10 Reasons Why a Captive Center Has a Sub-Optimal Start

Proof of the Pudding Is in Making Things Happen. 10 Reasons Why a Captive Center Has a Sub-Optimal Start

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Starting a captive center and running a captive center, are two very different things that require different approaches and probably different leaders as well.

The most significant challenge for any company owned captive is the time it takes to justify the ROI and a gamble with people who probably cannot make things happen optimally. While the business case on excel sheets may reflect great savings, on the ground more than 80% of captives have not been able to get anywhere near to this figure, and no one admits their failures.

If we try to compare a captive center to a child who does not get a good education and mentoring at an early stage, they almost certainly miss greater success when they grow up. In a precisely same situation, a poor start, an adverse selection, bad design, poor change management, missed marketing opportunities and poor execution give ample scope for failures. My experience has been that almost every captive fails in one or more areas that haunt them at a later stage.

10 Reasons why a captive center has a sub-optimal start.

1. Deceptive design of the captive:

This is what I refer to as overestimation or treating POC as the final design. Every such investment is aimed at the CFO approving the business case and never talks about the strategic advantage of such a venture. Every executive wants to be very realistic and designs the plan through an excel sheet without creating a vision of what they see their captive doing for them. On the other hand, every CFO is skeptical of investing Capex in new geography only on promises that things will happen the way they expect. Mistakes are highly likely when the business case is created to show very high benefits to woo the CFO, but are very difficult to maintain.

2. Wrong leadership selection:

Finding the right leaders is quite critical for any startup ensuring high success rates. Improper selection of leaders, leads to varying degree of success, that I term as varying degree of failures.

3. Ineffective PMO:

Startup needs a highly experienced and efficient program management office. This team is critical to making the first start a success and must be hand-picked at both ends working as a single team.

4. Job Mis-match vs. qualifications:

The most common mistake in captives, is over designing the job profiles, which remains the sole reason for high attrition and costs escalation during the initial phase. I have observed that jobs that are executed on the ground may not need the kind of experts and salaries that the job descriptions provide. The lure is always to get the best people as they are going to be the employees of the company without understanding that best people are not necessarily the best fit.

5. Poor marketing:

This remains a significant reason for the poor adoption of a captive in the parent company. The marketing here refers to selling the captive, to every possible leader who can take advantage of the investment in the company instead of keeping it a private affair. There are complexities involved in this area, and only an experienced team can get the best out of this.

6. Policies and expectation management:

It is common to see companies going overboard by creating systems and benefits that are not needed creating a high level of expectation. While few feel that employees at every corner of the world should be subject to same policies, but local culture and market conditions should be the key factors that should drive this part. Changes can be incremental and as the maturity sets in.

7. Startup Cost management:

Startup cost is always much higher than the money infused at the later stage. Managing the costs involves a high amount of travel and a lot of knowledge transfer. Capex is very high initially as new offices get created, new assets get purchased, and it is easy to lose track of expenses. I have seen companies leasing large offices and investing heavily in Capex even though the staff strength would be taking few years to cover the entire space. This pushes the ROI further behind.

8. The inadequate inclusion of onshore teams:

I have seen cases of failure of captives, which were started by the CIOs but failed to include the broader group of stakeholders. These crashes are highly frequent and can be termed as missed opportunities for the company.

9. Focus only on cost as the advantage:

The real value of a captive center can be much more significant than just cost advantage. My experience says that management stops acknowledging the cost advantage after a couple of years and look for better outcomes. However, if the cost is only the criterion during the design, it is difficult later to create other advantages. Captive vision must include other elements of value that can create lasting effects on the investing organization.

10. Keeping the plan hazy:

The excel sheets that go for CFO approval are almost always on cost and numbers, but the CIO needs to create a strategic plan that gives a clear picture of what is the future of the captive. This helps not only in attracting good talent but also retaining them as they map their growth path with this plan.

Managed by experienced leaders, ScrumStart Virtual Captive Solution, and its disruptive model has answers to all the startup issues that can potentially derail a technology captive of any company.

About the Author:

Santosh Panicker1

Mr. Santosh Panicker

Mr. Santosh Panicker, CEO ScrumStart, is a specialist in setting up business processes and has established himself as an inspirational leader in the corporate world. Mr. Panicker has demonstrated his capabilities in setting up end- to -end HR, legal, and business process operations for 9 start-ups through his career years. He has over 22 years of experience working across diverse industries including IT, FMCG, Retail, Automobile and consumer durables with blue chip companies