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:
Learn More
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.
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.
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.
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.
“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!
We recently conducted a deep analysis of the digital maturity of almost 60 shared services centers, (also referred to as GICs) across diverse industries and geographies, and disseminated summary findings through a series of round tables across different Indian cities, including Delhi NCR, Bangalore, Mumbai, and Pune. You can read the detailed results in our recently released Digital Maturity in GICs | Pinnacle Model™ Analysis.
Here, I want to focus on a question that recurs in most of our conversations: Does the size of a GIC have any implication on its Pinnacle performance on digital maturity? Note that we define Pinnacle GICs™ as those that achieve superior performance because of their advanced capabilities.
The answer to this question is not as objective as it seems.
Our study revealed that scaled GICs (those with 3,000+ FTEs) have consistently delivered better impact across cost savings, operational KPIs, and even strategic metrics such as contribution to revenue growth. It also showed that small (those with less than 1,000 FTEs) and mid-sized GICs (those with 1,000 – 3,000 FTEs) have demonstrated lower improvement across all business outcomes.
Based on our analysis, less than one-third of scaled GICs have been able to demonstrate Pinnacle performance, while multiple small and mid-sized Pinnacle GICs (~30 percent of the Pinnacle performers) have achieved superior outcomes because of their advanced capabilities.
We believe it is the triumvirate of the approach to demand creation, strategic focus of the digital strategy, and orientation towards cross-functional collaboration.
A pull-based approach to demand creation – i.e., a proactive approach to creating Proof of Concepts (POCs) and showcasing capabilities – has not only helped shared services centers secure CXO-level sponsorship, but also increase the existing breadth and depth of services to enable end-to-end process orchestration. For instance, a European BFSI major’s GIC currently operates as the RPA CoE, and champions the end-to-end global RPA program for the enterprise. However, this was not the initial mandate for this shared services center. It proactively started developing POCs, capitalized on visits by onshore C-level executives to showcase their capabilities, and subsequently received buy-in from the parent company. The CoE now operates in a hub and spoke model, wherein the India GIC (hub) provides global governance and drives RPA for Europe through the CEE shared services center (spoke).
While other GICs solely focus on technology adoption, most Pinnacle GICs focus on using technology to enable operational improvement, which consequentially results in employee and/or customer experience enhancement. With achievement of these objectives, financial benefits – both top-line and bottom-line growth – follow suit automatically. Technology adoption per se needs to be viewed as a means to the end, not the end itself. Pinnacle GICs’ more holistic approach allows them to see both higher chances of success and ROI.
The third – and most underrated – differentiator is the focus on cross-pollination of resources by breaking functional barriers. We believe that a siloed approach to digital enablement will not work, and that shared services centers need to break silos and provide employees with wider exposure to functional roles across the firm. This will not only improve knowledge flow and increase productivity, but also stimulate innovation. For some GICs, creating CoEs for select digital capabilities has significantly enhanced the pace of adoption, and sharing of skills and best practices
All these aspects, along with dedicated enterprise leadership, have enabled Pinnacle GICs to champion organization-wide digital services delivery.
If you’d like insights on how your shared services center stacks up against the competition on the digital maturity front, please feel free to reach out to me at [email protected].
Digitally mature GICs vastly outperform others in delivering strategic impact, operational improvements and cost savings.
Everest Group has deemed 11 enterprise Global In-house Centers (GICs) as Pinnacle GICs™—GICs that are achieving superior business outcomes because of their advanced digital capabilities. More importantly, Everest Group has analyzed what these Pinnacle GICs are doing well and is sharing the secrets of their success.
Many GICs are playing a key role in driving their enterprises’ digital agendas, thanks to the rise of next-generation technologies such as mobility, analytics, cloud, automation, and other enabling technologies. While most GICs are in the early- to mid-stages of digital adoption, some GICs have performed better than others by building and orchestrating differentiated capabilities and deriving superior outcomes.
Everest Group’s Pinnacle Model™ approach explores what the very best GICs are doing in terms of real impact and then correlates the capabilities required to achieve those results. By examining what these Pinnacle GICs have in common, others can learn how to succeed, whether they desire to make incremental changes or achieve major transformations.
Everest Group studied the digital adoption journey of 54 GICs, examining five key capability areas—scale of operations and penetration across digital segments, breadth and depth of services, digital talent, operating model and level of influence, and innovation. When those key capabilities were correlated with business outcomes, 11 Pinnacle GICs rose to the top.
As a group, the 11 Pinnacle GICs significantly exceed other GICs in three key outcome areas:
“We found that Pinnacle GICs as a group are 1.8 times more invested than other GICs in supporting multiple business units with digital capabilities and 3 times more likely to provide end-to-end support within digital segments,” said Michel Janssen, chief research guru at Everest Group. “These discrepancies illustrate in a striking way that the GICs that are investing in and applying digital capabilities with breadth and depth across their organizations are reaping drastically superior outcomes in the marketplace. The bottom line for enterprises is that embracing digital is an imperative, not just an opportunity, and the speed of digital adoption is critical to derive maximum impact.”
Everest Group’s recently released report, “Digital Maturity in GICs: Pinnacle Model™ Analysis 2018” describes the journeys of these best-of-the-best companies, provides insights into the key enablers needed to achieve desired outcomes, and points to the investments required for the greatest speed to impact.
***Download a complimentary abstract of the report here.*** (Registration required.)
“Our Pinnacle Model assessments show organizations exactly who is succeeding and how,” added H. Karthik, partner, Global Sourcing, at Everest Group. “One of the most valuable aspects of this research is that we are able to identify Pinnacle Accelerators™, which are specific methods organizations can use to accelerate their digital transformation journey. Armed with clear points of comparison and insightful recommendations, organizations are better equipped to prioritize where to invest their time and resources and plan their own path to the top.”
About the Pinnacle Model
Everest Group’s proprietary Pinnacle Model™ assessments, which include input from executives from leading Fortune 1000 companies, compare internal capabilities to desired business outcomes, such as disrupting the industry, improving customer experiences, increasing market share, and launching innovative products and services. By highlighting what the best—Pinnacle Enterprises™—are doing, these performance studies help organizations plot a journey from their current position to where they want to go, prioritize investments of time and resources for maximum impact, and accelerate change.
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