Index Insider: The Subtle Tug-of-War Inside Global Capability Centers | ISG

Hello. This is Stanton Jones and Sunder Sarangan with what’s important in the IT and business services industry this week.

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Global Capability Centers 

Corporate executives with decision-making responsibility for their global capability center (GCC) say their top priorities are 1) improving productivity and 2) reducing costs. India-based GCC leaders are aligned with these objectives, but they also view innovation as a key priority as well.

Data Watch

Background

We’ve been writing about global capability centers a lot lately, as we see in the data – and with our clients – a strong desire from enterprises to establish a GCC or expand and transform it. We’ve also seen a shift in the kind of talent GCCs are seeking, as well as how they plan to use AI to improve productivity and reduce costs.

One angle we have not talked about much is the potentially conflicting expectations for a GCC within the same enterprise. For example, how the key objectives for a GCC from the executive sponsor at headquarters might differ from those of the executive running it on the ground.

In our most recent study on the topic, we find that India-based GCC leaders are more focused on innovation than the decision-makers based at the corporate headquarters (see Data Watch).

The Details

• Both corporate executives and India-based GCC leaders ranked staff cost reduction and improved productivity in their top three objectives.
• While reducing staff costs is relatively more important for corporate executives, in-country GCC leaders are more focused on improving productivity.
• 40% of in-country GCC leaders ranked innovation in their top three objectives while only 17% of HQ decision-makers ranked it in their top three objectives.
• GCC leaders in India are relatively less focused on operational flexibility, which ranks in the top five objectives for corporate executives.

What’s Next

As you can see from the data, both cohorts are generally aligned on objectives related to staff costs and productivity. So it’s noteworthy that the emphasis on innovation is significantly different between headquarters and GCCs.

My colleague Alex Bakker recently described one of the most significant implications of this:

The immediate problem facing enterprises (and GCCs) is that GCCs often have a dual mandate: to drive innovation but to do so at a price point that balances out the risk inherent in innovation. In other words, the very discipline it takes to focus on in-demand skills and innovate is immediately at risk if the GCC is a labor pool for low-cost services.

What is clear from our research and discussions with enterprises is that alignment with company’s objectives is critical. While GCC interest and activity has stayed very strong, we’re starting to see a divergence in these objectives, which could pose a significant risk to the success and survival of a GCC.