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Perspectives

Evaluating Shared-Services Captive Centers in Today’s World

2020-08-27


In the wake of COVID-19, organizations with captive centers for shared services are questioning the approach. Here’s a roadmap for deciding if your internal shared services have outlived their original promise.

External service providers (ESPs), of which Cognizant is one, and shared-services captive centers (SSCCs) — those insourced by the parent company — have long been means by which enterprises lower costs, improve services to the business and achieve digital transformation. The COVID-19 pandemic has accelerated a major rethinking in boardrooms around the world regarding the future shape of sourcing strategy; we’ve had discussions with many businesses looking for opportunities to transition capabilities from SSCCs to ESPs.

The coronavirus rapidly changed the mood of global business as the wisdom of first practices — online first, mobile first, cloud first, automated first, omnichannel first — became apparent to all. COVID-19 has led to greater interest in sourcing and developing modern, up-to-date solutions and services built on open standards, the cloud, software engineering, data and machine learning.

The pandemic has also painfully demonstrated the weaknesses of many captive centers:

  • Deficient business continuity planning. In many cases, we have seen captive shared services having to quickly move workers to work from home (WFH). This meant acquiring and deploying PCs and laptops to handling WFH configurations, while adjusting and expanding bandwidth and tools to enable WFH securely. Captives were competing with larger providers for needed hardware and implementation support at the same time that they struggled to operationalize, at scale, a distributed workforce.

  • Severe dependencies on human labor. With analytics, robotic process automation and maturing artificial intelligence (AI) and machine learning technologies, true end-to-end cognitive solutions can be implemented to reduce labor at scale; however, the investments to pursue this course are nontrivial.

The bottom line is that many businesses that rely on SSCCs are reevaluating their approach.

Next steps on the journey

Wherever an organization is on the SSCC versus ESP continuum, and whatever its next steps may be, there are certain best practices that will become ever more important as stakeholders seek process flexibility and value-based thinking. Foremost among them will be to avoid the following mistakes:

  • Focusing on value solely as a function of cost. Return-on-investment calculations can fail to quantify how innovative approaches will positively impact stakeholders, especially because shared services metrics are typically focused on full-time equivalent (FTE) input or service-level agreements.

  • Insufficient investment to fix problems, or needed organizational change. The true value from SSCCs comes from a comprehensive rethink of how work is conducted. Leaders are reorienting and reframing process work, focusing on the mechanisms that deliver higher-value offerings. During these times, this demands the fortitude of CEO- and board-level sponsorship.

  • Standardizing rather than innovating processes. Some SSCCs may have moved into their second and third generation or iteration. Consequently, with the urgent demands of COVID-19, immediate priorities (e.g., everything that can go online must go online) necessitate a rethinking of process best practices and the use of the latest advanced technologies.

  • Insufficient ability to anticipate change. Black swan events like COVID-19 come at you fast. Companies need leadership that can guide their SSCCs to run better and run differently on dynamically responsive business models to persevere, persist and prosper during the new normal of the coronavirus and beyond. If an organization can’t do that, then it’s simply shuffling deck chairs on the Titanic.

Options with high success potential

Our objective for captives is focused on helping organizations take the next steps toward realizing their tactical and strategic objectives. Our solutions range from consulting or digital transformation projects to a takeover and transformation of all or part of the captive scope, and could also include joint go-to-market and monetization of the assets and capabilities of the captive.

Here are examples of these options and some approaches that have worked:

  • Outsource select functions like finance and accounting, customer experience or application development, possibly through end-to-end business-technology solutions such as those provided through an industry-focused business-platform-as-a-service (BPaaS).

  • Engage a strategic transformation partner to unlock the value of business processes by digitizing and integrating them in a value-chain ecosystem — for example, enhancing the automotive customer experience through marketing, sales, dealer services, warranty and asset acquisition.

  • Sell all or part of the captive to yield cash and savings quickly. The captive holds a large component of selling, general and administrative (SG&A) spend, and business process outsourcing and IT outsourcing providers are poised to acquire a scope of services and deliver early savings and potentially cash through acquisition deal structures.

  • Effect joint go-to-market to monetize the captive intellectual property (IP) and assets. Captives with well-performing capabilities can find partners willing to acquire and go to market with these assets and IP. This approach can yield returns for the captive owner on top of savings.

Our approach is to tailor the captive transformation strategy to the strategic imperatives of our clients. This could include “escaping the captive” by selling it; restructuring the operations to value-chain ecosystems; or transforming the operations and transferring them back to the client to yield faster, better results that are more aligned to the business’s short- and long-term strategy. In some cases, we’ve recommended actually increasing the reach of the captive as a way to escape current problems.

SSCCs will undoubtedly play a role on this journey to the future, but with the proven track record of ESPs — now with additional capabilities developed during the pandemic — the argument to maintain an internal capability at great expense (of time, money, management overhead and opportunity cost) is weaker than it was a decade (or generation) ago.

For an expanded take, see our paper, “Shared Service Captive Centers: Assets or Liabilities in the Post-COVID-19 Era?” To learn more, visit the Digital Systems & Technology section of our website or contact us.

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Evaluating Shared-Services Captive Centers in Today’s World