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
Part 2 – GICs can become Revenue Centers
Part 3 – Value Addition is an imperative for GICs
Realizing full potential of GICs will require many changes in organization approaches
While GICs are well-placed to embark on the value addition journey, successful examples, especially those with a sustained track record, are fewer than expected. Most GICs continue to be caught in a limiting cycle. Parent expectations are limited to cost benefit and execution capacity, and GICs continue to focus on meeting/exceeding operational SLAs. There is often a self-satisfied attitude at both ends. Most GICs believe that their situation is unique and they are doing an excellent job. In reality, the in-house model brings limited external challenges and can lull leadership teams into a “comfort zone”. This is not conducive to challenging the status quo; GICs need to push hard to figure out what more can be done.
To step-up and sustain their value addition journey requires a major rethink within both the GICS and their parent organizations. Operating models, mindsets/culture and leadership that have worked so far might need to be changed to realize the new set of opportunities. Often there are long-held orthodoxies around governance and people models that might need to be challenged requiring attention even at the CEO and Board levels. Failure to do this might result in either not being able to realize the full opportunity or in promising initiatives not translating into sustainable success.
Illustrative changes in the GIC approach
- More complex operating models – both the commonly seen models i.e., “shared services” and “vertically integrated,” are inadequate. A shared services model is efficient but does not generate stakeholder ownership, while vertically integrated models ensure stakeholder ownership but tend to encourage the status quo. To drive higher levels of value addition, you need both global, functional integration and strong local leadership that can identify and drive opportunities. There is often tension between these two axes of the matrix. Senior management needs to be aware of this tension and help find the right balance.
- Engagement with parent organization at CEO and business stakeholders level (vs. just the COO/CFO organization in traditional approaches) is necessary to ensure that the game changing opportunities that GICs can provide are being considered as part of business strategy discussions. Often, given the historical positioning of the GIC as a “support center,” it does not figure in these strategic discussions. Ongoing engagement with the CEO/head of business can make it easier to form linkages between business problems and leverage the GIC to provide solutions.
- Increasing collaboration between local/regional business and offshore service centers to facilitate the client proximity required for innovation and to develop new products/services. Often, GIC leadership is far removed from the eventual client and does not have a good understanding of business context. This gap needs to be bridged for the GIC to play a more significant role in product/service innovation. Linkage with the local/regional business provides the most natural opportunity to make this client connection happen. To facilitate this, there are emerging examples of both the local business and offshore center being under single leadership.
- Local leadership that is more business focused and entrepreneurial (vs. operationally focused “safe hands”). GIC leaders need to have a deep understanding of the business so they can “join the dots” between business needs and GIC potential. In addition, they need to be entrepreneurial to challenge the status quo, move people out of their “comfort zone” and persevere to build new capabilities. Having a program of rotating leaders across business areas and regions into and out of the GIC can help in grooming high potential talent in both the parent company and the GIC.
- Raising expectations of the GIC. Demonstrate strategic intent by moving beyond operational SLAs to measure the value delivered. In addition, GICs should push for ongoing value increase and external benchmarking. GIC and parent company relationships are often in a “comfort zone,” but both sides need to have the awareness and courage to raise the bar on expectations. Without this change, it will be difficult to realize the full potential of GICs.
Illustrative changes in the Parent Organization
- Review the governance model to reflect the increasing role and potential of the GIC. For example, GIC leadership should be included in senior global management forums so they have a “seat at the table” and are empowered to drive significant initiatives and decisions. Often this might require going beyond traditional organization structures and hierarchy.
- People model at both the parent organization and the GIC needs to be reviewed and adapted. As GICs role increases in core business areas, it will likely have an impact on the people model in the parent organization. The people profiles, recruitment approaches, career tracks and others aspects of the people model might need to change. These need to be fully understood so necessary changes can be made.
Clearly, it is not easy to realize the full value addition potential of GICs for the business. It will require significant changes in embedded organization mindsets and approaches. Organizations that have the foresight and patience to make this change management effort can reap great business benefits.
