Hub and Spoke Operating Model

Hub and Spoke
operating model
A new business
paradigm for the
Indian IT-BPO Industry
kpmg.com/in
Foreword - KPMG in India
The Indian IT-BPO industry has been a sunrise sector

for the country for last 3 decades. Since its birth in
80s, it has seen two inflection points, Y2K and DotCom,
which propelled its growth and then has seen at least
two economic shocks during the DotCom bust and the
2009 meltdown. At an adolescent stage, it is at the cusp
and has an opportunity to become a Global Hub for IT-BPO,
rather than merely a most preferred offshore location.
Despite having a commanding 50 percent plus offshore
market share, it holds merely 5 percent of global outsourcing
market1. If India learns the lessons from the US and Japan on
how they became Global Hubs for manufacturing (Electronics,
Auto, Aerospace, Consumer goods) where they managed
customer requirements, quality, performance, risk management
and capital deployment, whereas spokes were created in
China, Taiwan and rest of the world Indian IT-BPO industry can
become the custodian and brand holder, utilizing appropriate world
destinations. India can then command 2 to 3 times of its current
share of the global outsourcing market over the next decade. This
paper attempts to draw that parallel and suggest some imperatives for
India to become the Global IT-BPO Hub.
Kumar Parakala Pradeep Udhas

Chief Operating Officer Partner and Head
Advisory IT - BPO Sector
KPMG in India KPMG in India
1. NASSCOM Strategic Review 2011
2012 KPMG, an Indian Registered 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.
Foreword - NASSCOM
The Information Technology-Business Process Outsourcing (IT-BPO) industry has exhibited

remarkable growth in the last decade to become one of the most significant growth catalysts for
the Indian economy. While its initial value proposition hinged on basic outsourcing advantages
of cost and talent, industry focus has shifted to higher value added services, innovation and
transformation. Global sourcing is now evolving from being tactical to being of strategic benefit to
clients
The Indian IT BPO industry shall realise that to manage changing customer demands, tap
emerging opportunities, offer new services, multi-lingual capabilities and business continuity
planning, it needs to deliver services from multiple locations across the world. Thus a
complete hub and spoke global delivery model encompassing service delivery across
multiple continents, which assures clients of flexibility and scalability, is a necessity and a
need of the hour.
Indian IT-BPO companies needs to address the key requirements of a global delivery
model-a proven multi-location delivery track record, a diverse set of assets/IP/solution
accelerators, robust and consistent processes and technologies, depth and breadth of
global skills, and an optimised network of centres. Indian companies now have over
560 delivery centres in 70 countries spread across Europe, North and South America,
Africa and Australasia. With India acting as a hub while delivery centers across the
world acting as business specific scalable spokes, the industry shall be able to
provide a single face with seamless yet distributed delivery capabilities to the
customer, offering both efficiency and flexibility.
This whitepaper provides a complete understanding of the evolution of the

hub and spoke model in the global sourcing industry, key characteristics and
benefits, and factors critical to the success of this model. We hope you find
this interesting, and we welcome your comments and feedback on the same.
Som Mittal
President
NASSCOM
Our thanks to these leaders for their insights
Mr. N. V. Tiger Tyagarajan Mr. Sandeep Soni

President and CEO President
Genpact Hero BPO
Mr. Anshoo Gaur Mr. Dhiraj Dolani & Mr. Venki Iyer
President and India Head Mentor and Co-Founders
Amdocs B2R Technologies
Mr. Sanjay Jain Mr. Ajay Chaturvedi

Chief Capability Officer Founder-Chairman
WNS Global Services HarVa
Mr. Naresh Wadhwa Mr. Murali Vullaganti

President and Country Manager Founder and CEO
Cisco India & South Asia RuralShores Business Services
Mr. Prashant Ranade Ms. Mythily Ramesh

CEO and President
Co-Founder & CEO
Syntel Inc.
NextWealth Entrepreneurs
Mr. Anil Modi Mr. Sudhir Gupta

Chief Marketing Officer and President (MENA)
COO
Aegis Limited
Drishtee
Ms. Aruna Jayanthi

CEO
Capgemini India
Table of Contents
Executive summary 01
Introduction 03
Early riders of the Hub & Spoke wave: Key takeaways for IT-BPO industry 09
Hub & Spoke model Heralding a new era in technology outsourcing 15
Critical success factors for a successful Hub & Spoke model 23
India as a global Hub 27
Way forward 31
About KPMG in India 35
About NASSCOM 36
Glossary 37
1 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Executive
summary
The outsourcing landscape in the IT-BPO industry has undergone several inflection points
in the years of its existence. While the initial driving force was the need to cut costs, over
the years customers realized that outsourcing could be a tool to achieve much more than
just cost advantage; it could also turn out to be a strategic driver to attain business value.
This has led to the evolution of a more holistic view on global sourcing with clients and
vendors collaboratively striving to achieve the most optimum and beneficial model of
outsourcing service delivery.
Evolution of delivery models
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 2
Today, clients and vendors are seeking models to help them coordinate and manage
globally dispersed centers, build strong sourcing relationships, instill a collective identity
and ultimately deliver high quality services seamlessly. One such operating model that
has been successfully implemented across several industries and is expected to drive the
next phase of IT-BPO service delivery is the Hub & Spoke model.
The Hub & Spoke model is used in the context of multi location sourcing wherein
a central consolidator called the Hub provides a single face to the customer while
seamless extensions called Spokes are leveraged to provide the services, distributed
across multiple locations. In a wider role, the Hub is expected to take on management
responsibilities including those of capabilities development, customer management,
regulatory compliance, uniform standards of delivery, and manpower management. On
the other hand, a Spoke is administered as a delivery centre that can be scaled up or down
depending upon business requirements. Some companies may also choose to leverage
near shore Spokes as base locations for business development.
Hub and Spoke operating model
The Hub & Spoke model provides an attractive cost proposition to enterprises while
allowing vendors to deliver seamless services. It provides flexibility in service delivery in
a way that vendors can scale up or down operations based on client requirements. The
model also helps organizations gain business insights by being close to the customer.
Service providers are able to tap into smaller cities that provide a compelling value for
sourcing. Delivering projects for a client from a large number of globally distributed
locations allows vendors to de-risk operations and utilize the benefits of a skilled regional
labor pool. Thus, a good mix of locations for service delivery ensures a better quality of
service at lower costs.
India has already established itself as the preferred offshoring destination for organizations
globally and built a strong expertise in technology operations, business processes and
management capabilities over time. This global prowess can now be extended to a new
role as Global Hub, managing a geographically dispersed network of Spokes.
The new decade presents India with an opportunity to move beyond the most preferred
offshore location to become a Global Hub for IT-BPO managing clients across the
different countries around the world. The Indian IT-BPO industry could learn lessons
from the success stories of Hub and Spoke model implemented in other industries like
manufacturing - automobiles, electronics, consumer goods and aerospace. Just as the
US and Japan emerged as the global manufacturing Hubs in the last couple of decades1,
managing customer requirements, risks, quality and performance standards with
manufacturing locations established around the world acting as Spokes, the Indian IT-BPO
industry could also successfully replicate this model leveraging inherent benefits of a
widely dispersed geographic location portfolio. This would significantly enhance Indias
share in the worlds outsourcing market.
In order to effectively position India as a Global Hub, it is essential to invest in a strong

brand, proactively develop a location strategy, adapt and standardize operations across
locations, invest in technology and ensure compliance with global security and regulatory
standards. The governments role is to formulate attractive regulations for companies
operating out of India, develop infrastructure specially in smaller cities and help project
India as a safe investment haven to clients and investors. Industry bodies can play a
significant role in the process by promoting and marketing the idea of Brand India as a
Global Hub and further nurturing the managerial talent in the country.
1. KPMG in India Analysis
Introduction
In a rapidly globalizing world, IT-BPO outsourcing has evolved from being optional to a
critical lever driving a companys profitability and growth. What began as a step to achieve
cost savings through labor arbitrage has undergone several changes over the past few
decades, with vendors moving into new markets and establishing unique offerings and
services. Challenging economic conditions from time to time have further necessitated
adoption of different delivery models to provide business value. Today, outsourcing has
transformed from being merely labor arbitrage with low-cost countries, into an offshoot of
true globalization.
Evolution of service delivery

The outsourcing model has undergone several changes over the past few decades. At
the turn of every decade, with increasing complexity and competitiveness in the IT-BPO
industry, outsourcing models have witnessed transformation in order to deliver value to
clients. It began with onsite staff augmentation where supplemental resources were
imported to client locations to work on short-term projects. Since, resources were
brought onsite; the cost of labor saving was not substantial. The industry gradually moved
to the offshore model in which tasks were outsourced to a different, low cost location
achieving a significant cost arbitrage in the process. Soon, a few industry majors realized
the advantages of being present near their client markets and established bases close to
them, thus leading to the evolution of the near shore outsourcing model. Only recently,
has the Hub and Spoke model made way into the management mindshare, as the next
viable model of outsourcing.
Evolution of delivery models
The initial driving factor behind the development of outsourcing has been the need to cut
costs. Over the years, the outsourcing model has undergone several changes, with many
stakeholders discovering that outsourcing is not just a tool to achieve cost advantage but
instead, a strategic driver to attain business value. Thus, a more enlightened view of global
sourcing is starting to emerge as customers get increasingly convinced of its vast and
multi-faceted potential.
Evolving perspectives on global outsourcing
Outsourcing is evolving from cost arbitrage to strategic location sourcing

Current Perspective Emerging Perspective
Labor and cost arbitrage Maximize benefits from globally dispersed locations
Migration of projects/ Quality service from external local talent at lower cost
processes to offshore
locations Strategically leverage global best practices and talent
Multiple delivery centers Break the process into components like voice, data, compliance and execute across multiple
across locations to de-risk locations
business. Simultaneously execute tasks across multiple offshore locations
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.
In an emerging trend of outsourcing, companies are actively seeking out vendors in

diverse locations in order to maximize the benefits of geographic dispersion in order
to deliver their services. With a wide geographic dispersion though, comes the added
concern of management. Thus, there is need to establish a highly robust management
framework to coordinate globally dispersed centers, build relationships, instill a collective
identity and ultimately deliver successfully on the outsourcing mandate. One such
model of management that has been successfully leveraged across industries such as
manufacturing, logistics and aviation is the Hub & Spoke delivery model.
A combination of customer, vendor and geo political considerations is giving rise to the
need for the Hub and Spoke model today. Customers are looking out for vendors who
are able to manage a large number of globally dispersed centers. While vendors seek to
be closer to their customers they also want tighter and more streamlined management
control over operations. Spreading of business operations geographically also ensures
adequate diversification of geopolitical risks.
Key drivers for the Hub & Spoke model
The Hub & Spoke model

The Hub & Spoke model is used in the context of multi location sourcing wherein
a central consolidator called the Hub provides a single face to the customer while
seamless extensions called Spokes are leveraged to provide the services, distributed
across multiple locations. In a wider role, the Hub is expected to take on management
responsibilities including those of customer, quality, risk and performance management,
training & development, manpower management and regulatory compliance.
Responsibilities of a Hub
Areas Responsibilities
Customer management Understand customer requirements in order to allocate work to Spokes

Provide seamless customer experience irrespective of the offices where the services are being delivered
Quality, risk and Set quality, risk and performance standards for the Hub and Spokes
performance management Monitor performance
Report or initiate corrective actions wherever required
Training & development Define and implement training programs across the Hub and Spokes
Cross-pollination of skills between the Hub and Spokes to ensure uniform capability development
Manpower Management Ensure continuous manpower planning across the Hub and Spokes
Ensure visibility on employee related statistics like staff count, competency, allocation, attrition across Spoke
locations
Regulatory compliance Ensure the necessary controls have been put in place across all Spoke locations to ensure global and local
regulatory compliance
Spokes are seamless extensions of the Hub that can be leveraged to provide a service
to a customer (internal or external). The typical responsibilities of a Spoke include
meeting a Hubs performance expectations, adding to its manpower needs, local project
management, supporting the Hub on legal & tax issues and operating as an extension of
delivery or competence center.
Responsibilities of a Spoke
Applicable only to Spokes organized by competence
In most cases, a Spoke will be leveraged as a delivery centre that can be scaled up or
down depending upon business requirements. Most technology companies prefer to
keep the management complexity at the Spokes to the minimum. Some companies may
choose to leverage near shore Spokes as base locations for business development.
Going forward
To summarize, cost arbitrage by itself has ceased to be a key differentiator in the IT-BPO
industry. Today, customers expect service providers to have strong delivery capabilities,
well evolved across geographic locations in order to drive business value. This changing
nature of client requirement is pushing vendors to scale up their location portfolio in order
to participate in transformational global deals. One such model that is expected to evolve
into the next archetype of multiple location based service delivery is the Hub and Spoke.
The objective of the Hub & Spoke model is to provide greater flexibility to the client in
selecting locations out of a portfolio of delivery centers that adequately fulfills all business
needs. The Hub & Spoke model is expected to be complementary to the standard
practices followed in the industry at present and would not suddenly result in the other
models phasing out. The early adopters of this model are likely to gain a significant
advantage over other players, and the model itself will evolve into an industry standard
over time and be widely implemented in the IT-BPO industry.
Positioning Brand India as global Hub

India has successfully emerged as a leader in the IT offshore outsourcing world with its
current share at 55 percent in the global offshore market for IT services and software1.
Over the years, Indian service providers have significantly expanded their offerings across
different verticals to enhance their depth of services. They have also increased their
geographic penetration to serve markets other than the US and the UK. Indias advantage
lies in its ability to provide a complete spectrum of services, including those related to
IT, business and knowledge processes. The experience of handling multiple technology
projects, throughout their lifecycles, has helped Indian service providers develop robust
management frameworks, which can be further leveraged to run a geographically
dispersed delivery model. Indias geographic position enables it to have an 8-12 hour time
zone difference with respect to the US and other major markets2. This time zone difference
results in a 24x7 service provision with a consequent reduction in turnaround and project
execution time. Companies working out of India are able to leverage the significant time
overlap with projects being executed from Europe, the US and SE Asia.
Given the outsourcing capabilities developed and strengthened over the past few
decades, India can now successfully position itself as the worlds IT Hub, managing a
combination of international and domestic Hub and Spoke locations, thus leading the
emergence of a new paradigm of service delivery in the IT-BPO industry.
Industry Example
Costs are no longer the key Various industry players are considering some form of the Hub and Spoke
motivator behind outsourcing model as a part of their business strategy going forward. For example, a
decisions leading BPO player is contemplating creating Hubs which are organized by
competencies and/or regions. They are actively expanding their presence
There is need to partner with the in Australia, Europe and North America and confirm that clients are now
customer in close proximity to add expecting their service providers to be business and technology experts, and
value. not just provide a cost advantage. The vendor believes that it is important to
understand the cultural and process implications of working in the region
where their clients operate. As a result, they will continue to invest in building
domain expertise and move closer to the customer in the future.
The first generation global delivery model was driven by lower telecom
costs. Collaboration technologies will drive the next generation of
GDM. Companies need to evolve their business processes around
collaboration to succeed in the new paradigm.

- Prashant Ranade
CEO and President, Syntel Inc.
1. http://www.establishingabroad.com/bazment/4457.aspx
2. Customized World Clock, http://www.timeanddate.com/worldclock/custom.html?sort=1
R&D Hub co-ordinates all product Industry Example

development efforts across the A leading global product development company with its R&D centre in
Spokes India has successfully leveraged the Hub & Spoke model to be closer to its
market. In the past, this company grew its product portfolio through both
Standardized R&D processes in-house development as well as product acquisitions. In case of the latter,
ensure easy integration of new while the parent realized the need to provide the acquired company the
acquisitions freedom to grow and expand their product portfolio it was also necessary to
Move personnel in R&D centers bring in benefits of standardization and merge the two entities in a smooth
closer to the customers through manner. The parent started to support the acquired company in their R&D
cross-pollination efforts from an R&D Hub based out of India. Product development efforts
were driven by product owners for the region with access to information
Outsource product development available at various Spokes. In an effort to further integrate the two entities;
efforts where possible. some of the staff was transferred from the R&D Hub to the Spokes every
year to help them understand their clients (team members at the Spoke)
better, leading to significant improvements in the joint product development
efforts. The management talent came from the parent Hub. Thus, not only did
the engineering Hub ensure standardization of joint product development
efforts; it is also allowing the company to outsource some part of the product
development efforts to 3rd party service providers.
Business models have evolved considerably over time. The command

and control structure worked well for traditional industries and
economies, in the past. Todays knowledge economy, coupled with
global business environments, requires a structure granting individual
units some autonomy in decision making. Further, for businesses to
remain competitive, access to the optimal resources be it talent,
materials or best practices from across the globe, is critical. The Hub
and Spoke model is the manifestation of this business imperative.
This will result in strategically located centers of excellence
executing portions of the business independently; while relying on
the headquarters to facilitate knowledge and process sharing. This is
definitely a trend that is here to stay.
- Naresh Wadhwa
President and Country Manager, Cisco India and South Asia
Over the next few years, the focus of BPO Service providers will be to
help their client achieve specific business outcomes so that they can
outperform in their marketplace. There shall be an integration of Global
Operating models that goes beyond offshore and near shore centers,
significant use of domain consulting skills, operating and process model
innovations, technology platforms and embedding analytics to deliver
these specific business outcomes
- Sanjay Jain
Chief Capability Officer, WNS Global Services
Early riders of the

Hub & Spoke wave:
Key takeaways for
IT-BPO industry
The aviation industry1 was the first to successfully implement the Hub and Spoke
distribution model, which has since then been adopted by many other industries. The
manufacturing industry, for example, put into practice the Hub and Spoke model in order
to leverage a global low cost, high quality supplier base which in turn helped facilitate the
production process and lower overall costs.
The manufacturing experience with Hub and Spoke

Increased globalization has brought in several opportunities for multinational corporations
over the past few decades. Companies have expanded their borders of trade, tapped into
new markets and utilized a global talent pool to deliver their services. And in their pursuit
of globalization, technology and differential labor costs have been key enablers, with those
adopting an innovative, adaptable business model succeeding over the rest.
It was in the mid 1960s that the manufacturing industry first noticed the initial signs of
globalization. Production of consumer appliances and electronics was moving to low-cost,
high-quality Japanese producers. This was a move away from the existing production
process, which until then was being completely undertaken in the US and Germany.
At this juncture, manufacturers took their first step in breaking from a traditional set up to
move into globalization of the labor workforce. Through the 1960s and 1970s, realizing
that outsourcing to low-cost Japanese producers could help them outrun competition,
companies leveraged a number of relationships in Japan, strategically sourcing high-
quality products at low cost.
Over the following years, benefits of a global labor market integrated more firmly with the
manufacturing process and service delivery model. Gradually, manufacturers moved to
countries which not only provided a cost benefit but also readily assimilated technology
know-how and offered attractive government policies. Thus, what used to be a single-
country venture in the 1960s grew into large, worldwide operations in order to leverage
the benefits of multi location sourcing.
To sum up, three factors drove the manufacturing industry to expand its geographic
footprint:
Cheap labor at low-cost destinations leading to lowering of overall cost of
manufacturing
Ability of countries to assimilate and replicate the technology know-how
Incentives provided by various local governments to promote the industry
To be successful in a changing market-place, the strategy of the manufacturing industry

was two-fold: identify core functions such as branding, design and monitoring operating
standards and improve on them, while outsourcing the task of manufacturing finished
products to third party suppliers in low cost destinations.
1. Hub and Spoke in Insurance: Aggregate and Conquer, Oliver Wyman
Evolution of global sourcing locations in the manufacturing industry
Functions outsourced by manufacturers
How the manufacturing industry built a globally diversified network can be a useful
lesson for IT-BPO companies looking to outsource from all over the world. The industry
started off with goods being manufactured at diverse locations that offered attractive
cost propositions. Over a period of time, they began adding more locations in the same
region. After gaining a good understanding of operating in a region, companies then began
exploring the option of setting up their own units to procure goods at even lower costs.
This led to the creation of multiple nascent Hubs and Spokes.
Evolution of outsourcing in manufacturing
Over a period of time, the Spokes began to assimilate the best practices from the Hub
units of the manufacturer, leading to the evolution of a closely knit Hub and Spoke
system of operation. The approach adopted by the industry to transform a series of
standalone sourcing units to a tightly enmeshed global sourcing network is illustrated
below.
Framework established by the manufacturing industry to manage its sourcing network
Hub and Spoke model in other sectors

The Hub and Spoke model has been implemented in several other sectors with a great
degree of success. Two examples are discussed below.
Case Example: Hi-Tech2

The company under discussion is one of the top hi-tech brands in the world today. While
a lot of the concept building and designing of products still happens at its Californian
headquarters, the company has successfully leveraged the Hub & Spoke model and
outsourced the manufacturing and assembly operations for some of its key flagship
products. A few products use the Contract Manufacturing form of outsourcing which
acts as an extended Spoke.
The company has followed the conventional manufacturing model by using third-party
suppliers as its contract manufacturers under a partnership model. The products are not
manufactured end-to-end at one single location. The various components of the products
are sourced from multiple vendors dispersed geographically. This has successfully helped
the company reduce costs and focus on its core competency of design and engineering.
In addition, in order to ensure risk management and compliance, the company has created
a standard code of conduct and has hired independent auditors to inspect working
conditions in vendor factories.
Case Example: Aircraft manufacturing2

In another industry example, a leading global aircraft manufacturer engaged in supplying
commercial jetliners and military aircrafts to customers in over 150 countries successfully
incorporated the Hub and Spoke model into its operations. Although the manufacturer
has been outsourcing parts of its production since the early 80s, it was only during the
fabrication of its latest commercial jetliner, that the company really put the Hub and Spoke
model into practice.
2. Company website and Internet Research
To cut production timelines, as well as take advantage of a worldwide supplier base, the
company decided to adopt a global sourcing strategy. The aircrafts design was done at the
companys Seattle headquarters in the US; however the rest of the production process
was decentralized. The company outsourced nearly 70 percent of the aircrafts component
production with Japanese aviation industry manufacturers supplying the remaining 30
percent of the aircraft. Thus, this model allowed the company to completely focus on its
core competency of designing and assembling aircrafts, while sourcing components from
its Spokes.
Hub and Spoke network of a global aircraft manufacturing firm

Australia
Movable trailing edge
Canada
Wing/ body fairing
Landing gear doors
England
Landing gear
Engines
France
Passenger entry doors
Italy
Centre fuselage
Horizontal stabilizer
Japan
Forward fuselage
Centre wing box
Wing
Main landing gear wheel well
Fixed trailing edge
Korea
Wingtips
Sweden
Cargo access doors
US
Forward fuselage
Fixed and movable leading edge
Tail fin
Aft fuselage
Engines
Engine nacelles
Key Takeaways: Key takeaways for technology sector

The manufacturing industrys approach to build a globally diversified sourcing network can
Cost control is critical serve as a blueprint for IT-BPO companies looking to successfully leverage a multi location
outsourcing strategy to service their clients.
Focus on core competency
Cost control is critical - Cost leadership is a critical factor for continued survival in a
Invest in new locations
highly competitive industry and will be the prime driver for establishing presence in
Cultural alignment global locations
Performance management and tracking Focus on core competency - Companies need to identify core areas of focus which
could be IP development, branding etc and invest in them continuously
Contribution of primary markets
Invest in new locations - Companies need to pro-actively invest and develop emerging
locations in order to reap the new and attractive benefits offered by them
Cultural alignment -There is a need to better understand the cultural nuances of doing
business in a region before making substantial investments; thus, it is better ramp up
operations gradually
Performance management and tracking - Companies need to continually monitor

the performance of delivery centers through periodic audits and other performance
management measures to ensure that brand attributes remain strong
Contribution of primary markets - Over time, as the business scales it is inevitable

that the contribution of primary markets to the product development process will
decline and other locations would emerge.
Deliver the outsourced process Industry Example

simultaneously from multiple A leading global player in the Consulting, Technology and BPO space has
locations been using the right-shoring strategy, the objective being to provide a
unified seamless experience to their clients. The firm has centers all over
Spilt the process into components the world to help service clients from the best location. To be more specific,
- voice, data etc and deliver each the company splits the process outsourced into multiple components
of them from the best suited voice, data etc. and routes these processes to the best location available
locations to serve them. The Hub acts as a consolidator and controller that provide
Use Hub as a consolidator that the client a unified experience. The Spokes are viewed as extensions to the
provides the customer a unified Hub which help reduce the time and bureaucracy in servicing clients. Also,
user experience the company has developed Spokes in tier 3 and tier 4 cities in India, while
creating regional Hubs to control these Spokes. Thus, by limiting the size of
View Spokes as extensions to the Spokes and with regional Hubs to control them, the complexity involved
Hubs to help reduce bureaucracy with deploying the model has significantly reduced. Additionally, for large
Smaller Spokes ensure that they outsourcing engagements that support global operations, the firm has
can be managed remotely from the created client Hubs by geography to service domestic operations. There is
Hubs also an instance where two offices have shared a Spoke location and another
where an office has been phased out as a delivery centre with the rising cost
Two Hubs may share a Spoke of operations.
location.
Global Delivery Model provides brands with possibilities of finding right

equilibrium between cost and experience. The GDM needs to leverage
technology, process and people skills to provide a seamless and
consistent end user experience.
- Anil Modi
Chief Marketing Officer and President (MENA), Aegis Limited
Hub & Spoke model:

Heralding a new era in
technology outsourcing
A range of Hub and Spoke formats can be formulated keeping in mind factors such as
ease of management, skills availability, geographical proximity etc. Three possible models
of Hub and Spoke are discussed in this section with their key characteristics, governance
mechanism and scenarios under which they could be applied.
1. Hubs with dedicated Spokes

Key characteristics
This model has Hubs with multiple dedicated Spokes servicing them. The Hubs role
is to set the quality and performance standards, manage risks, operating procedures
and ensure compliance of the Spoke centers. The Hub also allocates projects and
resources for delivery at the Spokes under its supervision. Spokes may not have the
required maturity in managing clients and hence, management control largely lies
within the Hubs.
Governance mechanism
The management control lies at the dedicated Hubs while Spokes have the onus of
ensuring regulatory compliance and following the rules of the country in which they
are located. In operations, it is the Hub which takes decisions on work allocation and
delegates it to the Spokes. The SLAs, response and turnaround time are mandated by
the respective Hubs. Also, having a network of Spokes in different time zones allows
the Hub to ensure follow-the-sun workflow.
Suitable scenario
This model would be best suited when Spokes are situated in locations having a
specific value proposition which could be low-cost, specific skill-sets, cultural affinity
with the client etc which is useful for a particular Hub only and not others. This model
could also be used when the Spoke is expected to perform easily replicable low to
medium skilled tasks. Also, in the domestic scenario, this model could be applied
with tier- III, IV cities acting as Spokes for handling medium to low skilled replicable
tasks with tier-I, II cities being the Hubs.
Hubs with dedicated Spokes
2. Single Spoke servicing multiple Hubs

Key characteristics
This model involves presence of a Spoke in a geographic location catering to the
multiple Hubs across the globe. The Spokes would handle specific set of requests in
their area of specialization from the Hubs catering to their respective customer base.
The Spokes would need to have a management layer in order to seamlessly manage
and cater to the requests received from the Hubs across the globe.
The Spokes would have a separate management layer involved in managing the
operations. They would also have the discretion to prioritize and work on the tasks
received from different Hubs. The SLAs, response and turnaround times are managed
and tracked by the Spokes themselves. Also, this model mandates some degree of
coordination between the Spoke and Hubs and smooth flow of communication for
prioritization of operations.
Suitable scenario
This scenario typically observed when the Spoke has the necessary resources to
support one critical competency. An example of this competency could be language
(using So Paulo for Portuguese language skills) or capability (internal functions like
risk, legal, etc.). In case of product companies, it could be the global R&D centers
working on a set of specific technologies in which they specialize catering to the
requests received from other locations.
Single Spoke servicing multiple Hubs
3. Hubs with shared Spokes

Key characteristics
This model has Hubs with multiple shared Spokes servicing them. Each Hub would
have a network of Spokes while each Spoke can serve multiple Hubs. The Hub would
set the quality and performance standards, manage risks, operating procedures,
work allocation and ensure compliance of the Spoke specific to its area. Spokes can
have internally dedicated teams to cater to its set of Hubs. This responsibility of team
allocation may lie with the Spokes though it would be done in consultation with the
respective Hubs.
Since Spokes are reporting to multiple Hubs, there would be a thin management
layer handling the overall operations of the Spokes as it requires some degree of
coordination and smooth flow of communication for ease of operation. Management
control of the projects lies at the Hubs while Spokes ensure job completion and
regulatory compliance. In operations, it is the Hub which takes decisions on work
allocation and delegates it to the Spokes though the discretion to allocate dedicated
resources may lie with the Spokes, in this case.
Suitable scenario
A Spoke is usually shared when it functions as a large delivery center that supports
multiple competencies along verticals and/or horizontals. This model is suited when
Spokes have skill-sets which maybe a common requirement at more than one Hub,
for example bilingual capability, expertise in a specific vertical (E.g. manufacturing,
healthcare, BFSI, etc.) or horizontal (E.g. research, supply chain, ERP, CRM etc.).
Hubs with shared Spokes
Capgeminis Rightshore strategy ensures work is performed

wherever it is best for the quality of service, availability of skills and
costs. This means right service, in the right place at the right time.
Through a globally distributed delivery network comprising of process,

infrastructure and delivery centers, we obtain efficiency gains through
economies of scale, increased effectiveness through improved
processes and productivity enablers.
- Aruna Jayanthi
CEO, Capgemini India
Hub and Spoke adoption curve in organizations
Adoption curve of Hub and Spoke models in organizations

Organizations would adopt these three types of Hub and Spoke models based on the
expertise gained in managing processes and projects across diverse locations. They would
start with phase 1 with least complexity and gradually move into phase 2 with medium
complexity and would gradually reach phase 3 leveraging the benefits of Hub and Spoke
operating model.
Phase 1
Typically, organizations would initially start with a single Hub and multiple Spokes. It could
also start with a single Spoke with multiple Hubs initially. This is the simplest of all types
and hence, would be the first step for the organizations who would want to venture into
multi-level sourcing. The management complexity in handling communication, work
distribution, resource allocation, and ensuring compliance is minimal.
Phase 2
As the organizations gain experience in operating Hub and Spokes, they could replicate
with more Hubs and Spokes with similar configuration at same or other locations within
the organization. Phase 2 would involve multiple Hubs with dedicated Spokes or presence
of multiple shared Spokes with corresponding Hubs. The management complexity in
managing operations would be slightly complex than the phase 1.
Phase 3
Phase 3 would involve having a complex network of multiple shared Hubs and Spokes.
This is the most complex network of all as each Hub would have shared Spokes and each
Spoke would be interacting with multiple Hubs. There would be a management layer both
at Hubs and Spokes in order to manage the workload, priority, delegation and tracking of
SLAs. This model would be a gradual transformation for organizations which have evolved
through phases 1 and 2.
Key Benefits:
Benefits of Hub & Spoke Model
The Hub & Spoke model offers a gamut of advantages which include:
Capabilities development
Capabilities development: Increased size of organization results in more
Cost advantage specialization and decentralization in decision making, which makes it necessary to
add more management layers for better control of resources and inter-organizational
Flexibility & scalability in operations
interactions. The Hub and Spoke model is a tool that still enables considerable
Improved time-to-market centralized control, especially over aspects such as skill development, resource
utilization, operational efficiency and enforcement of uniform standards across delivery
Seamless operations
centers. The model allows the effective use of regional capabilities such as language
Spread risk and increase presence skills to develop world class quality of services.
Lower incremental investments on Cost advantage: A good mix of locations for delivery centers ensures higher quality of
technology service at lower costs. Spokes allow companies to reap benefits of cost arbitrage by
Enforce worldwide best practices leveraging multiple locations (mix of high quality and low cost) to service customers.
Flexibility and scalability in operations: Multiple delivery centers organized as

Spokes allow companies to juggle with resources as per demand across different
geographies. Companies can re-staff resources in various geographies to scale-up or
scale-down operations.
Improved time-to-market: Hub & Spoke model allows delivery units to source talent
from locations where the required capabilities and skills are available and thereby, save
time which would otherwise have gone into training and building centers of excellence
in one central location.
Seamless operations across all Spokes for a Hub: When organized in the Hub &
Spoke model companies make a conscious decision to ensure there is a consistent
view of customer processes across all locations. This allows technology service
providers to leverage Spokes simultaneously to service customers.
Multiple locations to spread risk and increase presence: The Hub & Spoke model
helps spread operation risk across various locations. Decentralized operations allow
companies to have effective business continuity plan and resiliency in case of any
disaster. Also, centers in various parts of the world allow companies to have global
presence and wider reach. Companies can target more clients and manage business
seasonality and cycles. More importantly, Spokes bring in regional benefits such as
near shore and local regulatory incentives to facilitate service delivery .
Lower incremental investments on technology: Hub & Spoke model is best

leveraged by setting up a private cloud that can be accessed globally. This ensures
there is no incremental investment in technology for every new centre that is setup.
Enforces worldwide best practices: Companies can adopt best practices from
various parts of the world and extend it to other delivery centers and teams.
Benefits of the Hub & Spoke model
Capabilities development Averaged cost arbitrage with improved quality

The Hub and Spoke model enables considerable centralized control even in a Some spoke locations maybe more expensive than others but provide a higher
large, growing organization, especially over aspects such as skill development, quality service. Ability to leverage multiple locations to service a customer allows
resource utilization, operational efficiency and enforcement of uniform standards the company to improve service quality while optimizing costs.
across delivery centers.
Harmonize global operations Reduced time to deployment for projects

Borrow leading practices from across locations to develop a consistent best Centralized training coordinated by hubs ensure a consistent employee quality.
practices framework that can be replicated across locations. These trainings can be rolled out in parallel across multiple spokes to new hires
to ensure much faster deployment of projects.
Mitigate risks and ensure high availability (24*7*365) Factor in the regional competitive advantages
Scattered delivery helps spread the risk to business continuity across multiple Niche skills or lower priced skills that align with a competence can be best
delivery centers. This provides more flexibility to plan better the BCP and DR tapped using the Hub & Spoke Delivery model.
considerations to ensure high availability.
Key Challenges: Challenges of Hub & Spoke Model

While the benefits are substantial, there are a few challenges in this model which have
Differences in local regulatory been highlighted below:
environment, culture and time zones
Differences in local regulatory environment, culture and time zones: With
Integration of resources to provide single centers in various parts of the world, the company may face differences in regulatory
(unified) service
environment, cultural preferences, time zone etc. which may pose a challenge.
Project management Due to differences in time-zones and culture, communication between centers
can be impeded. It is important to understand the softer aspects of the location
Ensuring data confidentiality and security
and plan accordingly to ensure smooth program management and open bi-lateral
Addressing tax issues communication.
Integration of resource pools to provide seamless services: It is important to

synchronize operations between the Hubs and Spokes and tightly integrate their
resource pools to provide a seamless service offering to clients. Failure to do this may
defeat the entire purpose of running this business model.
Project management: Under the Hub & Spoke approach, since the work is
distributed across Spokes, following project management practices and existence of a
management team which can act as a coordinator between Hub & Spokes is extremely
critical. The project status, milestones and deliverables must be tracked and updated on
a regular basis. It is also important to run a pilot and transfer less critical, less complex
tasks to Spokes before transferring mission-critical processes and applications to
reduce the operating risk.
Ensuring data confidentiality and security: In a multi-location firm, protecting

intellectual property rights and data is critical. The vendor needs to ensure that there is
a proper mechanism for ensuring network security, data security and physical security
Addressing tax issues: Different countries have different tax structures;

understanding and complying with them can be an arduous task for companies.
Thus, firms need to formulate a plan and seek expert advice in order to optimize tax
treatment, minimize uncontrolled tax risks, and ensure ongoing compliance with laws.
Key challenges in leveraging the Hub & Spoke model
Integration of resources to provide a consistent customer experience Time-zone considerations need to be navigated to provide adequate
across Spokes Senior Management support
Management complexity to run a successful Hub & Spoke model is relatively Management authority is scattered across locations with an increased need to
higher. There needs to be a master-plan at the Hub, that is adhered to and orchestrate operations from the hub. These management structures demand
executed by Project Leads across Spokes. The Project Leads are expected high-availability on part of the Senior Management in spite of the time-zone
to ensure the Spokes resources are aligned with the Hubs performance separations. This problem is even more pronounced when the Spoke has limited
expectations. management capabilities.
Complex transition management processes

Projects need to be transitioned to multiple Spokes. Decisions need to be taken
on phasing the transition and the level of support each of the spokes need to
ensure successful transition.
Managing Information Security considerations across regions is Navigating the regulatory regimes across Spoke locations tend to be
increasingly more challenging complex
Information Security (IS) laws vary across regions. The Hub will need to identify Tax and legislative considerations tend to vary across regions. There needs to be
pertinent aspects of IS laws at various Spoke locations and define them as highly skilled pool of professional experts (legal & tax) at the Hub to help identify
Standard Operating Processes and Procedures (SOPP). There is also a need to actions to ensure legal and tax compliance across locations.
continuously update the SOPP to reflect Information security considerations
across regions.
On-site Spokes are being Industry Example

established as risk mitigation to A well-established mid-tier IT services player confirms that Hub & Spoke is a
counter regulatory pressures model they are actively exploring as a part of their company strategy. They are
already establishing on-site Spokes in response to regulatory decisions and
Offshore locations are being as risk mitigation strategies. In future, they believe the Hub & Spoke delivery
developed to address saturation of model will help enable resource mobility across locations address attrition
tier 1 cities challenges and provide clients with a one-stop vendor with capabilities to
Right governance structures are deliver services across multiple locations. The company also believes that
paramount to seamlessly leverage the right governance structure is essential to ensure clients are seamlessly
these Spoke locations. serviced from all locations available to the company.
India is at the forefront of the rapidly evolving IT and Business Process

Offshoring (BPO) market and is well established as a destination of
choice. Having grown manifold in size and matured in terms of service
delivery capability and footprint over the past decade, the Indian BPO
industry is now at an inflexion point and faces a unique opportunity
to enhance its role as a full-service, value-adding partner. Growing
at more than 35 percent over the past three years, BPO is the fastest
growing segment of the overall offshore market, and is currently
estimated at USD 26-29 billion. Factors such as access to talent, service
quality, productivity, and time-to-market have played key roles in the
growth.
The Hub-and-Spoke model has several features that enable large
enterprises to integrate their global and local business processes.
Enterprises are expanding their global footprint, stepping over
country borders and across continents to embrace new opportunities
emerging around the world. As they seal merger and acquisition
deals, set up joint ventures, setup sales and operation centers, and
create new distribution channels, the enterprise structure becomes
ever more complex and business processes lose the vital element of
standardization. This is when the Hub-and-Spoke model comes in handy
as it serves the various business units with one common set of services,
templates, software, and knowledge.
- Anshoo Gaur
President and India Head, Amdocs
Critical success
factors for a
successful Hub &
Spoke model
The Hub & Spoke model provides a cost attractive proposition to enterprises while
allowing the vendors to deliver high end specialized services. The model also helps
organizations gain business insights by being close to the customer. Thus, a good mix
of locations for delivery centers ensures higher quality of service at lower costs. But
companies need to undertake certain steps to ensure successful implementation of
the Hub and Spoke model in order to reap its many benefits. Few of them are discussed
below.
Critical Success Factors

Critical success factors to enable the Hub & Spoke model
Build a strong and consistent globally relevant brand
Brand building Companies that have been able to successfully leverage the Hub & Spoke model have
been able to do so because they have built a strong brand that is globally recognized.
Diverse location portfolio
Successful companies that leverage the Hub & Spoke delivery model typically undertake
Robust technology backbone pro-active marketing initiatives to reinforce the brand perception from time-to-time.
Flexible governance structures Based on discussion with key clients, study of the successful marketing campaigns by
technology companies and detailed discussions with the leadership in the technology
companies, the brand attributes that would be critical to survive in the next decade are:
Business expert and innovators
Technology experts
Predictable results
Consistent customer experience across geographies
Risk averse business practices
Environmentally conscious
Consistent and harmonized operating processes.
Pro-actively develop a location portfolio

A geographically diverse location portfolio that leverages the location related benefits for
both the customers, as well as for the service provider is the key idea behind adopting
the Hub & Spoke model. Over time, it will become critical for service providers to actively
explore locations where they can setup new centers to keep up with competition and be
relevant in the global technology outsourcing market.
As seen in the manufacturing case study, the costs of doing business in a location rise
with time making the cost arbitrage available unsustainable. This makes it imperative that
a service provider pro-actively monitor the costs of operations to be relevant in the market.
For instance, a leading global technology player has converted their first centre in a tier 1
Indian city to a knowledge management unit and has rapidly moved onto developing
newer centers in lower cost tier 2 and 3 Indian cities. This company has a pro-active
international location strategy that is both quality and cost focused. They provide very
limited voice related services from India and prefer to use India more as a data processing
Hub.
As more and more IT-BPO companies compete for large global deals, it is essential that
they develop a pro-active location strategy to continue being relevant in the market.
Build a globally available robust technology backbone

Technology companies have evolved their approach to service delivery over a period of
time. Outsourcing that was earlier characterized by a project moving to a single offshore
location has now evolved into a project being executed simultaneously across multiple
locations. There are two possible variations of this approach - a project could be supported
by two or more locations at any time or a project could be split into components like
voice, data, programming etc. with each component being delivered from a different
location. In order to have a consistent view on the status of execution for a project, it is
important there is visibility on its execution across all geographies. For this to be possible,
the systems executing the project need to be centrally available and accessible over a
high-bandwidth network. A private cloud maintained either by the service provider or
by the client could be a key enabler to distribute projects across locations. Not having a
centrally available system would make it difficult to have a uniform view on the status
of the projects being delivered across geographies. Also moving project delivery across
locations would need fresh investments on technology. This is both cumbersome and
unfeasible due to the compliance considerations involved.
Costs associated with outsourcing projects are typically in terms of people and
technology. While the manpower investment tend to follow a linear path, it is not
necessary technology investments be linear. Investing in a private cloud with a scalable
architecture will result in a re-usable one-time investment and is even more desirable if
the same instance can be replicated across clients. Also negotiations with the technology
provider can result attractive pricing models creating a win-win scenario for both the
parties, helping the outsourcing services provider avoid significant upfront investments on
technology.
Flexible governance for seamless Flexible governance structures that enable nimble operations
operations: It is important that the Spokes work seamlessly as extensions of the Hub and provide
means of augmenting resources at specific locations to fulfill client requirements.
Resource management Companies must ensure that they do not create administrative hurdles in leveraging these
locations. Some additional steps that can be taken are:
Operational direction
Resource management
Performance management
Companies operating in the Hub & Spoke model need to have a strong resource
Standard operating processes and management function that covers all locations. The key aspects to be addressed by
procedures this function should include manpower planning, recruitment, staffing, training
and bench management. It is important to ensure that the right governance
Sales and business development mechanisms and controls exist to guarantee the availability of resources across all
locations for projects that the company bids for.
Management talent
Operational direction
There needs to be clarity on the location strategy and the reasons for making the
investments. This will help put in place the right governance structures. Further,
there needs to be clarity on
-- Investments being made in setting up of new locations by business unit within
the company
-- Hierarchy of locations clearly identifying main and the support centers.
Performance management
All locations need to have a uniform understanding of performance expectations to
ensure a seamless customer experience. The Hubs need to develop rating parameters
to monitor the performance of Spokes periodically. These ratings can typically be
conducted as a part of the performance review for the location.
These performance reviews will provide an insight into the ability of the Spoke location
to handle complex processes, thus helping the Hub take decisions on work allocation
across Spokes.
Standard operating processes and procedures

The operating processes and procedures need to be consistently followed across
all locations. This is necessary to allow the organization to leverage any of the
locations available with the assurance that the standards of service delivery are
maintained. Also having standard operating procedures across all locations will
make it easier to leverage a common technology backbone.
Sales and business development

Sales and business development efforts could be undertaken at the business
level and not at the level of locations. Business development efforts undertaken
at Spoke or Hub locations may result in administrative controls that prevent the
location from being leveraged by the rest of the company.
Management talent
By locating high quality management talent at the Hub, companies give themselves
the option of being able to setup multiple low cost centers around the Hub, which may
otherwise find it difficult to attract managerial skill-sets. As the model evolves, moving
some part of the management to the Spokes can also be evaluated.
Standard operating processes and Industry Example

procedures An emerging rural BPO believes that Hub & Spoke model is the way forward
for them to effectively manage their business. They are currently organized by
Private cloud will help regions North, South, East and West. Over time they believe these regional
tap independent centers headquarters will evolve into Hub setups that control and leverage Spokes
simultaneously around them. The Spokes are typically rural towns that will be tapped further
Regional Hubs that manage, through pro-active investment in high-quality training.
control and monitor Spoke
performances is the way forward
for rural BPOs Industry Example
Uniform performance A leading non-urban BPO firm in North India undertook initiatives to create
management and rating systems opportunities within tier 3 and 4 cities so that potential employees did not
need to exist across all centers have to leave their home towns in order to work. The three main parameters,
on which their business strategy evolved, were to leverage partners,
Governance structures must to operate through distributed micro centers and to offer strong domain
enable the program office to capability. The BPOs Hub & Spoke model entailed small delivery centers that
leverage simultaneously these. were geographically dispersed and individually managed. The BPO carried
out work management at the Hub while more focused delivery was carried
out in Spokes spread across the region. The Hub managed the technology,
training, people management and infrastructure for the Spokes. Thus,
through innovative people-management in their Hub and by breaking down
complex processes into smaller repetitive ones in the Spokes, the non-urban
BPO delivered world class quality to its clients.
The next ten years is going to be the decade of non-urban (small towns)
BPO and the Distributed Delivery Model. The demand gap for talent
in the metros and the availability of talent in the small towns can be
bridged by work moving to small towns. Delivery centers in small towns

for executing IT-BPO work provides job opportunities to locals, prevents
migration to metros at the same time providing a cost advantage to the
outsourcer.
- Mythily Ramesh
Co-Founder & CEO, NextWealth Entrepreneurs
The non-urban BPOs will spark off the digital revolution in the far
interiors and connect people with the developed world via the
information highway, financially & economically and in more ways

than they can imagine. The non-urban BPO lifecycle will be short-lived
however the resulting distribution boom will be far more impacting than
has been witnessed thus far.
- Ajay Chaturvedi
Founder Chairman, HarVa
The market has driven the industry from on-shoring to near-shoring to

off-shoring and now rural shoring is touted to be the new dimension

to remote business processing which brings in twin advantages in
terms of job opportunities to the rural youth and cost efficiencies to the
corporate world.
- Murali Vullaganti
Founder and CEO, RuralShores Business Services

BPOs that combine rural ethos with a strong business ethic are the next
discontinuity and frontier of outsourcing
- Dhiraj Dolani & Venki Iyer

Mentor and Co-Founder, B2R Technologies

It is a matter of time before rural BPOs are ready to stake their claim on
low end business processes
- Sudhir Gupta
COO, Drishtee
India as a
global Hub
Global Sourcing Market

Advantage for India
India holds a strong position in the global sourcing market
owing to its competitive cost advantage and availability
of skilled talent pool. Backed by technological boom and
regulatory reforms, business enterprises now see great
investment potential in the Indian market and India tops the
list of most attractive offshore destinations. A number of
global MNCs and Fortune 500 companies are now either
outsourcing their processes to India or are setting-up their
own captives in the country1.
Source: Everest, NASSCOM Strategic Review 2011
Attractive locations Index New delivery centers established
Source: AT Kearney 2011 Source: Everest, NASSCOM Strategic Review 2011
Increasing focus on quality

Indian companies are undertaking initiatives to build a high degree of quality orientation by
aligning themselves to international quality standards. Companies are devising strategies
to shift 40 percent of software services to standardized modules to ensure standardization
and increase efficiency. More and more emphasis is being given on data security and
privacy. As per NASSCOM analysis, over 50 percent2 of organizations have either deployed
or are planning to deploy solutions such as encryption tools, data loss prevention,
security incident and event monitoring, mobile data protection, and legal and compliance
management. More and more companies are now undertaking quality certifications (such
as ISO 9001, SEICMM, CMMi and Six Sigma), security certifications (such as BS 7799,
ISO 27001, ISO 20000, HIPAA, etc.) and performance certifications [such as PCMM
(People), eSCM (eSourcing Capability Model), COPC (Customer Operations Performance
Centre), etc.].1
Certified Indian IT-BPO organizations Quality/ Security Performance

Certifications Certifications Certifications
ISO 9001 BS 7799 PCMM (People)
SEICMM ISO 27001 eSCM (eSourcing
ISO 20000 Capability Model)
CMMi
HIPAA COPC (Customer
Six Sigma Operations
Data protection act Performance
COBIT Center)
PCI (Payment Card
EFQM (European Industry Data
Foundation Security)
or Quality
Management
Source: NASSCOM Strategic Review 2011
Over the years of its existence, the Indian software industry has transformed from
delivering stand-alone hardware, software and services, to moving up the value chain
and providing a complete suite of end-to-end integrated offerings coupled with high-end
services like consulting in large transformational deals. IT companies are now also looking
at emerging business themes like analytics, mobility, and cloud computing in order to
retain their competitive edge.
Maturity curve for Indian Technology service providers
Emergence of Tier-II, III, IV cities to reduce

Tier II, III cities in India
the costs further
A number of IT-BPO companies in India are opening up centers
in Tier-II, III, IV cities to reduce their operational expenditures.
These smaller cities offer advantages such as availability of
talent at a lower cost, low attrition rate, affordable real-estate,
local government support, and a better quality of life. This is
further giving rise to a domestic Hub and Spoke model wherein
Tier - I, II locations could act as Hubs while Spokes could be a
network of Tier - II, III and IV. In a related trend, the concept of
rural BPOs is also gaining ground. Though the model is in initial
stages, few Indian companies have started to move in this
direction.
Government initiatives
India has been an attractive destination for technology service
providers as well as multi-nationals to set up and operate their
captive units, R&D and offshore delivery centers. Tax breaks
offered to the IT-BPO industry under the STPI, EOU and SEZ
schemes have acted as a catalyst in its growth. Although,
income-tax benefits under the STPI scheme expired in 20113,
the government is taking other initiatives to promote IT-BPO
sector especially in Tier-II, III cities through creation of SEZs and
Source: NASSCOM Strategic Review, 2011
financial incentives. The government is also taking measures
to overhaul overall fiscal policies through introduction of Goods
and Services Tax (GST), Direct Tax Code (DTC), revamp of
company laws, and introduction of the IFRS standards.
Developing infrastructure
India is strengthening its focus on infrastructure development to support the growing
business requirements. While the current state of Indias infrastructure is still sub-optimal,
the government is taking measure to improve it. In the Union Budget 2011-12 for example,
the development of world class infrastructure was the key focal area, with budgeted
spending in infrastructure estimated at INR 2,14,000 Crores, a hike of over 23 percent
from 2010-11, providing 48.5 percent of the plan allocation. The budget also proposed
to provide the much needed foreign investment in Indian infrastructure by raising their
venturing limit to USD 40 billion from USD 20 billion earlier.4
India as Hub for global services delivery

Today, Indian IT-BPO majors operate high on the outsourcing maturity curve and are well
positioned to execute contracts of global MNCs end-to-end. With companies scoring high
on Capability Maturity Model Integration (CMMI), India is now being positioned as a viable
IT-BPO Hub extending its capabilities to other service centers and onsite teams globally.
Leading MNCs of the world are expected to increasingly consider India as a Hub in their
global delivery strategy and develop Spokes in other countries such as the Philippines,
China, Uruguay and Mexico. More importantly, clients will take their best practices in India
to their shared service centers in other parts of the world.
Given its established dominance in the global outsourcing marketplace, India can emerge
as a global Hub for some of its better evolved competencies both horizontal and vertical.
Presently, while software players have invested in technology centers across the globe,
most operate as networked delivery models. Pro-actively planning and investing in
new locations as part of companys strategy and taking a Hub & Spoke view to manage
disparate global locations would facilitate the emergence of a new model for managing
operations effectively, and with India at the center of the development, this could very
well drive the next phase of growth for the domestic software industry.
3. Union Budget 2011-12

Location footprint is a function of Industry Example

skill-sets available regionally A leading global BPO that has evolved into one of the more prominent
players from a captive has increasingly begun to expand their global
Management at new locations are footprint to better meet customer requirements. Their location footprint
hired locally is a reflection of the skill-sets available in the region to meet customer
The Global service delivery requirements. Management at the new centers is hired locally. The company
framework is enforced at all has also invested in a global service delivery framework to help create a
locations predictable and sustainable customer experience. However, they have not
thought of organizing themselves in a Hub & Spoke formation just yet,
Extending existing location which has resulted in a failure to tap the rural BPO market through third
portfolio to leverage the benefits of party subcontractors. The foundation of the Hub and Spoke delivery model is
Hub and Spoke model. already in place and by proactively developing it, the company will be able to
leverage the benefits of a wider resource pool and market place in the future.
Through the decades, we have seen a gradual shift in operating models

from onshore to offsite to near shore. Going forward, we expect the
client to become location agnostic and emerging destinations will
spring up as extensions to the already existing network of delivery
centers. Challenging economic conditions are forcing service vendors
to push the envelope in terms of adapting to new delivery models that
will prove to be low in cost and high on quality. As we see, the Hub &

Spoke model should evolve as the service delivery model of choice for
leading global vendors. And Indian vendors should take steps to lead
that change.
- Sandeep Soni
President, Hero BPO
Way forward
India has established itself as the worlds preferred outsourcing destination and has
built strong expertise in technology operations, business processes and management
capabilities over time1. Moving forward, companies in India can be positioned as
managers of global Hubs, extending their existing dominance and proficiency in
technology outsourcing. However, apart from steps taken by IT-BPO companies, a holistic
transformation can happen only with support of the other players in the ecosystem
which in this case constitutes the Indian government and industry bodies.
Imperatives for key stakeholders

Companies
Way forward for organizations:
Invest in building a brand
Invest in building a brand A strong brand is critical for clients to accept service delivery that is based on Hub &
Spoke model. Without a strong-brand to back them, the Indian technology outsourcing
Pro-actively develop a location strategy
vendors will find it increasingly challenging to prove and convince the client of their
based on the Hub & Spoke model
capabilities to operate in the Hub & Spoke model. There is a need to move from being a
Adapt, standardize and harmonize provider of low cost services to being perceived as a business partner that can provide
operations across all locations globally consistent services from multiple delivery locations around the world.
Actively manage performance across all Pro-actively develop a location strategy based on the Hub & Spoke model
locations The Hub & Spoke model of operations requires the service provider to clearly articulate
their current operating structure and drivers to invest in multiple locations. If this is
Invest in technology that can be not clear, this will result in a number of delivery centers that are under-utilized due to
leveraged across all locations misalignment with the rest of the organization. Service provider should clearly identify
the Hubs and Spokes that are likely to emerge over the next two to three year horizon
Ensure compliance with global and locations that may need to be phased out.
information security standards
Adapt, standardize and harmonize operations across all locations
Globally, consistent operations are important to operate effectively in the Hub & Spoke
model. The operating procedures and SLAs must reflect the expectations customer
has from the brand projected by the company. Standard operating procedures need to
be defined and implemented across all locations.
Actively manage performance across all locations

Develop a performance rating system that helps quantify the delivery capabilities
available at a location. Also the performance rating system for employees must be the
same across all locations. Performance rating will help understand the maturity and
hence capability to deliver processes from a delivery centre and will help channel the
right process to them while operating in the Hub & Spoke model.
Invest in technology that can be leveraged across all locations

Hub & Spoke models are best utilized when a process can be broken down into
components and is delivered simultaneously from multiple delivery centers. For this
to be possible there needs to be unified view on the execution status of the process.
To enable this, service providers need to invest in high-quality technology that can be
accessed remotely by multiple locations through a private cloud.
Ensure compliance with global information security standards

When delivering a process across multiple locations, it is important that the service
provider is compliant with the prevalent information security laws. For example, a
country may have restrictions about processing data generated within its borders at
another country location, which may propel the need to establish a delivery centre
locally. Also pro-active audits on all delivery locations and publishing the audit reports
and actions taken will help build confidence in customers.
Government
Way forward for government:
Favorable domestic regulations
Favorable domestic regulations The current domestic regulatory environment remains challenging in terms taxation,
transfer pricing and IP Protection, putting Indian companies at a disadvantage when
Development of smaller cities pitching for global deals. There is an urgent need to rationalize current taxation
structures and transfer pricing laws. Since the original tax exemption (Section 10A/10B)
Development of infrastructure
for the industry has now expired,5 given the state of global economy and the Indian
Improving geopolitical environment IT Industry, the government should frame policies selectively providing tax relief to
companies within the sector such as tax rebates on new, innovation led outsourcing
models, which could provide the next spurt of growth to the industry.
Development of smaller cities

The government can give a boost to the industry by encouraging the establishment of
IT units in tier-II, III cities and developing satellite townships around these centers, thus,
creating a self sustaining ecosystem. Focus should be on creation of an employable
workforce, state-of-the-art infrastructure and fully equipped and incentivized
technology parks to attract IT firms.
Development of infrastructure
A robust infrastructure in terms of transport and communication needs to be in place
in order to effectively leverage the multi country Hub and Spoke model. Especially
when it comes to broadband, India is notably lagging its peers in Asia and Europe.
A well developed physical and social infrastructure will help bridge gaps between
geographically dispersed cities.
Improving geopolitical environment

If India has to take over the mantle of a global Hub, it is essential that the government
ensures and projects India as a safe and attractive destination for investment. Any kind
of political and legal uncertainty with doing business in India will discourage clients to
move further up the outsourcing value chain and outsource end to end engagements.
Industry Bodies
Way forward for industry bodies
Promoting Brand India
Promoting Brand India Industry bodies and associations can play a significant role in encouraging customers
to outsource end to end operations in the Hub and Spoke fashion to India. They would
Promote Tier-II, III, IV Cities
need to make concerted marketing and branding efforts to showcase the expertise
Nurturing managerial talent of Indian companies. This will significantly enhance the value proposition and brand
perception of Indian software providers. In addition, they could highlight prevalent
success stories and also help establish connects between customers, governments
and Indian companies.
Promote Tier-II, III, IV Cities

Since smaller cities could emerge as viable Spokes in the India Hub and Spoke
story, mobilizing state government support, encouraging academia in them to train
employable workforce and marketing their value proposition to clients and software
providers will help put them on the global map.
Nurturing managerial talent

Given that strong management is the key to functioning effectively as a Hub, seeking,
managing and developing talent through workshops and training sessions would help
nurture management talent present in Indias software industry. Key initiatives should
be in the areas of coaching and mentoring middle management and enhancing their
abilities to handle global operations.
Invested in a private cloud for Industry Example

the Technology backbone A leading Indian BPO has actively embraced the Hub & Spoke model by
making the right process and technology investments to enable the same.
State of the art technology They have invested in a private cloud for their technology backbone that
Unified Performance Management runs on a leading technology platform. Additionally, they have unified the
across Hubs & Spokes Performance Management process across all their centers. Thus employees
at all their Spokes have a unified view of the process and common goals to
Cultural affinity through global ensure customer satisfaction. With improved network connectivity in India,
mobility for citizens. this model has enabled them to add new centers within India in a very short
time. They have also addressed aspects around cultural affinity by providing
citizens in United States of America the right education and training for the
job and giving them an opportunity to work in India.
At least over the next few years, India will remain a key destination
and center of gravity for ITO/BPO work due to scale, cost and
expertise advantage. Having said that, the Hub and Spoke model will
become increasingly dynamic and adaptive to client requirements. So
depending on what process, cost and business transformation goal a
client is looking for across which geographies, different regions and
their destinations will take center stage but we will always use our
global talent pool and delivery footprint to provide the best possible
solution. As we continue to build capability across global locations,
our ability to truly leverage the benefits of such a flexible model
improves rapidly. And finally it does mean that it is very important for the
Government , and industry to continue to invest in talent , capabilities
and ease of doing business and reduce cost of delivery , else India being
> 50 percent of total share of the market is put at risk!
- N.V. Tiger Tyagarajan

President and CEO, Genpact
About
KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory
services. We operate in 152 countries and have 145,000 professionals working
in member firms around the world. The independent member firms of the
KPMG network are affiliated with KPMG International Cooperative (KPMG
International), a Swiss entity. Each KPMG firm is a legally distinct and separate
entity and describes itself as such.
Our Audit practice endeavors to provide robust and risk based audit services
that address our firms clients strategic priorities and business processes.
KPMGs Tax services are designed to reflect the unique needs and
objectives of each client, whether we are dealing with the tax aspects of a
cross-border acquisition or developing and helping to implement a global
transfer pricing strategy. In practical terms, that means KPMG firms work
with their clients to assist them in achieving effective tax compliance and
managing tax risks, while helping to control costs.
KPMG Advisory professionals provide advice and assistance to enable

companies, intermediaries and public sector bodies to mitigate risk,
improve performance, and create value. KPMG firms provide a wide
range of Risk Consulting and Management Consulting that can
help clients respond to immediate needs as well as put in place
the strategies for the longer term.
KPMG in India, a professional services firm, is the Indian

member firm of KPMG International and was established
in September 1993. Our professionals leverage the global
network of firms, providing detailed knowledge of local
laws, regulations, markets and competition. We provide
services to over 5,000 international and national clients, in
India. KPMG has offices across India in Delhi, Chandigarh,
Ahemdabad, Mumbai, Pune, Bangalore, Chennai, Kochi,
Hyderabad and Kolkata. The firms in India have access
to more than 5,000 Indian and expatriate professionals,
many of whom are internationally trained. We strive to
provide rapid, performance-based, industry-focused
and technology-enabled services, which reflect a
shared knowledge of global and local industries
and our experience of the Indian business
environment.
kpmg.com/in
About
NASSCOM
NASSCOM is the premier trade body of the IT-BPO industries in India. It is a

global trade body with more than 1200 members, which include both Indian and
multinational companies that have a presence in India. NASSCOMs member
companies are in the business of IT services, BPO, Engineering design, products,
internet and e-commerce and animation and gaming. NASSCOMs membership
base constitutes over 95% of the industry revenues in India and employs over 2.5
million professionals.
Glossary
BCP Business Continuity Plan
BPO Business Process Outsourcing
BS British Standards
BSDQ BPO Service Delivery Quality System
BTMQ BPO Talent Management Quality System
CEO Chief Executive Officer
CMMi Capability Maturity Model Integration
COBIT Control Objectives for IT and related technology
CoE Centre of Excellence
COPC Customer Operations Performance Centre
CSF Critical Success Factors
DR Disaster Recovery
EFQM European Foundation for Quality Management
eSCM eSourcing Capability Model

GST Goods and Services Tax
HIPAA Health Insurance Portability and Accountability Act
HR Human Resource
IFRS International Financial Reporting Standards
IP Intellectual Property
IS Information Security
ISO International Organization for Standardization
IT-BPO Information Technology-Business Process Outsourcing
MNCs Multi-national Companies
NASSCOM National Association of Software and Services Companies
PCI Payment Card Industry
PCMM (People) People Capability Maturity Model (People)
R&D Research and Development
SEICMM Software Engineering Institute's Configuration Management Model
SEZ Special Economic Zone
SLA Service Level Agreement
SOP Standard Operating Procedure
STP Software Technology Park
Definitions
BS 7799 A code of practice for information assurance originally developed in the UK in 1995. It later formed basis of the ISO 17799
standards
Business Continuity Plan Identifies organizations exposure to internal and external threats and synthesizes hard and soft assets to provide effective
prevention and recovery for the organization, whilst maintaining competitive advantage and value system integrity
Captive Wholly owned subsidiary
Centre of Excellence Centre of Excellence refers to a distinctive capability centre that houses a group of specialists, tools and technologies that
create competencies to manage any and all engagements pertaining to a particular service line thereby enabling non-linear
growth
Cloud Computing The delivery of computing as a service rather than a product, whereby shared resources, software, and information are
provided to computers and other devices as a utility (like the electricity grid) over a network (typically the Internet)
CMMi A process improvement tool for evaluating the efficiency of a company in technology products delivery to its customers.
Capability Maturity Model Integration is usually associated with software development, and seeks to integrate the various
steps in the development process
COBIT Control Objectives for Information and Related Technology is an IT governance control framework that helps organisations
meet business challenges in the areas of regulatory compliance, risk management and aligning IT strategy with
organisational goals
COPC (Customer Operations A customer contact centre and vendor management operations certification to define the industry standard for call centre
Performance Centre) excellence. It helps call centers slash costs, improve efficiency, boost client satisfaction and build the bottom line
Delivery Centre Delivery Centre is an IT vendors multi-client, multi-site centre to provide support services such as application development
and maintenance to its global clients
Direct Tax Code The new tax code which is said to replace the existing Indian Income Tax Act, 1961
eSCM (eSourcing Capability A framework developed to improve the relationship between IT Services providers and their customers. Various services may
Model) include IT outsourcing, IT hosting, application development and maintenance outsourcing, networking services, business
process outsourcing
Goods and Services Tax The Goods and Services Tax (GST) is a value added tax to be implemented in India which will replace all indirect taxes levied
on goods and services by the Indian Central and State governments
HIPAA The US Office for Civil Rights enforces the Health Insurance Portability and Accountability Act (HIPPA) Privacy Rule, which
protects the privacy of individually identifiable health information; the HIPAA Security Rule, which sets national standards for
the security of electronic protected health information; and the confidentiality provisions of the Patient Safety Rule, which
protect identifiable information being used to analyze patient safety events and improve patient safety.
IFRS standards International Financial Reporting Standards are principles-based standards, interpretations and the framework (1989) adopted
by the International Accounting Standards Board (IASB).
ISO 20000 ISO 20000 is an international standard for IT service management developed in 2005. It was based on and to supersede the
BS 15000 standard
ISO 27001 ISO 27001 is an Information Security Management System standard published by ISO and the International Electro technical
Commission (IEC) to formally specify a management system that is intended to bring information security under explicit
management control
ISO 9001 ISO 9001 specifies requirements for a quality management system where an organization aims to enhance customer
satisfaction through effective application of the system
Near shoring Model through which service provider delivers services from a centre in the nearby vicinity of client
Offshoring Offshoring is the practice of hiring an external organization to perform some business functions in a country other than the
one where the products or services are actually developed or manufactured
A business model under which client contracts out its business function or a process to an outsourcing service provider or its
Outsourcing
own unit (captive) in some distant location instead of executing it in-house
PCMM is a maturity framework that focuses on continuously improving the management and development of the human
PCMM assets of an organization. It describes an evolutionary improvement path from ad hoc, inconsistently performed practices, to a
mature, disciplined, and continuously improving development of the knowledge, skills, and motivation of the workforce
Platform-based BPO is a BPO service wherein the service provider embeds the underlying technology as an integral part of
Platform BPOs
the service being delivered
Private Cloud Proprietary computing architecture that provides hosted services to a limited number of people behind a firewall
Rural BPOs BPOs that are established in Tier III/IV cities.
Service Level Agreement (SLA) is a contract between a network service provider and a customer that specifies, usually in
Service Level measurable terms, what services the network service provider will furnish. Service Level Agreement (SLA) is a contract
Agreement between a network service provider and a customer that specifies, usually in measurable terms, what services the network
service provider will furnish.
A business management strategy that seeks to improve the quality of process outputs by identifying and removing the causes
Six Sigma
of defects (errors) and minimizing variability in manufacturing and business processes
Software and STPI is a statutory body for providing Single Window Clearance to software exporters. The scheme provides various
Technology Parks of benefits to the registered units including 100 percent foreign equity, tax incentives, duty free import, duty free indigenous
India procurement, CST reimbursement, DTA entitlement, deemed export etc.
SEZs are designated areas in countries which have more liberal laws and economic regulations in comparison to rest of the
Special Economic Zones country to promote trade and foreign direct investments. Companies operating in these areas receive tax incentives and pay
lower tariffs
Sub-contracting refers to the concept where a large IT Services vendor contracts a local small delivery provider to service its
Sub-contracting
clients. This enables the sub-contracting vendor to improve its margins or price its offerings aggressively to tap the market.
Refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services
Transfer Pricing
and other intangible property
Acknowledgement
This document has been released on the occasion of the 20th NASSCOM India Leadership Forum 2012.
The KPMG team which contributed towards the content presented in the document comprises of Arun Chillara, Saurabh Jha,
Shailesh Narwaiye, Sidharth Tewari, Nikhil Kumar, Aljo Joseph, Smita Bhattacharya, Aditya Shangloo, Shashank Shetty, Ajay
Nainy and Eric Samuel.
A special note of thanks to Jiten Ganatra, Remedios Dsilva and Priyanka Agarwal
KPMG in India Contacts NASSCOM Contacts
Kumar Parakala Sangeeta Gupta

Chief Operating Officer Sr-Vice President
Advisory E: research@nasscom.in
T: +91 80 3065 4600
E: kumar@kpmg.com
Rajesh Jain
Partner and Head
Markets
T: +91 22 3090 2370
E: rcjain@kpmg.com
Pradeep Udhas
Partner and Head
IT - BPO
T: +91 22 3090 2040
E: pudhas@kpmg.com
Arun Chillara
Associate Director
IT - BPO
T: +91 22 3090 2392
E: arunc@kpmg.com
kpmg.com/in
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
2012 KPMG, an Indian Registered 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.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.
Printed in India.

Hub and Spoke Operating Model

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Hub and Spoke Operating Model

Încărcat de

Drepturi de autor:

Formate disponibile

Hub and Spoke

The Indian IT-BPO industry has been a sunrise sector

Kumar Parakala Pradeep Udhas

1. NASSCOM Strategic Review 2011

The Information Technology-Business Process Outsourcing (IT-BPO) industry has exhibited

This whitepaper provides a complete understanding of the evolution of the

Mr. N. V. Tiger Tyagarajan Mr. Sandeep Soni

Mr. Sanjay Jain Mr. Ajay Chaturvedi

Mr. Naresh Wadhwa Mr. Murali Vullaganti

Mr. Prashant Ranade Ms. Mythily Ramesh

Mr. Anil Modi Mr. Sudhir Gupta

Ms. Aruna Jayanthi

Hub & Spoke model Heralding a new era in technology outsourcing 15

Critical success factors for a successful Hub & Spoke model 23

India as a global Hub 27

About KPMG in India 35

Evolution of delivery models

Hub and Spoke operating model

In order to effectively position India as a Global Hub, it is essential to invest in a strong

1. KPMG in India Analysis

Evolution of service delivery

Evolution of delivery models

Evolving perspectives on global outsourcing

Outsourcing is evolving from cost arbitrage to strategic location sourcing

In an emerging trend of outsourcing, companies are actively seeking out vendors in

Key drivers for the Hub & Spoke model

The Hub & Spoke model

Customer management Understand customer requirements in order to allocate work to Spokes

Applicable only to Spokes organized by competence

Positioning Brand India as global Hub

R&D Hub co-ordinates all product Industry Example

Business models have evolved considerably over time. The command

Early riders of the

The manufacturing experience with Hub and Spoke

Incentives provided by various local governments to promote the industry

To be successful in a changing market-place, the strategy of the manufacturing industry

1. Hub and Spoke in Insurance: Aggregate and Conquer, Oliver Wyman

Evolution of global sourcing locations in the manufacturing industry

Functions outsourced by manufacturers

Evolution of outsourcing in manufacturing

Framework established by the manufacturing industry to manage its sourcing network

Hub and Spoke model in other sectors

Case Example: Hi-Tech2

Case Example: Aircraft manufacturing2

2. Company website and Internet Research

Hub and Spoke network of a global aircraft manufacturing firm

Key Takeaways: Key takeaways for technology sector

Performance management and tracking - Companies need to continually monitor

Contribution of primary markets - Over time, as the business scales it is inevitable

Deliver the outsourced process Industry Example

Global Delivery Model provides brands with possibilities of finding right

Hub & Spoke model:

1. Hubs with dedicated Spokes

Hubs with dedicated Spokes

2. Single Spoke servicing multiple Hubs

Single Spoke servicing multiple Hubs

3. Hubs with shared Spokes

Hubs with shared Spokes

Capgeminis Rightshore strategy ensures work is performed

Hub and Spoke adoption curve in organizations

Adoption curve of Hub and Spoke models in organizations

Flexibility and scalability in operations: Multiple delivery centers organized as

Lower incremental investments on technology: Hub & Spoke model is best

Benefits of the Hub & Spoke model