How captive centers can drive digital transformations

Captive centers currently account for less than 25 percent of the full-time employees delivering digital services, such as analytics, cloud and mobility, from offshore and nearshore locations, according to research by outsourcing consultancy Everest Group. However, these wholly owned subsidiaries are uniquely qualified to play a pivotal role in the digital transformation of their parent companies, says Everest Group practice director Aditya Verma.

Unlike third-party providers, captive centers are an integral part of the business. “Leading the digital transformation for the enterprise is a natural evolution for global in-house centers to extend this integration in digital areas and build on existing synergies,” says Verma. What’s more, many captive centers have played important roles building internal capabilities in order to drive innovation. They “act as hotspots to foster the cultural shift to innovate,” Verma says.

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In addition, they offer a repository of necessary talent that may be in short supply in the rest of the organization. “The scarcity of talent in ‘home’ locations necessitates parents to look beyond onshore locations,” says H. Karthik, partner in Everest Group’s global sourcing practice. While headquarters may make many of the strategic decisions about digitization, captive centers can partner with the parent company on designing and implementing the solutions, Karthik says.

However, not all global in-house centers are capable of rising to the role of digital transformation partner. Everest Group developed its own framework to assess the digital maturity of captive centers, looking at scale and adoption (e.g., how many full-time employees are working in digital services), breadth and depth of services, focus on digital talent development, level of ownership and involvement in digital transformation, and level of collaboration in the digital vendor ecosystem.

The majority of captive centers (just over 80 percent) currently fall into the categories of “aspirants” or “followers,” focused on creating a proof of concept and building delivery capabilities in digital, according to Everest Group. “These global in-house centers support a few digital segments delivering transactional services,” says Verma, like testing mobility apps. Approximately 15 percent of captives are “value creators” having built digital capabilities in multiple digital segments and focused on extending their influence across the enterprise, according to Everest Group. And just two percent are “true innovators” in digital, having achieved significant scale and breadth of services covering most segments. “These global in-house centers have also adapted their talent models for digital (for example, hiring from other industries) and institutionalized collaboration with the start-up ecosystem to drive the digital agenda for the enterprise,” Verma says.

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These cutting-edge captive centers, however, are adopting best practices that could enable others to follow their lead in driving digital transformation in the enterprise in three key areas:

1. Talent Management

The innovators are creating workplaces that foster innovation and collaboration. They give employees permission to experiment and fail, says Karthik, “with some even setting up internal venture capital-type arrangements to fund ideas.” They also collaborate closely with their parent companies on talent management, for example, pairing mentors from headquarters with workers offshore. They are focused on training and re-training existing employees and “developing specialized in-house training programs to inculcate specific digital skills,” Verma says. The partner with educational institutions and look to other industries for new hires (for example, recruiting from digital agencies for social media expertise). Finally, they create distinct compensation programs and discrete career paths for employees engaged in traditional and digital services. “There are instances of some best-in-class global in-house centers establishing specialist accelerated career paths for top performers in digital, offering compensation premium and stock options,” says Verma.

2. Startup Partnerships

Leading captive centers are active in the startup ecosystem, participating in corporate accelerator programs, developing intrapreneurship programs, and creating direct commercial engagements. “Key drivers for these partnerships include access to new ideas and talent pool, acceleration of own technology and higher speed of innovation and branding as an innovation-driven organization,” says Karthik.

There are creative ways for captive centers to support the startup community, such as providing infrastructure support (the use of offices or technology infrastructure), guidance and mentorship, or direct financial support. This involvement with emerging vendors and service providers can help the captive center better manage talent, increase agility, and reduce go-to-market time, says Verma.

3. Vendor Collaboration

Captive centers that seek to be more involved in enterprise digital transformation don’t go it alone. They’re partnering with specialized technology vendors (for example, robotics or AI vendors) and traditional service providers (with capabilities in mobility applications development, say) other vendors for more ready access to talent and technology.

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The offshore captive of a leading UK-based bank began collaborating with local service providers in order to access digital talent that could hit the ground running. It has also forged alliances with technological vendors to increase agility and reduce go-to-market time. Another global in-house center is partnering with a vendor to deploy robotic process automation across several processes, improving agility and reducing operational risk.