Companies That Don't Focus on Cutting Costs Save More Money When Offshoring, According to New A.T. Kearney Study

CHICAGO, May 9 /PRNewswire/ -- Companies that offshore with an emphasis on improving performance ultimately save 3.5 times more money as companies motivated to offshore for cost reasons, according to a new study from global management consulting firm A.T. Kearney.

The study of multinational companies that have implemented an offshore program found those that improved on at least three of the six operational performance areas studied experienced higher rates of savings. In fact, companies with strong operational improvement experienced average savings of 44 percent from offshoring. Companies that improved on two or fewer measures saved only an average of 30 percent. The best performing group averaged 64 percent savings -- more than 3.5 times the poorest performing group. And best performers improved 3.3 performance metrics; the worst only .2 metrics.

"The message clearly is to focus on improving performance and the cost savings will come as well," said Arjun Sethi, A.T. Kearney vice president and leader of the study. "Placing too much emphasis on cost reduction serves to limit performance improvement. Winning companies are viewing offshoring in a holistic fashion and striving to achieve improvements across the entire organization."

The study, "Execution is Everything: The Keys to Offshore Success," is among the first pieces of quantitative research looking at why some companies gain tremendous performance improvements and cost savings from offshoring while others find them elusive. The research looked at the post-offshoring change in operational performance reported by 42 companies across six measures: capacity, organizational flexibility, revenue performance, organizational capability, process maturity and service levels.

  Significant findings from the study include:

  --  Companies studied collectively saved 49 percent of their combined
      baseline costs (average savings rate was 35%) and saw improvement
      across all six of the study's operational performance areas (these
      include Capacity, Capability, Flexibility Process Maturity, Service
      Levels and Revenue).
  --  Despite the cost savings, 60 percent of the companies failed to meet
      their operation performance expectations and 34 percent failed to meet
      their savings expectations.
  --  Companies tended to achieve more savings and better operational
      performance improvement when they offshored medium-complexity
      processes such as IT, and advanced BPO functions. Low-complexity
      functions (such as call centers or transaction processing) that were
      sent offshore saved an average of 28 percent in costs; medium-
      complexity functions saved an average of 38 percent.
  --  Surveyed companies that chose the captive model over the third-party
      model averaged better savings and better operational performance
      improvement, mainly driven by the higher investment in the offshoring
      management team.
  --  26 percent of companies improved their revenue performance by
      offshoring.
  --  The percentage of operations companies had in India, China and Eastern
      Europe changed from 8 percent before offshoring to 55 percent after.
  --  There was extreme performance variation across the companies with cost
      savings ranging from 0 to 75 percent.

The full report is available from A.T. Kearney's website at http://www.atkearney.com/main.taf?p=5,3,1,157 .

About A.T. Kearney

A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO's agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney's offices are located in major business centers in 32 countries.