Virtual Captives The Future of Offshore

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Virtual Captives  The Future of Offshore Powered By Docstoc
					   “Virtual” Captives –
   The Future of Offshore?

   Peter Allen,       Partner & Managing Director, TPI
   Sanjay Gupta,      Senior Vice President, Strategic
                      Initiatives - Wachovia Corporation




   NASSCOM 2006: India Leadership Forum
15-17 February 2006 · Hotel Grand Hyatt · Mumbai, India
                                                           1
                                           Discussion Overview


► Offshore BPO – Key Trends

► Wachovia and the „Virtual Captive‟

► A Sign of Things to Follow?

► Q&A




                                       2
                                          Seeking the Best of All Worlds
Companies consider multiple alternatives when optimizing their service
delivery models – and are using more than one alternative to drive their
agenda for change.



              Services Delivery Framework                         Sourcing Objectives
                                                         ► Specify and source services
                                                           at fixed prices

       Transform                                         ► Support business strategy
    the Organization                                     ► Influence strategy by
               Set up a Shared                             providing new capabilities
              Services Operation                           (flexibility, cost variability
                            Establish a Captive            etc.)
                             Offshore Center

                                            Outsource


                        Target Operating Model
                       Target Operating Model
                         Operating Model
                                                        Roadmap

                                              3
                                                            Global Sourcing Drivers
Capital markets and global competition have raised the bar on performance.
Sourcing can do more than reduce costs - address underperforming
processes, scale operating models and variabilize cost structures.

                                         Globalization
                                            Drivers

              Cost Reduction        1                               2       Cost Efficiency
           Labor Arbitrage                                              Move to more efficient
           Reduced cost/unit       3                                     cost structures
                                                   4                5    Improved scale at lower
                                                                          cost
                                                                         Increase variable costs
      Skills & Experience
    Access to qualified                   Improve Quality                    Competitive Changes
     personnel and specialized
     skills                              Leverage supplier                    New Markets / Growth
    Access to investment in              processes & best                      Strategy
     specialized capabilities             practices                            M&A Activity
     outside your “core”                 Improved testing                     New Products &
    Legacy migration to offshore        Source to someone                     Services
     operations – keep key                whose core business                  New Process/System
     resources focused on core            what is non-core to you               Improvements
     business critical areas                                                   Increased Capacity

                                                    4
Offshore Service Delivery Plays an Ever Expanding Role
            % of TPI–Advised Transactions                                        TPI-Advised Global Service Delivery Contracts:
       with Scope Moving Offshore (Based on #)                                   % of Competitive versus Sole Source Contracts
       % Scope with Offshore                 % Scope with no Offshore                % Offshore - Competitive           % Offshore – Sole Source
100%                                                                          100%
                                                                                              22.7%             20.0%                 17.2%
 80%                                                                          80%
                                                           48.2%
              60.7%                  59.7%
 60%                                                                          60%

 40%                                                                          40%             77.3%             80.0%                 82.8%

                                                           51.8%
 20%          39.3%                  40.3%                                    20%

 0%                                                                            0%
               2003                  2004                    2005                             2003              2004                   2005


       2005 TPI-Advised Contracts: Scope of Contracts with GSD
                                                                                                      When transactions contain
                                                                                                      Global Service Delivery, it’s
                                                                        13                               almost always been
                                                                                                        competitive for service
                                                             6                                                providers
                                              4
                               3
                                                                                       2
                   1
   CRM         Procure.        F&A           HRO          Multi-        ADM          Infra.
                                                         Process



                                                                        5
    Indian Providers and MNCs Capabilities Are Converging
                    MNCs                                                     Indian Providers



Strengths:                                                      Strengths:

►   Knowledge of client‟s business                              ► Very good at relationship building with
►   Better track record than anyone else                          client, working hard to bridge the cultural
►   Strong executive relationships                                divide
►   Superior global delivery model                              ► Presents capabilities in a way that makes
                                                                  their work look like the client‟s process,
►   Strong operational capabilities                               not the service provider‟s process
►   Looks real good when bringing “A” team to                   ► Very flexible contractually (less rigorous
    table                                         Convergence
                                                                  around T&C)
Weaknesses:                                                     ► Very price competitive
                                                                ► Excellent sales and delivery teams
► Not as innovative or aggressive solution
  often focusing on selling their solution
  rather than the process and price                             Weaknesses:
► Rigidness at negotiating table                                ► Still working to understand the contracting
                                                                  process
    ► Relatively expensive with a bias on                       ► Too deferential on some issues
        additional services within proposed                     ► Newer, less experienced staff
        solution                                                ► Possibility for slight over-commitments
    ► High transition and termination costs
        can hurt client credibility in contract
        negotiation



                                                       6
                              Heterogeneous Service Delivery Models
Best practice companies are adopting a range of delivery models--
sourced from multiple vendors and designed to handle the full range of
business functions, from simple to complex.


Customized
                                     Zone of Customization
                                                                             Full accountability
                                                                             for business
      Requirements




                                                                             results:
         Client




                                                 Shared technologies,            People

                                                                                 Process
                                                 processes, accountability
                                                                                 Technology

                          Discrete processes            Where do                 Facilities

                          and functions                  „Virtual
                                                        Captives‟
                                                           fit?
                                               Traditional        Hybrid
  Standard              Out-Tasking                                             BPO / KPO
                                                Captive           Models

                     Client                                                          Provider

                                                    7
             Late Entrants To Global Sourcing Can Leapfrog the
                                                  Competition
There is an opportunity for late adopters to
leapfrog competitors by leveraging early
adopters‟ experience and avoiding the
mistakes they made:
   ►Best practices are better established
   ►Key service levels are better
     understood                                                                                                Stage 4 - Global
                                                                                                               Service Delivery
   ►Mix of control and trust needed to
     manage vendor relationships is better                                      Stage 3 –Strategic             ►Driver: cost optimization
     understood                                                                    Outsourcing                  - improve core
                                                                                                                processes to create
                                                                                                                sustainable competitive
                                                         Stage 2 -             ►Sourcing rises to be a          advantage by building
                                                         Relational             corporate-level initiative      global operating
                                                        Outsourcing             driven by the corporate         capabilities
                                                                                center                         ►Multiple global locations
                         Stage 1 - Ad Hoc          ►Realization that “win/lose”► Identify economies of         ►Sophisticated blending
                            Outsourcing             economics do not work       scale that are implicit in      of in-sourcing and
                                                   ►Emphasis on longer-term business strategy                   outsourcing and of near-
                                                    relationship commitments ►Develop sourcing                  and offshore locations
                                                    and provider investment     governance that balances       ►Sourcing is seen as a
                   ►Driver: cost reduction
                                                    in infrastructure,          need to leverage corporate      dimension of business
                   ►Staff supplementation and                                   scale with responsiveness
                                                    knowledge transfer                                          planning: captive or third
                    project-by-project outsourcing                              to needs of business units
                                                   ►Have providers identify                                     party sourcing in
                   ►Key mindset: manage the
                                                    dependencies, synergies ►Source services centrally          emerging markets
                    vendors‟ processes                                          but offer variable “flavors”
                                                    and touch points that                                       supports marketing
                   ►Emphasis on “input-based”       allow portfolio             of these services by            penetration push
                    measurements such as FTEs,      consolidation               business unit and              ►Option to move to pure
                    cost per hour to measure                                    geography
                                                   ►Key mindsets:                                               outsourcing
                    effectiveness
                                                    management of service ►Create demand
                   ► Outsource processes that       levels and results          management to encourage
                    require less interaction with                               use of centrally sourced
                    the business                                                services
                                                                     8
          Establish Offshore Foothold; Then Expand It -
         A Strategy for MNCs And India-based Providers

Master Service Agreement
                                                       ►   Two Global Master Services Agreements
                                                           and associated “operational” Schedules
Schedule 1                                                    ► Delivered by onshore & offshore
                                                                  resources
Schedule 2                  Committed Work –
                                                              ► Fixed price Application Support
                              enables provider to                 Services
Schedule 3                    invest in client-               ► Infosys/TCS were lower price than IBM
                                                                  & ACN
Schedule 4                    specific capacity
                                                       ►   Five identical framework agreements
                                                              ► No fixed ABN commitment to spend
Schedule 5
                                                              ► Work to be contractually agreed under
                Service Orders – for                              a work order
Schedule 6
                  incremental                                 ► On-shore and off-shore mix TBD
Schedule 7        work/processes

Schedule 8

   …         Provides flexibility and does not         ►   Overarching MSA and subsequent individual
             obligate the client financially               "service orders"
                                                       ►   Flexibility on approach to pricing
Schedule n
             Minimizes and diversifies risk via        ►   Capgemini proposed a single center offering
             contracts with backup providers if main       based out of Krakow, Poland with offshoring
                                                           to follow later
             vendors fail
                                                       ►   Offered a “near shore solution at offshore
                                                           rates”
             Leverages individual service provider
                                                       ►   Client has high level of visibility into
             strengths and specialized skills              provider‟s costs and other economic drivers



                                                 9
                  Introduction to the Wachovia – Genpact
                            “Virtual Captive” Relationship




► Genpact is creating a unit in India that feels to stakeholders
  like a Wachovia captive center but will be run by Genpact
► Genpact will be able to serve other clients, utilizing capabilities
  created by the relationship with Wachovia
► The agreement is innovative in striking a new kind of balance
  between dedicated capacity, specialized capability and transfer
  of risk
► The agreement involves an unusually high degree of mutual
  partnership between service provider and service recipient
► Is this a sign of things to come?




                                  10
                                       Discussion Overview


► Offshore BPO – Key Trends

► Wachovia and the „Virtual Captive‟

► A Sign of Things to Follow?

► Q&A




                                 11
                        Key Elements of Today‟s Presentation


► Who is Wachovia?

► How does Offshoring fit into Wachovia‟s Enterprise Strategy?

► What is Wachovia‟s strategy for Offshore Operations?

► What is the „Virtual Captive‟ paradigm?

► What implications exist for industry BPO models?




                                   12
                                                  Who Is Wachovia?
Wachovia is one of the largest banks in the world and is headquartered in
Charlotte, North Carolina.

                      $83B
                                         Diversified Banking Institution:

                                         ► Retail and Commercial Banking

                                         ► Corporate and Investment Banking

     $34B
                                         ► Retail Brokerage and Asset
                                           Management

                                         ► Wealth Management

                                         ► 95,000 employees globally
   FY 2005         Feb 2006
   Revenue        Market Value

                                    13
                                                                                    Who Is Wachovia?
At over $500 billion, Wachovia has assets greater then the entire Indian
Banking System and is one of the top 10 banks in the world.

                           $ 520 billion
                      (Rs. 2,290,000 crores)                              $ 478 billion
                                                                     (Rs. 2,100,000 crores)




                            Wachovia                               Indian Banking System
                           Total Assets                                 Total Assets
 Note: Wachovia Assets @ 12/31/2005, Indian Banking @ 3/31/05 (Asia Focus Report)




                                                              14
       Wachovia leads US Banks in Customer Experience
Wachovia’s offshoring strategy must support operational excellence and
customer experience efforts that are part of the organizational strategy.

► Wachovia has been the leader in Customer Satisfaction for the last
  four years

             2001      2002     2003        2004
              #1        #1        #1         #1

     - American Customer Satisfaction Index (Banking)


► Wachovia leads the banking industry in merger integrations and
  customer focus during mergers (Wachovia-First Union, Prudential
  and SouthTrust).

 “Wachovia, First Union merger integration is a model for the banking industry”
                           – The Business Journal


                                       15
 Offshoring Strategy is Designed to Support Operational
                                     Efficiency Program
Wachovia is pursuing offshoring as a strategic tool to strengthen
business processes while gaining efficiencies to invest in the business.

► Wachovia Profit and EPS growth have been strong, but it has lagged its
  peers in Operating Efficiency ratio.

► Wachovia plans to improve its Operating Efficiency ratio by achieving
  $600 million – $1 billion in annual efficiency savings.

► Wachovia will reinvest significant part of efficiency savings to grow the
  businesses and invest in revenue generating activities.

► Efficiency Improvement Program is being executed while Wachovia is in
  a position of financial strength and will be completed over next 2-3
  years.



                                     16
         Bank Regulatory and Risk Considerations Were
  Significant Considerations for the Offshoring Strategy

                              OCC
                           guidelines
                               on
                           offshoring




  Wide range of      Regulatory factors and         High degree of
   regulations     operational risk guidelines   oversight on industry
impacting global     played key roles in the        and operations:
 sourcing: SOX,    development of Wachovia‟s       Federal Reserve,
    GLB, AML            offshore strategy          Stock Exchanges




                          BITS forum
                         guidelines for
                          Technology
                          Outsourcing
                             Risk
                               17
          Internal Considerations for Offshore Strategy

                     Need to balance resources required with other
                     priorities across the bank (e.g. organic growth
Internal Resources
                     initiatives, customer excellence, merger
                     integration)


                     Nature of Wachovia‟s revenue and operational
   Geography
                     footprint: Largely North American



  Organizational
                     Uneven organizational readiness across all levels
   Readiness



                     Business Unit adoption and acceptance highly
    Adoption
                     variable for different proposed business models


                              18
              Key Elements to Executing Wachovia Strategy

► High Executive priority

► Use offshoring as transformational tool with ability to drive process
  excellence

► Ensure consistently strong delivery across Wachovia

► Build internal capability to assess, transition and manage process on an
  ongoing basis

► Organizational change management and communication focus integral
  part of program

► Proactively identify and mitigate risks


                                     19
        „Virtual Captive‟ Paradigm Key to Offshore Strategy
Wachovia considered the pros and cons of existing offshore models and
none fit external and internal requirements – a new model was needed.
                                        The „Virtual Captive‟ Paradigm
                                   ► Looks and feels like a captive operation
                                     and has „Wachovia Operations‟ mindset
                                     across Lines of Business.
            Captive
                                   ► Best of breed Global Partner with
                                     complementary strengths
                                   ► Genpact - Operational excellence,
            „Virtual                 infrastructure, risk approach, people
   JV                   BOT
            Captive‟                 practices (attract, develop, retain top
                                     talent)
                                   ► Wachovia - Domain knowledge,
              Out
            Sourced
                                     operations, people practices, regulatory
                                     areas
                                   ► Supports operational excellence efforts
                                     across Wachovia outside of offshoring
                                   ► „Skin in the game‟ for both parties

                                   20
 Strong Governance and Execution Are Keys to Success


► Established clear Governance and Relationship Model upfront

► Operationalizing „Virtual Captive‟ approach – both in spirit and
  letter of the law.

► Joint strategic and operational oversight

► Ongoing leadership support, organizational change management

► Accountability is with Lines of Business - supported by central
  Strategy & Governance oversight




                                     21
            What‟s the appropriate offshore BPO paradigm?
 Some questions to consider as you develop an offshore BPO / KPO
 model.

What model will…

► Attract and retain top talent on a sustained basis?

► Manage organizational control needs?

► Address regulatory and risk issues?

► Provide transformational capabilities for the business?

► Ensure strong adoption across different business areas/units?



                                     22
                                        Discussion Overview


► Offshore BPO – Key Trends

► Wachovia and the „Virtual Captive‟

► A Sign of Things to Follow?

► Q&A




                                   23
                                                           Thank You




Peter A. Allen                     Sanjay Gupta
Partner & Managing Director        Senior Vice President, Strategic Initiatives
TPI                                Wachovia Corporation
+1.425.985.3799 (m)                +1.704.604.3151 (m)
+1.603.465.6662 (w)                +1.704.383.2481 (w)
Peter.Allen@tpi.net                sanjay.gupta@wachovia.com




                              24

				
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