Tesco’s offshore development centre will take on a crucial role in IT strategy as the firm expands globally and moves to become a major financial services supplier.

The Bangalore facility, dubbed Hindustan Service Centre (HSC), employs 3,000 staff -­ 1,800 of which are in IT ­- and will hire another 250 technology professionals this year to cope with increasing workloads.

According to the centre’s managing director, Sandeep Dhar, the business is also in talks about how offshore capability can be applied to work for Tesco Personal Finance ­ the subsidiary purchased from partner Royal Bank of Scotland for £950m last year.

“We have started engaging and over the next few years will definitely be as significant to them as we are for retailing today,” said Dhar.

“However, banking is a strongly regulated activity, so some of the things we do for the bank may be done differently, and some we may not be able to do from here,” he said.

“The core banking system will be typically bought off the shelf, but we will still play a role in areas such as infrastructure and testing.”

A veteran in financial services, Dhar worked on client-facing projects at Citibank and ABN Amro, as well as outsourcing and consultancy. He was hired by Tesco in November 2008 and believes his experience will contribute to the firm’s expansion plans.

“While my emotional connection with retailing still has some way to go, banking is already part of my DNA, so my understanding of the customer in the banking world is as strong as the retailing experience of people at Tesco,” he told Computing.

Dhar expects a substantial portion of innovation in banking to come from India as the reliance of financial services on offshoring in India created a vast pool of sector-specific skills, which will be exploited.

“When we started HSC five years ago, there wasn’t a lot of IT expertise specific to retail in India, so we hired technologists and turned them into retailers. For Tesco Personal Finance, I don’t need to recruit generalists and turn them into bankers as that specific skillset is widely available here,” he said.

HSC will play an increasingly important role over the coming years, said Dhar, by supporting the rollout of Tesco’s centralised IT model across other countries, as well as working on remote infrastructure management, legacy application maintenance and new software development.

“As the standardisation plan unfolds, more activities that can be done remotely will be done from here, such as desktop and telecom equipment maintenance. By doing that we can get cost savings, better control and scalability,” he said.

Tesco’s offshore centre hires external suppliers such as Infosys to handle peaks of activity, but Dhar said that keeping most of the work internally is essential for the success of the operation, as vendors do not get close enough to the client’s business.

“For our work in India to be successful we need people to understand what they are doing as a business and have a deep emotional connection with it,” said Dhar.

After starting the job nine months ago, Dhar went through an intensive three-week induction programme which included shelf-stacking, working on tills and delivering groceries purchased online, as well as spending time at the head office.

It is now standard policy to send senior HSC executives to work at UK shops one week per year and UK executives are often working in Bangalore.

Tesco is also investing heavily in telepresence equipment from Cisco to bridge the distance. The HSC building has several virtual meeting rooms with the same half-elliptical design as the UK and high-resolution video screens to simulate the feeling of teams working in one room.

“Even if you are able to afford the cost of travel, it is not the cost of air fares or hotels that is onerous. What is unaffordable is the time wasted in planning for the trip and the productive time wasted on the road,” said Dhar.

“Technology allows us to make cross-border interactions more efficient. If I need to work with UK-based staff for two days, I just get in a telepresence room for two days.”

HSC also uses virtual project management systems based on Microsoft SharePoint and experiments with a range of open source tools to improve collaboration. Dhar has also started a blog to improve communication with staff.

Though HSC is mainly dealing with remote infrastructure management and application maintenance, a degree of innovation is also happening at its test labs, with technology such as surface computing, self-checkout tills and handheld terminals for stocktaking.

“When it comes to new tools, we keep track of developments and investigate a lot ­ there are great solutions out there, such as the cloud, so we ought to look for practical ways in which to use them,” said Dhar.

Setting up an offshore operation in India if a business has no presence there is particularly challenging, said Dhar, so having local expertise is crucial to succeed.
“I give a lot of credit to the people who created this captive at a time when Tesco had no previous presence in India. Luckily the business hired the right people and it worked, but it can go horribly wrong [in other firms],” said Dhar.

“If you don’t have an existing business here, my advice would be to hire a local management team instead of bringing in too many expats, and make sure the local people are a good cultural fit. Do not hire them based on their capability,” he said.

“Empowering the captive centre to be accountable for the work is also very important, as well as giving responsibility for subcontracting. It is good to have authority ­ you should not treat your captive as a vendor that is incidentally wholly owned.”

Click here to read about Fidelity Investments' captive centre strategy.

Captive offshore centres vs outsourcing

Cost savings and retaining critical work internally are usually the main drivers for setting up a captive IT centre offshore as opposed to outsourcing to third parties, but a fast maturing industry is changing perceptions, say experts.

Business models are evolving and companies will change from captive to using outsourcing, or move to a hybrid model depending on their strategy, said Rajiv Vaishnav, vice president at Indian IT association Nasscom.

“A company may prefer having strong controls over its IT, but once it starts gaining confidence in India and the global delivery model, it’s likely to start exploring how it can work with third-party experts,” said Vaishnav.

“This could be done as small sections of the captive testing processes with suppliers, or as a larger strategic shift to work entirely with a supplier. It’s purely a decision of the management and often reflects its comfort levels with India,” he said.

Running an IT services organisation is not always easy and sometimes this is best done by a supplier with good market knowledge, said Mark Kobayashi-Hillary, director at the National Outsourcing Association.

“The market is far more developed than it was at the turn of the decade. It’s really possible to find very competent suppliers in most business sectors now, so there is less imperative to explore the DIY business case,” he said.

“Going captive can still work for some organisations ­ especially where they have other operations in the country, such as a bank that also offers a retail banking product in that region ­ but I think we have seen the end of the rush to create offshore captives just to save cash fast.”