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BUSINESS MODELS DRIVING ITES
PREPARED BY:AMITANSHU SRIVASTAVA
ALOK KUMAR
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
The Market Structure for IT-Enabled Services• The market structure for IT-enabled services
outsourcing is characterized by four dominant models:
Outsourcing to foreign provider with no national
presence
Outsourcing to foreign provider via national office
Outsourcing to foreign provider via an independent
broker
Outsourcing to the wholly-owned foreign subsidiary of
a national company
The list of services sourced globally is expanding rapidly…
Information Technology (IT) Business Process Outsourcing (BPO)
Human ResourcesHuman ResourcesApplication DevelopmentApplication Development
Finance and AccountingFinance and Accounting
Back Office AdministrationBack Office Administration
Payment ProcessingPayment Processing
CRMCRM
Tech SupportTech Support
Application Support & Maintenance
Application Support & Maintenance
Infrastructure ServicesInfrastructure Services
Engineering/ Design ServicesEngineering/ Design Services
Knowledge Process OutsourcingKnowledge Process Outsourcing
System Integration & Consulting
System Integration & Consulting
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
BUSSINESS MODELES
Pure Captive Model• An internal cost center or a 100%
subsidiary company set-up to execute offshore business processes and/or IT services
• Amex, Dell, Standard Chartered, HSBC, Ford, Sun
Captive Models
Joint Venture (JV)• Joint Venture with equity participation
from customer and vendor. Customer retains control due to investments in entity.
• British Telecom - Mahindra
Strategic Alliance/Joint Venture Models
BOT and Inverted BOT • Where the Indian Provider sets up
facility and provides implementation support to start with
• Customer can buy out at a predetermined stage
• Reverse scenario has also been seen in the market
• Aviva-WNS/EXL,24/7, AIG- Polaris
Pure Outsource• Use of a India-based provider to
offshore business processes or IT services
Outsource Model
Managed Outsource• Full-/part-time resources on the
ground in India to facilitate transition, relationship mgmt and transfer of organization and domain knowledge to third party providers
Business Models
Captive Partnership Model• Strategic alliance with Indian
provider for implementation support services such as infrastructure set-up recruitment and training
• EDS-TCS, BA-NIIT
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
CAPTIVE MODEL
The firm wants to exercise control over operation.
The organization believes it can accomplish a lower-
cost model on its own than by sourcing to a third-party.
It has security and IP concerns.
It cannot find an existing third-party service provider to
fulfill its service requirements.
An offshore captive center offers complete control over offshore operations and may boost savings. But it's not right for every company …….
ADVANTAGES OF CAPTIVE MODEL
They attract top local talent for industry-specific
skills.
They present an ability to transfer more complex and
IP-related tasks than under a third-party model.
Direct control over the operation lets one develop the
culture as he see fit.
Reducing time to market: New product launch.
But captive centers bring their own challenges as well . . . .
Organizational challenges: Offshore captives challenge the staffing, style, and formal and informal information systems of the client organization.
Process challenges: The client organization must pay special attention to optimizing infrastructure and technology at the captive center.
Financial challenges: Firms need to manage cross-border cash flows and ensure that cost advantages are real and being preserved over time.
Cultural challenges: Cultural differences between a client organization and its offshore captive center can create challenges just as cultural differences between the client organization and a third-party provider can.
Captive model (example)
• EXULT:
A part of part of Hewitt Associates.
Built a captive in Mumbai, in 2002.
It calculated compensation ranges, took taxes into
account, and signed regulatory, customs, and legal
documents
Press releases were sent out and ads were placed to
hire people.
Intensive training was given to new hires.
A 320-person captive BPO center in Mumbai that
yielded savings of more than 40 percent over onshore
facilities by its second year of operation.
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
Joint Ventures Q: Why Joint Ventures? Ans: As there are good business and accounting reasons to
create a joint venture (JV) with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance, joint ventures are becoming an increasingly common way for companies to form strategic alliances.
In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control……
business benefits
Combining complementary R&D or technologies.
Efficient commercialization of a technology or business
concept.
Developing or acquiring marketing or distribution
expertise.
Sharing of scientists or professionals with unique skills.
Financial support, or sharing of economic risk.
Acceleration of revenue growth.
Ability to increase profit margins.
New product development.
DISADVANTAGES of joint ventures
As with all types of farm business arrangements, there is the
potential for disagreements - good communication techniques
must be practiced.
A joint venture could potentially be interpreted as a
partnership with the associated negative income tax and
liability implications.
Each party does not have the freedom of independence in
action and decision making as in a sole proprietorship.
JV with nonprofessional partners will harm the reputation.
Joint venture (example)
• Tech Mahindra – British Telecom deal:
Tech-Mahindra was earlier called Mahindra-British
Telecom (MBT), and it was a joint venture between
British Telecom and Mahindra & Mahindra. MBT was
renamed Tech-Mahindra before it went public in 2006.
British Telecom has a 36% stake in Tech Mahindra.
Mahindra group holds 51% in the company, while the
remaining is with public.
Tech Mahindra has signed a five-year outsourcing deal
with British Telecom (BT) that is expected to generate
revenues of over $1 billion.
Joint venture (example)
• Tech Mahindra – British Telecom deal:
Expected to generate revenues of over $1 billion.
This is the largest contract bagged by any software
services firm in India.
TM will support BT’s planned growth of managed
services to business customers around the globe.
It also provide services related to BT’s internal
systems, processes and reusable platforms.
BT is already the largest customer for Tech Mahindra
and contributes over 69% of its total revenues.
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
Build-Operate-Transfer (BOT): Definition
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 a period of 3-5 years) and hand over the
operations to the client after the said 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 an opportunity and liberty toCustomers (offshore) to get offshore Center (OC) buildand operated as per their specific needs …..
Build-Operate-Transfer (BOT): Definition
BOT:
BUILD Set-up the facility and infrastructure, staff the
development center, and establish knowledge transfer
OPERATE Manage the offshore organization: Program Management,
Development, QA, maintenance, enhancements, and product support
TRANSFER Register a new offshore subsidiary for the customer,
transfer assets, and handover operations
Benefits
Opportunity to capture market share rapidly or address a
crying need in a short period of time
Advantage of not getting distracted while setting up a new
venture
Being able to continue to focus on the organization’s core
competency
Opportunity of accessing best in class skill-sets
Conservation of capital expenditure
Cost effective outsourcing during the initial period of build
out and operating
Reduced operating risk and knowledge retention when
related to sensitive processes
Ability to launch a complete end-to-end solution in short
duration.
Disadvantages of BOT
• BOT is not a easy method and requires high capability of promoters.
• Not suitable for smaller projects.
• The success of BOT project depends upon successful raising of necessary finance.
• Transaction costs are high, they amount to 5-10% of total project cost
• BOT projects are successful only when substantial revenues are generated during the operation phase.
BOT (example)• POLARIS & AIG :
American International Group Offshore Systems
Services, Inc (AIG) had formed a joint venture with the
Chennai-based Polaris Software Lab Ltd.
Polaris developed a self-sustaining software
development centre in India for AIG.
Under the agreement, the existing infrastructure —
comprising a dedicated centre in Chennai with around
100 engineers —spun off into a separate company where
American International Group Offshore Systems
Services (a part of the AIG group) is a dominant
shareholder.
• POLARIS & AIG :
In terms of the business plan, the JV ramped up the
scale of operations from 100 employees to 1,000
employees in around three years.
The JV company would look at offering services for
other insurance companies as well.
TCS, one of AIG’s vendors, has a dedicated software
development centre for AIG in Chennai.
The joint venture offers a variety of IT services,
primarily looking at the development and maintenance
of application software.
BOT (example)
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
Outsourcing Outsourcing involves the transfer of the management and/or
day-to-day execution of an entire business function to an
external service provider.
The client organization and the supplier enter into a
contractual agreement that defines the transferred services.
Under the agreement the supplier acquires the means of
production in the form of a transfer of people, assets and other
resources from the client.Contracting and delegation of non-core activities to specialized third parties. Such as back-office processes (Accounting, HR, etc.) and front-office services like call centers, customer support, or help desk….
Reasons for outsourcing
Cost savings
Cost restructuring.
Improve quality
Knowledge
Contract
Operational expertise
Staffing issues
Reduce time to market
Risk management
Time zone
Customer Pressure
Focus and core
competency
Capacity management
Catalyst for change
Criticisms of outsourcing
• Lose of control
• Quality problems
• Slow response time
• Can't understand foreign accents
• Slow resolution times
• Can't produce desired results
• Reduced sales
• Irritated customers
• Irritated employees, unions, people within community
Outsourcing (example)
• Wipro – Aircel ltd.
Wipro Ltd has entered into a 9 year, $600-million
(Rs2,358 crore) outsourcing contract to manage
Aircel Ltd’s IT infrastructure in 10 January 2008.
Wipro has taken on its rolls 100 employees of
Aircel
The company expects to have a team of about 400
people working on the Aircel project over the next
12-24 months.
Wipro will help Aircel deploy applications such as
retail billing and revenue assurance and integrate
and manage them.
Outsourcing (example)
• Wipro – Aircel ltd.
The new architecture will enable Aircel to launch
the next generation of services such as 3G, WiMax
and mobile TV.
Discussion Outline
THE MARKET STRUCTURE FOR IT-ENABLED
SERVICES
BUSSINESS MODELES
OUTSOURCINGCAPTIVE MODEL
JOINT VENTURES
BOT
THANK YOU !!!
