The Journey to World-Class

The Journey to World-Class

Benchmarking Your Finance Organization

Jeffrey S. Rosengard, Principal: Global Finance TransformationPenny Weller, PhD, CMAGlobal Business Services North American Practice LeaderThe Hackett GroupSeptember 2010

2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

97%of the Dow Jones Industrials

80%of the Fortune 100

88%of the Dow Jones Global Titans

80%of the DAX 30

49%of the FTSE 100

35%of the CAC 40

We know how the best do it,where they do it, and the benefit of doing it.

Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

World-Class Finance in 2010

Benchmarking – Driving Performance

Agenda


Historically unprecedented levels of volatility are separating the world-class further from their peers …..

Falling off a cliff

“Slow response to clouds forming on the horizon”

(Peer group)

12

3

Recovery

Healthy profitability

“Survival mode and

improvisation”(Peer group)

“Act on deteriorating business conditions”

(World-class)

“Crisis mode, trigger worst- case scenario contingency plan”

(World-class)

“Wielding the axe –Arbitrary discretionary

cuts” (Peer group)

“Use crisis to drive through structural and sustainable

change” (World-class)


Business is moving to global operating models

Sales & Distribution Marketing

Production / Operations R&D

G&A /Corporate Services

Source: The Hackett Group 2010 Key Issues Study

Today in 2-3 Years

Today in 2-3 Years

Today in 2-3 Years

Today in 2-3 Years

Today in 2-3 Years

Big changes underway


Finance: World-Class Performance in 2010 Recession revenue declines are testing ability to hold onto cost savings

1.50%1.28%

1.10% 1.00% 0.90%0.72% 0.74% 0.73% 0.67% 0.61% 0.59% 0.60% 0.61%

1.90% 1.70%1.50% 1.40%

1.20% 1.10% 1.08%1.26% 1.22% 1.24% 1.17% 1.13% 1.16%

1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010

• ERP implementation• Beginnings of shared services• Shift from mainframe to client server

• Shared services• SARBOX • Globalization

• Standardization

• Holistic service delivery strategy

• E2E process mgt• Enterprise

performance mgt

Revenue decline impact


Moving from Conventional to World-Class Finance – How many capabilities? how fast?

Value

World-Class Finance – Business value

Conventional Finance – Financial control1. Auditor2. Scorekeeper3. Manage functional staff4. Financial statement control

experts5. Spreadsheet gurus6. Cost center masters7. Cash management

8. Direct staff mgmt. impact

9. Operationally reactive “concierge service”

10.Transaction processors

1. Risk-based compliance2. Dynamic performance mgmt.3. End-to-end process mgmt.4. Financial statement outcomes

explained5. Analytical experts6. Business driver experts7. Proactive cash forecasting

8. Key outputs impact mgmt.

9. Operationally proactive “business value orientation”

10.Information processors

Busin

ess

Strat

egy

Enab

lemen

t

Opera

ting E

xcell

ence

Comp

lexity

Red

uctio

n

Value Management

Enable the business

Drive enterprise performance

Manage risk

Report, plan, and forecast

Administer, comply, and control

HighestStrategic

Value

Foundational


World Class Organizations Have Employed an Optimal Service Delivery Model (SDM)

Organizational entities, structure and reporting lines.Roles, responsibilities & decision rights

How and where processes and sub-

processes are sourced

Processes, exception handling rules, mappings,

etc. associated with functional roles and

responsibilities

Architecture of the technology platforms required to support service delivery

Skills needed to deliver and successfully transform services

Clear understanding of which activities and processes are to take place where

GovernanceTop management

participationSteering committee

effectiveness

Skills in business functions and business operations

Formal training and skills development opportunities

Retention of top performers

AutomationOnline self -service access

DigitizationLevel of IT and systems integration

Transactional COEsKnowledge COEsWork done at BU level

Local standardsBU-level standardsEnterprise-wide standards

In-house versus outsourceOnshore versus offshorePhysical versus virtual

Data standards,report design, scorecards, KPIs,

master data elements, and repositories of unstructured

information

Decision-making frameworksSingle version of the truthGlobal master data standards

Source: The Hackett Group SDM v1.1

Service Delivery

Components

Service Placement

ProcessSourcing

Process Design

InformationEnabling Technology

Skills & Talent

Organization


World-class Finance organizations focus their improvement efforts across all three major process categories

Process CategoriesTransacting Control &

Risk

• Cash disbursements

• Revenue cycle• General

accounting and external reporting

• Tax management• Treasury

management• Compliance

management

Planning & Strategy

• Planning and performance management

• Business analysis

Process Groups

2010Process Cost of

Finance as a percent of revenue

-55% / -45%* -38% / -28%* -43% / -50%*

.17%

.38%

.21%.12%

.21%.13%

.31%

.18%.24%

Overall Peer Group Median

Large Diverse Peer Median

World-Class

2010 Hackett Finance Peer Groups

2010 Hackett Finance Benchmark database*World-Class compared to Overall Peer / Large Diverse median


World Class Aligns Across End to End Finance ProcessesTransacting Protecting Driving Performance


The Journey to World-Class Performance is consistent……but the speed of execution and importance of the outcome has increased

Strategic Alignment

Eliminate

Simplify

Standardize

Leveraged Delivery

Centers of Scale (SSC)

Automate Centers of Skill (COE)

enablers

Specialized BU Delivery

Corporate

Outsource Centers (BPO)

Self-Service Portals

Determine services needed, and delivery/management model to support strategic objectives

Reduce complexity & implement Best Practices across enterprise

IT enablement for lowest service delivery cost

Reduce manual effort and errors

Deliver standard services through best service points

1

2

3

4

5

people

process

technology

Move towards World-Class performance levels

6


World-Class Finance in 2010

Benchmarking – Driving Performance

Agenda


Hackett Value Grid™World-Class Organizations results compared to Peer Median

EFFECTIVENESSQualityMinimized data collection Advanced degrees or certificationsFinancial and non-financial metrics Business acumen Analytical focus

EFFICIENCYLower overall costBetter cycle timesConsolidated processingLeveraged technology

Hackett Value Grid™ (Finance Example)


Benchmarking helps identify the gap to higher performance

Function % Savings Between: Peer & World-Class Efficiency

Finance 48% - 59%HR 32% - 51%IT 13% - 33%Procurement 21% - 29%Total Opportunity 25% - 42%

Normally 20% to 50% improvement opportunity

HIGH

HIGHLOW 1Q 1D

World ClassEFFICIENCY

World Class EFFECTIVENESS

1D

1Q

WORLD CLASS

OPERATING

EXCELLENCE

OPERATING

EXCELLENCE

COMPLEXITY

REDUCTION

COMPLEXITY

REDUCTION


The Hackett Group Definitions

World-class: top 25% both in efficiency and effectiveness. Peer group: median of non-world-class companies.Best practices: techniques and tools positively correlated to an improvement in an output performance metric Process costs: labor costs plus any process-related outsourcing costs


Our benchmarks span General & Administrative (“G&A”) processesFinance

Cash disbursementsRevenue cycleAccounting and external reportingTax managementTreasury management

Compliance ManagementPlanning & Performance ManagementBusiness AnalysisFunction Management

Hackett’s taxonomy ensures an apples-to-apples comparison

Information Technology

Infrastructure ManagementEnd User SupportInfrastructure DevelopmentApplication MaintenanceApplication Development & Implementation

Quality AssuranceRisk ManagementIT Business PlanningEnterprise Architecture PlanningEmerging TechnologiesFunction Management

Human Resources

Total Rewards AdministrationPayroll ServicesData Management, Reporting & ComplianceStaffing Services

Workforce Development ServicesOrganizational EffectivenessTotal Rewards PlanningStrategic Workforce PlanningFunction Management

Procurement

Supply Data ManagementRequisition & PO ProcessingSupplier SchedulingReceipt ProcessingCompliance ManagementCustomer Management

Sourcing ExecutionSupplier Management & DevelopmentFunction Strategy & Performance ManagementSourcing & Supply Base StrategyFunction Management

Executive and Corporate Services

General Administration Mgt Travel & Transportation ServicesReal Estate & Facilities MgtGovernment AffairsLegal

Quality ManagementRisk & Security ManagementCorporate CommunicationsPlanning & StrategyExecutive Office

Service

Order & Contract ManagementService ExecutionService Operations

Planning & StrategyFunction Management

Marketing

Marketing Communication & Program ManagementBrand & Product Management

Planning & StrategyMarket Research & AnalyticsFunction Management

Sales

Sales ExecutionSales Operations

Planning & StrategyFunction Management


World-class companies continue to demonstrate efficiency and effectiveness despite a narrowing cost advantage

Overall finance cost as a percent of revenue

* Includes credit, billing, collections, cash applications, fixed assets, general accounting, external reporting, accounts payable, and T&E

Peer Group World Class

0.61%

2009

Peer Group World Class

47%

1.13%

0.60%

66% higher prevalence of a documented, strategic plan39% higher focus on proactive decision making32% less time collecting data for analysis20% shorter DSO19% fewer days required to close the books47% less expensive 54% fewer staff/FTEs43% fewer billing errors59% fewer business reports generated 47% more reports from central repository14% greater automated journal entries

Other benefits of world-class performance in 2010

47%

1.16%

2010

Source: 2010 Functional Benchmarks


World-Class Cash DisbursementsAP Cycle Time Process supplier invoices 20% faster

AP Rework Rates 60% less AP invoice processing rework

AP Productivity Process 2 times more invoices

T&E Rework Rates 75% less T&E voucher rework

T&E Productivity Process 81% more T&E vouchers

Cash Disbursements Process Cost 60% less process cost

World-Class Revenue CycleCredit Reviews 4 times more reviews performed per

customer

Billing Cycle time Customer bills created in half the time

Billing Rework 43% less billing errors

Collection Contacts More proactive with 2 times more annual contacts, 38% per customer

Cash Application 30% more remittances per FTE

Revenue Cycle Process Cost 65% less process cost

World-Class General Accounting/External ReportingJournal Entry Efficiency 3 times more JEs per billion processed at only 20% the cost per entry

Fixed Asset Management 74% more fixed assets managed per FTE

Project Accounting Management 30% more projects tracked for accounting purposes

External Report Filings 2 times more filings completed

General Accounting & External Reporting Process Cost 45% less process cost

World-Class Transacting Profile: Efficiency Performance

World-class companies are highly efficient in transactional processes, delivering higher volumes of timely, accurate data at minimal cost as a percentage of revenue.

World-class companies are highly efficient in transactional processes, delivering higher volumes of timely, accurate data at minimal cost as a percentage of revenue.


World-Class Tax ManagementEffective Tax Rate ETR is 125 basis points lower

Tax Strategy Effectiveness 2X savings from tax strategies

Complexity Rationalization >40% fewer LEs and tax domains

Value-added Analysis / Planning Twice the time spent on analysis

World-Class Treasury ManagementInterest Rate Exposure

Hedge half of their exposures vs. only 12% for the peer group

FX Exposure Hedge 75% of exposures vs. <50% peers

Risk Management High level of formal risk management tracking and analysis vs. low for peers

Linkage to Strategic Plan

Comprehensive investment / debt strategy tied to strategic plan twice as often

World-Class Compliance ManagementExternal Audit Fees 55% lower

Enterprise-wide Compliance Management High level of enterprise wide compliance processes vs. low for peers

Self-assessment Control Reviews Twice the leverage of self-assessment control reviews

Risk-based Computer Auditing Greater use of risk-based auditing techniques to identify/manage audit risk

World-Class Control & Risk Profile: Effectiveness Performance

World-class companies operate with highly effective control and risk processes, and are better able to protect assets, improve tax positions, while optimizing cash balances

World-class companies operate with highly effective control and risk processes, and are better able to protect assets, improve tax positions, while optimizing cash balances


World-Class Planning & Performance ManagementStaffing 41% fewer FTEs per $B revenue

Budget cycle time Complete the budget 25% faster

Budget detail 19% fewer line items in the budget

Forecast cycle time 5 days or less compared to 2-3 weeks

Forecast detail Far less detail than annual budget, at peers level of detail is typically the same

Reporting volumes 59% fewer performance reports per $B revenue

Technology leverage

47% more performance reports generated from a central data repository

Planning & Performance Mgmt Process Cost

54% less process cost

World-Class Business AnalysisStaffing 31% fewer FTEs per $B revenue

Time allocation 1/3 less time spent collecting and compiling data for analysis

Ad-hoc cycle time 28% faster at turning around ad-hoc requests

Business Analysis Process Cost 29% less process cost

World-Class Planning & Strategy Performance Profile: Efficiency Performance

World-class companies are highly efficient in driving performance, delivering timely and accurate management information at a much lower cost.

World-class companies are highly efficient in driving performance, delivering timely and accurate management information at a much lower cost.


The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status

World-ClassDefines leading performers within a Function and

Global Business Services/Shared Services

Top PerformerDefines leading performers within a Process

Hackett Performance ContinuumHackett Value Grid™

Procurement HRIT Finance

Accounts Payable PayrollCredit & Collections Planning/Budgeting

Efficiency

Effectiveness

Your Organization

Quartile 1Quartile 2Quartile 3Quartile 4

Top Performer

49%

76%


$5.62

$2.11

Peer Top performer

AP Cost per Invoice

9,507

41,030

Peer Top performer

AP Invoices per FTE

$3.90

$1.14

Peer Top performer

AP Labor Cost per Invoice

Procure to Pay

Source: 2009 P2P Performance Study


80%

94%

Peer Top performer

Overall first pass match rate for PO-based invoices

85%90%

Peer Top performer

Percent of payments made on time

Procure to Pay

Source: 2009 P2P Performance Study


Customer to Cash

FTEs per Billion $ Credit SalesProcess Cost as a % of Credit Sales

0.038%

0.062%

0.006%0.006%0.008%

0.002%

Credit Collections Dispute Management

5.1

11.7

1.50.6

2.1

0.2

Credit Collections Dispute Management

Peer Group Top PerformerSource: 2009 Credit & Collections Performance Study


48

42

Peer Top performer

17

9

Peer Top performer

33

40

Peer Top performer

DSO DSO relative to terms Best Possible DSO

Customer to Cash

Source: 2009 Credit & Collections Performance Study


Account to Report

0.083%

0.033%

0.031%

0.010%

0.012%

0.005%

0.012%

0.002%

0.022%

0.010%

Peer Group Top Performer

General Accounting External reportingFixed Assets Inter-Company AccountingCost Accounting

Process Cost as a % of Revenue

13.2

3.9

3.1

0.9

2.0

0.7

1.8

0.8

3.0

1.3

Peer Group Top Performer

General Accounting External reportingFixed Assets Inter-Company AccountingCost Accounting

FTEs Per Billion of Revenue0.16%

0.06%

23.0

7.7

Source: 2009 Account to Report Performance Study


6

4

Peer Top performer

$560,361

$212,804

Peer Top performer

General Accounting: Days to Close External audit fees per Billion of Revenue

Account to Report

Source: 2009 Account to Report Performance Study


Account to Report

58%

0%5%

0%

16%21%

32%

5% 5%

21%

11%

26%

Percent of Inter-company transactions automated

2

1

Median Q1

Days to reconcile inter-company accounts from cut-off date

Percent of Inter-company reconciliations automated

Less than 5% 5% to 10% 11% to 25% 26% to 50% 51 % to 75% More than 75%Source: 2009 Account to Report Performance Study


So, why benchmark?

Understand business performance through independent assessmentValidate cost structure, headcount levelsClarify the business case for service delivery modelConfirm best practice adoption Understand technology adoption and realization of benefitsOffer an executive transparency into G&A capabilitiesReveal the behaviors and characteristics of world-class companiesOutline a performance improvement roadmap to World-class


Hackett Open Performance Studies Purchase to Pay--no charge: https://member.thehackettgroup.com/survey/P2P2010

Credit to Collection--no charge: https://member.thehackettgroup.com/survey/creditandcollections

Payroll: fee—request access through [email protected]

Global Business/Shared Services--no charge:https://member.thehackettgroup.com/survey/gbs2011

Or – www.thehackettgroup.com then join the Performance Network for notifications


Contact Information

The Hackett GroupWorld Headquarters1000 Abernathy RoadSuite 1400Atlanta, GA 30328Phone: +1 770 225 3600

Martin House5 Martin LaneLondon EC4R 0DPPhone: +44 207 398 9100

Torhaus WesthafenSpeicherstrasse 5960327 Frankfurt am Main, GermanyPhone: +49 69 900217 0

8, rue de Port Mahon75002 Paris, FrancePhone: +33 1 53 43 0400

Strawinskylaan 3051G, 1077 ZXAmsterdam, The NetherlandsPhone: +31 20 301 2210

Jeff RosengardTitle Principal

Finance TransformationPhone: +1 440 241 [email protected]

Penny WellerTitle Global Business Services

North American Practice LeaderPhone: +1 269 345 [email protected]

www.thehackettgroup.com

The Journey to World-Class

Business

Transcript of The Journey to World-Class