Atlanta — June 7, 2007 — While the potential for companies to reduce costs by offshoring back-office operations is dramatic, companies can potentially increase these savings by over 50 percent by selectively integrating transformation and process improvement efforts into their globalization initiatives, according to new research from business advisory firm The Hackett Group.
According to Hackett's research, the Fortune 500 could generate over $91 billion annually, or about $182 million on average per company, by strategically combining "lift and shift" efforts, which move back-office processes overseas without first improving them, with "transform and shift" initiatives, where processes are optimized and then taken offshore.
Hackett's research finds that the key to generating these savings is careful planning and analysis to determine which processes to offshore and whether or not to integrate transformation, and a staged approach to offshoring over a five- to ten-year period. In some cases, Hackett's research shows that the potential exists for companies to capture the majority of the available cost reduction through process optimization alone.
"As offshoring has matured as a business strategy over the past few years, the discussion has shifted, from 'should we?' to 'how should we?'" said Hackett Chief Research Officer Michel Janssen. "But it's a complex, long-term process, with the potential for spectacular successes as well as real failure that can cause companies significant setbacks. Companies that try to take the easy way out and rely solely on a simple 'lift and shift' approach, will significantly increase their risk and are likely to capture only a fraction of the value that's out there."
According to Hackett Senior Business Advisor Julio Ramirez: "Each of the three approaches we've outlined in our research has advantages and disadvantages that vary based on the processes being considered for offshoring and the profile of the company involved. By analyzing our benchmark data for more than 30 back-office processes, we've developed some strong guidance for companies that want make the most of this exceptional opportunity."
Hackett's analysis calculates the following assessment of the potential cost reductions available to the Fortune 500, in total, through each of three approaches: "lift and shift," "transform and shift," and transformation alone. The analysis is based on wage rate savings available in typical offshore geographies and incorporates an assessment of the expected percentage of headcount that would be involved in each functional area. These assessments are based on detailed process data from Hackett's database of back-office benchmarks.
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