India, once known as the home of low cost delivery centers, is now fast emerging as the land of ‘innovation and capability centers’. That said, the decision to set up a Global Capability Center (“GCC”) is subject to C-suite leaders presenting a well-researched, rounded business case to the executive board for approval. Lena Berghaus, AVP Consulting, ANSR comments, “What’s needed is a C-level executive who can rally the troops at the home office, one who can define the opportunity, frame the initial business case for the GCC and then sponsor the engagement to explore nuances of setting up a GCC more deeply.”
To this end, creating the right mindset for decision makers is crucial. It entails promoting an understanding of
1) The GCC operating model
2) How it differs from outsourcing
3) Demonstrating how the GCC will build capabilities or support the company’s transformation or growth, and
4) How to address external factors, which will be addressed in the sections below.
The GCC Operating Model
“The setting up of a GCC in another country should be communicated to the leadership team as a strategic move,” Lena points out. “The GCC narrative should be conveyed as ‘setting up an extension of the home office as a strategic platform for capability and capacity’ rather than a limited initiative such as, ‘moving the app development process to India’.”
In this context, it is pertinent to highlight that the GCC, in order to be successful, needs to be an extension of the overall enterprise that is guided by the same values and objectives as the home office. A successful GCC works towards the same set of business goals as the parent company and is integrated across policies, processes, values, and organization culture. Further, there is a high level of accountability and ownership for the work delivered, as the employees working in the center belong to the parent company. The benefit of this working model lies in the opportunity it provides to drive the company’s transformation globally.
How GCCs differ from outsourcing
In the past, the promise of lower cost of services along with expert support and consulting made outsourcing an attractive option for global companies. However, the model also meant that companies would lose control over operational efficiency, quality and subject matter knowledge as they neither own the operations in the foreign country, nor have employees that are aligned with their objectives. Additionally, ownership of technology, and intellectual property can also be a concern for companies.
Today, companies are recognising the need for a better working model – one that delivers on quality, speed, insight, process, control and innovation. To illustrate, Berghaus points out, “Companies that undervalued technology a decade ago, now often find that they have outsourced up to 80% of their tech work. But today, if technology is not at the core of the company, whereas it is the core of what the customer wants, then it is a problem. Many companies have started to realize the need to insource or develop tech and other capabilities and hence move towards the GCC model.”
As GCCs share the same vision and mission as the parent company and have the same access to information and company strategy as the home office, there is more control over outcomes such as product or process innovation and productivity. For this reason, GCC employees are empowered with business context, so that everyone is working towards achieving business objectives. Another difference lies in the cost-effectiveness of the GCC model over outsourcing. Businesses with their own GCCs will no longer have to pay for marketing, IT, bench and other overhead costs that are included in the service provider billing rates.
GCCs Help Parent organizations Achieve Business Objectives
For a GCC to be successful and achieve the business objectives of its parent company, it must focus on three key priorities – talent, cost and external factors. Most companies that have or are in the process of establishing GCCs in India are aware of the wealth of talent the country is home to. India has an abundance of skilled resources, broad and deep expertise across industries, and qualified talent across domains such as technology, analytics, digital and business functions. Talent availability at scale is a key advantage offered to businesses that aspire to not just set up a center but also scale their operations.
While the arbitrage-driven cost savings a GCC can deliver gives parent organizations a competitive advantage, Berghaus points out, “Companies should not set up a center focusing on cost arbitrage because the opportunity for transforming the organization by setting up a capability center is much higher than saving costs”.
Addressing External Factors That Determine The Success Of A GCC
Companies are often concerned about external factors that can affect company & GCC performance, such as the political climate or public opinion.
Parent organizations need to be in control of internal and external messaging as the news of setting up a GCC may be received with mixed reactions and insecurity. Hence, it is very important for the company to meticulously plan the composition of the messages, mode of communication and the timing of announcements.
The key message that is conveyed needs to be clear, accurate, and consistent whether it is shared internally or externally (e.g. news, government bodies, agencies, suppliers, vendors). Clear communication and the right timing increase acceptance from leadership which percolates to all teams of the parent company.
With GCCs rapidly transforming businesses and the concept continuing to gain momentum, more and more companies are evaluating their current capabilities and operations and assess the GCC opportunity. This evaluation is followed by an analysis determining investment and other resources necessary for setting up a center.
To set up and operate a successful GCC, it is imperative for senior leadership to own and drive this initiative and take efficient and sensible decisions around scale and in-sourcing. Berghaus rightly points out, “Today, the GCC concept is mainstream, its success is proven. The focus has shifted to setting the right vision, managing the strategic initiative and all stakeholders well and streamlining the change management process to set the right foundation for a successful capability center.”
Over the last decade, Indian Global Capability Centers (GCC) have transformed themselves from being mere "cost centers" to hubs of strategic importance ...