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India Shared Services opportunity
Nov 2011
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IT, BPO, KPO delivered from a Global center are typically shared by business units across the organization & hence the name “Shared Service Center”
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Zinnov Management Consulting Pvt Ltd (Confidential)
IT Services Enabling Process
Services Core Business
Services
IT Services delivered for the parent Organization
Application Development
Analytics Infrastructure
Management Services Application Support &
Maintenance
Corporate Processes that are support structures to
the main business
HRO Finance & Accounting
AP AR GL Payroll Reconciliation
Sales & Marketing Procurement Vendor Management Marketing / Campaign
Management
Processes that administer the core business of the
company Example: Auto: • Complete Vehicle
Repurchase administration
• Dealer Parts Location & Ordering Support
Retail: • Order Management • Returns Management • Promotional Planning Banking: • Credit card processing • Mortgage processing • Asset Servicing
Shared Services Center
Shared Service Center: Definition Shared services involves bringing together a set of back office or front office services common to multiple business units within a single organization or across a number of organizations. These services tend to share relatively standard end to end processes and associated enabling technology. The relevant parts of these are placed into a single delivery structure that is customer focused and performance managed. Services suitable for sharing can be characterized as: • Transactional process driven • Common processes that can be
standardized • High Volume • Geographically independent • Requiring specialist personnel
Source for Shared Service Center: Definition - www.cbi.org.uk
Scope of discussion
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India the hottest destination for Shared Services
Increased Global Competition & Challenges for India Centers
Vertical Specific Insights
Evolution of India Centers
Innovation is the new India Value
Proposition
Agenda
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Zinnov Management Consulting Pvt Ltd (Confidential)
Global Competition & Challenges for India centers 2
Evolution of India Centers 3
4 Vertical Specific Insights
India – The hot destination for Shared Services 1
5 Innovation is the new India Value Proposition
Forbes Global 2000 is a comprehensive report that analyzes the world's biggest companies and the best performing of these titans
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Australia 3%
Europe 22%
Asia 32%
Americas 41%
Africa 2%
0
50
100
150
200
250
300
350
05
101520253035404550
Verticals considered for analysis by Zinnov
Next 12 verticals contribute to about 500 companies
Top 15 verticals contribute to about 1500 companies Geographical spread of HQ of Global 2000
>$100bn 2%
$50-100bn
4%
$10-50bn 31%
<$10bn 63%
Revenue based distribution of Global 2000
Source: Forbes Global 2000 report
Almost all the centers were set up in the last decade when Cost and Talent were the drivers of Globalization in the Shared Services space
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146
52 52
5 11
80
9
0
20
40
60
80
100
120
140
160
India China Rest ofAsia
SouthAmerica
Africa EasternEU +
Russia
Ireland/ Wales
Captive Centers Per Geographic Region
Infrastructure 6%
Country Risk 3%
Government Policy
7%
Cost 18%
Talent 29%
Unknown 37%
Location Criteria
Source: Zinnov Research, Prof: Illan Oshri Source: Prof: Illan Oshri
BFSI segment accounts for about 30% of the centers; Bangalore is the leading location
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N. America 54%
Europe 35%
Asia 9%
Australia 1%
Africa 1%
N. America
Europe
Asia
Australia
Africa
Vertical wise spread of Global 2000 firms with India center
HQ wise distribution of companies with India presence
Distribution of Services offered from India center
0
5
10
15
20
25
30
35
Bangalore 31%
Mumbai/Pune
24%
Hyderabad 9%
Chennai 10%
NCR 20%
Others 6%
Location spread of MNC Subsidiaries in India
35%
20%
45%
IT Services
Business /KnowledgeServices
Others
Source: Zinnov Analysis of Forbes Global 2000 companies, Secondary Research
Agenda
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Zinnov Management Consulting Pvt Ltd (Confidential)
Global Competition & Challenges for India centers 2
Evolution of India Centers 3
4 Vertical Specific Insights
India – The hot destination for Shared Services 1
5 Innovation is the new India Value Proposition
Lot needs to be done to sustain the “India value proposition” as emerging offshore service locations are fast catching up on cost & talent arbitrage
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10
6
12
17 18
4 5
9
7 8
6
4 4
6 6 5
4
6
20
18
0
5
10
15
20
25
India
China
Rest of Asia
Eastern EU+Russia
• The rise in establishment of new captive centers in Eastern EU is primarily due to the accession of 12 countries into the EU (10 in 2004 and 2 more (Bulgaria and Romania) in 2007
• Some locations present unique opportunities with specialist talent – Example: Hungary has the largest talent pool for procurement management skills, Sri Lanka has the most number of UK certified accounting professionals etc,.
• Energy majors like Chevron and Shell and Logistics majors like DHL have significant presence in Malaysia because of availability of specialist talent between Malaysia and Singapore
• Countries like Morocco, Tunisia, and other Latin American countries leverage on their European language skills to attract shared service centers
• Most of the competing offshore destinations offer 10 year tax exemptions on IT/ITeS exports and labor costs are near the same as an Indian destination
Newly established captive centers per period per region
Source: Outsourcing Strategies – Evolving Captive Center models
This phenomenal growth and transformation that India centers have undergone over the last decade has resulted in a new set of challenges
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Productivity & Utilization
Cost Escalation
• Aspiration Management • Lack of integrated career paths • Inadequate domain experience
• Lack of value / maturity assessment capabilities • Poor knowledge management • Lack of vendor management experience
• Inadequate engagement models to align closely with the business
• Lack of clarity in the vision for the center
• In sufficient span of control to make strategic investments
• Lack of support structures for innovation
Attrition
Competition from Service Providers
Building a Business Case for Globalization
India center Challenges Year 2000 - 2010
India center Challenges Year 2010 and Forward
Agenda
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Zinnov Management Consulting Pvt Ltd (Confidential)
Global Competition & Challenges for India centers 2
Evolution of India Centers 3
4 Vertical Specific Insights
India – The hot destination for Shared Services 1
5 Innovation is the new India Value Proposition
India centers will continue to adapt to changing business demands by adopting various business models
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Offshored Function 1
Basic Model (Completely In-house)
Hybrid Model – TESCO (In-house + Outsource)
Shared Model BOSCH
(In-house + Service other clients)
Offshored Function 2
Offshored Function 3
Offshored Function 4
Offshored Function 1
Offshored Function 2
Offshored Function 3
Offshored Function 4
Outsource to Local Vendor
Offshored Function 1
Offshored Function 2
Offshored Function 3
Offshored Function 4
Build strong capability in a given function and start servicing external clients
Client 1
Client 2
Client 3
Source: Zinnov Analysis and Secondary Research
With increased maturity & capability in service delivery, India centers are better placed to support the parent company’s globalization efforts
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Procurement & Logistics
Knowledge Based Services
Technical Support/ Customer Support
Finance & Accounting
Professional Services – IT
Consulting, System Infrastructure
Maturity
Emerging Rapidly Growing Mature
Glo
bal
izat
ion
Rat
e Globalization Adoption Curve* Across Functions
Engineering Services/
Software Product Development
Application Development &
Maintenance
Infrastructure Management
Services
Human Resource
Sales & Marketing
Note: *Directional Only Source: Zinnov Analysis of the interviews from Country Managers of 40 captives across different domains in India; Secondary Research
Year 2000
Year 2011
Agenda
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Global Competition & Challenges for India centers 2
Evolution of India Centers 3
4 Vertical Specific Insights
India – The hot destination for Shared Services 1
5 Innovation is the new India Value Proposition
Banking, Financial Services and Insurance segment has utilized India centers the most, with 20 large corporations having back office operations
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Zinnov Management Consulting Pvt Ltd (Confidential)
Notes: The financial institutions cover both Banks (13) and Diversified Financial services firms(7)
There is a huge opportunity, with the trend of Banks making $50-100bn USD revenues, planning
to set up India centers to increase their processing capacity & improve operational efficiency
The spurt in derivatives and mortgage business in the US, triggered the set up of India centers for increased throughput processing. Over the last year, these financial captive centers are evolving
Bangalore continues to be a preferred ITO destination of most of these financial services institutions. Pune/Mumbai and NCR lead the pack on BPO / KPO front
Bangalore
NCR
Mumbai / Pune
Hyderabad
Chennai
Revenue wise split of Financial Institutions that have India center
Revenue wise distribution of Global 2000 Banking and Financial Services companies & how they have leveraged India Shared Services Opportunity
0
2
4
6
8
10
12
14
16
18
20
5
7
5
2
<$10bn
$10-50bn
$50-100bn
>$100bn
0 20 40 60 80 100
>$100bn
$50-100bn
$10-50bn
<$10bn
India Shared Services presence
Total
+
Growth Opportunity
Growth Opportunity
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
7 out of the Top 20 Insurance majors have Shared Services Operations in India
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5
2
1
Europe US Canada
HQ of the Insurance Majors with India Service Centers
Notes: Contrary to the overall trend of North American companies leveraging India Services
capabilities, in the Insurance segment, European majors are way ahead of the pack
There are about 64 Insurance companies with Sub $10 bn revenue. They do not have India presence
Most of the U.S Insurance companies still do not have a captive center
Aviva and AON had India service centers in Bangalore which were later acquired by WNS and Hewitt
0 10 20 30 40
>$100bn
$50-100bn
$10-50bn
India Shared Servicepresence
Total
Revenue wise distribution of Insurance companies in Global 2000 & how they have leveraged India Shared Services Opportunity
Bangalore
Trivadrum
Mumbai
NCR
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
Growth Opportunity
Growth Opportunity
Drugs, Healthcare & Bio-tech vertical has seen a spurt in IT/ITeS sourcing, with 7 MNCs setting up their Indian subsidiaries since 2005
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0
2
4
6
8
10
12
1995 1997 1999 2001 2003 2005 2007 2009
# o
f co
mp
anie
s
NCR
Mumbai/Pune
Bangalore
Hyderabad
Chennai Others
Notes: Clinical trials and drug development are the core focus areas of 3 (Amgen, of the firms. China is
the clear leader in Clinical Trials segment
Patent / IP regulation in India is a cause of concern for most of these companies and hence the are hesitant to set up India R&D centers. So, this particular segment cannot avail the trend of MNC subsidiaries setting up R&D / Engineering services and then leveraging the IT / ITeS capabilities
However companies like Pfizer, Novozymes, Novartis, Merck still source significant IT / ITeS services from India
UHG & Cardinal Health (Operating under CareFusion brand) are couple of large Healthcare service providers that have India centers delivering IT and BPO services to their parent businesses
Typical Services delivered from India center
• IT (ADM / ASM / Infra) • Clinical Trials • Drug development (R&D) • Clinical Data Management (ITeS) • Business process support • F&A • Literature Search • Regulatory Submissions • Analytics
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
6 Auto majors have set up India service center since 2003. Denso will soon establish a technical center in India…
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Zinnov Management Consulting Pvt Ltd (Confidential)
Notes: Growing domestic demand has resulted in many new auto companies entering the India
market
As the domestic business of the auto companies grows, the need for servicing India business and customers will also grow. This could trigger a move for Globalizing their service operations via the India center
Volvo IT, Daimler, Renault Nissan, Ford, Yamaha Motors all have shared services operations that cater to the IT / ITeS needs of their parent organizations
Introduction of Formula 1 in India will fuel the growth of automotive segment in India – Continental already has a Engineering center in India, this could potentially be followed by Goodyear, Bridgestone, Michelin,
Coming soon…
Chennai is the leading location for Automotive shared service centers
Typical Services delivered from India center
• Financial Services (F&A) processes • Dealer Management • IT Management • Transactional processing e.g. Ford Credit • Market Research • Global Warranty fulfillment management • Marketing support • Customer Relationship Management
Chennai
Bangalore
NCR
Source: Zinnov Analysis of Forbes Global 2000 report and Secondary Research
Aerospace and Energy/Oil & Gas are two segments to watch out for, since there has been a significant focus in India business operations lately
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Notes: Since the Indian Defense Offset Policy of 2007, Aerospace companies have made significant investments in Engineering captive centers, which
could potentially become Shared Service centers
NCR region has 6 centers for Aerospace & Defense Engineering Services
Shell is the pioneer in leveraging ITeS services in the Energy & Oil/Gas segment
United Technologies (has an India delivery center) & is a typical example of a Shared Service center that caters to 7 business houses, through one centralized service center for technology
Shell Business Services delivers following processes to support their Global Finance Operations • Order to Cash • Purchase to Pay • Record to Report • MIS • Manual of Authority • BI & Strategy Analysis • Control & Compliance • GSAP • Continuous Improvement & Service Delivery
Source: Company Website and Secondary Research
Agenda
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Global Competition & Challenges for India centers 2
Evolution of India Centers 3
4 Vertical Specific Insights
India – The hot destination for Shared Services 1
5 Innovation is the new India Value Proposition
Moving on from the head start given by cost and labor arbitrage, “Innovation” will be the key to demonstrating “India value proposition”
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The Next Growth Wave for India centers
INCEPTION CURRENT STATE
Competency Creation
Innovation from India Centers
Maturity Levels Direct Cost
Savings Innovation Capability
Management Overheads
Employee Productivity
Ease of Knowledge
Transfer
Business Continuity
Risk
Transformation Hub
Capability Unit
Delivery Center
Operations Center
Favorable
Very High High Medium Low None
Paradigm Shift
Incr
easi
ng
Mat
uri
ty
4 brick and mortar retailers have re-fit their India centers to build and grow innovation or new business initiatives instead of commoditized services
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Set up 2004
.com business set up in 2009
Employee Strength: ~900 (Technology & Operations)
Innovation Structure: Yes Innovation Infrastructure:
Retail Test Labs
Engineering (Online & Mobile), Marketing, Search &
Social Media, Operations Development, Finance,
Publishing
Outsources traditional IT
Set up Walmart e-commerce division in late 2009
Employee Strength: 45 (Technology)
Set up in 2009
.com product development focus 2011
Set up in 2005
.com and e/m-commerce teams set up in early 2010
Employee Strength: ~250: (Technology & Operations)
Innovation Structure: Yes, Focus on Smart Design
NA
Engineering (Online)
Engineering (Online), Content Management, Online-brand
Management, Marketing, Search & Social Media, Merchandise Planning
Employee Strength: Ramp up plans to about 400
(Techology)
Innovation Infrastructure: Proof of Concept Labs
Engineering (Online & Mobile)
CEO visit - 2011 VP – Engineering hired in Dec
2011 CIO visit 2011 CIO visit 2011
Source: Media, Secondary Research
With increase in sourcing of high end capabilities from captive centers, the India centers will be required to deliver business transformation projects
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MIS
Finance Operations
General Accounting
Closing & Reporting
Treasury & Tax
Financial Planning/ Modeling / Analysis
Governance, Risk & Compliance Management
Workforce Administration and Leave Management
Payroll Management
Benefits Administration
Learning & Development and Performance Management
Recruiting and Staffing
Strategy and Governance
Procurement Systems Management
Procure to Pay
Demand Management
Vendor Management
Strategic Sourcing
Spend Data Management
Source to Pay Strategy
Sample set of processes and growth in value of services delivered from India center
Finance Processes
HR Processes
Procurement Processes
Val
ue
Gro
wth
Knowledge Services offers higher intellectual arbitrage and large MNCs will look set up specific practices and build new capability
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Zinnov Management Consulting Pvt Ltd (Confidential)
Domain Company Insights
Retail Target Have dedicated business analytics teams – Global head of analytics of Target operates out of Bangalore Center.
Media TIME TIME magazine has set up a specialized division in India to source only analytics capability
Conglomerate GE - JFWTC Patent Network Team –Intellectual Property Research for GE Corporate
Electronics Dell Dell Global Analytics has a team operating out of Bangalore with strong plans for growth
44%
19%
17%
12% 7%
1%
Distribution of Services Lines
Business Research Data Analytics Legal Research
Data Management Market Research Others
Drivers of Knowledge Services Sourcing
Source: NASSCOM, Zinnov Research Source: Zinnov Research
Knowledge Economy
Improved Time to Market
Need for Business Analytics
Access to specialized skills
Introduction of disruptive technologies and focus on emerging markets will be the pivotal drivers for the next wave of growth of shared service centers
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Business Drivers to set up Shared Services Centers
India Value Proposition
Technology Disruption Online Operations Enterprise Mobility Big Data
Banking & Financial Services
Retail
Automotive
Insurance
Installed Specialist Talent Pool for Business services Availability of talent & R&D eco-system to deliver cutting edge software products
U.S Insurance majors having to cope with the recently passed HealthCare reforms
Cost and Talent arbitrage
Changing Business Models Online Operations Big Data
Increasing Digital Startups in the e/m commerce space and hence increased opportunity for tech and business process innovation
Market & Capacity Expansion
Innovation capability (New product Development, Engineering Services and Knowledge of Services provisioning for emerging markets)
It is a great exaggeration when analysts talk about death of captive centers, instead we see that captives have evolved & adapted well
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0
20
40
60
80
100
120
140
160
Large GlobalCorporations
Outsourcedoperations
CaptiveOperations
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Captive Centers
No Change toCaptive Strategy
Changed theirCaptive Strategy
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CaptiveCenters
13%
11%
6%
9%
61% Wholly owned
Terminated
Divested
Shared
Hybrid
Source: Prof. Ilan Oshri’s assessment of 80 captive centers of large global companies (in India)
Key Takeaways
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Zinnov Management Consulting Pvt Ltd (Confidential)
There is an increased competition from other Global locations and cost and talent arbitrage are not sufficient conditions for location choice anymore – Innovation and value addition are emerging as the new “India Value Proposition” and many companies have recognized this trend
IT services is the first port of call for some of the newer captives, and they have subsequently gone on to expand the range of services they source from India. These centers have grown in maturity and capability and have adapted well with innovative business and delivery models
Banking/Financial Services & Insurance are the most mature segments with most of the industry leaders leveraging India for their Shared Services needs
Retail and Healthcare (Drugs/Bio-Tech/Pharma) are the emerging verticals, as far as the shared services opportunities are concerned. Both these segments have significant technology and increased processing throughput needs to expand their business operations
Sheer number of Global 500 firms having India service centers re-affirms the proposition of captive centers as a viable sourcing strategy. With about 115 MNCs having set up their own centers,India continues to be the hottest offshore destination
Many Shared Service Centers support scaled operations, drive innovation, have reached the critical mass and, are a huge success delivering optimal value to the parent – Many India centers have taken Global Leadership roles through increased focus on innovation and value creation
There have been innumerable literature about how unviable the captive centers are and some even predicted the “death” of captive centers. But the captive center segment has evolved and adapted well and continue to grow
India: Most preferred destination
Global Competition & Challenges for India centers
Evolution of India Centers
Vertical Specific Insights
Innovation is the new India Value Proposition
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A typical Combined Services Center has significant upsides and can help drive better operational efficiencies
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Captive centers can leverage economies of scale and hence deliver more for every $ spent on services provisioning
End-to-End process ownership provides for an integrated global career path and hence helps in improving retention rates at India centers
Build true Centers of Excellence and hence deliver better efficiencies to the parent
Provides the center with a clear vision and hence enables the site leadership to make strategic investments
Helps create and operationalize a sustained innovation agenda
List of Global 2000 companies that source Shared Services capability through their India center
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Insurance: (9) • AXA Group • Allianz Cornhill • MetLife • Prudential Financial • Swiss Re Group • Sun Life Financial • Fortis • Willis Group Holdings • Fidelity National Financial
Banking & Finance: (22) • Bank of America • JPMorgan Chase • HSBC • BNP Paribas • Wells Fargo • Royal Bank of Scotland • Barclays • Deutsche Bank • Société Générale • Goldman Sachs • Credit Suisse • UBS • Morgan Stanley • ANZ Banking • American Express • Bank of New York Mellon • Nomura • Franklin Templeton • Fidelity • The Northern Trust • World Bank • Lloyds Bank
Retail: (6) • TESCO • Target • Wal-mart • Amazon • E-Bay • Sears • Metro
Healthcare: (8) • Cerner • UHG • TriZetto • Pfizer • Novartis • Novozymes • Johnson & Johnson • Merck
Automotive: (7) • Toyota Motor • Ford Motor • Daimler • Volvo Group • Renault*Nissan • Yamaha BPO • Continental
Industrial: (16) • SIEMENS • Royal Philips Electronics • ABB • Honeywell International • 3M • Schneider Electric • Emerson Electric • John Deere • Ingersoll-Rand • Eaton • Vestas Wind Systems • SKF Group • Flowserve • Rockwell Automation • United Technologies • Dupont
Hi-Tech / Telecom: (19) • AT&T • Avaya • Hewlett-Packard • Verizon Communications • Microsoft • Dell • Cisco Systems • Intel • BT Group • Arrow Electronics • EMC • Qwest Communications • Applied Materials • CA • NetApp • Adobe Systems • Amdocs • Vmware • Citrix Systems
Others: (2) • Shell Business Services • Maersk
Non-Exhaustive