Captive center models have been in play since the early 1980's, and since then, they've changed and evolved in three primary phases, into the hybrid \n\nmodel that exists today. In the first phase, captive centers began as a consolidation of regional or global internal services or processes such as R&D, \n\nmanufacturing, engineering, finance, procurement, human resources, or accounts payable. They quickly gained popularity, as a way to reduce costs \n\nby moving jobs from expensive centers like New York, London, or Tokyo to India. But although companies like Motorola, GE and American Express \n\nbecame instant success stories, many captive centers faced issues in this phase, including uncompetitive costs and underutilization of \n\nresources.In the second phase, companies turned to offshore vendors as an appealing alternative to underperforming captive centers, offering better cost \n\nsavings and increased flexibility. However, there were also flaws in the offshore model, as companies did not retain valuable skills and knowledge, \n\nand were frustrated by lack of innovation. In the third phase, which continues today, innovation from offshore vendors still lags, and companies are \n\nlooking for more value from their outsourcing relationships. The primary flaw here is that relationships are often formed with vendors' offshore \n\nleadership teams, which do not always have the background and experience necessary to consult with companies or the context to deliver on the \n\nonshore leadership team's promises.\n\nIT Outsourcing: How Offshoring Can Kill InnovationToday, despite their flaws, captive centers are thriving, experiencing growth to the tune of $11.1 billion in annual revenue, a +300% increase since \n\n2003. But it's important to note that today's captive centers are operating under new models, and 30% of their work is now technology, including IT \n\nsupport and development work, rather than just traditional work stemming from the early history of the captive centers. And, in the midst of this \n\nrenewed interest, offshore vendors are experiencing a surge of involvement with their client's offshore captive centers as well, often creating a \n\nhybrid between the two centers. Across vendors, there are four common offshore captive center models in use today: \u2022 Ex-pat model. This is the "technology-light" version of a captive center. In this model there are typically only a few senior IT leaders \n\nlocated at the captive center, either permanently or temporarily.\u2022 Augmentation Model. This is a traditional time-and-materials (T&M) arrangement, run completely from offshore locations. Typically, \n\nin this model, the client will provide the project leadership and manage the deliverables, while the vendor provides the skilled resources and manages \n\nthe recruitment and training process. This model works well for companies doing large numbers of product upgrades and other standard system \n\nintegration work that is straightforward and repeatable.\u2022 Captive +1. In this model, the captive center and the vendor's ODC are mirror images of each other, meaning recruitment and \n\ntraining of all resources is done at each site. Also, each site provides equal leadership and corporate headquarters manages each relationship \n\nindependently. Because all technology work can be equally accomplished by both teams, the work is assigned based on ability, synergy with \n\nongoing or previous work, and resource experience. This model works well for software companies that need to do product development and \n\ntesting, because it doubles the company's capacity. It is also an effective disaster recovery model.\u2022 Noncore model. This model falls between the Ex-pat and Captive +1 models. In this model a core set of senior IT leadership is \n\nlocated in the captive center to direct both the work of the captive center and the vendor ODC. Proprietary or competitively sensitive tasks are \n\ndone completely in the captive center, while all other work is done in the offshore ODC. This model works well for companies with a fair amount of \n\nsteady proprietary applications and products, but a significantly greater amount of standard, nondifferentiated work suitable for outsourcing.Going forward, these new models could represent between 15% and 20% of the total work that is currently outsourced to offshore vendors. \n\nCompanies with successful captive centers and strong relationships with offshore vendors will be most successful in using one of these hybrid \n\napproaches, while companies with no captive center should consider establishing a small satellite office in locations where their vendors have an \n\nODC.As captive centers become an increasingly important part of offshore work, sourcing and vendor management professionals must work with the \n\nrest of IT to showcase the benefits of a hybrid approach, including bringing IT work back to the captive centers and providing new opportunities for \n\noffshore vendors. Jan Erik Aase is a Principal Analyst at Forrester Research, serving sourcing and vendor management professionals.