Leading buyer organizations extensively leverage both Global In-house Centers (GICs) and service providers as part of their delivery portfolios. As their exposure in both these sourcing models increases with growing offshore maturity and adoption, buyer organizations are often faced with the following key questions: Is one model growing relative to the other? How should organizations think about comparing GICs and service providers? What are the best practices for optimizing sourcing model portfolio?

1. GICs vs. Service Providers:
Who is Winning?
December 12, 2012
Live Tweeting #GIC

2. Introductions
H. Karthik
Vice President
h.karthik@everestgrp.com
Shyan Mukerjee
Practice Director
shyan.mukerjee@everestgrp.com
Proprietary & Confidential. © 2012, Everest Global, Inc. 2

3. Terminology | Global In-house Center (GIC)
replacing “captives”
Context What has changed
 Historically, the term “captives” has  Everest Group has adopted “Global In-house
referred to service delivery operations Center” or “GIC” as the preferred term to
in lower cost geographies, which are replace “captives”
owned and operated by the same
company receiving the services (i.e.,  This will appear in all of our reports and
not third-party outsourcing) content beginning in July 2012
 Although the term has become widely
used, it has a perceived negative tone
and is not self-explanatory, causing
confusion for those new to the global Growing industry-wide shift
services space Both NASSCOM (India) and BPAP (Philippines)
are championing the change in terminology
 Furthermore, many organizations, for
which “captives” is intended to
describe, do not use the term
themselves
Proprietary & Confidential. © 2012, Everest Global, Inc. 3

4. Discussion points for today
Market context on Common myths Issues to consider in
sourcing models related to sourcing sourcing model
models strategy
Proprietary & Confidential. © 2012, Everest Global, Inc. 4

5. The analysis and insights provided in this webinar are most
relevant for large enterprises with multi-geographic
businesses
Geographic coverage Relevance of analysis
Most applicable
Relevant
Partially relevant
Multiple
geographies (>3)
Some
geographies (2-3)
Limited to one
geography
Small Medium Large
(< US$5 billion) (US$5-10 billion) (> US$10 billion)
Company size (Revenue)
Proprietary & Confidential. © 2012, Everest Global, Inc. 5

6. Leading global enterprises are leveraging both GICs
and service provider models
Service provider GIC
Sourcing mix for leading enterprises 1
2012, Percentage #Leading service providers #Offshore GIC centers
Company 1 38% 62% 8 7
Company 2 6% 94% 4 18
Company 3 71% 29% 9 8
Company 4 83% 17% 7 5
Company 5 50% 50% 6 5
Company 6 17% 83% 5 8
1 The companies indicated here have offshore scale greater than 5,000 FTEs and revenue greater than US$10 billion
Proprietary & Confidential. © 2012, Everest Global, Inc. 6

7. Enterprises face multiple sourcing model issues as
they seek to enhance value from global services
EXAMPLES
How should I allocate
work between sourcing Can I outsource
models? “complex” processes?
What are the key
Are there differences
considerations in sourcing
between the sourcing
model design?
models in terms of their
employee value proposition?
How do I diversify my How should I compare
sourcing model costs between GICs and
concentration risk? service providers?
Proprietary & Confidential. © 2012, Everest Global, Inc. 7

8. One way to think about sourcing models is as an
expanded set of options for organization design
Degree of
Competencies
centralization/decentralization
Incentives Flexibility
Skills & expertise Culture
Ability to drive change Performance
What sourcing model configuration best provides the organization which will
most effectively meet the objectives?
Proprietary & Confidential. © 2012, Everest Global, Inc. 8

9. What is the biggest challenge faced by
GICs?
Cost competitiveness 19%
Sustaining growth 12%
Developing value beyond arbitrage 44%
Talent development and retention 11%
Increasing influence with parents 11%
Proprietary & Confidential. © 2012, Everest Global, Inc. 9
Source: Live polling conducted during the “GICs vs. Service Providers: Who is Winning?” webinar on December 12, 2012

10. What is the biggest challenge faced by
service providers?
Enhancing credibility to deliver domain-
intensive work
32%
Sustaining growth 9%
Developing higher intimacy with
enterprises
12%
Talent development and retention 12%
Margin pressure 23%
Proprietary & Confidential. © 2012, Everest Global, Inc. 10
Source: Live polling conducted during the “GICs vs. Service Providers: Who is Winning?” webinar on December 12, 2012

11. Discussion points for today
Market context on Common myths Issues to consider in
sourcing models related to sourcing sourcing model
models strategy
Proprietary & Confidential. © 2012, Everest Global, Inc. 11

12. Commonly perceived myths on sourcing models
Myth Reality
1
Service provider model is Both models continue to grow,
significantly gaining share particularly in areas that align with
compared to GICs their “sweet spots”
2
In some cases, GICs provide lower
GICs are always more expensive
costs and significant benefits to
than service providers
parents
3
Service providers have also built
Service providers are best leveraged
capabilities in many judgment-
only for transactional processes
oriented processes
4
Clear segmentation between both “One size does not fit all” – other
models is always the most optimal sourcing model designs can also be
sourcing model design appropriate
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13. Myth #1: Service provider model is significantly 1
gaining share compared to GICs
Global services market size (2008-12) Service provider GIC
Headcount Revenue
(Million FTEs) (US$ billion)
~3.0 ~3.8 ~90 ~120
~21% ~19% ~23% ~23%
~79% ~81% ~77% ~77%
2008 2012E 2008 2012E
Reality:
 Both models continue to grow
 Marginal decrease in GIC headcount share, however, share in total revenue remains similar given GICs’
upshift towards complex/judgment-intensive work
Proprietary & Confidential. © 2012, Everest Global, Inc. 13

14. GICs continue to have a significant share in 1
certain industry verticals and functions
Sourcing mix in offshore headcount LEADING FINANCIAL SERVICES FIRMS
Function 2012; Percentage
Service provider GIC
IT - ADM 65-70% 30-35%
IT - IMS 75-80% 20-25% Mostly leveraged from service providers given
their significant capabilities in this space
BPO - Customer
60-65% 35-40%
care
BPO - Non voice 45-50% 50-55%
Mostly delivered through GICs. Work often
KPO 15-20% 80-85% considered as “core” to business; e.g.,
IP/data protection
Note: Analysis based on eight leading financial services firms each with revenue greater than US$10 billion and offshore scale greater than 5,000 FTEs
Proprietary & Confidential. © 2012, Everest Global, Inc. 14

15. Myth #2: GICs are always more expensive than 2
service providers
Annualized Total Cost of Ownership (TCO) for parent/buyer
US$ 000s per FTE per annum
Rate per FTE Transition & Governance & Relationship Productivity Total cost of
set-up cost day-to-day /account savings ownership
operations cost management
cost
Billing rate charged Savings on account of
by service provider Additional costs incurred by buyer in setting-up, productivity benefits
and GIC managing and governing the relationship (e.g., process
improvement, efficiency,
and automation)
Important to take a TCO view rather than a billing rate view to understand the net financial impact
Proprietary & Confidential. © 2012, Everest Global, Inc. 15

16. Myth #2: GICs are always more expensive than 2
service providers
SANITIZED EXAMPLE
Service provider GIC
Comparison of GIC and service provider rate and Comparison of GIC and service provider rate and
TCO – Transaction process TCO – Complex process
Indexed to service provider Indexed to service provider
126
107 112
100 100 100 100
89
Rate per FTE TCO per FTE Rate per FTE TCO per FTE
 In this example, TCO differential lower than rate differential, given higher productivity and lower governance costs for GICs
relative to service providers. GIC’s better understanding of parent’s systems/processes, cultural context and domain
knowledge are key drivers
 For complex work, GIC TCO lower than service providers on account of relative advantages in accessing skills and shorter
learning curve
 The analysis should not be generalized and is dependent on multiple factors that impact TCO
Proprietary & Confidential. © 2012, Everest Global, Inc. 16

17. Relative cost competitiveness is dependent on 2
multiple factors
Factors specific to the Factors specific to the
work and where/how it is relative attributes of the
delivered sourcing models
Talent/resourcing
Scale
model
Type & complexity
of work
Organization
context & cultural
affinity
GIC
? Service
provider
Leverage of best
Locations
practices
TCO
Approach to
Model maturity margins/gain-
share
Proprietary & Confidential. © 2012, Everest Global, Inc. 17

18. Myth #3: Service providers are best leveraged 3
only for transactional processes
Frequency of inclusion of F&A process over time 2010-2011
Percentage 2007-2008
Judgment-intensive
15%
Internal Audit 6%
28% Significant increase in inclusion
Treasury and risk management 19%
of judgment-intensive F&A
26% processes (especially FP&A)
Regulatory reporting and compliance 24%
61%
Financial planning and analysis (FP&A)
50%
23%
Payroll 20%
25%
Transaction-intensive
Tax 24%
46%
Fixed assets 44% No major trend in inclusion of
73% transaction-intensive processes
General accounting 71%
76%
Accounts receivable (AR) 77%
80%
Accounts payable (AP) 82%
Reality: Providers have also built capabilities in multiple judgment-oriented processes, traditionally considered “GIC sweet spots”
Proprietary & Confidential. © 2012, Everest Global, Inc. 18

19. While most functions can be delivered from both models,
3
some are best sourced from a specific model
ILLUSTRATIVE
Global In-house Service
Centers (GICs) providers
Functions where IP, Includes most functions spanning Functions where
insight/excellence from domain rule-based and judgment-based economies of scale and
and intimacy are key processes. Examples: efficiency are key
considerations  IT ADM considerations
Examples:  Testing Examples:
 Product control  IT helpdesk  Data entry
 Technology R&D  General accounting  Transaction processing
 Advanced quantitative  Accounts payables/receivables  Claims processing
models  Management reporting
 Customer service
 Regulatory reporting
 Fraud monitoring and compliance
Proprietary & Confidential. © 2012, Everest Global, Inc. 19

20. Myth #4: Clear segmentation of work between
models is always the most optimal design
 Clear segmentation of functions/work across models with limited overlap
Segmented
 Designed to capture “best of breed” value
model
 Example: Source analytics work from GICs and BPO from service providers
 Moderate/significant overlap in functional/work across models
Mixed
 Designed to establish marketplace, diversify risks and enhance flexibility
models
Examples:
GIC
Service provider
Company A Company B
Role in Sourcing Claims processing Claims – Greenfield Under-
Portfolio (low complexity) adjudication functions writing
GIC 40% 50% 50% Champion Tier II offshore BPO Offshore Tier I GIC GIC
67% provider A service (incubator)
Tier II offshore BPO provider
Service
60% provider B
provider 50% 50%
33% Challenger Rural BPO provider GIC Offshore Tier I Niche
provider providers
IT Non-voice BPO Collections Servicing
 Design optimized for flexibility  Selectively “compete” work between models using
 Both models can work for most functions, best champion-challenger approach
fit determined for specific situations (e.g.,  GICs used to “incubate” new areas and build
capacity, business case, LOB preference) comfort with business, some eventually outsourced
Proprietary & Confidential. © 2012, Everest Global, Inc. 20

21. How do you expect global enterprises to
leverage both sourcing models going forward?
Predominantly compete both models for
similar work
8%
Predominantly complement models and
deliver distinct work in each
45%
Mix of compete and complement 48%
Proprietary & Confidential. © 2012, Everest Global, Inc. 21
Source: Live polling conducted during the “GICs vs. Service Providers: Who is Winning?” webinar on December 12, 2012

22. Discussion points for today
Market context on Common myths Issues to consider in
sourcing models related to sourcing sourcing model
models strategy
Proprietary & Confidential. © 2012, Everest Global, Inc. 22

23. Best practices to consider in sourcing model design
and optimization
1 Three levels of value Impact on a company’s… Typical result
Be clear on overall  Market differentiators  Tapping new markets
 Clearly define and articulate value drivers
Strategic
(e.g., efficiencies, scalability)
C  Revenue stream  Changing company-level
impact
differentiation
sourcing
objectives/desired B Business
impact


Key processes or applications
– Quality
– Productivity
External customers


Business process
improvement
Quality improvement  Align on economic model, investment
value A Direct-cost
impact
 Direct-cost base  Cost reduction
considerations and risk appetite
 Internal customers  Process efficiency
 Understand desired enhancements to
current state
2 Role in Development –
Sourcing
Portfolio
Champion
Development – existing apps
new apps enhancement Maintenance Testing
Incumbent Tier I offshore service GIC  Incumbent
Infrastructure
Incumbent Global
 Profile demand (3-5 year view)
Define a “target” provider
Incumbent
Global Tier I
GIC
Tier I
offshore
service
Tier I service
provider
 Define GIC/service provider mix, model
provider
sourcing model
service provider
 Incumbent
Global Tier I
service
provider
design (e.g., segmented, mixed) and roles
strategy/design Challenger Tier II / Tier III offshore service
provider
Incumbent
 GIC
Tier II / Tier III Tier I offshore
Tier I service offshore service service provider (e.g., champion-challenger)
provider provider
3 Objective evaluation suggests third-party model better suited Low fit Moderate fit Excellent fit
Drive structured
Objective evaluation of trade-offs
Criteria GIC Service provider
 Develop a decisioning framework to
Scale
decision making for
Demand variation
Sourcing req estimation
Degree of involvement with end user
evaluate sourcing models for incremental
incremental work
Delivery locations
Costs
Domain capability
work, aligned to the target end state
packets
Process capability
Technology capability
Continuity leverage
 Need to apply framework consistently and
Overall Score
objectively, to avoid stakeholder bias on
decisions
Proprietary & Confidential. © 2012, Everest Global, Inc. 23

24. Decision process guidelines for selecting portfolio
model
1
Invest in GIC model as a
strategic initiative to
Yes complement outsourcing
Does the organization believe
Yes that global operating models are
Is there a proven a natural part of the future
>2,500 FTEs business strategy? 2
history of enterprise- Outsourcing likely best fit,
wide back office assess if internal GIC model
3
/technology Each function/BU approaches provides incremental value
operating models? No
sourcing model in the manner in selective areas
their leadership believes value
No
is best captured
How large is If multiple GIC operations gain
the potential scale in offshore locations, some
enterprise 4 functions or BUs may elect to opt-
“offshoreable” Selectively use GIC model for in and migrate to model 1
population? Yes functions/BUs to attain required
differentiated talent; use
outsourcing in other areas or to
Is there a strong complement
culture/leadership for
an international 5
<2,500 FTEs talent model? Leverage only the outsourcing
model (exception: if offshore
domestic operations can already
No support other geographies)
Proprietary & Confidential. © 2012, Everest Global, Inc. 24

25. Global In-house Center (GIC) Value Diagnostic
Survey 2012
Are "parent" and "GIC" executives aligned
in how they are looking to drive value
beyond cost savings?
Participate in Everest Group’s GIC Value
Diagnostic Survey 2012 and share your
perspectives. All participants will receive a
complimentary copy of summary findings.
Survey Link:
surveys.everestgrp.com/s3/gic-survey-9
Start the Survey
Are you interested in a custom benchmark of the survey for your organization?
If so, please contact us to request an organization-specific link for your company.
Proprietary & Confidential. © 2012, Everest Global, Inc. 25

26. Q&A
To ask a question during the Q&A session
 Click the question mark (Q&A) button located on right side of your screen. This opens Q&A
 Be sure to keep the default set to “send to All Panelists”
 Type your question in the box at the bottom of the Q&A box and click the send button
 Attendees will receive an email with instructions for downloading today’s presentation
 For advice or research, please contact:
– H. Karthik, h.karthik@everestgrp.com
– Shyan Mukerjee, shyan.mukerjee@everestgrp.com
Stay connected
Websites Twitter Blogs
www.everestgrp.com @EverestGroup www.sherpasinblueshirts.com
research.everestgrp.com @Everest_Cloud www.gainingaltitudeinthecloud.com
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27. Check out our blog for the latest perspectives
on global services
Experts in the global
services terrain
www.sherpasinblueshirts.com
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28. Related Content
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 Global Sourcing Trends in the U.S. Mortgage Industry
 Global Offshore Global In-house Center (GIC) Landscape and Trends: Focus Geography –
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 Blog: Determining Today’s Value of Global In-house Centers (GICs): GIC Value Diagnostic
Survey – 2012
 Blog: Leverage Points in Global Services for India, China, and Philippines
 Blog: Why Next Gen CEOs are Actively Promoting “Shadow IT”
Proprietary & Confidential. © 2012, Everest Global, Inc. 28

29. About Everest Group
Everest Group is an advisor to business leaders on the next generation of global
services with a worldwide reputation for helping Global 1000 firms dramatically
improve their performance by optimizing their back- and middle-office business
services. With a fact-based approach driving outcomes, Everest Group counsels
organizations with complex challenges related to the use and delivery of global
services in their pursuits to balance short-term needs with long-term goals. Through
its practical consulting, original research, and industry resource services, Everest
Group helps clients maximize value from delivery strategies, talent and sourcing
models, technologies, and management approaches. Established in 1991, Everest
Group serves users of global services, providers of services, country organizations,
and private equity firms in six continents across all industry categories. For more
information, please visit www.everestgrp.com and research.everestgrp.com.
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30. Everest Group
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