Commercial alliances create new markets and new value for alliance members where each party has certain skill sets or assets that, when combined with the other party’s, adds value or produces some result.
Business Process Outsourcing (“BPO”) as a business model puts the service provider in the enviable position of creating a distribution channel for the software that it uses to deliver IT-enabled managed services. At the same time, the service provider might have expertise in the implementation of complex software systems, such as SAP, Oracle or Microsoft enterprise resource planning (“ERP”) software. In each case, the service provider and the software developer are locked in symbiotic interdependency, and the enterprise customer wants to have a smooth, “integrated” operation without incidents or adversary relationships between the service provider and the ERP software provider.
Alliance Structures
Alliances can take many forms. The form may change as the relationships of the parties to the prospective customer evolves from one of submitting a response to an RFP to contract negotiation, transition and service delivery.
Marketing for Contractor and Subcontractor
Where a request for proposals involves multiple services that one service provider cannot provide alone, it may team up with one or more subcontractors.
Straight Subcontracts
In some cases, the leading contractor might be agreed in advance, particularly where one contractor has service delivery capability but lacks the deep financial strength and reputation of the other provider. In that case, a straight subcontract may be expected, but each party has risks of not knowing what the main contract with the customer will require.
Teaming Agreements
In many cases, two parties may wish to team up to provide products and services to third parties. In BPO, a teaming agreement sets forth the mutual agreement of two or more service providers pursuing the same new business to response to a request for proposals by a prospective customer. The teaming agreement contemplates the possibility that one will become the “general contractor” and the other will become the “subcontractor.” Teaming agreements are essential in planning the allocation of roles and responsibilities between the parties, but they may be replaced or revised once the customer hires one of the teamed parties.
Marketing for Service Provider Specialized in Particular Software Implementation and Administration
Some BPO industries have been created from the standardization of many global enterprises that use the same ERP software. The human resources outsourcing (“HRO”) industry grew out of the domination of the global market by a handful of software developers and the need for ongoing administration of complex HR software and related network systems. The ability of a service provider to deliver value to enterprise customers in such cases depends upon its relationship with the ERP software developer. An “alliance” with an ERP software developer can spell the difference between success and failure in competitive HRO bidding.
Risk Management
Like joint ventures, commercial alliances serve each party by taking its resources and creating a new revenue stream. Like joint ventures, commercial alliances in BPO present the same risks of legal compliance, conditions to making and performing legal commitments, competition between the parties for the same customers, relationship governance and ongoing decisionmaking and the structure of termination and exit terms.