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Changing roles of center of excellence (CoE) in global outsourcing

According to a recent report in TMCnet, more and more outsourcing companies are aligning their delivery operations along centers of excellence (CoE) - building and leveraging specialized skills within their organizations. Firms use CoE to facilitate knowledge sharing and capability building in niche areas such as pharmaceuticals, automobile, telecom or for specific functions like innovation, technology, R&D, testing, etc. The adoption of CoEs by outsourcing companies has been a recent phenomenon, but is rapidly gaining traction. The model is offering service providers much-needed flexibility, productivity, cost and resource efficiency in managing their increasingly global businesses. It is also finding better acceptance among buyers.

For the moment, the large-scale acceptance suggests that the concept is likely to witness rapid growth over the next few years. A large number of buyers and suppliers will organize their activities around CoEs to gain from economies of scale and to leverage other strategic advantages.

The CoE served to centralize resources, standardize processes, share strategic knowledge and more importantly, put in place a roadmap to sustain and develop operational excellence. The choice of locations was strategic - e.g., India allowed rapid scalability from an abundant manpower pool.

Changing Roles In Global Sourcing

The service provider is being increasingly seen in the role of a strategic partner , aligned with the buyer s business objectives such as cost reduction, efficiency improvement, process re-engineering, innovation and business continuity. Contract sizes have been reducing and the large mega-deals of the past are getting restructured into smaller contracts to multiple vendors, often to specialized service providers who are best-in-breed. Vendors are expected to be able to provide services from multiple locations around the world and at times, expected to partner with competitors, acting as active participants in the clients business, rather than mere executors of contracts.

Going Forward, it sounds like a win-win situation for the client and the vendor, there are several challenges in operating a successful center of excellence, mostly related to implementation and sustainability. Setting up a CoE can be highly cost-intensive and necessitates a comprehensive business plan for the longer term, to transform the CoE from a cost center to a profitable unit. Consequently, skeptics question the capability of an excellence center to succeed in the absence of broader organizational maturity.

More details can be read in this report.