Sukumar Bargale: Head Strategic Initiatives & GIC business transformation @ IES, Tech Mahindra.
Kamakshya Prasad Prusti: Practice Head, Digital @ IES, Tech Mahindra
Global multinationals with a web of business transactions, value delivery networks and profit channels had to act first. Industry analysts, consultants and opinion makers help them understand the significance of digital technologies and its difference from traditional IT. Most of the MNCs have now attained a sufficient knowledge base, defined digital roadmaps for their respective businesses and are at different stages digital adoption like Proof of Concept (PoC) to pilots to controlled experiments with various digital technologies. These MNC organizations now expect their partner ecosystem to keep pace with them as part of this journey.
Traditional IT services providers were among the first business groups to understand such a change is imperative. They were both pushed and pulled to embrace digital into their lexicon. While such a transition is a continuous journey, there are early indicators that efforts put by the service providers is beginning to pay off. The relationship between service providers and the client, especially in the digital context has undergone a positive change. Most of the service providers have already made sizable contribution to their clients’ on the digital journeys in terms of customer experience, digital operations and digital platforms. Likewise, their MNC clients are increasingly finding it more comfortable to orchestrate meaningful business discussions with service providers and ideating alternative business scenarios under a digital umbrella.
Over the time as global MNCs gain a better vision of digital possibilities for themselves, their expectations from their own low cost country (LCC) subsidiaries or global in-house centers (GICs) are beginning to emerge. Now these MNCs, either explicitly or otherwise expect their GICs to play the role of a business contributor. If a root cause analysis is to be performed to get to understand why GICs fail to meet their parents’ expectations, the answer is lack of entrepreneurship / ingenuity on part of the GICs.
Source: Tech Mahindra
A recent report by Zinnov sums up the situation. It says that many leaders of global in-house centers (GICs) of MNCs in India need to transform their organizations into doing cutting-edge work for global operations and they need to define the “Core purpose “ to the HQ clearly. That is the reason, global MNCs now extend their search for value among service providers, boutique firms, technology vendors or Universities etc. Thus, the MNC HQ develop a mixed feeling and slowly begin to question the efficacy of their LCC model in view of digital disruption
Reasons why GICs are finding themselves ill equipped to step up vis a vis digital their Parents’ digital expectations -
A number of factors has influenced this change in the attitude of global organizations. It was triggered by a fundamental shift in the underlying technology landscape and advent of new commercial models. Newer technologies such as 5G, Additive Manufacturing, Internet of Things, Artificial Intelligence, Machine Learning, Virtual Reality etc have erased organizational boundaries. As global organizations are aspiring to have zero distance from their customers, they are expecting their ecosystem to contribute to this vision. To complicate the matters further for the GICs, there is a proliferation of smaller service providers whose business model is primarily resource provision on demand. This has significantly eroded competitive advantage of GICs from the view of their parent organizations because now in this connected world, captive centers are expected to bring in innovation and not act as broker of resources. Thirdly, within the resource provision business model, the parent organization is demanding more next-gen competencies such as data science, artificial intelligence, machine learning, RPA etc.,, something that the GICs are struggle to provide because they lack critical mass in these areas. Finally, the HQ expect collaborative business model by leveraging various discipline and industries; which is beyond the current capabilities of the GICs. To summarize, an all-round unpreparedness on the part of the GICs have shaken HQ - GIC business foundations by questioning if such GICs are relics of an era gone by.
While such a game of expectation is being played out between HQ & GICs, larger service providers are steadily investing in these next gen competencies and are able to demonstrate value directly to the global organizations. Overtime, the capability gap between global organizations and service providers has narrowed down while the same between GICs and service providers have widened.
There is an implication to the growing digital gap vis a vis the HQ - it affects the business model and service provided by GICs. For example, GICs have had a long history of a headcount-based model, which meant that legacy technologies such as engg support , ADM, Infra support, BPO services had been their forte. As demand for such services has reached the threshold or replaced by new gen technologies, the underlying value delivery mechanism is also changing. This is where most GICs seem to be struggling to move up in the value chain to impact core business of their Parents. In a digital world, traditional business model may not find its relevance and Outcome based models are on the rise. . Most GICs have shied away from doing that. Of course, there are successful examples where GICs have moved up the value chain and presented themselves as a true business partners for their parents. GICs of Bosch, Honeywell, Eaton, Continental, Mercedes Benz, Samsung, Cisco, Microsoft, Google and Intel etc. are part of such success stories. These GICs have consistently demonstrated value beyond cost – measured as % business impact, incubating new technologies, innovation systems and processes and IP filing from India centers etc. The worrying fact is such success stories are more of outliers than norms in the industry.
GIC & Service provider collaboration as a value driver for the HQ -
Collaboration with service providers is an exciting prospect as GICs that aim to claim back their Hq mindshare. Similarly, the service providers would stand to gain from such an arrangement, as it would allow them to ideate and experiment new technologies and business models with global principals. Finally, for the global MNCs it would mean accelerated test, launch and roll out of latest technologies backed by Captive’s knowhow and scale/agility of the service providers. Many service providers have back-to-back partnership with technology vendors allowing them to keep a constant tab on the technology evolution and refresh. Service providers are now experts in creating platforms as tools of industrialization
This collaborative approach is a win-win for service providers as well as captives. However, the MNC HQ would be the most significant beneficiary of this endeavor as it meets their requirement of access to new technologies at a globally competitive rates & scale.