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What exactly should a Platform service provider really ‘own’?

In Platform offerings, the responsibility split between the service provider and the client is very clear. Client is responsible for ‘using the platform to execute its business processes’. And, the service provider is responsible for managing the service by managing application (implementation, support & maintenance), infrastructure (h/w, connectivity, hosting, & infrastructure support) and operation (BPO) layers.

But, what should the service provider actually ‘own’ in this service offering?

As a start, let us explore this question for Application layer.

The application layer could be based either on a standard ‘off-the shelf’ application (SAP, Oracle, etc.) or an application developed by the service provider or a combination of the two.

Application Licenses: In the first & the third case, the service provider should definitely own the ‘license to access’ the application/s, which are being bundled in the offering. In the second case, the service provider has invested in developing the complete application so she owns the IP rights for the application. In the third case, investment has gone in from the service provider to develop some bolt-on tools to complement the functionalities provided by standard package, etc. The service provider owns the IP rights for these bolt-on tools, wrappers, etc. provided as a part of the offering.

Application implementation & Support: For standard package based offerings (with or without bolt-on tools), should the service provider invest in capabilities to implement & roll-out the application at clients business? Or should it sub-contract this to package implementation service providers?

For the Level 1 and Level 2 support for these standard packages, should service provider set up 24x7 support centers with multi-lingual capabilities to support its global clients? Or, should it sub-contract the application support to other service providers?

Key Considerations:
A few questions arise from the clients’ perspective – Will they favor a service provider over another based on the ownership of the application sub-layers? Will client have any discomfort in moving to a Platform with application implementation & support sub-contracted to another service provider? Will the back-to-back SLA agreement between the Platform service provider and sub-contractor good enough? Keeping the support SLAs in mind, will not the clients’ risk perception be higher in the later case.

The service provider needs to ask herself – If the offering is on a standard package without any IP, how will she differentiate the offering from other players? Will price be the only thing to compete with other players? Will this be a scalable offering (ability to add more clients)?

I think the service providers need to answer these questions based on their existing capabilities, strengths and depth of their pockets. A service provider, with existing package expertise, can potentially look at providing application implementation & support using in-house people. Some investment might be required to set-up the round-the-clock global help desk. But for a pure-play BPO service provider, its best to tie up with a company in package implementation industry.

Offering price will also be a guiding principle here. Which of the business models (full application layer in-house vs. partial sub-contracting vs. full sub-contracting) gives the best price to the client? Is it cheaper for me to set-up application support centers instead of sub-contracting it someone else? For a new entrant into the market, will it not be better to initially sub-contract application layer (either partially or fully), build scale and then invest in capabilities for application implementation & support.

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