Hackett Research Alert: Offshoring of Back-Office Functions Could Generate $58 Billion in Annual Savings for Fortune 500.

Hackett Research Estimates that 1.47 Million Employees May be Directly Impacted in the Future as Companies Take Advantage of Global Labor to be Competitive

ATLANTA -- The Fortune 500 could potentially save $58 billion annually, or over $116 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 labor arbitrage. Hackett estimates that the increased use of offshore resources may impact up to 1.47 million general and administrative (G&A) jobs, or nearly 3,000 at a typical Fortune 500 company.

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, globalization has created an environment where executives must constantly re-evaluate their cost structures for general & administrative (G&A) operations against a new 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 globalization.

However many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through off-shoring back office operations. With labor arbitrage savings nearing 60%, Hackett finds that executives must analyze their process optimization opportunities to capture the potential value of centralization. Many organizations fail to examine the characteristics of business processes, allowing activities that provide no competitive advantage to remain decentralized in industrialized countries at a higher cost. Distributed activities are generally not portable, and therefore not included within the scope of a globalization 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 globalization.

"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 centralizing operations, either in a shared service center 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 Managing Director Julio Ramirez.

According to Hackett Managing Director Michel Janssen, "Today, companies can turn to established offshore resources that deliver labor costs reductions while maintaining or even improving the skill level of staff. The potential savings of up to $116 million annually for a company are simply too compelling to ignore. Yet most executives will miss the potential impact of service globalization due to the under-scoping of initiatives. Taking full advantage of service globalization requires a deep understanding of the nature of business processes and how they can be optimally organized 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 maximizing 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 Fortune 500 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 Fortune 500 company is based upon the median number of FTEs per process group, labor arbitrage cost differential, and the potential degree for offshoring by process group. The table below provides a summary of the functional analysis:

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To see the full version of this research, please click on the following link for the Hackett Research Insight Center: www.thehackettgroup.com/insights/116M.

More information on The Hackett Group is available: by phone at [phone]; by e-mail at [e-mail]; 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 liberate cash flow from operations. Hackett provides strategic insight, best practice advice and implementation services grounded in performance metrics obtained through 14 years and 3,500 benchmark studies at 2,100 of the world's leading companies. Our clients comprise 97% of the Dow Jones Industrials, 77% of the Fortune 100 and 90% of the Dow Jones Global Titans Index.