Captive sell-offs: good for innovation, good for employment

I know I've been depressing everyone with calls for change and for our flagging companies to step up and disrupt their business models.  But did I ever say I was here to make you happy?

However, one shimmer of light amidst this gloom is the increase in activity of service providers buying up business' captives or shared service operations (often under the guise of a new "client win"). 

EXL's acquisition of Schenider Logistics' Czech operations is yet another recent example of a service provider making a strategic move to add scale and expertise to its delivery portfolio.  In this case, EXL is cementing its European presence in a unique and attractive sourcing location, enhancing its F&A BPO business and bolstering its multilingual capabilities, in addition to incorporating supply chain and logistics management process expertise - an area of increasing importance in the industry.

So why is this good for industry?

1) Businesses are saving money as service providers have to make it attractive for them;

2) Businesses can avoid laying-off a lot of staff as they will be re-badged under the service provider (true, some will get let go, but only a small percentage in most cases);

3) Service providers have to work out how to make money out of this.  They will be forcedto optimize their processes in order to remain profitable.  And they are likely to do a better job of this than the host company would have.  Yes, they can make some inroads developing utility across multiple clients, but they can also drive efficiencies from developing better workflows underpinned by intelligent applications; 

4) Service providers will develop their newly-acquired talent to drive innovation in their clients.  By absorbing talent from these captive buyouts, and combining their skills with their existing process experts and training schedules, they are the catalyst for driving innovation for many businesses incapable of doing it themselves.

All-in-all, the more captives that are absorbed into service providers' global delivery infrastructures, the more we will see a maturing sea change in the global services industry.  And the better the support our businesses can receive from their global IT and business process, the more they can focus on being more competitive themselves globally.  The 2009 recession may have some positive ramifications for accelerating the development of global services after all...one can only hope.

Comments

[Ian Leslie]

Phil has some strong points here. The service providers are forced to do more with less to win business. The smart ones will introduce common standards and common technologies to drive up profitablility for themselves and drive down costs for their customers.

The not-so-smart ones will try to do the same stuff cheaper and fail - they will sacrifice quality for cost and ultimately the customer will bring the work back.

Ian Leslie

[Sheila Richardson]

Phil - a very astute set of observations here. Yes, these lift and shift deals are going to force service providers to be smart about driving out cost. However, whether some of them can truly "innovate", or simply run processes with less staff, is up for debate,

Sheila