Captive by Atul Verma

Setting-up IT Captive Operations in India

Atul Verma Tuesday, May 22, 2007

Abstract This paper describes a generic process and approach for setting-up successful IT captive operations in India for a mid to large size multinational company. This approach is best suited for IT captive operations to the range of 200-500 employees in the first year. The entire approach is presented in various sub-sections. These are 1. Objectives of going the captive route 2. Pre-work needed before setup tasks can start 3. Setup tasks (Migration process definition, facilities and migration setup) 4. Management routines while setup 5. Captive management structure 6. Running the actual work migration 7. Setup for successful delivery of migrated work 8. Setup closure and beginning of the steady state

A company should decide to setup IT captive operations only after a through understanding of overall management direction; itâ&#x20AC;&#x;s objectives for going captive and sustained outcomes desired from the captive operations. This paper will outline the approach that can be adopted to ensure a successful outcome.

Tuesday, May 22, 2007 .................................................................................................. 0 Abstract ............................................................................................................................ 1 Introduction ..................................................................................................................... 3 Objectives (Drivers) for an IT captive ............................................................................ 3 Pre-work before setup can start....................................................................................... 6 Results.............................................................................................................................. 8 Discussion........................................................................................................................ 8 Appendices ...................................................................................................................... 9 References ..................................................................................................................... 10

Introduction Setting up an IT captive in India is desired by many mid to large size multinational companies in their desire to have greater controls over delivery of their offshore IT solutions. Like many situations in life, going captive route is not the only way to ensure this but a captive operation does present some benefits over a 3rd party delivery model. In this paper, I will describe a methodological approach in going about setting-up such operations in India. The approach starts with defining key objectives that prompt an organization into this direction and leads all the way to successful setup of such operations. This paper can be used as a guiding document to either adopt the approach as such or develop a customized approach, incorporating many elements from this paper.

Objectives (Drivers) for an IT captive An organization can look for IT captive for various reasons. Sometimes it‟s done for operating leverage, sometimes for harnessing global talent while some even do I to provide a global footprint for their IT services for geographical business continuity reasons. Below are some of more common reasons:

Operating Leverage In other words – cost cutting. An organization may desire to reduce its cost of IT services by utilizing low cost labor in India. It‟s also called labor arbitrage. In layman‟s terms, the cost of an IT resource in India is less than cost of such a resource in western counties,

providing direct cost saves to the organizations. As an example an employee) or a local contractor) in a western country may charge up to US$ 80 per hour to provide Java programming services. A similarly skilled resource in India will generally cost around US$ 30 per hour in a captive setting. This provides a direct savings of US$ 50 per hour. This will result in a total annual savings of 50 * 2000 (hr in a year) * 500 (captive employees) = 50MM per year. This is quite an impressive impact to the organizations bottom line.

Harnessing global talent An organization may find that it‟s sometimes harder to acquire talent in a specific field or across multiple skill areas within IT in or around their bases of operations in the western countries. India produces far larger number of science and technology graduates every year than many western countries. This vast pool of talented, right skilled and English speaking resources provides a steady supply of talent to such companies.

Follow the Sun Having captive operations in India can provide extended work duration for an organization. In theory, work that was started in US (for example), can be handed over to teams in India in the evening and can be handed back to US teams the next morning. A company who can successfully do this has just created a work day that may extend to up to 16 hrs. Also, many IT tasks that must happen during off hour‟s example, US time) can be very easily done in India while it‟s work day there. This eliminates „graveyard‟ shifts for us employees.

Co-location Co-location applies to collocation of business process operations along with the IT operations. Many companies have already located their back office type operations in India. There are additional synergies and operating benefits in locating IT operations in the same time zone as business operations.

Market proximity With itâ&#x20AC;&#x;s more than 400MM strong middle class and an economy thatâ&#x20AC;&#x;s growing at an annual growth rate of 8%-9%, India provide a vast market of goods and services for many companies. In such a scenario, it might make sense to locate IT operations that support those goods and services in India. This could also mean that IT support for products and services can be provided locally, thus enabling development of new and improved services in the local market.

Multi Country work distribution Another reason for going captive could be the desire to provide multi country business continuity for an organization. In todayâ&#x20AC;&#x;s day and age, it makes good business sense to provide for business continuity in the event of an adverse event in one country. Whatever is the motivation for setting up IT captive in India, an organization must ensure that these objectives are clearly defined with clear, and measurable goals that are tied to the investments that a company is making in this effort. These critical to quality measures

(CTQs) are essential in successful execution of IT captive setup. I will describe some of these CTQs in a later section.

Procedures This sub-section is optional.

Pre-work before setup can start Like any other successful project, a through planning of tasks and actions during the setup process will go a long way in ensuring that the best outcome is ensured. Below is a listing of some of the pre-work that must happen:

Investment A clear understanding of amount of money a company is willing to invest should be obtained before starting any work. There are two ways of looking at it â&#x20AC;&#x201C; 1. A company can fix the investment amount (example: 30 MM USD). This will in turn result in a calculation of desired labor arbitrage to recoup the investment in a set duration of time and make the captive entity cost neutral (or positive) as soon as possible. 2. A fix number of FTEs are desired to be in the captive by a certain date. This will in turn determine the mount of investments needed to support the employee count desired.

Steering Committee and Work Group It‟s very important to for a steering committee to govern the setup and also to provide management oversight and help during the entire process. The steering committee should ideally be headed by someone who can make decision on timeline, funding and other such matters. Other members should include representation from finance, risk/legal/compliance, and line/operational managers. The people should be at least of an executive level who can direct the activities of managers below them. This committee should meet at least twice every month to review progress. Equally important is the fact that a work group of people be formed under a “project manager” to run the day-to-day tasks for setting up the captive. This workgroup should ideally include people from all operational areas such as quality, hardware and networks, supply chain, HR, application areas etc. This work group will provide expertise needed to perform tasks needed for a successful setup.

Procedures This sub-section is optional

Results Summarize the data and the statistical treatment of them. Graphs and tables should be included if they make the results more intelligible. The Results section continues on the same page after the end of the Method section.

Discussion Evaluation and implications of the research, including how the results support or do not support the argument; comparison of results with previous research; and problems with the research. The Discussion section continues on the same page after the end of the Results section.

Appendices Includes supplementary material not appropriate in the body of the report The Appendices section begins a new page.

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