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Saturday, June 23, 2007

Financial Services : Blistering Pace Of Offshoring

Financial services are a pioneer of sorts in outsourcing and offshoring and about 40% plus contracts on outsourcing today come from the BFSI segment and generally the other verticals follow the BFSI trends and so its important to watch the performance of the sector and its next moves.
I read the published parts of Deloitte's global financial services offshoring report 2007. The full report is available only for the participants of the survey. The report has good statistics about offshoring pertaining to the financial services industry:

- Offshoring has matured at a rapid pace. In 2001, less than 10 percent of major financial institutions had moved processes offshore in 2001. Five years later, over 75 percent of major financial institutions had operations offshore.

- The US and UK banking and capital market institutions continue to lead this shift, but mainland Europe is showing increasing interest.

- Most major financial institutions now operate a sizeable, low-cost offshore delivery function. The industry’s cumulative cost savings for the last four years have risen sharply, propelled by an 18-fold increase in offshore headcount1. Over 2006, average total headcount offshore doubled to six percent of total group staff. More than half of all financial institutions surveyed are now saving more than 40 percent for each business process offshored3.

- The range of savings is polarizing, and is now between 20 and 70 percent per business process.

- An handful of financial institutions are setting the pace in offshoring. They are beginning to outshine their offshoring competitors and achieving stellar performance through the application of best practices. This improvement in performance is conferring significant competitive advantage on these institutions.

- The best offshorers are seeing savings equivalent to 3% of the total cost base. However, at the other end of the spectrum, institutions that have failed to adopt best practices are experiencing a decline in operational performance.

- Relocating 5% of the workforce offshore seems to be the critical number to achieve. This, the report finds out enables business to build a platform for success. The best performing institutions offshore around 12% of group headcount and, on average, save 55% on each business process. The companies whose offshoring programmes are suffering, offshore less than 5% of headcount and typically save 32% per process. The most efficient offshorers take just 15 months to migrate each process, compared to around 25 months for poorer performers. A very interesting report with very relevant and useful statistics.

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