NASSCOM GIC Conclave 2013: Session 2: Value Addition - Mc Kinsey

Accelerating Value Addition from GIC’sApril 05, 2013

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

NASSCOM GIC Conclave

McKinsey & Company | 1SOURCE: Harvard Business Review; McKinsey analysis

Our findings are based on extensive research

Harvard Business Review BlogMarch 13th 2013

Our research is based on

8 Financial Services GICs

(Value addition Wave 2)

Detailed inputs from 15+ GICs

(including 10 Financial

Services GICs) in 2012-13

Detailed inputs from 15+ GICs

(Value Addition Wave 1)

200+onshore stake-

holder responses

to value addition

assessment survey

McKinsey & Company | 2

Key messages

Current status

GICs have struggled to institutionalize value addition due to factors that are deep rooted and require iconoclastic leadership

▪ Misalignment on priorities between GIC’s and onshore leaders; further gaps onshore where CXOs expectations are not in sync with intent at the next level

▪ Structural constraints (end-to-end ownership for 2 out of 10 processes) and weak underlying practices (e.g., business outcome based incentives in 1 out of 4 GIC’s)

▪ Culture that is deep rooted in incremental improvements; insufficient number of entrepreneurial leaders who have vision, courage and tenacity to drive breakthrough innovation

Call for action

Right time for GICs to make the transition from ‘mature delivery partners’ to leading with value addition; a clear road map and ‘program like’ approach required to drive value addition at scale

The prize

Value addition continues to be a significant opportunity for GIC’s and could drive benefits in the range of $50 Bn over the next 5 years

▪ Impact visible in pockets (observed in 1 out of 5 processes) through continuous improvements in operational efficiency, high expertise processes and customer experience

▪ Onshore expectations rising fast; GIC’s expected to own and show leadership on all dimensions

11

22

33


115

85

60

400

100

Benefits from labour

arbitrage

4X

Totalbenefits

Operational efficiency

High-skill capabilities

40

Total customer

experience

Revenue impact

Value addition continues to be a significant opportunity, can add value in excess of 3-5X of labor arbitrage

SOURCE: McKinsey analysis

Improved cost

and

productivity by

15-20%

resulting in

efficiencies of

~USD 4 mn

Improvement

in services to

sales conver-

sions from 2%

to 4% through

best practice

implementation

Increased

customer base

and wallet size

to enhance

revenues by

~6% through

end-to-end

ownership

Improved

effectiveness

of marketing

campaigns

through sales

force analytics

Estimated value at stake (indexed to 100))

1


Value addition visible in pockets through continuous improvements in operational efficiency and customer experience

SOURCE: Onshore and offshore stakeholders in Value Addition Assessment Survey

Revenue impact

Totalcustomer

experience

High-skill capability

Operational efficiency

Level 2 – Ownership Level 3 – LeadershipLevel 1 – Execution

Levels of impact

Transformation –

fundamentally altered

processes

Revenue impact

through leakage

prevention

Deliver high expertise

processes end to end

Expand to upstream

segments on core

processes

Labor arbitrage

benefits at scale with

continuous

improvements

Revenue contribution

from existing

services delivered to

new segments

Adapt processes to

address customer

needs

Measure customer

experience

Reengineered

processes exported

to the enterprise

Develop new

capabilities for the

enterprise which did

not exists

Innovation for

emerging markets and

globally

Transform customer

experience and take

accountability

No impactFew instances of impactMultiple instances of high impact

1


CXO expectations not in sync with intent at the next level2Ranking of priorities

# Top two priorities

2

4

3

1

GIC

stakeholders

2

3

1

Onshore

functional

stakeholders

(CXO – 1/2)

4

Onshore

business

stakeholders

(CXO)

1

4

3

2

Revenue uplift

Customerexperience

High-skillcapabilities

Operationalefficiencies

▪ Onshore stake-holders expect the GIC to play a support role with limited strategic intent

▪ Deep rooted culture at captives focused on meeting operational SLAs

▪ Limited incentives or ‘hunger’ at GIC’s to drive breakthrough change

SOURCE: Onshore and offshore stakeholders in Value Addition Assessment Survey


Knowledge development and

insight generation

Customer data usage to drive process

redesign

Learning codification with IP and capability

development

Drive expansion in scope of operations (e.g., new services,

geographies)

Opportunity identification

for upstream process movement

Additional value measurement and

incentivization to drive

value addition

Maturity of underlying value addition practices at GICs remains weak

Stakeholder assessment

SOURCE: Onshore stakeholders in the Value Addition Assessment Survey

Low degreeof maturity

Process covers basicswith potential to improve

Mature practice

2

GIC practice maturity scorecard


Culture that is deep rooted in incremental improvements; lack of iconoclastic leaders who can question status-quo

2

A long-term vision

Hunger to succeed

“Leaders can succeed when they’re willing to move away from the

status-quo i.e., make any changes required to succeed. Not just the

minor changes”

– SVP, Commercial Banking Organization

Business understanding

“Leaders can succeed when they’re truly knowledgeable about the

business and hence can play the role of a business partner”

– MD, Financial Services Organization

Courage and tenacity

“Leaders have to be both courageous and tenacious. They have to be

willing to take the risk if required. Take multiple hits if required;

only then will success be possible”

– SVP, Financial services organization

Evidence from interviews

GIC leadership

needs

– Director, Retail and Corporate Banking

“Leaders need to have an idea of what we need not only tomorrow

but 3-4 yrs. in the future as well. I don’t need to know what we can

do to improve our SLAs – rather what we can do to improve our

business”

SOURCE: Interviews with onshore and offshore stakeholders


GICs now at the cusp of moving from delivering efficiently and effectively to driving value addition

SOURCE: Discussions with onshore GIC leaders

3

The “Startup”

phase where the

advantages of

operating in low

cost countries

were demonstrated

to the enterprise

The “Mature

delivery” phase

where GICs

delivered cost

efficiency and

effectiveness

advantages to the

enterprise

The “Value

Addition” phase

where the GIC

moves beyond

labor arbitrage and

impacts customer

experience,

revenue and

invests in high-skill

capabilities

The “Innovator”

phase where GICs

are a source of

competitive

advantage and

part of network

organization

Prove the right to exist

Deliver efficientlyand effectively

Drive value addition (beyond

arbitrage)

Lead breakthrough

innovation

McKinsey & Company | 9SOURCE: Discussions with GIC leaders; onshore stakeholders in the Value Addition Assessment survey; Team analysis

Performance record and rising expectations makethis the right time to drive value addition

3

0% 18%

Focus on

higher

end skills

6% 22%

Global

service

factory

46%

18%

Low cost

delivery

center

14%

76%

Manage

processes

end-to-end

GIC has

maintained

or increased

productivity

92%

GIC has

maintained

or reduced

cost

86%

GICs have delivered strong performance on both cost and productivity

Onshore stakeholders currently perceive the GIC as a low cost delivery center or service factory but expect it to play a greater role in the future

Future role

Current rolePerformance on cost and

productivity

Current and future role of the GIC

License and time to act


Value addition at scale will require GICs to builda clear road map and ‘program-like’ approach

SOURCE: McKinsey analysis

3

Bold

aspiration

that excites

CXO’s and

GIC leaders

Aspire Suitable

areas with

expertise

and proof

of concepts

Focus Change

leaders

accountable

and

incentivized

on Value

addition

Lead Improve

underlying

practices

especially

performance

manage-

ment

Invest Internal

promoters

and

networks

for ideas

and

positive

buzz

Extend

Balance

Local

ownership

vs.

business

integration

Amplify

Make

successes

go viral

Mobilize

Innovation

and

initiative

taking

culture

across

employees

at all levels


Alexander Edlich,

Director, McKinsey & Company

New York

Email: [email protected]

Sameer Khetarpal

Principal, McKinsey & Company

Delhi


Abhishek Shirali

Senior Analyst, McKinsey & Company

Delhi


Shailesh Kekre

Principal, McKinsey & Company

Bangalore


Puneet Chandok

Associate Principal, McKinsey & Company

Delhi


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NASSCOM GIC Conclave 2013: Session 2: Value Addition - Mc Kinsey

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