Setting up a captive in India is much easier now than it was ever before. While an abundant and diverse talent pool, appropriate real estate, and much-needed regulatory support and incentive structure have contributed in no small measure to this, a robust ecosystem of recruiters, consultants, transition specialists and law firms have been able to sustain the momentum thus far.
Precedents and learnings from third-party outsourcing and captive units over the decade have ensured that key elements such as talent, governance, communication and change management are tabled as part of the set-up discussions. The how-tos of a captive set-up largely revolve around following a transition methodology that attempts to create and stabilize the offshore organization. As part of this, the project management and transition teams also strive to cover many minute elements including team structure design, work-force estimation, adherence to scope of work and ongoing collaboration with onshore teams, amongst other things.
As much as the how-tos are necessary to ensure a transition, without having a clear idea of the captive’s objectives, these implementation specifics may not suffice in creating and sustaining a successful organization.
From this perspective, there are a few key questions that need to be thought about and solved for before plunging into the details of setting up a captive.
What is the captive’s vision?
The type of value added by a captive for its parent can be across three impact levels – cost, business and strategic. An extension could be a low-cost offshore office that impacts the direct cost base of its parent and improves process efficiency. On the other hand, a Shared Service Center aimed at creating business and strategic impact may result in business process and quality improvement and may even lead on to expansion into new markets. Whether we want the captive to be a cost reduction center or grow into a Center of Excellence (CoE) will emerge directly from the vision of the captive. The vision in turn drives a number of implementation issues including work-force estimation in terms of number of FTEs, type of talent, specialized skill-sets, leadership positions etc.
What is the business-case in favor of setting up the captive?
The answer to this drives directly from the vision. Whether the captive is an extension or aims to evolve into a CoE, we need to think about multiple investments. That makes a business case essential. There have been many cases in which a decision has been made to set up a captive in a best-cost location and the implementation begun. It is only at that point that stakeholders start wondering what returns they might achieve from it. Choices around scale, size, and investment in new capabilities are crucial to offset against the value we aim to derive from the captive. For instance, if we envisage an organization that evolves into a CoE, our business case needs to reflect investments along those lines so that the right planning can be done from day one.
How should the organization be structured?
We have faced this question frequently across our captive transition engagements. And, frankly, there is no “one-size-fits-all” answer here. No rule book states that the structure of the captive should mirror the parent’s organization. Similarly, nowhere is it suggested that the captive organization needs to be structured based on the nature of processes executed there. Reporting structures, level of control residing with the captive, the transition process and similar considerations play significant roles in deciding whether a horizontal-functions-based or a vertical-industry based or a hybrid model work best for the captive organization. The structure in turn is vital in solving many of our implementation issues around team structures and governance models.
While these may not be an exhaustive list of concerns one needs to think about while setting up a captive, answers to these necessary questions go a long way in sustaining the captive and making it a success story.