shared services india 2011

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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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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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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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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)








Outsource to Local Vendor





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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Banking, Financial Services and Insurance segment has utilized India centers the most, with 20 large corporations having back office operations

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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


6 Auto majors have set up India service center since 2003. Denso will soon establish a technical center in India…

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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


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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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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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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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

shared services india 2011

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