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Global In-house Centers (GICs) are well-positioned to support the enterprise in digital services adoption; successes, barriers, best practices, call to action
Tuesday, March 8, 2016 |10 a.m. CST, 11 am EST, 4 p.m. GMT, 9:30 p.m. IST
In today’s complex sourcing environment, it is rare that one service delivery model works in all situations. Services that are transactional, seasonal, and administrative in nature are, in many instances, best handled with a reliable service provider relationship.
However, if Intellectual Property, Internal End-to-End Process Control, Regulatory and Compliance, and High Attrition are key issues, a Captive Operation or Global In-House Center (GIC), in conjunction with service provider delivery may be the ultimate solution.
Globalization. Service Delivery Optimization. Increased Regulatory Requirements. Security Risk. These issues are driving a change in thinking for future offshore initiatives. This upcoming webinar will feature a discussion between speakers from Sakshi Garg, Practice Director, Everest Group and John Chess, Head-GIC Enablement, DTSI Group on:
Something big is stirring throughout the global in-house center (GIC) landscape. Across all industry verticals, GIC tech executives are rolling out a broad array of initiatives that place bold bets on new digital technologies, which they expect will fundamentally change how their business operates.
While the current digital market is unarguably dominated by service providers, the share of GICs is increasing slowly and steadily. GICs are well poised to support the enterprise in its digital transformation journey given that:
Current landscape
While most GICs have forayed into this digital journey by supporting the parent in its broader digital agenda, some have clearly outshone to display tremendous potential not only to just effectively support, but also to lead the way for digital transformation of the enterprise. There are examples at both ends of the spectrum – some GICs continue to deliver back-end support for digital operations (e.g., social media monitoring, core analytics, and mobility testing), and some enjoy ownership of key end-to-end processes (even Robotics Process Automation!). While some operate with a push-based approach to demand creation for even evolved digitals segments (e.g., analytics,) some relish a pull-based approach for burgeoning digital segments (e.g., RPA,) and meaningfully influence the nature and quantum of digital work being delivered from the GIC.
Analytics is the most evolved segment, with ~40 percent market share. Most of the other digital segments are in the initial to mid stages of evolution. Cloud and mobility represent significant shares, with most of the GICs currently delivering transactional services within these segments, such as application testing within mobility, infrastructure management and orchestration within cloud. Social & interactive and RPA are relatively nascent segments, with only a few GICs showing capabilities to harness them and deliver effective solutions.
The extent of digital adoption across industry verticals, and the maturity of digital segments within these verticals, varies significantly. BFSI is the leading adopter of digital services, with strong capabilities in analytics, mobile, and RPA. The product and technology vertical follows next, with about one-quarter of the market share. GICs in this vertical typically develop sweet spots across the digital stack (e.g., cloud,) with significant scale and depth, thereby achieving a higher level of sophistication in select areas. The third largest adopter is the retail segment, where digital is being leveraged to understand consumer buying behavior and drive a seamless cross-channel customer experience.
Challenges
While digital presents a path-breaking opportunity for GICs to upshift the value being delivered to the enterprise, it doesn’t come without its set of challenges. Almost all GICs unanimously report that their key challenge to going digital is talent – both finding and retaining it. The highly competitive landscape, with the unprecedented shortage of “ready-to-consume” talent, is creating a situation in which entities are feeling the heat of competition not only from their traditional rivals, but also from emerging disruptive rivals. For example, retail banks are facing stiff competition from mobile payment tech providers such as Google Wallet, PayPal, and others. To overcome this challenge, best-in-class GICs have adopted innovative approaches to talent management such as hiring from creative/media agencies for specialized skills, such as social media.
To revel in this digital chaos, GICs are also driving ecosystem partnership with start-ups to drive their innovation agenda, especially automation, workflow management, and analytics. This allows them to derive complementary benefits such as acceleration of own technology, higher speed of innovation, better understanding of customer needs and new business models, branding as an innovation-driven organization, and improved internal employee motivation.
Quite distinctly, digital presents a lucrative opportunity for GICs to upshift their role from a cost arbitrage-focused provider to a strategic partner driving innovation for the parent.
Rise up and take your place in the digital sun, GICs! Your journey has just begun!
For more insights on the GIC digital landscape, please refer to our recently released report, “GICs Leading the way for Digital Transformation of the Enterprise.” The report provides an overview of the current state of digital adoption in GICs, assesses digital maturity of GICs based on a framework, evaluates functional maturity of the top three industry verticals, and highlights best practices, key implications, and calls-to-action for GICs. The report will help senior GIC stakeholders understand the opportunities and challenges offered by this disruptive wave of digital services.
Analytics, cloud, and mobility are the primary driver of digital adoption in the Global In-house Centers (GICs)
Service provider GIC acquisitions – by the numbers
I was introduced to the Philippines about two years back when I started working in the global services sector. And frankly, I was a bit startled by how little I knew about this giant of the contact center services market – I always thought India was the world’s largest contact center market. But its colonial heritage, accent neutrality, cultural affinity with the west, and BPS-conducive environment puts the Philippines at an altogether different level.
I began following the Philippines IT-BPS markets more regularly as I worked on this location for several client engagements. I observed how this country is a perfect example of the “playing on your strengths” approach. It is incredible how the government, iBPAP, and other partner associations have worked together to achieve the growth potential we highlighted in the Roadmap we developed in association with then BPAP and Outsource2Philippines back in 2009. Indeed, the market has doubled in size in less than six years. Today, the Philippines employs over a million FTEs, and is the second largest offshore services delivery location, next only to India.
While voice-based services have always been Philippines’ strength, it has experienced remarkable success in other areas, such as IT services, which grew at ~25 percent CAGR since 2010, and now accounts for ~10 percent share of country’s entire offshore market. While service providers have been key drivers of the growth in IT, Global In-house Centers (GICs) have pushed for growth in FAO and banking services. Several global banking companies, such as American Express, ANZ, Citibank, Deutsche Bank, HSBC, ING Group, JP Morgan Chase, and Wells Fargo, have established sizable centers in the country. Even though Bank of America has exited the country (it shut down its shop in 2014 as part of a global GIC restructuring), and JP Morgan Chase is scaling down owing to global cost cutting, overall outlook remains positive. The country has also made good use of its strong nursing talent—the largest pool of U.S.-licensed nurses outside of the U.S.—and is now the largest healthcare services provider to the U.S. The healthcare BPS sector has grown at over 40 percent YoY since 2012.
Another success area for the Philippines has been its ability to attract global companies. Over 100 have set up their GICs in the country, and close to one-fourth of them are on the Fortune 500. These GICs are expanding their Philippines strategy beyond cost arbitrage, and establishing regional hubs/HQs/CoEs. The U.S. remains the leading buyer market, with ~70 percent total demand. However, demand from Asian markets has been increasing steadily, with several Japanese and Australian companies establishing their captive centers in the metro Manila region.
With increasing emphasis on adoption of digital globally, government agencies (such as iBPAP and PSIA) are making proactive efforts to ensure that the Philippines stays ahead of the curve. It is already investing in building capabilities – from teaching the right curriculum at the universities to supporting companies’ development of required infrastructure to setting up training labs at colleges and universities – to deliver mobility, analytics and cloud-based services. We have seen some evidence of companies already delivering mobility (focused application development services for mobile) from the Philippines in the last year or so. Digital has been the buzzword in the majority of our interactions with our clients looking into the Philippines lately.
Having done well so far, I am intrigued to see how the Philippines will sustain its growth in the evolving IT-BPS ecosystem. It needs to adapt to rapidly changing consumer needs, e.g., the adoption of digital, development of multi-channel delivery systems, and a multi-skilled labor force. It also needs to ensure continuous growth in other service lines, such as banking BPS, FAO, HRO services, animation and gaming, and creative services, by leveraging its interpersonal, voice-based, and strong domain-specific skills to build scale.
It will be interesting to watch what lies ahead in the years to come. Can the Philippines continue shaping its own destiny in the global services market?
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While Brits eat biscuits and chips, Americans eat cookies and French fries. You take a lift in a multi-story UK building, but an elevator takes you to different stories in a building in the US. In the US, you get over-the-counter medications from a pharmacist; in the UK, from a chemist. But, in addition to vocabulary differences between the two countries, they both have very different global in-house center (GIC) adoption models. In the overall GIC landscape (with more than 1,900 in total) UK-based firms have an 11 percent share, which is second only to US-based firms (more than 50 percent). Over 35 percent of the Forbes 2000 UK-based firms have adopted the GIC model, as compared to just 29 percent of US companies. Why are the sourcing decisions in the two countries so different?
Among UK-based firms, BFSI is the dominant vertical (~44 percent), while the technology vertical leads the pack among the US-based companies (~41 percent.) The delivery requirements, regulatory obligations, and intellectual property are significantly different in the two sectors, which partly explains the contrast in their sourcing decisions.
GIC adoption among small and medium sized firms (parent revenue <US$ 10 billion) has been much higher (~50 percent) for US-based firms, while the GIC landscape of UK-based firms is dominated by large firms (revenue > US$ 10 billion) with a staggering 73 percent share. Significant disparity is also seen in the GIC adoption levels for emerging verticals such as consulting, professional services, and legal services, which constitute ~7 percent of UK-based firms as compared to ~3 percent of US-based firms.
There are also big differences in the business leadership style and risk averseness of UK versus US firms. Companies in the UK are much more averse to risk when making a sourcing decision, as evidenced by their choice of mostly tier-1 cities with proven delivery ecosystems, while US-based firms also adopt tier-2 and tier-3 locations to manage costs. Additionally, there’s a lot of nearshore location activity by the UK-based buyers, primarily for contact center delivery, as you’ll see in this Everest Group Nearshored GICs Experiencing Significant Growth among UK-based Buyers. This trend continues, with more and more UK-based buyers embracing CEE and nearshore UK locations.
The following sneak peek into our upcoming report on the GIC landscape among UK-based buyers demonstrates these firms’ changing delivery location preference.
Stay tuned for the report, which provides more analysis of the GIC landscape among UK-based buyers, and differences in delivery trends by offshore and nearshore geographies. Our report will be published by end of June 2015.
Photo credit: Flickr
While multiple studies have addressed the significant value-add potential of analytics delivered by third-party service providers, surprisingly little research has been conducted on analytics supported by Global In-house Centers (GICs). To close this gap, Everest Group recently released a research report detailing GIC footprint, adoption, and best practices for analytics processes.
Following are three lesser known facts about analytics in GICs:
Perhaps unexpected to many, consulting and professional services is the second largest vertical in terms of GIC analytics headcount, after BFSI. It is also the fastest growing vertical for analytics market. (See Exhibit 1 below). Leading professional services firms such as Deloitte, EY, KPMG, and PwC have developed large analytics teams in their India GICs and other offshore/nearshore locations. These analytics GICs are an integral part of these firms’ core delivery model, and support both internal and external stakeholders. The teams provide support in areas including core audit, tax support, risk advisory, performance improvement, technology advisory, and transaction advisory. They also have sizable headcount supporting market intelligence and reporting activities. Leading consulting firms such as McKinsey & Company and Bain & Company are also significantly leveraging in-house analytics capabilities to support client work.
The prime focus of the analytics teams in CPG & retail, and technology is to drive sales through activities such as product recommendations, optimal pricing, and customer lifecycle. And due to GICs’ role as an extended team, most of the analytics work in consulting and professional services contributes towards the firm’s revenue.
This is in sharp contrast with BFSI, which is the most mature adopter of GIC analytics. Major regulatory changes such as Dodd-Frank Act, the CARD Act, FATCA, and Basel III have compelled banks to be more transparent in data reporting, thus requiring regular data collection and event monitoring. Hence, leading financial services firms need to maintain large in-house reporting teams. Increasing usage of online banking, mobile banking, and card payments has led to higher risk of a fraud these days. Banks use analytics to cull out the risky customers and predict default. This, and given legacy reasons, banking GICs tend to have a much higher analytics scale for activities pertaining to cost reduction and risk management compared to those that support top-line growth. These vertical-specific variations in utilization of specific analytics processes by GICs are illustrated in Exhibit 2.
Most of the analytics work requires domain understanding and alignment with business unit-specific objectives. Hence, GICs, especially financial services centers, traditionally structured analytics as vertical teams directly reporting to the corresponding business units.
However, there are increasing instances of GICs structuring analytics as horizontal shared capabilities for certain activities. With experience and maturity in service delivery, GICs have realized that certain analytics activities (e.g., data collection and cleaning, model design and validation, and Management Information Systems (MIS)) can be structured as a horizontal shared capability supporting multiple business units. The key driver for this is creation of a common talent pool of like-minded individuals for career development. It also leads to consistency in hiring and recruitment.
Everest Group’s recently released report, “Analytics in Global In-house Centers (GICs): Running Deep and Wide” provides details on the current market size of analytics services delivered by GICs (overall and industry-specific), key growth drivers, and location landscape. For more details, please download a preview of the report.
The Global in-house Center (GIC) model continues to grow across industries, functions, and emerging markets ‒ from the financial services and technology industries to most verticals, from call center and R&D to a diverse set of functions, and from India to most emerging markets.
As the model continues to grow, with GICs evolving from low-cost service delivery centers to strategic entities driving value beyond cost savings, they face strategic and operational challenges: demand fluctuation management, talent management, driving further optimization through adoption of industry best practices, and knowledge management, to name just a few.
Third-party service providers can come into play here, helping GICs overcome these challenges by providing:
In this hybrid sourcing model, the GICs use service providers and/or manage their delivery on behalf of the parent organization. This also includes situations in which the GIC is driving or supporting sourcing initiatives (e.g., service provider selection or contracting) on behalf of the parent organization.
Everest Group, in collaboration with the Shared Services and Outsourcing Network (SSON) and NASSCOM, recently conducted a survey on hybrid sourcing adoption trends in offshore GICs. Eighty percent of the respondent GICs have adopted hybrid sourcing, leveraging service providers predominantly to manage volume fluctuations, lower costs, and access best practices. As the graphic below shows, most (80%) responded that hybrid sourcing is meeting or exceeding their expectations.
Our research shows that service delivery improvements and governance enhancements are the top priorities for the GICs. Therefore, it is not surprising that GICs collaborate with service providers across three key associated areas – supporting service provider delivery, supporting/implementing the parents’ service provider sourcing program, and identifying global sourcing opportunities and designing the sourcing model strategy. As GICs evolve in their operating models, they are likely to look for more opportunities to work with service providers in these priority areas to enhance the overall impact.
Going forward, it is safe to assume that there are multiple opportunities for service providers to work with the GICs. However, further adoption of hybrid sourcing in GICs will be driven by their ability to influence the mandate from the parent organization, and service providers’ ability to assess the opportunities. Understanding GIC maturity will also be a critical factor driving these collaboration opportunities.
Everest Group has recently released a report on adoption of hybrid sourcing that provides a detailed landscape of current adoption and future trends for this model. For more information, please download a preview of the report, “Adoption of Hybrid Sourcing in GICs – Driving Impact through GIC-Service Provider Collaboration.”
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