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Captive, outsourced, or hybrid: Which model is best for you?

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October 20, 2015 - By most measures, captive shared services have historically shouldered a greater financial burden to operate than their outsourced counterparts.

When investing in physical infrastructure or the spare operational capacity required to satisfy business continuity plans, for example, captives cannot spread costs or risk across a portfolio of clients. Likewise, when acquiring and retaining talent, captives are pitted against independent providers whose economies of scale free up more money for compensating and developing people.

Recognizing the full continuum of choice
While there may be some obvious financial benefits to outsourcing, when looking beyond cost, there are other less black-and-white considerations, such as control needs, cultural compatibility, and risk appetite, that can spur organizations to go the captive route.

The most important thing to remember when trying to decide which shared-service support model is right for your business is that this is not an either/or choice, but rather a series of four choices (see figure). Weighing your options in this context makes it easier to determine which ones best fit with the current needs and future direction of your enterprise. But how you choose matters, as the global-servicing model you select will determine the impact you can expect.

To get the decision right, you need a more precise fix on where you are, and where you should be. Asking the following questions helps you accurately and quickly identify those two location points and chart an optimal course from the one to the other:

  • Will the model enable us to attract and retain top talent on a sustained basis?
  • Does it align with our preparedness for offshoring?
  • Does it meet organizational control requirements?
  • Can it address regulatory and risk issues?
  • Does it give a competitive market advantage?
  • Does it provide our business with transformation capabilities?
  • Will it ensure strong adoption by different business units?

Unfortunately, the tendency to see the decision as a choice between two extremes is why – depending on where you sit – either the captive or outsourced model suffers in comparison. However, if you carefully consider the key advantages and challenges of the full slate of options outlined in the graphic, the pros and cons become less stark.

In the final analysis, having more choice is almost always harder. But more choice also means a better chance of selecting the correct model for your business's enterprise needs, present and future.

Author: Sachit Soni - Vice President, Transformation Services, Global Business Services practice lead