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Deloitte says study reveals missed cost savings from offshoring

Deloitte has said that a study conducted by the company revealed that financial services companies are capturing less than one-third of the potential cost savings derived from offshoring operations.

The company said that its study, which is based on interviews with 62 global financial services institutions, revealed that the most effective offshorers among financial institutions have 6.7% of their global headcount offshore, compared to the study average of 3.5%. The company also claimed that if all of the companies surveyed attained the higher ratio, they could reduce their collective annual cost base by $16 billion, compared to current reported savings of $5 billion. Deloitte Touche Tohmatsu also said that many financial services companies are not fully committed to offshoring. To realize cost savings, however, companies must expand the scope and scale of the practice.

Deloitte Touche Tohmatsu said the findings revealed that the best offshoring results are achieved in the first months of operations, then decline throughout the first year. The trend reverses in the second and third years with improved performance, but then, according to the study, many institutions see a significant drop-off in cost savings and quality after the third year.

“Many organizations are beginning to experience ‘offshore fatigue,’ as the initial excitement wears off and the original operational managers return from their ‘tour of duty,'” Peter Lowes, the leader of Deloitte Consulting LLP’s Outsourcing Advisory Services practice, said in a news release. Lowe said that offshoring should be implemented as part of a wide drive for efficiency.

The company’s study also found that cost savings rise as institutions expand the scope of their offshore operations and that offshoring is expected to continue to grow.

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