Sunday, 18 December 2011


OK. Just over a year ago, I was the Managing Director of SUPERVALU Services India  - a “captive” organization set up by SUPERVALU,  the Minneapolis headquartered grocery retail and supply chain services organization.

We sold the captive in late 2010.

Having scaled the captive and then being intimately involved in the strategic task of selling it seemed to have positioned me rather uniquely in the eyes of folks who have either done a captive, are intending to do one, want to do theirs differently or simply want to acquire one.

On and off, formally or informally, I have been asked to give my thoughts and views on stuff like: “So is it better to have a captive or to outsource?”; “What works best for captives and what works best for third parties?”; “Does a hybrid model work?” etc etc

The more people-centric types (and I warm to them greatly for asking me these type of questions, because at the crux of this business is a serious people strategy)  wanted to know how we managed the expectations of the team that went alongwith the sale of the captive, and therefore what were the lessons learnt.

All good questions.

Before SUPERVALU, I have run another captive, LG Soft India, that we converted into a successful P&L operation! So I guess my experiences are therefore both broad as well as unique, and hopefully my perspectives fairly well-rounded. I am sure I have some personal biases, but then don’t we all?

I therefore decided to start this blog….with the intent of sharing my views, hoping that it would provide a modicum of insight to organizations, and also to generate more comments and invite people to share their experiences.

As time goes by, and depending upon the response this blog and the comments elicit, I may choose to prepare a few slides and post them on the blog…for folks to use, debate, condemn, support, modify – in short use as they deem fit.

So to begin with I am going to give a very generic response to the following mutli-million dollar question:


And here is my very generic response:


I invite comments and thoughts.


  1. Well said! Value like beauty depends on the eyes of the beholder, and sometimes beer holder....jokes apart, what comes after the decision is as important if not more important than the decision...i.e relentless execution.

  2. Alright - so a very good friend of mine - someone I consider to be a sort of India outsourcing expert - though he is an American - has given me the following considerations as points to ponder:

    • Company Commitment
    o How committed are the CXOs to make this work?
    o Growth plans?
    o BPO and IT?
    o Near shore considerations for US Time Zones?
    o Management Commitment?
    • Impact to employees
    o Do workers prefer working for a Captive over a Major Vendor?
    o Attrition considerations
    o Growth Opportunities
     Growing with a new company – deeper skills
     Spending a few years and moving on to another account – broader skills
    • Finances
    o Cost Benefit considerations
    o Where is the economy going?
    o Company investment

    These are great points and I can already sense the itch in my fingers to put together a PPT. But I'll wait till I get some more wisdom from more folks. Thanks!

  3. Valuable resource here for organizations thinking of starting a captive. More for people who are contemplating working for a captive vs. service provider.

    I think once a captive is started, the only two logical outcomes are:

    1. Growth, growth, and more growth, culminating in the captive either becoming a P&L servicing many other customers in addition to the parent. Thus, returning multifold the value back to the parent.

    2. Losing steam and getting disbanded.

    Since you have seen both the outcomes, this blog becomes a must read for the organizations thinking of going captive and for people switching from service provider to captive and vice versa.

    Looking forward to more discussions here.

  4. This comment has been removed by the author.

  5. Well articulated Anilesh. As I see it, it might eventually become quite resourceful for people pondering over those questions time and again. One of world's largest retailer have been contemplating about setting up captive for almost 4 years and they still seem to not know the right path. I guess with more 'Captive Champions' like yourself sharing experiences on blogs and other forums, it might help them with necessary data points to decide either ways on the plunge.

    Good luck and I hope to add my perspective in future discussions.

  6. Hello Anilesh! Great topic!
    Thanks for your comments and insights on this topic affecting so many right now.
    What has been your experience with the associates? Do you find that most associates prefer to work for service provider over a captive and therefore are more productive?

  7. Hi Anilesh, Great topic !
    I’m giving my comments on varied dimensions. Idea is to expand the perspectives and debate.
    Captive or service provider is a classic make or buy decision. A captive becomes a vertically integrated structure while a service provider is a horizontal component. And then there are the hybrids. Each of these models has been successful in the long term. So, in the long term, all of these could be leveraged to achieve the business objectives. But the question is who survives long term? As Keynes said, in the long run, we are all dead ! So, the decision to make, buy or hybrid depends on a lot of variables in a definite time horizon, not in perpetuity.
    Each of these forms is an asset creation in varying degrees. So, one should know what type of asset creation and protection is needed to achieve the business objectives. Obviously, one doesn’t need a canon to kill a sparrow ! Rarely companies are clear about their objectives and strategy to achieve those objectives. Companies are either over-invested or under-invested. We seldom see companies that are rightly invested. In financial and economic terms, there are no returns without investments and assets.
    On another note, Its also a form over substance. If it’s a people strategy, the inherent risks are the same, but just that it can be direct or indirect, but the consequences are the same.
    Make or buy or hybrid is an economic choice. In a company’s lifetime, I think one would have to toggle between each of these models to be successful else, perish, but the question is what’s when?

  8. Hi Darshan,

    Its interesting that you point out about a large retailer contemplating this decision for 4 years!

    Yes, I hope that this blog will provide experiential insights to those who need to make choices....and not just at the initial set up stage, but throughout the lifecycle (what Suresh has alluded to in his discussion above about two possible outcomes for a captive).

    Look forward to your continued participation and insights.

  9. Hi Tony,

    Terrific question - gets right at the core of the issue!

    My opinion is that associates value recognition, respect and well-rounded growth opportunities. I think both type of organizations have the potential to offer these. That being said, I will lean towards a personal bias - which is that captives tend to be smaller than large third party outsourcing organizations (UHC, Target, TESCO, Wells Fargo, et al) and you have a better chance at making this work with a smaller team than with thousands of folks. But finally, its down to leadership and execution.

    I am also going to reach out to several others now to get their perspectives on this very important aspect. Stay tuned!

  10. Hello Bhaskar,
    Thanks for your perspective!
    I really liked your comment:

    "Make or buy or hybrid is an economic choice. In a company’s lifetime, I think one would have to toggle between each of these models to be successful else, perish, but the question is what’s when? "

    Additionally, am I right in understanding from what you have stated above that the first step is to be clear about the obejctives, and then the decision making gathers substance?

  11. Great initiative, Anilesh! And you certainly are one of the best to reflect on this topic.

    Just to substantiate the need of reflection on this issue, recently when I tried to search some deliberation on this topic in public domain, there was hardly anything available. I had to connect individually to capture views, and then assimilate all of them.

    All the best!

  12. My perspective is that outsourcing offshore development (vs. creating a captive) is the way to go for many or even most non-software development organizations. I think that while a captive can include better engagement, the offsetting factors seem to be talent acquisition, career pathing, retention, etc.

    These factors are overcome-able, but the thought that most persuasively (in my mind) makes the argument for outsourcing offshore is the idea that organizations are (and only can be) good at a small number of things. Many organizations don't realize this, but the best orgs deeply understand, and relentlessly focus on those core strengths. It's difficult to be good at global development... and most orgs aren't, even when they spend time focusing on it.

    That said, finding the right partner(s) is another challenge. I've done significant projects with a captive organization, and with at least four off-shore consultancies, with varying results. I think the same comment as above applies—the global consultancies also need to understand what they’re good at, but that self-reflection can be even harder.

    --> C

    P.S. I work for SUPERVALU, but can't speak on SUPERVALU's behalf. These comments are my opinions, not those of my employer.

  13. Hi Charlie,

    Sounds like another key aspect is global engagement - whether it is with a captive or with a third party. In a third party situation finding the right parnter is absolutely key, as you have said, - and I would aver that so is managing the partner.

    So in both instances, global engagement is at the core, thought slightly different in terms of nuances perhaps when comparing a captive with a third party?

  14. Great Initiative Anilesh! Every single captive center head in India has been waiting for an industry expert (a practitioner) like you to talk genuinely about the captive landscape in general - And what a topic to start with. People are bored of the consultant mumbo jumbo - Lets hear it from the veteran.

    Here are my two cents... well $20 I say....

    The question is still not complete - "IS IT BETTER TO HAVE A CAPTIVE OR OUTSOURCE TO A THIRD PARTY"...???
    Whenever people ask me this question, I retort back and ask "TO DO WHAT"?

    After thinking for a few minutes they answer "To do A, B, C....etc.," Then, I ask them "BUT WHY?" "WHATS THE PROBLEM WITH WHAT YOU HAVE AT THE MOMENT?" - Then for this question, people take atleast 3 months to get back. After spending few hundred thousand $ or even few million $ with a Top Consultant - They come back and say, my aunt said so (read cost savings), my wife wanted it badly (read a Top executive was making incessant pitch to the board as to we should pick one of the models) or my father said so (read others are leveraging one of these models).

    Only those corporations who really know and understand what and why aspect of their decision, take a sensible sourcing decision.

    Also, in my view the sourcing decision is not like picking a date. Its a pure play business decision. Sometimes companies tend to pick an option because it is charming!!

    Another PoV which am sure the pundits will vehmently disagree with is - "Whether Outsourcing or Captive center, for a IT, BPO, KPO setup - its just the same". Just that out of passion each side takes up one USP and beats the other with it constantly. Say Captive centers use "IP/Data Protection" and Vendors pick "Economies of Scale" - Emperical data shows that both are better placed to deliver on each others USP.

    So - let the games continue. I want to hear more perspectives.

    - Sundar

  15. Good point Sundar. In dwelling upon the question "Is it better to have a captive or outsource to a third do A,B or C etc", what are the different A's, Bs, and Cs?

    Isnt this somehow inexorably linked to the type of parent organization in question?

    For example a technology play organization (read Microsoft, Samsung etc) might consider the talent availability in India and engineering discipline as key drivers to go offshore, and IP protection to set up a captive (while perhaps outsourcing non-core stuff to third parties or using contractors at their captive location).

    Another could be establishing a global footprint/expanding market share - read organizations like Altair, Autodesk that can have captive engineering centers and at the same time use this presence to handle sales & support of their products and servies in this part of the geography.

    How about BPO captives that handle core processes of their parent organization - read Ocwen type of organizations, where cost may be the driver to come offshore and customer data protection the need that drives the captive decision?

  16. Dear Anilesh, excellent topic to dwell on and the timing is superb!!

    Shade over a year in to the sale of SUPERVALU India! and it couldn't have been better timed

    I am now going to touch on few topics which are discussed already

    Growth, growth, growth - I guess my view always in numbers, while how well we travel the value chain - north obviously

    CxO commitment - Many times I wonder is it simply the commitment or the ability for the XO's to clearly articulate the A B C D of Sundar to all levels in organization. I have noticed the effect of XO's taking the lead and explaining versus delegating without understanding the consequences

    Now coming to the relentless execution Narayan has mentioned. It so happens that Narayan, Darshan and I were part of a successful creation of captive (at least in the eyes of the beholder) and continued to do well after 3-4 since we have all moved on.. The truth is relentless execution of the plans it had and not looking back. First 3 years stuck to one plan. It doesn't matter whether it is through captive or through service provider the key is execution.

    Now I would like to leave few of my points

    - Value creation. In my view how much ever an organization tries to create value through outsourcing or captive, unless it is done in its earnest and complete isn't going to drive value creation. Ability for the leaders to create the vision and steer the organization to realize it.. Either captive or outsourcing partner stop creating value, the outcome is similar - sell off or switch…. We all have seen this!!!

    -Product or Services - Need for "Trust" - we all know many a times the doctor cures the illness before the medicine starts to work. I guess it’s the same here in offshore / outsourcing / creating captive.. While the need for trust may vary between the operating models - but it is a must. When we buy products in the market we look for guarantee and the price depends on the size of the brand - a similar home theater can be obtained at Rs.20k from Sony to Rs.200k from Bose!! So to drive the point of value create - captive or outsourcing partner should have been bestowed with higher trust

    - And finally the core objectives, while captives are cost centre's and meant to drive up the value chain on the other hand the service organization are meant for making profit while delivering customer value proposition. As long as each of the model can deliver their objectives the model will survive.

    So does setting up captive makes sense - look at Target in India - both captive and service organization co-exist.. So the debate continues….

    Keep the discussion going.. This is fantastic and curious to see more perspectives

  17. Interesting point about trust Arun......!

    Back for a moment to the examples like Microsoft, et al cited above.

    What are the broad categorizations of captive organizations? Here are some:

    - Product/engineering focused: Microsoft, Google
    - Services play: Accenture, Cap Gemini
    - Industry/vertical play: Target, Tesco
    - Industry focused services play: Anthelio

    And some of these may have a dual role of being a captive and at the same time be part of the regional sales/support set up for their products/services being sold in this region.

    Can anyone think of any other types or categories to add to this list?

  18. This is going good.............

    As to associates preferring captives or service providers:

    A brand or a type (captive or service provider) can only bring a prospective employee to the door. Then on, whether the candidate chooses to walk through the door depends on what he/she sees in the management team, the mgmt style, their peer's experience, and the functioning.

    Coming to Tony's point. I guess, talent prefers a place where they can learn, grow, contribute, recognition ,etc (similar to what Anilesh has pointed out).

    Having seen the migration both ways (captive to services and service to captive). I can say that individual concerns do not change. Employees look at how best they can get their personal goals met in either situation.


    + Small pond, individual attention
    + Stability for people wanting to pursue a path (tech/functional/management)
    + Access to leadership

    Service Providers:
    + a large ocean, where opportunities exist in abundance.
    + Exposure to multiple clients and their ways of working in a comparatively shorter period of time.
    + Relatively insulated from ups/downs of parent org.

  19. It is 2012…welcome back to my blog and wish you all success in your endeavours in the coming year! If these endeavours are to do with setting up a captive… stay tuned.

    I have received several comments/inputs/questions on the rather broad topic “people strategies” for captives. Questions like: What compensation levels should I pay?; What is a good attrition number to aim for? ; Should the India structure mirror that of the parent? etc.,

    All good questions, and I thought the best way to dive into these is by setting up a separate section, titled just that: “People Strategies for Captives”. I will be putting this up shortly and will provide some perspectives in the form of FAQs, which hopefully will cover what most of you are looking for.

    Please keep the comments coming – if you agree with what I have written, please say so (good to hear!) and if you don’t, I welcome your perspective.

    And a disclaimer…….if you follow any of these strategies, you do so entirely at your own risk. So please read this blog keeping this in mind!

  20. Anilesh,wish you and everyone on this blog a very Happy and Prosperous New year …

    My thoughts….

    All large organizations which have survived long enough are because of the way they could adapt to the changing conditions. In an increasingly interconnected global situations and impacts, it is best for the organizations to be prepared to change to suit its best needs.

    I read somewhere that average economic cycle is about 5-6 years. Political changes through elections and otherwise will occur every 4-5 years and interestingly average tenure of a CEO of a large organization is about 6 years!!!!!. So, one can expect that the options are re-evaluated every 4-5 years.
    The options of Captive / Outsource / Third party are all valid and one option will be more relevant / better than the other for a specific organization for a specific period, based on economic and political conditions.

    So in my view keeping all options open and operative, an organization needs to shift weightages for these options from time to time and fine tune it to maximize ROI and growth (for this shift in weightages among captive/outsource/third party to happen, seamlessly and in an cost effective way, do we have a FRAMEWORK ?????)

    But the most important aspect will be to clearly articulate the current thought process, for the decisions, through the ranks and files and geographies of the organization and ensure everyone moves in cadence !!!!

  21. Thanks for your inputs Satish.

    There have been several comments on this blog now on the captive vs third party debate. Here is what seems to be emerging:

    - Be clear about the objectives of the captive; why you are setting it up and what you expect from it
    - In doing so, keep in mind that setting up a captive may not be your core competency; and the key to success seems to be the ability to ensure positive global engagement.
    - Once set up, the value may shift over time (this I feel is also linked to changes in management)
    - Strategies therefore have to shift or rather evolve to suit the need at hand

  22. Anilesh, Thanks for the initiative and my sincere apologies for plugging in late. I am sure you know the reasons:-)

    Given that I was involved in three of such engagements, I will try to contribute to the best of my knowledge.

    The choice of sourcing model is as individual as the company that’s making the decision.

    My view is that the choice between captives and outsourcing may lie largely in a company’s comfort level with different kinds of risk:

    1) relatively greater execution risk with a captive center
    2) relatively greater economic risk with outsourcing.

    An organization that lacks confidence in its internal capability to set up a captive center, perhaps because it has no presence in the target country or has a history of difficulty in implementing major organizational change and/or views managing vendor relationships as a strong suit may favor outsourcing or one of the collaborative captive models.

    In contrast, a company with a strong presence in the target location, that is confident in its ability to establish captive center operations in that country, and/or that perceives the risk of having work performed by an outside party as greater than the risks of managing a captive center may be more likely to favor a captive approach.

    In addition to this, a company that chooses a particular offshore sourcing model to begin with can certainly change its approach in the future as its needs evolve. One of the latest engagements that I am currently part of, in fact, began by outsourcing their offshore support services and then move toward a captive model as they gain a more significant foothold in the offshore market. Others draw on a mix of sourcing alternatives, running a captive center or centers at the same time as maintaining various outsourcing relationships. Infact, IMHO, a mixed sourcing strategy is becoming increasingly popular.

    However a company chooses to obtain its offshore support services, the decision should always be guided by a well-thought-out sourcing strategy that aims to align the company’s overall sourcing activities with its comfort level regarding the chosen option’s risk/reward profile as well as its overall business goals.

  23. Hello Anilesh,

    Thanks for initiating discussion on this topic.
    I have been involved in an Investment Bnaking Captive since 4.5 yrs and I have been part of the big growth cycle.

    My take
    - Yes it makes sense to setup Captives in India
    - It will work only when
    - the parent company "grows up" from treating the Indian Captive like a Cost Arbitrage and Talent Arbitrage center
    - When there is full cycle of Business Analysis, Development, Production Support and Business Operations from India. If only some pieces are done in India then the Autonomy will not grow and the Captive will start loosing key talent faster
    - And yes we need Global Leaders in India who take the Accountability and Ownership for things done in the Captive. If the Parent company is always directing and commanding it will not work.

    So to summarize, it will work when there is Autonomy in the Captive and its not just Cost Arbitrage and Talent Arbitrage center but also a center for Innovation and Business Value Add.

    Mahtab SYED
    Paris, 23 Nov 2012

  24. Hello Mahtab,

    Well summarized. In talking to people and in my own experience, I have found that being clear about the "reasons" one is setting up a captive is essential (ie the objectives). This drives the "design" of how you set it up.....including structure, governance and direction and allows the center to also "evolve" as it grows.

    Thanks for taking out the time to post your comments.

  25. Hi Anilesh, Great topic. I stumble upon this blog only now. From my personal experience, in a nut shell, I would say, Captives and vendors have to co-exist and collaborate, and it is the job of CxO's the sponsors to create a place where they work collaboratively.
    IT organizations (to keep it simple for now) of large enterprises, Banks, Retails companies, Automotive, Aerospace units require sufficient scale to a) Keep the lights on on their critical services/applications, b) support/enhance/modernize their technology landscape and assets and mostly across geographies. While looking for that scale, it is natural to look for near shore/far shore captives. As they definitely need to build a people organization thro' their captives who can take a sense of ownership, like "it is my baby", so that the captive is able to meet its objectives and eventually add value to the overall organization. Now like many others discussed here about how then vendors play here. Vendors have to work collaboratively with Captives and not see them as threats. Vendors bring a) Extra Scale to support and maintain the various technology assets of the organization in partnership with the Captives. b) Vendors can bring in their experience of carrying out enhancement/ mordenization initiatives with other enterprises, have to work collaboratively,with the architects/management from Captives to help build, upgrade support systems. The captive architects/management knows best, what works for them, knows best how to connect all stakeholders within the enterprise, whereas the vendors can bring the technical expertise, in such initiatives.
    About retaining people in Captives: In my personal view, people prefer to work for captive for many reasons, such as a) They get a sense of ownership of a piece/of an application, of a hardware, of a business. b) They own something unique/niche - like i own the payment card part of the business, like i own the foreign money transfer part of the internet banking, like i am the Global Release manager for all the releases going into the Point of Sale systems, c) Job stability and location stability. It is difficult for captives to meet the aspirations of the people, if they have a lot of people who want variety every 6 months, or people who want to travel abroad/(in the india context, people who want to go onshore for long term. If that is happening, I fear the captives are doing something not unique anymore, something that a vendor is best at doing, as a vendor has the business which can meet such aspirations of people. It is the choice of the work, that will help the captives attract and retain the right people.

  26. Hello Suresh,

    Thanks so much for your comments! I agree with you completely on both counts: vendors and captives need to co-exist as part of the overall ecosystem as well as your points about retaining people in captives. On the topic of the vendor+captives ecosystem, there is a huge opportunity for large vendors to align their "captive" strategy to take advantages of opportunities that will arise when they view themselves as a synergistic piece. So it makes business sense!

    On the topic of retaining people - you've presented a very well balanced view and I agree. My general bias (based upon my experience) is that by and large captives do a better job - the sheer pride of being part of a US based organization and the excitement of leading a global role preponderates in people's minds as do the very transparent HR policies. Is the sheer size of third party vendors a deterrent in this regard?