"When to" and "When not to" get captivated by Captive center options

A recent study by Everest Research Institute suggests that "Captive centers in India are accelerating despite contrary opinions and this market is growing at 30% which is directly in pace with the overall Indian offshore services market".

Offshoring via captive route is certainly a good option but it is not the only option. There are various factors that an organization should evaluate before considering Captive or 3rd Party or hybrid model whose definition is limited only by the imagination of the definition maker.

Hence, I have endeavored to list below few strategic and operational factors that facilitate organization’s decision in favor of captives and others that do not.

Consider "Captives" for these reasons:

• There is a clear cut strategic plan for evolution of captive centers over a period of time and the plan has elements of "Unlocking the value of captives", after a particular time period through strategic associations or divestments
• Offshore outsourcing IP exists internally in terms of Transition, Employee Engagement, Operations and Quality Frameworks
• Existence of a well nurtured cross functional team internally that can be fully endowed with responsibility of setting up the offshore center/s and very little intervention is required from the executive team
• Absence of experienced parties in the market place who are willing to partner and adopt a hybrid innovative business model for set up of offshore operations
• Internal performance benchmarking metrics are easily available and these will tell whether internal operations are delivering optimal process improvements in addition to cost savings
• Captive operations will be treated as a separate business unit and will be run on the foundations of a profit center
• Well defined processes exist to clearly define the Service Level Agreements (SLAs) and process maps can alienate responsibilities of functional units from the captive center unit/s.

Do not consider "Captives" for these reasons:

• Offshore location is a known terrain, there are some bright managers who can be sent offshore and be tasked with setting up captive centers. Capital is available for investments in the center and cost savings from labor arbitrages will compensate for upfront investments
• The offshore outsourcing IP can be acquired through recruitment of couple of experienced hands from the industry at attractive compensations and gain share engagements
• Executive team is required to spend considerable amount of time in reviewing the set up of the operations and intervene at the right time
• Partnership options are available but still we can do it on our own as "making" is more challenging and has a lot to learn than "buying"
• Performance benchmarking metrics can be sourced from the market or other players through networking
  Operations will be run like a cost center and the benefits of offshore operations will be reflected on the overall balance sheet of the entity / corporation instead of, on the balance sheet of the captive center itself
• Captive center will establish processes, process maps, define SLAs with the functional units and bring in process transformation from the day of its operations