Hackett: Sarbox Drives Biggest Finance Cost Rise in 13 Years; Typical Companies See 18 Percent Increase; World-Class Performers
September 22 2005 - 9:30AM
Business Wire
Finance costs at typical companies rose by 18 percent over the past
two years, in part due to increased compliance-related costs,
according to newly-released 2005 Book of Numbers(C) research from
The Hackett Group, a business process advisory firm (NASDAQ:ANSR).
Typical companies now spend 1.26 percent of revenue on the finance
function. This is the first time in Hackett's 13-year history of
benchmarking that finance costs have risen for typical companies.
The first look at Hackett's 2005 Book of Numbers analysis found
that typical companies now spend $940,000 per billion dollars of
revenue on compliance management, while world-class companies spend
36 percent less. According to Hackett, world-class CFOs rely on
standardization and reduced complexity to more effectively manage
compliance costs. As a result, leading CFOs have continued to see
reductions in the total cost of finance over the past two years.
Hackett's research also found that world-class finance
organizations now spend 42 percent less in the finance function
than typical companies, and have 44 percent fewer finance staff.
The Hackett Group is a world leader in best practice research,
benchmarking, and advisory services that empower executives to
achieve world-class enterprise performance. Hackett offers analysis
and insight backed by metrics derived from 3,300 benchmark studies
over 13 years at nearly 2,000 of the world's leading companies,
including 93 percent of the Dow Jones Industrials. "Clearly, CFOs
are being challenged as never before by the demands of regulatory
compliance, specifically Sarbanes-Oxley and other global compliance
initiatives such as IFRS," said Hackett's Chief Research Officer
Richard T. Roth. "For most CFOs, the resources and focus required
to comply have turned the tide of more than a decade of efficiency
improvements and caused an increase in the total cost of finance.
At many typical companies, the bright-line focus on compliance has
forced them to put alignment initiatives and support of the
business on the back burner. World-class CFOs, on the other hand,
have been able to better manage through this period. While they've
also seen a rise in compliance costs, they have continued to
improve overall efficiency and effectiveness." According to
Hackett's research, world-class finance organizations now spend 42
percent less than typical companies overall (0.73 percent of
revenue versus 1.26 percent). Typical companies have seen an 18
percent increase in total finance costs since 2003, while
world-class finance organizations have seen a 5 percent drop during
the same period. Compliance costs have risen significantly for both
world-class and typical companies since 2003. World-class now spend
36 percent less on compliance than typical companies (.060 percent
of revenue versus .094 percent). For instance we see that the
typical company is spending an additional $340,000 per billion in
revenues or a total of $940,000 per billion in revenues for
additional internal finance and external resources to meet today's
compliance requirements. However, these figures are just the tip of
the iceberg. Hackett believes that average companies are spending
an additional amount, potentially equal to or greater than the
compliance management costs on key control activities. These
activities would include documenting, testing and potentially
remediating key controls throughout the business. NOTE TO
JOURNALISTS: A chart illustrating select findings described above
is available on request, and will be distributed via BusinessWire.
World-class finance organizations now operate with 44 percent fewer
staff than typical companies (63 employees/billion of revenue
versus 112). More than half of the overall spending gap between
world-class and typical companies is attributable to lower labor
costs, despite the fact that world-class finance organizations pay
staff more, with fully-loaded wage rates 11 percent higher than
typical companies ($79,345 versus $71,411). According to Hackett,
this higher wage rate is an indication that world-class finance
organizations are changing their staffing profile, employing more
skilled employees capable of delivering higher-value finance
activities. World-class finance organizations also spend 63 percent
less than their peers on technology. However this is not because
they use less technology. Rather, they make better use of
technology they have by simplifying and optimized their
infrastructure. For example, world-class finance organizations rely
on just one enterprise-wide finance platform, while typical
companies rely on two. World-class finance organizations also
process a larger percentage of their payments electronically, and
rely on online systems for T&E submissions more than twice as
often as typical companies. Across a range of effectiveness
metrics, world-class finance organizations show superior
performance. World-class companies are more than twice as likely as
typical companies to play a proactive role in decision-making, and
90 percent of all internal customers at world-class firms believe
that cost analysis provided by finance is "on target" and makes a
positive contribution to the effort of decision-making. World-class
finance organizations are also significantly more likely to be
viewed as a business partner by executives in other areas of the
business. According to Hackett Finance Practice Managing Director
Mark Krueger, "The drive towards compliance is by no means over.
Sarbanes-Oxley compliance is still very much a moving target. It's
possible that the SEC will now begin work on making Sarbanes-Oxley
more 'business friendly.' Companies will welcome this, but it may
also mean more work. What is also clear is that every firm will
need to adopt sophisticated risk-management tools that evaluate
risk on the front-end as well as monitor and report control risks
and variances in a real-time environment. In addition, companies
will also want to continue efforts to streamline close and
reporting processes and elevate financial statement review and
signoff procedures to the audit committee to reduce the potential
for severe financial penalties and even executive indictments for
financial reporting lapses, which some companies have already seen.
"While typical firms are still focused on driving cost out of
transactions, world-class finance organizations are far down the
path toward providing better value to the organization as a whole
through high levels of best practice utilization, standardization
of business processes and practices company-wide and extensive
improvements in planning and analysis, compliance and risk
management. Their efforts are clearly paying off," said Mr.
Krueger. The Hackett Group's research into world-class performance
is compiled in its Book of Numbers series, which provides senior
executives fact-based performance metrics and insights based on
Hackett's extensive database of best practices and process metrics
in finance, IT, HR, procurement, and other areas. Hackett Book of
Numbers volumes are available to members of Hackett's World-Class
Programs -- premium-value, membership-based programs providing a
tailored mix of benchmarking services, confidential advisor
inquiry, best practices research, and peer learning opportunities.
More information on The Hackett Group is available: by phone at
(770) 225-7300; by e-mail at info@thehackettgroup.com; or on the
Web at http://www.thehackettgroup.com. About The Hackett Group The
Hackett Group, http://www.thehackettgroup.com, a business process
advisory firm and an Answerthink company, is a world leader in best
practice research, benchmarking and advisory services that empower
executives to achieve world-class enterprise performance. Only The
Hackett Group empirically defines world-class performance in sales,
general and administrative (SG&A) and supply chain activities
with analysis gained through 3,300 benchmark studies over 13 years
at nearly 2,000 of the world's leading companies. The foundation of
Hackett's benchmarks, transformation services, and membership-based
advisory programs is our proprietary database of
Hackett-Certified(SM) Practices, approaches which are proven to
correlate with superior performance metrics. This unparalleled
knowledge repository enables Hackett business advisors to provide
data, advice, and strategic insight with a level of integrity and
authority available nowhere else. As of this writing, Hackett
clients comprise 93 percent of the Dow Jones Industrials, 76
percent of the Fortune 100 and 90 percent of the Dow Jones Global
Titans Index. Hackett-Certified and Book of Numbers are service
marks of The Hackett Group. This press release contains "forward
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Report on Form 10-K for the fiscal year ended December 31, 2004
filed with the Securities and Exchange Commission. We undertake no
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