Financial services companies are currently capturing less than one-third of the potential cost savings offered by offshoring operations, according to a study by Deloitte Touche Tohmatsu (DTT).

The study found that high performing financial institutions offshore 6.7% of their global headcount, well ahead of the study average of 3.5%.

If all surveyed companies that offshore were to reach this ‘best practice’ headcount ratio they could reduce their collective annual cost base by US$16 billion – more than tripling their current reported savings of US$5 billion.

DTT surveyed 62 global financial services institutions including some Canadian organizations.

However, DTT argues, too many financial services companies remain less than fully committed to offshoring for this higher ratio to be achieved, among them some of the Canadian financial services companies, that have been cautious in their approach.

“Offshore operations that aggressively expand in scope and scale typically deliver much higher returns,” said Gordon Shields, partner at Deloitte, in a news release.

The study concludes that expanding both the scope and scale of offshoring operations is key to realizing these unclaimed savings.

Other key findings:

  • Cost savings rise significantly as organizations expand the scope of their offshore operations to multiple functions or full service.
  • Offshoring is expected to continue growing. Financial services executives estimate that 20% of their total cost base will be moved offshore by 2010, a rise from the 10% expected in 2006.

The study also shows that the best offshoring results are often achieved during the first few months of operation, before declining through the first year as financial services companies confront the learning curve and struggle to increase scale. This trend reverses through the second and third years, with performance steadily improving as companies gain offshore experience.

Deloitte Touche Tohmatsu’s third annual offshoring study is based on interviews with 62 global financial services institutions – including 8 of the top 10 by market capitalization – based in 12 countries. Of the 62 institutions surveyed, 33 are currently operating offshore, nine are making plans to offshore, and 20 currently remain purely onshore.