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Nilf2012_ Hub and Spoke Model_ Pradeep Udhas-KPMG

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  • 1. Hub and Spoke ModelA new business paradigm for the IT-BPOIndustryFebruary 2012Pradeep Udhas
  • 2. Offshore outsourcing continues to evolve with many more strategic dimensionscoming into play over and beyond cost arbitrageMoving from cost arbitrage to strategic location sourcing Current Perspectives Emerging Perspectives • Maximize benefits from globally dispersed locations • Obtain low cost, high quality services from external talent at various locations • Labor and cost arbitrage These new • Strategically leverage global best practices and talent perspectives are • Migration of projects/processes to • Break the process into components like – impacting traditional voice, data, compliance and execute across offshore locations multiple locations service delivery • Multiple delivery centers • Simultaneously execute tasks across multiple models … across locations to de-risk offshore locations business • Clients’ business models necessitate multi- location service delivery capabilities • Presence of geographically distributed delivery centers becoming crucial for vendors to be considered for large global outsourcing contracts© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 1
  • 3. Delivery of IT services has evolved over time; we expect the Hub and Spoke modelwill be the next logical step for service delivery Onsite Offsite / Off-shore Near Shore Hub & Spoke Staffing people at the client’s Transferring work or process to Geographical proximity of the Distributed delivery centers Meaning premises a different country / region delivery center to the client governed by Hubs Leverage regional benefits, Customer proximity and cost Further reduction to the overall Cultural affinity, customer faster responsiveness and Rationale arbitrage costs of sourcing proximity and cost arbitrage scale business based on customer demand Complex and specialized tasks Nature of tasks Tasks that require a high Well defined tasks with minimal Tasks that require a moderate which require moderate to high degree of customer interaction customer interactions level of customer interactions customer interaction Significant management Similar levels of management Management Customer manages resources Highest levels of management bandwidth is needed from bandwidth as offshore/offsite complexity deployed on the project complexity among all models service provider model Cultural affinity / time zone There is need to leverage High level of ambiguity in the There is good understanding of Best suited when considerations are important to regional benefits offered by customers requirements customer’s requirements deliver quality service delivery locations Cultural affinity, time zone 24*7 productivity, access to Advantages Ready access to customer and Lowest operating costs and proximity and quick response high quality talent and cost information 24*7 productivity to client demands benefits Increased management, Disadvantages Lowest cost savings among all Reduced access to the Higher operating costs vis-à-vis financial and regulatory models customer offshore complexity 1980’s onwards 1990’s onwardsFigure 1 : Evolution of Service Delivery 2000’s onwardsSource : KPMG in India Analysis 2010’s onwards© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 2
  • 4. Emerging locations that encourage technology investments through incentives areexpected to drive companies into operationalizing “Hubs” and “Spokes”Demand for location related High quality talent, closer to benefits and improved customers, cultural affinity, contracting skill-sets, cost arbitrageProvide services from a High quality talent at multiplelarge number of globally locationsdispersed locations Customer Vendor Proximity to customers helpMulti-country operations considerations considerations understand their needs betterenable mitigation of Cultural affinity results in aoperating risks better customer experience Easier access to capital at lower interest rates Drivers for the Hub and Spoke model in the IT industry Political and economic stability for ease of doing Tax, legal structures, visas, business other regulatory complianceFavourable tax and legal Spreading operations over Geo - Political multiple locations helpsstructures in some locations Regulatory ensure better businessEasy to obtain visas, considerationsattractive regulatory norms, compliance continuityand better incentives in Favourable policies and lowsome countries political risk leading to emergence of new destinations Emergence of Tier II/III/IV cities in domestic market© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 3
  • 5. Hubs would typically drive strategy and set standards, while spokes would act asextended arms enabling efficient delivery and in some cases fostering innovation • Hubs plays the role of “orchestrator” while spokes are aligned to Hubs in all strategic and operational areas Responsibilities of a Hub Responsibilities of a Spoke Quality & Meet Performance Performance Management * Expectations Regulatory Customer Be a CoE Manpower Compliance Management Extension for Augmentation the Hub Competence based Spoke Hub * Support the Manpower Hub on Considerations Training & Project Legal and Development Management Tax Compliance Figure 2 : Responsibilities of a Hub Figure 3 : Responsibilities of a Spoke Source : KPMG in India Analysis Source : KPMG in India Analysis© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 4
  • 6. Leading manufacturers in North America focused on “core” areas while outsourcing work across their globally dispersed partner network Parent Organization Partner Network 1960’s North America Lower cost of manufacturing Ready assimilation Marketing and Sales Outsourced 1970’s North America, Japan of technology know-how Product design Product Industry friendly 1980’s East Asia development government Quality and Performance policies standards Packaging and shipping 1990’s East Asia, South-East Asia Evolution of strong Compliance audits management practices Contracting and supplier Quality management compliance Diversified locations across Asia are some of the 2000’s reasons for Performance management expansion in manufacturing 2010’s Diversified locations across the World footprint over the Procurement last 5 decadesFigure 4 : Functions outsourced by manufacturers Figure 5 : Evolution of global sourcing locations in the manufacturing industrySource : KPMG in India Analysis Source : KPMG in India Analysis © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 5
  • 7. A leading aircraft manufacturer split the development of aircraft components acrossmultiple locations; separate components are then integrated to build the aircraft Canada  Wing/ body fairing Sweden  Landing gear doors  Cargo access doors Korea  Wingtips Japan  Forward fuselage  Centre wing box  Wing  Main landing gear England wheel well US  Landing gear  Fixed trailing edge  Forward fuselage  Engines  Fixed and movable leading edge France  Tail fin  Passenger entry doors  Aft fuselage Italy  Engines  Centre fuselage  Engine nacelles  Horizontal stabilizer Australia  Movable trailing edge Figure 8 : Hub & Spoke model for a global aircraft manufacturer Source : KPMG in India Analysis© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 6
  • 8. Operating in the Hub and Spoke model results in improved time-to-deployment andcost arbitrage, while leveraging regional benefits Standardized training modules delivered Faster time-to- simultaneously and parallel recruitments 1 deployment for across all delivery centers helps reduce projects time to deployment and also bench 2. Leverage strength regional benefits Leverage regional benefits offered by Leverage regional 1. Faster time-to- 3. Cost arbitrage 2 benefits emerging destinations to the technology service providers deployment for with improved projects quality Enables cost arbitrage without Cost arbitrage compromising on the quality of service 3 with improved quality delivered by facilitating trade-offs between locations that offer cost benefits and high quality delivery Tap regionally Niche skills available in non-IT 4. Tap regionally 4 distributed niche destinations can be best tapped using the 6. Absorb regional concentrated niche skills Hub & Spoke Delivery model best practices skills 5. Improved Business Improved Distributed and well coordinated service 5 Business delivery helps spread the risk to business Continuity Continuity continuity across multiple delivery centers Integrate regional best practices into global Benefits – Hub and Spoke model Absorb regional operations resulting in improved and 6 best practices consistent service delivery across delivery Source : KPMG in India Analysis locations© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 7
  • 9. Increased complexity of operations, tax, legislative and regulatory compliance arekey challenges to be overcome in order to operate in the Hub and Spoke model Compliance with Ensuring compliance with Information 1 multiple Information Security laws in each region of a globally distributed operation is more challenging Security laws in the Hub & Spoke model 2. Tax and legal Complex tax and Navigating tax and legislative considerations 2 legal considerations across spoke locations considerations tend to be more complex 1. Information 3. Increased Security management considerations complexity Increased Operating in the Hub & Spoke model management results in exponentially higher management 3 complexity at the complexity at the Hubs Hub Time zone Different time-zones across Hub and 5. Complex challenges impact transition 4. Time zone 4 management Spoke locations makes management supervision more difficult management challenges bandwidth Multiple spokes Challenges – Hub and Spoke model result in more Moving operations for a client across 5 complex multiple spokes results in increased Source : KPMG in India Analysis transition complexity of transition management management© 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliatedwith KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 8
  • 10. Investing in building a brand and adequately governing the delivery locations are important to operating effectively in the Hub and Spoke model 1 Invest in building a brand that conveys high quality service delivery across all global locations 2 Pro-actively develop a location strategy to benefit from emerging locations 3 Corporate governance framework will ensure globally consistent operationsKey Imperatives Uniform performance management framework needs to be adopted across all locations 4for Technologycompanies 5 Global technology backbone leveraged remotely is critical for Hub & Spoke operations 6 Periodic audits ensure compliance with globally relevant information security considerations 7 Leveraging delivery focused spokes for business development should be of secondary focus 8 Hub level manpower planning and training will help manage bench and prevent resource silos © 2012 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2/21/2012 9
  • 11. Questions?Presenter detailsPradeep UdhasPartner and Head IT-BPO sector forKPMG in India

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