Failure by Design- Why small Capability Centres fail
The two Hypothesis on which this blog rests:
- Capability Centres/ talent hubs are an existential imperative for the knowledge economy– Large organisations established capability centres in countries like India, Mexico or Romania to take advantage of labour arbitrage- and over a period of time they evolved into an essential platform, not just for cost control but innovation , scale and market development. The talent hub is now an essential feature of the knowledge economy; A mid sized technology consulting firm in lets say Germany or France cannot compete with an Accenture or Cap Gemini without a talent hub. Accenture has 50% of its associates in India- the leverage it gives them to bring scale , knowledge and cost advantage to a solution is immense.
- Success has eluded Talent hubs of mid sized organisations– A lot of them meander to mediocrity over a preiod of 5-6 years and then get absorbed (rebadged is the term used) into a solutions firms like Accenture, Deloitte or TCS. This is due to faulty organisation design; What works for a large firm does not work for a small organisation. This blog explains both the why and the solution.
The reason this design does not work for smaller capability centres is the same reason it works for the large ones
The scale problem: A large-enterprise GCC works because it has enough volume in every function (finance, IT, HR, data) to justify a full-time Global Process Owner + India delivery lead + critical mass of staff per function. An SME/SMB doesn’t have that volume anywhere — hiring a dedicated India IT delivery lead for a 4-person IT team is structurally wasteful.
The answer is making the weakness your strength- Lack of Scale means you can be flexible & agile. Divide the operations with Make or Buy Decisions
- Make- i.e. Own and scale your core compentence & run it yourself in the Talent hub
- Buy- Non Core processes are outsourced and the vendor managed by the Talent hub
Three factors which are the basis of make -or- buy decisions:
- Client impact — is this work directly shaping the client relationship?
- Data/IP sensitivity — does it involve proprietary or client-confidential data?
- Core competence — Every business has a core competence, if you are a CPA firm its Audit & Tax, if you are a Technology consulting its Software Engineering , Research & Consulting- So does the work involve something that differentiates the business, or is it a commodity process any vendor can run?
- Low on all three → Buy. Route to an outsourcing/BPO/IT-services vendor under an SLA. Cheap to start, cheap to stop, no headcount risk and the vendor will have the expertise to run it better than you.
- High on any of these → Build. Create a small dedicated GCC “pod” — hired directly, IP and data stay in-house, tighter control.
Key Organisation design components
The Expert Panel — composition and mandate
The expert panel would have – Country head- Someone with expertise in GCC, governance & exposure to make-buy decisions. The other critical roles would be HR head ideally with TA Expertise and an offshoring expert with experience in managing Outsourcing relationships, SLA’s & Transitions – both for in – house pods and vendors.
Delivery Pod Instead of the usual Centre of Excellence Organisation
The Senior managerial talent / Process owner remains at the HQ and the POD is a manager lead delivery organisation with its own team and also shared talent pool with pods which require complimentary skills. So if you are a small fintech, you might have a data centre team in India . Digital Marketing & Loyalty programs in one pod and Credit & Fraud Risk in another pod- each reporting to its Process owner at HQ . But they might share common resources in the capability centre like Data cleaning and experts in startistics.
How does this score over the classic GCC organisation design used by large organisations
- Avoids the classic SME trap of either over-hiring by replicating the COE structure of a large GCC , or over-outsourcing core IP-sensitive work purely to save cost
- Creates a single point of institutional memory/ knowledge management at the GCC so decision making does not start from base 0 whenever new work shows up
Required Guardrails
- Empire building- without discipline, “core competence” creeps to justify building everything (empire-building) or
- Cost as the only criterion for decisions-pursuing large labour arbitrage in your core competence would mean the quality of hiring suffers – the results are not great and over a period of time outsorucing everything looks the “smarter” decision
- Oursourcing vendors needs real governance — SMEs often under-invest here because “we outsourced it, it’s off our plate.” The panel doesn’t get to hand off responsibility, only execution.
- People Growth in Pod — this is a tough balance to maintain as for some skill sets horizontal growth and skill enrichment would constitute promotion rather than level jumps .
Omar Farooq
I assist interesting firms to hire exceptional talent in India & Romania.
omar@aceprohr.com