- Data is the fuel of the 21st-century economy.
- Companies must manage and exploit data and digital technologies in an innovative, agile and cost effective manner or be left behind.
- Global Innovation Centers (GICs)—particularly in India—are on the upswing and increasingly used by companies to unlock this potential while keeping value creation inside the enterprise.
The Digital Universe:
Data is driving growth and change in the 21st century in the way that oil did last century. As noted in The Economist: “Flows of data have created new infrastructure, new businesses, new monopolies, new politics and—crucially—new economics. Digital information is unlike any previous resource; it is extracted, refined, valued, bought and sold in different ways. It changes the rules for markets and it demands new approaches from regulators. Many a battle will be fought over who should own, and benefit from, data.” (The Economist, “Fuel of the future / Data is giving rise to a new economy / How is it shaping up?,” May 6, 2017)
As more business activities migrate to, and depend on, the Internet and cloud computing, huge volumes of data are collected and stored. The so-called “digital universe” is expanding at a staggering rate. The quality of data has also changed from somewhat static databases of names and personal information (such as age, sex, income and address) into real-time flows of information (such as searches on Google, photos and “like” posts on social media, shopping preferences on e-commerce platforms, information generated by smart phones, and the flood of data from connected sensors in engines, refrigerators and other devices on the Internet of Things). Users are leaving a rich digital trail wherever they go.
Moreover, as the volume of data rises, the value of data is increasing. Data that was initially collected for targeted advertising can now be deployed with artificial intelligence (AI) or “cognitive” technologies (such as fraud alerts, speech recognition and facial detection) to identify new revenue sources. According to a recent research report by Radius, based on a survey conducted by the Harvard Business Review, companies with advanced data strategies are twice as likely to report more than 30 percent annual revenue growth. They also do a better job of attracting and retaining customers and generate more revenue than competitors struggling with data analytics.
To respond to the threat posed by data-driven enterprises like Amazon, Apple, Alphabet (Google), Alibaba, Facebook and Microsoft—which already are among the top companies in market capitalization worldwide—businesses need to be able to collect, mine, analyze and exploit massive quantities of digital information in an innovative, agile and cost-effective manner. Data-driven transformation is becoming a question of survival in many industry sectors.
The Case for GICs:
A Global Innovation Center or GIC—sometimes referred to as a Global In-house Center or Captive Center—is an offshore shared services facility, owned and operated by the enterprise, to source high quality and scalable IT and business services to support its business. GICs have experienced tremendous growth in recent years across a broad range of industries—outpacing the growth rate of outsourcing services—with India being home to a majority of GICs. There are currently about 1,100 GICs in India, employing more than 800,000 individuals and generating approximately $23 billion in revenue, according to a 2017 report (“Global In-house Centers in India” by Arpan Sheth, Bhanu Singh and Prateek Majumdar, Bain & Company, April 20, 2017).
Underpinning this impressive growth is a compelling business case for GICs as companies make the transformation to compete in a data-driven digital economy:
Digital technologies (social, mobility, analytics, cloud and others) require a quantum leap in the agility of operations. A company’s digital operations are fast paced with short transaction cycle times that require high levels of interactivity and collaboration. As an internal shared services organization within the enterprise, GICs provide the control and transparency required to quickly adapt to the priorities of the business and facilitate speed-to-market on digital technologies. For example, Australia and New Zealand Banking Group’s GIC in Bengaluru deployed about 100 robots in the first six months of its Robotics Process Automation (RPA) program, thereby generating substantial cost savings (often over 40 percent) for the bank. (Everest Group, “Practitioner Perspectives | A Conversation with Simen Munter and Pankajam Sridevi, ANZ Global Hubs Leadership,” 2015)
Alignment and Integration With the Business.
Effective transformation activities and responses to digital disruption require strong alignment and integration with the business and its evolving core objectives and strategic initiatives, especially those involving high-value customer interactions. GICs offer an opportunity to build an internal team of highly talented and motivated employees who are intimately familiar with the company’s business and priorities, imbued with the company’s culture and practices, and equipped to take advantage of the potential of digital technologies. The interests and incentives of GIC employees can be fully aligned with the business, unlike third-party service providers which have competing interests of enhancing their own revenue and profits on client accounts.
Talent represents the ultimate source of advantage for a business. GICs allow companies to recruit individuals who are the right match for the company’s culture and business needs (rather than rely on supplier-selected personnel) and manage them to the standards of the enterprise and aligned with its objectives. India has a very large pool of highly skilled IT resources, which can avoid the challenge of finding comparable talent onshore (and at a much lower cost). GICs are attractive to top talent in India for a number of reasons, including the cache of working for global brands.
In addition, there is a burgeoning ecosystem of innovative start-ups in India with which GICs can collaborate. An accelerator program sponsored by a single GIC— Société Générale Global Solution Centre, an innovation hub of the Société Générale Group—“successfully generated new ideas and converted them to formal commercial engagements” with 10 Indian start-ups in the areas of artificial intelligence, machine learning, natural language processing, text analytics, predictive analytics and chatbots (Finextra, “SocGen gears up for second round of Indian innovation programme Catalyst,” April 17, 2017). Similarly, to assist it in building a large omni-channel business, Target worked closely with five Indian start-ups to innovate in areas such as search on apps, 3D imaging and data analytics (livemint, “Target India to work with five start-ups for retail innovation,” July 15, 2015).
Data and digital technologies that drive revenue growth and profitability represent valuable intellectual property for an enterprise. As an internal shared services organization, value created by the GIC remains within the enterprise. GICs also reduce the risk of leakage of data, trade secrets and knowhow. Third party service providers operate in a multi-client environment often with other clients in the same industry—thus increasing the possibility of transgression. In addition, GIC resources who train, work and build their skills on new digital platforms and capabilities are employees of the enterprise, thereby reducing dependencies on third party service providers for core competencies and minimizing the risk that knowledge and knowhow will be lost as services are transitioned to successor service providers.
Like outsourcing, GICs can provide substantial cost savings through labor arbitrage in moving operations offshore. GICs may also compare favorably to offshore outsourcing from a cost standpoint. Wages tend to be higher to attract top talent, but supplier profit margin is eliminated. Also, third party service providers may not have strong incentives to reduce client costs through automation and digitally streamlined processes and, in a GIC, all of the savings realized from productivity improvements accrue to the enterprise.
Low Barrier to Entry.
After three decades of India offshore services and the growth of a robust ecosystem, setting up a GIC is no longer viewed as exotic or risky. It is much easier to set up GICs than in the past because the infrastructure, including first-class office parks, supply chains and communication lines, has matured. There are skilled partners and service providers with substantial experience in setting up GICs who can help companies navigate the local market for real estate and talent. In addition, local legal, accounting, finance and other advisors can be readily retained.
The Path Forward:
The digital universe and the rise of data-driven companies cannot be ignored. Indeed, in a recent survey conducted by New Vantage Partners, nearly 80 percent of the executive respondents acknowledged the threat of disruption and displacement from “data-driven, highly agile competitors, including the big Tech Giants—Amazon, Google, Apple and Facebook—as well as those competitors within their own industry who are demonstrating the ability to compete on data and analytics, especially whose who have forged data cultures which give them agility and speed.” As a result, over 97 percent of executives indicated that “their firms are investing in building or launching Big Data and AI initiatives” (New Vantage Partners, “Big Data Executive Survey 2018 | Executive Summary of Findings | How Big Data and AI are Driving Business Innovation, 2018).
GICs are an attractive option for companies seeking to advance their capabilities in exploiting big data for competitive advantage. Unlike traditional IT operations and back office support services—where predictability, accuracy and stability are paramount and which are well served by current sourcing models—digital technologies that support the front office and drive business growth require speed, agility, flexibility, talent and innovation. GICs are particularly well suited to that task.
Like any business strategy, GICs require careful planning and execution and strong internal leadership to realize the desired outcomes. There are a number of legal, regulatory, tax and other considerations that need to be addressed in setting up and operating a GIC. Effective management of a GIC is critical. It is particularly important to integrate a GIC within the broader enterprise, immerse the GIC workforce in company culture, and view the GIC as a source of strategic innovation and not merely a vehicle for cost savings through labor arbitrage. Fortunately, many companies have already taken the path forward with GICs and achieved success, providing a blueprint for others seeking a strategy to thrive in the digital economy.