Captive centers re-emerge as a source of offshore innovation

By siliconindia   |   Wednesday, 20 April 2011, 13:28 IST   |    3 Comments
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Captive centers re-emerge as a source of offshore innovation
Bangalore: The captive centers of global firms are emerging as a source of offshore innovation, and that the new captive models of engagement could represent as much as 15-20 percent of the total work of offshore service providers, reveals a new Forrester Research report. The latest Forrester report - 'The Captive Center Re-Emerges as a Source of Offshore Innovation', cites strong reasons for firms to revisit their offshore captive center strategy, particularly for companies that were balancing the need for cost savings with innovation objectives. Jan Erik Aase, Forrester's Principal Analyst and author of the report said, "Today, the captive center model is working for many companies, but it isn't yesterday's model. Going forward, the new, empowered captive center will become an increasingly important part of offshore work, and this new captive approach will breathe a new life of innovation into some existing captive centers." He advised companies with no captive presence to consider establishing a small satellite office where their offshore vendors have an ODC (Offshore Development Center) or within a vendor's ODC. "The re-emerging interest in captive centers is happening with the active involvement of offshore vendors. Based on our interviews with 30 vendors with offshore operations in India, vendors are seeing a surge in requests to contribute to their customer's captive center initiatives. They also expressed that having clients' senior IT decision-makers in close proximity to the offshore teams has proven very beneficial during critical project phases, when significant scope changes occur or when vendors want to present alternative thinking and solutions," Aase said. The new approaches noticed in common among the interviewed firms that have made their captive center model successful are: 1. Careful orchestration of work: Technology functions with consistent volumes and non-discretionary spend are assigned to the captive centers. 2. Empowering the captive center: Shifting more decision-making authority to the captive center leadership allows them to leverage best practices from other Indian companies and run their operations more efficiently. 3. Increasing the offshore leadership strength: Positioning more senior technology leadership within the captive center ensures better alignment with corporate headquarters and better control of technology initiatives within the captive center as well as at the offshore vendor offshore development centers (ODCs). The report also identifies four common offshore captive center models firms should embrace by creating a hybrid between captive centers and offshore development centers: 1. Ex-pat model: A "technology-light" version of a captive center with typically a few senior IT leaders either permanently or temporarily located in the captive center. 2. Augmentation model: This is a traditional time-and-materials (T&M) arrangement, but done completely in offshore locations. The client provides all of the project leadership, while the vendor provides the skilled resources. 3. Captive +1: In this model, the captive center and the vendor's ODC are mirror images of each other; recruitment and training of all resources is done within each site, and leadership is provided by each. Here, firm's head-office manages the relationship with each group independently. 4. Noncore model: A mix of the Ex-pat and Captive +1 models, with a core set of senior IT leadership located in the captive center. They direct the work of both the captive and the vendor ODC. The work is divided based on core versus noncore.