Are Your Leaders Still on the Fence About Offshoring?

Are Your Leaders Still on the Fence About Offshoring?

A message to functional leaders concerned about the risks

By: Mark Klender, Richard Sarkissian, Beth Thiebault, and Daan DeGroodt, Principals, Deloitte Consulting LLP

As the economy improves, however, fundamental concerns are being raised about offshoring (see “Death of Offshoring” article) companies are asking questions about the return of tight international labor markets and increased costs, as well as about the overall cost-effectiveness of offshoring when talent, risk, and all-in costs are considered.

Many executives tell us that they understand that offshoring could bring significant value to their shared services operations, but report debates within their companies about whether they should move forward with it today. The arguments against it: over-tapped labor markets, poor labor quality, the return of escalating costs, and the complexity and level of effort to offshore, as well as terrorism risks and internal corporate and external political pressures to keep jobs onshore. However, significant opportunities still exist to offshore shared services in many functions, including the canonical “big three”: finance HR, and technology. Here’s what we tell functional leaders who are still on the fence:

The CFO

Decisions about offshoring shared services can have a uniquely personal impact on CFOs. Signing off on financial statements prepared in another country by people you’ve never met can seem like a stretch when you consider that significant consequences, including jail time, could hang in the balance for improper reporting. And even if you’re not considering offshoring financial shared services operations, most shared services decisions filter through the CFO and can have a big impact on the finance organization, from risk exposure to cash flow.

CFOs are trained to avoid uncertainty, and the idea of outsourcing shared services can seem full of unknowns. But with good planning, many companies have been able to develop a solid business case for offshoring selected finance shared services activities. It’s often a matter of timing. For instance, many CFOs are standardizing on IFRS standards and making technology investments that are expected to eventually drastically reduce shared services staffing needs – and costs. Many CFOs looking at offshoring are doing so to ease the eventual transition to a more concentrated staffing plan and begin realizing the significant cost benefits that come from labor cost arbitrage.

The CHRO

For many CHROs, offshoring shared services is only the second half of a tough two-part question. The first question they have to answer is, “What should I even be doing in shared services?” Once that’s understood, it’s a lot easier to make the right decisions about what can be moved where – to offshore shared services, onshore shared services, or even use an outside service provider.

When it comes to HR, offshoring shared services only works as part of a larger business strategy – it should not be just about near-term cost reduction. If you’re thinking about offshoring, start by taking a look at how your team is organized to deliver value to the organization. Draw a bright line around what you really need to be doing – and what can be done elsewhere. Done right, offshoring HR shared services can not only make your organization more lean and effective – it can allow you to get free of old constraints and start adding value at a higher level.

One obvious candidate for offshoring is in the area of administration. Today’s HR organizations are awash in administrative tasks, making this a prime target for slicing up and moving offshore.

The CIO

In a quest to constantly deliver better, more flexible IT services even with shrinking IT budgets, many CIOs tell us that offshoring IT shared services may make a lot of sense from a financial perspective, but that tough questions arise when they scratch the surface. Many companies work with IT service providers that have offshore delivery capabilities, and the value proposition of offshore shared services needs to be addressed in the context of the overall IT supply chain. Then, there’s the long list of valid concerns about offshoring in general – including service quality, talent acquisition, development, and retention, and delivery risk.

In most cases, the benefits of offshoring remain very compelling. One effective way to start down the road to offshoring is by reassessing which IT services really are “high touch” services that need to be delivered by the core IT organization, and which services are standardized and routine enough to be delivered remotely through shared services – regardless of where they are in the world. In our experience, this process often leads to insights that not only help clarify what should and shouldn’t be offshored, but help to improve the fundamental shared services model as a whole.

About Deloitte

As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Tax LLP, Deloitte Consulting LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.