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Global Financial Services Offshoring

Scaling the Heights


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Global Financial Services Offshoring

The third annual Deloitte Research report, Global Financial Services Offshoring – Scaling the Heights, examines the overall offshore trends in financial services, and highlights the practices that leading companies are using to achieve superior and sustained performance.

Executive summary

Scaling the heights
Relentless margin pressure and intense competition have made offshoring a competitive necessity for most financial services companies. Yet the actual practices for operating offshore are still maturing. DTT’s GFSI group has identified a huge divide in how different companies approach and manage their offshore operations – and the results they achieve. The ability to “scale these heights” will shape not only the future of offshoring within financial companies, but ultimately the entire financial services industry.
Stratification of strategies
Low-cost IT outsourcing used to be the predominant offshore activity. But today, companies are offshoring a wide range of functions and applying a wide range of approaches. The general trend is toward multiple functions and full service, with a shift toward captive operations and captive/outsourced hybrids. An increasing number of companies are also taking advantage of highly qualified offshore talent to improve service quality – not just reduce costs. Companies that apply these best practices generally enjoy a substantial advantage in cost savings and service quality.
Money on the table
According to DTT’s GFSI group findings, the industry as a whole could treble the cost savings from its offshore operations. Using the sample of DTT’s GFSI group annual benchmark, the participants could reduce their annual cost base by up to $16 billion – trebling current savings of around $5 billion. The additional benefits would come from two key sources. First, scaling head count from around 3.5 percent of total headcount offshore with average cost savings of 38 percent to the current best practice of 6.7 percent of total headcount and 60 percent cost savings. Second, the efficiency gains created by expanding the scope of operations to “full service” which means relocating all types of function from IT and back offices, to middle and front office activities offshore.
Beware of ‘offshore fatigue’
Many companies report a sharp decline in offshore results after the third year. DTT’s GFSI group believes this phenomenon stems from taking offshore benefits for granted, and not replacing top managers with equivalent talent when their tour of duty ends. Companies must stay vigilant, periodically rotating key managers and staff to maintain a constant mix of experience, skills and enthusiasm.
Focus on the four ‘C’s
Managing an offshore operation is a major undertaking. But as with most business activities, success ultimately boils down to doing a few things exceptionally well. There are four key elements to offshore success. Managing and minimizing complexity. Ensuring compliance with regulations – particularly those related to privacy and security. Creating a culture that helps onshore and offshore workers perform their best. And balancing near-term cost savings against the need for long-term strategic investment. Get those four things right and success will almost surely follow.
Scale or fail?
Offshore operations that aggressively expand their scope and scale typically deliver much higher returns – and are able to sustain those benefits over time. On the other hand, financial institutions that make a half-hearted attempt at offshoring tend to fare the worst. The ability to generate and sustain around offshore operations will be of increasing future importance. Failure can leave offshore operations marooned. The message is clear: Don’t dabble – stay home if you are not committed.

Read more on the offshore trends in the document attached below.


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