How to set up a Global Capability Center (GCC)

Global Capability Centers (GCCs) or Captive Centers as they were once known as, are the offshore delivery centers of global companies, that are owned, operated, and managed as subsidiaries – often in a low-cost, talent-rich location.

As companies’ globalization journeys have evolved, so have these Captive Centers, which have transformed into Global In-house Centers (GICs) or Global Capability Centers (GCCs). More often than not, these GCCs build and scale a specific capability or a set of capabilities, hence the name. Over the last couple of decades, GCCs have become a critical part of how companies access global talent, drive innovation, de-risk business, and ensure business continuity.

But how to set up a Captive Center or a Global Capability Center (GCC)?

By following tried and tested approaches that ensure a seamless setup and operationalization. In today’s hyperconnected and competitive business landscape, setting up a Captive Center has become a strategic imperative for global organizations. The Captive Center or GCC, serves as a hub for delivering various critical functions, such as IT Services, Finance, HR, and more, to support the global operations of a company. Captive Centers are pushing the envelope on cost, innovation, productivity, processes, efficiencies, technologies, and quality. These GCCs are increasingly driving organization-wide superior customer experience and providing customer insights that enable downstream data-driven decision-making.

To set up a successful Captive Center or Global Capability Center, careful planning and execution are critical. Here are the key steps on how to set up a Captive Center:

1. Define the Strategic Objectives

Before diving into the details of setting up a Captive Center or GCC, it is crucial for the company to define their organization’s strategic objectives. Consider the following questions:

• What functions or services will be centralized in the GCC?
• What cost savings or efficiency improvements will the GCC enable?
• What is the primary objective of setting up the Captive Center –access specific talent pools or markets?
• Will the GCC enhance control over certain business processes?
• What is the company’s long-term vision and how does the GCC fit into it?

2. Conduct a Feasibility Study

Once the company has outlined its strategic objectives, next comes a feasibility study. This study should assess the viability and potential risks associated with setting up a GCC. Key aspects to consider include:

• Location analysis: Evaluate potential locations for the GCC, taking into account factors such as talent availability, cost of living, political stability, ease of doing business, engineering ecosystem maturity, and regulatory environment.
• Cost analysis: Estimate the initial setup costs, ongoing operational expenses, and potential cost savings from centralization.
• Risk assessment: Identify potential risks and challenges, such as cultural differences, language barriers, and geopolitical factors.
• Legal and compliance considerations: Understand the legal and regulatory requirements in the chosen location, including labor laws, data protection, and intellectual property rights.
• Technology infrastructure: Assess the availability of necessary technology infrastructure, including internet connectivity and data security.

3. Select the Right Location

Choosing the right location for setting up the GCC is critical. This choice will impact talent acquisition, operational efficiency, and overall success. India, Poland, Mexico, The Philippines, and Brazil are some of the top talent hotspots where companies can house full, scalable engineering teams.

India has consistently been one of the top global talent hotspots for setting up Captive Centers. Global capability centers (GCCs) in India have a long and storied history. Over the last two decades, Global Capability Centers or Captive Centers in India have definitively metamorphosed into innovation and transformation hubs for parent companies.

A vast, digitally-skilled talent pool; higher ecosystem maturity with a dynamic technology start-up ecosystem, a vibrant Service Provider community, and academia; ease of doing business; and affordable costs are just some of the X factors that propel India to the top of the globalization list.

When selecting a location, companies need to consider the following factors:

• Talent pool: Evaluate the availability of skilled professionals in the desired function(s). Look for a location with a strong university and academic ecosystem and a history of success in the company’s target industry.
• Cost considerations: Compare the cost of labor, real estate, and other operational expenses in different locations. Balance cost savings with the quality of talent and infrastructure.
• Time zone compatibility: Ensure that the chosen location’s time zone aligns with the company’s global operations to facilitate collaboration as well as 24X7 coverage.
• Cultural affinity: Assess cultural compatibility and language proficiency to foster effective communication and integration with the parent company.
• Legal and regulatory environment: Understand the local laws and regulations governing business operations, data protection, and intellectual property rights.

4. Build a Robust Business Case

Based on the results of the feasibility study and location analysis, the company needs to create a compelling business case for establishing a GCC. This case should outline the expected benefits, potential risks, costs, and potential return on investment. A well-structured business case will help secure executive buy-in and funding for the GCC initiative.

5. Develop a Detailed Roadmap

With the business case approved, it is time to create a detailed roadmap for setting up the Captive Center. The roadmap should include the following key milestones:

• Legal and regulatory compliance: Establish the legal entity for the GCC, ensuring compliance with local laws and regulations. This may involve setting up a subsidiary, joint venture, or other legal structures.
• Infrastructure setup: Invest in the necessary infrastructure, including office space, technology, and data security measures.
• Talent acquisition: Start recruiting and onboarding the initial team members for the GCC. Consider both local hires and transfers from the parent company.
• Process migration: Identify the processes to be migrated to the GCC and develop a phased migration plan. Ensure that the knowledge transfer process is well-documented and seamless.
• Technology implementation: Implement the required technology solutions, including software, hardware, and communication tools, to support GCC operations.
• Performance monitoring: Establish key performance indicators (KPIs) and monitoring mechanisms to track the GCC’s performance against its objectives.

6. Choose the Right Offshoring Model

Any company looking to set up a Captive Center needs to choose the right offshoring model.

1. Traditional GCC model: A wholly owned Captive Center that provides the requisite services directly to its HQ organization.
2. GCC Accelerator model: A plug-and-play model that enables a frictionless journey from building a strategic design for a GCC, all the way to on-ground implementation and operations in a rapid and cost-effective manner.
3. Build-Operate-Transfer (BOT) model: An offshore partner sets up the Captive Center, staffs and operates it for a specified period of time, and subsequently transfers the team to the customer.

The following table illustrates the salient aspects of each of these models.

7. Define the Organizational Framework

Define reporting relationships, span of control, roles, and responsibilities for the newly set up Captive Center. Balance local leadership for agility with integration with global teams. Plan team structures keeping end-state scale in mind. The following will be key considerations when designing the GCC organizational structure:

• Leadership: Choose the center head and key roles. Blend global and local hires.
• Hierarchy: Keep the initial structure flat, and adjust as the GCC scales.
• Roles and responsibilities: Clearly define the roles and responsibilities of all GCC staff.
• Governance: Establish processes for management oversight and decision-making.

8. Focus on Talent Development

One of the primary advantages of setting up a GCC is access to a diverse and skilled talent pool. To maximize this advantage, the company must invest in talent development and retention strategies. Consider:

• Training programs: Offer continuous training and upskilling opportunities to enhance the capabilities of the GCC team.
• Career progression: Provide a clear career path for employees, including opportunities for advancement and skill diversification.
• Employee engagement: Foster a positive work culture and engage employees through various initiatives, such as wellness programs, social activities, and recognition programs.
• Competitive compensation and benefits: Design competitive hiring, compensation, benefits, training, and other HR policies tailored for the local talent landscape. Use both external partners and internal teams for recruiting. Leverage best practices from global operations.

9. Implement Effective Governance and Communication

Effective governance and communication are crucial for the success of the GCC. Establish clear reporting structures, decision-making processes, and communication channels between the Captive Center and the parent company. Regularly engage with stakeholders to ensure alignment with strategic objectives.

10. Continuously Optimize Operations

Setting up a Global Capability Center is not a one-time effort but an ongoing process. The company must continuously assess the performance of the GCC against KPIs and identify areas for improvement. Consider automation, process optimization, and technology upgrades to enhance efficiency and cost-effectiveness. Define maturity roadmap. Set targets for center leadership, talent development, and portfolio expansion. Track progress periodically. Maintain active collaboration between global and GCC leaders to enable growth.

11. Ensure Data Security and Compliance

Data security and compliance are paramount in today’s dynamic business environment. Implement robust data protection measures, adhere to local and international regulations, and conduct regular audits to ensure compliance.

12. Manage Organizational Change

Proactively manage the cultural integration between global and GCC teams by –

• Conducting change management workshops
• Promoting open communication and knowledge sharing
• Defining shared goals and success metrics
• Providing cultural training and team-building opportunities
• Addressing concerns through transparency and sensitivity

13. Foster Collaboration and Integration

To fully leverage the capabilities of the GCC, the company must promote collaboration and integration with the parent organization. Periodic knowledge-sharing sessions, cross-functional collaboration, and alignment with corporate culture and values play a critical role in ensuring faster integration.

14. Govern Continuous Improvement

Define frameworks to track the Global Capability Center maturity across dimensions like leadership, talent, and technology. Conduct periodic assessments to monitor progress. Share best practices across centers. Stay aligned to the long-term strategic roadmap through active partnerships between global and local leadership.

A well-designed GCC can give any company access to new talent pools and innovative thinking. With careful planning and investment in people, companies can build global Captive Centers that create immense strategic value over time. But setting up a Captive Center can be challenging, due to the fact that there are multiple moving parts to manage. From location analysis to infrastructure, IT, talent acquisition and management, and other operational challenges, the journey to set up a GCC can be time-consuming. Without the necessary experience, companies that try to set up a Captive Center in talent hotspots such as Bangalore, Mexico City, or Warsaw, will run into operational challenges and frustrations that can potentially make an already-difficult process more challenging, expensive, and inefficient. These will take up a lot of executive bandwidth, while also potentially increasing the risk of failure. Hence, strategic intent, a robust approach, careful planning, effective execution, and a commitment to continuous improvement are key to successfully setting up a Captive Center.