The Global In-house Centers (GICs) market has now grown to over 2,800 centers and employs more than 1.3 million FTEs across prominent offshore and nearshore locations. According to the Everest Global Report (2018), the activity on this front is going to continue as GICs evolve from being back-end operations centers to strategic hubs for organizations. In the last decade, India has emerged as one of the preferred locations for offshoring not just support but engineering, research and design functions for multinationals. Currently, 46 of the top 50 ER&D spenders and 45% of the top R&D spenders have established their GICs in India.
As growing businesses strategize to set up their GICs, they need to consider the opportunities alongside some challenges they are likely to face in the process of establishing a flourishing GIC. This article aims to explore both a bit more in detail to provide a more comprehensive analysis.
challenges in setting up a GIC
1. defining an operating model
Offshoring a servicing unit and establishing a cross-organization set up is a big challenge for any business. A GIC model requires unique governance i.e. a separate managerial set up to drive the operations. It is essential to define new roles and designate KPIs that determine the performance levels of the offshore team. Organizations need to enable their GICs to manage their own operations, demand and supply of work, etc by establishing an independent operating model. GICs also require an independent leadership team responsible for their overall performance and effectiveness in order to be truly successful. Cognizant considers setting up a governance and operating model as one of the key challenges that can affect the cost advantages of a GIC.
2. filling the talent deficit
One of the biggest challenges that organizations face while setting up a GIC is acquiring the right talent. According to the Everest Group research, GICs expect significant challenges in acquiring people with the skill sets required for service delivery roles of the future. Firms are struggling to source, retain and engage employees with the necessary technical skills, domain knowledge and leadership qualities. It is also harder to retain skilled employees with high potential as they are more likely to be drawn to organizations with a more dynamic work culture and work opportunities with more innovative technologies. GICs tend to have very specific business processes and goals which may not instantly seem attractive to HIPOs. An added challenge is to maintain talent cost advantages during the whole talent acquisition cycle of a GIC.
3. managing digital transformation
With mega trends such as augmented reality, automation, digital payments, big data and analytics on the rise, organizations are attempting to stay agile, innovate and adopt digitization best practices. This is pressuring them to derive more value from their GICs. However, the ability of a GIC to adapt to new technologies and working models often depends on the onshore business and its motive behind setting up the GIC. Organizations often miss a clear top-down and holistic approach when it comes to supporting the digital transformation of their GIC. Leadership needs to set clear lines of communication with the management of their GIC and define expectations from the digital transformation process. Most GICs also find it challenging to define their customer sets and their expectations, which is crucial for them to have a clear market strategy.
opportunities in establishing a GIC
1. low entry barriers
Lower barriers to entry have made this an opportune time for GICs to grow. The growth of service markets, telecommunications, access to internet, fluid real estate, all make it easier for companies to set up their GICs even in unexplored territories. Another aspect contributing to the rise in the number of GICs being set up is the low cost of managing these service utilities. Citibank set a great example by pushing its way through to set up their own GIC instead of outsourcing to a third-party service provider. The firm was able to avoid an ‘outsourcing bloat’ and had a clear cost advantage in terms of FTEs and other management costs.
2. driving innovation for the parent company
GICs tend to offer the right mix of a holistic organizational perspective, deep domain expertise and employee experience at favourable costs which organizations can capitalize on to drive innovation. With defined goals and a specific business agenda, GICs are in a better position to push forward on digital and other innovative goals for their onshore businesses. According to Everest Group, GICs are perfectly suited to serve as Centers of Excellence, driving innovation for their parent companies. Typically, GICs engage and collaborate with external innovation ecosystems through start-ups, incubations or specific projects to create innovation opportunities for their organizations.
3. reducing dependency on third parties
Global leaders are expecting Indian GICs to drive major investment priorities of businesses in the coming years. In a survey conducted by Bain & Company, approximately 70% of CXOs surveyed believe that Indian GICs will play a more active role, and approximately 50% of enterprises already have, or expect to have, leaders two levels below CEO positions based out of their Indian GICs. 60% of respondents believe that GICs will take on more work in the future. With GIC leaders being more optimistic, it is expected that existing dependency on third parties will shift to GICs for most competitive organizations looking to expand their innovation and research.
To overcome the cited challenges and leverage the available opportunities, it is essential that organizations and GICs align their goals and priorities. GIC leaders have to also take into account the elements that company leaders consider as their top priorities e.g. process standardization or cost savings. GICs have to be able to identify specific areas and the manner in which they can contribute to the parent company in order to be effective and successful in the long run.