Captive 2.0 – The New, Improved Version! Paul Schmidt, TPI Surinder Singh, FMR India February 14, 2008 Copyright © 2007, T...
The Journey to Captive 2.0 – the New, Improved Version!
The 3C Framework for Sourcing  Achieve substantial and sustainable improvements in total cost of operations. Deploy new an...
3C … the Compounding of Sourcing Attributes Cost is King Cost Capacity Capacity Capability 2007 2010 For experienced adopt...
Value and Economic Efficiency  <ul><li>Offshore delivery units exist across across a range of value-efficiency combination...
Shift to Managed Services is Underway – Best in Breed <ul><li>The era of labor arbitrage orientation is nearly concluded. ...
Characteristics of captive and third party players <ul><li>Third Party </li></ul><ul><li>Leverage onshore presence </li></...
Strategic Options for Existing Captive Units <ul><li>FMR Thinking about the way forward  </li></ul><ul><li>Value Play  Foc...
Captive Lifecycle View (1) Captives follow a lifecycle model and success hinges on matching strategy and operating model t...
Captive Lifecycle View (2) After start-up, a captive either falters or “crosses the chasm” to become an evolved captive <u...
Captive Lifecycle View (3) Multiple journey paths for an evolved captive 3 4 1 2 Evolved captive Super Captive 3 4 1 2 Hyb...
India-to-India (i2i) Contracting  <ul><li>The India captive unit becomes a hub through which different business units proc...
FMR India – Case Study
Fidelity In India Bangalore Chennai FMR     396 FIL 1,205 COLT   845 Shared Services   99 Total 2,551 AMC   135 Shared Ser...
Service Evolution 2003 to 2007 2006 <ul><li>IT Development </li></ul><ul><li>Transaction Processing </li></ul><ul><li>Prod...
FMR India Business Plan  (Strategic Objectives 2008-10)
Captive Cycles LIBERATED STATEHOOD BENIGN AUTONOMY DIRECTED PROTECTORATE
The Road Ahead From Process to Business Model Offshoring LOOPED TRANSFORMATION BUSINESS ANALYTICS SERVICE OPERATIONS SERVI...
So what then is Captive 2.0? <ul><li>Hybrid, disaggregated as required </li></ul><ul><li>Uniform and homogenous </li></ul>...
Key Messages <ul><li>Captives need to continually evaluate their service portfolio in relation to the value-economic effic...
www.tpi.net Copyright © 2007, Technology Partners International, Inc. All Rights Reserved. No part of this document may be...
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Captive 2.0: Lifecycle of shared service centers, Paul Schmidt, Partner and Practice Lead, Global Services Delivery, TPI

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Captive 2.0: Lifecycle of shared service centers, Paul Schmidt, Partner and Practice Lead, Global Services Delivery, TPI

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Captive 2.0: Lifecycle of shared service centers, Paul Schmidt, Partner and Practice Lead, Global Services Delivery, TPI

  1. 1. Captive 2.0 – The New, Improved Version! Paul Schmidt, TPI Surinder Singh, FMR India February 14, 2008 Copyright © 2007, Technology Partners International, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.
  2. 2. The Journey to Captive 2.0 – the New, Improved Version!
  3. 3. The 3C Framework for Sourcing Achieve substantial and sustainable improvements in total cost of operations. Deploy new and innovative services that materially enable the attainment of strategic business objectives. Cost Capability Provide access to scaleable and resilient sources of talent and infrastructure to enable attainment of business goals. Capacity Capability, Capacity and Cost are the underlying sourcing objectives
  4. 4. 3C … the Compounding of Sourcing Attributes Cost is King Cost Capacity Capacity Capability 2007 2010 For experienced adopters of outsourcing, we perceive a shift towards a more balanced emphasis and greater compound orientation among Cost / Capability / Capacity. Strategic Zone Capability Cost <ul><li>Near-term cost attributes </li></ul><ul><li>Access to skilled resources </li></ul><ul><li>Effort-oriented, rather than productivity-driven </li></ul>Compounding Effect <ul><li>Relative equilibrium among sourcing imperatives </li></ul><ul><li>Capability prominence for business value dimensions </li></ul><ul><li>Tendency towards strategic goals </li></ul>
  5. 5. Value and Economic Efficiency <ul><li>Offshore delivery units exist across across a range of value-efficiency combinations </li></ul>High Low High Economic Efficiency Value <ul><li>Value as defined by the buyer or the parent firm is indicated by a combination of the following: </li></ul><ul><li>Supporting new product/ service development </li></ul><ul><li>Faster time to market </li></ul><ul><li>Enhanced capability/ capacity </li></ul><ul><li>Access to new markets </li></ul><ul><li>Automation/ Reengineering of existing processes </li></ul>Speciality Captive Best-in-class 3 rd Party <ul><li>Economic Efficiency: The ‘Price charged’ (Rate or Transfer Price) is the market measure of economic efficiency </li></ul>‘ Factory’ 3 rd Party ‘ Me-too’ Captive ‘ Me-too’ 3 rd Party Unsustainable Unserviceable
  6. 6. Shift to Managed Services is Underway – Best in Breed <ul><li>The era of labor arbitrage orientation is nearly concluded. We are entering a period of updating historically simple offshore relationships </li></ul><ul><ul><li>2008-2010 will see significant “rationalization” of offshore delivery resource models </li></ul></ul><ul><li>The ITO and “horizontal” BPO segments will continue their segregation into best-of-breed provider contracts </li></ul><ul><ul><li>Providers making decisions on technical/process orientation versus business value focus </li></ul></ul><ul><li>Corporations moving towards bundled arrangements for managed services that comprise elements of infrastructure, applications and operations </li></ul><ul><ul><li>These will represent a new era for the BPO segment of the outsourcing industry, one that has much greater domain-specific orientation </li></ul></ul><ul><ul><li>Leverage of IT scale becomes more relevant </li></ul></ul><ul><ul><li>TPI predicts that BPO ACV will grow faster than ITO ACV for these reasons </li></ul></ul>TPI sees strategic combinations emerge involving leading ERP software providers, infrastructure providers, and business process experts all oriented around industry solutions delivered via globally-dispersed platforms. ACV = Annualized Contract Value Outcome-oriented Services emerging as the focal point for buy-side and provider-side emphasis.
  7. 7. Characteristics of captive and third party players <ul><li>Third Party </li></ul><ul><li>Leverage onshore presence </li></ul><ul><li>Create centers of excellence </li></ul><ul><li>Long duration customer relationship & deep account knowledge </li></ul><ul><li>Captive </li></ul><ul><li>Leverage business and proprietary knowledge </li></ul><ul><li>Tighter integration with the parent unit </li></ul><ul><li>Have a “seat at the table” i.e. represented in management councils of the parent </li></ul><ul><li>Onshore team driving relationship </li></ul><ul><li>Deep business knowledge/ technology expertise </li></ul><ul><li>Value added services that support enterprise level programs </li></ul><ul><li>Integrated global career paths for high skilled employees </li></ul><ul><li>Cultivate an “employer of choice” positioning to attract top notch talent </li></ul><ul><li>Encourage a culture of thrift through the organization </li></ul><ul><li>Strong internal measurement, systems and controls </li></ul><ul><li>Automation, standardization, and process maturity </li></ul><ul><li>Employees with the right skills placed in the right locations with an optimal match to type of work </li></ul>Efficiency Focus Value Focus <ul><li>Captive </li></ul><ul><li>Able to contain costs through continued growth and having attained critical mass </li></ul><ul><li>Automation and Productivity Improvements </li></ul><ul><li>Third Party </li></ul><ul><li>Fixed costs spread across a portfolio of clients </li></ul><ul><li>Leverage Scale for SG&A costs </li></ul><ul><li>Flatter Employee Pyramid </li></ul>
  8. 8. Strategic Options for Existing Captive Units <ul><li>FMR Thinking about the way forward </li></ul><ul><li>Value Play Focus primarily on enhancing value to the parent firm while incrementally increasing economic efficiency without disrupting the current delivery model </li></ul><ul><li>Efficiency Play Focus primarily on discontinuously enhancing economic efficiency with a tradeoff vs. higher value capability. This could lead to clearly segmented offerings with differing cost implications – in essence mirroring third party behavior of pricing by value </li></ul>High Low High Economic Efficiency Value Speciality Captive Best-in-class 3 rd Party ‘ Factory’ 3 rd Party ‘ Me-too’ Captive ‘ Me-too’ 3 rd Party Unsustainable Unserviceable Efficiency Play Value Play SuperCaptive
  9. 9. Captive Lifecycle View (1) Captives follow a lifecycle model and success hinges on matching strategy and operating model to current state of evolution 2 Sub-scale captive 3 4 1 2 1 3 4 1 2 2 Reverse BOT – 3 rd Party Super Captive 3 4 1 2 Hybrid Captive 3 4 1 2 1 3 1 2 4 1 Captive i2i Start of captive operations Evolved captive Evolved captive Reverse BOT – 3 rd Party/ PE
  10. 10. Captive Lifecycle View (2) After start-up, a captive either falters or “crosses the chasm” to become an evolved captive <ul><li>Captive unit with costs/ operating metrics out of sync vs. market – will atrophy eventually </li></ul><ul><li>Exit option is a people (& assets without premium) transfer to a 3rd party. PE firms have not much interest in such units </li></ul><ul><li>Captive perceived as ‘strategic’ part of the enterprise – ongoing growth as captive adds higher value added work and/or FTEs </li></ul><ul><li>Costs will be higher than median – a ‘premium’ the enterprise will be willing to pay in the medium term </li></ul>2 Sub-scale captive 3 4 1 2 Evolved captive 2 Reverse BOT – 3 rd Party 1 1
  11. 11. Captive Lifecycle View (3) Multiple journey paths for an evolved captive 3 4 1 2 Evolved captive Super Captive 3 4 1 2 Hybrid Captive 3 4 1 2 Reverse BOT – 3 rd Party/ PE 3 1 2 4 Captive i2i <ul><li>Best in class Captive – has reached scale and operating efficiency of large 3rd party units </li></ul><ul><li>Serves as global servicing arm of enterprise – driving standardization & consolidation and reengineering </li></ul><ul><li>The ‘Strategic Captive’ housing higher end/ KPO work/ PMO and the VMO to source lower end work via ‘hub and spoke’ model </li></ul><ul><li>Entity performing low end work with people (& assets) transfer to a 3rd party/ domestic contracting for people (& assets) </li></ul><ul><li>With slowing growth, cost arbitrage stops – enterprise does not see captive activities as ‘core’. With stable operations, Captive represents a monetization opportunity </li></ul><ul><li>People and asset transfer at premium – to ensure operational stability, transfer to a 3rd party or 3rd party/ PE combine </li></ul>
  12. 12. India-to-India (i2i) Contracting <ul><li>The India captive unit becomes a hub through which different business units procure offshore services </li></ul><ul><li>Captives focus on program management, vendor management and governance and are able to provide challenging career opportunities for experienced resources </li></ul>“ i2i contracting has the potential to deliver 20% to 30% savings on commoditized services” - Captive Sourcing Manager We observe that i2i contracting via a ‘hub and spoke’ model is increasing in the IT space – we expect that it will eventually start in the BPO space too Onsite Project Teams <ul><li>Benefits </li></ul><ul><li>Provides access to entry level resources -several non IT parentage captive find it difficult to attract & retain entry level resources because of the perceived lack of a career path in a non-IT company </li></ul><ul><li>Rapid deployment capability </li></ul><ul><li>Increased Offshore Leverage </li></ul><ul><li>Low cost commodity skills </li></ul><ul><li>Caveats of i2i setup </li></ul><ul><li>Requires working out a payment structure that retains the export tax benefits </li></ul><ul><li>Contractual provisions around sourcing turn around times and SLAs should be included to ensure satisfactory service delivery </li></ul><ul><li>Usually it is a T&M model with profile/skill based rate card – all project risk shifts to the captive unit </li></ul>i2i Provider i2i Provider i2i Provider Offshore Hub
  13. 13. FMR India – Case Study
  14. 14. Fidelity In India Bangalore Chennai FMR 396 FIL 1,205 COLT 845 Shared Services 99 Total 2,551 AMC 135 Shared Services 4 Total 139 + 10 Sales Offices Mumbai Delhi/Gurgaon FMR 4,623 Shared Services 206 COLT 56 Total 4,879 FMR 476 FIL 115 Shared Services 47 Total 638 8,207
  15. 15. Service Evolution 2003 to 2007 2006 <ul><li>IT Development </li></ul><ul><li>Transaction Processing </li></ul><ul><li>Production Support </li></ul><ul><li>Application Maintenance </li></ul><ul><li>Testing </li></ul><ul><li>Database Modeling </li></ul><ul><li>Implementations </li></ul><ul><li>Background Vetting </li></ul><ul><li>Vendor Management </li></ul><ul><li>Bank Reconciliation </li></ul><ul><li>Problem Resolution </li></ul><ul><li>AAA Support </li></ul><ul><li>Research </li></ul><ul><li>Finance & Accounting </li></ul><ul><li>Documentation Services </li></ul><ul><li>Securities Processing </li></ul><ul><li>Process & Quality Consulting </li></ul><ul><li>Network Operations Support </li></ul><ul><li>Six Sigma Consulting </li></ul>2005 2004 2003 2007 <ul><li>Centers of Excellence; Testing, Informatica </li></ul><ul><li>Annual Enrollment </li></ul><ul><li>Product Implementations </li></ul><ul><li>Market Technical Analysis </li></ul><ul><li>Campaign Analytics </li></ul>
  16. 16. FMR India Business Plan (Strategic Objectives 2008-10)
  17. 17. Captive Cycles LIBERATED STATEHOOD BENIGN AUTONOMY DIRECTED PROTECTORATE
  18. 18. The Road Ahead From Process to Business Model Offshoring LOOPED TRANSFORMATION BUSINESS ANALYTICS SERVICE OPERATIONS SERVICE IMPLEMENTATION BUSINESS ACQUISITION MARKET ANALYTICS
  19. 19. So what then is Captive 2.0? <ul><li>Hybrid, disaggregated as required </li></ul><ul><li>Uniform and homogenous </li></ul>Organization Structure <ul><li>Employee Productivity </li></ul><ul><li>Employee Utilization </li></ul><ul><li>Employee Compensation </li></ul><ul><li>No benchmarking or limited to a single area like employee compensation </li></ul>Benchmarking <ul><li>“ Horses for courses” </li></ul><ul><li>High-skilled workforce irrespective of the type of work </li></ul>Talent Pool <ul><li>Business Model </li></ul><ul><li>Process </li></ul>Core Capability Captive 2.0 Captive 1.0
  20. 20. Key Messages <ul><li>Captives need to continually evaluate their service portfolio in relation to the value-economic efficiency trade off </li></ul><ul><li>Captives need to not just focus on service delivery but become the conduits through services are delivered to the parent </li></ul><ul><li>Offshore Captive model is viable in India </li></ul><ul><li>Benchmarking themselves against best-in-class captives, third party providers and parent operations demonstrates the viability </li></ul><ul><li>Lifecycle view of captive helps understand the captive landscape in India </li></ul><ul><li>Recent exits are either regular events in the normal course of business or value-realization (which illustrates the value-creation potential of the captive model) </li></ul><ul><li>Captive 2.0 model emulates best of both worlds (captive and third party) </li></ul>
  21. 21. www.tpi.net Copyright © 2007, Technology Partners International, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.
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