Intelligent Automation Adoption in GBS Centers: Emerging Trends | Market Insights™
September 29, 2020
Intelligent Automation
Intelligent Automation
Over the past few years, India has emerged as an attractive destination for both the expansion of existing shared services centers – or Global In-house Centers (GICs) – and new GIC setups by retail and CPG enterprises. This change is due largely to access to skilled talent, especially for digital services, and the relatively low operating costs. Today, India accounts for 20-25 percent of offshore retail and CPG GICs, of which roughly 50 percent were set up in the last five years.
While these GICs initially focused on the delivery of services such as IT, HR, F&A, and contact center, the need for digital integration to obtain faster results and innovation is driving retail and CPG GICs to help deliver core operations by leveraging next-generation technologies such as AI, advanced analytics, and automation.
In recent years, India-based retail and CPG shared services centers have started to deliver complex, judgment-intensive work such as sourcing and procurement, merchandising and inventory planning, sales and marketing, supply chain and logistics, and customer experience management; this work was earlier managed in-house by enterprises themselves.
In fact, best-in-class GICs have been aggressively pushing the envelope by building capabilities to deliver niche/complex processes for core operations. For instance, an American multinational CPG that set up its GIC in India in 2019 focuses only on the delivery of core services such as consumer science, packaging, and product development from the facility.
And that’s only one among many examples of enterprises leveraging shared services centers to deliver core functions. In the sales and marketing function, for example, India-based retail and CPG GICs are delivering some of the most niche/complex processes within the function. Here’s a look at these processes and the extent of GIC adoption for process delivery.
As you see, India-based centers are increasingly delivering processes like customer engagement and site merchandising, and there’s significant delivery potential for processes such as promotion management, marketing communication, and channel management.
Of course, the availability of skilled talent is key for the successful delivery of these core processes from India. Even when most companies globally face an acute talent shortage, best-in-class India-based GICs have been quick to scale up niche talent to deliver both core operations and digital services by hiring resources from adjacent industries. For instance, an American retailer’s shared services center has hired employees with TV, visual media, and digital content experience from the domestic advertising industry to support less-adopted processes such as promotion management and marketing communication. The GIC plans to establish structured upskilling programs to familiarize these new hires with global delivery operations.
Over the coming years, we expect this trend of GICs delivering core operations to continue and, in fact, increase significantly. Doing so will drive accelerated innovation, as the centers’ talent will have the advantage of deeper business context.
To learn more about the growing synergies between enterprises and GICs, please reach out to Bharath M or Ranjith Reddy.
This is the fourth in a series of blogs that explores a range of topics related to these issues and will naturally evolve as events unfold and facts reveal themselves. The blogs are in no way intended to provide scientific or health expertise, but rather focus on the implications and options for service delivery organizations.
These insights are based on our ongoing interactions with organizations operating in impacted areas, our expertise in global service delivery, and our previous experience with clients facing challenges from the SARS, MERS, and Zika viruses, as well as other unique risk situations.
A virus originating in China has brought life to a standstill around the globe – and that includes service providers and shared services centers or Global In-house Centers (GICs). From delays in procuring office supplies (most of them sourced from China) and rescheduling of important meetings/events to the threat the virus poses to human capital, the risks have pushed most firms to revisit their business plans and potentially prepare for another worldwide recession. The virus spread has also been a wakeup call for providers and shared services centers, testing their preparedness in terms of business continuity and disaster recovery. In fact, it has made some firms comprehend the need to balance their cost-competitive mindset with a risk-competitive one.
Some organizations are well prepared and offer examples for others to follow. In this blog, we take a look at some of these noteworthy business continuity and disaster recovery measures, based on our conversations with more than 20 GICs and service providers globally. Strategies that stand out in particular include:
For example, a UK-headquartered bank (with GICs across multiple locations) has an intra-city, inter-city, and inter-country Business Continuity Planning (BCP) strategy. The bank follows a robust BCP operating procedure by: (A) assessing a service’s/process’ business impact /criticality if work were to stop due to reputational, financial, or customer-related reasons, among others); and, (B) identifying the work location based upon criticality – highly critical services/processes are typically distributed across two countries. To understand this better, the company invokes:
In the aftermath of the coronavirus outbreak, we are likely to see significantly strengthened business continuity plans – those that take into account talent availability, work placement strategy, infrastructure availability, and newer metrics to manage performance. In particular, we encourage enterprises to explore answers to the following questions to develop robust business continuity plans:
Visit our COVID-19 resource center to access all our COVD-19 related insights.
At the very beginning of 2020, we launched our Pinnacle Model analysis focused on innovation in shared services centers (SSCs)…also referred to as Global In-house Centers (GICs). This ground-breaking research identifies the characteristics of Pinnacle GICs™ – those global shared services centers that stand apart from others for their business outcomes and capability maturity. We study these best-of-the-best GICs to identify common trends among them, including the differentiated capabilities they’ve built to support and drive enterprises’ innovation agendas, and the best practices they’ve adopted to enable the desired transformation and overcome any operational challenges.
Here’s a look at two of the top trends we’ve identified thus far from our current analysis of leading GICs spread across offshore and nearshore geographies.
Realizing fast return on investment (ROI) is key to making an innovation agenda a win-win for both SSCs and their parent organizations. A quick ROI enables the GIC to gain the influence it needs to serve as an end-to-end innovation strategic partner to the parent enterprise. Our emerging findings show that approximately 90 percent of GICs/SSCs achieve expected ROI in less than 24 months. If you’re a GIC leader, you can confidently use this number to boost your parent enterprise’s confidence in further leveraging your team and its capabilities to drive its innovation agenda.
GICs have a unique combined insider’s and market view that enables them to provide strategic insights to orchestrate enterprise-wide innovation. Our emerging analysis shows that Pinnacle GICs have invested extensively in and partnered with start-ups and academic institutions to source innovation ideas across their product and services portfolio. They leverage these partners across various stages of the innovation cycle, particularly in the idea generation and concept testing stages. Additionally, Pinnacle GICs strongly embrace start-ups to help drive an innovation-focused culture across the entire organization.
We’re winding down our analysis of GICs’ innovation journeys and would love to incorporate your views into our report. Please click here to participate in this study. When we’ve finished our analysis, we’ll send you a complimentary report that will show you where you stand relative to the industry’s crème de la crème.
Digital services—especially automation, analytics and cloud—continued to dominate outsourcing activity
The global sourcing industry posted healthy numbers for Q4 2018, marked by an 8 percent increase in outsourcing transactions and a 13 percent increase in Global In-house Center (GIC) setups and expansions over the previous quarter, according to Everest Group.
Digital services continued to dominate the outsourcing activity in Q4, with 74 percent of all outsourcing transactions comprising digital-focused services as compared to 26 percent of transactions focused on pure traditional services. Cloud services were included in 44 percent of all digital-focused transactions for the year.
“The global services industry enjoyed a fourth consecutive quarter of growth in Q4 2018, with digital services activity continuing its upward trend,” said H. Karthik, partner at Everest Group. “Two key areas of service provider activity in Q4 demonstrate this strong emphasis on digital services. First, service providers such as Accenture, DXC Technology and TCS announced acquisitions of startups to enhance their interactive digital content capabilities. Secondly, several service providers announced innovative partnerships with educational institutions in their attempts to bridge the digital skills gap. For example, Accenture announced a partnership with Georgia Institute of Technology, IBM is teaming up with IIT Delhi, and Infosys is joining forces with Cornell. We will continue to see service providers investing in acquisition and partnership strategies to strengthen their digital services capabilities in the year ahead.”
Everest Group discusses these and other fourth-quarter developments in its recently released Market Vista™: Q1 2019 report. The quarterly report highlights the trends in the fast-evolving global sourcing market, exploring the key developments across outsourcing transactions and Global In-house Centers (GICs), as well as location risks and opportunities, and service provider developments.
Additional highlights from the Market Vista: Q4 2018 report:
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Originally presented live on Wednesday, February 27, 2019
This 18-minute on-demand webinar is the second in a series of brief, targeted sessions designed to help service delivery leaders set up leading, effective, and successful delivery centers.
As enterprises increasingly adopt the Shared Services Center (also known as Global In-house Center or GIC) model, they often grapple with questions regarding the key set-up elements. This particular session covers the following topics:
• Range of setup options available
• Advantages and challenges prevalent within each option
• Market adoption and expected trends
• Decision variables in selecting the right setup model
Who should view, and why?
The content is geared to senior enterprise executives, including: leaders responsible for strategic outsourcing, transformation, and project management, as well as business unit executives. The session is designed for those looking to strengthen their understanding of the setup-related aspects of establishing Shared Services Centers or GICs.
Presenters:
Marvin Newell
Partner, Consulting
Everest Group
Aditya Verma
Vice-President, Global Sourcing
Everest Group
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:
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:
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.
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.
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.
This 25-minute on-demand webinar is the first in a series of brief, targeted sessions designed to help service delivery leaders set up leading, effective, and successful delivery centers.
This must-see session addresses how to:
• Articulate business objectives, the center’s role, and its anticipated business impact
• Evaluate setup options, including location, talent model, and commercial & legal options
• Prepare and assess the business case for the center
• Develop the implementation blueprint, including the timeline and sequencing of activities, vendor selection and coordination, and operating and governance models
Who should view, and why?
The content is geared to senior enterprise executives, including: leaders responsible for strategic outsourcing, transformation, and project management, as well as business unit executives.
Presenters:
H. Karthik
Partner, Global Sourcing
Everest Group
Marvin Newell
Partner, Consulting
Everest Group
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