What are captive centers—and should you explore them as an outsourcing strategy?

Companies are constantly seeking ways to optimize operations, reduce costs, and maintain control over critical processes in today's tightly managed business environment. One strategic approach gaining traction is the use of captive centers, which we discussed on the Design Talk podcast in this episode: “Talking About Captive Centres with Dave Borowski.” 

But what exactly are captive centers—and should your organization consider them as part of your outsourcing strategy?

Understanding captive centers

A captive center, also known as a global in-house center (GIC), is an internal unit within a company that handles specific functions such as IT, finance, HR, or customer service. Unlike outsourcing to a third party, captive centers are fully owned and operated by the parent company, allowing for greater control, consistency, and integration with company-wide objectives. 

How do captive centers work?

Captive centers are typically set up in locations that offer cost advantages, access to skilled talent, or strategic proximity to markets. For example, many tech companies establish captive centers in India due to its large pool of IT professionals and lower operating costs. These centers function as extensions of the parent company, enabling streamlined communication and consistent processes across the organization. 

An example of a successful captive center is JPMorgan Chase’s Global Service Center in India. It supports various global functions such as technology, operations, and finance. The center is fully integrated with JPMorgan's global operations, allowing for efficient workflows and innovation across the company's services. 

Another example is General Electric's captive center in Bangalore, which focuses on R&D and software development. This center has enabled GE to leverage local expertise while maintaining close alignment with its global strategies. 

Why consider a captive center?

1. Strategic value: Captive centers aren't just about cutting costs; they serve as innovation hubs. Companies can harness specialized talent and advanced technologies like AI to drive operational excellence.
2. Talent & AI integration: As discussed in the podcast episode, captive centers can be pivotal in executing talent strategies and integrating AI—turning them into engines of innovation rather than mere cost centers.
3. Global reach & consistency: With captive centers, companies can maintain a consistent approach to operations across multiple regions, ensuring that standards and processes align with global goals.

Are captive centers right for your enterprise?

Exploring captive centers as part of your service delivery strategy depends on your company’s specific needs. If control, integration, and culture are critical, a captive center might be the right move. 

At West Monroe, we specialize in helping companies design and optimize their talent and service delivery strategies (captive and outsourcing). We can help you find out whether captive centers are right for your organization.