Global Capability Centers (GCCs): The Catalyst for Enterprise Reinvention
12 September, 2024
In a world where speed beckons opportunity, adaptability remains the greatest strength.
The rapid transformation of the digital ecosystem over the past few decades has shifted global dynamics, presenting exciting opportunities and unearthing new challenges for businesses. In this new landscape change is perhaps the only constant, emphasizing the need for learning velocity and organizational adaptability. As legacy organizational structures strain and toil under the pressure of this dynamic environment, a new need emerges – a catalyst for reinvention.
A recent study predicts a seismic shift in the digital ecosystem, with AI expected to contribute $15.7 trillion to the global economy by 2030 (PWC). These projections and the drive towards automation at work in the next few decades will require organizations to pivot drastically in their approach (McKinsey 2024). Closing talent gaps, elevating skills, remodeling structures, optimizing operations, establishing robust governance, and tapping into deep domain expertise will become critical for yielding stable returns.
Therefore, companies must fundamentally reinvent their operations—from top to bottom—including how they innovate, interact with customers, conduct research, and develop products. Additionally, it is also essential to cultivate a company culture and workforce that thrives on change and evolves in alignment with business interests.
45% of economic gains are expected to stem from product enhancements by 2030, a growth fueled by AI-powered personalization, product diversity, and cost-effective options (PWC).
In this rapidly changing environment, perhaps the most at risk are larger enterprises tethered to their legacy infrastructures, unable to enact change at scale. While corporations have made strides in creating leaner and more efficient team structures, many still struggle with the agility needed to navigate the rapidly shifting global market. As organizations grow, their ability to adapt often diminishes, with bureaucracy and scale contributing to increased resistance to change. This lack of flexibility prevents them from fully capitalizing on emerging opportunities and responding swiftly to ever-changing market dynamics. To solve this problem, most multi-national corporations are now looking to restructure traditional organizational designs, and one such solution is the deployment of Global Capability Centers (GCCs).
Where there is a growing need for specialists and domain experts to steer businesses in this ever-evolving landscape, Global Capability Centers serve as the transformation engine. Designed to leverage specialized expertise, build technological alliances, and deploy extensive resource capabilities, these modern structures empower companies to efficiently acquire and develop capabilities to propel their business forward.
What is Global Capability Center (GCC)?
A Global Capability Center (GCC), also known by the terms Global In-house Center (GIC) and GCC global captive center, is an offshore or nearshore (in-house, hybrid, or outsourced) unit set up by multinational corporations.
GCCs provide a strategic solution by centralizing core business functions and capabilities, connecting companies with top-tier talent skilled in the latest technologies and solutions. By collating data and expertise from different regions, GCCs help businesses create that single source of truth, enabling agility in action and decision-making for both local and regional structures.
Fundamentally an extension of the headquarters or central teams, capability centers are themed around value creation, with industry leaders often managing and training teams and spearheading regional and international strategies. This setup allows companies to elevate their existing capabilities and cultivate end-market innovation while expediting regional-level growth without compromising resource quality, functional ownership, and most importantly, time. Corporations today capitalize on GCCs’ tried-and-tested frameworks, fostering seamless integration across functions and enhancing their parent company’s operational efficiency.
GCC: Global Footprints
Enterprises and MNCs throughout the globe are opting for similar structures, deploying specialist teams to provide regional and end-market support. These capability centers are often designed to operate independently of the regional structure, allowing the business function to collaborate with domain experts to create value. This is one of the reasons why some businesses often choose to deploy centers in fragments to leverage both geographical and demographic advantages of setting up specialist teams in accordance with the strategic need. As per a recent study, America and Europe currently house the major fragment(s) of the GCCs across the globe (EY 2023). Moreover, with an annual expansion rate of 10-15%, GGCs will continue to experience significant growth (McKinsey).
GCCs as Change Engines
The growth in investments for GCCs follows a similar pathway that corporations deployed for their globalization agenda in the 21st century. Soaring operational costs in developed economies posed fiscal strain for multinationals, limiting their ability to invest in research and development. To counter this, in 2021 and 2022, 55% of companies relocated part of their operations to form capability centers in international domains driven by lower labor costs, while 57% did so as part of cost-optimization initiatives (ISG 2023).
In addition, fragmented operations across regions, shortage of specialized skills, lack of cohesion in global strategy implementation, and the need for continuous innovation led businesses to reinvent how they fundamentally operate. A recent study on GCCs lists some key factors acting as drivers and inhibitors to the model (ISG 2023)
Top drivers and inhibitors of GCC
GCCs have been gaining momentum in global organizational structures, presenting corporations and MNCs with an opportunity to centralize core business functions such as R&D, IT services, legal, and insights to create a unified platform for innovation and operational excellence. By combining specialists' functions, GCCs provide all the benefits of centralization i.e., economies of scale, reduced costs, and access to lower-cost labor markets while enabling end-market value creation. Helped by the modern infrastructure, GCCs can leverage technology, data, and insights to create value for end markets. Most corporations today are leveraging first-party data and insights from end markets to help create a single source of truth, enabling informed decision-making and efficient operations.
Studies show that 36% of enterprises have achieved cost savings of 25% using GCC (ISG 2023).
GCCs also serve as talent hubs, bringing together top industry professionals. This concentrated pool of expertise fosters collaboration and knowledge sharing, driving innovation in the fast-paced business world. By tapping into local expertise and navigating regional markets, GCCs enable businesses to deliver tailored solutions for end markets, ensuring sustainable growth and a competitive edge.
For instance, tech giants like Google, Apple, Amazon, and Microsoft utilize GCCs to maintain their global operations, leverage specialized local talent, and develop new products. This approach allows these organizations to meet the diverse demands of the international customer base, spearheading innovation and market leadership.
From cost arbitrage centers to global value driver
Over the past few decades, capability centers have evolved from single-function Shared Service Centers (SSC) into pivotal, multi-function entities within multinational organizations. Initially focused on leveraging cost arbitrage by handling routine administrative and IT support functions, GCCs have become strategic value drivers, propelled by technological advancements and an increasing demand for digital expertise. This transformation has enabled companies to achieve tangible cost savings and operational efficiencies. Studies indicate that 36% of companies experienced a 25% reduction in operating costs after utilizing global capability centers (ISG 2023)
Today, GCCs have evolved beyond mere cost centers. Embracing an integrated 'one-office' approach, modern GCCs now provide technological expertise at scale, fostering product innovation and supporting strategic business objectives. By centralizing data and insights, GCCs create a single source of truth, enabling informed decision-making and fostering a culture of continuous innovation.
Modern GCCs are no longer just about cutting costs; they are about creating and capturing value through 'skill arbitrage' or 'intellectual arbitrage.’
By addressing both local and global market needs, GCCs help organizations navigate regional complexities and tailor their offerings to diverse consumer bases. GCCs now support critical business objectives, functioning as 'centers of excellence' in specialized areas like data analytics, cybersecurity, and AI. These centers also play the role of innovation hubs or multifaceted technology enablers for hybrid work environments. As they continue to add value, GCCs are transforming into Global Value Organizations (GVOs), poised to redefine the global business ecosystem.
Strategic and Functional Scope
The modern capability centers and structures are expanding beyond traditional functions like finance, IT, and HR into knowledge-intensive areas such as Engineering, Research and Development (ER&D), Marketing, and Legal. This expansion aims to unleash new opportunities, positioning GCCs as crucial drivers of business growth.
Adopting a solution-oriented mindset, GCCs prioritize operational excellence and innovation. Today, capability centers drive global business growth, strategically implementing new technologies, upskilling the workforce, and leading comprehensive business process transformations.
To expand their service offerings, GCCs are increasingly integrating new-age services into their portfolio. This is especially true for outsourced structures or managed service centers as they look to compete in a rapidly evolving business and technology climate. A modern capability center therefore looks to offer services spanning business functions, knowledge domains, and technology enablers like AI and data analytics. With these changes, most capability centers today are transitioning from being a tactical support function to strategic business units which can create value for the organization at large.
While cost still remains one of the key drivers for most capability centers, access to global markets and talent has allowed the strategy to shift over time. Often acting as a central hub for information and data, capability centers are better equipped to validate initiatives and help drive the decision-making process for most regional and end markets. The technology and infrastructure advancements have only furthered the operational depth and dimension for GCCs across the world and have allowed them the capacity to become more involved in strategic planning and even leading initiatives with the help of cross-function teams.
GCCs are now engaging with a broader ecosystem – fostering innovation, nurturing internal leaders, and developing emerging skills. In fact, there has been a 36% increase in GCC efforts to enhance capabilities and expand functional scope – with enterprise-wide digital transformation being a top priority (EY).
This transition has translated to a shift in investment scope for independent and third-party service centers with a significant deployment for data and research centers. This is also evidenced in the focus on building an innovation culture with capability centers, rising from 47% (2021) to 77% (2023) in a span of a few years (EY).
Digital Transformation:
Shifting focus from reinventing products, engaging with customers, optimizing operations, and empowering employees, to emerging technologies, driving product development, innovation, and operational efficiency, GCCs aspire to position themselves as Centers of Excellence within enterprises.
GCCs leverage data and analytics, cyber security, and RPA technologies to enable organizations to drive value cross-functionally. These innovation hubs can rapidly scale resources, providing businesses with on-demand software developers, data analysts, or customer support agents as per their digital strategy requirements. A recent study report also attests to this stating that 81% of GCCs provide scalability to businesses for large-scale digital initiatives (EY 2023).
Talent Management:
Amidst the ‘war of talent,’ GCCs are redefining their focus on employee value proposition. GCCs are prioritizing employee engagement and development programs to ensure that organizations have access to the best talent across the globe.
The future of work is undeniably hybrid. 77% of GCCs expect their employees to work flexibly while less than 25% anticipate them to work fully remotely. Additionally, an average attrition rate of 12.5% further adds to the dilemma of a ‘war of talent.’ This ongoing struggle to attract and retain top talent is a critical challenge for GCCs, exacerbated by the hybrid work model and competitive job market (EY 2023).
GCC Models
Global capability centers operate under various models, each tailored to meet the unique needs and goals of their parent companies. Factors such as strategic goals, cost considerations, regulatory requirements, and the desired level of control and customization influence the choice of model for deploying a capability center. Common GCC models include:
1. Shared Services Model
The Shared Services Model, also referred to as the Global In-House Center (GIC), is the traditional structure that centralizes specific business functions for all regional offices of a multinational corporation, within a GCC. This model helps reduce operational complexity by centralizing back-office functions, reducing duplicated efforts, and standardizing corporate-wide services. This centralization boosts efficiency, reduces operational costs, and enables informed decision-making.
2. Center of Excellence (CoE)
A Center of Excellence (COE) is a specialized team within a GCC that operates across different business units or product lines, delivering domain-specific expertise and insights. Comprised of highly skilled professionals, CoEs share best practices and knowledge throughout the GCC, ensuring the highest standards are maintained.
These units act as innovation accelerators, fostering new skills, driving creative ideas, and enabling agile market adaptation through a trial-and-error approach. By focusing on specialized knowledge, CoEs position organizations as industry leaders, delivering cutting-edge solutions.
Recent studies indicate that 33% of multinational corporations (MNCs) have established Cybersecurity Centers of Excellence (CoE) to enhance their threat detection and response management capabilities, underscoring their commitment to protecting against cyber threats (EY).
3. Offshore Captive Centers
In the Offshore Captive Center (OCC) model, the capability center operates as a fully owned subsidiary, providing the parent company with complete operational, strategic, and decision-making control. Typically established offshore, these centers capitalize on cost advantages and access to skilled talent, while ensuring corporate compliance.
Captive GCCs operate as dedicated extensions of the parent company, handling exclusively the parent company’s workload. This focused approach entrusts GCCs with a broader functional delegation and increased accountability. Investment in new technologies and training within the GCC build intrinsic, in-house expertise, compared to outsourcing, where enterprises only hire cognitive assets. Additionally, GCC employees are aligned with the parent company’s vision and have access to critical information, which fosters dedication and commitment. This alignment enhances innovation prospects, with GCCs handling high-value projects from conception to testing.
4.Build-Operate-Transfer (BOT) Model
BOT GCC model involves a third-party service provider that sets up and manages a Global Capability Center for the parent company, with the goal of transferring ownership and control to the parent after a specified period.
Initially, this model has been used by businesses seeking market entry and executing infrastructure projects in the public sectors, which now also involves (i) setting up a Global In-house Center, (ii) operationalizing it for a set period, building and staffing the center), (iii) and then transferring it to the parent company, which include human assets, the real office space and physical infrastructure, and supporting functions and third-party contracts.
The emerging wave of BOT now also extends the focus on “access to talent” - bringing technical capabilities and a transformation mindset on board after the transfer.
5. Virtual Captive Model
A virtual captive center is an offshore service delivery center owned and operated by the parent company, providing services directly to the organization. Unlike traditional outsourcing, employees in these centers are legal contractors for the client, not the vendor.
This model offers the client the strategic advantages of an offshore team without operational burdens. The third-party service provider manages the infrastructure, talent, and other resources, while the company retains control over operational processes. This hybrid model replicates the client’s office environment, leaving infrastructure maintenance to the provider. As a result, it reduces infrastructure risk, accelerates market entry through local expertise, provides pricing transparency, and ensures cost efficiency.
In short, virtual captive models merge the strengths of both captive centers with managed services, offering a dedicated offshore workforce without the complexities of full-scale offshore operations.
Value Extraction: Captive vs Virtual Captive vs Managed Services
The Role of 3rd Party Service Providers
The increasing investment in capability centers has spurred the creation of third-party specialist service hubs across the world. These service hubs act as an extension for organizations looking to scale quickly by providing local expertise and operational management services. This facilitation requires service providers to be adept at staffing for the business and training talent to seamlessly merge into the overall operations of their business partner and client.
"70% of Fortune 500 companies have established or are exploring the possibility of setting up GCCs. This shows a strong inclination towards leveraging GCCs for various strategic functions, ranging from IT services to advanced R&D" (NASSCOM).
With GCCs touted for cost and capability advantages, many MNCs are looking for solutions to further their transformation agenda by deploying their SCCs/GCCs in developing nations. This has created opportunities for traditional offshoring destinations to leverage their BPO structures by deploying SCC infrastructure on top. By working with third-party service hubs, businesses are able to focus on their core operations, leaving the management to their service partners.
Strategically, working with a service partner allows corporations to leverage expertise in setup and regulatory compliance. Third-party service providers are not only able to navigate the local environment but also allow immediate access to the talent pool and upgraded technology structures while ensuring continuity through talent management. This helps create a more flexible approach to scaling, reducing the risks associated with offshore expansion.
Near-Shore Operations:
Most of the MNCs in the developed world, including the North American and European region consider setting up their SCCs/GCCs near shore to allow for geographical proximity, similar time zones, and shared cultural values. By electing to deploy in proximity, MNCs can ensure higher collaboration and quicker decision-making. Nearshore deployments also benefit from favorable trade agreements with the company's home country, such as the USMCA (United States-Mexico-Canada Agreement), which can simplify legal processes and reduce tariffs or trade barriers.
"A report by NASSCOM in 2023 noted that Eastern Europe has seen a 12% increase in GCC setups, driven by its proximity to Western Europe and availability of multilingual talent" (McKinsey & Company)
Off-Shore Operations:
Cost is not the only factor driving the growth of SCCs/GCCs in offshore markets today, the focus in fact has shifted towards value-driven models where GCCs are seen as hubs for innovation, technology development, and strategic capabilities. Offshore destinations in the global south have benefited from existing outsourcing infrastructure, developing expertise in creating sustainable service models and leveraging technology to create a pool of highly skilled talent.
This shift is evidenced by the increasing investment in advanced technologies such as AI/ML, data analytics, and digital transformation in regions like Southeast Asia. India has been one of the key beneficiaries, now hosting over 1,500 GCCs, collectively contributing over 1% to the nation's GDP. Most of these centers are established by MNCs in the IT and BPM (Business Process Management) sectors. Third-party service providers and other consulting firms have been instrumental in helping MNCs establish these centers by providing end-to-end services, including site selection, talent acquisition, and regulatory compliance (NASSCOM).
Other regional players including, Bangladesh, Sri Lanka, and Pakistan are also making strides of their own, often specializing in key areas such as BPO, Fintech, and Software Development. The role of third-party providers in these regions is often critical in managing challenges such as security concerns, talent acquisition, and legal compliance. (McKinsey & Company).
"Regions like Eastern Europe and Southeast Asia are gaining traction, with a reported 15-20% year-on-year growth in the number of new GCCs being set up by MNCs" (McKinsey & Company).
Servicing via Capability Centers:
Focused on leveraging open innovation, capability centers prioritize technological, operational, and product excellence. With human capital and infrastructure as foundational pillars, GCCs create unified workspaces that drive talent transformation, research and development, and localized innovation. These centers tap into established expertise in AI, data analytics, project management, cloud computing, and engineering and information technology. Here’s a breakdown of some of these services:
IT Talent Augmentation:
93% of GCC leaders identified talent acquisition as the key driver to scaling operations (Economic Times).
87% of leaders follow the notion, emphasizing the right-skilling of the employees (Economic Times).
Talent is at the core of a GCC’s success. To support rapid scaling, capability centers invest heavily in developing future-ready leaders. These centers offer specialized IT team augmentation services enabling corporations to drive technological change management, product development, and digital transformation, encompassing:
Additionally, GCC offers all-round training programs, mentorship opportunities, and well-defined career paths. These hubs commit to fostering employee growth, equipping them with the skills, vision, and exposure to advance within their organization while also preparing to lead the global teams.
Talent Sourcing GCC Services
- Access to expertise on demand
- Swift skill enhancement
- Dedicated resource deployment
- Skill evaluation and progress monitoring
- Collaborative knowledge sharing
- Skill alignment and mapping
Artificial Intelligence (AI)
Every company requires the right talent to strategically apply technology, data, and AI for business transformation. Global Capability Centers are at the forefront of integrating AI across organizations, delivering innovative solutions, streamlining processes, and providing a scalable platform for accessing, creating, and developing industry-focused talent.
These centers leverage AI to rapidly analyze large data sets and predict future outcomes, evolving from merely providing cost-saving measures to enhancing efficiency in Finance, Supply Chain, and HR. Through advancements in automation, predictive modeling, and NLPs (natural language processing), GCCs are making lucrative opportunities accessible. This is evident in its considerable investments in AI with a 52% CAGR from 2019 to 2024, underscoring the technology's strategic importance (EY 2024).
Data and Analytics (D&A)
In the age of digital, data is the goldmine for businesses, dictating strategic business decisions in industries like retail, automotive, life sciences, and others. Data and Analytics GCCs are simplifying this journey for organizations, utilizing advanced tools to analyze datasets and derive actionable insights through AI-powered predictive analytics reshaping business strategies. Incorporating modern technologies like machine learning and big data analytics, D&A GCCs have transitioned from mere cost centers to dynamic hubs of innovation.
55% of organizations have integrated a robust data and analytics practice into their digital strategy (EY)
Engineering and Information Technology
An analysis of the leading GCCs reveals that engineering and information technology constitute the largest share of their talent pool (CBRE 2024). This focus is driven by the widespread digital transformation across industries and a shift toward talent arbitrage, intensifying the need for experts in these fields.
Operating at the forefront of innovation, GCCs focuses on developing engineering and product solutions that utilize AI, ML, and data analytics. They increasingly draw talent from IT product companies and top consultancies to help companies bridge the gap between organizational goals and capacity. By handling key operations functions within the technology sector, GCCs enable organizations to maintain efficiency while advancing technologically. Additionally, these centers oversee comprehensive reskilling and upskilling programs to ensure teams are equipped for technological advancements.
Project and Portfolio Management (PPM)
As organizations grow, shifting from managing one product to diverse offerings (products, services, and others), may bring forth challenges like ineffective governance, fragmented planning, and limited project visibility. PPM-focused GCCs streamline processes like annual budgeting, dashboard reporting, and data cleanup, providing material efficiencies. These centers provide end-to-end visibility and governance accountability, expediting project delivery and enhancing success rates.
Firms experience an average of 67% project failure due to undervaluing the strategic role of project management, highlighting the critical need to revisit the ways projects are managed (PMI 2020).
By using mature PPM capability for managing project documents and business performance, selecting data-driven projects, and improving portfolio health, PPM GCCs help maximize work investment benefits, allowing you to focus on more strategic initiatives.
Leveraging Global Operations:
Capability centers can be designed around the economic, social, and geographical advantages of a country, i.e., easy-to-access near-shore operations, competitive technology and support infrastructure, low-cost skilled labor, etc. The choice of deployment is largely influenced by what impact the organization is looking to drive through its GCC. We already have an example of the flourishing ecosystem in the Global South, as places like India, Pakistan, Chile, Argentina, etc. are all looking to capitalize on their skilled labor and emerging technology infrastructure.
A recent example of this is British American Tobacco (BAT). BAT launched a Global Business Solutions (GBS) hub in Lahore, Pakistan in 2021 as part of its broader strategy to expand global operations by leveraging the talent from emerging markets. With an initial investment of $5 million, the center quickly scaled up, employing over 350 professionals and providing services to more than 50 countries across various domains, including finance, marketing, supply chain, and data analytics (The Nation).
GCCs are by design deployed to leverage resources and expand an organization’s capabilities while mitigating risks, e.g., working with a third-party service partner to deploy a Virtual Captive Center (VCC). They can quickly help develop new strengths, providing businesses access to expertise that may not be available centrally. Furthermore, large-scale investments, can also help build political capital internationally, create strong economic ties to local governments and help build brand presence locally.
Governments often support capability centers and the investment they bring through favorable policies, tax breaks, and infrastructure investment in exchange for the long-term benefits of economic growth and technological advancement (McKinsey & Company, EY US)
A growing need for developing highly skilled and specialized functions has spawned a support industry in investment destinations, e.g. GCCs in the sub-continent are noted for leading end-to-end product development while ensuring compliance with complex regulatory frameworks (EY US)
Key Advantages
Transitioning from ‘Support Centers’ to ‘Value Creation Centers,’ a modern capability center offers a range of benefits to large enterprises, catalyzing innovation and providing strategic advantage across various functions and markets.
- Centralized data and insights
GCCs collate insights from multiple data centers and end markets to form a single source of truth for the organization, enabling businesses to look at information holistically and make more informed decisions. A good example of this is perhaps for an FMCG business leveraging data by aggregating market insights from similar end markets to identify trends, correlations, and causations. This can help businesses better understand consumer behavior, market trends, and competitive actions across different regions whilst deploying strategies that best derive the desired outcomes.
- Cost efficiency
By centralizing operations and resources, GCCs also reduce the need for duplicated efforts across its regional functions, eliminating the need for skilled or specialized resources for each end market. Companies can achieve significant cost savings by leveraging economic but talented resources in strategic locations, reducing overall operational expenses. This approach allows organizations to cut down expenses without sacrificing quality, particularly in areas like IT services, R&D, and back-office operations.
- Global reach with local adaptation
While GCCs centralize operations, they also enable localized adaptation of strategies to meet specific market needs. This allows companies to maintain a global brand presence while tailoring their approaches to resonate with local audiences, ensuring both relevance and effectiveness. Furthermore, GCCs provide access to real-time local market insights and a unified directory of past region-specific campaigns and initiatives. This resource guides companies on actionable strategies that have successfully generated desired outcomes in similar situations or challenges.
- Innovation and R&D
GCCs often are key to organizational transformation. These centers act as hubs for research and development activities, innovation, and technology-driven solutions, developing disruptive products and services that can be scaled across multiple markets. As centralized hubs, GCCs collaborate with local technology partners, to access frontier technology and modern ecosystems, fostering a culture for continuous improvement led by domain experts.
- Operational excellence
GCCs drive operational excellence by deploying systems to support critical functions responsible for compliance, financing, research and development, etc. By leveraging domain expertise, GCCs can help instill practices and procedures best suited to optimize workflows and improve productivity across functions. Organizations can also swiftly design and validate proof of concepts before implementing them in end-markets. This continuous cycle of improvement increases the likelihood of achieving breakthroughs and generating key results.
- Scalability and flexibility
Most capability centers are designed to provide a scalable infrastructure that can adapt to the changing needs of the business and market dynamics. This flexibility allows companies to respond promptly to changing demands, explore new markets, and adopt emerging technologies. By supporting rapid adaptation to new opportunities and challenges, GCCs help ensure sustainable growth and maintain competitive advantage.
- Risk diversification
Through a wide operational spread across multiple locations, GCCs help diversify global enterprise risks by eliminating the prospect of over-relying on a single vendor or geography. GCCs leverage a deeper understanding of various locations to help companies seamlessly navigate complex regulatory environments and decrease the risk of breaches. Additionally, GCCs also provide a safety cushion, protecting companies against the events of disruptions or natural disasters, and ensuring uninterrupted operations.
- Enhanced collaboration
GCCs promote collaboration among different teams and regions, facilitating the exchange of ideas, strategies, and best practices. This collaborative environment leads to better problem-solving and innovation, as teams work together to address common challenges.
- Knowledge Transfer
GCCs board industry leaders, well-versed in their domains, instead of functional experts, that may require additional training in new new-age technologies. GCCs have the ability to attract “reinventors”—top-tier talent from around the world. These domain experts help enhance organizational agility and cultivate future leaders through knowledge sharing, coaching, and training.
By encouraging learning and skill development GCCs support ongoing advancement and excellence, enhance retention, and ultimately bridge the talent gap, ensuring organizations have the proficiency needed to drive their business goals.
Key Challenges
- Data Protection & Security
With information and data being at the center of a modern GCC operation, the interdependence of a dispersed workforce, and extensive reliance on technology may expose GCCs to various cybersecurity threats. To protect against these vulnerabilities, GCCs are prioritizing data security in the cloud.
Recent studies do show a measurable improvement in the maturity of GCC cybersecurity with security ratings rising from 43% in 2021 to 92% in 2023. However, GCCs particularly in industries like finance, retail, and technology need to stay vigilant and adaptive to the evolving cyberthreat tactics. As per a study, data security in the cloud and security intelligence with monitoring can help GCCs better protect against challenges like regulatory compliance, data breaches, and IP protection (EY 2023).
- Cultural Integration and Alignment
While GCCs offer the advantage of centralized operations, integrating diverse cultural practices across global teams can pose a significant challenge. Misalignment in work culture, communication styles, and expectations may lead to friction and misunderstandings. This can hinder collaboration and productivity, ultimately affecting the ability of these centers to contribute and help improve functions.
To mitigate this, companies are increasingly adopting cross-cultural training and leadership programs that emphasize inclusivity and adaptability. According to a recent study, these initiatives have helped organizations in bridging the gap by cultivating a culture of mutual respect and understanding for people with different backgrounds resulting in a more cohesive work environment. Additionally, the use of collaboration tools and regular cross-regional meetings helps maintain alignment and smooth communication across the organization (Deloitte).
- Talent Acquisition and Retention
As GCCs become centers of innovation, they require highly skilled professionals who can drive technological advancements and business transformation. This requires not only competitive compensation but also opportunities for continuous learning and career development.
The 2023 Deloitte Global Shared Services and Outsourcing Survey reveals that companies are increasingly using data-driven approaches to predict talent needs and align recruitment strategies accordingly. These efforts ensure that GCCs can attract top talent and maintain high retention rates, essential for sustaining long-term growth (Deloitte).
- Regulatory and Compliance Complexities
Navigating regulatory complexities is crucial for GCCs, especially given the diverse legal environments they operate in. Navigating these complex and often conflicting regulations requires a deep understanding of local laws and industry-specific compliance standards. Failure to comply can result in legal repercussions, financial penalties, and damage to the company’s reputation.
To address these challenges, companies are investing in robust compliance management frameworks and leveraging local expertise to stay compliant with regional regulations. Additionally, the integration of AI in compliance processes is gaining traction, as it helps automate routine tasks and monitor regulatory changes in real time. These measures ensure that GCCs remain compliant and minimize the risk of legal issues (Deloitte)
- Infrastructure and Technology Limitations
Deploying a capability center requires advanced infrastructure and technology to support seamless operations. Inadequacies in these areas can impact project timelines, and service delivery, and even compromise the center's ability to meet its strategic goals.
To address these issues, it is important to plan location assessments while making a decision on deploying a capability center, ensuring they meet the necessary technological and infrastructural requirements. Many organizations today invest in technologies such as cloud infrastructure to provide the flexibility and resilience required to support global operations. Adoption of hybrid cloud solutions is particularly beneficial, as it enables GCCs to function effectively despite local infrastructure constraints (Deloitte).
- Change Management and Organizational Resistance
Introducing a capability center within the organizational structure may impact the status quo and bring changes to processes, roles, and responsibilities. Such a transformation can encounter resistance from within the organization, as employees may be reluctant to adapt to new ways of working.
However, organizations can mitigate this risk through effective change management strategies. Companies looking to introduce GCC models are focused on building clear communication lines, leadership involvement, and employee engagement throughout the transformation process. Regular training sessions and workshops help prepare employees for changes, making the transition smoother. According to a study, implementing continuous feedback mechanisms also helps address concerns and fosters a culture of adaptability within the organization (Deloitte)
- Time Zone and Coordination Challenges
GCCs that operate across different time zones face coordination challenges that can impede real-time collaboration. Scheduling meetings, aligning work hours, and ensuring continuous workflow across regions can be difficult. These time zone differences may lead to delays in decision-making and project execution.
If near-shore operations are not feasible for an organization, it is important to factor in challenges the business can face when collaborating with teams in different time zones. Capability centers can be designed to accommodate flexible work hours and rotational shifts, whereas the team can be supported by technology and collaboration tools that mitigate the associated risks. Additionally, asynchronous communication methods are gaining popularity, allowing teams to collaborate efficiently despite geographical and time zone disparities (Deloitte).
- Initial Setup Costs and ROI
The significant upfront investment required to establish GCCs can be quite daunting for organizations. As highlighted earlier creating an additional operation structure requires significant outlay both in terms of planning and deployment.
This is a concern that can be addressed today by utilizing a third-party service provider, allowing businesses the flexibility to scale per requirement. Companies looking to deploy self-managed capability centers can ensure a quicker return on investment (ROI) by conducting detailed cost-benefit analyses and adopting phased deployment strategies. This approach allows them to gradually scale operations while closely monitoring ROI.
- Maintaining a Global Yet Localized Approach
Balancing global standardization with local customization is challenging for GCCs. To navigate this, organizations can utilize models such as virtual captive centers where they can work with a service provider to manage talent and infrastructure while overseeing the value and process inculcation. This dual management approach can be deployed by activating the end market, and centralizing core functions while allowing local teams to tailor strategies in collaboration with the regional market.
The use of localized market insights and a repository of region-specific best practices enables companies to maintain global consistency while effectively addressing local market dynamics (Deloitte)
Provisioning for Global Capability Centers
Capability centers today are benefiting tremendously from the well-established global support infrastructure, especially those located in emerging markets that have effectively embraced the technology export business model. Collaborating with a third-party service provider is the fastest and least risky approach for companies aiming to scale their operations. However, it presents its own set of challenges, particularly in identifying the right partner. Finding a strategic fit that aligns with the company’s goals is the key to the success of these initiatives.
To understand the service industry around capability centers, this study also evaluated the internal changes and transformations within CodeNinja Consulting (CNC) to cater to the GCC market. With operations dating back to 2014, the company has been one of the key exporters of services within the technology sector in the MESA region. Expanding its footprint with development centers in emerging markets like Chile, Pakistan, and KSA, the company has helped businesses in the NA, MESA, and APAC regions deploy capability centers, in both near and offshore locations. Drawing from its experience in managed services for various industries including compliance, retail, manufacturing, energy, technology, healthcare, property management, etc., the company has undertaken several initiatives to better serve global business leaders. Consequently, it offers valuable insights that can assist companies in preparing for investments of this nature.
Building the Infrastructure
CodeNinja’s core business has been modeled around providing managed enterprise services. Having helped companies build products and services through technology management outsourcing, it has laid the groundwork for setting up capability centers in both near and offshore locations a few years into its operations. However, the challenges in setting up an enterprise service system differ significantly from those associated with establishing a capability center.
Operational Model
While we have discussed multiple GCC models earlier, it is important to understand that each service provider may excel at certain operational models, e.g., operating a virtual captive center would be an easier transition for a managed service or outsourcing partner than perhaps a build-operate-transfer model. The schematics of both operations are significantly different than the other, and therefore most service providers will choose to work to their strengths.
CodeNinja’s key strengths were its central development platforms and its workplace management solutions that had helped the company create highly productive and purpose-driven teams. This made the company a great fit for businesses looking to set up their engineering and technology centers in nearshore or offshore locations. CodeNinja was able to utilize its rapid application development platforms to develop custom solutions that could integrate with the existing infrastructure and ecosystem of its clients, accelerating their ability to activate their capability centers with the service provider.
Being an AI-first company, CodeNinja has already been utilizing internal performance management tools such as “Lens” to align the output of their outsourced resources with the client’s objectives and operational key results (OKRs). This approach ensured goal congruence for each team and resources deployed for the clients and businesses it served. While this infrastructure has been one of the key business drivers, the service provider realized over time that to truly succeed as a GCC solutions partner, a fundamental restructuring of the organization's operations was necessary to serve global leaders and Fortune 500 businesses.
Genesis of the Diamond Team Structure
The traditional managed service models primarily relied on a steady supply of specialized talent that could be plugged into engineering or support teams as needed. This approach relied on a skill-based resource engine that can be scaled on demand. By deploying a robust infrastructure and specialized functions to oversee compliance, technology, finance, human resources, etc., businesses were able to develop a competitive brand of service. However, these models lacked the flexibility to design capability center solutions for large-scale operations that required domain-tuned intelligence and expertise to drive operational excellence. Moreover, they could not be scaled for larger enterprises demanding strategic oversight, more specialized skills, and comprehensive solutions from a GCC partner.
Realizing the need to set its service model apart, CodeNinja recognized that it had to transform its operational engine to one that could be leveraged for a wide array of capability center solutions, irrespective of the scale and complexity of the project. To meet this requirement, CNC developed the Diamond Team Structure (DTS) Framework, a model designed to establish a scalable team structure that can fulfill any strategic or functional need by integrating hybrid intelligence at its core.
Diamond Team Structure Framework
The DTS Framework is designed to organize a functional team into three key layers based on operational and strategic outlooks:
Core (Operational)
This foundational layer, the bottom of the diamond, consists of journeymen and operational personnel who execute day-to-day or tactical operations. They are the backbone of the framework, providing essential support and ensuring smooth operations.
Center (Solution drivers)
The middle layer of the diamond includes seasoned professionals and specialists. They understand business requirements and translate them into actionable plans for the team. Their core objective is to achieve operational excellence by leveraging the infrastructure and domain-tuned intelligence while ensuring superior outcomes.
Top (Strategic depth)
The top layer of the diamond includes industry leaders and experts; their core challenge is to create value by focusing on innovation. This group focuses on business intelligence, deep diving into the core of the business function and identifying growth bottlenecks. They are the ones who ensure alignment with the core business by driving the long-term strategic goals and objectives for the team.
This model is highly effective when implemented with the right infrastructure and is scalable enough to be deployed for a team as small as 10 members. Specifically designed for capability centers, the DTS model can only be applied to a function, it is not devised for operational and support (non-value generating) structures that may not require knowledge transfer and business intelligence to operate.
Leveraging Technology and Talent
CodeNinja Consulting (CNC) implemented the diamond model to support enterprises in developing VCC and BOT capability centers. By methodically recruiting top talent from the digital elites and strengthening its infrastructure through partnerships with frontier technology companies, CNC has laid a robust foundation for its capability centers, positioning them as key value drivers for businesses. This approach has been integral to the company’s operations, evident in the development of some of the most transformational products in the healthcare, sustainable energy, and manufacturing sectors that CNC enabled
This model has given the company the ability to deploy GCC structures in both offshore and nearshore locations while servicing clients from NA, MESA, and APAC regions. CNC improves its competitive strength by continually improving its infrastructure capabilities as the demand for GCC rises globally.
Chart your path to reinvention with GCC: 6-Step Action Plan
Reinventing the Code: Our GCC Journey
We believe that operating with the latest technology, data, and AI advancements will be the core priority of every future-driven company. This includes CodeNinja Consulting (CNC).
We recognize the massive potential of Global Capability Centers (GCCs), witnessing how it has transformed operational capacities, fostered innovation, enhanced communication, and resolved complex challenges with centralized structures. We have radically improved our internal operations, bridging the gap between globalized and localized structures through our deployment methodologies while helping businesses generate sustainable growth and value. Our central development platforms and productivity tools have been purpose-built to derive cutting-edge solutions and instill a transformation-focused mindset within our teams.
Currently, our global spread extends across 5 offices, serving clients in over 30 countries. Integrating core processes, democratizing data, and utilizing technologies like cloud, AI, ML, and localized intelligence allows us to identify patterns and targeted solutions specific to domains and regions.
About Us
Code Ninja Consulting Inc. is a leading technology solutions provider committed to democratizing AI for a more equitable future. With over a decade of experience, we’ve empowered hundreds of clients across industries to accelerate innovation, remain relevant, and build transformative products and services. Our global team of 250+ experts operates across five locations, serving 30+ countries. We specialize in GCC solutions, providing end-to-end services such as managed cloud services, staff augmentation, enterprise software development, application development, IT outsourcing, and more. By harnessing the power of AI, we help businesses navigate modern-age challenges and drive sustainable growth.