Strategic Intent behind a Captive – Recipe for Success.

Strategic Intent behind a Captive – Recipe for Success.

Captives (Global In-house Centers) have evolved over the past decade and are now a sustainable option for organizations aiming to leverage the growing technology talent pool in India.

According to NASSCOM, there are more than 800 captive set-ups in India employing more than half a million employees. Also known as Global In-house Centers, these captives are in various stages of their life-cycle.

While there has been mixed views on the success of a captive, the fact that the no of captives has been growing steadily year on year is a clear indicator of the value creation potential of the captives (GICs) to their parent organization.

In analyzing the history of the captives and their life-cycles, the key factor that decides the success of the captive has been the management’s Strategic Intent behind the captive or the objective behind the captive.

Value Creation and Cost savings have been the 2 predominant dimensions that have been driving the Strategic Intent of captives in India. Value Creation relates to the ability of the operations to drive innovation and new initiatives. Cost savings refer to the relative costs for delivering the services at the location of the parent organization. This is also a function of availability of the talent pool for achieving a specific purpose.

Growth Engines : Captives that have been set up with a strategic intent of having the best of both worlds. A compelling combination of both High Value Creation and High Cost Savings. Such Captives not only drive operational efficiencies by moving business processes and the associated technology support to the captives but also have set up strong innovation or R & D operations with best-in-class talent pool (not necessarily low cost) to drive competitive differentiators for their own products and services in their current or new markets. Some of the captives are United Healthcare, Tesco, Allstate.

R & D or Innovation Centers: These captives have been set up with a sole purpose of accessing best-in-class technology talent for product development, support and innovation. Cost is no longer a key driver and they typically pay better than the industry to attract the right talent. These captives are tightly integrated with the global product management process and have the potential to become or have become strategic components for the parent organization. Some of the captives are Intel, Cisco, Microsoft.

Low cost Centers : Captives with Low cost as the strategic intent do have initial success during the initial periods when the cost take-outs are significant and add value to the bottom-line of the parent. But once the cost take-outs are absorbed, they are not relevant to their parent organizations any more. They do get into a vicious downward cycle as they would be able to attract better talent or retain the existing talent by providing a growth path for them. These captives either die a natural death or get sold out to a Service Provider.

Needless to say both the Growth Engine captives and the innovation (R&D) captives have made themselves strategically and have become relevant to their parent organizations.

We have also seen captives being set up as low-cost centers and quickly move into the Growth Engine mode by establishing value creation entities within their operations.

A new dimension of value creation is around Revenue generation from the APAC market. Captives are pushing the boundaries from being just delivery centers to revenue generation units. Needless to state, the improvisations that organizations employ to remain relevant as a captive is defined by the leadership qualities of the management team.

Avinash Babu
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