Companies that rush to move their finance and other back-office operations to
low-cost countries may cut expenses—only to find that they are paying an
unexpected price in missed opportunities for innovation.
In a new study, the Hackett Group, a consulting and advisory firm, found that
businesses that have already begun to move their general and administrative
functions offshore will likely pick up the pace over the next three years.
Indeed, by 2010, these companies will have outsourced or transferred offshore
an average of 16 percent of these back-office operations—an increase of more
than 50 percent from the current level.
Of note to finance executives: Businesses that send back-office functions
overseas will have transferred, on average, about half of their accounts-payable
work to low-cost labor markets within three years, the study found.
Not surprisingly, cost savings drives most companies to shift back-office
work overseas. Whether businesses outsource the work to specialist firms in
cheaper locations or set up their own captive offices abroad, the Hackett Group
found that most companies save 25 to 50 percent on back-office work that’s
shipped outside the United States.
The catch? Less than half of the companies that had begun moving general and
administrative work to offshore offices said they were satisfied with the new
unit’s ability to innovate. In fact, only about one in six of the companies in
the study were satisfied with so-called business process outsourcers’ innovation
ability.
This may explain, at least in part, why a clutch of U.S. companies—including
Dell Computer and Apple—have shuttered captive operations in India.
“The weakness of BPOs in particular in this area is something we’ve seen for
several years, and it hasn’t improved,” said Julio Ramirez, head of Hackett’s
globalization and outsourcing practice, in a news release.
Filed by Tim Catts of Financial Week, a sister publication of Workforce
Management. To comment, e-mail editors@workforce.com.
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