Category: Shared Services/Global In-house Centers

Shared Services Centers and the Myth of Scale | Blog

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

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

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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.

Can Your Shared Services Group Manage Enterprise Risk? | Blog

The financial crisis of the late 2000s, increasingly stringent regulatory requirements, growing competitive pressures, and a host of other factors have vaulted the risk management function to new heights of strategic importance for banking, financial services, and insurance (BFSI) companies.

Our ongoing research in the sector shows that most enterprises handle risk management out of their onshore headquarters locations, rather than giving ownership of the function to their offshore shared services centers, or what we call Global in-house Centers (GIC).

When we asked BFSI companies why they were keeping risk management on their home turf, they cited several reasons:

  • Because they’re still trying to streamline their risk management frameworks, structures, and processes, they’re unclear what to keep onshore and what to offshore to GICs
  • As risk management is becoming an increasingly critical component of the overall enterprise strategy, they view offshoring the function as a risky move
  • They’re concerned that the offshore talent lacks the needed business acumen and understanding of sourcing geography’s regulations
  • They feel constant interaction and frequent coordination with multiple business units and teams is the first line of defense for reducing risk at the origin

What’s the common thread behind all these rationales? They’re all perceptions, rather than reality.

In fact, our research shows that GICs are particularly well-suited to deliver the risk management function. Why?

  • Many shared services organizations are the driving force behind their enterprise’s digital, automation, and analytics initiatives, and their deep knowledge in these specialized capabilities can be highly useful in the risk management function. And there are synergies in areas such as risk modeling, forecasting, scenario analysis, and reporting. For example, a leading bank’s GIC has successfully automated local regulatory reporting, and is transitioning to be a centralized reporting team
  • There is a dearth of risk talent globally, but offshore GIC locations, such as India and Poland, have strong, solid pools of talent with deep risk management knowledge. This talent is coming from their domestic market (e.g., local banks) and existing GICs that, over time, have scaled their risk management function
  • To deliver real risk management value to the business, the GIC and the group risk team must be integrated; shared services groups have already cracked this operating model way back in areas such as investment research (e.g., sell-side and buy-side) and actuaries (e.g., pricing and valuation).

How can your shared services organization assume responsibility for your enterprise’s risk management function? Like most GICs, yours was probably established to handle scale-oriented transactional work. But risk is about value, not scale. So, you need to change your parent company’s mindset about your group’s capabilities by proactively identifying, proposing, and demonstrating how you can add value and be a strategic partner in managing risk.

Here are a couple of examples that may help get your creative juices flowing:

  • One GIC parlayed its experience with machine learning algorithms to build “Challenger Models” that significantly increase the precision of dataset validation for its company’s credit analysis
  • Another shared services group championed creation of its company’s “Operational Risk Center of Excellence” through process enhancements, global transformation projects, continuous process review and improvement mechanisms. This helped streamline and simplify various processes and risk frameworks.

Our two cents to enterprises: you stand to lose a lot if your risk management capability isn’t up to snuff. Your best solution may be right in front of you, even if not geographically right next to you.

Global Service Delivery Locations: Where to Go, Where Not to Go! | Blog

Long gone are the days of selecting offshore/nearshore service delivery locations with a regional/local interpretation of demand, a focus on cost savings, and an emphasis on service delivery in and of itself. Today, it is evolving to include a global view of demand, an increasing focus on talent quality and capacity for innovation, and the involvement of group-level strategy at its core.

So, which locations will help enterprises fulfill their requirements? Where can they place a long-term bet for a sustainable strategy that provides a competitive edge against their competitors?

Everest Group’s viewpoint, “2019 Locations Predictions: Follow the Talent,” reveals location-specific forecasts that can guide organizations on how to transform their global delivery location strategies.

Everest Group’s Predictions for Global Services Delivery Locations

Asia

As companies look for large-scale rebalancing and consolidation/right-sizing to fewer centers, the primary focus of a location strategy will be talent quality and availability. Asia has the largest talent pool with varied skillsets for IT, digital, Engineering and R&D (ER&D), and BPS service delivery.

India – India will continue to progress in the next three to five years, driven by growth in the digital and ER&D functions, as well as the increase in the availability of depth and breadth of talent. Cities such as Hyderabad and Pune will experience the highest traction due to increasing demand for complex IT and high-end R&D work from the technology and BFSI giants.

The Philippines – The Philippines will continue its dominance as one of the largest voice-BPS markets, and will also experience growth in IT services, accentuated by a faster rotation into digital such as customer analytics and social media-driven services. We expect increased traction in locations beyond Manila, such as Iloilo, Quezon, Taguig, and Davao, given their attractive cost proposition and untapped talent pools.

Malaysia – Malaysia will continue to grow, especially in the multilingual BPS, banking-BPS, and digital sectors, due to the increasing demand from Southeast Asian markets and global BFSI majors.

Europe, Middle East, and Africa (EMEA)

As companies consolidate their portfolios, and as technology and design thinking-based approaches blur the boundaries between IT and BPS, cross-functional collaboration will become critical to achieving digitalization and faster time-to-market. The EMEA region provides an ecosystem that enables companies to tap into talent that can multi-task, and is more suited for cross-functional center setups.

Poland – Poland will overtake Canada to become the third largest location in the world for BPS delivery, given its expansion of multi-functional delivery centers across various verticals and its strong government support. Cities such as Krakow, Warsaw, and Wroclaw will see traction in high-end IT services, with players setting up digital innovation hubs, including blockchain, cryptocurrencies, and AI.

Ireland – Ireland will experience the fastest growth in the region due to strong government support, well-developed infrastructure, and the increasing trend across global majors to shift their headquarters away from the United Kingdom because of Brexit uncertainties. Beyond Dublin, we also expect higher BPS growth in tier-2/3 locations such as Cork, Limerick, and Galway.

Israel – Israel will witness a significant uptick in next-generation IT services including big data, cybersecurity, cloud, and IoT, driven by a focus on research and close collaboration between academia and industry.

Americas

The rise of reshoring amidst the protectionist policies adopted by leading source geographies, including the United States, is driving companies to scrutinize and consolidate their service delivery portfolios. The Americas region is becoming a preferred choice for firms, given the ease of coordination with onshore teams, better alignment/training, and customer intimacy.

Costa Rica – Costa Rica will experience an increase in center set-up activity, although the typical scale of operations might decline due to the focus on delivering agile transformation and automation solutions to support North American operations.

Jamaica – Jamaica will see accelerated growth, especially in the BPS segment, on the back of availability of a large English-speaking talent pool and dedicated government investments to enhance the business environment.

Canada – Canada will also witness accelerated growth, particularly due to high government investments in attracting foreign investors, and especially in the IT and digital services space. Uncertainty around U.S. government policies will further drive enterprises to expand beyond existing U.S. delivery centers, especially Canada.

In today’s complex, and often volatile, environment, a tightly defined and carefully crafted location strategy is increasingly critical to enterprises’ long-term success. For more details on Everest Group’s Predictions for Global Services Delivery Locations, please see our viewpoint, “2019 Locations Predictions: Follow the Talent” or contact Parul Jain or Anish Agarwal directly.

Digital Enables Shared Services Centers To Deliver New Wave of Business Impact | Blog

The number of shared services centers is growing, and enterprises are also expanding the size of their existing centers. Why? A key driver is that digital transformation enables shared service centers (also referred to as “Global in-house Centers” (GICs)) to deliver a new wave of business impact to their parent organizations. Digital technologies such as analytics, automation, and other enabling technologies allow GICs to drive their enterprises’ digital agendas. In fact, Everest Group’s market research shows that the share of new GIC setups that supported digital services was 52% in 2018. However, it’s important to note that some GICs perform better than others and deliver superior outcomes in driving digital agendas. What makes the difference?

In Everest Group’s report, “Digital Maturity in GIC – Pinnacle Model Analysis 2018,” we identified the characteristics of what we refer to as “Pinnacle GICs”™ – global shared services centers that stand apart from other GICs for their business outcomes and capability maturity. Pinnacle GICs achieve superior business outcomes because of their advanced capabilities. We study these best-of-the-best GICs to provide insights into key enablers for desired outcomes and investments required for the greatest speed to impact.

Read more in my blog on Forbes

Reduced Barriers for Small or Mid-Sized Firms Building Offshore Shared Service Centers | Blog

Since the inception of offshored shared services, sometimes referred to as “Global In-house Centers” (GICs), the underlying assumptions were that (a) size matters and (b) the choice of functions (transactional, scale-driven processes) was a driver for gaining offshoring benefits. But the world has changed. The size and functions constraints no longer pose a barrier to entry when building offshore shared services centers.

The assumption that size matters developed because of the complexities and long learning curves in building centers offshore, including:

  • Finding leadership
  • Negotiating for real estate
  • Navigating complex tax regulations
  • Understanding cultural differences for talent management
  • Navigating the complex telecommunications labyrinth
  • Technology barriers to effective collaboration
  • Building institutional knowledge about how to transfer work at scale to an offshore party.

These complexities required a minimum level of scale for offshore shared services to justify the investment and deliver value.

In 2019, most of these challenges no longer exist or pose a high barrier for building a new shared service center as they did a few years ago. Several factors evolved to expand opportunities for building shared service centers of all sizes.

For example, sophisticated leadership is readily available. Today, in India or the Philippines, there is a large pool of executives that have successfully built and run shared service units or GICs. When you hire them, they can quickly assemble a complete team across all dimensions to equip a new shared service center.

Likewise, the complexity and difficulty in finding and securing real estate is now dramatically simpler. Offshore facilities today can rely on improved infrastructure and connectivity. Facilities are readily available and often already furnished with real estate brokers ready and able to facilitate the transactions. There is a broad market acceptance that India and the Philippines have good hotels and retail facilities, good food, are safe, and have good air transport.

Advisors now understand the tax treaties. Accountants and lawyers know how to construct the appropriate legal entities (e.g., LLPs vs. wholly owned subsidiaries) and structure them to be tax and compliance efficient. They also understand the government entities and licensing and are eager to assist new entrants.

The services industry’s current level of maturity enables successful practices based on past lessons learned for offshore shared service centers. The philosophies and methodologies to transfer work and run the work effectively are widely available with training available for the uninitiated. Today, we understand the role of the center and how to integrate it with the parent organization. Furthermore, we now have technology tools and collaboration platforms that facilitate remote workforce management.

So, the barrier to entry, which was prevalent earlier, now is dramatically lower. Today, it’s much easier and cheaper to start a new center. This results in two areas of growth for shared service centers:

  • Small to mid-sized organizations
  • Larger firms moving away from third-party services

Small to Mid-sized Organizations

In the past, companies needed to spread the learning curve and expense over a large number of FTEs and many functions. In addition, technology platforms enable better collaboration, thus dramatically reducing dependence of colocation. These factors change the return on investment or viability of small entities.

Now that the need to scale is reduced, companies can get a strong return, even for sometimes as few as 50 seats, depending on the function. They can also make a significant impact to EBIDTA for their parent companies, even at a much smaller scale.

The reduced scale factor dramatically changes the landscape in which companies can, and should, consider having an offshore facility. Until now, the prevailing wisdom was that companies sized at $50 million to $2 billion were too small to tap into having their own shared service center and must, instead, go through third parties. Everest Group’s market benchmarking reveals that almost half the new shared service centers set up since 2014 were established by small (<$1.5 billion revenue) and mid-sized (<$10 billion revenue) enterprises. Today, with the lower barrier to entry and reduced scale factor, even a small $50 million firm (depending on what the services involve) could and should confidently look at building its own offshore shared service capability.

Clearly, the economics change significantly, depending upon the function or skill set the company seeks to acquire. The highest return is in IT engineering functions and areas such as analytics. But even the threshold for corporate functions is dramatically shifting for shared services with 100-150 people.

Looking at the relative market penetration of GICs or offshore shared services in the $50 million to $2 billion marketplace, it’s clear that only a very small proportion of these firms are taking advantage of this now-affordable and high-return mechanism. The reduced barrier to entry and reduced scale factor suggests that these firms should now pay attention; as they do, we could well see an explosion of small shared service entities being established offshore.

Larger Firms Shifting Away from Third Parties

The shift in economics also impacts larger firms, leading them away from third-party service providers and opting for the do-it-yourself (DIY) movement. We’re seeing rapid growth of the number of new shared service centers as well as the growing size of the shared service or GIC communities in locations such as India, the Philippines and Eastern Europe.

The offshore shared services market is growing rapidly for companies of all sizes. The earlier constraints for entry and need for large scale are no longer a factor. In fact, the constraint facing firms today is one of mind-set, not of ability.

Video: Shared Services Talent Priorities – Three Takeaways | Blog

Chief Research Guru Michel Janssen shares a recap below of three takeaways from our recent webinar, “Is Your Shared Services Strategy Future Ready? 5 Differentiating Talent Capabilities“.  

Full script: 

We just completed our webinar on our shared services or GIC Talent Pinnacle Model. And what were trying to there is understand, what are those key business issues.

So the first thing we looked at is how the talent shortage is becoming chronic. And one of the statistics I used here with clients – I talk about how it used to be that executives were just concerned about the top talent – “how do I get the best talent in the organization” – so they can have an impact on the rest of the organization. But now, as we become more chronic in the numbers – and what I mean by the number is ten years ago, in the US, it used to be 700 people looking for 100 jobs. And right now in the U.S., we have 90 people looking for those same 100 jobs.

And so, what you’re finding is that there is more demand than there is supply in that conversation. But it’s a bit of a tale of two worlds. While you have shortages in the U.S. and Europe you’ve got a very different thing going on in low-cost locations, especially like India. And there, there’s not a shortage of talent, it’s finding the right talent – they’re concerned with, “how do I take the existing pool of people in and upskill them or reskill them into the needed skills for the organization to go forward.

So, what we’ve done is look at the Pinnacle Model, and we have found that there is a very dramatic cause and effect. And what we’re looking at in the Pinnacle Model – the way it works is you’ve got capabilities on the X axis, and you’ve got outcomes on the Y axis. And what you’re looking for is a nice correlation that goes from lower left to upper right. And what we’re trying to do there is establish the things that make a difference. And so, what we did in the rest of the video was talk about those capabilities that made that difference.

So we think those are impactful items, and if people were endeavoring to execute on those items, they got the results they were looking for. So click the link, and take a look.

The Three Components Your Shared Services Center Needs to Include in its Innovation Equation | Blog

Supporting enterprises’ innovation agendas is no longer simply an opportunity for in-house shared services centers – what we call global in-house centers (GICs); it’s fast becoming a competitive imperative. And, contrary to popular perception, cracking the innovation code requires much more than just novel ideas. Success entails boarding the right people on the bus, gearing them up with the right mechanisms to drive agile decision making, and reengineering the organization’s cultural DNA to foster innovation. We’ve developed a simple approach that will help you solve this complex problem.

Let’s take a look at the three components.

The Three Components Your Shared Services Center Needs to Include in its Innovation Equation

Process

Innovation is not the product of logical thought, although the result is tied to logical structure – Albert Einstein

The first element is formulation of the right mechanisms to evangelize innovation initiatives. It requires the right idea generation mechanisms to harness unique ideas from both internal (GIC and parent company stakeholders) and external (including startups, academia, and service providers / specialists) ecosystems. A critical part of this is evaluating the strategic rationale for the partnership. While some shared services centers partner with third-party providers and start-ups for talent augmentation and skill acquisition, others leverage the connections to develop domain expertise or increase the speed of innovation.

Another essential component, specifically for GICs, is the right funding mechanism. While we see most shared services centers carving out a separate fund for innovation (which is part of the overall GIC CEO budget), we are increasingly seeing them push for a global/centralized fund where the innovation team within the center operates as an extension of the global innovation team(s), and is funded by centralized global venture funds / programs. For select initiatives, we have also seen GICs securing funding from business units and driving project-based innovation initiatives.

The third component here is timely deployment of robust governance mechanisms. Shared services centers need to adopt a disciplined approach to rigorously track performance and incorporate remedial feedback on a continual basis. This not only helps to assess the effectiveness of activities, but also guides allocation process for resources, and helps assign accountability for actions/responsibilities.

People

Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have and how you’re led – Steve Jobs

Involving the right people in the right team structure is the second critical component. Leading GICs involve stakeholders from different parts of the organization, i.e., functional and business teams, central innovation groups, R&D departments, and corporate teams to invest time in exploring adjacent and transformational opportunities. This helps in cross-pollination of teams and enables development of a holistic solution in an accelerated go-to-market timeframe. While we have seen varied designs for innovation teams (based on organizational fit and business alignment), the common thread is the focused top-driven approach to creating structural changes, supplemented by continuous support from middle management to ensure smooth implementation.

Another key initiative leading centers are taking is remodeling their existing talent practices. They are now shifting their focus from hiring for specific “skills” to hiring for “learnability” / “thinking skills”, i.e., the ability to innovate. They are incentivizing innovation, and providing special recognition for outside- the-box thinking. We are also seeing strong innovators recalibrate their existing performance measurement metrics to align with the impact generated against the business objectives.

 Culture

“Innovation is not something you do for one afternoon a week, it’s got to be in your DNA” – Jasper de Valk and James van Thiel, Google

The third principal tenet to ensuring foundational success on the innovation journey is dedicated investment in developing a customer-centric culture with active CXO-level participation. Shared services centers are deploying multiple tools to reengineer their DNA and develop a culture that breeds innovation. Most successful examples include: gamification of programs and distinctive recognition for positive reinforcement; stimulation of an experimentation mindset and instillation of risk appetite; and adoption of flexible employment models, including remote working, crowdsourcing, and open innovation.

Although new technologies are path-breaking, we believe that the key to a GIC’s success is incremental innovation. They should keep testing small-scale POCs to demonstrate end-client value and build credibility. Successful implementation of pilots can help them instill confidence among parent stakeholders, and ensure adequate support and funding for much larger scale initiatives. This process also presents centers with an opportunity to course-correct early and drive/lead enterprise-wide digital initiatives.

If you’d like detailed insights and real-life case studies on how GICs have effectively driven the innovation agenda for their enterprises, please read our recently published report – Leading Innovation and Creating Value: The 2019 Imperative for GICs. And feel free to reach out to us at [email protected] to explore this further. We will be happy to hear your story, questions, concerns, and successes!

Can Indian Tier-2/3 Cities Fit the Bill for Digital Services Delivery? | Sherpas in Blue Shirts

India continues to offer an attractive service delivery location proposition for global companies, given its unique combination of a low-cost, scalable English-speaking talent pool, and the breadth and depth of available skills.

As the global digital services industry matures, and with increasing competition in the tier-1 cities, companies are looking to reduce the costs of talent and access additional untapped talent pools for digital services delivery.

Can tier-2/3 cities in India fit the bill? Let’s start by looking at the current state of digital services delivery in these cities.

Existing Landscape

Today, India is the largest destination for digital services delivery, with 75 percent of the market. Tier-2/3 cities in the country currently hold 14-16 percent of the market share, and we expect this proportion to grow by 15-20 percent in the next couple of years. Ahmedabad, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Lucknow, T-puram, and Vadodara are the top nine tier-2/3 locations, accounting for 55-60 percent of the digital services headcount in tier-2/3 cities.

Tier-2/3 cities are mostly leveraged to provide social & interactive (41-43 percent), cloud (21-23 percent), analytics (16-18 percent), and automation (10-12 percent) related services. When it comes to sophisticated digital technology services, such as cybersecurity, mobility, and Artificial Intelligence (AI), service providers still prefer tier-1 locations such as Bengaluru.

Major digital services Tier 2 3 blog

Now, let’s evaluate how tier-2/3 Indian cities’ value proposition stacks up against tier-1 cities.

 

Value prop tier2 3 India

What’s ahead for India’s Tier-2/3 Cities?

 Here are some of the key findings from our recently published report, “Will Tier-2/3 Indian Cities Carve a Niche in the Digital Story?

  • Tier-2/3 cities will continue to be leveraged predominantly as spokes to major hubs in tier-1 cities for the next two to three years
  • Because of a lack of skilled talent, delivery of advanced digital services such as machine learning, cyber security, and mobility from tier-2/3 cities will remain a distant dream for the next few years
  • An increasing number of enterprises will set up global in-house centers (GICs) or shared services centers for delivery of digital operations, due to increasing confidence and improvements in infrastructure quality
  • Reskilling/upskilling for digital capabilities will be paramount for companies operating in these cities
  • A few large service providers will invest in training talent, and benefit from early mover advantage by becoming distinguished employers in a less competitive market

To learn more – including the metrics around availability of talent, market maturity, cost of operations, business and operating risk environment, and implications for market participants including buyers, service providers, investment promotion councils, and industry bodies – please read our recently published report, “Will Tier-2/3 Indian Cities Carve a Niche in the Digital Story?.” We developed the report based on deep-dive discussions with leading shared services centers, service providers, recruitment agencies, and other market participants.

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