The Hackett Group: -0- *T Executives from Citigroup, Hewlett
Packard, Nissan, U.S. Steel, and Others Discuss Their Strategies to
Leverage G&A for Competitive Advantage; Hackett Recognizes
Alcoa, MeadWestvaco, Southern California Edison as World-Class
Performers *T Globalization is creating new challenges and
opportunities for today's companies, and one way world-class
executives are responding is by demanding that their G&A
(General & Administrative) operations deliver more than just
the lowest cost. The best companies are strategically improving
performance in finance, IT, HR, procurement, working capital, and
other areas in ways that help them respond to the pressures of
globalization, according to speakers at the 16th Annual Best
Practices Conference of The Hackett Group, a strategic advisory
firm and an Answerthink company (NASDAQ: ANSR). Executives at
Hackett's recent conference, "Leveraging G&A for Competitive
Advantage: From Back Office to Front of the Line," reinforced
common successful themes. They discussed how they continue to drive
out cost in G&A, in response to global forces and other market
pressures. Presentations emphasized the need for speed and to drive
change more quickly than their competition. Speakers stressed the
need for agility in today's business environment, and focused on
how they are transforming their back-office operations to enable
them to react more quickly. They discussed the value of 'leaders
who listen.' Finally, they emphasized the need to inspire passion,
and how that passion drives change. Nearly 400 executives from many
of the world's largest companies attended the two-day conference in
Atlanta. They listened to CEOs, CIOs, CFOs, and other senior
executives from 17 of the world's most successful companies,
including Alcoa, Citigroup, Constellation Energy, HP, Greif,
Nissan, and U. S. Steel. In addition, The Hackett Group provided a
preview of its 2006 Book of Numbers(TM) research findings, which
will be formally released later this year. At the conference,
Hackett Chief Research Officer Richard T. Roth also presented
Hackett's World-Class Award to three companies that have achieved
world-class performance in both efficiency and effectiveness in
recent Hackett benchmarks: Alcoa, for its finance performance,
MeadWestvaco for its IT performance, and Southern California
Edison, for procurement. The Hackett Group is a world leader in
best practice research, benchmarking, and business transformation
services that empirically define and enable world-class enterprise
performance. Hackett uniquely backs up its research and advice
across SG&A (Selling, General, & Administrative) and supply
chain activities with performance metrics obtained through 3,500
benchmark studies over 14 years at 2,100 of the world's leading
companies, including 97% of the Dow Jones Industrials. Excess Cost
is No Longer an Option Driven by globalization, executives today
are under more pressure than ever before, Hackett's Roth explained,
demanding that they provide superior pricing and product
flexibility, deliver greater shareholder value, and have keener
insights into their own business, their competitors, and the
overall market. As a result, the best companies are doing even more
to reduce G&A costs, while expanding their efforts to generate
value and competitive advantage from these operations. "The best
companies understand that in today's market, you simply don't have
a choice. Costs must continue to drop, driven by everything from
global forces and low-cost sourcing to new technology and new
competitors. In G&A, this means companies must raise the bar on
efficiency, while maintaining a bright-line focus on operational
excellence. This is a key element of how the best achieve their
competitive advantage and deliver superior results," said Mr. Roth.
Hackett's 2006 Book of Numbers research revealed that world-class
companies are now spending 40% less than typical companies overall
on SG&A (9% of revenue versus 15%), and as a result generate
$60 million in savings/billion of revenue. By function, they spend
45% less on finance, 13% less on HR, 25% less on procurement, and
7% more on IT. IT is unique in that world-class companies spend
more than typical ones in this area. The increased IT spending is a
key strategy world-class companies use to drive cost reductions and
performance improvements in other SG&A areas. In addition,
top-quartile companies use 32% less working capital than typical
companies, generating $72 million/billion of revenue in improved
cash flow. One conference speaker stressed that his company's
finance staff had learned to consider whether they were truly
creating value, and delivering profitability long term. "We treat
all our cost centers as profit centers," he said. "For example,
when we found that our controller's organization was delivering
over 17,000 reports to business leaders every year, we asked them
to consider the cost of this, and whether people would really be
upset if they delivered less." A Bias Towards Action Speakers
discussed how they maintain a bias towards action, and understand
the need to get their company moving and keep it moving or risk
being overtaken by market forces or competitors. Alcoa has made a
major shift over the past few years, from highly regionalized,
decentralized operations in IT, finance and other areas to a
centralized, customer-focused organization which uses significant
co-sourcing in India and elsewhere. The company has also
consolidated more than 217 Oracle implementations and 52 data
centers, eliminating redundancy. As a result, while Alcoa doubled
in size from 1997 to 2001, operational costs in these key areas
came down. "We knew we wanted to leverage processes globally. But
it's not enough to agree on a goal," said Alcoa VP of Global
Business Services and CIO Rudi P. Huber. "You have to know how
you're going to get there." One key to driving dramatic changes in
processes and infrastructure at Alcoa was to make it clear to
executives that "opting out was not an option," said Huber. "If
people wanted an exception to our new procedures, they knew they
needed to take it all the way to the top." One conference speaker
said it was critical that his organization continually reinvent
itself. "The speed at which businesses move today has increased
dramatically. We look very carefully at our rate of change, and
measure how quickly our competitors are changing. We need to be
moving faster, or we'll risk getting wiped out," he said. A recent
Hackett benchmark study concluded that U. S. Steel has a
world-class finance operation. This ranking resulted from the
combined effects over the past few years of reducing administrative
staff, implementing a Business Service Center that consolidated
systems support and execution for transactional activities, and
integrating systems to support acquisitions which more than doubled
the size of the company. Since 2003, U. S. Steel achieved a
reduction of 30 percent in its administrative workforce and annual
acquisition synergies in excess of $400 million. Executive Vice
President and CFO Gretchen R. Haggerty said that while the company
is ranked in the top quartile, improvements could still be made.
"We are ranked high in effectiveness and efficiency, but found that
we still have areas for improvement. We are long time believers in
continuous improvement and are constantly looking to implement Best
Practices. One of the key benefits of the Hackett process was to
identify Best Practices that we can employ as we continue work on
developing common global systems and implementing our Business
Service Center at our operations in Central Europe. We realize that
we must continue our pace of rapid and continuous improvement to
remain a first quartile finance operation," she said. Improving
Speed and Agility Globalization has made it more difficult than
ever for companies to anticipate what the future will bring to
their market. But several speakers discussed how their G&A
transformation efforts have helped them react quickly to unforeseen
circumstances. At Constellation Energy, a Fortune 200 competitive
energy company based in Baltimore, SVP and CIO Beth Perlman has
focused on both complexity reduction and ROI generation to build an
IT organization that is a true strategic partner to her company.
Over the past few years she has integrated IT operations from
several very different business units, dramatically reducing IT
complexity and moving to a matrixed shared services approach to
handle corporate applications and infrastructure. "We had to be
bold, pick our battles, and know when to take a stand. But now
we're now running IT as a business, and spending a lot less time
doing non-value added tasks. Our IT leaders understand our company
better. We don't think in terms of IT projects, we think in terms
of business solutions. That's a radical shift," said Ms. Perlman.
Today the company is pursuing growth initiatives, and as a result
of its efforts over the past few years, the company is already well
prepared. Benchmarking efforts are now underway to identify best
practices and recommendations in IT and other back office areas. HP
Senior Vice President and Treasurer Cathie Lesjak has continued to
guide the HP Treasury function along its journey to world-class
performance in the face of significant enterprise-level change. The
journey began under her predecessor at a time when Cathie was the
International Assistant Treasurer. At the same time that Treasury
was restructuring its processes and implementing an e-treasury
solution to streamline system and process interfaces with both
internal and external partners, HP spun off Agilent, merged with
Compaq and last year brought on a dynamic new chief executive
officer, Mark Hurd. Lesjak credits her group's willingness to
embrace breakthrough thinking, coupled with an emphasis on
partnering with the organization, as key contributors to HP
Treasury's achievement of world-class status and its ability to
focus on providing value-added services aligned with the goals of
executive management. "Over the past few years we've aggressively
executed efficiency projects and initiated programs such as working
capital management that add value. This has put us in an
exceptionally strong position to support the focus areas of our new
CEO -- capital strategy, efficiency and growth," comments Lesjak.
"We have grown an organizational culture that promotes a global
mindset, thought leadership, innovation, and solid execution."
Greif, Inc., a global industrial packaging company, has experienced
dramatic worldwide growth over recent years. "During one
significant acquisition, we essentially became global overnight,
while doubling our revenue base," said VP of Corporate Business
Development Rob Zimmerman. Given the number and size of the
acquisitions that had been completed, the company knew that it
needed to standardize its operations and ensure that it was
producing an adequate return for its shareholders. As a result, the
company launched a major transformation initiative that would
significantly improve its operating efficiencies, cost structure,
procurement activities and also working capital. "When the
transformation began, we had little visibility into our customer
profitability, were far from being the lowest cost producer and
dead last in working capital compared to our peer group," said Mr.
Zimmerman. "But by standardizing processes, gaining visibility into
our data, creating the right analytical tools and building the
capabilities of our employees, we've been able to surpass some of
our original financial targets. As an example, we had targeted a
12% operating working capital ratio. Today, we have driven this
ratio to under 10%. Since we launched the transformation, we have
increased our stock price by a factor of three and generated well
over a billion dollars in market value. But most importantly, we've
gained control, improved our processes, and put systems in place to
make sure it's all sustainable." Leaders Who Listen In a videotaped
interview with Hackett President Wayne Mincey, Nissan CEO Carlos
Ghosn explained that the ability to listen was one key trait he
looked for in leaders, including those driving SG&A
transformation at his company. "Our strategy is product superiority
supported by cost competitiveness," explained Mr. Ghosn. "Across
the board, we've created a consciousness that improvements need to
be in both cost and value. In SG&A, the best way to increase
value is not only by looking at what the best companies in the
world are doing, but also by listening to what your internal
customers are asking for. To be direct enablers of success, our
functional leaders cannot feel they are in their job mainly to do
what they think should be done. They must be driven by their
customers. Listening is extremely important." Finding Passion A
final key strategy discussed by conference speakers is the role
that drive, energy, and passion play in achieving world-class
performance. Todd S. Thomson, Chairman and CEO of Citigroup Global
Wealth Management, discussed the techniques he used to inspire
passion as he brought together the back-office functions for three
parts of his organization: leading wealth management company Smith
Barney; specialized boutique organization Citigroup Private Bank,
which focuses on supporting entrepreneurs; and Citigroup Investment
Research, which provides a broad spectrum of research products and
services to individual and institutional investors globally. "With
dramatically different business models, client bases, and
compensation structures, these businesses were alien to one
another, with limited, if any, experience interfacing with one
another," said Mr. Thomson. Citigroup focused heavily on creating
opportunities for leadership to better understand their
counterparts and their operations. Mr. Thomson moved technology
staff between the three organizations, so they could identify
opportunities to improve efficiency and effectiveness. Weekly
meetings were established where leadership could share and
understand each others' problems. Finally, off-site events,
including one incorporating basic-training style military exercises
and a class on change management taught by a West Point professor,
were used to help executives, "...see each other with their armor
off, and learn how to work together, to support each other." The
goal of the effort was to build understanding that they all faced
similar pressures, despite the differences in their individual
businesses. This approach is generating significant returns for
Citigroup, with approximately $90 million in productivity gains
over the past two years through initiatives that have included the
elimination of redundant back-office operations, technology
transfer between the three organizations, and the establishment of
low-cost offshore shared services centers for technology
development. "At this point, we've built an amazing team. Everyone
understands that if their peers are successful, they'll be
successful. We're working together," said Thomson. Finally, Hackett
has announced that its 17th Annual Best Practices Conference will
take place April 26-27, 2007, at the InterContinental Hotel in
Atlanta. About The Hackett Group The Hackett Group
(www.TheHackettGroup.com), a strategic advisory firm and an
Answerthink company, is a world leader in best practice research,
benchmarking and business transformation services that empirically
define and enable world-class enterprise performance. Through the
acquisition of REL Consultancy Group, a global leader in generating
cash improvement from working capital, we offer Hackett-REL Total
Working Capital services to liberate cash flow from operations
through improved working capital, reduced costs and increased
service quality. Hackett-REL has helped clients in more than 60
countries free up over $25 billion through working capital
improvements in the last 10 years alone. Only The Hackett Group
empirically defines world-class performance in sales, general and
administrative (SG&A) and supply chain activities with analysis
gained through 3,500 benchmark studies over 14 years at 2,100 of
the world's leading companies. Our clients comprise 97 percent of
the Dow Jones Industrials, 77 percent of the Fortune 100 and 90
percent of the Dow Jones Global Titans Index.
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