Historically, outsourcing has been associated with setups like captives of big corporations. These captives operate a full-fledged establishment in a low-cost location or managed services by a cost-effective Managed service provider(s) with exceptional capabilities to understand and execute processes. Managed services as a market have matured immensely in the last two decades. Established service providers with global footprints have proven their potency in managing operations, improving efficiency, and increasing margins big time.
The IT Outsourcing landscape has evolved immensely over the last few years. Historically, the two most common outsourcing models have been captives and the other being managed services.
Analyzing Captives Vs. Managed Services:
Let us analyze and break down the strengths and weaknesses of both these outsourcing models. Captives and managed services offer a distinct set of pros and cons.
The captive model offers operational control and transparency. It also enables a cultural alignment between the extended offshore IT team and the enterprise. IP protection is another primary benefit that captives bring to the table.
However, the Captive model has a much higher risk in terms of infrastructure setup. The captive model needs a huge initial investment to establish it from the ground up. The enterprise must take the onus of talent management- from acquisition, recruitment, and retention. Also, the responsibility of compliance with local laws and regulations falls on their shoulders.
When looking at the managed service model, the benefits and shortcomings of the captive model get exactly reversed. There is a lack of operational control, cultural alignment, and IP ownership/protection. However, the cost savings that the managed service providers offer are unmatched and are often the decisive factor in pushing their case.
So far, outsourcing decisions have been hanging in the balance of this pull-push phenomenon. Additionally, we have seen how turbulent the global pandemic has been over the last 18 months. COVID-19 has aggravated the need for better control and visibility of day-to-day operations with the entire world working from home, thereby pushing the case further in favor of captives.
The advent of the Virtual Captive Model:
Until recently, outsourcing decisions were on either end of the spectrum of both these models- either choosing a captive that offers control and ownership compared to managed services providers who come with cost benefits, and innovation.
The quest to extract the maximum value led to the advent of “Virtual Captives.” It strikes a wonderful balance between control, cost, and innovation.
A Virtual Captive model is a “people first” outsourcing model which is fundamentally all about providing the right talent at the right time and at the right price. Virtual Captive teams have more experienced resources and are a lower turnover model that offers better knowledge retention and intellectual property protection than legacy providers. Finally, Virtual Captives are built and sourced from scratch and belong exclusively to a client therefore the risk of dependency on the legacy provider is greatly reduced.
The Virtual Captive model operates with a speed and agility that can adapt to an organization’s changing business needs and typically costs 70% less than onshore talent and often 40% less than traditional legacy outsourcing. It has been observed that even highly specialized and experienced teams can be built within the Virtual Captive model at rates as low as $20 per hour.
Virtual Captive as an offering is undoubtedly poised to gain popularity and momentum in the coming times due to the sheer value and advantages it promises to offer. Virtual Captives will be of great utility to clients who intend to gain back control and ownership of already matured and transformed processes that have remained with a Managed Services provider for long.