Consider the Source

Considerations to Address Before Divesting Your Offshore Captive Service

by Sanjay Tripathy, Director, TPI

Although many of the same issues that apply to mergers, acquisitions and divestitures apply to the divestment of offshore captive service operations, certain considerations are amplified because of the integrated nature of captive operations with their parent companies.

Here are the TPI Top 5 considerations to take into account when considering divesting an offshore captive service operation:

1. Revisit the overall operations strategy and sourcing considerations, including financial. In most cases, offshore captive operations have been in place for many years and deliver a variety of services, including finance and accounting, human resources, customer relationship management, applications development and maintenance, IT infrastructure, plus more knowledge-based services like analytics, engineering services, research and development, facilities management and other judgment- and expertise-based functions.

Organizations should take a step back and revisit and redesign the overall global operations strategy and future state services delivery model in light of divestment of captive operations. This should include a detailed financial analysis of the various strategic options and related business cases to support the strategy, including strategic service providers who may buy the captive operations and provide ongoing services as a service provider. Furthermore, legal, investment banking, tax and human resource factors - in conjunction with local laws and operational considerations - must be taken into account while executing the strategy.

2. Create a portfolio approach to services delivery of the multiple in-scope functions. Business process, IT and knowledge-based service offerings by third-party global service providers has matured from cost, quality, location and language standpoints to a capability level that may enable most transactional and operational knowledge-based services to be provided by a few strategic providers. Organizations should take a “portfolio” approach to what services need to be delivered internally versus those that may be sourced externally and then create a roadmap for the next five to seven years.

3. Select your strategic services provider wisely. Selecting the right strategic service provider(s) is essential for delivery of future-state operations that meet your organization’s cost, quality and transformation objectives. Be sure to focus on creating the optimal requirements framework with robust statements of work, corresponding service levels and master services agreements for a managed service environment.

There are three parts to this process: 1) the valuation and contractual divestment of captive operations; 2) the buildup of a requirements framework that governs the delivery of services; and 3) the transition and service delivery considerations for the future.

4. How will you govern the operations in the future? Much like shared services in large organizations, most captives are governed internally through a wholly owned subsidiary with close operational links to internal customers. Future-state operations with strategic service providers will necessitate a robust global governance framework to manage the four key governance pillars of performance management, relationship management, financial management and contract management.

5. Actively manage transition and the end-user experience. Active management of transition to the strategic service provider(s) - including retention of key personnel from the captive operations - is key to ensuring continuity with the parent organization’s internal customers. You must also manage the operational risk introduced by sweeping changes wherein services are being bought in a managed services framework as compared to full-time equivalents (in most cases). Putting in place a robust “voice of the customer” feedback mechanism can minimize the difficulties associated with change and lead to a seamless transition.

TPI’s seasoned strategy and assessment experts can help you achieve your global sourcing goals through objective advice, knowledge of your industry and experience with arrangements from simple to complex.

E-mail Sanjay Tripathy, Director, TPI, or phone him at +1 919 809 4477 to learn more.

It’s About People Management

Today's blog comes from Jeff Krynski, Governance Competency Leader, CHRO Services, TPI.

Successful HRO management starts and ends with people. No shock there. But if you look at companies that set up a provider management function, you’ll see they stand a much higher chance of having proven, best-practices in place and a higher success rate than those that don’t. That’s why getting the right team and structure in place before the service provider selection process is an imperative.

A provider management advisory partner helps companies that require a swift, sure, cohesive action plan to navigate the complexities of HRO. The success of any HRO relationship depends not only on implementation, but on the development of a disciplined approach during the strategy and assessment phase, and its management moving forward.

HRO success starts with a strategic provider management team. The size and structure of a provider management team that oversees the outsourcing arrangement depends not only on the size and complexity of the sourcing relationship, but on the framework of internal organization as well.