Build Operate Transfer IT Outsourcing | Advantages and Challenges

Last Updated
March 14, 2024
Build Operate Transfer IT Outsourcing | Advantages and Challenges

Build Operate Transfer or BOT is a very common business model used in various sectors. IT is one of them. To make matters clear for you, it is a model in which a company hires a third-party to create a new or allied product. At the end of the project, the entire creation with its people and licenses, is transferred to the parent company. This is one of the best models today in software development. 

It allows a company to quickly create a team, without interfering in its core operations and that too in any country. The IT outsourcing industry which can be divided into administration outsourcing, application outsourcing, web hosting, and other IT outsourcing projects accounted for a combined revenue of over $460 billion in 2023.

An external contracting company or third party handles the complete development of the product, and once it is finished, hands it over to the parent company. The required infrastructure along with some of the human resources involved are transferred as well. Software projects like websites are often handled in this manner. So, now that you have a fair idea of what it is, let us get down to the depths of the subject. 

Defining Build-Operate-Transfer Model (BOT)

In the context of the software outsourcing industry, the build-operate-transfer model is a contractual partnership between an organization and a third-party service provider. 

In a typical BOT contract, the third-party service provider is delegated the task of setting up a dedicated development team, from stage zero, and then running it and optimizing it. The outsourcing company runs the project for some time and then transfers the ownership rights of the project to the original company. The BOT model is often used in the case of large infrastructure projects that rely on long-term relationships and huge ongoing investments. 

It is similar to creating a new IT system, providing technical assistance, building offshore development centers, or new data centers. In such projects, the service provider gets payments in the building and operational stages. After completion of a project, and after a certain period of time as agreed upon elapses, the original company gets full ownership of the project and its related assets. 

Stages of The BOT Model In IT Outsourcing 

The project tenure for such projects depends on the nature of the project and the specifics involved. The three main phases are build, operate, and transfer. 

Build Stage 

Also called the development stage, here the BOT service provider does all the research and creates goals and deliverables checklists for the team. It also takes into consideration the technical requirements of the project, scope, timeline, corporate culture or organization culture, and other aspects. 

After fully analysing such aspects, the service provider creates a plan for the project at hand and executes it after confirmation from the original organization. Thereafter, the parties sign on the dotted line. The service provider will be responsible for the required infrastructure and resources to start and complete the project. This stage requires a large amount of investment from both parties concerned. 

Operate Stage 

This is the second phase of the BOT model. Here the service provider takes full control of the project, and is responsible for day-to-day management, as well. The service provider takes care of the maintenance, monitoring, and updation of various elements of the project, so as to run it efficiently. The main goal at this stage is to make the project fully functional and make it ready to be transferred. 

Transfer Stage 

At the end of the specified timeline, as agreed by both parties, the BOT service provider shifts the legal ownership rights of the project along with all the desired assets, back to the client. This is also described as the transition phase, which usually takes place in the last year of operation. In the period after handover, the service provider will continue to provide support to the original company, until the client or original company is competent enough to handle everything on their own. 

What Are The Benefits Of The Build-Operate-Transfer Model in The IT Industry?

The BOT model is extremely beneficial in the IT and software outsourcing industry. It is mainly applicable to projects, where the scope of work is huge and so are the commitment timelines. This approach can yield several benefits for the original organization and the service provider. 

Read about some of the benefits here. 

Cost-Cutting 

This is the first benefit of the BOT model in the IT outsourcing sector. The original company mainly delegates the task of IT operation setup and maintenance to a service provider, so as to avoid the hassles of development and regular maintenance, till the project starts yielding profits. Thus, the original company or client saves on recruitment. The service provider almost always has a steady team of personnel and resources, who can do the task. The client company can optimize their operational costs and divert those to more strategic areas. 

Total Control After Completion 

With BOT contracts in place, the client company will get the intellectual property rights after the completion of the project. The BOT service provider will take up the entire responsibility of setting up and managing the project for the client.

 The service provider is only in-charge of the project, on a temporary basis. At the end of the project, the client company gets the complete transfer of rights, along with infrastructure and a few personnel as well. This gives the organization peace of mind, and they can focus on more strategic matters related to the project. 

Minimizing Risks 

When BOT contracts are in place, the risk of losses is low. The client company has a lot of authority over the project, even when it is being nurtured and maintained by the service provider. The outsourcing partner in this case takes care of all the operational activities and addresses the challenges as well. Any sort of risk associated with software development is also taken care of. 

Receipt Of Maximum Value For Investment 

The BOT model helps the client company receive maximum value for their investment. The client also gets satisfactory results within a specified timeline, in a specified budget. The service provider is the one, who has to continuously work on the project, and monitor it for glitches. It is a great investment for the client company, as it gets complete value for money, after project completion. Additionally, it gets support for a certain period of time as well, after completion and delivery. 

Great Flexibility 

The BOT approach also delivers a lot of flexibility. The parties design a contract, to meet the specific needs of the client. The services are customized according to the goals of the client company. The organizations can take it easy, as they know that they will not get locked in a forced long-term agreement and that the transfer will happen after the agreed period of time. The organization can also ask for mid-term reports. It also removes the need for continuous re-negotiation, and adjustments, which impacts hiring costs. 

Access To A Wide Range Of Expertise 

The client organization gets access to a ready pool of talent, as the service providers have the resources ready, in terms of infrastructure, systems, and personnel. This gives them an edge over their competitors in the competitive IT sector. The client company would be required to spend a hefty sum for the recruitment and hiring of the resources. Subsequently, training costs could make the project cost higher. Outsourcing in general also saves a lot of money for organizations today. Outsourcing IT functions can save a company 40% or more on their IT needs.

Ease Of Handling Local Laws

Sometimes, it can be very cumbersome for clients to handle the local laws and norms. So, in the BOT model, the service provider is left to handle all such issues. This way, the client gets to avoid all the hassles of following and maintaining compliance. 

Agile Development Process Saves Time 

BOT contracts help organizations to reduce the turn-around-time, and they can make the application available in the market faster. The entire process helps in avoiding delays in the project, which would otherwise require constant re-evaluation and renegotiation. Clients can float their projects faster in the market and get monetary returns. 

Traditional Outsourcing vs BOT IT Outsourcing

Most business owners confuse BOT Outsourcing with traditional outsourcing. However, IT outsourcing is more than just hiring human resources and customer services. The various factors that come into the picture here are:

  • Ownership
  • Time Duration
  • Contracting Needs
  • Knowledge Transfer
  • Flexibility

Ownership

In the case of a traditional model, the outsourcing company maintains complete ownership of the assets and services all the time. Whereas, in the case of BOT IT Outsourcing, the outsourcing company has the complete ownership of the project, until it transfers the rights to the client. 

Time Duration

In the case of the traditional model, small and long-term projects are both considered. Whereas in the BOT IT model, long-term projects only utilize such services, that too for specific requirements. 

Contracting Needs

Signing of a contract is not required in the case of traditional outsourcing. But, it is mandatory to sign a contract in the BOT IT model. 

Knowledge Transfer

Traditional outsourcing revolves only around knowledge transfer. However, the BOT model IT outsourcing relies on knowledge transfer due to ownership. 

Flexibility

There is very limited leeway to change terms and conditions, after the signing of the project. But, in the case of BOT IT models, the client can request a change at any moment, even after signing the contract on specific terms. 

Challenges Of IT Outsourcing Using BOT With Solutions 

So, you already know that the BOT model in the IT industry has many advantages. However, it has many disadvantages as well. Let us understand more about them. 

  • Dedication In The Team - The BOT team belongs to the outsourcing company, which may not be as dedicated as made out to be, initially. Therefore, you may face conflicts in this part. The team often remains confused, as to the reporting structure and decision-making authority. You must ensure to take over the management process and allow the service provider to work on the development aspects. 
  • Candidate Rejections - In a few cases, the service provider will not promote your company while recruiting people for the project. So, there may be candidates rejecting your project, due to a lack of knowledge about you. This may create a delay in the development of the project. So, you need to be very active about your brand promotion from the beginning. 
  • Lack Of Operational Management Knowledge - Research and development is very crucial when it comes to IT infrastructure. However, most service providers have zero knowledge about operations. Thus, you need to choose a service provider with the expertise to run a project on a day-to-day basis, apart from IT infrastructure development knowledge. 
  • Cultural Differences - You may face differences with the company culture. This happens when you outsource to a different country. Time and work schedules may differ, as well. So, it is very important to have a proper briefing before you sign on the dotted line. Moreover, you may have a virtual meet with the project team at the outsourced place. This will make things better. 
  • Miscommunication - Two companies means two mindsets and values. So, there is bound to be misunderstanding. The same may lead to the project being kept on hold. This is more common, when the companies are located in different countries. Language can also act as a barrier. In such cases, you can follow the agile method, to streamline the tasks. 

Final Words

Now that you know about the BOT IT Outsourcing model, it is time to deploy it. You should just take into account the steps, benefits, and the challenges involved, after finding the right partner. Look for service providers with the requisite abilities and company culture to match your own. Weigh the pros and cons mutually, and start the work. It will lead to a win-win situation for all parties involved if you take into account all aspects of the task.