A global survey of executives finds enterprises evenly split between expanding and reducing the use of global capability centers

Thirty-six percent of enterprises say the use of a global capability center has improved operating costs by at least 25 percent

New survey research from leading global technology research and advisory firm Information Services Group (ISG) (Nasdaq: III), finds 96 percent of enterprises have made changes to global capability center (GCC) locations or capacity over the past two years based on cost and talent concerns, a pace of change ISG experts say shows no signs of abating.

The ISG Global Capability Centers Buyer Behavior Study of 300 global IT and enterprise executives responsible for captive IT operations, corporate functions and industry-specific operations centers, found an almost even number of respondents say they have expanded staffing at global capability centers in the past 24 months (47 percent) as have reduced staffing at GCCs through the use of automation (46 percent).

A similarly even split of respondents say they plan to expand staffing at existing GCCs over the next 24 months (40 percent) as plan to reduce staffing at GCCs (40 percent).

“The level of activity we’re seeing in the GCC space includes enterprises that want to build or expand GCCs, as well as enterprises that want to exit or monetize GCCs, as they work to balance a tight labor market with intense pressure to optimize costs,” said Alex Bakker, ISG distinguished analyst and co-author of the study. “These polarized approaches are based on the same primary motivations – to reduce cost and access talent. This speaks to the complexity of this market.”

The survey found enterprises that are setting up or expanding GCCs most commonly say they are doing so to reduce costs (cited as a motivating factor by 61 percent of respondents) or to access talent (55 percent are motivated by labor costs, 49 percent by workforce flexibility and 33 percent by the availability of talent locally).

Fifty-seven percent of the enterprises that have moved a GCC from one location to another in the past 24 months said lowering labor cost was a main driver, while 55 percent said a cost optimization program was the main driver for moving a GCC. Enterprises wanting to reduce staffing or altogether exit their GCC say they’re not reducing their costs (63 percent), they’re pursuing process optimization and automation (57 percent), and the talent they need is not available locally (27 percent).

The focus on global capability centers as a means to reduce costs appears to be paying off, with 36 percent of enterprises reporting the use of a GCC has improved cost savings by 25 percent or more.

The ISG research showed GCCs have so far been less successful in meeting enterprise demands for innovation and process and quality improvements, with 28 percent of respondents reporting the use of a GCC has made no difference or has negatively impacted quality of operations, customer experience (33 percent) and employee experience (39 percent).

While cost and productivity pressures are driving enterprises to invest in GCCs, companies are also looking at GCCs to streamline and standardize processes and bring agility to the business. Forty-three percent of respondents said value and the ability to drive market differentiation and positioning is a top benefit of their GCC, followed by 35 percent who cited access to talent, staff augmentation or access to strategic skills, and 22 percent who are benefitting from strategic innovation and solutions to meet strategic priorities.

“The enterprises that are pursuing – and, as our data shows, largely achieving – cost savings must ensure those gains don’t compromise their other strategic priorities,” said Michael Dornan, principal analyst and study co-author. “Providers that can help their clients integrate technology, manage risks, control costs and deliver differentiating customer and employee experiences will have the advantage in this talent-constrained, cost-conscious environment.”

Bakker reviewed the results of the 2023 ISG Global Capability Centers Study during the third-quarter 2023 ISG Index™ webcast, Thursday, October 12.

ISG Buyer Behavior research combines surveys of senior-level global executives with expert ISG research and analysis on market trends and strategic business initiatives. Upcoming studies will focus on application development and maintenance (ADM) and artificial intelligence. Earlier 2023 studies explored cost optimization, cybersecurity and the future workplace.

Click here for more information on the 2023 ISG Global Capability Centers Study, or contact ISG for more information on ISG Buyer Behavior research.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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