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

avinash@neoIT.com

+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