Note: We have used the term “GICs – Global In-house Centers” through out this note instead of the more traditional term “Captives”
Part 1 – GICs reaching a Tipping Point
GICs can become Revenue Centers
The increasing maturity of GICs creates the opportunity for them to add value beyond labor cost arbitrage on the back-office processes that most of them started their journeys with. There are two broad areas where enterprises can realize substantial value addition benefits:
- Innovation– cost + talent advantages can help lower the hurdle rate for new investments, i.e., many business ideas that were earlier too expensive might now become viable. This, coupled with GICs increasing domain expertise and maturity, can be leveraged to drive innovation in both products/services and business models. Co-location of capabilities across functions and regions provides them with another unique opportunity to drive innovation.
- Moving up the value-chain in existing services – this includes a move from transaction oriented back-office processes to more knowledge intensive and front-office capabilities, as well as roles evolving from execution to design and potentially even to taking on end-to-end ownership. Moreover, in many cases, GICs can move up the value chain to play global leadership roles.
The above themes are not theoretical. There are already many examples of GICs that have driven value-addition resulting in tangible benefits for parent organizations beyond what is typically expected:
- Step change productivity/quality/customer experience improvements leveraging the GICs scale and expertise. In many cases, GICs have been developed as change/continuous improvement hubs that export best practices across the organization.
- Expanding research and analytics intensive capabilities that are often difficult to scale up in the parent company’s local markets. This can be a source of competitive advantage in many industries. In particular, many organizations are scaling up analytical capabilities to leverage the explosion happening in customer data as a strategic advantage. In addition, many companies have built significant investment and business research capabilities.
- Developing GIC as a nursery of talent that can be exported and/or leveraged globally. In particular, many companies are leveraging the offshore management expertise resident in their India-based GICs to develop a global offshore network. There are many examples of India-based GIC leaders who are stepping up to provide leadership across other offshore sites.
- Expanding service or process scope because of the lower cost of service. This has allowed many companies to serve new customer/geographic markets in a viable manner and/or to help existing segments become profitable. For example, many banks have been able to extend collections to much lower ticket prices. Similarly, many investment banks have been able to significantly expand the number of stocks being researched.
- Capability multiplier for entry into new markets, especially local/regional markets. Companies have the opportunity to leverage the local experience and leadership capacity in their GICs to incubate new market entry for core businesses. Many companies have already leveraged their India-based GIC as a platform to launch a local business.
- Development of new products, services and delivery models leveraging the cost + talent advantages. In particular, developing the GIC as an innovation hub for emerging markets, which often require new services and business models. In many cases, companies are now exporting the innovations developed for emerging markets into their global markets.
Clearly, GICs can help their parent organizations beyond cost arbitrage. If the cost + talent proposition and advantages of the in-house model are leveraged effectively, they can transform the GIC from a cost center into a revenue center. It can become a strategic lever for business heads to solve many critical problems – more profitably serving existing segments, speed to market in developing new products and services, and entering new markets.
The specific value addition opportunity for GICs can vary widely. The specific opportunity for each GIC will depend on the industry in which it operates and the stage of its offshoring journey, as well as the organization culture and capabilities. For example, organizations setting up a GIC for the first time will have the advantage of being able to embed a strategic role in the DNA of the GIC from the very beginning. While the specifics of the opportunity might vary, for most GICs there is likely the potential to contribute more, which if realized can become a source of competitive advantage for the business.
