Three Lessons on Challenges and Five Strategies That Will Matter

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By Sreeram IyerHead of Group Capabilities Center (GCC) and Chief Operating Officer, Institutional and ANZ Banking Group

GCCs are growing, but there is room for much more….

The global economy has continued to face headwinds from slower growth, rising inflation and tightening regulations. Despite this backdrop, Global Capability Centers (GCCs) have played pivotal roles in transforming business operations for multinational corporations.

What are GCCs? “In the case of global banking, GCCs are typically sizable centers in less-expensive locations run by large teams operating 24/7 and offering different capabilities, services and technologies to the rest of the institution.”

In my last article¹ for this publication, I discussed how corporations have reimagined the GCC formula — GCCs are now centers of excellence (CoEs) and have evolved from being cost-arbitrage centers overseeing support functions to automation and innovation hubs.

According to an Ernst & Young (EY) report²India’s GCC market is projected to more than double to approximately US$110 billion by 2030. India, already a technology and services hub, might have around 2,400 GCCs by 2030, up from approximately 1,500 today. In the Philippines, GCCs’ revenues continued to grow to approximately US$32 billion in 2022, matching the total foreign-worker overseas remittance into the country³.

GCCs operate within a complex, volatile and rapidly changing global landscape which presents its own set of challenges. From the perspective of both head-office and on-the-ground, here are three challenges in building successful and sustainable GCCs:

1. Challenge #1: Thanks to the multiple forces at work, does the low-cost proposition have a finite path ending at some point? Inflation has become an urgent consideration for most companies around the world and is likely to have significant cost impacts from wage increases. On the other hand, the strength of the US dollar (USD) has increased nearly 88 percent against the Indian rupee (INR) since 2000. A vast set of complex factors play simultaneous parts here—gross domestic product (GDP) growth rates, inflation , interest-rate differentials, geopolitical events and sentiments on trade policies, to name a few. This is especially true for the GCC industry in India, where the INR has depreciated against the USD.

But will this remain true in the coming decade?

The workforce employed in India’s GCC industry is projected to grow from its current size of 1.9 million individuals to approximately 4.5 million. The compound annual growth rate (CAGR) from 2019 to 2023 was 11 percent, and from 2023 to 2030, it is projected to be 14 percent. Moreover, the cost per full-time equivalent (FTE) is estimated to increase from the current level of US$29,100 to US$37,760 by the year 2030⁵. One major challenge is the debate over whether such projected FTE increases may tap off due to technology-driven productivity gains.

2. Challenge #2: Demonstrating continuous value beyond the initial ‘sugar hit’. Cost savings and talent availability have driven investments in GCCs. Over the years, the skills needed in transitioning roles and the establishment of the GCC’s value have become evident and, in fact, are very impressive. However, when faced with uncertainties, GCCs are not yet fully integrated with their head offices in home markets. The challenge is being able to articulate value beyond the initial two to three years of change. In other words, GCCs must earn more credibility by demonstrating value in doing things better and better as time passes. In this pathway, more work needs to be done to bridge the knowledge gap about the potential GCCs offer. The question should not be “why” but “how” to measure continuous improvement.
3. Challenge #3: With scale, complexity and macroeconomic risks, GCCs invite challenges to operational resiliency. GCCs often face increased complexity and scale and may be tasked with delivering a broader range of services, supporting multiple business units and regions, and managing larger teams distributed across various locations. This complexity can strain existing processes, systems and infrastructures, leading to inefficiencies and operational challenges involving head offices, regulators and concerned customers. GCCs must, therefore, invest in scalable operating models, technology platforms and governance structures that enable them to manage complexity effectively and demonstrate operational resilience. This is easier said than done.

Therefore, GCCs must stand as strategic pillars for organizations, offering agility, modernization and change, as well as measuring what gets value added. To address the challenges GCCs face—and to achieve continuous improvement—various measures can provide an understanding of how well the GCC is functioning, identify areas for improvement and help make strategic choices.

In my view, these five GCC strategies will matter more than others.

1. Get great at AI and use automation to drive company productivity. Whether to drive improvement in the customer experience on the front end or to reduce costs, artificial intelligence (AI) must play a significant role—and the domain expertise and capability sitting in GCCs will fulfil those opportunities. GCCs are the talent hubs in process, data and automation. These competencies will drive the innovation agenda, delivering deep, central capabilities for enterprise-wide benefits. Economic Times CIO⁶ estimated that more than 50 percent of all new research and development (R&D) centers established worldwide and located in India are GCCs, underscoring their crucial contributions to the development of modern technology as a great platform for innovation.
2. Adopt AI to drive efficiency within GCCs must place significance on AI adoption within what they do. Only then can they transform from service centers into centers of AI competencies. Naturally, this pave the way to re-profile and attract a modified talent supply. In this way, GCCs will serve as internal, centralized advocates to identify new opportunities for championing AI to solve numerous business tribulations. The key aim is twofold: First: Support and build the organization’s AI vision and serve as an internal counsel to manage enterprise-wide AI projects. Second: Focus on execution and show results in its own “backyard”.
3. Establish new competency centers, such as ESG, non-financial risk and mergers and acquisitions (M&A) support (and many others). Organizations can look to GCCs to keep pace with ever-changing ESG (environmental, social and governance) requirements and priorities. These competencies could include great data skills, reporting and monitoring. For mergers, acquisitions, integrations and divestitures, GCCs can support integration planning by providing expertise in organizational-design models, process coordination, technology consolidation and change management and by helping to identify opportunities and potential challenges. Equally, GCCs must benchmark themselves against other external third-party providers and be open to partnering with them. This may mean making changes in the operating model so that the GCC shines at what the others are great at—scale, efficiency and continuous improvement.
4. Consolidate the GCC into multi-business competencies (aka common business services). GCCs allow organizations and head offices to focus on their core priorities while using the centres’ expertise in common areas across different businesses and locations. These common functions collectively support strategic objectives, enhance operational efficiency and deliver value across various business areas. Three functions for which organizations can use GCCs are (i) technology domains, such as cybersecurity, testing and platform support, (ii) enterprise functions, including human resources, finance, legal, reporting and administrative support and (iii) cross-functional teams , addressing complex projects requiring collaboration across all parts of the organization, such as KYC (know your customer), data and fraud management.
5. Invert the seniority pyramid of roles in GCCs. GCCs must define a robust people strategy, cultivate the right competencies and leadership skills, as well as manage talent, costs and attrition. Historically, it is safe to assume that nearly 70 percent of GCC employees have, relatively speaking, junior” positions matching the role mandates of the past. Today, it is common for less than 2 percent of GCCs to have senior C-level roles and leaders. This must and will change. Getting to the point at which GCCs can flip the pyramid is a key priority for the future. This starts with creating a more deliberate way to communicate and understand the real needs of the enterprise, with an internal culture of authority and accountability. It should no longer be about FTEs being a measure of the GCC’s growth; it must be about the percentage of actual work done in the GCC.

It’s without doubt understanding of the value a GCC can add or offer a multinational corporation continues to strengthen year by year. Many organizations with GCCs continue to retain strategic alignment and ownership of critical functions and assets while also building internal capabilities and fostering innovation and operational excellence. That is a great sweet spot.

As you ponder these challenges and lessons outlined in this article, consider how your organization can steer through these waters effectively. How can you ensure that your GCC not only survives but thrives, contributing true value to the business? The answer lies in which of these strategies you can pursue at what pace and with what investment appetite. Regardless, at the macro-level, the most opportune time for their GCCs as a strategic asset is now.

The views expressed in this article are personal.

References

¹International Banker: “Repositioning the Value and Priorities of Global Capability Centers,” Sreeram Iyer, September 7, 2023.

² Ernst & Young (EY): “Can a future-back lens help you see a clearer path to success? Future of GCCs in India – a vision 2030 report,” June 2023.

³ Ernst & Young (EY): “Offshoring Industry and Financial Services GCCs in the Philippines,” November 2023.

⁴ Macrotrends: India Inflation Rate 1960-2024.

⁵ India Briefing: “India’s Global Capability Centers Market Estimated to Reach US$110 Billion by 2030,” Melissa Cyrill and Khyati Anand, July 18, 2024.

⁶ Economic Times CIO (ETCIO): Apr-24: “India orders over 50 per cent of GCCs,” April 13, 2024.