Global Captive Center

EPLM Project Report

....................................................................... Joseph Sha Eapen(EPLM06: 2226032)

INDIAN INSTITUTE OF MANAGEMENT, CALCUTTA
 Acknowledgement
I would like to acknowledge the help from various people during the preparation of this Report.

First, and foremost, I would like to thank Prof. Vidyanand Jha and Prof. Sushil Khanna for
providing excellent guidance in the EPLM course which acted as the basis for this project.

This project would not have been possible without the input and help from Senior Management
team of JDA Software India Pvt Ltd. I would like to express my sincere gratitude to them. I am
also obliged to my colleagues for their cooperation and help during the project.

I also would like to thank my friends and acquaintances for provided insights in the functioning
of their organizations with respect to the problem of distributed product development and service
offering.

Lastly, I thank Almighty, my family and friends for their support during this project and the
course.
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Table of Contents

List of Tables ................................................................................................................. 4

List of Figures ................................................................................................................ 4
Abbreviations and Definitions .......................................................................................... 4
Abstract ......................................................................................................................... 5
Introduction ................................................................................................................... 6
Why Captive Center? ............................................................................................................................ 6
Global Captive Center........................................................................................................................... 6
Study Objectives ............................................................................................................ 7
Methodology Used ......................................................................................................... 7
Analysis ........................................................................................................................ 7
Factors to be considered when analyzing expansion of a captive center .............................................. 7
Growth Factors.................................................................................................................................. 7
Execution factors (of current captive center vis--vis potential target expansion) ........................... 8
Decision making aid based on Execution Capability and Growth Opportunity factors ....................... 9
Captive Centers - country specific considerations .............................................................................. 12
Management and Control Structures................................................................................................... 12
Model 1 ........................................................................................................................................... 13
Model 2 ........................................................................................................................................... 13
Model 3 ........................................................................................................................................... 14
Choosing Activities to be performed in the Global Captive Center ................................................... 15
Division level considerations for Global Captive Center ................................................................... 15
Product Development...................................................................................................................... 15
Consulting Services ........................................................................................................................ 16
Support Services ............................................................................................................................. 16
Report Findings and Conclusion..................................................................................... 17
Future Research Possibilities ......................................................................................... 17
Limitations .................................................................................................................. 17
References ................................................................................................................... 18
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List of Tables

Table 1: Growth Opportunity and Execution Capability score card...........10

Table 2: Organizations in different quadrants.11

List of Figures
Figure 1: Execution Capability vs. Growth Opportunity......11

Figure 2 : Organization structure model1..13

Figure 3: Organization Structure model2...14

Figure 4: Organization Structure model3.....14

Figure 5: Global Captive Center Execution Value Pyramid .....15

Figure 6: Product Activity vs. Complexity Chart..16

Abbreviations and Definitions

Captive Wholly owned subsidiaries setup by organizations overseas to cater to its

Centers service needs.

IP Intellectual Property
Near Shoring Refers to contracting a third party in the same or nearby country to do a portion
of business process or activity.
SLA Service Level Agreements
Follow the sun Global workflow making use of locations in multiple time zones
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Abstract
There are different types of offshoring models followed by software product organizations.
Some organizations setup captive centers in locations like India, China etc. In recent times many
of these organizations are expanding these captive centers to more than one country for various
reasons.

The study found several factors which affect the decision to expand a single location Captive
Center to Multi-Location Captive Center. A score card is created incorporating these factors.
Each of the factors in this score card was assigned predefined set of possible values. Each of
these factors can be calibrated with an associated weight.

This score-card is then used to arrive at a plot. This plot determines a possible future path for the
captive Center.

After arriving at the factors and path for expanding a single location Captive Center to a Global
Captive Center, the study also discusses how such a Global Captive Center could be managed.
Different forms of Control Structures were proposed for Captive Centers which is in different
stages of maturity in the offshoring life cycle.

At the end as part of the best practice guidelines the study defines three approaches towards
choosing activities to be performed in the Global Captive Center and categorized them under an
execution value pyramid. The study also delves into how typical divisions in a Software Product
Organization, like Product Development, Support and Consulting Services, can leverage the
Global Captive Center for performing these activities.
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Introduction
Software organizations often outsource their product development, deployment and maintenance
activities to service providers. An organization may choose to outsource part of the activities to
achieve some or all of the benefits like cost reduction, risk mitigation, skillset availability, free
up the primary resources to focus on core areas or provide flexibility in staffing.

Many organizations have setup wholly owned subsidiary overseas instead of offshoring the
activities to service providers. These are known as captive centers.

Why Captive Center?

An organization may decide to setup captive center, instead of outsourcing to service providers,
for any of the following reasons

Better control: An organization will have more control on the process and change
management will be easy in a captive center.
Better IP Protection: captive center may provide better protection for the organizations
IP compared to outsourcing.
Proprietary technology with long learning curve: To retain skilled workers for a
longer term having own captive center may help. This will be important when the
organization is using proprietary technology requiring long learning curve.
Gain access to new markets: Organizations wanting to reach to new market may benefit
by having captive center there.

Different organizations have different experiences in realizing these perceived benefits.

One example is of JDA Software Group, Inc. which is a software product organization founded
in 1978. It provides supply chain management and retail products to global customers.
JDA grew over the years acquiring many companies. In 2012 JDAs annual revenue crossed
USD 1 billion mark. Like other Enterprise Product companies, JDA opened a captive center in
India in 2006 for lowering costs and ensuring availability of highly skilled workforce. The center
mirrors the departmental structure of the parent company and has separate R&D, Consulting,
Support and G&A departments. The center has grown over the years to almost 40% of the total
workforce in 2 locations across the departments in Bangalore and Hyderabad.

Global Captive Center

Many Organizations which have setup Captive Center in one location are considering to expand
to multiple countries because of various reasons - to taking advantage of country specific
strengths, to mitigate risk of visa restrictions, to reach out to global talent pool etc.

JDA in 2012, for mitigating risk of visa restrictions and also to ensure local (time zone as the
customers) availability of workforce, decided to expand its captive center to multiple locations in
several countries. In this regard an office has been opened in Poland with workforce mainly in
Consulting Department. In 2013 a Center opened in China focused on Product Development.
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India, Poland and China centers are part of the same Global captive center. Other departments
like Support in the India captive center are also thinking of expanding to other countries to reach
out to the global talent pool.

Study Objectives
Strategic and tactical decisions on Global Captive center require careful consideration of various
factors.

Some of the decisions to be made are

1. What are the different considerations when deciding on expanding a Captive

Center from a single-country to multi-country?
2. What are the different options for management and control of a Global Captive
Center?
3. What activities may be best suited to be performed in such a Global Captive
Center?

This study attempts to find some answers for these questions.

Though Organizations in different industries have Captive Centers, this study focuses only on
Captive Centers of Software Product Companies.

Methodology Used
Data collected through interviews and authors own experience from JDA Software Group, Inc.
and other software companies. Also information gathered from books, research reports and
published articles are used for this study. These have been cited in the Reference section.

Analysis
Factors to be considered when analyzing expansion of a captive center
There are many factors to be considered when looking to expand a single location captive center
to a global captive center spanning across multiple locations. These factors can broadly be
classified under Growth factors and Execution factors.

Growth Factors

Size of the Organization: Captive Center of a larger Organization will have larger scope for
growth because of the Organizations capability to invest and more activities to be outsourced.

State of the Technology used: The technology and architecture used for the Software Product
will play a major role in the decision to go for distributed development. Requirement of
futuristic technology may less favor distributed development through captive centers because of
higher technology skill requirement. Legacy technology skills may be more available. Usage of
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currently popular technology will ensure availability of skills and enable higher growth of
Captive Centers.

Degree of customization: If the service or product implementation requires heavy degree of

customization in close conjunction with the customer, such products, services may be less
amenable or more difficult to offshore to multiple locations.

Business need for hiring special skills from the Global Pool: If there is a need to get the best
talent for a specific activity sometimes Organization will have to reach out to the country where
such a special skill is available. Example is Uruguay in Latin America is known for multi-
language skills. English, Italian, Portuguese, French and German are all common languages in
Uruguay. Hence an Organization may want to extend its Captive center to Uruguay to take
advantage of these skills.

Requirement for 24x7 Operations: An Organization may want to extend its Captive Center to
countries in other time zones to provide 24x7 supports.

Long Term focus of the Organization: Organizations with long term interest in the business
may be more interested in extending the Captive Center to multiple countries.

Cost arbitrage in the target countries: Many Organizations may have cost advantage as one of
the main goals for Captive Centers. Hence if there is higher cost advantage in other countries
then the Organization may benefit by expanding the captive center to such countries.

Availability of required talent pool: If talent pool required by the Organization is easily
available in the target countries that will be a great growth opportunity for the captive center.

Size of the market in target countries: If the Organizations products have a significant market
in the target countries that will be added advantage and help in the Captive Centers growth.

Breadth of Activities Organization wants to perform in the Captive Center: If the

Organization wants to perform large number of activities in the captive center it will give more
growth for the Captive Center. For example if an Organization sets up all the divisions of
Product development, consulting, support and also most of the activities in each of these
department that may give more growth opportunity compared to having only Consulting
activities done from the center.

Risk mitigation requirements: An Organization performing significant activities in a Captive

Center may want to expand the captive centers in additional country(s) to reduce risk of any
political instability, skill unavailability, natural disasters etc.

Execution factors (of current captive center vis--vis potential target expansion)

Availability of talent pool: Whether the current captive center has the capacity to fulfill all the required
capacity requirements of the parent organization.
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Cost arbitrage in the current location: Cost benefit will help in better execution of the current captive
center since highly skilled workers can be hired.

Ability to obtain Visa for customers Country: If the nature of the activity performed in the captive
center requires travel then ability to obtain visa for the customers country may greatly affect the captive
centers execution capability.

Political Stability and Currency Stability: Having a stable environment is essential for Captive center
to execute and deliver consistently. A fluctuating currency also makes the planning and execution
difficult.

Delivery quality of the Current Captive Center: What is the quality of deliverables from the current
captive center? Since cost of quality is high a poor quality delivery will seriously hamper its execution
ability.

Employee Retention in Current Location: Indian software industry faced a very high level of attrition
during past decade. However now it has stabilized. Retaining the high performers will be a key factor
which affects the execution capability of the captive center.

Process Maturity and Level of Standardization: There are several certification bodies like ISO, CMM
which can be used to determine the process maturity. Highly standardized process which is in line with
the parent Organization will be important.

Decision making aid based on Execution Capability and Growth Opportunity factors
The scorecard (Table 1) and the chart (Figure 1) below can be used to analyze by an
Organization in the decision making process on whether to expand their existing captive center
to additional countries. Depending on the Organizational goals and objectives the weightage for
these parameters need to be set. Also additional Organizational specific parameters can be
introduced. This analysis can be done at Organizational level or more granular at department
level.
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Table 1

Category Weightage Parameter Values

Growth Opportunity Size of the Organization Small, Medium,
Large
Growth Opportunity State of the Technology used Futuristic, Legacy,
Current
Growth Opportunity Degree of customization High, Medium, Low
Growth Opportunity Business need for hiring special skills from Low, Medium, High
the Global Pool
Growth Opportunity Market Distribution Across the Globe Low, Medium, High
Growth Opportunity Requirement for 24x7 Operations Low, Medium, High
Growth Opportunity Long Term focus of the Organization Low, Medium, High
Growth Opportunity Cost arbitrage in the target countries Low, Medium, High
Growth Opportunity Availability of required talent pool Low, Medium, High
Growth Opportunity Size of the market in target countries Low, Medium, High
Growth Opportunity Breadth of Activities Organization wants to Small, Medium,
perform in the Captive Center Large
Growth Opportunity Risk mitigation requirement Low, Medium, High
Execution Capability Cost arbitrage in the current location Low, Medium, High
Execution Capability Ability to obtain Visa for customers Low, Medium, High
Country
Execution Capability Political and currency stability Low, Medium, High
Execution Capability Delivery quality of the Current Captive Low, Medium, High
Center
Execution Capability Employee Retention Current Location Low, Medium, High
Execution Capability Process Maturity and Level of Low, Medium, High
Standardization

The possible values for each of the parameters in the table above (Table 1) can be assigned a
value 1 to 3 from left to right. Weightage can be assigned to each parameter depending on the
organizational priorities. The weighted average of values got for all the parameters for particular
organization for Growth Opportunity category are plotted on the X-axis of the below chart
(Figure 1). Similarly weighted average of parameters in the Execution Capability is plotted on
the Y-axis. The resulting position of the company in the chart can be used to determine the
possible path to be taken for the Captive Center.
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Figure 1

High
C2 C1
Execution Capability

Low C3 C4

Low High
Growth Opportunity

Table 2

Sample Nature of the Captive Center as per Inferences

Organization the Plots Quadrant
C1 High Execution Capability and High Indicate high potential to expand the
Growth Opportunity Captive Center to additional country(s)
C2 High Execution Capability and Low Ideal to remain as Single Country
Growth Opportunity Captive Center. May decide to move
more activities to the Captive Center.
C3 Low Execution Capability and High Evaluate the issues with execution and
Growth Opportunity rectify to improve the execution
capability
C4 Low Execution Capability and Low Need to evaluate the value of the
Growth Opportunity Captive Center and may decide to exit
from it.

As given in the table (Table 2) if an organization falls in the quadrant of High Execution
Capability and High Growth Opportunity, then the organization can strongly consider expanding
to multi-location or multi-country to make use of the growth opportunity and leverage on the
captive centers high execution capability.
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Organizations that fall in the quadrant of High Execution Capability and Low Growth Opportunity may
not benefit much by expanding to multi-location. However it can consider moving more activities to the
captive center.

Organizations that fall in the quadrant of Low Execution Capability and High Growth Opportunity should
take initiatives to improve the captive centers execution capability. There is potential for growth once it
improves its execution capability.

Organizations that fall in the quadrant of Low Execution Capability and Low Growth Opportunity should
re-evaluate whether their captive center is bringing value to the organization. It may be recommended to
consider outsourcing to third party organizations instead of continuing with the captive center.

Captive Centers - country specific considerations

Different countries have different advantages and may be suitable for certain type of activities.
An organization may consider various factors when deciding where the captive center is to be
setup. These factors may include - availability of skilled workforce, cost, government
regulations, infrastructure, maturity of legal systems etc.

India is considered as the most popular outsourcing destination the availability of large skill
pool, the proven delivery capability and a good presence of global outsourcing giants make this
an attractive place to setup a captive center.

China has good physical infrastructure. It also has the advantage of having a local market for
manufacturing related software products.

Philippines have the advantage of excellent English language skills and may be a good place to
setup first line support activities. Other South East Asian countries like Malaysia and Indonesia
also offer cost advantage and good talent pool.

Eastern European countries like Poland, Hungary, Czech Republic, Slovakia, Slovenia, Estonia,
Latvia, Lithuania will be ideal for near shoring work from other European countries. Since some
of the European countries are very restrictive in issuing work permits or visas to employees
working in other continents this near shoring capabilities become very helpful in providing
consulting type of services to customers in such countries.

Argentina and Brazil are South American countries who offer capability to do near shoring for
customers in North America.

Egypt is a good outsourcing destination for customers in Middle East. Israel is another Middle
East country who has good technical and innovation skilled people. But political instability is an
issue with both the countries.

Management and Control Structures

Following three different models can be considered for management and control of a Global
Captive Center.
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Model 1
In this model, (Figure 2) the parent outsourcing organization controls each of the locations of a
Global Captive Center.

This will be useful when each of the locations has different functions to perform. For example
Captive Center at Location 1 performs Product Development activities; Location 2 does more of
consulting activities etc. This model will also be suited when the captive center is in the initial
stages in all locations. In this model Organizations the parent organization will have maximum
control on each of the locations of the Captive Center.

Figure 2

Captive
Center
Location1

Captive Captive
Center
Location 4
HQ Center
Location 2

Captive
Center
Location 3

Model 2
In this model, (Figure 3)there is a common management for all the locations of the Global
Captive Center.

The parent organization only interacts with the common management. It can consist of
representatives from each of the locations. This will be a useful model for Global Captive Center
which each of the locations in the Global Captive Center are at a higher level of maturity in the
outsourcing cycle. This model gives more control to the captive center and will be well suited for
performing high valued activities and also for fostering innovation in the captive center.
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Figure 3

captive
Center
Location1

Captive Captive
Center
Location 4
HQ Center
Location 2

Captive
Center
Location 3

Model 3
In this model (Figure 4), a variation from model 2, one of the locations in the Global Captive
center, which is well established, can take the lead. It can also help in setting up the new location
and replicate its mature processes and standardization there.

Figure 4

captive
Center
Location1

Captive Captive
Center
Location 4
HQ Center
Location 2

Captive
Center
Location 3
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Choosing Activities to be performed in the Global Captive Center

Activities to be performed in the Multi-Country Captive Center should be chosen in alignment
with the Organizations goals. Different
Figure 5
approaches for deciding on what activities to be
performed from the Global captive center are
discussed below. Best in Class

Approaches Cost Rationale

There are mainly 3 approaches in selecting
activities to be performed in the Global Captive Non-Core
Center.

Move non-core activities

Moving non-core activities to the Global captive center will help in freeing up the primary
resources which can be used for performing the core activities better.

Use Cost Rationale

Irrespective of where an activity is in the value chain, perform the activity where there is
maximum cost advantage.

Best in Class
Perform any activity in the value chain at the location where the best expertize, skillsets and the
environments are available.

Division level considerations for Global Captive Center

There are different factors which affect the utilization of Global captive center by the major
departments or divisions, namely Product Development, Consulting and Support in a Software
Product Organization. These are discussed below.

Product Development
Product development can leverage the Global Captive center for performing various activities.
As given in the Figure 6 these activities have different complexity from an execution point of
view. When choosing the activities to be performed at various locations in a Global captive
center the maturity of the location and the complexity of activities need to be considered.
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Figure 6

High
Complexity

Low

Product Testing Coding Detailed High Level Architecture Conceptualization

Documentation Design Design

Activity

The degree of modularization in the Product Architecture and the development process are also
key factors. A high degree of modularization in both will enable distributed development more
successful. There are different software product development process models like waterfall,
spiral, iterative and incremental development, agile, etc. Agile software development process
supports modular development which makes It best suited for the product development using
Global Captive Center.

Consulting Services
Consulting Services can make use of the global skilled talent pool provided by the Global
Captive Center. This will enable them to deploy local talent (local to the country or in the same
time zone) for international customers. This can give a competitive advantage for the
Organization.

Support Services
Support Services can leverage Global Captive Center for providing 24x7 customer services for
the customers. Customers in multiple time zones can be served continuously using follow the
sun model.
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Report Findings and Conclusion

This study focuses on the narrower context of a Software Product Organization and not the entire
Software Industry. In the entire outsourcing spectrum our study is limited to the Captive Center
model.

This study is trying to find answers to questions related to establishing the need for a distributed
Global captive center, the considerations in moving from a single location to a multi-location
captive center, how different factors affect such a decision and how do we establish a mechanism
to help execute towards any such decision and plan to move to a Global captive center.

There are various factors which affects the choice of outsourcing. Even more so once the
decision to outsource is established it is possible to arrive at the factors which affect the decision
to move from a single location captive center to a distributed Global captive center. These
factors can be coalesced into a score-card, the answers to which help identify the path that
a captive center needs to take with respect to the decision to go global.

Once the choice of establishing a distributed global captive center is made, it is also imperative
to put a structure for executing to such a global captive center. This involves establishing various
best practices as highlighted in the report.

Future Research Possibilities

Establish more details of implications of cultural factors which impacts the choice of
executing in a Global Captive Center.
The research can be extended to go deeper at the level of each product or service.
Identifying best practices for financial control of distributed Global Captive Center

Limitations
Because of time limitation a survey could not be conducted for validating the score card and
model formulated in this study which helps in the decision making of whether to expand a single
location captive center to distributed Global Captive Center.
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"Global Outsourcing and Offshoring: An Integrated Approach to Theory and Corporate
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Achieve Growth And Agility, Harvard Business School Publishing.
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Optimization in a Global Economy", IGI Global.
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,Last accessed: November 14, 2013
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