Today, we continue a conversation about global capability centers (GCCs) and take a closer look at some real examples of how they are reinventing companies’ service offerings, transforming their workforces, and adjusting their operating models to leverage rapidly evolving technology trends.
In this episode of McKinsey Talks Operations, McKinsey’s Daphne Luchtenberg is joined by Indy Banerjee, a senior partner in McKinsey’s Bengaluru office and leader of our Global Operating Model Next offering, and Jack Madrid, president and CEO of the IT and Business Process Association of the Philippines (IBPAP).
The following conversation has been edited for length and clarity.
Daphne Luchtenberg: Jack, we’re so delighted that you’re able to join us for this conversation. Tell us a bit more about the journey you went through to the role you have today.
Jack Madrid: The IBPAP is the flagship organization for the IT-BPM [IT and Business Process Management] industry in the Philippines. We are on our 20th year and I’m on my fourth year at the helm. Our primary objective is to be the collective voice of the industry across all the different audiences, including our government, investors, as well as our 410-strong member organizations. The workforce continues to grow. We ended last year with 1.82 million digital workers generating north of $38 billion into the economy. And for those interested, that is 8.5 percent of the country’s GDP. So certainly a critical economic pillar.
What has been interesting is that the three-year-long pandemic accelerated some of the new work types. Along with remote work flexibility, it really accelerated both the variety of work and functions that our global customers provided us, as well as spreading work across Tier 2 and Tier 3 cities throughout the archipelago, so this is no longer just a Manila and Cebu phenomenon. It allows emerging cities and provinces to leverage their talent pools and enable even those who can’t go to an office every day to be employed and take advantage of their skills.
Daphne Luchtenberg: You’re really helping to develop the economy and stretching it out across that wide-ranging geography. Indy, let me bring you in here. You serve a lot of clients who are looking at this topic of how to optimize their global operating model [GOM] and how to think about their talent hubs. Can you share some perspectives on the evolution that you see is now required in the GCC ecosystems for centers to stay competitive and relevant to the organizations they serve?
Indy Banerjee: In the past three decades, the story has changed from a lower-cost talent one—being able to do lower-complexity functions—to essentially being a microcosm of the firm. That’s the reason why we don’t call this a GCC story, we call it the global operating model because it’s an enterprise looking at its overall talent footprint then deciding from a platform perspective, a talent perspective, and how they work, what should get globally distributed.
This has three consequences, all of which represent significant change over the past 30 years. One is the footprint and penetration. It used to be that having 5 percent, 10 percent, or 15 percent of your head count sitting in these countries that constitute the GOM, as we call it, was a high penetration. Today, we find that anywhere between 25 percent to a high of 45 percent of all head count of these enterprises will sit in the GOM.
The second change is that this is now where leadership sits. We call it a 10-30-50. We see up to 50 percent and more of functions sitting in the GOM and some 30 percent of functional leaders, which are people who own the function end-to-end across the world and have people in the enterprise, HQ, regional quarters and these centers reporting to them. But what’s really provocative is that 10 percent of the CEO minus one or CEO minus two roles are now beginning to sit in the GOM. So it’s really an entire microcosm of the organization that has shifted here.
Daphne Luchtenberg: So it’s really a next level of maturity that’s coming about here. And talent, of course, Jack, is the critical linchpin for all of this, as you start to think about moving the model from traditional voice-based BPO [business process outsourcing] to transform these groups into something that’s much more innovative and that addresses a wide range of questions about analytics, cybersecurity, and digital transformation. So, how do we think about talent today and how should GCCs themselves, the global operating model groups, be thinking about the talent they have? And how can governments and the ecosystem think about ensuring that the talent for the future is going to be there?
Jack Madrid: I want to echo what Indy said—that the very definition of GCCs has gone far beyond cost arbitrage toward more value creation. We grew the IT-BPM industry on the bedrock of Filipino talent and communication skills and some specific domain skills. We need to play to our strengths, leverage those skills, and really home in on specific domain skills. The future of work and the continued momentum of GCCs—if we want to grow the Philippines beyond where it is today and emulate some of the success of India—will depend on how successful we are in upskilling and right-skilling the workforce.
I see it very much at the intersection of domain skills and technology. I think that’s where we will need to play. That will involve the commitment of all stakeholders and it will involve the academe. Curriculum will need to be strengthened and updated accordingly, so our stakeholders and government also have a part to play.
Daphne Luchtenberg: Indy, anything from your side when it comes to growing talent, both addressing talent needs today and how workforces need to pivot their skills and making sure that we’re growing the new skills from the bottom up?
Indy Banerjee: We tend to see this at three vectors. Multiple countries sit in the GOM groups—India, Philippines, Mexico, Poland, Costa Rica—a broad base of countries that tend to have large workforces and many who are graduating from colleges and entering the workforce. But the proportion of those who get absorbed into the sectors or the domains that we are talking about tends to be moderate to low. What you find is that in many of these setups, for every 100 people who apply, you might have anywhere between 4 to 6 percent who are actually ready for employment.
So I think first you ask, how fit for purpose are you? There’s a huge opportunity for companies, the government, and academia to collaborate. Whether it’s in Bangalore or Hyderabad or Onay, you’re seeing anchor companies tie in with universities to make sure that those programs are being taught, so candidates are more fit for purpose.
The next piece is about how we create middle management, the people who provide oversight for other people. The average workforce in the GCC is about 28 years old. Very often you’re on your first job or second job and therefore the role of the manager as an SME [subject matter expert], as someone who is a team leader, who is actively building careers, becomes critical. How structured you are in doing that is one of the limiters on how fast you can grow.
Another interesting one is top leadership. How do you grow these people? How do you use the opportunities to have managing directors? One of the banks we’re working with has identified an opportunity to have as many as 117 managing directors [MDs] to be based out of the GOM. The challenge is, you just can’t reach out and recruit a managing director for a bank. So how do you grow them internally? How do you build the ecosystem to create an MD who is truly a global MD? This is not a people leader. This is a functional leader who has the depth and breadth to be able to operate not just in India or Philippines but also in London or New York or Zurich, seamlessly.
Daphne Luchtenberg: How can, the global operating model, also integrate more closely with the core business as well, where culture, skills, values, and purpose are shared across the enterprise?
Indy Banerjee: A couple of years back, we upset quite a few people because we got up in one of the industry meetings and we started the presentation by talking about the death of the GCCs. Our provocation at that time was that, as long as you keep a wall between what is enterprise and what is the GC, it’s always going to be “us and them.” To be a little more provocative, there’s a parent–child relationship. What you’re now saying is that the center out here just happens to be out here. We have the same commitment to clients, the same ways of working.
What’s hard is the enterprise headquarters have had 30 to 100 years to mature. They have very established systems of being able to apprentice and teach and bring out the softer elements and skills. How do you build this out in units that are between 20 years old, or even just two or three years?
Daphne Luchtenberg: It also requires the investment from leadership to build that up. Jack, you were saying you have more than 400 members in your association. I’m sure they’re all in various stages of maturity when we think about this movement from being a pure outsourcing center to being part of the enterprise ecosystem. How far evolved do you think most of your members are?
Jack Madrid: The lion’s share of our business volume remains traditional: the contact center, that is where we began. However, the diversity and maturity of the skills and the functions that are performed have matured as well. They have become more complex, higher value-adding and omnichannel. We’ve been able to build on that foundation to grow the GCC work. Many of our GCC members have been in Manila for more than a couple of decades.
The Philippines, with its young population—the youngest country in Asia—and its central location has proven to be very attractive. And a lot of our international workers and executives and leaders happen to love working and living in the Philippines, which has also proven to be an attractive feature, though it’s not often discussed.
To answer your question, the foundation has been there for quite some time and we’re increasingly seeing more traction in specific sectors—banking and financial services being one and healthcare being another. The healthcare sector is an emerging powerhouse for the Philippines, not just because of our nurses—the country is the second-largest supplier of US registered nurses—but because it has matured far beyond medical transcription, where we began 20 plus years ago. We now do all aspects of healthcare, from revenue cycle management to care management and functions like pharmacovigilance. The challenge now is how to scale it.
Daphne Luchtenberg: Very exciting. Geopolitics is obviously something we cannot avoid. There are a lot of pressures and a lot of conversations going on right now. So how are you thinking, Jack, about building resilience into the GCCs so that they can navigate the potential turbulence of workforce demand over the coming years?
Jack Madrid: Geopolitics normally does not come up, but it has in recent months. Not being a major manufacturing location, we are not front and center of all the turbulence on tariffs, though it has certainly come up in the offshoring and reshoring front. Up until now, there is still far more demand than supply for expanding footprints in the Philippines across the board. That’s really where my concern is. How do we meet the continuing demand? Obviously, the answer lies in that intersection of domain skills and technology. That’s not a new issue. I think what is new is the sense of urgency, given the fast pace of the new work types and the coming impact of agentic AI on some of the work that we do.
Daphne Luchtenberg: Indy, are you seeing that across the board, what Jack described in terms of the impact on the Philippines? Is that pretty much true for all GOM destinations, that the challenge isn’t that demand is going to fluctuate, but is more about how can you rise up to meet that growing demand?
Indy Banerjee: First, if you look at the data, you can see continuing demand. It’s the fundamental disengagement of demand and supply. Where you make and where you sell will carry on seeing a variation. But a bigger piece, if you step back from a definition of geopolitics, it tends to be two-sided.
The ongoing thesis around geopolitics is that there is a politically led disruption that happens, and therefore there is a risk around it. The reality is, if you step back, it’s a bigger definition in terms of what goes into risk. So the two-sided piece is related to talent. On one hand, there is a question: Are you generating jobs in the country where you’re selling into? Therefore, there’s an obligation that as you sell into certain markets, should you generate jobs? And the answer is yes. But there’s also a question: Do you have the skill sets required to be able to deliver for the roles that are coming up?
If you look at roles like digital and if you looked at roles like analytics and a whole bunch of other roles that are increasingly complex, the question is: in the markets where you are, are you getting the level of quality you need? It’s not about being cheaper. Are you getting the best talent possible? So, in fact, the risk really is that if you are in markets where you’re not able to scale up for the talent that you need in the future, the enterprise will suffer. That is the two-sided risk: How do you make sure that you have a footprint in the markets you sell into, but also have the right mix of markets to make you a market leader?
Another example is operations. If you think about it, COVID sharpened it hugely. If you are overconcentrated in some countries in terms of your delivery—let’s call it the heritage locations that you had—you have disruption. For multiple players, we tend to find not only are they significantly concentrated in some markets, they are concentrated in certain geolocations, states, and cities. COVID was of course the black swan, but you have weather events and other disruptions that would have a lower impact if you had a more distributed footprint. COVID taught us that businesses with a more balanced footprint are more resilient to events.
How do you have a workforce that is flexible and agile, both in terms of the ability to deliver but also the ability to very rapidly retrain your workforce? The first piece is that you need to have a nuanced view regarding how you make yourself geo-resilient. That’s the way I would talk about it. And the GOM—in our sense of a well-thought-through GOM that takes all of these components and makes it agile—is the answer.
Daphne Luchtenberg: Jack, I’m going to come back to you because the topic of gen AI has been covered a lot during our McKinsey Talks Operation series, and we are now starting to talk about the real promise of agentic AI. Do you see that as a headwind or a tailwind for the development of the global operating models as we go forward?
Jack Madrid: That’s really the million-dollar question. I hate to do this to you, but I would have to say the answer is both! It is both a challenge and probably a great opportunity. Being optimistic, it’s more of an opportunity. The early results of AI trials in the Philippines have been mostly positive. We have found that this has augmented the agent, acting as a copilot, giving more organized, more accurate, faster access to data and information, and resulting in higher levels of productivity, and as a result—and this is early days still—higher customer satisfaction.
However, we know that this could also be a tsunami of sorts. What that means to me is that, although things are moving very fast, we’re all starting at the ground level. I think we need to move quickly and do what we can. Instead of fearing the unknown, we should take this responsibility for upskilling ourselves more seriously than we ever have, and take it as a personal responsibility because we’re all being challenged by this at the same time.
Daphne Luchtenberg: And we’re learning as we go. Indy, I’m sure that you’re helping clients think this through. How should they be curious? What should they be experimenting with? What are some of the thoughts and what’s the advice that you give to clients as they try and navigate this new world?
Indy Banerjee: My sense is that gen AI is more of a tailwind than a headwind. First, some of the data: We, of course, as a firm, see agentic AI and gen AI as a massive opportunity. When you break it up, only 13 percent of the opportunity lies in the copilot, the only commoditized tech-driven setup. More than 85 percent of the opportunity is realized when you do the transformation. This is not a system that just comes in and learns by itself. I think the second point is that ChatGPT is great for writing poems. But when you start doing a string of business activities, which mirror an agent if you may, where is the insight and the input going to come from?
Daphne Luchtenberg: And Jack, let me wrap up with one question for you. What’s the one learning that you would say is going to keep Philippines as kind of the GCC powerhouse going forward into 2030?
Jack Madrid: Wow! Well, it’s going to be more than one thing. I think it will require the combined and collective commitment of all the stakeholders. The industry players will have to continue the investment in their existing workforce to retool them and right-skill them, which they have been doing, to be fair. It will also take the long-term vision and commitment of our partners and government, specifically those with the resources and the authority to address the needed curriculum changes.
I think it also requires doubling down on Filipino talent, leveraging on the renown that we currently have as the capital of customer experience. And showing the world that we are capable of taking it to another level with the needed skills, including leadership skills that Indy alluded to, which are a very key piece of the GCC formula. I believe it is possible, but it will take the collective commitment of all those players.
Daphne Luchtenberg: It feels like there’s lots of opportunity for this evolution of the global operating model, which will also make enterprises “geo-resilient.” I think this is the key benefit for organizations and also to build the prosperity of local countries. It feels like a positive story. Indy, a final thought from you.
Indy Banerjee: Again, a huge part of GOM comes across as the “make” part of the delivery side. If you take a step back and look at the bigger picture, the philosophical picture, you’re essentially knitting together people from various cultures to be able to deliver to various setups. It’s a huge part of it philosophically. I’ve been going to Philippines and the other sites for two decades now, and I’m richer for it. That’s just a philosophical construct that I love to have.
The second thing is that it’s more than “us and them.” Just think of the millennial workforce that you’re employing. What do you think they are spending their money on? They are consuming products and services. They are the consumers of the future that you will sell to. And all of that, by the way, is not going to get made in India and Philippines. Some of the fastest-growing markets for Western geographies are going to be these markets.
The last point is that we’ve spoken a lot about talent and geo-resilience. This is also about innovation. Some 5 percent to 34 percent of all innovation in the enterprises gets done out of the GOM. And not all that innovation is learned elsewhere and taken forward incrementally. These are markets where there is a lot of hustling. One thing I love about Philippines is that it’s a geo-resilient setup by definition. Twenty cyclones hit Manila and you still don’t have loss of work. You hustle your way through it. Being able to flip that around into a culture of innovation is going to rewire the enterprises people are working with and for. So, it’s a bit more of a philosophical answer for me. But the GOM has a lot more to offer than saving tens or hundreds of millions of dollars. It is rewiring enterprises and cultures.
Daphne Luchtenberg: That’s a nice way of putting it. Jack, you’re at the forefront of this. In your role, you have a seminal opportunity really to help shape this for the Philippines.
Jack Madrid: Yes, I think the next few years are going to be pivotal. I agree 110 percent with Indy’s concluding comments there. This GOM model has been made possible not just by technology but also by the new work flexibility that we all have. And I really think it is, as Indy was saying, no longer “us and them.” What I’d like to comment on that represents a democratization of all work and talent is the currency that we bring to it, so it’s not just cost-focused anymore. In fact, it’s going well beyond cost. It’s going to be exciting to see how this pans out.
Daphne Luchtenberg: What a wonderful place to finish this conversation. Thank you both so much for being here. Fantastic to see the evolution and how this is going to be shaped going forward. And hopefully we will have you back and you can tell us about the latest developments. Thank you for joining.
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