AVBC Enterprise is a large organization based in Texas, USA. Which industry it is in doesn’t matter – you decide. What you need to know about this organization is that they once felt that they were paying too much money to get operational, backend support functions done. They realized that they could cut their operational costs significantly by outsourcing this job to India, where labor was abundant and costs low.
In the subsequent years, AVBC was able to cut down their operational costs by over 30%.
It should. For the better part of the 1990s and 2000s, many large enterprises across the globe did this – outsource operations to countries with cheaper labor. If it wasn’t India, it was Indonesia, the Philippines, Turkey, Poland… you get the picture!
This is where the story usually ends. What is rarely talked about, however, is what followed. After the initial years of cost saving, AVBC spending more money on its GIC, and it wasn’t because their workforce was growing, or output was increasing. The problem seemed plain and simple – operational costs were rising.
Upon further inspection, however, a new reality came to light. It wasn’t just that the cost of infrastructure or vendor payments were increasing. The challenges ran much deeper, and they continue to fester. In essence, ABVC Enterprise is a representation of most GIC organizations – undergoing massive volatility, much greater than most industries. The bend in the road that they are at leads them to one of two extreme outcomes:
- Become a part of the parent enterprise by aligning and adapting to the business strategy, or
- Dissolve entirely because it has become a liability to the parent organization.
How did it come to this for GICs? Let’s take a step back.
The lay of the land
Global In-house Centres (GICs) or Captives emerged as a way for organizations to cut costs. Digitalization, however, has given every business a global presence and market. This means that every part of business, including the GICs can contribute significantly and beyond just being a shared, back-end operational service.
To support themselves in the new business landscape, many multinational corporations are seeking to restructure their business models to integrate GICs in more expansive ways. In doing so, GICs are being challenged to rapidly alter their own way of functioning to move up the value chain – transitioning from being pure play cost centers to becoming centers of excellence delivering innovation, quality, and strategic value.
The changes happening in the business landscape require GICs to undergo the following shifts:
Not all GICs, however, have managed to achieve this shift. In fact, GICs are currently at various levels of the maturity curve.
Illustration: Based on the Captives Maturity Model
|Level 1: Resource Centre||Provide a cost advantage by executing a targeted business process|
|Level 2: Quality Centre||Function as subject matter experts, and improve quality and scalability through process standardization and optimization|
|Level 3: Innovation Centre||Act as strategic entities that drive innovation and accelerate the parent company’s foray into new and digital-enabled products and services|
|Level 4: Market Expansion Centre||Help parent company expand into emerging markets, by conceptualizing and executing products and services relevant to consumers in the local market and ultimately at a global level.|
|Level 5: Global Delivery Centre||Align with the parent company, and its strategy and style of working.|
The Ground Reality
Most GICs, unfortunately, stagnate at level 2, as low-cost centers offering high-quality processes.
This is because they find it difficult to move to the next stage of maturity where they are required to act as strategic entities driving innovation and accelerating the parent company’s foray into new and digital-enabled products and services. Part of the problem, according to Cognizant Perspectives lies in:
- Productivity and operational cost pressures.
- Challenge: Optimizing operational and productivity models, resulting in high cost due to poor governance, lack of automation, reliance on legacy infrastructure and an unscalable business model.
- Need: Evolve applications, platforms and infrastructure to contain costs, streamline operations and allow for growth aligned with enterprise goals.
- Slow digital adoption.
- Challenge: Adapting to market dynamics and changing business priorities, and demonstrating sustainable value to the enterprise
- Need: Accelerate evolution toward digital, transition into an innovation hub and revenue center, and develop a relevant value proposition.
- Difficulty acquiring and retaining top digital talent.
- Challenge: Developing and retaining employees with the necessary digital skills, domain expertise and leadership qualities due to poor career advancement opportunities and high employee attrition can be high.
- Need: Develop a sustainable way to shift the talent pool from legacy to digital, from operation-focused to innovation-oriented, and from functional experts to business experts.
This is an important consideration because, while several GICs have succeeded in delivering significant cost savings, increasing operating costs are making it harder for even the most successful GICs to generate incremental value moving ahead. Therefore, it has become imperative for GICs to reinvent themselves to stay relevant and add demonstrable, sustainable value to their parent organizations. The way to add value is by maturing beyond being just resource or quality centres.
The Silver Lining
The ideal state for GICs to be operating at right now involves them:
- acting as global centers of excellence,
- providing standardized, scalable and economic solutions,
- enabling regional/local innovation, and
- ultimately driving market expansion opportunities for the parent organization.
This requires developing a value proposition that is relevant to the changing marketplace dynamics in which the parent organization operates.
Achieving this requires overcoming a larger problem – TALENT READINESS. While the goal and mandate for GICs is chalked out well, GICs continue to face a significant lack of the right talent with capabilities to execute and deliver on these innovations and enhance maturity of GICs and their workforce. Peepal Consulting’s 2018 GIC Report outlined 6 key CxO priorities for GIC Talent Development:
- Business Accountability – Be an owner of key enterprise priorities, including market sensing and customer-facing core functions, with clear influence of profitability.
- Becoming a world-class talent hub with deep domain expertise, exporting talent to the rest of the enterprise.
- Being digital ready, starting with a digital-first mindset for the adoption and implementation of digital technologies
- Becoming the analytics center of excellence that generates sustainable competitive advantage for the enterprise in functions owned by GICs.
- Sustained cost excellence – Continue to be center of efficiency by being at the vanguard of productivity enhancement (automation, AI, cognitive).
- Agile and collaborative working for high value creation.
In our own conversations with GIC companies, we commonly hear about 8 key talent capability challenges.
The reality remains this – for GIC’s to make the shift from being cost centres to value centres, they need to invest in reskilling or upskilling initiatives for their workforce. Unfortunately, market research by the Everest Group shows that only 33% of GICs are already implementing reskilling/upskilling initiatives while another 33% plan to implement such initiatives in the next 12 months. Unfortunately, a whopping 34% of GIC organizations have no foreseeable plans of investing in employee development.
Without a clear workforce development strategy and plan for attracting and retaining top talent, existing GICs will struggle to move to the next level on the maturity curve.
As a result, GICs could forfeit their:
- cost advantage
- opportunity to become innovators
- connection to business objectives
GICs are uniquely positioned to play a larger role for the parents organization, potentially accelerating the growth and transformation of the parent enterprise. But getting there requires a holistic approach, a concerted effort and a shift in mindset.
As businesses evaluate their GIC investment and determine next steps, focusing on developing a comprehensive people strategy – from attracting, hiring, developing to retaining talent – is essential for GICs to succeed.
GICs that attract and retain relevant talent are those that:
- Have a clear sense of purpose
- Possess a dynamic culture
- Provide access to cutting edge tech
- Encourage innovation
This is not just true of the GIC work culture, but also in their learning culture. The GIC workforce, much like other industries employs a sizable millennial cohort. Therefore, while investing in talent development programs is a must for GICs to succeed, it is far more crucial to ensure that the right talent development challenges are addressed and in the right way.
The right approach to developing the modern learner is in ensuring that the learning initiatives are:
In achieving this, GICs can ensure that learning is impactful, knowledge and skill are retentive and behavioral change is sustained and business is positively impacted.
To help you arrest your talent challenge, KNOLSKAPE GIC Insights 2019 highlight the solutions that our GIC clients leverage to solve their talent development challenges.