Build, operate … and er… sell?

Aviva_jpg A small handful of enterprises have pursued a strategy of "Build-Operate-Transfer" (BOT), whereby they engage a service provider to develop a captive service center (normally offshore) for them.  The service provider will utilize its experience and resources to hire the personnel, source and acquire the infrastructure, develop the center, manage the knowledge-transfer activities and get it up and running – a process which will take 2-3 years to become fully operational and running in a stable state.  The advantage of this model is that the enterprise has the future option-value to decide whether to retain the service center as its own "captive" operation, or sell off to an outsourcing provider to manage the services for them in a fully-outsourced arrangement.  The disadvantage of this is the cost of doing so… outsourcing vendors won’t want to build service centers for other firms if they can’t leverage those facilities to service other customers – the model isn’t very scalable and doesn’t help them develop their delivery resources to expand their outsourcing business.  Hence, they will only enter into these arrangements if there is a tidy pile of profit on offer for doing so.  The enterprise needs to decide whether it is worth the investment, or, alternatively, explore the trade-off of moving down the less-expensive direct outsourcing route.

However, one high-profile foray into BOT – that of Aviva, the UK-based Insurance giant, appears to be turning into a highly lucrative venture for the firm, according to a recent article in The Economic Times.  With the insurance sector poised to become a hot-bed of BPO adoption, Aviva finds itself in the lucrative position of having several top tier BPO providers vying for its service center, and thus acquire a quick-fire delivery capability to sell insurance BPO services to other customers.  Aviva, could – of course – seek to commercialize its own captive to become a BPO provider in its own right (like Genpact did when GE spun out the business, and WNS from British Airways), or alternatively, the insurance firm could choose to focus on delivering insurance as its core business, and sell of its offshore operations at a tidy profit to an outsourcing provider, as the article suggests.  Not a bad piece of business for Aviva, for being a pioneer in developing offshore delivery expertise before most of its competitors. 

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2 Comments

  1. A Kumar
    Posted December 11, 2007 at 10:26 pm | Permalink

    Phil,

    Problem many of the current companies will have soon is that outsourcing vendors will slow down their shopping for new captives when they have the resources to go after new clients. The early adopters like Aviva are the ones who will make a profit from their captives – not the later adopters.

    AK.

  2. Posted December 19, 2007 at 12:45 pm | Permalink

    Phil, I think this is spot on. It is basically the Xchanging model in a less formal way and I see that many of the more mature corporates could follow Aviva’s lead.

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