bodies effectively leverage offshore opportunities15
© 2004 neoIT. 2626
Contact InformationContact Information
Avinash VashisthaManaging Partner
+91 80 23610371
neoIT Global Headquarters2603 Camino Ramon, 2nd Floor
San Ramon, CA 94583 USA
neoIT Asia Headquarters210, Bellary Road
Upper Palace OrchardsBangalore - 560 080 India
neoIT Philippines8/F Pacific Star Building
Senator Gil Puyat Ave. cor Makati Ave.Makati City, Metro Manila, 1200, Philippines
Contact