The Economics of a GCC.

The Economics of a GCC.

The Economics of a GCC.

GCCs or Global Capability centers are units (initially in team extension mode and now more mature relationships are seeing GCC as a much more integrated part) set up by companies at offshore geographies to take advantage of global talent, leverage a diverse workforce and the ensuing cost benefits. The beginnings were about 3 decades ago with engineering talent and technology work. The scope expanded to include Business Process Operations- voice (call centres/customer support) and non-voice work, further extended to shared services or corporate functions type of work. The success and value generated has led to natural progression to more complex and high-end work such as innovation and transformation. The model proved to be effective and matured from being a back office to a valued and integrated arm of the company.       

The business case for GCCs or GICs is now proven. This business model has been a success story for most of the companies and it is finding favour now more than ever. Access to talent and Cost arbitrage was the start point of outsourcing and offshoring, while the cost leverage continues to be a significant reason, the nuances of the economics of a GCC is more complex than pure cost play.    

Rakesh Singhania, CFO of Gloplax and a seasoned leader in the GCC space, talks about the ‘economics of a GCC’ going beyond cost arbitrage and the obvious advantages. He helped steer the GCC of a large multinational bank as its CFO. He contributed significantly across the lifecycle stages starting with set up, stabilization and transformation of this Global Capability Centre from being a cost centre to a value generating entity or a center of excellence for the bank.

Multiple aspects influence the economics of a GCC. It starts with some key decisions that the enterprise makes early on, which include.  

The Global Sourcing Strategy – Defining the strategy is the first step. This is typically based on the business objectives and certain constraints/considerations of the enterprise. The strategy determines details like - Work Type, Location, Platform, Governance, Positioning and others. These   act as the guide rails for the global sourcing program.

The Operating Model – This establishes the relationship of the GCC with the enterprise or the parent company.  The primary approach in the initial days of offshoring was staff augmentation, this matured to the team extension model, where the GCC is considered an integrated arm of the enterprise. The team extension model has proven to be the most preferred and effective model. The essence of this model is ‘one team.’ The GCC is an extension and not another unit with shared vision, values, and culture as that of the enterprise. GCCs are leading the way for many companies as the innovation hub, with IP and patents related work being done here. The leadership of the GCC is extending itself beyond the GCC and leading programs/efforts at the enterprise level also.

The GCC Leadership – Although it might seem logical to hire senior leadership as the GCC grows, our experience tells us that GCCs that have seen success, have been cautious about the quality of leadership capability upfront. Getting the foundation right and starting out on a firm footing determines the future course and the growth trajectory of a GCC.

These key decisions impact the performance of the GCC and its ability to generate value for the enterprise. These are foundational and need to be thought through with a long-term view, understanding and an intentional outcome focus.

Today, India hosts the maximum number of GCCs at ~1580 (Zinnov – NASSCOM report, 2023).  The GCC space has seen consistent growth at ~11.4% (FY 15-23 states a PWC report). This buoyancy is a testament of the value that the parent company is deriving from GCCs.

The GCC unlocks value at multiple levels and in multiple ways. The ‘economics’ of a GCC is complex and layered. These are the three primary pivots to understand this.

Pure play cost – The GCC set up phase is typically run as a program with initial funding from the enterprise. As it is for any ‘set up’ the initial cost includes infrastructure, people, travel, and others. As the GCC stabilizes, typically it takes up to one year for the GCC unit to get onto its own trajectory and move out of being managed in a program mode. The cost advantages of the geography, the talent, the currency exchange advantage cumulatively start to play out and by year 2 the GCC has the potential to deliver 30-40% cost leverage. Add to this the economies of operating scale, operational efficiencies, process improvements. As the delivery teams evolve and stabilize, they can spot opportunities for efficiencies and innovation in processes. These are in effect passed on as saves in dollar value back to the line of business/enterprise.  ‘More for less’ is brought to life. Another design advantage of a GCC is the scale as typically these centres are designed to house the workforce together at a physical workspace such that the scale benefits accrue significantly. The scale allows for further efficiencies across.

Talent advantage India has the youngest population in the world giving it the abundance edge. The tech talent demand- supply gap is the lowest in India at 25-27% (PWC report, 2023). The Indian education system and societal structure lays emphasis on higher education. India produces a record number of engineers every year in addition to other fields. English language proficiency, early technology adoption and learning and other factors have led to robust pipeline of skilled workforce. The talent advantage multiplies when the parent organization can leverage the talent, especially leadership and niche skills in a global manner. This works well both for the organization and the employee. As the GCC matures, it balances the org structure optimally, brings in efficiencies/automation thus enhancing the value further. As most GCCs have processes co- located, the holistic view of a process enables better synergies between technology and operations.

Another important factor is the capability of the shared services/corporate functions. This is essential for smooth operations, managing risks, acquiring and managing the talent, creating a nurturing environment et al.  Ensuring that the GCC is compliant with the local regulations, it is contributing to the local communities and participating in the ecosystem. The quality of talent and leadership here is critical for success.

Transformation/Innovation –The GCC serves as a microcosm of the enterprise. The GCC can be leveraged as a sandbox for attempting experimentation and innovation by simulating scenarios and situations and deploying the relevant talent. In addition to a nurturing environment within the company the external ecosystem with startups, new ideas have its own positive impact. Many GCCs are actively leveraging the ecosystem which includes the startup environment, academia, and their own employees. The value that a successful implementable idea can generate for a company is immense and the cost of ‘failure’ may be much lower than otherwise. India is being seen as a thriving hub for new age tech talent specially in AI, ML and others. These are proving to be game changers/transformational for the parent.

There are other aspects in the mix, which are more derived than direct, include value generated for the brand, reputation, environment, and social impact levels.

These factors when leveraged and managed in an orchestrated and intentional manner can provide immense value to the enterprise. This in effect can be understood as the typical play of the ‘economics of a GCC’ which goes far beyond the obvious.

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