Executive Briefings

Hackett Offshoring Study Compares Captives and Business Process Outsourcing

Globalization of key business processes in finance and other back office areas is expected to continue to see strong growth over the next three years, with companies increasing their use of offshore resources by more than 50 percent, according to results of a study  by The Hackett Group, an advisory firm.

Hackett's 2008 Globalization Performance Study is one of the first to capture the same information from companies using leading business process outsourcers (BPOs) and those operating their own captive shared service centers in India and other low-cost labor markets.

The study confirms that companies can generate fairly comparable cost savings with either globalization approach, with most companies driving cost reductions of 25 percent to 50 percent. But Hackett's research also spotlights some stark differences between BPOs and captives. BPOs are able to ramp up twice as quickly as captives, and are twice as likely to exceed expectations for on-time service delivery levels. As a result of the faster ramp-up, BPOs also see much faster benefits realization, showing a five-year net present value that is more than 50 percent higher.

BPOs fall far short in driving innovation, the study found. And while captives are significantly more successful, they still need improvement. According to Hackett, companies need to change the way they plan for, contract, and implement BPO services initiatives to improve performance in this key area.

Hackett's research also found that globalization remains a largely cost-driven process. While process improvement, the ability to focus on the core business, and quality were all cited as "Important" decision drivers, only cost was identified by the study group as being "Very Important."

Visit www.TheHackettGroup.com

Globalization of key business processes in finance and other back office areas is expected to continue to see strong growth over the next three years, with companies increasing their use of offshore resources by more than 50 percent, according to results of a study  by The Hackett Group, an advisory firm.

Hackett's 2008 Globalization Performance Study is one of the first to capture the same information from companies using leading business process outsourcers (BPOs) and those operating their own captive shared service centers in India and other low-cost labor markets.

The study confirms that companies can generate fairly comparable cost savings with either globalization approach, with most companies driving cost reductions of 25 percent to 50 percent. But Hackett's research also spotlights some stark differences between BPOs and captives. BPOs are able to ramp up twice as quickly as captives, and are twice as likely to exceed expectations for on-time service delivery levels. As a result of the faster ramp-up, BPOs also see much faster benefits realization, showing a five-year net present value that is more than 50 percent higher.

BPOs fall far short in driving innovation, the study found. And while captives are significantly more successful, they still need improvement. According to Hackett, companies need to change the way they plan for, contract, and implement BPO services initiatives to improve performance in this key area.

Hackett's research also found that globalization remains a largely cost-driven process. While process improvement, the ability to focus on the core business, and quality were all cited as "Important" decision drivers, only cost was identified by the study group as being "Very Important."

Visit www.TheHackettGroup.com