Hackett Research Alert: European Companies Can Increase Savings Of Offshoring Back Office Functions by 40% By Integrating Transf
May 22 2007 - 4:30AM
Business Wire
While the potential for companies to reduce costs by offshoring
back office operations is dramatic, European companies can
potentially increase these savings by 40% by selectively
integrating transformation and process improvement efforts into
their globalization initiatives, according to new research from The
Hackett Group, a strategic advisory firm and an Answerthink company
(NASDAQ: ANSR). According to Hackett�s research, Europe�s 500
largest companies could generate over � 67 billion annually, or
about � 134 million on average per company, by strategically
combining �Lift & Shift� efforts, which move back office
processes overseas without first improving them, with �Transform
& 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?�� explained 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 & 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 Head of European Research Joel Roques, �Each of the three
approaches we�ve outlined in our research has advantages and
disadvantage 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 Europe�s 500 largest companies, in total,
through each of three approaches: �Lift & Shift,� �Transform
& 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 extensive
database of back-office benchmarks. � Euro 500 Savings (� Billions)
� � Lift & Shift � Transform � Transform & Shift Finance �
14.4 � 25.8 � 30.9 Human Resources � 6.2 � 6.9 � 11.5 Information
Technology � 23.0 � 1.0 � 17.1 Procurement � 4.4 � 5.2 � 7.6 � � �
� � � � Total for Euro 500 (� Billions) � 48.0 � 38.8 � 67.1 � � �
� � � � Total for a Typical Euro 500 Company (� Millions) � � 95.9
� � 77.7 � � 134.2 Assessing Processes, Risk, and Value Hackett
recommends that companies analyze multiple factors as they evaluate
their globalization and transformation decisions, including the
current performance levels of each process, the risk of
transformation and globalization, the complexity of the process,
and the net present value of the strategic alternatives. In
examining process complexity, Hackett suggests that companies look
well below the functional level, at individual processes and the
learning curve required to become proficient at them. The longer
the learning curve, the more likely the process will benefit from
transformation prior to offshoring. In its evaluation, Hackett
emphasizes that risk should not be an excuse for avoiding
globalization. But mitigation strategies should be considered,
based on the risk assessment, and the risk tolerance of the
organization. Finally, in determining net present value of
globalization efforts, Hackett recommends that companies look
beyond labor arbitrage to construct a business case that assesses
implementation costs, additional management overhead, and also the
potential upside of globalization. Globalization � A Series of
Waves The speed at which globalization is implemented will vary
from company to company. Hackett suggests that most relatively
healthy companies would be well advised to organize their
back-office globalization efforts in waves, and plan to execute
them over a five- to ten-year timeframe designed to maximize
long-term shareholder value. But companies facing intense global
pressures related to pricing, markets, or competition may need to
move faster, increasing risk and potentially reducing long-term
gains in order to generate savings critical to their short-term
viability. Following their initial analysis, many companies will
target processes offering the largest financial opportunities. But
Hackett finds that this approach significantly increases risk, and
recommends instead that companies begin Wave 1 with low-risk
transactional processes that can be offshored using the �Lift &
Shift� approach. Once a company has established its ability to move
processes offshore, it can proceed to Wave 2 of its globalization
efforts, which involves offshoring processes that carry more risk.
This wave is much more complex and challenging, as it generally
requires transformation, and often includes processes executed by
fractionalized employees and/or staff dispersed between different
portions of the company. Wave 2 requires companies to take a
�Transform & Shift� approach to identify where processes are
currently taking place, redesign, document and automate these
processes, and focus on issues such as risk assessment and
mitigation, knowledge transfer, and employee training. A
significant number of employees� roles are also likely to change,
requiring that their job specification be adjusted. Finally, in
Wave 3 of their globalization efforts, companies can address
activities that are highly complex and/or directly touch the
customer. Challenges in this wave may include disentangling
processes from their current environment, more significant
training, longer learning curves, and extensive change management
processes. About The Hackett Group The Hackett Group, a strategic
advisory firm, is a global leader in best practice research,
benchmarking, and business transformation services that enable
world-class performance across selling, general &
administrative (SG&A) and supply chain activities. Hackett
provides strategic insight, best practice advice and implementation
services grounded in performance metrics obtained through 15 years
and 3,500 benchmark studies at 2,100 of the world's leading
companies. Through its�sister company REL, a world leader in
implementing cash flow improvement, Hackett�also�offers
tailored�solutions that�generate cash flow�from operations�in
addition to process�cost savings. Executives use Hackett�s unique,
empirically-based approach to prioritize initiatives, execute
faster, reduce risk and deliver sustainable results. Our clients
comprise 97 percent of the Dow Jones Industrials, 77 percent of the
Fortune 100 and 50 percent of the FTSE 100. More information on The
Hackett Group is available: by phone at (770) 225-7300; by e-mail
at info@thehackettgroup.com; or on the Web at
www.thehackettgroup.com. Hackett-Certified, Book of Numbers, and
Hackett World-Class Passport�are trademarks of The Hackett Group.
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