It was not that long ago that Indian captive/Shared service centers stood for low

cost service providers for their parent company in the affluent part of the world.
That was the time when the highly transactional and repetitive work was being
offshored to Indian centers, who were more than happy to provide these services
leveraging the abundantly available pool of Indian graduates and basic
computers with Microsoft office.

Come 2015, the industry has evolved with these ‘transaction service providers’
becoming ‘innovation centers’. Not only has the mundane transaction processing
work being automated, the centers are high on the strategic agenda of many
global fortune 500 companies. What happened during this journey? What made
these centers such an indispensable part of the parent companies in the US and
Europe?

The EY GIC practice has been tracking the maturity trend of these centers over
the last decade. In their latest GIC report of 2015, the eighth editions, the key
levers used by captives or Global In-house centers to become innovation
partners have been elaborated.
1. Expand functional & geographic scope – the centers showcased the existing
capabilities in which they excelled and enhanced the scope to include high end
complex work in similar domains. Also asked for expansion of existing service
portfolio to new geographies esp high growth emerging markets

2. Create ‘talent hubs’ – GICs expansion over the last year has been driven by
talent/skill and not by mere cost arbitrage. For instance F&A skills (esp. CAs) in
Rajasthan and NCR, Engineering Research & Development in Pune, IT in
Bangalore, Analytics in Chennai etc are key talent hubs
3. Deploy global delivery network - GIC organization structure is also undergoing
change with GICs being organized by process rather than ‘BUs or geographies’.
Global process leads are now based in the Indian GIC center, driving end-to-end
process transformation

4. Newer commercial constructs - Commercial constructs are also slowly

undergoing a change with several GICs moving from ‘Cost plus’ to ‘Transaction
based’ billing models. The attempt is to balance the image of being ‘one with the
parent’ and creation of greater transparency 5. Establish innovation hubs -
Mature GICs are now creating innovation hubs which focus beyond process
improvements to ‘breakthrough innovation’. They are now working on
products/services for local markets contributing to the ‘top line’ & ‘bottom line’
The strategies deployed by the Indian GICs help position them as strategic
partners for the global parent vis-à-vis mere service providers.

Since the parents can now see direct/indirect impact of the centers on their top
and bottom line, their belief in these centers is being re-enforced. Mature GICs
are projecting a new face of performance measurement wherein the GICs now
“own” the SLAs / KPIs. The GICs measure the SLAs / KPIs for performance
measurement however the parent organization no longer monitors these service
agreements as the GIC is considered an equal partner for delivery of defined
business outcomes. In some mature GICs, leadership is part of the global
governance council playing a key role in taking strategic decisions for the entire
organization.

Stringent control over GIC cost of operation to continue

A key target in outsourcing contracts a few years back used to be a percentage
reduction in outsourced costs year on year. This has evolved to improvements in
business processes, delivering business outcomes and innovation leading to
overall reduction in costs for the center and the parent. The EY GIC analysis
indicates a 6% increase over last year's operating cost of the GICs. This has
been largely driven by increase in spends on recruitment, facilities and local
transport. The best in class Indian GICs , however are able to save additional 20-
25% of costs by adopting leading industry practices. Few areas that are ‘quick
wins’ and can be analysed to assist companies in reducing costs include:

# Service delivery optimization - GICs are increasingly exploring process

automation to improve productivity, lower cost while improving error rate. This
trend is particularly evident in transactional processes (such as P2P, O2C in
Finance and vertical specific processes (e.g. FS - reconciliations) etc.) and IT.
Robotic process automation (RPA) in particular is being discussed & adopted by
leading GICs
# Talent management - Several GICs have undertaken measures to optimize
span & restructure the pyramid, improve productivity and utilization. Adoption of
performance linked & softer motivational incentives have increased
# Contract consolidation/renegotiation - Indirect costs such as travel and
transport are also being targeted as quick wins. Negotiating with vendors for
consumption based billing models (e.g. per seat billing models), consolidation of
contracts for volume discounts, rigorous tracking of SLAs are some of the key
initiatives
The outlook
Indian Global in-house centres have undergone a radical transformation in the
last few years breaking away from traditional shackles of being a ‘low cost centre’
to being ‘strategically relevant’ to the parent. While cost arbitrage and delivering
efficiencies remain hygiene considerations during the initial years of transition
and stabilization, mature GICs are now exploring ways to evolve their strategy
and operating model to remain strategically relevant to the parent organization.
Majority of GICs undergo a transformational journey, initially evolving to Centres
of excellence by leveraging their end to end process expertise and deep domain
knowledge to take complete ownership of service delivery excellence.

Gradually these centres also transform as a hub to drive innovation and create
disruptive solutions for local and global markets. In their new ‘avatar’ the Indian
GICs are an integral and irreplaceable extension of their parent company, and
surely much more evolved than their global peers.
To access the summary of the report, please visit www.ey.in Follow @EY_India
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