Aviva recently went captive after the final 'T' of the BOT (Build-Operate-Transfer) arrangement that it lived through with its offshore partners: WNS, EXL Service and 24/7 Customer was concluded. Almost 2,900 employees from EXL and WNS will soon move to Aviva Global Services (AGS); over 1,600 employees from 24/7 Customer have already moved to AGS. This is one of the earliest and the largest BOT arrangements in the Indian BPO industry.

What drives a BOT arrangement?

•   Client wants to set up a captive but is not confident doing it alone
•   Wants to leverage vendor's capabilities, but eventually own the center
•   Wants speedy offshoring returns with minimal risk and quick scale up
•   Does not want to invest huge amounts in premises, management, recruitment until they are sure that offshoring is really working and delivering as expected

BOT is often perceived as an amicable proposition towards a low-risk captive entry that can get a fair management buy-in within the organization. The buyers' objectives are obvious as stated above, but how truly beneficial is BOT for the vendor? What does a third party vendor gain when it has to let go of the client and the employees after the deal is transferred?

•   Hope to retain the client as the BOT deal progresses towards the transfer phase. EXL, another partner in the Aviva BOT deal was already an insurance vertical specialist. The expectation amongst vendors is that the "T" in the BOT will never happen.
•   Acquiring referenceable clients/ Domain knowledge is another motive for a company that is yet to consolidate its position. As in the case of WNS - Aviva a large UK insurer and BOT partner helped enhance WNS' new insurance practice and sent the right signals to prospective insurance clients.

Despite the perceived benefits, BOT deals have many problems and we believe that vendors often have more to lose than gain.

• The vendor loses valuable human resources that it has built up over a long period of time
• HR issues on exit can be significant - it is never easy to transfer employees across organizations, and many (senior) employees are often unhappy moving from a vendor situation to a captive
• Though it appears easy, far greater management time than expected is required from both parties
• Uncertainty over "transfer" option is an unnecessary additional risk

Considering this, we believe that vendors rarely quote sufficiently high for a BOT deal, and the eventual loss of business revenue as well as loss of people actually turns out to be a very expensive proposition for the vendor.

While the Aviva deal may indicate the BOT deals are the way forward, our research indicates that this is not always the case - as the many failures are rarely publicised. Apart from the fact that the vendor might lose heavily, the structuring of such deals is very complex, as valuing the exit of people at a future date is very difficult. For the client as well, though initial costs are lower, they lose out on the learning that they could have got if they had built it themselves.

As buyers keep exploring new models of offshoring, we are likely to see more of BOT, and various modified forms of BOT. Some will be successful, while others will fail. However, this experimentation is required by the industry in order to evolve more robust guidelines and contractual norms for BOTs.