“The key challenge for captives continues to be scale,” Borowski said. “If you're a small in-house operation, it's difficult to operate as cost-effectively as an outsourcer.”
If you do it yourself, your fixed and overhead costs are inherently higher, increasing your cost per resource. It is also more difficult to scale services up or down. While it's not uncommon for IT service providers to adjust their employee base or operating structure as needed, including cutting jobs, it's much more difficult for companies to do so, Martorelli said.
According to Borowski, captives can face retention issues, especially if they don't offer advancement opportunities, and risk losing employees to other captives or IT service providers that offer more mobility. This is because there is.
Productivity can decrease over time, especially for organizations that are accustomed to working with third parties. “While outsourcing providers often have contractual promises of productivity improvements that force them to continually improve processes, productivity, and cost efficiencies to meet profitability targets, the same is true for captives. There is no combustion platform,” Borowski said. “Captives can stagnate with only modest improvement over time.”
7 questions to consider before becoming a prisoner of war
Certain circumstances may not be suitable for establishing a captive center. For example, if a company is facing financial or operational problems, lacks funds to sustain operations, or has legal or regulatory constraints that prevent offshoring. Additionally, captives are not recommended for temporary services or services where demand fluctuates widely.
However, a captive center makes sense if the organization is clear about its intentions and aware of the risks and work involved. “When captives face difficulties, it is usually a combination of a flawed service delivery strategy, poor planning and design, or poor execution,” Borowski says. “This needs to be a thoughtful strategic decision that enables the long-term business direction and goals of the organization.”
The following questions will help you evaluate whether a captive center is right for your organization.
What are the key business outcomes we are looking for? As with any other IT decision, the primary focus should be on the problem to be solved, rather than the potential solution being considered. “The service model, the location model, the talent model, the governance model, the performance model all… [be] fixed [in] The core purpose,” says Agarwal.
What is the business case? Is it viable? We present realistic costs and benefits for both build (captive) and buy (outsource) options to determine which approach is most likely to help achieve your desired objectives. IT organizations also need to make sure their business case is achievable for their specific organization, he says Borowski. Common mistakes here include overly aggressive cost reduction targets. Lack of investment in captive center leadership. Moving work overseas too quickly. Insufficient investment in knowledge management, learning and dedicated staff development. And he myopically focuses on SLA as a measure of success. “If built correctly, this is a strategic capability for businesses and businesses should approach it accordingly,” says Agarwal.
Can you run a center that delivers on your business case? The benefits of captive center ownership depend on how well you can manage the center's human resources and costs over time. Some of the more nuanced questions Martorelli suggests include: Why are companies better able to attract and retain talent than potential outsourcing partners? How can captive centers remain competitive with third-party alternatives? When it comes to controlling costs over time. What can I realistically expect?
Are our leaders committed to strategy? “There is no failure-proof model,” says Agarwal. “You have to commit to it and make it work.” Buy-in is essential here, especially when challenges arise. “The real driving factor is that [captive centers] “The desire for the future – the desire to reduce costs and access talent – can ultimately sow the seeds of decline if expectations are not met or maintained,” Martorelli said. , added that captive centers could lose momentum quickly as a result of executive turnover or loss of interest.
Which location makes the most sense? Research the location, keeping in mind the scope of the center and whether it has the workforce and infrastructure needed to support future growth.
Who can help me set up the center? “Leveraging experts and local resources to support activities such as site selection, hiring, permitting, and facility construction can help avoid pitfalls and accelerate adoption,” Borowski said. say. Anyone considering a BOT approach should understand its pros and cons. “Customers should be realistic about the true benefits of their service providers,” Martorelli says. “Don't expect service providers to be eager to forward all their top talent to you.”
How does this impact other IT organizations? Due to the prisoner of war center, land personnel may be forced out. At the very least, their role will change and they will be required to monitor prisoner-of-war facilities. “IT leaders must remember to consider the actual or perceived impact on resources that are directly or indirectly affected by offshoring actions,” he says Borowski. “Developing a retention strategy is critical so that resources transferred through offshoring have an incentive to remain during transition and stabilization.”
Overall, this model has the potential to be most successful as this trend continues as companies expand existing captive strategies, new adopters enter the market, and more companies move outsourced work to captive operations. High-quality IT leaders will have experience driving company results. Take an intentional and selective approach to enhance remote operations and determine which business outcomes can be achieved through a captive center model.