A Strategic Guide to Setting up a Global Competency Center (GCC) for Your Business

• Partnerships with external providers can expedite the setup process of GCCs, reducing the time and capital investment required for implementation.
• External partners often bring expertise and experience in establishing GCCs for multiple clients across various locations globally.
• These partners typically have well-defined hiring, training, and operational procedures, streamlining the setup process and ensuring efficiency from the outset.
• Many partners operate on a Build-Operate-Transfer (BOT) model, wherein they fund the initial setup, operate the center for a designated period, and then potentially transfer ownership back to the client, although this transfer often doesn’t occur due to successful ongoing operations.

How can existing GCCs be monetized effectively?

• After a period of successful operation (typically 5 to 7 years), established GCCs can be monetized by selling or transferring ownership to external providers.
• Monetization may be driven by various factors, including a desire to exit non-core business functions, pursue new ventures, or capitalize on the value created within the center.
• Potential benefits of monetization include accessing new markets, technologies, or talent pools, as well as generating revenue from the sale or transfer of the established center.
• For external providers, acquiring established GCCs can offer opportunities to enter new industries, acquire new skills, or expand their business offerings, creating a mutually beneficial arrangement for both parties involved.

When monetizing your GCC, after say 5 to 7 years, what are the key drivers and potential benefits, and how does this align with shifting organizational priorities?

• Shift in Organizational Focus: Organizations may choose to monetize an established GCC due to changes in their business cycles, competitive landscape, or strategic priorities. What was once considered a core function may no longer align with the organization’s primary objectives.
• Cost Savings and Efficiency: After several years of operation, matured standard operating procedures and optimized processes may result in reduced oversight and operational costs. Monetizing the GCC allows organizations to extract value from the asset while maintaining operational efficiency.
• External Market Opportunities: External providers may be interested in acquiring well-established GCCs to leverage their proven practices and expertise for selling similar services to other clients or entering adjacent markets. This creates an opportunity for organizations to capitalize on the value created within the GCC and generate additional revenue.
• Premium Pricing: Providers willing to pay a premium for established GCCs recognize the value of the well-oiled machinery and the potential for secondary arbitrage. By selling the asset at a premium, organizations can maximize returns on their investment and capture additional value from their operational expertise.
• Strategic Alignment: Monetizing an established GCC enables organizations to reallocate resources towards core business activities or emerging strategic initiatives that better align with current market demands and organizational goals. This process reflects the dynamic nature of business operations and the need to continuously adapt to evolving market conditions.

How does the transition of a once core function, such as a Global Competency Center (GCC), into an independent entity, align with changing organizational priorities, and what are the potential benefits of this transition?

• Evolving Organizational Priorities: Over time, organizational priorities may shift, leading to a reassessment of what constitutes core functions. Once essential functions may become less central the organization’s strategic focus evolves.
• Streamlined Governance: As GCCs mature and processes become standardized, the need for intensive governance and review mechanisms may diminish. This allows for a transition to a vendor-supplier mode, where third-party partners or vendors can effectively manage and operate the GCC with minimal oversight.
• Value Realization through Independence: Transitioning a GCC into an independent entity enables the organization to unlock the full potential and value of the asset. By operating autonomously, the GCC can leverage its established expertise, processes, and capabilities to serve a broader market and customer base.
• Market Value Creation: Independent GCCs have the flexibility to sell their services and excellence to a wider range of clients beyond their parent organization. This expanded market reach allows for the creation of significant market value, as demonstrated by the example of Cognizant, which originated from Dun and Bradstreet’s GCC and grew into a tier-one company servicing various industries globally.
• Adaptability and Growth: As an independent entity, a GCC can adapt more readily to changing market dynamics and customer demands. This adaptability fosters continued growth and innovation, positioning the GCC as a leader in its field and enabling it to capitalize on emerging opportunities in the marketplace.

For education publishing houses, EdTech companies, and Universities setting up GCCs in countries like India, how can this strategy serve as a game changer, and what should you consider beyond cost savings?

• Access to High-Quality Talent: India is renowned for its vast pool of engineering talent, offering education publishing houses, EdTech companies, and universities access to skilled professionals capable of driving innovation and development in technology-driven sectors.
• Market Access and Growth Opportunities: Beyond cost savings, the Indian market presents significant opportunities for expansion and market penetration in the field of education. The high demand for education in India can serve as a strategic entry point or growth strategy for organizations looking to expand their reach and impact.
• Strategic Talent Acquisition: Setting up GCCs in India allows organizations to tap into scarce skills and talent pools that may not be readily available in their home countries. This strategic talent acquisition enhances organizational capabilities and competitiveness in the global market.
• Ecosystem and Innovation Hub: India’s vibrant ecosystem of technology and innovation hubs provides a conducive environment for collaboration, knowledge exchange, and access to cutting-edge technologies. GCCs in India can serve as hubs for fostering innovation, driving research, and staying at the forefront of technological advancements.
• Long-Term Strategic Focus: While cost savings are a significant factor, organizations should prioritize long-term strategic objectives when establishing GCCs in India. Beyond immediate financial gains, the focus should be on gaining access to advanced studies, leveraging talent pools, and positioning the organization as a leader in technology-driven education solutions.

Given the recent market trends, including fluctuations in investments and the ongoing need for innovation, how can GCCs help manage internal spending and drive efficiencies for universities, edtech companies, and publishing houses?

Strategic Approach to Managing Internal Spend and Driving Efficiencies with GCCs:

• Value Beyond Cost Savings: While cost savings are a significant driver for setting up GCCs, organizations should adopt a holistic approach and consider the broader value proposition. Factors such as time zone compatibility, infrastructure, political stability, and quality of talent play crucial roles in determining the success of GCCs.
• Innovative Funding Approaches: Amid funding constraints, organizations can innovate by reallocating resources from legacy technologies to initiatives for innovation and transformation.
• Responding to Funding Constraints: With fluctuations in investments and funding constraints in the education sector, organizations must find innovative ways to continue driving forward. One approach is to reallocate spending from legacy technologies and existing infrastructures towards initiatives that foster innovation and transformation.
• Managing Shifting Budget Priorities: As budgets become finite or shrink, organizations must prioritize spending on activities that drive transformative change rather than solely focusing on operational activities. This shift requires a strategic approach to portfolio management, where resources are redirected towards initiatives that align with long-term business objectives.
• Enabling Innovation and Relevance: GCCs serve as enablers for innovation by providing access to new technologies, skill sets, and market opportunities. By driving efficiencies and optimizing operational costs, GCCs allow organizations to free up resources for investment in new initiatives, ensuring continued relevance and competitiveness in the rapidly evolving education landscape.
• Warnings Against Primary Focus on Wage Arbitrage: While wage arbitrage may offer short-term benefits, organizations should not prioritize it as the primary reason for adopting the GCC model. Instead, the focus should be on driving operational excellence and leveraging GCCs as strategic assets for long-term growth and innovation.
• Continuous Portfolio Management: Embracing GCCs requires a commitment to continuous portfolio management, where organizations regularly assess and reallocate resources to align with evolving business priorities. This ongoing process ensures that investments are optimized and directed toward activities that drive sustainable growth and competitiveness.

In the context of setting up Global Competency Centers (GCCs) to address the demand for AI talent and drive organizational transformation, what are the key considerations and guidelines for creating a robust business case?

Key Considerations for Creating a Business Case for GCCs:

• DIY vs. Partner Approach: Organizations can choose between setting up self-owned and run GCCs or partnering with external providers. The decision depends on factors such as capital investment, time to stand up, and alignment with organizational objectives.
• Stakeholder Alignment: Ensuring alignment among stakeholders, particularly the C-suite, is crucial for the success of GCC initiatives. Addressing cultural issues and readiness for change is essential as GCC implementation involves transformative processes that impact operations and morale.
• Transformative Reskilling: GCC initiatives should not be approached as mere cost-cutting exercises but as opportunities to reskill resources and focus on growth initiatives. Transformative reskilling ensures that resources migrate away from routine activities towards value-added tasks.
• Objectives Alignment: The business case for GCCs should align with broader organizational objectives, such as investments in new platforms and technologies. Driving efficiencies in existing platforms while investing in new initiatives can optimize resource utilization and reduce operational burdens.
• Customized Approach: There is no one-size-fits-all approach to GCC implementation. It is essential to tailor the approach based on the leadership’s aspirations, timeline, and organizational context. Some organizations may prioritize urgency and opt for provider-partner options, while others may prioritize intellectual property concerns or market access.
• Dual Focus on Operations and Innovation: GCCs can serve as centers of excellence for driving operational efficiencies in existing platforms while simultaneously supporting the development of new products and technologies. This dual focus helps organizations address the “double bubble” of maintaining existing platforms while investing in innovation.

Overall, the business case for GCCs should be carefully crafted to align with organizational goals, address key considerations, and leverage the unique opportunities presented by global talent pools and emerging technologies like AI.

When you look at the transformation and migration journey of setting up GCCs, a crucial aspect is people management. Could you elaborate on the potential pitfalls to avoid and best practices to implement in ensuring effective change management and team cohesion?

Pitfalls to Avoid and Best Practices for Managing People in GCC Setup:

• Evolution of Challenges: While challenges such as communication barriers and cultural differences were prevalent in the early stages of GCC setups, the landscape has evolved significantly. Today, the focus has shifted towards more nuanced aspects like fostering a sense of identity, thought leadership, and cohesive team dynamics.
• Sense of Identity: It’s essential to cultivate a sense of identity among team members, regardless of their geographic location. This involves enabling individuals to contribute meaningfully to the organization’s objectives and fostering a shared sense of belonging across diverse teams.
• Transition from Cost Centers to Profit Centers: Many GCCs have transitioned from being cost centers to profit centers, with reporting lines extending globally rather than being region-specific. Leadership must recognize and empathize with the concerns of both sending and receiving sides to drive success.
• Empathy and Cohesion: Effective leadership requires empathy towards the challenges faced by team members on both ends of the spectrum – those transitioning from established roles and those joining new teams. Cohesive work units can be formed by aligning everyone towards common objectives, mission, vision, and charters.
• Global Reporting Structures: As GCCs adopt global reporting structures, it’s crucial to establish clear communication channels and foster collaboration across teams located in different regions. This ensures alignment with organizational goals and facilitates seamless coordination and execution of tasks.
• Continuous Engagement and Feedback: Regular engagement sessions, feedback mechanisms, and opportunities for skill development and career advancement help in retaining talent and fostering a culture of continuous improvement within GCCs.
• Emphasis on Leadership Empathy: Leaders must demonstrate empathy, understanding, and inclusivity in their interactions with team members to build trust, inspire confidence, and drive high performance across distributed teams.

By addressing these pitfalls and implementing best practices, organizations can effectively manage the human aspect of GCC setup, leading to enhanced team cohesion, productivity, and overall success in achieving business objectives.

When setting up a GCC in locations like India or Brazil, what should you weigh when deciding whether to place full-time employees from the home country into the GCC?

Factors to Consider When Placing Full-Time Employees in GCCs:

• Local Account Management: The prevalent approach involves having local account managers and delivery experts who collaborate with clients’ teams on-site to understand project requirements and manage the workforce in the GCC.
• Minimizing Expatriate Positions: While some situations may necessitate placing full-time employees from the home country into GCCs, it’s generally advisable to minimize expatriate positions. Frequent business travel and short-term assignments are often more effective alternatives.
• Risks of Isolation: Placing expatriate positions in GCCs may lead to a sense of isolation for employees, particularly if they are few in number. This can impact morale and integration within the local team.
• Opportunity for Teaming: Leveraging short-term business travel and rotations between home and GCC locations creates opportunities for teaming and knowledge exchange, fostering a more integrated and collaborative work environment.
• Local Hiring and Governance: Consider establishing a presence in GCC locations by hiring locally. This not only enhances subject matter expertise but also provides boots on the ground for governance activities and operational oversight.
• Rare Examples of Success: While rare, some companies have successfully planted their resources in GCCs, whether through cell phone operations, brick-and-mortar facilities, or partnerships with providers. These cases require careful consideration of the potential benefits and risks associated with expatriate positions.

By carefully weighing these factors and considering alternative approaches such as short-term travel, rotations, and local hiring, organizations can effectively manage their workforce in GCCs while maximizing collaboration and operational efficiency across geographic boundaries.

How can organizations assess and navigate political risks in countries like Argentina, Brazil, or India?

Assessing and Navigating Political Risks in GCC Setup:

• Location Assessment: Organizations conduct thorough location assessments using established criteria, such as the S-P-R-I-T-E model (Social, Political Regulatory, Infrastructure, Talent and Technology, and Economy and Environment). Political risks are among the factors considered during this assessment.
• Adversity Considerations: Political risks are viewed as “adversity” considerations, serving as threshold checkpoints rather than primary decision-making factors. The focus remains on accessing technology and talent at competitive prices, with adverse political conditions serving as potential hindrances to organizational objectives.
• Prevalence of Precedence: Given the widespread establishment of GCCs across various industries and geographies, there is ample precedent for addressing and managing regulatory challenges and political risks. Organizations draw insights from previous experiences and industry best practices to navigate potential obstacles.
• Confirmation of Non-Adversity: The primary objective is to confirm the absence of adverse political factors that could impede the organization’s mission. While acknowledging the existence of political risks, the emphasis lies on ensuring that these risks do not pose significant hindrances to achieving strategic goals.
• Holistic Evaluation: In addition to political risks, organizations consider factors such as infrastructure availability, talent pool quality, and the presence of a peer community of technology companies. This holistic evaluation ensures that the chosen location aligns with the organization’s technological and talent acquisition objectives.

By adopting a comprehensive approach to location assessment and maintaining a focus on strategic objectives, organizations can effectively evaluate and mitigate political risks when establishing GCCs in diverse international locations.

Could you provide insights into the regulatory landscape both in the United States and the GCC target country and how organizations navigate these regulatory challenges?

Navigating Regulatory Challenges in GCC Setup:

• US Regulatory Regime: In the US, regulatory constraints such as SSAE 18 SOC 1 SOC 2 audits for finance work outsourcing and adherence to data privacy laws like HIPAA are crucial considerations. These regulations are well-documented and publicly available, providing clear guidelines for compliance.
• European Regulations: European countries, particularly under the GDPR data privacy rules, have stricter regulations compared to the US. Most service providers adhere to GDPR and obtain certifications like ISO 27001 to ensure compliance.
• Local Government Incentives: Destination countries often offer incentives such as tax benefits to attract foreign investments and job creation. Organizations must consider these incentives when selecting a location for their GCC.
• Partner Collaboration: Leveraging partners can expedite the setup process and provide access to established processes, hiring practices, and local market knowledge. However, organizations must ensure empathy and integration between their internal teams and partner resources to foster a cohesive working environment.
• Mitigating Regulatory Risks: Organizations can mitigate regulatory risks by conducting thorough location assessments upfront. Factors such as local laws, contract enforcement timelines, and taxation events are evaluated to identify potential challenges and avoid adverse regulatory environments.
• Sustainability of GCCs: Whether working with partners or setting up their own centers, organizations must prioritize sustainability by fostering a supportive and inclusive work culture, providing growth opportunities for employees, and maintaining clear communication channels.

By understanding and addressing regulatory considerations both in the US and the target country, organizations can navigate the complexities of establishing GCCs effectively and sustainably.

How does GCC differ from leveraging partners in a regular supplier-vendor model?

Key Differences and Considerations:

• Engaging New Providers: Setting up your own GCC involves engaging new providers who specialize in various aspects such as real estate, office infrastructure, and cultural assimilation. These providers help create a unique office space tailored to the organization’s culture and specific requirements.
• Specialized Expertise: Partnering with firms like CBRE and JLL for real estate search and office infrastructure in countries like India ensures access to specialized expertise. These firms understand the local market well and can assist in finding suitable facilities.
• Challenging Preferred Providers: Organizations may not fully challenge their preferred providers to bring additional value when setting up their own GCC. However, there’s an opportunity to ask preferred providers to contribute more to the GCC setup process, although careful communication is needed to avoid potential conflicts over revenue cannibalization.
• Risk of Talent Shift: In some cases, preferred providers may become jittery about potential revenue loss and may reassign their best resources to other clients, affecting the GCC setup process. Organizations need to manage this risk by clearly communicating their intentions and expectations.
• Simple Execution with Proper Vision: Setting up a GCC is a straightforward process if organizations have a clear vision, articulate their requirements effectively, and ensure their narrative aligns with their aspirations. While the execution may seem simple, the cost of getting it wrong can be significant, emphasizing the importance of careful planning and execution.

By understanding these key differences and considerations, organizations can make informed decisions about whether to set up their own GCC or leverage existing partner relationships in their global resource strategy.

For organizations considering setting up a Global Competency Center (GCC) for the first time, what step-by-step checklist or model can they adopt? Additionally, what timeline and minimum scale should they budget for?

Step-by-Step Checklist or Model:

• Business Case Development: Begin by creating a comprehensive business case outlining the objectives, expected outcomes, and feasibility of setting up a GCC.
• Location Assessment: Conduct a thorough assessment of potential locations using the SPRITE framework (Social, Political Regulatory, Infrastructure, Talent and Technology, and Economy and Environment).
• Engage Providers: Engage specialized providers for various aspects such as real estate, office infrastructure, and cultural assimilation to create a unique and tailored GCC.
• Regulatory Compliance: Ensure compliance with relevant regulations and standards, such as SSAE 18 SOC 1 SOC 2, GDPR, and HIPAA, depending on the nature of the work being outsourced.
• Talent Acquisition and Development: Develop strategies for talent acquisition, training, and development to build a skilled workforce for the GCC.
• Transition Planning: Develop a detailed transition plan outlining timelines, milestones, and resource allocation for the setup process.
• Governance and Oversight: Establish robust governance mechanisms and oversight processes to ensure smooth operations and alignment with organizational objectives.

Timeline and Minimum Scale:

• Timeline: The timeline for setting up a GCC typically ranges from six to nine months, with an additional month for business case development. However, the pace of implementation may vary based on the organization’s internal readiness and ability to adapt to change.
• Minimum Scale: The minimum scale for setting up a GCC is around 200 employees to ensure proper amortization of overhead costs associated with facilities and services. Organizations smaller than this threshold may consider alternative models such as provider-partner arrangements. However, the scale ultimately depends on the organization’s growth aspirations and desired pace of expansion.

By following this step-by-step checklist and considering the recommended timeline and minimum scale, organizations can effectively plan and execute the setup of their GCC while aligning with their strategic objectives and operational needs.

Could you elaborate on the concept of Global Competency Centers (GCCs) as profit centers rather than cost centers? How does this approach differ from traditional cost center models, and what are the benefits?

Elaboration on GCCs as Profit Centers:

• Traditional Cost Center Model: In the past, many GCCs were established as cost centers, leading to nuanced friction with headquarters and demand managers due to perceived high costs and lack of direct costing. Costs were often allocated based on headcount or other arbitrary methods, causing dissatisfaction and misalignment.
• Transition to Profit Centers: Many newer GCCs are established as profit centers, with a focus on driving efficiencies and making investments in local technologies and exploration. In this model, the GCC operates as a business unit with its own bill rate, typically lower than market rates by 15 to 20%, to account for the absence of a provider’s margin.
• Flexibility and Autonomy: Operating as a profit center provides the GCC with the flexibility to manage its resources and investments independently, within the guidelines and approvals of corporate leaders. This autonomy allows the GCC to drive innovation, optimize processes, and pursue growth opportunities more effectively.
• Parity and Global Responsibility: An advanced approach to GCCs as profit centers involves decentralizing decision-making and responsibility, where the GCC lead oversees global functions regardless of geographic location. For example, a GCC head in India may manage global teams and business units, fostering parity among global teams and enabling participation in thought leadership and performance measurement.

Benefits of the Profit Center Model:

• Alignment with Business Objectives: By operating as profit centers, GCCs align more closely with corporate goals and objectives, driving value creation and contributing to the organization’s overall success.
• Agility and Innovation: The autonomy provided by the profit center model enables GCCs to adapt quickly to changing market conditions, innovate, and explore new opportunities for growth and differentiation.
• Global Integration and Collaboration: Decentralized responsibility fosters global integration and collaboration, allowing teams from different geographies to work together seamlessly towards common goals and objectives.
• Performance-driven Culture: The focus on profitability instills a performance-driven culture within the GCC, encouraging accountability, efficiency, and continuous improvement across all functions and operations.

Overall, transitioning GCCs from cost centers to profit centers represents a strategic shift towards a more business-centric approach, driving value creation, innovation, and global integration within the organization.

What is your advice to listeners on approaching the establishment of Global Competency Centers (GCCs), particularly in the context of emerging gaps in AI talent supply and demand?

• Shift in Perspective: Emphasizing the need to view GCC establishment not solely for cost savings but as a means to drive excellence in operations and accelerate access to new technologies and talent pools. While cost savings are expected, they should not be the primary motivation for establishing GCCs.
• Focus on Value Creation: Instead of leading with wage arbitrage, companies should prioritize value creation through GCCs. Consider setting success criteria related to operational excellence, technology access, and talent ecosystem enhancement, which will naturally lead to savings impacting EBITDA.
• Strategic Business Case: Building a robust business case for GCC establishment is crucial, centered around the broader goals and aspirations of the organization. Malhotra advises companies to introspect and answer the fundamental question: Why are they pursuing GCC establishment?

About the Guest:

Ashish Malhotra is an experienced Organization Design Specialist with a deep understanding of leveraging global human capital. He has extensive experience in designing and transforming talent and processes within business technology and operations. Over his 30-year career, he has worked with and advised companies across various industries and functions, including finance, HR, technology, engineering, customer care, and procurement.

Specifically, Ashish has expertise in establishing and managing Global Competency Centers (GCCs), which involves building and supporting digital learning products and platforms. He played a pivotal role in the development and execution of the Global Technology Resource Strategy (GTRS) program at Citigroup, where he served as the Program Manager. Under his leadership, Citigroup successfully established technology centers of excellence in 10 countries, resulting in significant cost savings of about half a billion dollars on a run-rate basis.

Ashish’s career trajectory also includes roles at Time Warner and an advisory firm, AlixPartners, where he continued to focus on optimizing global resource strategies. Overall, Ashish is a seasoned professional with a wealth of experience in driving organizational transformation and maximizing operational efficiency through the strategic deployment of global talent and resources.