Toronto, December 20, 2005 — Financial services companies are currently capturing less than one-third of the potential cost savings offered by offshoring operations, according to a study by Deloitte Touche Tohmatsu (DTT) that surveyed 62 global financial services institutions including some Canadian organizations. 

The study found that high performing financial institutions offshore 6.7% of their global headcount, well ahead of the study average of 3.5%. If all surveyed companies that offshore were to reach this ‘best practice’ headcount ratio, they could reduce their collective annual cost base by US$16 billion — more than tripling their current reported savings of US$5 billion.

However, DTT argues, too many financial services companies remain less than fully committed to offshoring for this higher ratio to be achieved, among them some of the Canadian financial services companies, which have been cautious in their approach.

“Offshore operations that aggressively expand in scope and scale typically deliver much higher returns,” said Gordon Shields, Partner at Deloitte. “Financial institutions that are planning to embark on offshoring operations should have a solid and comprehensive long-term strategy. Making a half-hearted attempt to offshore not only exposes the organizations to higher risks but also inhibits financial institutions from reaping the full benefits of offshoring. The message is clear: don’t dabble — stay home if you’re not committed.”

The study concludes that expanding both the scope and scale of offshoring operations is key to realizing these unclaimed savings.

Other key findings:

• Scale — cost savings rise significantly as organizations expand the scope of their offshore operations to multiple functions or full service. Financial institutions that move a single function offshore typically report average cost savings of 20 percent. Companies that offshore multiple functions enjoy savings of more than 45 percent.
• Growth — offshoring is expected to continue growing. Financial services executives estimate that 20 percent of their total cost base will be moved offshore by 2010, a rise from the 10 percent expected in 2006. Similar trends are expected in relation to headcount with 10 to 20 percent of financial services employment expected to be offshore by 2010.
• Scope — Nearly a quarter of offshoring institutions surveyed have only one business process currently offshored.
  

‘Offshore fatigue’
The study also shows that the best offshoring results are often achieved during the first few months of operation, before declining through the first year as financial services companies confront the learning curve and struggle to increase scale. This trend reverses through the second and third years, with performance steadily improving as companies gain offshore experience.

However, according to the study’s findings, many companies encounter an alarming drop-off in cost savings and quality after the third year.

 “Relentless margin pressure and intense competition have made offshoring a competitive necessity for most financial services companies. However, offshoring is not a straightforward cost savings tactic, but rather part of a wider drive for operational efficiency,” concluded Shields. “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.’ It is vital that they are replaced with top managers of equal talent.”

Deloitte Touche Tohmatsu’s third annual offshoring study is based on interviews with 62 global financial services institutions — including 8 of the top 10 by market capitalization — based in 12 countries. Of the 62 institutions surveyed, 33 are currently operating offshore, 9 are making plans to offshore, and 20 currently remain purely onshore.

About Deloitte
Deloitte, Canada's leading professional services firm, provides audit, tax, financial advisory services and consulting through more than 6,100 people in more than 47 offices. Deloitte & Touche LLP operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel. Deloitte is the only professional services firm to be named to the Globe and Mail's Report on Business Magazine annual ranking of Canada's top employers for two consecutive years: 35 Best Companies to Work for in Canada in 2001 and 50 Best Companies to Work for in Canada in 2002. "Deloitte" refers to Deloitte & Touche LLP and affiliated entities. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte Touche Tohmatsu is a Swiss Verein (association), and, as such, neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the name "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu" or other related names. The services described herein are provided by the Canadian member firm and not by the Deloitte Touche Tohmatsu Verein.