The GCC business case that survives year three
Most capability center business cases are built on a salary delta and a flat attrition assumption. Both are wrong by month thirty. Here is the model we use instead.
Almost every capability center business case we are asked to review has the same two flaws. It compares salaries rather than landed cost, and it assumes attrition stays at the level of the first year forever.
Landed cost, not salary
Salary is somewhere between 55 and 70 percent of the true cost of a seat. The rest is statutory contributions, facilities, technology, recruiting amortisation, governance and the management layer the center needs but the onshore comparison does not.
When we rebuild a client's model on landed cost, the arbitrage usually shrinks from the 60 percent in the original deck to something between 30 and 45 percent. That is still a good number. It is just a different decision.
The year-two attrition step
In year one your center is invisible to the local market. By month eighteen, recruiters know exactly who works there and what they do. Attrition steps up, and the people who leave are disproportionately the ones you most wanted to keep.
A model that assumes 12 percent attrition throughout will be wrong by month thirty. We model a step to 18-22 percent in year two, then a decline as career architecture and benchmarking take effect - and we hold ourselves to bringing it back down.
What to put in the model instead
- Fully burdened cost per seat, including the governance layer.
- A wage inflation curve specific to the city and the role, not a national average.
- An attrition step in year two, with the replacement and ramp cost that follows it.
- Transition cost - knowledge transfer is real work done by people who also have day jobs.
- A productivity ramp: new cohorts are not at full output on day one, and pretending otherwise flatters year one.
The honest conclusion
Sometimes the answer is that the work is too small, too regulated or too tightly coupled to onshore teams to justify a center. We have written that recommendation more than once, and it is considerably cheaper to receive it in week six than in year three.