The GCC Paradox: Transformation Engine or Just Cheaper Talent?

Most transformation journeys fail not because of poor technology investments, but because business and IT are not aligned on the business and operating models. Therefore, what can Global Capability Centers (GCCs) achieve where so many organizations have stumbled?

Just like AI, GCCs are a topic that cannot be avoided when discussing the future of IT services. Yet, what a GCC entails and how the strategic goals are being discussed is largely in the eye of the beholder. All too often, notions of GCCs are old wine in new bottles. Here, GCCs are interchangeable with GBS, Shared Service, or captive organizations. The prime motivation for those discussions is cost reduction, predominantly by leveraging talent from low-cost locations. For India’s NASSCOM, GCCs are a conduit for rebranding back-office cost centers into strategic innovation hubs whilst promoting Tier 2 and 3 cities for talent. The excitement is easily understood by looking at the numbers that Nasscom has produced. The trade body suggests $64.6 billion in revenues from GCCs in fiscal 2024 will be created, and crucially, growth will significantly outstrip that of IT Services providers.

Where the wheat gets separated from the chaff is where GCCs are set up to help drive transformation by either pivoting to product engineering, especially within the manufacturing sector, or accelerating the transformation journey through data management and AI capabilities. It gets intriguing when GCCs become the strategic levers for business transformation. Thus, the discussion about GCCs should be about reimagining them, not getting lost in more tales about cost and locations.

Are GCCs changing the market dynamics for IT services?

While there is no universally accepted definition, the common denominator is that these centers serve as extensions of the parent organization to build in-house capabilities across various business functions. As Lalit Ahuja, CEO of ANSR, a leading GCC services firm, put it, there is no specific journey for a GCC. The ultimate success comes down to the purpose for which a GCC has been set up, be it as an innovation center, a second headquarters, or, more traditionally, a capacity or process center. Looking at these issues from a different perspective, especially where GCCs pivot toward product engineering or innovations such as AI, are we seeing a new wave of insourcing and ultimately a reduced target addressable market?

The answers to those questions are not black and white. Fundamentally, the acceleration of digital transformation means that organizations increasingly define more activities as core and value-creating, and therefore, decisions to outsource have been re-evaluated. Those decisions are not about insourcing but about new engagement models. Hybrid models, where organizations partner with providers, are mainstream. Increasingly, providers offer a build-operate-transfer approach where they will hand over those centers to their clients at the end of the contract. Similarly, with increasing maturity, we will see more ecosystem approaches, such as Walmart collaborating with Indian startups in supply chain innovation. Thus, the question is no longer whether GCCs cannibalize providers’ revenue streams but how effective GCC strategies are and whether they drive innovation and transformation. Providers like Infosys and Wipro just announced dedicated GCC service lines. The game isn’t about control – it is about co-creation.

Innovation of operating models does not necessarily equate to business transformation

While the excitement in India is palpable and the growth numbers are impressive, the outcomes of those GCC build-outs are far from clear. Another lens to look at those developments is that innovation in operating models might lead to a lower barrier to entry in low-cost locations. Still, it won’t necessarily lead to co-creation and business transformation. For instance, new approaches such as GCC as a Service, where a provider sets up, manages, and operates the center on clients’ behalf, or nano GCCs, small but highly focused centers set up to drive faster innovation cycles, whilst de-risking global operations, aren’t in themselves levers for innovation and transformation. Yet, partnerships like Accenture with ANSR, KPMG, and Gloplax aim to blend those new approaches with more strategic talent strategies and innovation.

Even with these shifting market dynamics, there is a danger of viewing GCCs as silver bullets. As an executive of a large system integrator reflected, “We have more GCCs that didn’t succeed than did.” Many RFPs are not thoroughly thought through, primarily regarding how long-term value creation is meant to be achieved. Where there is clarity is around the need for speed and access to talent at scale to support transformation journeys. Ajay Bhaskar, Wipro’s Chief Strategy Officer, added that the C-suite executives often decide on GCCs, while the Lines of Business sometimes are very neutral. This usually leads to significant heavy lifting required to gain business sponsorship, and sometimes leads to friction & inability to scale. Therefore, the key recommendation is to drive business sponsorship & alignment with all key stakeholders. Within this context, the challenge is twofold: How can GCCs be set up more effectively? And how can GCCs accelerate transformation?

The PAC GCC Continuum focuses on transformation increasingly enabled by technology arbitrage

To address those challenges, we need to reimagine the current state of GCCs. As Figure 1 outlines, the goal is to pivot from cost reduction to value creation, from transaction and support services to transformation. Technology arbitrage will increasingly enable this. While talent at scale is central to the value proposition of GCCs, that talent is meant to facilitate the shift to AI adoption and technology replacing labor arbitrage. Thus, pushing the boundaries of AI is becoming a critical strategic lever for GCCs. Yet, ambitions to progress to an autonomous service provision, as claimed in many discussions around Agentic AI, are few and far between.

Figure 1: The PAC GCC Continuum Pivots from Cost to Value

The infographic also conveys that there is neither a linear evolution from GBS or Shared Services to GCCs nor from captive business units. While GBS and Shared Services are operating models, GCC is more about knowledge work and innovation. If anything, it is a continuum from captive organization to assisted build to build-operate-transfer (BOT).

Another way to look at the infographic is that strategic decisions like insourcing are reversible. Paul Jeruchimowitz, Accenture’s Global Practice Lead for Operating Model and Organization Design, pointed to the journey of one of his clients in the manufacturing sector, where the CEO asked the CIO office to drive the company’s reinvention. Yet, they couldn’t provide any thought leadership as all those capabilities had been outsourced over time. Thus, they landed on insourcing to bring back thought leadership and direction. However, as Paul explained, they will likely externalize many of those capabilities once the strategic objectives are met.

The road ahead: Will Agentic AI kill operational services?

If the marketing noise around GCCs can be disconcerting, discussions about the impact of Agentic AI and the pivot of service delivery toward Services as Software take those feelings to another level. The agency and autonomy of making decisions and performing tasks have enormous potential. Yet, if we don’t write down technology, process, and cultural debt, many of those proclaimed capabilities will remain largely on PowerPoint.

Paul Jeruchimowitz made the salient point that outside of the discussion on GCCs, data and agentic architectures allow organizations to reinvent value streams. Thus, GCCs are all about talent at scale in talent-rich locations to enable continuous reinvention. Put another way, in the context of GCCs, the impact of Agentic AI should be discussed less about replacing talent and more about reimagining value chains through cross-functional work streams.

A perhaps surprising example of this is AWS. Typically, you might not associate AWS with business process services and GCCs. However, they see Agentic AI as an opportunity to pivot toward new buying centers by collaborating with Agentic AI startups, BPOs, and business consultants. Yet, as can be seen in the infographic, it’s early in the innovation and transformation journey for these GCCs and business process services providers. Still, value creation and innovation ecosystem should be the North Star.

Despite those strategic opportunities, organizations must heed what they have learned from business transformation, especially around secular technology shifts such as automation and AI. Those journeys often didn’t fail because of a lack of understanding of and investment in technology capabilities, but a misalignment of technology and business objectives, ineffective change management, and stakeholder management. Therefore, Agentic AI and GCCs must be embedded in new operating models focusing on culture and processes, not just capabilities. Thus, PAC would love to hear from organizations that have embarked on their transformation journey. Equally, we want to engage with providers that drive disruptive models – what’s worked, what hasn’t, and where you are heading next.