How to De-risk Your Business by Setting up a Global Capability Center (GCC)

Tightrope walking has nothing on running a business in these volatile times! The world is shifting ever dynamically across technology, regulations, and talent availability, making it all the more critical to de-risk businesses than ever before. From pandemics that cripple world economies to geopolitical tensions that destabilize entire regions, businesses need to be defter, faster, and more agile than ever before. And just like a tightrope walker has a safety net to catch them in case of a fall, businesses need de-risking strategies to help them survive external disruptions such as those mentioned above.

In our 22-year experience of helping companies navigate challenging times, we have seen that setting up Global Capability Centers (GCCs) has been a go-to strategy to de-risk businesses.

Understanding Global Capability Centers (GCCs)

Today’s world is beleaguered with supply chain disruptions, changing regulations, data privacy concerns, and other macroeconomic disruptions that companies must actively navigate. This heightened volatility requires agility, resilience, and innovation to not just survive and thrive but to stay competitive. The way GCCs are structured and set up, helps companies minimize risks, bring in efficiencies, optimize operations, and ensure long-term sustainability. Global Capability Centers also ensure accelerated innovation and business continuity, while reducing costs and risks.

GCCs, which were previously known as Global In-house Centers (GICs) or Global Captive Centers, are a strategic initiative where companies set up dedicated units in a different location, often offshore from the headquarters location, to handle specific business functions. These centers can range from small, specialized teams to large-scale operations, depending on the company’s requirements.

Often, such GCCs are set up in talent-rich locations such as India, Poland, and Mexico.

Interestingly, GCCs in India are being increasingly being set up at higher maturity than previously done, where they act as strategic partners for parent entities and enable organization-wide transformation initiatives. In the recent past, India GCCs have increasingly been leveraged as innovation, skill, capability, and value arbitrage sandboxes – that are then extended across organizations.

How to Choose a Location for setting up a Global Capability Center (GCC)

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Setting up Global Capability Centers (GCCs): The Go-to De-risking Strategy for Businesses

GCCs can handle a wide range of functions, including IT Services, Finance & Accounting, Human Resources, Research & Development, Customer Support, and more. They enable businesses to harness the advantages of a global talent pool, access cost-effective labor markets, and diversify their operational risks. But, how exactly do GCCs help in de-risking businesses?

1. Access to Top Global Talent

GCCs are often located where businesses can access specialized technical and industry expertise. The ideal locations balance labor quality and costs, infrastructure, government incentives, language capabilities, and low political volatility. This gives businesses expanded access to elite skills for critical capability areas. Specialized skills and capabilities in Generative AI, Machine Learning, Big Data, Cloud Computing, etc., are coveted by companies across verticals and are in high demand due to the evolving nature of the business environment. In fact, ensuring access to top talent, at scalable levels, is the ultimate business de-risking strategy. This way, companies don’t have all their eggs in one basket, and also ensure 24/7 coverage from a customer service point of view, through follow-the-sun productivity models. Global Capability Centers enable businesses to tap into a global talent pool, often providing access to specialized skills that may be scarce in their home country. This ensures a diversified and skilled workforce, reducing the risk associated with skill shortages.

2. Cost Efficiencies

Setting up a GCC can provide significant cost savings over dispersed models by eliminating redundancies in people, processes, and technologies. Centralization drives efficiency through standardization, automation, and shared services. GCCs also concentrate domain experts to bring best practices to business processes – many a time, such expertise is housed in Centers of Excellence (COEs) that disseminate best practices, domain expertise, and technological know-how across the organization. This cost arbitrage not only helps in reducing operational expenses but also mitigates the financial risk associated with fluctuating expenses.

3. Risk Diversification

Operating in multiple locations, especially across international borders, reduces the risk associated with political, economic, and geographical factors. If one location faces challenges, the others can step in, ensuring business continuity. Take COVID-19 or the ongoing wars, for instance. When whole cities and countries announced unprecedented lockdowns to contain the spread of Coronavirus, GCCs in India enabled remote work for millions of employees – efficiently and effectively. And wars affect key areas, necessitating geographical de-risking to ensure business continuity. GCCs in specific regions can also help a company diversify its market presence. It can act as a local point of entry for business expansion, allowing the company to reach newer customer segments and markets.

4. Incubate Innovation

GCCs act as sandboxes for new ideas and innovations within large multinational corporations. Since GCCs are extended arms of the parent entities, they also enjoy more autonomy to experiment with new technologies, processes, and business models. The distance from headquarters allows GCCs to take more risks and try things that might not work at HQ. This decouples core vs. experiment and reduces the burden on existing infrastructure. From piloting new approaches to running hackathons/ideathons to collate ideas, GCCs enable the development of new capabilities and expertise in specific domains. More and more GCCs are also partnering with universities and academic institutions, especially in emerging markets, to facilitate collaboration on innovations.

5. Consolidate Key Functions

GCC enables consolidation of important capabilities – such as IT, Finance, HR, Procurement, Analytics and more – into a single location or a small network of centers. Centralization minimizes redundant efforts across the enterprise, promotes collaboration and coordination, and concentrates scarce expertise. Consolidation works well for the Global Business Services (GBS) model within GCCS. It helps companies institutionalize key business functions for a multi-hub organizational structure. For instance, setting up a dedicated Analytics GCC creates an ‘insights engine’ that can mine data to identify vulnerabilities, growth opportunities, and process improvements. In these times of ever-evolving customer expectations, the insights gathered and analyzed by such a GCC will enable data-driven, real-time decisions to provide superior customer service.

6. Enhance Operational Resilience

By designating particular sites to house crucial operations, companies can outline and implement robust business continuity plans. If there is a disruption or an unanticipated crisis (i.e., pandemic, natural disaster, geopolitical tensions) at one location, critical capabilities are preserved and maintained at alternative sites. Concentrating talent and tools also facilitates rapid emergency response – for instance, an IT GCC can quickly detect and mitigate a cyberattack. Duplication of certain operational functions or processes in the GCC can help distribute the risk associated with any operational failures or disruptions in the primary location.

7. Scalability and Flexibility

GCCs are highly adaptable. They can scale operations up or down as per business requirements, reducing the risk associated with fluctuating demand and market uncertainties. This flexibility is implicit in our GCC Accelerator model, where the model provides room to scale fast, learn fast, and fail fast. This model ensures the GCC setup in weeks, a plug-n-play infrastructure that significantly reduces capital expenditure (CapEx), and agility to get easy and fast access to a broad range of globalization tools, frameworks, and experts. This model also allows companies to exit, when it is no longer feasible to operate in a certain geographical location. This flexibility to scale up or down is key when setting up a capability center for de-risking businesses.

With more and more Global Capability Centers being set up at higher maturity, and GCCs’ proven track record of ensuring business continuity even during times of crises (time and time again), it has become the go-to strategy to de-risk businesses. Also, Global Capability Centers allow organizations to improve control over critical functions while gaining flexibility and resilience. As the business landscape grows more complex, GCCs will become vital for managing risks and gaining competitive edge. However, it is crucial to approach setting up a GCC strategically and navigate the complexities associated with international business operations. With careful planning, diligent execution, and a commitment to ongoing improvement, GCCs can be a key asset in ensuring the long-term success and resilience of any business in the global market.