The Hackett Group Research Alert: Many US Cities Now Make Attractive Alternatives to Offshoring For Corporate Finance, IT, Other Business Service Operations
Many mid-size U.S. cities and other areas now make attractive alternatives to India and other offshore locations for companies considering consolidating finance, IT, and other business services operations for shared service or global business services centers, according to new research from The Hackett Group, Inc. (NASDAQ:HCKT) .
The diminishing gap in labor costs, combined with factors such as lower turnover rates, greater business knowledge, proximity to customers and headquarters, and state tax incentives has created conditions where many companies are now seriously considering U.S. locations, particularly for centers handling complex and higher-value processes, the research found.
Verizon Communications is one of many companies that has made the decision to locate business services operations domestically, consolidating nearly 1,500 finance operations staff into two U.S. service centers over the past two years.
The Hackett Group’s Global Business Services Executive Advisory program developed the research, which provides detailed rankings for more than 30 cities across the U.S., based on a weighted mix of factors. Top 10 cities in the research are: Syracuse, NY; Jacksonville, FL; Tampa, FL; Lansing, MI; Grand Rapids, MI; Atlanta, GA; Allentown, PA; Green Bay, WI; Richmond, VA; and Longmont, CO.
Previous research by The Hackett Group has found that while offshoring has led to a dramatic decline in the number of corporate IT, finance, procurement, and HR jobs in the U.S., the number of new business services jobs moving offshore has declined steadily over the past few years and will continue to do so, as companies reach the practical limits of the type of work in these areas that can be effectively offshored.
“Companies are realizing that the U.S. is becoming an increasingly viable option for elements of their service delivery organization, and we’re seeing real growth in this sector, with nearly 700 U.S. centers of excellence, shared service centers, and global business services operations now up and running,” said The Hackett Group Principal and Global Finance Executive Advisory Practice Leader Jim O’Connor. “Labor and operating costs are still high in the U.S. compared to Eastern Europe, Latin America, and Asia. But the gap is shrinking, and there are significant other benefits. In more and more cases, those benefits outweigh the additional cost. In addition, the public response to offshoring has made keeping jobs ‘at home’ an attractive option for U.S. companies.
“Even if companies are using offshore centers, the U.S. is an essential part of almost any service delivery network for American companies, particularly when the work is complicated, knowledge-based, or requires a high level of communication with customers and internal clients, or when fast turnaround or extensive collaboration is a critical element,” said Mr. O’Connor. “U.S. centers are also ideal for transforming, improving, and standardizing processes, before they are moved elsewhere.”
At Verizon, a variety of options were considered before the company decided to consolidate nearly 1,500 finance operations staff from more than 300 U.S. locations into two service centers located in Lake Mary, Florida (near Orlando) and Tulsa, Oklahoma.
“By keeping our finance operations in the U.S., we’ve derived an array of benefits,” said Karan Mehra, Verizon’s director of corporate-finance restructuring. “Talent was perhaps our primary deciding factor. We wanted to make sure we could recruit the quality talent that we needed, and that we could put strong training and development in place. Our goal was to build bench strength to support succession plans, so that our staff had the ability to learn new skills and develop professionally.
“We also saw a wide range of other benefits,” said Mr. Mehra. “By staying domestic, we got instant buy-in from both our clients within Verizon and throughout the finance organization itself. We have also been able to maintain complete control over our finance operations and processes, which can be difficult to do when you move offshore. And finally, avoiding extended travel times when visiting our service centers has been a significant advantage.”
In its U.S. research, The Hackett Group used the same analysis technique it relied on to evaluate locations in more than 40 countries for its recent Global Location Guide Book of Numbers Research entitled “Optimizing Decisions on Business Services Locations.” The Hackett Group analyzed the business environment in various geographies globally based on more than 30 key indicators. Five principal dimensions were weighted and taken into consideration in calculating the attractiveness of various locations. Economic considerations, including cost of labor, office space, were a primary concern. Workforce makeup, including availability, quality, labor laws, and languages, were a secondary factor. Availability of both office infrastructure and other elements such as electrical supply and airports was considered. Overall risk was examined, including the risks of corruption and fraud, political instability, data and intellectual property theft, foreign exchange fluctuation, the potential for natural disasters, and the quality of the judicial system. Finally, the quality of the business environment was considered, including the general economic climate, level of political freedom, and overall quality of life.
A complimentary abstract of the Global Location Guide Book of Numbers Research “Optimizing Decisions on Business Services Locations,” is available with registration at http://www.thehackettgroup.com/research/2015/sourcing-guide/.
About The Hackett Group
The Hackett Group (NASDAQ:HCKT) is an intellectual property-based strategic consultancy recognized as the leading enterprise benchmarking and best practices implementation firm to Global 2000 companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle and SAP practices.
The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100. These studies drive its Best Practice Intelligence CenterTM which includes the firm’s benchmarking metrics, best practices repository, and best practice configuration guides and process flows, which enable The Hackett Group’s clients and partners to achieve world-class performance.
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