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kpmg.com/in
Kumar Parakala
Chief Operating Officer Advisory KPMG in India
Pradeep Udhas
Partner and Head IT - BPO Sector KPMG in India
1.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Foreword - NASSCOM
The Information Technology-Business Process Outsourcing (IT-BPO) industry has exhibited remarkable growth in the last decade to become one of the most significant growth catalysts for the Indian economy. While its initial value proposition hinged on basic outsourcing advantages of cost and talent, industry focus has shifted to higher value added services, innovation and transformation. Global sourcing is now evolving from being tactical to being of strategic benefit to clients The Indian IT BPO industry shall realise that to manage changing customer demands, tap emerging opportunities, offer new services, multi-lingual capabilities and business continuity planning, it needs to deliver services from multiple locations across the world. Thus a complete hub and spoke global delivery model encompassing service delivery across multiple continents, which assures clients of flexibility and scalability, is a necessity and a need of the hour. Indian IT-BPO companies needs to address the key requirements of a global delivery model-a proven multi-location delivery track record, a diverse set of assets/IP/solution accelerators, robust and consistent processes and technologies, depth and breadth of global skills, and an optimised network of centres. Indian companies now have over 560 delivery centres in 70 countries spread across Europe, North and South America, Africa and Australasia. With India acting as a hub while delivery centers across the world acting as business specific scalable spokes the industry shall be able to , provide a single face with seamless yet distributed delivery capabilities to the customer, offering both efficiency and flexibility. This whitepaper provides a complete understanding of the evolution of the hub and spoke model in the global sourcing industry, key characteristics and benefits, and factors critical to the success of this model. We hope you find this interesting, and we welcome your comments and feedback on the same.
Som Mittal
President NASSCOM
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Table of Contents
Executive summary Introduction Early riders of the Hub & Spoke wave: Key takeaways for IT-BPO industry Hub & Spoke model Heralding a new era in technology outsourcing Critical success factors for a successful Hub & Spoke model India as a global Hub Way forward About KPMG in India About NASSCOM Glossary 15 23 27 31 35 36 37
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2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
1 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Executive summary
The outsourcing landscape in the IT-BPO industry has undergone several inflection points in the years of its existence. While the initial driving force was the need to cut costs, over the years customers realized that outsourcing could be a tool to achieve much more than just cost advantage; it could also turn out to be a strategic driver to attain business value. This has led to the evolution of a more holistic view on global sourcing with clients and vendors collaboratively striving to achieve the most optimum and beneficial model of outsourcing service delivery.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 2
Today, clients and vendors are seeking models to help them coordinate and manage globally dispersed centers, build strong sourcing relationships, instill a collective identity and ultimately deliver high quality services seamlessly. One such operating model that has been successfully implemented across several industries and is expected to drive the next phase of IT-BPO service delivery is the Hub & Spoke model. The Hub & Spoke model is used in the context of multi location sourcing wherein a central consolidator called the Hub provides a single face to the customer while seamless extensions called Spokes are leveraged to provide the services, distributed across multiple locations. In a wider role, the Hub is expected to take on management responsibilities including those of capabilities development, customer management, regulatory compliance, uniform standards of delivery, and manpower management. On the other hand, a Spoke is administered as a delivery centre that can be scaled up or down depending upon business requirements. Some companies may also choose to leverage near shore Spokes as base locations for business development.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
The Hub & Spoke model provides an attractive cost proposition to enterprises while allowing vendors to deliver seamless services. It provides flexibility in service delivery in a way that vendors can scale up or down operations based on client requirements. The model also helps organizations gain business insights by being close to the customer. Service providers are able to tap into smaller cities that provide a compelling value for sourcing. Delivering projects for a client from a large number of globally distributed locations allows vendors to de-risk operations and utilize the benefits of a skilled regional labor pool. Thus, a good mix of locations for service delivery ensures a better quality of service at lower costs. India has already established itself as the preferred offshoring destination for organizations globally and built a strong expertise in technology operations, business processes and management capabilities over time. This global prowess can now be extended to a new role as Global Hub, managing a geographically dispersed network of Spokes.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
3 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
The new decade presents India with an opportunity to move beyond the most preferred offshore location to become a Global Hub for IT-BPO managing clients across the different countries around the world. The Indian IT-BPO industry could learn lessons from the success stories of Hub and Spoke model implemented in other industries like manufacturing - automobiles, electronics, consumer goods and aerospace. Just as the US and Japan emerged as the global manufacturing Hubs in the last couple of decades1, managing customer requirements, risks, quality and performance standards with manufacturing locations established around the world acting as Spokes, the Indian IT-BPO industry could also successfully replicate this model leveraging inherent benefits of a widely dispersed geographic location portfolio. This would significantly enhance Indias share in the worlds outsourcing market. In order to effectively position India as a Global Hub, it is essential to invest in a strong brand, proactively develop a location strategy, adapt and standardize operations across locations, invest in technology and ensure compliance with global security and regulatory standards. The governments role is to formulate attractive regulations for companies operating out of India, develop infrastructure specially in smaller cities and help project India as a safe investment haven to clients and investors. Industry bodies can play a significant role in the process by promoting and marketing the idea of Brand India as a Global Hub and further nurturing the managerial talent in the country.
1.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 4
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
5 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Introduction
In a rapidly globalizing world, IT-BPO outsourcing has evolved from being optional to a critical lever driving a companys profitability and growth. What began as a step to achieve cost savings through labor arbitrage has undergone several changes over the past few decades, with vendors moving into new markets and establishing unique offerings and services. Challenging economic conditions from time to time have further necessitated adoption of different delivery models to provide business value. Today, outsourcing has transformed from being merely labor arbitrage with low-cost countries, into an offshoot of true globalization.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 6
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
The initial driving factor behind the development of outsourcing has been the need to cut costs. Over the years, the outsourcing model has undergone several changes, with many stakeholders discovering that outsourcing is not just a tool to achieve cost advantage but instead, a strategic driver to attain business value. Thus, a more enlightened view of global sourcing is starting to emerge as customers get increasingly convinced of its vast and multi-faceted potential.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
7 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Evolving perspectives on global outsourcing Outsourcing is evolving from cost arbitrage to strategic location sourcing
Current Perspective
Emerging Perspective
Labor and cost arbitrage Migration of projects/ processes to offshore locations Multiple delivery centers across locations to de-risk business.
Maximize benefits from globally dispersed locations Quality service from external local talent at lower cost Strategically leverage global best practices and talent Break the process into components like voice, data, compliance and execute across multiple locations Simultaneously execute tasks across multiple offshore locations Clients business models necessitate multi-location service delivery capabilities Presence of geographically distributed delivery centers becoming crucial for vendors to be considered for large global outsourcing contracts.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
In an emerging trend of outsourcing, companies are actively seeking out vendors in diverse locations in order to maximize the benefits of geographic dispersion in order to deliver their services. With a wide geographic dispersion though, comes the added concern of management. Thus, there is need to establish a highly robust management framework to coordinate globally dispersed centers, build relationships, instill a collective identity and ultimately deliver successfully on the outsourcing mandate. One such model of management that has been successfully leveraged across industries such as manufacturing, logistics and aviation is the Hub & Spoke delivery model. A combination of customer, vendor and geo political considerations is giving rise to the need for the Hub and Spoke model today. Customers are looking out for vendors who are able to manage a large number of globally dispersed centers. While vendors seek to be closer to their customers they also want tighter and more streamlined management control over operations. Spreading of business operations geographically also ensures adequate diversification of geopolitical risks.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 8
Responsibilities of a Hub
Areas Customer management Quality, risk and performance management Responsibilities
Understand customer requirements in order to allocate work to Spokes Provide seamless customer experience irrespective of the offices where the services are being delivered Set quality, risk and performance standards for the Hub and Spokes Monitor performance Report or initiate corrective actions wherever required Define and implement training programs across the Hub and Spokes Cross-pollination of skills between the Hub and Spokes to ensure uniform capability development Ensure continuous manpower planning across the Hub and Spokes Ensure visibility on employee related statistics like staff count, competency, allocation, attrition across Spoke locations Ensure the necessary controls have been put in place across all Spoke locations to ensure global and local regulatory compliance
Regulatory compliance
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Spokes are seamless extensions of the Hub that can be leveraged to provide a service to a customer (internal or external). The typical responsibilities of a Spoke include meeting a Hubs performance expectations, adding to its manpower needs, local project management, supporting the Hub on legal & tax issues and operating as an extension of delivery or competence center.
Responsibilities of a Spoke
In most cases, a Spoke will be leveraged as a delivery centre that can be scaled up or down depending upon business requirements. Most technology companies prefer to keep the management complexity at the Spokes to the minimum. Some companies may choose to leverage near shore Spokes as base locations for business development.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
9 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Going forward
To summarize, cost arbitrage by itself has ceased to be a key differentiator in the IT-BPO industry. Today, customers expect service providers to have strong delivery capabilities, well evolved across geographic locations in order to drive business value. This changing nature of client requirement is pushing vendors to scale up their location portfolio in order to participate in transformational global deals. One such model that is expected to evolve into the next archetype of multiple location based service delivery is the Hub and Spoke. The objective of the Hub & Spoke model is to provide greater flexibility to the client in selecting locations out of a portfolio of delivery centers that adequately fulfills all business needs. The Hub & Spoke model is expected to be complementary to the standard practices followed in the industry at present and would not suddenly result in the other models phasing out. The early adopters of this model are likely to gain a significant advantage over other players, and the model itself will evolve into an industry standard over time and be widely implemented in the IT-BPO industry.
Industry Example
Costs are no longer the key motivator behind outsourcing decisions There is need to partner with the customer in close proximity to add value.
Various industry players are considering some form of the Hub and Spoke model as a part of their business strategy going forward. For example, a leading BPO player is contemplating creating Hubs which are organized by competencies and/or regions. They are actively expanding their presence in Australia, Europe and North America and confirm that clients are now expecting their service providers to be business and technology experts, and not just provide a cost advantage. The vendor believes that it is important to understand the cultural and process implications of working in the region where their clients operate. As a result, they will continue to invest in building domain expertise and move closer to the customer in the future.
1. 2.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The first generation global delivery model was driven by lower telecom costs. Collaboration technologies will drive the next generation of GDM. Companies need to evolve their business processes around collaboration to succeed in the new paradigm.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 10
R&D Hub co-ordinates all product development efforts across the Spokes Standardized R&D processes ensure easy integration of new acquisitions Move personnel in R&D centers closer to the customers through cross-pollination Outsource product development efforts where possible.
Industry Example
A leading global product development company with its R&D centre in India has successfully leveraged the Hub & Spoke model to be closer to its market. In the past, this company grew its product portfolio through both in-house development as well as product acquisitions. In case of the latter, while the parent realized the need to provide the acquired company the freedom to grow and expand their product portfolio it was also necessary to bring in benefits of standardization and merge the two entities in a smooth manner. The parent started to support the acquired company in their R&D efforts from an R&D Hub based out of India. Product development efforts were driven by product owners for the region with access to information available at various Spokes. In an effort to further integrate the two entities; some of the staff was transferred from the R&D Hub to the Spokes every year to help them understand their clients (team members at the Spoke) better, leading to significant improvements in the joint product development efforts. The management talent came from the parent Hub. Thus, not only did the engineering Hub ensure standardization of joint product development efforts; it is also allowing the company to outsource some part of the product development efforts to 3rd party service providers.
Business models have evolved considerably over time. The command and control structure worked well for traditional industries and economies, in the past. Todays knowledge economy, coupled with global business environments, requires a structure granting individual units some autonomy in decision making. Further, for businesses to remain competitive, access to the optimal resources be it talent, materials or best practices from across the globe, is critical. The Hub and Spoke model is the manifestation of this business imperative. This will result in strategically located centers of excellence executing portions of the business independently; while relying on the headquarters to facilitate knowledge and process sharing. This is definitely a trend that is here to stay. - Naresh Wadhwa President and Country Manager, Cisco India and South Asia
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Over the next few years, the focus of BPO Service providers will be to help their client achieve specific business outcomes so that they can outperform in their marketplace. There shall be an integration of Global Operating models that goes beyond offshore and near shore centers, significant use of domain consulting skills, operating and process model innovations, technology platforms and embedding analytics to deliver these specific business outcomes
11 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
The aviation industry1 was the first to successfully implement the Hub and Spoke distribution model, which has since then been adopted by many other industries. The manufacturing industry, for example, put into practice the Hub and Spoke model in order to leverage a global low cost, high quality supplier base which in turn helped facilitate the production process and lower overall costs.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 12
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
How the manufacturing industry built a globally diversified network can be a useful lesson for IT-BPO companies looking to outsource from all over the world. The industry started off with goods being manufactured at diverse locations that offered attractive cost propositions. Over a period of time, they began adding more locations in the same region. After gaining a good understanding of operating in a region, companies then began exploring the option of setting up their own units to procure goods at even lower costs. This led to the creation of multiple nascent Hubs and Spokes.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
13 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Over a period of time, the Spokes began to assimilate the best practices from the Hub units of the manufacturer, leading to the evolution of a closely knit Hub and Spoke system of operation. The approach adopted by the industry to transform a series of standalone sourcing units to a tightly enmeshed global sourcing network is illustrated below.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 14
To cut production timelines, as well as take advantage of a worldwide supplier base, the company decided to adopt a global sourcing strategy. The aircrafts design was done at the companys Seattle headquarters in the US; however the rest of the production process was decentralized. The company outsourced nearly 70 percent of the aircrafts component production with Japanese aviation industry manufacturers supplying the remaining 30 percent of the aircraft. Thus, this model allowed the company to completely focus on its core competency of designing and assembling aircrafts, while sourcing components from its Spokes.
Japan Forward fuselage Centre wing box Wing Main landing gear wheel well Fixed trailing edge
US Forward fuselage Fixed and movable leading edge Tail fin Aft fuselage Engines Engine nacelles
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Key Takeaways:
Cost control is critical Focus on core competency Invest in new locations Cultural alignment Performance management and tracking Contribution of primary markets
Cost control is critical - Cost leadership is a critical factor for continued survival in a highly competitive industry and will be the prime driver for establishing presence in global locations Focus on core competency - Companies need to identify core areas of focus which could be IP development, branding etc and invest in them continuously Invest in new locations - Companies need to pro-actively invest and develop emerging locations in order to reap the new and attractive benefits offered by them
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
15 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Cultural alignment -There is a need to better understand the cultural nuances of doing business in a region before making substantial investments; thus, it is better ramp up operations gradually Performance management and tracking - Companies need to continually monitor the performance of delivery centers through periodic audits and other performance management measures to ensure that brand attributes remain strong Contribution of primary markets - Over time, as the business scales it is inevitable that the contribution of primary markets to the product development process will decline and other locations would emerge.
Deliver the outsourced process simultaneously from multiple locations Spilt the process into components - voice, data etc and deliver each of them from the best suited locations Use Hub as a consolidator that provides the customer a unified user experience View Spokes as extensions to Hubs to help reduce bureaucracy Smaller Spokes ensure that they can be managed remotely from the Hubs Two Hubs may share a Spoke location.
Industry Example
A leading global player in the Consulting, Technology and BPO space has been using the right-shoring strategy, the objective being to provide a unified seamless experience to their clients. The firm has centers all over the world to help service clients from the best location. To be more specific, the company splits the process outsourced into multiple components voice, data etc. and routes these processes to the best location available to serve them. The Hub acts as a consolidator and controller that provide the client a unified experience. The Spokes are viewed as extensions to the Hub which help reduce the time and bureaucracy in servicing clients. Also, the company has developed Spokes in tier 3 and tier 4 cities in India, while creating regional Hubs to control these Spokes. Thus, by limiting the size of the Spokes and with regional Hubs to control them, the complexity involved with deploying the model has significantly reduced. Additionally, for large outsourcing engagements that support global operations, the firm has created client Hubs by geography to service domestic operations. There is also an instance where two offices have shared a Spoke location and another where an office has been phased out as a delivery centre with the rising cost of operations.
- Anil Modi Chief Marketing Officer and President (MENA), Aegis Limited
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Global Delivery Model provides brands with possibilities of finding right equilibrium between cost and experience. The GDM needs to leverage technology, process and people skills to provide a seamless and consistent end user experience.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 16
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
17 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
A range of Hub and Spoke formats can be formulated keeping in mind factors such as ease of management, skills availability, geographical proximity etc. Three possible models of Hub and Spoke are discussed in this section with their key characteristics, governance mechanism and scenarios under which they could be applied.
Governance mechanism
The management control lies at the dedicated Hubs while Spokes have the onus of ensuring regulatory compliance and following the rules of the country in which they are located. In operations, it is the Hub which takes decisions on work allocation and delegates it to the Spokes. The SLAs, response and turnaround time are mandated by the respective Hubs. Also, having a network of Spokes in different time zones allows the Hub to ensure follow-the-sun workflow.
Suitable scenario
This model would be best suited when Spokes are situated in locations having a specific value proposition which could be low-cost, specific skill-sets, cultural affinity with the client etc which is useful for a particular Hub only and not others. This model could also be used when the Spoke is expected to perform easily replicable low to medium skilled tasks. Also, in the domestic scenario, this model could be applied with tier- III, IV cities acting as Spokes for handling medium to low skilled replicable tasks with tier-I, II cities being the Hubs.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 18
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Governance mechanism
The Spokes would have a separate management layer involved in managing the operations. They would also have the discretion to prioritize and work on the tasks received from different Hubs. The SLAs, response and turnaround times are managed and tracked by the Spokes themselves. Also, this model mandates some degree of coordination between the Spoke and Hubs and smooth flow of communication for prioritization of operations.
Suitable scenario
This scenario typically observed when the Spoke has the necessary resources to support one critical competency. An example of this competency could be language (using So Paulo for Portuguese language skills) or capability (internal functions like risk, legal, etc.). In case of product companies, it could be the global R&D centers working on a set of specific technologies in which they specialize catering to the requests received from other locations.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
19 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Governance mechanism
Since Spokes are reporting to multiple Hubs, there would be a thin management layer handling the overall operations of the Spokes as it requires some degree of coordination and smooth flow of communication for ease of operation. Management control of the projects lies at the Hubs while Spokes ensure job completion and regulatory compliance. In operations, it is the Hub which takes decisions on work allocation and delegates it to the Spokes though the discretion to allocate dedicated resources may lie with the Spokes, in this case.
Suitable scenario
A Spoke is usually shared when it functions as a large delivery center that supports multiple competencies along verticals and/or horizontals. This model is suited when Spokes have skill-sets which maybe a common requirement at more than one Hub, for example bilingual capability, expertise in a specific vertical (E.g. manufacturing, healthcare, BFSI, etc.) or horizontal (E.g. research, supply chain, ERP CRM etc.). ,
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Capgeminis Rightshore strategy ensures work is performed wherever it is best for the quality of service, availability of skills and costs. This means right service, in the right place at the right time. Through a globally distributed delivery network comprising of process, infrastructure and delivery centers, we obtain efficiency gains through economies of scale, increased effectiveness through improved processes and productivity enablers. - Aruna Jayanthi CEO, Capgemini India
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 20
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
21 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Phase 1
Typically, organizations would initially start with a single Hub and multiple Spokes. It could also start with a single Spoke with multiple Hubs initially. This is the simplest of all types and hence, would be the first step for the organizations who would want to venture into multi-level sourcing. The management complexity in handling communication, work distribution, resource allocation, and ensuring compliance is minimal.
Phase 2
As the organizations gain experience in operating Hub and Spokes, they could replicate with more Hubs and Spokes with similar configuration at same or other locations within the organization. Phase 2 would involve multiple Hubs with dedicated Spokes or presence of multiple shared Spokes with corresponding Hubs. The management complexity in managing operations would be slightly complex than the phase 1.
Phase 3
Phase 3 would involve having a complex network of multiple shared Hubs and Spokes. This is the most complex network of all as each Hub would have shared Spokes and each Spoke would be interacting with multiple Hubs. There would be a management layer both at Hubs and Spokes in order to manage the workload, priority, delegation and tracking of SLAs. This model would be a gradual transformation for organizations which have evolved through phases 1 and 2.
Key Benefits:
Capabilities development Cost advantage Flexibility & scalability in operations Improved time-to-market Seamless operations Spread risk and increase presence Lower incremental investments on technology Enforce worldwide best practices
Capabilities development: Increased size of organization results in more specialization and decentralization in decision making, which makes it necessary to add more management layers for better control of resources and inter-organizational interactions. The Hub and Spoke model is a tool that still enables considerable centralized control, especially over aspects such as skill development, resource utilization, operational efficiency and enforcement of uniform standards across delivery centers. The model allows the effective use of regional capabilities such as language skills to develop world class quality of services. Cost advantage: A good mix of locations for delivery centers ensures higher quality of service at lower costs. Spokes allow companies to reap benefits of cost arbitrage by leveraging multiple locations (mix of high quality and low cost) to service customers. Flexibility and scalability in operations: Multiple delivery centers organized as Spokes allow companies to juggle with resources as per demand across different geographies. Companies can re-staff resources in various geographies to scale-up or scale-down operations. Improved time-to-market: Hub & Spoke model allows delivery units to source talent from locations where the required capabilities and skills are available and thereby, save time which would otherwise have gone into training and building centers of excellence in one central location. Seamless operations across all Spokes for a Hub: When organized in the Hub & Spoke model companies make a conscious decision to ensure there is a consistent view of customer processes across all locations. This allows technology service providers to leverage Spokes simultaneously to service customers.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 22
Multiple locations to spread risk and increase presence: The Hub & Spoke model helps spread operation risk across various locations. Decentralized operations allow companies to have effective business continuity plan and resiliency in case of any disaster. Also, centers in various parts of the world allow companies to have global presence and wider reach. Companies can target more clients and manage business seasonality and cycles. More importantly, Spokes bring in regional benefits such as near shore and local regulatory incentives to facilitate service delivery . Lower incremental investments on technology: Hub & Spoke model is best leveraged by setting up a private cloud that can be accessed globally. This ensures there is no incremental investment in technology for every new centre that is setup. Enforces worldwide best practices: Companies can adopt best practices from various parts of the world and extend it to other delivery centers and teams.
Harmonize global operations Borrow leading practices from across locations to develop a consistent best practices framework that can be replicated across locations.
Reduced time to deployment for projects Centralized training coordinated by hubs ensure a consistent employee quality. These trainings can be rolled out in parallel across multiple spokes to new hires to ensure much faster deployment of projects.
Mitigate risks and ensure high availability (24*7*365) Scattered delivery helps spread the risk to business continuity across multiple delivery centers. This provides more flexibility to plan better the BCP and DR considerations to ensure high availability.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Factor in the regional competitive advantages Niche skills or lower priced skills that align with a competence can be best tapped using the Hub & Spoke Delivery model.
Key Challenges:
Differences in local regulatory environment, culture and time zones Integration of resources to provide single (unified) service Project management Ensuring data confidentiality and security Addressing tax issues
Differences in local regulatory environment, culture and time zones: With centers in various parts of the world, the company may face differences in regulatory environment, cultural preferences, time zone etc. which may pose a challenge. Due to differences in time-zones and culture, communication between centers can be impeded. It is important to understand the softer aspects of the location and plan accordingly to ensure smooth program management and open bi-lateral communication.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
23 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Integration of resource pools to provide seamless services: It is important to synchronize operations between the Hubs and Spokes and tightly integrate their resource pools to provide a seamless service offering to clients. Failure to do this may defeat the entire purpose of running this business model. Project management: Under the Hub & Spoke approach, since the work is distributed across Spokes, following project management practices and existence of a management team which can act as a coordinator between Hub & Spokes is extremely critical. The project status, milestones and deliverables must be tracked and updated on a regular basis. It is also important to run a pilot and transfer less critical, less complex tasks to Spokes before transferring mission-critical processes and applications to reduce the operating risk. Ensuring data confidentiality and security: In a multi-location firm, protecting intellectual property rights and data is critical. The vendor needs to ensure that there is a proper mechanism for ensuring network security, data security and physical security Addressing tax issues: Different countries have different tax structures; understanding and complying with them can be an arduous task for companies. Thus, firms need to formulate a plan and seek expert advice in order to optimize tax treatment, minimize uncontrolled tax risks, and ensure ongoing compliance with laws.
Complex transition management processes Projects need to be transitioned to multiple Spokes. Decisions need to be taken on phasing the transition and the level of support each of the spokes need to ensure successful transition.
Managing Information Security considerations across regions is increasingly more challenging Information Security (IS) laws vary across regions. The Hub will need to identify pertinent aspects of IS laws at various Spoke locations and define them as Standard Operating Processes and Procedures (SOPP). There is also a need to continuously update the SOPP to reflect Information security considerations across regions.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
Navigating the regulatory regimes across Spoke locations tend to be complex Tax and legislative considerations tend to vary across regions. There needs to be highly skilled pool of professional experts (legal & tax) at the Hub to help identify actions to ensure legal and tax compliance across locations.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 24
On-site Spokes are being established as risk mitigation to counter regulatory pressures Offshore locations are being developed to address saturation of tier 1 cities Right governance structures are paramount to seamlessly leverage these Spoke locations.
Industry Example
A well-established mid-tier IT services player confirms that Hub & Spoke is a model they are actively exploring as a part of their company strategy. They are already establishing on-site Spokes in response to regulatory decisions and as risk mitigation strategies. In future, they believe the Hub & Spoke delivery model will help enable resource mobility across locations address attrition challenges and provide clients with a one-stop vendor with capabilities to deliver services across multiple locations. The company also believes that the right governance structure is essential to ensure clients are seamlessly serviced from all locations available to the company.
India is at the forefront of the rapidly evolving IT and Business Process Offshoring (BPO) market and is well established as a destination of choice. Having grown manifold in size and matured in terms of service delivery capability and footprint over the past decade, the Indian BPO industry is now at an inflexion point and faces a unique opportunity to enhance its role as a full-service, value-adding partner. Growing at more than 35 percent over the past three years, BPO is the fastest growing segment of the overall offshore market, and is currently estimated at USD 26-29 billion. Factors such as access to talent, service quality, productivity, and time-to-market have played key roles in the growth. The Hub-and-Spoke model has several features that enable large enterprises to integrate their global and local business processes. Enterprises are expanding their global footprint, stepping over country borders and across continents to embrace new opportunities emerging around the world. As they seal merger and acquisition deals, set up joint ventures, setup sales and operation centers, and create new distribution channels, the enterprise structure becomes ever more complex and business processes lose the vital element of standardization. This is when the Hub-and-Spoke model comes in handy as it serves the various business units with one common set of services, templates, software, and knowledge.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
25 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
The Hub & Spoke model provides a cost attractive proposition to enterprises while allowing the vendors to deliver high end specialized services. The model also helps organizations gain business insights by being close to the customer. Thus, a good mix of locations for delivery centers ensures higher quality of service at lower costs. But companies need to undertake certain steps to ensure successful implementation of the Hub and Spoke model in order to reap its many benefits. Few of them are discussed below.
Business expert and innovators Technology experts Predictable results Consistent customer experience across geographies Risk averse business practices Environmentally conscious Consistent and harmonized operating processes.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 26
newer centers in lower cost tier 2 and 3 Indian cities. This company has a pro-active international location strategy that is both quality and cost focused. They provide very limited voice related services from India and prefer to use India more as a data processing Hub. As more and more IT-BPO companies compete for large global deals, it is essential that they develop a pro-active location strategy to continue being relevant in the market.
Resource management Companies operating in the Hub & Spoke model need to have a strong resource management function that covers all locations. The key aspects to be addressed by this function should include manpower planning, recruitment, staffing, training and bench management. It is important to ensure that the right governance mechanisms and controls exist to guarantee the availability of resources across all locations for projects that the company bids for. Operational direction There needs to be clarity on the location strategy and the reasons for making the investments. This will help put in place the right governance structures. Further, there needs to be clarity on
-
Investments being made in setting up of new locations by business unit within the company Hierarchy of locations clearly identifying main and the support centers.
Performance management
All locations need to have a uniform understanding of performance expectations to ensure a seamless customer experience. The Hubs need to develop rating parameters to monitor the performance of Spokes periodically. These ratings can typically be conducted as a part of the performance review for the location. These performance reviews will provide an insight into the ability of the Spoke location to handle complex processes, thus helping the Hub take decisions on work allocation across Spokes.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
27 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Standard operating processes and procedures The operating processes and procedures need to be consistently followed across all locations. This is necessary to allow the organization to leverage any of the locations available with the assurance that the standards of service delivery are maintained. Also having standard operating procedures across all locations will make it easier to leverage a common technology backbone. Sales and business development Sales and business development efforts could be undertaken at the business level and not at the level of locations. Business development efforts undertaken at Spoke or Hub locations may result in administrative controls that prevent the location from being leveraged by the rest of the company. Management talent
By locating high quality management talent at the Hub, companies give themselves the option of being able to setup multiple low cost centers around the Hub, which may otherwise find it difficult to attract managerial skill-sets. As the model evolves, moving some part of the management to the Spokes can also be evaluated.
Standard operating processes and procedures Private cloud will help tap independent centers simultaneously Regional Hubs that manage, control and monitor Spoke performances is the way forward for rural BPOs Uniform performance management and rating systems need to exist across all centers Governance structures must enable the program office to leverage simultaneously these.
Industry Example
An emerging rural BPO believes that Hub & Spoke model is the way forward for them to effectively manage their business. They are currently organized by regions North, South, East and West. Over time they believe these regional headquarters will evolve into Hub setups that control and leverage Spokes around them. The Spokes are typically rural towns that will be tapped further through pro-active investment in high-quality training.
Industry Example
A leading non-urban BPO firm in North India undertook initiatives to create opportunities within tier 3 and 4 cities so that potential employees did not have to leave their home towns in order to work. The three main parameters, on which their business strategy evolved, were to leverage partners, to operate through distributed micro centers and to offer strong domain capability. The BPOs Hub & Spoke model entailed small delivery centers that were geographically dispersed and individually managed. The BPO carried out work management at the Hub while more focused delivery was carried out in Spokes spread across the region. The Hub managed the technology, training, people management and infrastructure for the Spokes. Thus, through innovative people-management in their Hub and by breaking down complex processes into smaller repetitive ones in the Spokes, the non-urban BPO delivered world class quality to its clients.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The next ten years is going to be the decade of non-urban (small towns) BPO and the Distributed Delivery Model. The demand gap for talent in the metros and the availability of talent in the small towns can be bridged by work moving to small towns. Delivery centers in small towns for executing IT-BPO work provides job opportunities to locals, prevents migration to metros at the same time providing a cost advantage to the outsourcer. - Mythily Ramesh Co-Founder & CEO, NextWealth Entrepreneurs
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 28
BPOs that combine rural ethos with a strong business ethic are the next discontinuity and frontier of outsourcing - Dhiraj Dolani & Venki Iyer Mentor and Co-Founder, B2R Technologies
It is a matter of time before rural BPOs are ready to stake their claim on low end business processes - Sudhir Gupta COO, Drishtee
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The market has driven the industry from on-shoring to near-shoring to off-shoring and now rural shoring is touted to be the new dimension to remote business processing which brings in twin advantages in terms of job opportunities to the rural youth and cost efficiencies to the corporate world. - Murali Vullaganti Founder and CEO, RuralShores Business Services
The non-urban BPOs will spark off the digital revolution in the far interiors and connect people with the developed world via the information highway, financially & economically and in more ways than they can imagine. The non-urban BPO lifecycle will be short-lived however the resulting distribution boom will be far more impacting than has been witnessed thus far. - Ajay Chaturvedi Founder Chairman, HarVa
29 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
1.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 30
Quality/ Certifications
Security Certifications
Performance Certifications
ISO 9001 SEICMM CMMi Six Sigma COBIT EFQM (European Foundation or Quality Management
BS 7799 ISO 27001 ISO 20000 HIPAA Data protection act PCI (Payment Card Industry Data Security)
PCMM (People) eSCM (eSourcing Capability Model) COPC (Customer Operations Performance Center)
Over the years of its existence, the Indian software industry has transformed from delivering stand-alone hardware, software and services, to moving up the value chain and providing a complete suite of end-to-end integrated offerings coupled with high-end services like consulting in large transformational deals. IT companies are now also looking at emerging business themes like analytics, mobility, and cloud computing in order to retain their competitive edge.
Source: KPMG in India Analysis - Hub and Spoke operating model, 2012
2.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
31 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Government initiatives
India has been an attractive destination for technology service providers as well as multi-nationals to set up and operate their captive units, R&D and offshore delivery centers. Tax breaks offered to the IT-BPO industry under the STPI, EOU and SEZ schemes have acted as a catalyst in its growth. Although, income-tax benefits under the STPI scheme expired in 20113, the government is taking other initiatives to promote IT-BPO sector especially in Tier-II, III cities through creation of SEZs and financial incentives. The government is also taking measures to overhaul overall fiscal policies through introduction of Goods and Services Tax (GST), Direct Tax Code (DTC), revamp of company laws, and introduction of the IFRS standards.
Developing infrastructure
India is strengthening its focus on infrastructure development to support the growing business requirements. While the current state of Indias infrastructure is still sub-optimal, the government is taking measure to improve it. In the Union Budget 2011-12 for example, the development of world class infrastructure was the key focal area, with budgeted spending in infrastructure estimated at INR 2,14,000 Crores, a hike of over 23 percent from 2010-11, providing 48.5 percent of the plan allocation. The budget also proposed to provide the much needed foreign investment in Indian infrastructure by raising their venturing limit to USD 40 billion from USD 20 billion earlier.4
3. 4.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 32
Location footprint is a function of skill-sets available regionally Management at new locations are hired locally The Global service delivery framework is enforced at all locations Extending existing location portfolio to leverage the benefits of Hub and Spoke model.
Industry Example
A leading global BPO that has evolved into one of the more prominent players from a captive has increasingly begun to expand their global footprint to better meet customer requirements. Their location footprint is a reflection of the skill-sets available in the region to meet customer requirements. Management at the new centers is hired locally. The company has also invested in a global service delivery framework to help create a predictable and sustainable customer experience. However, they have not thought of organizing themselves in a Hub & Spoke formation just yet, which has resulted in a failure to tap the rural BPO market through third party subcontractors. The foundation of the Hub and Spoke delivery model is already in place and by proactively developing it, the company will be able to leverage the benefits of a wider resource pool and market place in the future.
Through the decades, we have seen a gradual shift in operating models from onshore to offsite to near shore. Going forward, we expect the client to become location agnostic and emerging destinations will spring up as extensions to the already existing network of delivery centers. Challenging economic conditions are forcing service vendors to push the envelope in terms of adapting to new delivery models that will prove to be low in cost and high on quality. As we see, the Hub & Spoke model should evolve as the service delivery model of choice for leading global vendors. And Indian vendors should take steps to lead that change.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
33 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Way forward
India has established itself as the worlds preferred outsourcing destination and has built strong expertise in technology operations, business processes and management capabilities over time1. Moving forward, companies in India can be positioned as managers of global Hubs, extending their existing dominance and proficiency in technology outsourcing. However, apart from steps taken by IT-BPO companies, a holistic transformation can happen only with support of the other players in the ecosystem which in this case constitutes the Indian government and industry bodies.
Companies
Invest in building a brand A strong brand is critical for clients to accept service delivery that is based on Hub & Spoke model. Without a strong-brand to back them, the Indian technology outsourcing vendors will find it increasingly challenging to prove and convince the client of their capabilities to operate in the Hub & Spoke model. There is a need to move from being a provider of low cost services to being perceived as a business partner that can provide globally consistent services from multiple delivery locations around the world. Pro-actively develop a location strategy based on the Hub & Spoke model The Hub & Spoke model of operations requires the service provider to clearly articulate their current operating structure and drivers to invest in multiple locations. If this is not clear, this will result in a number of delivery centers that are under-utilized due to misalignment with the rest of the organization. Service provider should clearly identify the Hubs and Spokes that are likely to emerge over the next two to three year horizon and locations that may need to be phased out. Adapt, standardize and harmonize operations across all locations Globally, consistent operations are important to operate effectively in the Hub & Spoke model. The operating procedures and SLAs must reflect the expectations customer has from the brand projected by the company. Standard operating procedures need to be defined and implemented across all locations. Actively manage performance across all locations Develop a performance rating system that helps quantify the delivery capabilities available at a location. Also the performance rating system for employees must be the same across all locations. Performance rating will help understand the maturity and hence capability to deliver processes from a delivery centre and will help channel the right process to them while operating in the Hub & Spoke model.
1.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 34
Invest in technology that can be leveraged across all locations Hub & Spoke models are best utilized when a process can be broken down into components and is delivered simultaneously from multiple delivery centers. For this to be possible there needs to be unified view on the execution status of the process. To enable this, service providers need to invest in high-quality technology that can be accessed remotely by multiple locations through a private cloud . Ensure compliance with global information security standards When delivering a process across multiple locations, it is important that the service provider is compliant with the prevalent information security laws. For example, a country may have restrictions about processing data generated within its borders at another country location, which may propel the need to establish a delivery centre locally. Also pro-active audits on all delivery locations and publishing the audit reports and actions taken will help build confidence in customers.
Government
Favorable domestic regulations The current domestic regulatory environment remains challenging in terms taxation, transfer pricing and IP Protection, putting Indian companies at a disadvantage when pitching for global deals. There is an urgent need to rationalize current taxation structures and transfer pricing laws. Since the original tax exemption (Section 10A/10B) for the industry has now expired,5 given the state of global economy and the Indian IT Industry, the government should frame policies selectively providing tax relief to companies within the sector such as tax rebates on new, innovation led outsourcing models, which could provide the next spurt of growth to the industry. Development of smaller cities The government can give a boost to the industry by encouraging the establishment of IT units in tier-II, III cities and developing satellite townships around these centers, thus, creating a self sustaining ecosystem. Focus should be on creation of an employable workforce, state-of-the-art infrastructure and fully equipped and incentivized technology parks to attract IT firms. Development of infrastructure A robust infrastructure in terms of transport and communication needs to be in place in order to effectively leverage the multi country Hub and Spoke model. Especially when it comes to broadband, India is notably lagging its peers in Asia and Europe. A well developed physical and social infrastructure will help bridge gaps between geographically dispersed cities. Improving geopolitical environment If India has to take over the mantle of a global Hub, it is essential that the government ensures and projects India as a safe and attractive destination for investment. Any kind of political and legal uncertainty with doing business in India will discourage clients to move further up the outsourcing value chain and outsource end to end engagements.
Industry Bodies
Promoting Brand India Industry bodies and associations can play a significant role in encouraging customers to outsource end to end operations in the Hub and Spoke fashion to India. They would need to make concerted marketing and branding efforts to showcase the expertise of Indian companies. This will significantly enhance the value proposition and brand perception of Indian software providers. In addition, they could highlight prevalent success stories and also help establish connects between customers, governments and Indian companies. Promote ier-II, III, IV Cities T Since smaller cities could emerge as viable Spokes in the India Hub and Spoke story, mobilizing state government support, encouraging academia in them to train employable workforce and marketing their value proposition to clients and software providers will help put them on the global map. Nurturing managerial talent Given that strong management is the key to functioning effectively as a Hub, seeking, managing and developing talent through workshops and training sessions would help nurture management talent present in Indias software industry. Key initiatives should be in the areas of coaching and mentoring middle management and enhancing their abilities to handle global operations.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
35 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Invested in a private cloud for the Technology backbone State of the art technology Unified Performance Management across Hubs & Spokes Cultural affinity through global mobility for citizens.
Industry Example
A leading Indian BPO has actively embraced the Hub & Spoke model by making the right process and technology investments to enable the same. They have invested in a private cloud for their technology backbone that runs on a leading technology platform. Additionally, they have unified the Performance Management process across all their centers. Thus employees at all their Spokes have a unified view of the process and common goals to ensure customer satisfaction. With improved network connectivity in India, this model has enabled them to add new centers within India in a very short time. They have also addressed aspects around cultural affinity by providing citizens in United States of America the right education and training for the job and giving them an opportunity to work in India.
At least over the next few years, India will remain a key destination and center of gravity for ITO/BPO work due to scale, cost and expertise advantage. Having said that, the Hub and Spoke model will become increasingly dynamic and adaptive to client requirements. So depending on what process, cost and business transformation goal a client is looking for across which geographies, different regions and their destinations will take center stage but we will always use our global talent pool and delivery footprint to provide the best possible solution. As we continue to build capability across global locations, our ability to truly leverage the benefits of such a flexible model improves rapidly. And finally it does mean that it is very important for the Government , and industry to continue to invest in talent , capabilities and ease of doing business and reduce cost of delivery , else India being > 50 percent of total share of the market is put at risk! - N.V. Tiger Tyagarajan President and CEO, Genpact
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 36
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
37 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
About
KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Our Audit practice endeavors to provide robust and risk based audit services that address our firms clients strategic priorities and business processes. KPMGs Tax services are designed to reflect the unique needs and objectives of each client, whether we are dealing with the tax aspects of a cross-border acquisition or developing and helping to implement a global transfer pricing strategy. In practical terms, that means KPMG firms work with their clients to assist them in achieving effective tax compliance and managing tax risks, while helping to control costs. KPMG Advisory professionals provide advice and assistance to enable companies, intermediaries and public sector bodies to mitigate risk, improve performance, and create value. KPMG firms provide a wide range of Risk Consulting and Management Consulting that can help clients respond to immediate needs as well as put in place the strategies for the longer term.
KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. We provide services to over 5,000 international and national clients, in India. KPMG has offices across India in Delhi, Chandigarh, Ahemdabad, Mumbai, Pune, Bangalore, Chennai, Kochi, Hyderabad and Kolkata. The firms in India have access to more than 5,000 Indian and expatriate professionals, many of whom are internationally trained. We strive to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.
kpmg.com/in
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 38
About
NASSCOM
NASSCOM is the premier trade body of the IT-BPO industries in India. It is a global trade body with more than 1200 members, which include both Indian and multinational companies that have a presence in India. NASSCOMs member companies are in the business of IT services, BPO, Engineering design, products, internet and e-commerce and animation and gaming. NASSCOMs membership base constitutes over 95% of the industry revenues in India and employs over 2.5 million professionals.
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
39 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Glossary
BCP BPO BS BSDQ BTMQ CEO CMMi COBIT CoE COPC CSF DR EFQM eSCM GST HIPAA HR IFRS IP IS ISO IT-BPO MNCs NASSCOM PCI PCMM (People) R&D SEICMM SEZ SLA SOP STP Business Continuity Plan Business Process Outsourcing British Standards BPO Service Delivery Quality System BPO Talent Management Quality System Chief Executive Officer Capability Maturity Model Integration Control Objectives for IT and related technology Centre of Excellence Customer Operations Performance Centre Critical Success Factors Disaster Recovery European Foundation for Quality Management eSourcing Capability Model Goods and Services Tax Health Insurance Portability and Accountability Act Human Resource International Financial Reporting Standards Intellectual Property Information Security International Organization for Standardization Information Technology-Business Process Outsourcing Multi-national Companies National Association of Software and Services Companies Payment Card Industry People Capability Maturity Model (People) Research and Development Software Engineering Institute's Configuration Management Model Special Economic Zone Service Level Agreement Standard Operating Procedure Software Technology Park
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 40
Definitions
BS 7799 Business Continuity Plan Captive Centre of Excellence A code of practice for information assurance originally developed in the UK in 1995. It later formed basis of the ISO 17799 standards Identifies organizations exposure to internal and external threats and synthesizes hard and soft assets to provide effective prevention and recovery for the organization, whilst maintaining competitive advantage and value system integrity Wholly owned subsidiary Centre of Excellence refers to a distinctive capability centre that houses a group of specialists, tools and technologies that create competencies to manage any and all engagements pertaining to a particular service line thereby enabling non-linear growth The delivery of computing as a service rather than a product, whereby shared resources, software, and information are provided to computers and other devices as a utility (like the electricity grid) over a network (typically the Internet) A process improvement tool for evaluating the efficiency of a company in technology products delivery to its customers. Capability Maturity Model Integration is usually associated with software development, and seeks to integrate the various steps in the development process Control Objectives for Information and Related Technology is an IT governance control framework that helps organisations meet business challenges in the areas of regulatory compliance, risk management and aligning IT strategy with organisational goals A customer contact centre and vendor management operations certification to define the industry standard for call centre excellence. It helps call centers slash costs, improve efficiency, boost client satisfaction and build the bottom line Delivery Centre is an IT vendors multi-client, multi-site centre to provide support services such as application development and maintenance to its global clients The new tax code which is said to replace the existing Indian Income Tax Act, 1961 A framework developed to improve the relationship between IT Services providers and their customers. Various services may include IT outsourcing, IT hosting, application development and maintenance outsourcing, networking services, business process outsourcing The Goods and Services Tax (GST) is a value added tax to be implemented in India which will replace all indirect taxes levied on goods and services by the Indian Central and State governments The US Office for Civil Rights enforces the Health Insurance Portability and Accountability Act (HIPPA) Privacy Rule, which protects the privacy of individually identifiable health information; the HIPAA Security Rule, which sets national standards for the security of electronic protected health information; and the confidentiality provisions of the Patient Safety Rule, which protect identifiable information being used to analyze patient safety events and improve patient safety. International Financial Reporting Standards are principles-based standards, interpretations and the framework (1989) adopted by the International Accounting Standards Board (IASB). ISO 20000 is an international standard for IT service management developed in 2005. It was based on and to supersede the BS 15000 standard ISO 27001 is an Information Security Management System standard published by ISO and the International Electro technical Commission (IEC) to formally specify a management system that is intended to bring information security under explicit management control ISO 9001 specifies requirements for a quality management system where an organization aims to enhance customer satisfaction through effective application of the system Model through which service provider delivers services from a centre in the nearby vicinity of client Offshoring is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services are actually developed or manufactured
COBIT
COPC (Customer Operations Performance Centre) Delivery Centre Direct Tax Code eSCM (eSourcing Capability Model) Goods and Services Tax HIPAA
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
41 | Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry
Outsourcing
A business model under which client contracts out its business function or a process to an outsourcing service provider or its own unit (captive) in some distant location instead of executing it in-house PCMM is a maturity framework that focuses on continuously improving the management and development of the human assets of an organization. It describes an evolutionary improvement path from ad hoc, inconsistently performed practices, to a mature, disciplined, and continuously improving development of the knowledge, skills, and motivation of the workforce Platform-based BPO is a BPO service wherein the service provider embeds the underlying technology as an integral part of the service being delivered Proprietary computing architecture that provides hosted services to a limited number of people behind a firewall BPOs that are established in Tier III/IV cities. Service Level Agreement (SLA) is a contract between a network service provider and a customer that specifies, usually in measurable terms, what services the network service provider will furnish. Service Level Agreement (SLA) is a contract between a network service provider and a customer that specifies, usually in measurable terms, what services the network service provider will furnish. A business management strategy that seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes STPI is a statutory body for providing Single Window Clearance to software exporters. The scheme provides various benefits to the registered units including 100 percent foreign equity, tax incentives, duty free import, duty free indigenous procurement, CST reimbursement, DTA entitlement, deemed export etc. SEZs are designated areas in countries which have more liberal laws and economic regulations in comparison to rest of the country to promote trade and foreign direct investments. Companies operating in these areas receive tax incentives and pay lower tariffs Sub-contracting refers to the concept where a large IT Services vendor contracts a local small delivery provider to service its clients. This enables the sub-contracting vendor to improve its margins or price its offerings aggressively to tap the market. Refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services and other intangible property
PCMM
Six Sigma Software and Technology Parks of India Special Economic Zones
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Hub and Spoke operating model - A new business paradigm for the Indian IT-BPO Industry | 42
Acknowledgement
This document has been released on the occasion of the 20th NASSCOM India Leadership Forum 2012. The KPMG team which contributed towards the content presented in the document comprises of Arun Chillara, Saurabh Jha, Shailesh Narwaiye, Sidharth Tewari, Nikhil Kumar, Aljo Joseph, Smita Bhattacharya, Aditya Shangloo, Shashank Shetty, Ajay Nainy and Eric Samuel. A special note of thanks to Jiten Ganatra, Remedios Dsilva and Priyanka Agarwal
2012 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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Sangeeta Gupta Sr-Vice President E: research@nasscom.in
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