There has been a lot of buzz about the
hybrid captive model for offshore services. Although, it potentially brings in
benefits of both the worldspure captive and pure third partyCIOs are more
inclined to stay with either one or both, but not choose the middle way. On
paper, the model seems to offer best of the breed benefits, but none of the
hybrid models have really caught on till date.
There are lots of unresolved issues and question marks on the
hybrid captive model. H Karthik, research director, Everest Group says, "One of
the reasons why this has not taken off in a big way, is the lack of clear
accountability between the buyer and the supplier."
"In the virtual captive space, which is one of the hybrid
modelsone clear issue which has not been resolved in the market, is the
division of accountability between a buyer and the supplier. If it is a pure
third party contract, the supplier will have the mandate not just to deliver the
process, but also to make improvements in the process. For example, the supplier
would not only deliver services cheaper, but also faster to the buyer by
reducing buyers cycle time by 30-40%. But in the case of the hybrid model, it
is not clear whether the onus lies on the buyer or the supplier," he adds.
"There could also be conflict of interests between the
supplier and the buyer. For example, a supplier is hiring for a buyer and at the
same time a supplier is also hiring for itself. But in tight markets, how would
the supplier prioritize?.
Buyers change the type of model as and when required but it
comes with its own challenges. One of the examples of hybrid models eventually
getting merged into the third party model is Avivas deal with WNS and EXL.
Karthik says, "It was structured as a legal arrangement where the supplier would
build the operations but after a pre-agreed time, transfer it back to the buyer.
Aviva was a classic example of build-operate-transfer (BOT), which is one of the
hybrid models. In this deal, Aviva had outsourced work to three suppliersEXL,
WNS and 24/7; and the contract was that the supplier would run Avivas
operations at their own facilities."
"Now in this case, all the employees who were working for the
buyer in the vicinity of the supplier, would get transferred to the parent
company. All the operations to the suppliers will eventually become part of the
buyer. Eventually, Aviva brought back some of its operations from the suppliers.
So, a part of the transfer happened. But later, they decided to divest their
captives completely to the third party," he adds.
Captives play the role of center of excellence. They not only
play the role of managing the global sourcing program, but also manage the third
party to deliver the services. CIOs are thinking about captives for a broader
and complex role. They are concerned about how captives could add value to
parent companys business. They are redefining the role of captives for other
areas.
However, all do not seem to agree that its time to write the
epitaph of the hybrid captive model. One critic claims that the conclusion that
hybrid models do not work is premature, especially based on a few instances. One
needs to explore why these specific cases did not work, and devise processes to
address them, rather than write them off altogether. Moreover, BOT is a model in
itself which progresses from owned by supplier to owned by client in a
planned and time bound manner, and it cant really be classified as a pure
hybrid.
Pratibha Verma/Global Services
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