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“Captive” outsourcing centers owned and run by customers aren’t dead, according to a study by consulting and research firm Everest Group. But they are changing, the study says, taking on higher-end work and developing the global talent pool needed to perform it.

The report, co-authored with Tesco HSC, the global services delivery arm of 5,000-plus employees supporting the retailer’s presence in 14 countries, says that between December 2008 and December 2010, 37 new captives were established, 21 announced significant expansions, and 13 divestitures occurred.

“Looking back at the 2008-2010 time period, what actually happened was notably different from the market speculation in 2007-2008 when news media headlines said captives were dying or dead,” said Eric Simonson, Everest Group’s managing partner of Research, who co-authored the report with Vinit Vishal, guest analyst of Tesco HSC. “In reality, most closures were small operations and many were ill conceived from the beginning. Meanwhile, successful captives were largely ignored.”

“While the noise suggested a failure of the captive model, in reality the captive model endured and further evolved. Today, captives continue to have an important role in global sourcing portfolios and are oriented towards providing increasingly unique value propositions,” said Simonson.

The study predicted four ongoing changes for offshore captives moving forward:

• Most of the work will be “non-commodity” in nature, particularly due to the desire to control what it called “business enabling activities.”The work the captives do will, the study said, “be skewed towards more complex or unique activities to support a wide array of processes, many of which are less defined or more nuanced than market-based standards.”
• Captive service providers will need to pay more attention to their “talent models” to successfully perform these more complex or unique activities.
• Understanding the scale of services they must provide “will be critical as captives will require increased diversity of skills in competitive labor markets,” the study said. “Additionally scale is needed to overcome the natural strain of distributed global operations.”
• The scope of services captives will provide “will naturally evolve and require refinement as business needs change, third-party service provider capabilities mature, end-user preferences evolve and captive-provided service performance is assessed.

“Talent models are one of the most important levers for captives to optimize in support of future growth,” the report said. For Tesco HSC, this means aligning its talent model to building a global pool of end-to-end IT skills and deep domain knowledge, including proactive staff rotation programs to develop and retain employees.

“We have continued to build a strong workforce that is on the cutting edge of ‘future retailing’ concepts with the ability to develop and enhance retail solutions based on deep functional and technical expertise,” said Sandeep Dhar, CEO at Tesco HSC. “Our investment in talent development programs have resulted in positive scores on employee surveys that confirm employee engagement is a leading indicator of our overall business success.”