Vivekbhatia, Author At Everest Group

How Banking GBS Organizations Have Evolved to Drive Enterprise Data Transformation | Blog

February 21, 2022

With their growing maturity, Global Business Services (GBS) organizations in Banking and Financial Services (BFS) have taken on critical roles in the data value chain. To learn how banking GBS organizations have evolved to become best-in-class partners supporting enterprise data transformation and the key attributes they now possess, read on.

Data is a powerful force. Our recent study on data and analytics maturity in GBS revealed that best-in-class GBS organizations that leverage data deliver more than one and a half times the strategic impact in such key areas as improved employee and customer satisfaction, revenue growth, and reduced fraud risk compared to their peers.

Unlocking greater value from existing data is critical in driving transformation for BFS enterprises who are looking to make data available for use at scale, apply Artificial Intelligence and Machine Learning (AI/ML) to business cases, use big data to monitor and improve customer journeys and retention scores, detect and mitigate fraud and risks in real-time, and improve Return on Investment (ROI) according to our studies.

What’s the role of GBS organizations in the data lifecycle?

Until a few years ago, most banking GBS organizations played discrete roles across the data value chain. But this has vastly changed. Today, more banking GBS organizations are well-entrenched across the data value chain and have the skills and leadership required to drive the data transformation journey for BFS enterprises, as the illustration below demonstrates.

Skills Data-centric Teams Seek in Banking GBS Organizations

What key factors have contributed to this trend?

Here are some of the reasons we see for this growth:

Post-pandemic demand: Explosive growth in digital transactions has resulted in a vast trove of data that can be analyzed to better understand customer needs
Critical role of data: Data now underpins the success of the subsequent transformation phase for many enterprises that envision bringing together the other critical components of digital transformation such as cloud, AI/ML, front-to-back execution, self-service, resiliency, and mitigating cyber threats
Greater GBS maturity: Global enterprises recognize the leadership potential in GBS centers needed to drive enterprise transformation now exists. This is further accentuated by GBS’ ability to adapt to new agile ways of working and, in the process, demonstrate an appreciation of customer-centricity via cutting-edge product and platform development work. All of this is critical in driving the broader enterprise-level vision

What maturity attributes do GBS organizations exhibit in supporting enterprises’ data transformation initiatives?

As GBS juggle varied responsibilities, many demonstrate attributes of an ideal strategic partner, including:

Owning end-to-end functions: Many GBS organizations now own complete data transformation responsibilities. For example, a leading US bank GBS hosts a Finance and Accounts (F&A) Data Management team that supports finance business users’ data needs. This team is involved in various activities across data management, data sourcing and provisioning, data governance, data lineage, production data validation, and metadata management. Similarly, other examples exist where the GBS leads the enterprise data capabilities and delivery function across multiple corporate functions, such as legal
Driving the future data organization through external collaboration: Many leading GBS organizations are ramping up teams of data specialists and collaborating with the external innovation ecosystem. They are working together to design, administer, and govern data-first setups comprising common data tools, techniques, processes, and data assets explicitly aimed at making data available for use at scale (e.g., accelerate self-service), apply AI/ML to business use cases (e.g., enterprise-wide bots to access knowledge residing across business divisions), and scale-up automation (e.g., 100 percent straight-through processing across front-to-back and reduce risk). For instance, a GBS of a leading US investment bank hosts a Data R&D team in India that collaborates with renowned academic institutions towards developing a scalable, computational system that can extract knowledge from millions of source documents and efficiently structure and represent them for business insights
Applying an engineering mindset to business challenges: As technology solution partners for enterprises, banking GBS organizations are solving business-critical problems by applying an engineering lens to them. For example, a leading European bank applies engineering and data sciences principles (e.g., data discovery) to prepare solution and technical designs from the GBS to meet regulatory commitments around data leakage prevention
Leveraging internal innovation to provide ‘in-demand’ data skills: In meeting critical challenges like the ongoing talent scramble, GBS organizations are picking up cues from global best practices and implementing them. In one case, a leading insurer moved its actuaries into broader data science positions and upskilled them with predictive analytics capabilities to fill the shortage of internal data scientists needed to extract usable customer insights from its newly formed data lake
Solving business challenges and providing critical insights: GBS organizations play an innovative role in delivering impactful data-led solutions that help enterprises solve many business challenges like the following:
- Opportunity sizing and providing customer insights such as revenue and profitability analysis, user journey analytics, and customer service workload predictions
- Designing and creating business-critical dashboards to review business performance
- Assessing campaign impacts such as leveraging predictive analytics-based models to calculate ROI for planned marketing campaigns
- Improving process efficacy by reviewing and streamlining process

Moving forward, GBS organizations need to bring together their leadership and prowess in technology, domain and organizational context, customer-centric approaches, and change management to become true strategic partners in data transformation journeys. Their continued ability to evolve is the quintessential juggernaut that will drive successful data transformation for enterprises.

To share your thoughts on the role of GBS in enterprise data transformation, reach out to [email protected].

You can also learn about how GBS organizations are developing and preparing for 2022 and beyond in our webinar, 5 Success-driving Actions GBS Organizations Need in 2022.

Understanding the Commercial Construct of a Build-Operate-Transfer (BOT) Model for Your Global Business Services | Blog

July 1, 2020

Transformation has become an imperative for all industries, more so during the unprecedented COVID-19 pandemic. A majority of our clients have highlighted the increasing pressure to manage their margins and balance their long-term vision and strategy with short-term needs in a post-COVID-19 landscape. One way for enterprises to achieve this objective is by re-assessing the setup model for their future Global Business Services (GBS) centers.

This blog focuses on one such setup option – Build Operate Transfer (BOT) – and its commercial underpinnings. In these uncertain times, BOT seems to be an especially relevant option, as it offers the unique advantage of lower short-term investment and a better long-term business re-prioritization opportunity. But only if the price is right.

Let’s take a closer look.

Can BOT be your business’ panacea?

In a BOT sourcing model, an enterprise can partner with a third-party service provider to build a delivery center (which includes investing capital, leasing the facility, and sourcing talent), operate it for a pre-defined period (based on the operational agreement), and allow the enterprise the option to transfer the center back to itself. The model helps avoid upfront capital investment, reduces operational risk, limits the burden of managerial and operational oversight, promotes new capabilities, and expedites speed-to-market. As it comes with an exit option, enterprises can also test the model without fully committing to it.

In fact, as part of a recent engagement, we helped a global technology firm assess the best-fit setup option for its GBS center in India. The firm opted for BOT, preferring to partner with a local service provider to reduce financial and operational uncertainties. While the BOT model’s benefits were evident from the start, a key learning from the engagement was that these benefits come at a relatively high cost. Thus, understanding the price tag is key before committing to the model.

Understanding the costs involved

While the key cost components of a BOT model can vary based on the specifics of the service contract, we outline below standard commercial practices prevalent in the market across the build, operate, and transfer stages.

In the build phase, the enterprise is either not required to invest or invests a limited amount, and vendors typically provide most of the upfront investment. In most cases, the service contract stipulates that the service provider’s investment includes setting up the facility (which includes both real estate and technology infrastructure), establishing the hiring mechanism, and laying the ground for services delivery. The service provider recovers this investment in the next two stages.

In the operate phase, the service provider charges the enterprise an ongoing fee to meet all operating expenses and day-to-day operations and to track and maintain pre-determined Service Line Agreements (SLAs). The ongoing fee includes the service provider’s margins, which are typically 2-5% higher than those in a pure outsourcing construct. The additional margin is often dependent on the scope, scale, and nature of services, the service provider profile, extent of initial investment, and lock-in period.

In the transfer phase, the service provider typically charges the enterprise a one-time transfer fee, which could vary widely – 20-30% in some cases – based on other contractual agreements, in lieu of transferring back all services and procured assets. Typically, this fee is charged as a percentage of the ongoing annual fee in the build phase, and an enterprise can pre-determine this percentage in the service contract. Beyond this, if rebadging is required, the service provider charges the enterprise a one-time transfer fee to give up employer rights on resources that are successfully rebadged.

Considering these cost elements, a BOT construct can be about 15-30% more expensive than a de novo / fully owned GBS model. Hence, each enterprise needs to consider the cost-benefit trade-off when selecting a suitable setup option for itself.

Making the move

When evaluating future GBS setups, we urge enterprises to be mindful about the overall business case and assess both the financial and non-financial aspects of the setup model. Doing so will help them understand both the costs involved and associated benefits. Our research strongly suggests that enterprises are likely to find a robust business case for the BOT model to navigate these uncertain times.

Are you looking to understand whether the BOT model would be suitable for your next GBS setup? Connect with us at [email protected], [email protected], and [email protected]

Shared Services Centers and the Myth of Scale | Blog

September 26, 2019

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!

Shared Services Set-up Success: Intent is as Important as Execution | Sherpas in Blue Shirts

September 18, 2018

Clients considering establishing a shared services center – or what we refer to as a Global In-house Center (GIC) – to deliver services, almost invariably ask us how successful the model is and whether it delivers on the expected business impacts.

To set the stage for answering the first question – how successful is the model? – the following chart shows that the number of new annual GIC set-ups has increased from <100 centers in 2015 to 145 centers in 2017, indicating a preference by companies to join the DIY bandwagon.

Multiple factors contribute to this DIY trend, including: the need/desire to take a digital-first approach to service delivery; capacity/growth constraints in onshore locations; challenges with service provider performance; increased adoption of agile/DevOps; pressure to replicate the success of early adopters; and focus on end-to-end ownership in internal delivery.

Related: Is a Bigger Shared Services Center (or GIC) Always Better Performing? Maybe Not

But that chart only tells part of the pervasiveness story. While it would be reasonable to state that the primary adopters of the GIC model are large enterprises, almost half of the new centers set up since 2014 have been established by small (USD <1.5 billion revenue) and mid-sized (USD <10 billion revenue) enterprises. This adoption – seen across technology, telecom, manufacturing, healthcare, and BFSI verticals – reflects that small and small and medium enterprises recognize the successes the large organizations in their sectors have achieved with the model. By all accounts and measures, it’s clear that use of GICs is becoming truly broad-based.

Related: Learn more about Everest Group’s Shared Services Center capabilities

Expected Business Impacts

Here are a few examples of the business impact real-world GICs are delivering beyond arbitrage.

Improve Customer Experience – a European insurance firm’s GIC developed a mobile app for auto insurance customers; the app has reduced claims turnaround time from 2-5 days to 3-6 hours
Drive Innovation – a leading snacks company’s GIC developed an app for selling in-store displays to retailers; the app has reduced the rejection rate by 20 percent
Contribute to Revenue – a financial services firm’s GIC has helped increase product revenue by 17 percent through analytics on product positioning in the retail market
Drive Operational Excellence – a leading bank’s GIC has delivered savings of ~40 percent with substantial reduction in end-to-end delivery time for the customer by deploying robotic process automation
Reduce Errors – a leading financial institution’s GIC has improved the commercial lending analytical models, resulting in identification of additional US$15 million worth of deals that would otherwise have been ignored.

Getting Intentional with Business Impacts

Of course, the only way to ensure business impact beyond arbitrage is by intentionally establishing the GIC to deliver business impact.

For example, we’re currently supporting a global investment management firm through the “impact-first” approach to its GIC set-up. Instead of starting operations with low-value transactional processing, the GIC will predominantly deliver high-end technology services to build tools and systems for quantitative research. The talent model is skill-centric, not scale-centric, and geared to build high-end skills in a sustainable manner. And because a key enabler of delivering business impact is ownership, the GIC will have end-to-end delivery ownership and a seat at the parent’s table to shape its evolution journey from the beginning. All these intentional actions will give the GIC a head-start in delivering business impact, and enable it to leapfrog its more tenured peers.

Overall, having an intentional approach during set-up can significantly influence and enhance the type of business impact the GIC delivers, and how soon it kicks in. And a well-thought-out approach is more likely to keep the expectations from the GIC in check, and its performance assessment objective.

Have you taken an intentional business impact approach with your GIC? Please share your experiences with us at [email protected] or [email protected]. To learn more about how we serve GICs, click here.

Commercial Options for India GIC Setups | Sherpas in Blue Shirts

August 9, 2018

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.

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.

Announcing our inaugural conference: Everest Group Engage, The Pragmatic Edge: Designing Your Future. Learn more.

Author: vivekbhatia