Akshay Pandita
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Akshay Pandita

Akshay Pandita is a Senior Analyst at Everest Group, located in our Gurgaon, India office.

What’s the Best Structure for Your Shared Services Innovation Team? | Blog

By | Blog, Shared Services/Global In-house Centers

As we presented in a recent blog, shared services centers (SSCs) – or what we refer to as Global In-House Centers (GICs) – must create their own innovation team to support their parent enterprises’ innovation agenda. But how should you structure your team to yield the desired outcomes?

Innovation maturity and mandate

You should start by determining your SSC’s innovation maturity and mandate. The maturity is determined by the strength of your existing internal capabilities, including talent, technology, and culture; the involvement and support you require from leadership; the primary focus area of the innovation, e.g., generate revenue, reduce costs, or mitigate risks; and the impact generated by your innovation initiatives e.g., dollar value of costs saved or revenues generated.

The innovation mandate is outlined by the level of ownership and visibility for innovation initiatives; the extent of cross-collaboration between business units / functional teams; and overall alignment of your SSC with the parent enterprise’s structure and business model.

Once you’re armed with that information, you can select one of the three SSC, or GIC, innovation team structures most prevalent today, based on the guidelines we present below.

Types of SSC innovation team structures

SSCs with low-to-medium maturity and innovation mandate

If this describes your SSC, you’ll do best with a centralized structure in which your parent enterprise drives the innovation and you have limited involvement. This structure allows the parent company to have greater control and ownership, and prevents the GIC’s low maturity from being an obstacle. Many organizations prefer this structure, as it enables faster implementation of enterprise-wide and business model-related innovations, promotes standardization, and improves governance of innovation initiatives. However, many SSCs are reluctant to operate in this structure, as it presents limited opportunities for them to breed an in-house culture of innovation and deliver higher-level transformational value.

SSCs with moderate-to-high maturity and innovation mandate in a specific domain

The best fit for these SSCs is a business unit-or functional team-led innovation structure. This allows the parent enterprise to adopt a decentralized innovation approach, enable direct communication and visibility between the SSC and business unit or functional stakeholders, leverage innovation teams placed within the GIC’s business units or functional teams, and provide better alignment on domain-specific end-business objectives. Key success factors include regular mentoring by the parent’s teams to build strong future-ready GIC leadership, and direct communication channels between SSC and business unit stakeholders.

SSCs with high overall maturity and innovation mandate

For GICs that fall into this category, a dedicated innovation team in which responsibility for innovation is fully in its hands works best. This structure allows the GIC to take more ownership of proposing and prototyping new, innovative solutions, and equips it with capabilities to better respond to enterprise-wide requirements.

Achieving the right balance of ownership, accountability, and investment is the key to successfully implementing this structure and making it a win-win for both SSCs and parent enterprises. It enables the SSC to reach its true potential and gain recognition as a thought leadership partner and empowers the parent to implement innovation initiatives with relative ease and replicate best practices across business units and functions.

Because every company’s innovation structure is inherently different, GIC leaders need to thoroughly investigate each of the models and decide on the most appropriate one based on their GICs’ overall maturity and mandate.

If you’d like detailed insights and real-life case studies on how SSCs are driving their enterprises’ innovation agenda, please read our report Leading Innovation and Creating Value: The 2019 Imperative for GICs.

In upcoming blogs, we’ll be discussing ways you can promote innovation and increase its impact in your shared services. Stay tuned!

 

Shared Services Centers and the Myth of Scale | Blog

By | Blog, Shared Services/Global In-house Centers

Shared Services Centers (SSCs) – what we refer to as Global In-house Centers (GICs) – need to achieve breakeven to be financially viable. The breakeven equation is straightforward: the point at which total labor arbitrage (the average difference in labor cost between the SSC and a center at home) is equal to the SSC’s run cost (all non-labor costs such as facility rent, utilities, training, recruitment, travel, and other miscellaneous costs.)

Conventional wisdom says that that only large centers with a minimum of 1,000 FTEs can achieve breakeven. But that’s old-school thinking, and old-world reality.

We analyzed the breakeven point for 850 GICs in today’s digital world across a variety of factors, including the scope and complexity of services delivered, locations leveraged, and employee profiles. And we found that even an SSC with as few as 25 FTEs can be financially viable if it is delivering high-end, judgment-intensive services.

The rise of small SSCs/GICs

In the last three years, the average SSC scale, as measured by the number of FTEs, has declined by about 60 percent.

Why are we seeing this significant increase in small-scale centers? Several reasons:

  • Lower barriers to entry: Technology advancements facilitate better collaboration and knowledge transfer among leadership and peers
  • More robust ecosystem: Better infrastructure, access to a large talent pool with relevant technical and functional skills, and multiple professional services firms to provide on-ground support
  • Lower cost: Easier access to cost-competitive real estate, and wider availability of talent with the relevant functional, and managerial skills.

Today, it’s not about scale…it’s about alignment with the broader sourcing strategy

Ever since the inception of the SSC model, enterprises have been relying on their centers to improve products, processes, customer and employee experiences, build high-value skills, and drive operational excellence. But in today’s environment, scale no longer matters. Why? Because some of the main levers for SSC success, such as enhancing cultural integration, accelerating the strategic agenda (e.g., innovation, digital transformation), facilitating cross-functional collaboration, and promoting process ownership, are scale-agnostic.

Today, the decision on whether or not to establish a delivery center must be based on how it aligns with the enterprise’s broader sourcing strategy. In particular, enterprises should assess whether the SSC/GIC can help them:

  • Retain and strengthen in-house capabilities, especially for core intellectual property intensive work
  • Develop tighter integration (better control and governance) and stronger alignment on culture and brand
  • Accelerate the adoption of digital and other disruptive technologies such as automation, analytics, and artificial intelligence.

The next time you’re thinking about setting up a new SSC/GIC, don’t let the scale of the center – or lack thereof – stop you from exploring the possibilities!

Does Your Shared Services Center Need an Innovation Team? | Blog

By | Blog, Shared Services/Global In-house Centers

In order to evolve from cost enablers to strategic partners that can drive competitive advantage, shared services centers (SSCs) – what we call Global In-House Centers (GICs) – must support their parent enterprises’ innovation agenda. And whether innovation means one, more, or all of the following to their enterprise, SSCs are quickly recognizing that creation of their own innovation team is one of the key ways they can deliver on that strategic requirement.

Types of innovation initiatives

What is an innovation team?

An innovation team is a group of dedicated resources mandated to evangelize innovation within the organization. The members typically have innovation-specific competency and relevant experience, and are unrestricted by business-as-usual constraints.

While ad-hoc or informal innovation teams used to be the norm in most GICs, the forward-thinking ones realize that a formalized approach is becoming essential for long-term success.

SSCs’ innovation teams influence strategy, capabilities, and culture

Based on our discussions with and analysis of around 800 GICs spread across offshore geographies, we’ve grouped innovation teams’ focuses and capabilities into three areas.

Shaping the enterprise’s overall innovation strategy

SSC’s innovation teams help shape their enterprise’s innovation agenda by enabling decisions on key themes such as: improving the process/product/service mix, enhancing the customer/employee experience, and revamping the business model; impact areas like cost savings, risk management, and revenue generation; and innovation partnerships with start-ups, academic institutions, etc. For example, one GIC’s innovation team was given a mandate to ideate and develop innovative solutions/products to better engage customers. It led all the stages of the innovation journey (from ideation and concept testing to detailed design and development) to develop the enterprise’s flagship mobile payments app.

Enhancing capabilities by improving skills, tools, infrastructure, and technology

SSCs’ innovation teams support and lead capability and ecosystem development. Areas they become involved in include setting up the physical work environment including innovation labs, garages, and digital pods, and developing new methodologies, frameworks, and tools. For example, one GIC we work with – that of a leading U.S.-based financial services firm –assisted in development of a cloud-based, compliant platform for instant communication and content sharing. The platform is used by more than 20,000 employees across the organization for real-time collaboration.

Fostering a culture of innovation

Beyond their primary responsibilities of supporting core, business-as-usual activities, GICs’ innovation teams often serve as “innovation champions” or “innovation ambassadors” to shine a spotlight on best practices and key pitfalls to avoid. These teams primarily consist of employees embedded within the GIC’s business units/functional teams, and focus on domain-specific innovation. This enables direct development of an innovation culture in delivery teams. For example, in one insurance company’s GIC, the innovation team is mandated with promoting innovation at the grassroots level. So, it organizes trainings, workshops, and competitive events.

Innovation team make-up

At a broad level, innovation teams are comprised of the following key roles:

  • Innovation champions: Leadership members (typically C-level executives, and functional/business unit heads) for providing strategic guidance
  • Program managers: Senior management members and/or dedicated managers for driving innovation programs/projects
  • Process experts/technologists: Experts with deep knowledge of product, technology, and tools
  • Strategists: Typically, tenured senior resources with extensive experience with innovation programs and solid domain knowledge.

Of course, some SSC’s also include other roles, some very niche and company-specific, in their innovation teams.

Size your innovation team to your specific needs

Our research found that SSCs’ innovation teams are typically comprised of five to 20 dedicated FTEs, spread across the enterprise and the SSC. A relatively small number of GICs have 20-50 or more FTEs that are specifically part of their innovation team.

While most GICs have a lean innovation team, we encountered multiple instances of recently bulked-up teams. Interestingly, there is a limited co-relationship between revenue/size of the SSC’s parent enterprise and the size of its innovation team. What tends to impact the size of the innovation team is the extent of the innovation focus, the level of innovation maturity, existing structures for driving innovation, and broader business requirements.

There is no one-size-fits-all approach. When designing your SSC’s innovation team, you should start by determining what aligns well with the existing structure and caters to evolving innovation needs. You can customize its size and composition once it’s up and running.

Commercial Options for India GIC Setups | Sherpas in Blue Shirts

By | Blog, Onshoring, Shared Services/Global In-house Centers

There are two primary commercial options – or export-oriented schemes – available to GICs looking to export IT/ITES services from India. One is setting up a 100 percent Export Oriented Unit (EOU) under the Software Technology Parks of India (STPI) scheme. This allows operations to be carried out from any location in the country. The other is setting up a delivery center in a specified, demarcated, duty-free enclave called a Special Economic Zone (SEZ). These offer additional economic benefits (e.g., tax holiday) in lieu of positive net foreign exchange earnings from the export of IT/BP services.

Which option is best for your company? Read on to learn the differences, the trade-offs, and the variables you should factor into your decision.

The Major Differences

  • Income tax holiday: SEZ units enjoy a graded income tax holiday period that translates to significant tax savings for a large-scale setup in India. The tax holiday incentive for STPI units expired in March 2011
  • Indirect tax benefits: both SEZ and STPI schemes provide custom duty exemption on imports of capital goods. However, SEZ units are also eligible for a “zero-rated” Goods and Services Tax (GST) that effectively decreases the cost input for domestically procured goods and services
  • Location: STPI units can set up operations in any location in the country. SEZ units are restricted to a designated area.

Key Decision Variables in Selecting SEZ or STPI

  • Financial attractiveness: SEZs outweigh STPIs in both direct and indirect tax incentives. Where cost savings are significant (e.g., a large-scale setup) and need to be prioritized, SEZ is a clear choice for many enterprises
  • Access to a broader ecosystem: Many SEZs offer a complete ecosystem, with easy access to commercial, residential, healthcare, and educational options. Further, SEZs offer quality infrastructure and business continuity planning advantages including:
    • Large reputed SEZs offer a more reliable supply of utilities including electricity, water, telecommunications, and overall security
    • The office space standards and building compliances (e.g., natural disaster preparedness) are typically more stringent in SEZs
  • Access to large talent pool: Given their size, SEZs offer ready access to a large, skilled talent pool with relevant technical, functional, and managerial skills. And the ecosystem often developed in and around SEZs is a significant attraction for the talent pool to work in them
  • Site and scale flexibility: STPI units provide far more location (e.g., financial district or central business district) and scale options than do SEZs. Many small-sized GICs tend to prefer this flexibility
  • Ease of compliance: Compliance and statutory reporting requirements in STPIs are relatively more lenient than in SEZs. For instance, introduction of GST has increased the compliance and record maintenance burden on SEZ units. Exiting SEZs may involve more scrutiny given the higher economic benefits involved.

SEZ vs STPI

How a Financial Services Firm Made the Decision

Everest Group recently supported a U.S.-headquartered financial services company looking to set up a small-scaled GIC in India to deliver high-end niche IT services. Our setup advisory team used a three-step process to ultimately recommend the right facility and commercial model to meet all the client’s requirements: outlining the space, handover timeline, and proximity to the central and/or secondary business districts; assessing potential savings in operating from an SEZ; and evaluating and scoring the additional pros and cons of shortlisted sites to make our final recommendation.

When we evaluated and scored the client’s “must-haves” — scope for expansion or relocation, access to social infrastructure, lower commute time, and proximity to talent hubs – against the limited SEZ options available, it became clear that an SEZ was not the right answer for the client.

Thus, we recommended that the client go ahead with an STPI option in a large IT business park, and register the unit with the STPI to benefit from indirect tax benefits. This option allows the client to take advantage of all the business park’s large talent pool, marquee tenant profile, social infrastructure, and other amenities, and gives it flexibility for any future expansion or potential relocation within or outside the business park.

More than 30 new GICs are set up in India annually, and half of these are first-time center setups. In order to ensure their success, the enterprises establishing these centers must take the time upfront to clearly understand their objectives and requirements against the trade-offs of SEZs and STPIs.

The Dichotomy of Current and Future Offshore/Nearshore Delivery Locations | Sherpas in Blue Shirts

By | Blog, Onshoring

An interesting offshore/nearshore locations strategy dichotomy is emerging for today’s major third-party service providers and enterprise firms, as well as their GICs. On one hand, they are continuing to set up delivery centers in new and unexplored locations due to increasing competition, business continuity planning, and risk diversification. On the other hand, the pressure of new disruptive technologies, changing consumer demands, and need to maintain points of parity with competitors is pushing them to consolidate their footprint in the top 10 locations.

Growing Oligopoly of Offshore/Nearshore Locations Driven by the “Digital Winds of Change”

 

Offshore, NearShore

Top-10 offshore/nearshore locations include – India, Poland, Republic of Ireland, the Philippines, Costa Rica, Singapore, Romania, Malaysia, Mexico, and China

In the past few quarters, new center setups in the top-10 locations have jumped by ~10 percent, from 60 percent in 2015 to 70 percent in 2016. The key driver of this change has been availability of talent; only selective locations currently have the capability to support complex digital services. Thus, both external providers and GICs are leveraging these locations for digital services centers and setting up relevant centers of excellence. While several other non-top-10 locations are also investing in building digital talent, they are still not considered a viable option for digital delivery.

  • The major gainers from this shift have been India, Poland, Singapore, the Republic of Ireland, Romania, and Costa Rica. Analytics and cloud are the leading digital services segments in these offshore locations, primarily core software-based analytics. Both types of providers are also building centers in these locations for mobility, social, IoT, and cyber security.
  • The major losers from this shift towards digital have been China and Brazil, given providers’ caution around language constraints and political uncertainty, respectively.

Going Forward, Concentration and Diversification

While most firms are investing in the emerging technologies/digital space, they are still in the nascent stages of building capability. As they mature, they will start diversifying and distinctively leveraging different locations for supporting elements of digital, thus driving a uniform distribution amongst top-10 locations in the next three to six years.

Following are highlights of our research on the future of digital services delivery destinations:

  • India and Singapore will be large scale offshore hubs. Analytics, cloud, and mobility will continue to hold strong, while other technologies, (e.g., IoT, cybersecurity, and blockchain,) will, ultimately, be broadly and deeply supported
  • Nearshore locations such as Ireland, Poland, Mexico, and Costa Rica will support real-time innovation and product development, and provide multilingual service delivery for social media and mobility services
  • Offshore locations such as Tel Aviv, Cairo, and the Baltic states are currently the ”dark horses” in the race towards the top-10, and will gain momentum in the future. Look for them to deliver regional content contextualization, especially for mobility and social and interactive segments. Some of them will deliver digital technology R&D as well.

To learn how locations activity spanned in 2016, please refer to Everest Group’s report titled Market Vista™: 2016 Year in Review: Global Services Industry Facing “Winds of Change.”