Tag: hybrid sourcing model

Hybrid Sourcing: A Win-Win Scenario for GICs and Service Providers | Sherpas in Blue Shirts

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:

  • Additional cost savings through economies of scale and delivery pyramid optimization
  • The flexibility to ramp-up and ramp-down the capacity based on demand
  • Expertise in tools/technology and best practices on processes/control mechanisms
  • Large global footprint and language capabilities to serve for all regional centers across geographies
  • Niche skills such as digital and analytics

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.

Areas of GIC-Service Provider Collaboration

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.”

Slow Growth of GICs… Is the Model Losing Its Sheen? | Sherpas in Blue Shirts

The Global In-house Center (GIC, formerly referred to as captives) market was once thriving with unprecedented statistics – 97 new GIC set-ups in 2009, 105 in 2010, and 103 in 2011. Then there was a dip, with only 75 new centers in 2012, and 69 in 2013. This, coupled with numerous acquisitions of GICs by service providers, (e.g., KBC Group’s financial arm by Cognizant, Bayer’s Indian IT operations by Capgemini, and Hutchison Whampoa’s India-based call center operations by Tech Mahindra), is likely to raise questions and concerns about the future of the in-house model.

GIC Landscape Report 2013-I1

Let us look at the ground realities of the GIC model’s growth and evolution:

  • Indeed, the rate of growth of GIC set-ups has slowed down. However, this can largely be attributed to a weak economic scenario and slow decision-making cycles, and should not be construed as weakening confidence in the GIC model. As the future outlook of the global economy is positive, we expect the GIC market to gain momentum in the near future
  • Established GICs are evolving in their journey to be a partner of their parent firms, rather than just an offshore cost-saving entity
  • The success of the GIC model in pioneer delivery locations such as India and the Philippines is leading buyers to explore and diversify to other locations
    • CEE countries are witnessing increased activity due to aggressive government incentives, the language advantage, and the nearshore proposition
    • Relatively untapped regions in the Middle East and Africa reported an astonishing eight GIC set-ups in the last year alone
    • Firms are expanding their GIC operations to tier-2 and 3 cities due to saturation in tier-1 cities in mature locations such as India

GIC Landscape Report 2013-I5

  • While the technology, manufacturing, distribution and retail, and BFSI industries continue to have a strong foothold, other verticals – such as conglomerates, business services, hospitality, and printing and publishing – have emerged to gain a noticeable share of the GIC market.

Further, while buyers’ moves from an outsourced to an in-house model rarely receive considerable fanfare, they do paint a picture of the health of the GIC model. For example, HP had been General Motor’s main IT vendor per a US$2 billion contract awarded in 2010, but in 2012 the automaker decided to insource a huge amount of its services as part of its new strategy, leaving HP with only a few. AstraZeneca plans to reduce its outsourcing work, which is currently spread across multiple Indian software service providers. BT plans to have more control of its processes by taking back its outsourcing contracts from service providers, and increasing its capacity in existing shared services centers in India and Malaysia.

The bottom line is that while GIC set-up growth may be slowing, the model continues to be an integral component of organizations’ sourcing strategy. Firms continue to leverage both sourcing models (service providers and GICs) based on best fit with their sourcing needs, cost and value objectives, and services demand profile.

For more insights on the GIC model landscape, please refer to our recently released report “Global In-house Center (GIC) Landscape Annual Report 2013.” The report provides a deep-dive into the GIC landscape and a year-on-year analysis of the GIC trends in 2013, comparing them with trends in the last two years. The research also delivers key insights into the GIC market across locations, verticals, and functions, and concludes with an assessment of strategic priorities for GICs.

How Can a Service Provider Take Advantage of the Increase in New Shared Services Starts? | Sherpas in Blue Shirts

In a recent blog I noted that there is a new wave of shared services activity. But don’t dismiss that news with an assumption that new starts in shared services just means taking a slice of business away from third-party service providers. Here are my tips for shifting this potential business loss to a new revenue stream.

Tip #1: Be patient

If a company has decided to go down the shared services path, your trying to convince them to use purely outsourcing is not likely to succeed. However, we know that over time companies that decide to embark on a shared services journey later decide to use third-party providers in their shared services mix, to a lesser or larger degree. So be patient. These activities take years to develop.

Tip #2: Be an ally 

Don’t be an enemy of their decision to take the shared services path. Instead, be an ally and assist them on their journey. You can help them build out their shared services approach and use that relationship to identify where they could use a third party for part of of the services.

Tip #3: Cede control

At some point a shared services unit probably will adopt a hybrid approach to services. Even so, companies moving to shared services inherently favor maintaining control; so the types of services you offer them should be designed to allow them to exercise control.

Much of the outsourcing model is about giving the provider control so the provider can operate in an efficient manner and give the customer a low price. That approach won’t work in a hybrid shared services model. Instead, take an approach along the lines of “Let us help you craft control” so you can participate going forward.

When is a “Hybrid” Sourcing Model not a Hybrid? | Sherpas in Blue Shirts

During a panel on which I participated at the recent Shared Services and Outsourcing Week conference in Orlando, the topic of “hybrid models” came up again. Most of the market bandying about the term were illustrating their, or their clients’, “sophisticated” mix of outsourcing and captive shared services, when in reality – with all due respect – they were actually describing a non-complementary mish mash of uncoordinated legacy delivery model decisions made across business units, operating entities, etc.

If we are to get any tangible – and extra – value from hybrid model, we need to get real about what creates that value. Further, a hybrid is not appropriate for every process or function.

What is a real hybrid sourcing model? Let’s look at automobiles as an analogy. You may have an electric motor-run Chevy Volt and a gas-powered Honda Civic in your garage, but that only means you have two different types of cars that get you to your desired destination using different power sources. On the other hand, the hybrid Toyota Prius uses both gas and electricity, switching back and forth between the two power sources as needed to achieve optimum efficiency, performance and cost savings (and, of course, to be kind to the environment.)

By extension, true hybrid sourcing combines the strengths of outsourcing and captive shared services into a single model designed to capture added value – e.g., delivery speed and flexibility, operational resiliency and investment leverage – not available, or not as easily attainable, when integration of the above two delivery models is lacking.

Against that description, I encourage you to step back and ask yourself, “Is the services delivery model in use within my organization really a hybrid, or did I, or my service provider, simply rebadge it with the provocative, sophisticated-sounding hybrid moniker?”

Of course, the name you ascribe to your delivery model isn’t of much consequence. But it is critically important to determine whether or not a hybrid model is appropriate and advantageous for your organization, as there are times when separate outsourcing and captive shared services models are a better fit. Key indicators that hybrid is right for you include: 1) if there is a service delivery platform that can be shared and re-leveraged; and 2) if a given process is prone to volume and budget changes.

So…is your delivery model really a Prius? Should it be?

Have a question?

Please let us know how we can help you.

Contact us

Email us

How can we engage?

Please let us know how we can help you on your journey.