It’s time for a fundamental rethink in the way companies approach their Business Continuity Planning (BCP), in general, and their locations strategy in particular. More than 70 percent of enterprises leverage only a single – usually tier-1 – location in one country for global business services delivery, according to our analysis. And even for companies that leverage tier-2/3 locations, deployment is the highest at their tier-1 location. This deployment model not only limits the full value they can achieve from location diversification, but also significantly increases their BCP risk. Let’s take a deeper look at this.
As our recent blog on unlocking value from tier-2/3 locations pointed out, with tier-1 locations fast maturing and saturating, enterprises may soon have to factor in tier-2/3 locations to minimize risk, capitalize on the cities’ advantages, and ensure business continuity. Leading co-working players are also expecting a rise in real estate demand in tier-2/3 cities, and planning to expand to these locations.
In India, in particular, a leading global services delivery location, companies that deliver Global Business Services (GBS) and have leveraged tier-2/3 locations as part of their location strategies (such as IBM and Tata Consultancy Services) have benefited significantly from a BCP standpoint by successfully diversifying their:
- Concentration risk: Multi-city location strategies, coupled with workload flexibility across delivery centers, have helped minimize prolonged disruption during the pandemic.
- Delivery locations risk: Tier-2/3 cities help diversify the location risk and also face lower macro-economic and political risk than tier-1 locations, which adds to their viability.
- Functional risk: Many firms, such as Capgemini, leverage tier-2/3 locations as spoke or support centers in a hub-and-spoke delivery model network. In fact, they don’t shy away from distributing highly critical services and processes across tier-1 and -2/3 locations to reduce the functional risk.
And it’s not just the risk diversification advantage – our client interactions have revealed that leveraging tier-2/3 locations across India can help facilitate business continuity during the pandemic in the following ways:
- The spread and impact of the virus is concentrated in major tier-1 locations, which account for ~40 percent of the total cases in India. In contrast, most tier-2/3 locations are largely unaffected, and only about 15 percent of them are classified as red zones, or areas with high active cases of COVID-19 and a high doubling rate. Thiruvananthapuram and Kochi in Kerala, Visakhapatnam in Andhra Pradesh, Bhubaneshwar in Odisha, and Trichy and Coimbatore in Tamil Nadu are some of the tier-2/3 locations designated as orange/green zones. Thus, restrictions are likely to be relaxed or lifted earlier in those areas, with a faster return to business as usual.
- The resilience and back-to-work rate for tier-2/3 locations are higher, as they’re easier to traverse, and employees typically live near offices, unlike in most tier-1 cities, where employees typically rely on public transport to go to work
- Most firms that operate in tier-1 locations have a considerably large pool of migrant employees who have returned to their native towns/cities in the light of the lockdown and might not be willing to return to work immediately, given the risks.
At the same time, to unlock the full scale of BCP benefits from tier-2/3 cities, firms need to ensure certain baseline factors to facilitate business delivery:
- They need to make sure they have ready, skilled, and trained staff for all critical processes in secondary locations, as it’s difficult to transfer employees from one city to another in the event of an emergency.
- They need to establish leadership representation in these locations to better govern and manage the increasing workload.
- They need a seamless communication system to facilitate data accessibility and transfer.
- They should simplify and redesign their processes to reduce handoffs, decision points of contact, and people dependence.
We’d love to hear about your BCP experience with tier-2/3 locations and thoughts on the viability of these locations in the coming years. You can also read our blog on “The Coming of Age of India’s Tier-2 and -3 Service Delivery Locations” to understand the key drivers and challenges inherent to tier-2/3 locations to develop your own locations strategy. Please share your inputs with us at [email protected], [email protected], or [email protected].