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Indian IT industry,can graduate to hub-n-spoke model: KPMG-NASSCOM study

Mumbai, February 15, 2012: KPMG in association with Nasscom has released a report onthe “Hub & Spoke Operating Model for the Indian IT-BPOindustry” at the Nasscom India Leadership Forum 2012.
We bring you the executive summary of the report.

The Indian IT-BPO industry has been a sunrise sector for the country for last 3 decades. Since its birth in ‘80s, it has seen two inflection points, Y2K and DotCom, which propelled its growth and then has seen at least two economic shocks during the DotCom bust and the 2009 meltdown. At an adolescent stage, it is at the cusp and has an opportunity to become a Global Hub for IT-BPO, rather than merely a most preferred offshore location.

Despite having a commanding 50 percent plus offshore market share, it holds merely 5 percent of global outsourcing market. If India learns the lessons from the US and Japan on how they became Global Hubs for manufacturing (Electronics, Auto, Aerospace, Consumer goods) – where they managed customer requirements, quality, performance, risk management and capital deployment, whereas spokes were created in China, Taiwan and rest of the world – Indian IT-BPO industry can become the custodian and brand holder, utilizing appropriate world destinations. India can then command 2 to 3 times of its current share of the global outsourcing market over the next decade. This report attempts to draw that parallel and suggest some imperatives for India to become the Global IT-BPO Hub.

Writes NASSCOM President Som Mittal: 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.

Exec 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.
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.

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

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 India’s share in the world’s 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 government’s 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.