Build-Operate-Transfer (BOT): Benefits and How does It Work?
It is not surprising that in most Western and high-income regions, the salaries of software developers are astronomical. There is a vast shortage of skilled development professionals worldwide. All companies are increasingly rushing to any offshore or nearshore software outsourcing centre they can locate.
According to Statista, the worldwide IT outsourcing business was valued at $375 billion in 2017 and has been steadily increasing since then. The 2019 Computer Economics survey also indicated that in 2019, 56% of organizations chose to outsource their IT solution to cut expenses and improve internal capabilities.
While outsourcing software development is not a new trend, many businesses don’t fully grasp the benefits that IT outsourcing could bring. They believe their options are limited to more well-known engagement models, such as dedicated delivery or staff augmentation. Even though these engagement models remain ideal for many businesses, some companies may have difficulty implementing them in accordance with the strict security policies, intellectual property protection, and the reliability of company products.
This raises the question: what can these businesses gain from IT outsourcing while keeping the operations in control?
In some cases, especially those companies with large and long-term software development projects, it is best to adopt the Build-Operate-Transfer (BOT) model – an IT outsourcing engagement model. This model lets you set up a nearshore or an offshore team software development (subsidiary) within your business to assist the local IT outsourcing company.
In this article, let’s delve right into the definition of the Build-Operate-Transfer engagement model’s concept, understand how this works, why it is important, and what problem it can solve!
What is the Build-Operate-Transfer (BOT) Model?
The Build-Operate-Transfer (BOT) model is a hybrid approach to outsourcing, where a third-party service provider is engaged to build and operate a specific IT function or facility for a set period, after which the operation is transferred back to the client. The BOT model is typically divided into three distinct phases:
- Build Phase: In this phase, the service provider is responsible for setting up the necessary infrastructure, technology, and human resources to establish the IT function or facility. This may include hiring staff, setting up physical or virtual offices, implementing technology solutions, and creating processes and workflows. The service provider ensures that everything is in place to meet the client’s requirements and objectives.
- Operate Phase: Once the infrastructure and teams are in place, the service provider takes over the day-to-day operations of the IT function or facility. During this phase, the service provider manages all aspects of the operation, including staffing, technology maintenance, process optimization, and performance monitoring. The goal is to ensure smooth, efficient, and cost-effective operations while adhering to the agreed-upon service levels and performance metrics.
- Transfer Phase: After a predefined period, or once certain milestones have been achieved, the service provider transfers the fully operational IT function or facility to the client. The transfer phase involves a structured handover process, including knowledge transfer, documentation, and training to ensure that the client’s team can effectively manage and operate the IT function independently.
Key Characteristics of the BOT Model
The BOT model is characterized by several key features that distinguish it from other outsourcing approaches:
- Phased Approach: The BOT model’s phased structure allows for a gradual transition of control from the service provider to the client. This minimizes risk and ensures a smooth handover.
- Risk Mitigation: By involving an experienced service provider in the build and operate phases, the client can mitigate the risks associated with setting up new IT functions or facilities, such as project delays, cost overruns, and operational inefficiencies.
- Strategic Control: Unlike traditional outsourcing models where the client may have limited control over the outsourced function, the BOT model is designed to eventually bring the operation in-house. This gives the client strategic control over critical IT functions.
- Flexibility: The BOT model offers flexibility in terms of contract duration, scope, and transfer conditions. Clients can tailor the model to their specific needs and adjust the timeline based on the project’s progress.
Benefits of the BOT Model
The BOT engagement model is designed to build a fully functional development center that will be legally transferred to your organization after a certain period. This means you have the legal right to use the knowledge base, intellectual property, infrastructure, and all other assets. Additionally, you will have a well-coordinated group of professionals who have already demonstrated their ability to support your project and business. This can save you the time and effort of finding, training, hiring, and onboarding an entire team yourself.
This is what differentiates the BOT model from the Dedicated Team Engagement Model. After the project is completed, you may not retain the software development team you hired from an external provider. However, if retaining the team was your initial goal, then a dedicated team engagement model is what you need. Most IT outsourcing companies that offer dedicated teams are unable or unwilling to assist you in registering foreign subsidiaries due to a lack of knowledge or reluctance to relinquish their expertise.
The Build-Operate-Transfer engagement model allows your team to become closely aligned with your business, fostering a strong relationship. This is beneficial for reducing turnover, increasing productivity, and improving the quality of work. You will be able to train these individuals and help them understand how to advance within your company.
In general, there are six clear benefits to the BOT engagement model:
1. Cost and Risk Reduction
This is likely the most important factor in selecting this operating model. Building your own subsidiary can be time-consuming and costly, especially for early-stage businesses that require additional assistance when establishing their structure from the ground up. BOT enables you to delegate the establishment of necessary procedures and teams to a trusted technology partner. They know how to accomplish this in the most efficient and cost-effective manner because they have been in the market for a while. Simply put, utilizing a BOT model is less expensive and more secure in terms of business risk than traditional outsourcing.
2. Alignment with Your Company’s Culture
As mentioned, one of your main concerns may be that you could lose your work style and company culture if you outsource part of your operations to a business partner. This is not the case with BOT because the model requires you to share your best practices, procedures, and communication strategies with the outsourced team from the beginning. This simplifies the transfer process since you won’t have to spend much time educating employees on how your company functions and how information is shared among employees.
3. Full Control Over Operational Structure and Processes
With the outsourced team, you can share your existing project management processes, Agile methodology, and practices. You simply need to agree on the desired operational structure and processes within your partner’s organization, so there won’t be any concerns about things being done differently once you enter the Transfer phase of the BOT model.
4. Increased Responsiveness to Business Changes
The COVID-19 pandemic and the associated crisis have underscored the importance of being flexible and responding quickly to external changes. The Build-Operate-Transfer model provides you with the flexibility to either transfer the team and resources more quickly than the agreed period or extend the outsourcing cooperation if needed.
5. Local Knowledge
This is a crucial aspect when planning to expand your business abroad. Laws, culture, language, and government agencies and corporations vary from one country to another. This is why using local experts as IT partners is one of the most effective ways to establish your business in a different country. Before taking on full responsibility for your overseas subsidiary, you’ll have the opportunity to gather all the necessary information gradually and safely.
6. Team Integration with Your Company After an Agreed Period
Once the development and operational phases are complete, the team that has been trained and provided with insights into your company’s culture and intellectual property can be seamlessly integrated with your internal teams at a fraction of the cost. This allows you to expand your existing teams without the need to acquire new team members from scratch.
Challenges of the BOT Model in IT Outsourcing
While the BOT model offers numerous benefits, it is not without its challenges. Businesses considering this approach should be aware of the potential obstacles and take steps to address them:
1. Complexity of Implementation
The BOT model is more complex than traditional outsourcing models, requiring careful planning and coordination between the client and service provider. The build phase, in particular, involves setting up new infrastructure, hiring staff, and establishing processes, all of which require significant effort and expertise. Additionally, the transfer phase can be challenging, as it involves a comprehensive knowledge transfer and training process to ensure a smooth handover.
2. Cultural and Organizational Differences
When outsourcing to a service provider, particularly in a different geographic region, cultural and organizational differences can pose challenges. These differences may affect communication, management styles, and work practices. To mitigate this risk, businesses should invest in cultural training and establish clear communication channels and protocols to ensure alignment between the client and service provider.
3. Vendor Dependency
During the build and operate phases, the client is heavily dependent on the service provider for the success of the IT function. This dependency can be a risk if the service provider fails to meet expectations or if there are issues with service delivery. To mitigate this risk, businesses should conduct thorough due diligence when selecting a service provider and establish clear performance metrics and service level agreements (SLAs) to hold the provider accountable.
4. Transfer Challenges
The transfer phase is a critical part of the BOT model, and it can be challenging to ensure a smooth and successful handover. The client’s team must be adequately trained and prepared to take over the operation, and the service provider must provide comprehensive documentation and support during the transition. Any gaps in knowledge transfer or preparation can lead to operational disruptions and inefficiencies.
5. Long-Term Commitment
The BOT model typically involves a long-term commitment, with the build and operate phases spanning several years. This commitment can be a challenge for businesses that operate in rapidly changing industries or that may need to pivot their strategy. Before committing to a BOT model, businesses should carefully assess their long-term goals and ensure that the model aligns with their strategic objectives.
Best Practices for Implementing the BOT Model
To maximize the benefits of the BOT model and overcome potential challenges, businesses should follow best practices during the implementation process:
1. Conduct Thorough Due Diligence
Selecting the right service provider is critical to the success of the BOT model. Businesses should conduct thorough due diligence to evaluate potential providers, assessing their expertise, track record, financial stability, and cultural fit. It’s also important to verify the provider’s experience in managing similar BOT projects and their ability to deliver on the client’s specific requirements.
2. Define Clear Objectives and Expectations
From the outset, businesses should define clear objectives and expectations for the BOT project. This includes outlining the scope of the IT function, desired outcomes, key performance indicators (KPIs), and timelines for each phase. Clear communication of these expectations to the service provider ensures alignment and sets the foundation for a successful partnership.
3. Establish Robust Governance and Communication Structures
Effective governance and communication are essential for managing the complexities of the BOT model. Businesses should establish a governance framework that includes regular meetings, progress reviews, and performance assessments. Clear communication channels should be set up to facilitate collaboration and address any issues that arise during the build and operate phases.
4. Plan for a Smooth Transition
The transfer phase is critical to the success of the BOT model, and businesses should invest in a comprehensive transition plan. This plan should include detailed documentation, training programs, and knowledge transfer sessions to ensure that the client’s team is fully prepared to take over the operation. The service provider should provide ongoing support during the transition to address any challenges and ensure a smooth handover.
5. Monitor and Optimize Performance
Throughout the build and operate phases, businesses should continuously monitor performance against the defined KPIs and SLAs. Regular performance reviews and audits can help identify areas for improvement and ensure that the service provider is meeting expectations. Any issues should be addressed promptly to prevent them from affecting the overall success of the project.
Conclusion
The Build-Operate-Transfer (BOT) model is a powerful and flexible approach to IT outsourcing that combines the benefits of external expertise with the strategic control of in-house operations. By leveraging the BOT model, businesses can reduce costs, access specialized skills, and accelerate time-to-market while ultimately gaining ownership of critical IT functions. However, the complexity of implementation, potential challenges in the transfer phase, and the need for long-term commitment require careful planning and execution.
By following best practices, such as conducting thorough due diligence, defining clear objectives, establishing robust governance, planning for a smooth transition, and monitoring performance, businesses can successfully implement the BOT model and achieve their strategic goals. As the IT landscape continues to evolve, the BOT model offers a compelling solution for companies looking to innovate and stay competitive in an increasingly complex and dynamic market.
Contact Bestarion Today
Looking for efficient and flexible software development solutions? Reach out to us now! Bestarion is one of the most reputable outsourcing software development companys in Vietnam with more than 20 years of experience offering outsourcing software in Vietnam. We offer a range of engagement models to meet your needs, including: staff augmentation, dedicated teams, IT outsourcing projects, and the Build-Operate-Transfer (BOT) model.
We are committed to providing tailored solutions that help you optimize costs, enhance efficiency, and achieve your business goals. Don’t hesitate—contact us today to discuss how we can support you and take your business to the next level.