The Captive Center Re-Emerges As A Source Of Offshore Innovation

Sourcing and vendor management (SVM) professionals have become skeptical of using captive centers, primarily due to their mixed history of providing return on investment (ROI). Although many companies "stubbed their corporate toes" when attempting to replace or substitute their third-party offshore vendor with their own captive centers over the past six to eight years, we can now look back at the details of those cases and see clear flaws in the traditional captive center model. Most importantly, cost reduction was often the only reason behind many captive center initiatives — and when cost savings were negated by high attrition and hidden costs, business and IT executives gave up on the approach. There are, however, strong reasons to revisit the captive center model, particularly for companies that are balancing the need for cost savings with innovation objectives. The captive centers of today and the model for the future will be a hybrid of senior technology leaders partnered with their existing third-party offshore vendors and will breathe a new life of innovation into some existing captive centers.