Outsourcing, Captives, and BOTs, Oh My!

The Challenge:

Skills are critical, capacity is needed, costs are important, but what’s right for your business? There are different models out there that can provide strategic or tactical resources to your company. Depending on your objectives, one model can provide a much better value to your business than others.

So, where should you begin? The first place is get clear on your objectives and desired results. Are you trying to fill skill shortages, improve your capacity, improve your cost base, or all three? Are the resources you seeking part of the core competency you bring to the market? By thinking of these questions as you review the options, the answer will become clear.

Captive or Hybrid:

If the need is strategic and impacts your core competency, it is important that you maintain control over the resources. Partnering with another company may be viable, but you should not partner with another company if it has the same core competency as you. The reason, you invite a possible competitor into your business and customer base.

So what is the alternative? A captive or hybrid captive operations allows you to select and manage a team that will add to your core competency and maintain control. In many if not all respects, the staff are your employees, managed by you.

Hybrid captive models take away many of the traditional risks of going to another country A hybrid model provides the recruiting of talent and other human resource management services, while at a lower cost than an outsourcer or BOT arrangement.

Hybrid captive services include locating or providing facilities and managing them. Often, there is no lease commitment, reducing the risk of being tied to a long term rental agreement. The model typically provide an option to go to a full captive arrangement, setting up your own legal entity, your own lease or purchase of facilities, and the transfer of all employees as part of the process for a fee.

Outsourcing:

If the need is not strategic or it is not part of the core competency of your business, outsourcing may provide a very good alternative. A good example where this has worked for many companies is marketing. Marketing is important to your business, but for many companies, it may not be a core competency or skill within your company. Finding a strong partner could have a very positive impact to your business while not putting your core business, competency or customer base as risk.

Typically, an outsourcer has staff on hand or bench. This provides both a benefit and a cost to you since you pay them to have and maintain extra resources. The model typically does not allow you to have control over which personnel will be assigned to you or how long they will stay working with you.

Like a hybrid captive model, outsourcing does provide the advantages of not having to deal with the human resource risks such as employment laws, benefits, hiring, and firing of employees. It also does not require the need to directly lease or own facilities as all these costs are part of the outsourcer’s fees.

BOT:

If the need is more strategic and the desire is to postpone the management of a team, in theory a BOT may provide a good solution. A BOT is a build, operate, and transfer operation. In many respects, a BOT is an outsourcing relationship, with the intent to transfer the operation as some future time. The idea is to provide you with a choice of the team you will have working with you. It is worth noting that in a very high percentage of the time, the transfer never takes place.

In the case of BOT’s, there are typically more risks that are part of the model. Depending on the approach, you may be required to sign up for facility leases, facilities management and other services.

Keys:

So what is the right choice? It comes back to your needs and objectives. If it is non-strategic or tactical, outsourcing may be a good option. If it is strategic and part of your core competency, a hybrid or captive is the best choice. If it is something in between, a BOT may provide a good alternative.

In all cases, it is important to understand that it will take time and commitment from your team. Using global resources can fill skill shortages, provide capacity, and even lower costs, but it does not come without effort.