nasscom gic conclave 2013: session 2: value addition - mc kinsey
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Accelerating Value Addition from GIC’sApril 05, 2013
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
NASSCOM GIC Conclave
McKinsey & Company | 1SOURCE: Harvard Business Review; McKinsey analysis
Our findings are based on extensive research
Harvard Business Review BlogMarch 13th 2013
Our research is based on
8 Financial Services GICs
(Value addition Wave 2)
Detailed inputs from 15+ GICs
(including 10 Financial
Services GICs) in 2012-13
Detailed inputs from 15+ GICs
(Value Addition Wave 1)
200+onshore stake-
holder responses
to value addition
assessment survey
McKinsey & Company | 2
Key messages
Current status
GICs have struggled to institutionalize value addition due to factors that are deep rooted and require iconoclastic leadership
▪ Misalignment on priorities between GIC’s and onshore leaders; further gaps onshore where CXOs expectations are not in sync with intent at the next level
▪ Structural constraints (end-to-end ownership for 2 out of 10 processes) and weak underlying practices (e.g., business outcome based incentives in 1 out of 4 GIC’s)
▪ Culture that is deep rooted in incremental improvements; insufficient number of entrepreneurial leaders who have vision, courage and tenacity to drive breakthrough innovation
Call for action
Right time for GICs to make the transition from ‘mature delivery partners’ to leading with value addition; a clear road map and ‘program like’ approach required to drive value addition at scale
The prize
Value addition continues to be a significant opportunity for GIC’s and could drive benefits in the range of $50 Bn over the next 5 years
▪ Impact visible in pockets (observed in 1 out of 5 processes) through continuous improvements in operational efficiency, high expertise processes and customer experience
▪ Onshore expectations rising fast; GIC’s expected to own and show leadership on all dimensions
11
22
33
McKinsey & Company | 3
115
85
60
400
100
Benefits from labour
arbitrage
4X
Totalbenefits
Operational efficiency
High-skill capabilities
40
Total customer
experience
Revenue impact
Value addition continues to be a significant opportunity, can add value in excess of 3-5X of labor arbitrage
SOURCE: McKinsey analysis
Improved cost
and
productivity by
15-20%
resulting in
efficiencies of
~USD 4 mn
Improvement
in services to
sales conver-
sions from 2%
to 4% through
best practice
implementation
Increased
customer base
and wallet size
to enhance
revenues by
~6% through
end-to-end
ownership
Improved
effectiveness
of marketing
campaigns
through sales
force analytics
Estimated value at stake (indexed to 100))
1
McKinsey & Company | 4
Value addition visible in pockets through continuous improvements in operational efficiency and customer experience
SOURCE: Onshore and offshore stakeholders in Value Addition Assessment Survey
Revenue impact
Totalcustomer
experience
High-skill capability
Operational efficiency
Level 2 – Ownership Level 3 – LeadershipLevel 1 – Execution
Levels of impact
Transformation –
fundamentally altered
processes
Revenue impact
through leakage
prevention
Deliver high expertise
processes end to end
Expand to upstream
segments on core
processes
Labor arbitrage
benefits at scale with
continuous
improvements
Revenue contribution
from existing
services delivered to
new segments
Adapt processes to
address customer
needs
Measure customer
experience
Reengineered
processes exported
to the enterprise
Develop new
capabilities for the
enterprise which did
not exists
Innovation for
emerging markets and
globally
Transform customer
experience and take
accountability
No impactFew instances of impactMultiple instances of high impact
1
McKinsey & Company | 5
CXO expectations not in sync with intent at the next level2Ranking of priorities
# Top two priorities
2
4
3
1
GIC
stakeholders
2
3
1
Onshore
functional
stakeholders
(CXO – 1/2)
4
Onshore
business
stakeholders
(CXO)
1
4
3
2
Revenue uplift
Customerexperience
High-skillcapabilities
Operationalefficiencies
▪ Onshore stake-holders expect the GIC to play a support role with limited strategic intent
▪ Deep rooted culture at captives focused on meeting operational SLAs
▪ Limited incentives or ‘hunger’ at GIC’s to drive breakthrough change
SOURCE: Onshore and offshore stakeholders in Value Addition Assessment Survey
McKinsey & Company | 6
Knowledge development and
insight generation
Customer data usage to drive process
redesign
Learning codification with IP and capability
development
Drive expansion in scope of operations (e.g., new services,
geographies)
Opportunity identification
for upstream process movement
Additional value measurement and
incentivization to drive
value addition
Maturity of underlying value addition practices at GICs remains weak
Stakeholder assessment
SOURCE: Onshore stakeholders in the Value Addition Assessment Survey
Low degreeof maturity
Process covers basicswith potential to improve
Mature practice
2
GIC practice maturity scorecard
McKinsey & Company | 7
Culture that is deep rooted in incremental improvements; lack of iconoclastic leaders who can question status-quo
2
A long-term vision
Hunger to succeed
“Leaders can succeed when they’re willing to move away from the
status-quo i.e., make any changes required to succeed. Not just the
minor changes”
– SVP, Commercial Banking Organization
Business understanding
“Leaders can succeed when they’re truly knowledgeable about the
business and hence can play the role of a business partner”
– MD, Financial Services Organization
Courage and tenacity
“Leaders have to be both courageous and tenacious. They have to be
willing to take the risk if required. Take multiple hits if required;
only then will success be possible”
– SVP, Financial services organization
Evidence from interviews
GIC leadership
needs
– Director, Retail and Corporate Banking
“Leaders need to have an idea of what we need not only tomorrow
but 3-4 yrs. in the future as well. I don’t need to know what we can
do to improve our SLAs – rather what we can do to improve our
business”
SOURCE: Interviews with onshore and offshore stakeholders
McKinsey & Company | 8
GICs now at the cusp of moving from delivering efficiently and effectively to driving value addition
SOURCE: Discussions with onshore GIC leaders
3
The “Startup”
phase where the
advantages of
operating in low
cost countries
were demonstrated
to the enterprise
The “Mature
delivery” phase
where GICs
delivered cost
efficiency and
effectiveness
advantages to the
enterprise
The “Value
Addition” phase
where the GIC
moves beyond
labor arbitrage and
impacts customer
experience,
revenue and
invests in high-skill
capabilities
The “Innovator”
phase where GICs
are a source of
competitive
advantage and
part of network
organization
Prove the right to exist
Deliver efficientlyand effectively
Drive value addition (beyond
arbitrage)
Lead breakthrough
innovation
McKinsey & Company | 9SOURCE: Discussions with GIC leaders; onshore stakeholders in the Value Addition Assessment survey; Team analysis
Performance record and rising expectations makethis the right time to drive value addition
3
0% 18%
Focus on
higher
end skills
6% 22%
Global
service
factory
46%
18%
Low cost
delivery
center
14%
76%
Manage
processes
end-to-end
GIC has
maintained
or increased
productivity
92%
GIC has
maintained
or reduced
cost
86%
GICs have delivered strong performance on both cost and productivity
Onshore stakeholders currently perceive the GIC as a low cost delivery center or service factory but expect it to play a greater role in the future
Future role
Current rolePerformance on cost and
productivity
Current and future role of the GIC
License and time to act
McKinsey & Company | 10
Value addition at scale will require GICs to builda clear road map and ‘program-like’ approach
SOURCE: McKinsey analysis
3
Bold
aspiration
that excites
CXO’s and
GIC leaders
Aspire Suitable
areas with
expertise
and proof
of concepts
Focus Change
leaders
accountable
and
incentivized
on Value
addition
Lead Improve
underlying
practices
especially
performance
manage-
ment
Invest Internal
promoters
and
networks
for ideas
and
positive
buzz
Extend
Balance
Local
ownership
vs.
business
integration
Amplify
Make
successes
go viral
Mobilize
Innovation
and
initiative
taking
culture
across
employees
at all levels
McKinsey & Company | 1111
Alexander Edlich,
Director, McKinsey & Company
New York
Email: [email protected]
Sameer Khetarpal
Principal, McKinsey & Company
Delhi
Email: [email protected]
Abhishek Shirali
Senior Analyst, McKinsey & Company
Delhi
Email: [email protected]
Shailesh Kekre
Principal, McKinsey & Company
Bangalore
Email: [email protected]
Puneet Chandok
Associate Principal, McKinsey & Company
Delhi
Email: [email protected]
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