Hackett Research Alert: Offshoring of Back-Office Functions Could Generate EUR 48 Billion in Annual Savings for Top 500 European Companies

Europe’s Top 500 companies could potentially save €48 billion annually, or almost €96 million on average per company, by offshoring many of their back office activities, according to research from The Hackett Group, a strategic advisory firm and an Answerthink company (NASDAQ: ANSR). Advances in technology, along with increasingly educated global work forces, enable the portability of business support activities across information technology (IT), finance, human resources (HR) and procurement to take advantage of labour arbitrage. Hackett estimates that the increased use of offshore resources may impact up to 1.3 million general and administrative (G&A) jobs, or on average 2,620 positions per company within the FT Europe 500. The Hackett Group is a world leader in best practice research, benchmarking, and business transformation services that enable executives to achieve world-class enterprise performance. According to Hackett’s research, globalisation has created an environment where executives must constantly re-evaluate their cost structures for general & administrative (G&A) operations against a host of emerging global resources. Hackett also found that the best companies are strategically improving performance in Finance, IT, HR, procurement, working capital, and other areas in ways that help them respond to the pressures of globalisation. However many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through offshoring back office operations. With labour arbitrage savings approximating 62%, Hackett finds that executives must diligently standardise and simplify business processes to capture the potential value of activity centralisation. Many organisations fail to examine the characteristics of business processes, allowing activities that provide no competitive advantage to remain decentralised in industrialised countries at a higher cost. Distributed activities are generally not portable, and therefore not included within the scope of a globalisation initiative. The education base and skill sets available in India, China, The Philippines, Pakistan, Eastern Europe, Brazil, and other emerging countries continues to expand, offering a new level of savings combined with improved quality and talent, significantly strengthening the business case for globalisation. "Companies have long been aware that they can take out cost and improve back office efficiency by streamlining businesses processes, improving the way they use technology, and centralising operations, either in a shared service centre or with an outsourcer. But over the past few years, the resources available offshore have matured rapidly, creating immediate opportunities to materially reduce companies’ cost structures,” said Hackett Vice President, Tom Bangemann. According to Hackett Managing Director Michel Janssen, "Today, companies can turn to established offshore resources that deliver labour cost reductions while maintaining or even improving the skill level of staff. The potential savings of up to €96 million annually for a company are simply too compelling to ignore. Yet most executives will miss the potential impact of service globalisation due to the under-scoping of initiatives. Taking full advantage of service globalisation requires a deep understanding of the nature of business processes and how they can be optimally organised and delivered.” Having said this, companies still must use a well balanced assessment methodology that fully considers the business’ strategy, culture, transactional characteristics and readiness for change. By taking the broadest logical view of the processes in scope combined with a holistic evaluation methodology firms can ensure that they are maximising the benefit opportunities available through global markets while managing the risk associated with these progressive transformation initiatives. Opportunities Extend Well Beyond IT Hackett’s analysis of the globalisation impact on Europe’s Top 500 companies draws upon ongoing benchmark studies that have captured outsourcing costs since 1992. While IT represents the largest functional opportunity, significant savings can be generated in other G&A areas, including finance, HR, and procurement. Hackett’s analysis of the savings opportunity breakdown for a typical FT Europe 500 company is based upon the median number of FTEs per process group, labour arbitrage cost differential, and the potential degree for offshoring by process group. The table below provides a summary of the functional analysis:   Annual Savings (€ millions) # of Staff Potentially Impacted Functional Activities Offering Largest ROI Opportunities IT €46.0 1,093  Application mgmt; Technology infrastructure Finance €28.7 933  General accounting & external reporting; Cash disbursements; Revenue cycle activities Human Resources €12.4 348  Data mgmt reporting & compliance; Total rewards admin; Payroll admin Procurement €8.8 246  Purchase order processing; Sourcing execution         Total per company €95.9 2,620    Total for FT Europe 500 companies €47.9 billion 1.3 million   To see the full version of this research, please click on the following link for the Hackett Research Insight Center: www.thehackettgroup.com/insights/96M More information on The Hackett Group is available: by phone at+44 (0)20 7003 8150; by e-mail at info@thehackettgroup.com; or on the Web at www.thehackettgroup.com. About The Hackett Group The Hackett Group (www.TheHackettGroup.com), a strategic advisory firm and an Answerthink company, is a global leader in best practice research, benchmarking and business transformation services that enable world-class enterprise performance across selling, general and administrative (SG&A) and supply chain activities. Through the acquisition of REL Consultancy Group, we offer Hackett-REL Total Working Capital services to free up cash flow from operations. Hackett provides strategic insight, best practice advice and implementation services grounded in performance metrics obtained through14 years and 3,500 benchmark studies at 2,100 of the world’s leading companies. Our clients comprise 97% of the Dow Jones Industrials, 50% of the FTSE 100 and 70% of the Dax 30.