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The impact of black swan events on GICs

• By Anandorup Ghose
The impact of black swan events on GICs

As we deal with the economic fallout of the self-imposed lockdown by the majority of the countries,  all major platforms are rife with speculations from analysts and economic commentators on what is going to happen next, but all agree that managing costs and driving sustainable growth would be critical. This is when the focus shifts to an industry whose value proposition is predicated on these critical aspects; the outsourcing sector, especially the GICs.

Organizations that have struggled to cope with the recent pandemic have fundamentally faced three common challenges, viz. Speed of adoption of technology, lower workforce preparedness, and lack of robust processes and speed in scaling or ramping down in face of business headwinds, all of which are critical aspects on which the GIC value proposition is predicated on, helping them become more resilient.

While conventional wisdom would suggest that a focus on cost reduction across organizations globally would give an impetus to the industry which has its entire value proposition built on that pillar, there are still some concerns. The period between 2010 and 2015 post the global financial crisis was a great example of this.  

Prior to 2009, the majority of the GICs were focused on what is colloquially known as body shopping, but the crisis helped them to change the model. Leveraging their investments in technology and robust processes, they emerged as a role model for the organization. The value proposition transformed from cost arbitrage to value arbitrage.  The growth story of the GICs was fueled by the expansion of their service portfolio across risk, analytics, and technology.

The current economic crisis does present an opportunity for the GICs to leverage on their resilience and reinvent themselves. Speaking to business leaders from across the GICs, and leveraging our learnings from the previous black swan event, a few emerging trends that are expected to define the new reality include: 

Given the revised operating realities, we believe that the human resource priorities are likely to be focused on upskilling, digital preparedness of the workforce, enhancing manager maturity, and acquisition of talent with the requisite digital skills to service an expanded portfolio.   Upskilling will be critical to help drive higher productivity.  With increasing virtualization of work, organizations with a digitally ready workforce are likely to rebound more quickly.  Lack of leadership skills with the manager group, as far as has been highlighted as a critical skill gap, and with an increasingly distributed workforce is expected to only accentuate this challenge.  Also we anticipate that the new higher-value processes that will get added to the service portfolio will demand more niche skills that will have to be bought or borrowed from the talent market.

The GICs have far touted the massive available talent pool as a critical differentiator to expand their India operations. But in the last decade, as we moved up the value chain, some fundamental flaws were unearthed: employability and niche skill availability or lack thereof.   GICs could learn from some leading outsourcing service providers who have sustained the past decade by constantly innovating the talent paradigms.  Some initiatives that could be explored:

There have been multiple reports, recently, highlighting how manufacturing companies are likely to shift base from China to India. But that would be possible only if we have a comparable infrastructure network to support them. This is a challenge that GICs also are likely to encounter. While we anticipate a quick rebound for the GICs with increased work, there would be need to invest in basic telecom and technology infrastructure to cope with it. There is also an increasing focus on nearshoring, coupled with the frenzied activity by some governments to change the trade and foreign policies to bolster and protect the local workforce, which could prove a roadblock for GICs in India. 

All in all, we do understand that while this crisis does present a massive opportunity, it would also need a concerted effort from all stakeholders to invest and re-invent themselves.