Hackett Book of Numbers(TM) Analysis: Finance Costs at Typical Companies Resume Downward Trend, But Still Well over Pre-Sarbox L
November 16 2006 - 4:30PM
Business Wire
The cost of finance operations has resumed its 14-year downward
trend at typical companies, after spiking dramatically in 2004/2005
due in part to Sarbanes-Oxley compliance efforts, according to 2006
Enterprise Book of Numbers� research from The Hackett Group. After
the 18% increase in finance costs at typical companies in 2004/2005
� which came largely as a result of compliance-related activities �
this year�s cost reduction of 3% at typical companies should come
as a massive relief. At the same time, 2006 saw world-class finance
organizations extend their performance lead, as they have in each
of the past 14 years of Hackett�s analysis. World-class finance
organizations cut costs by an impressive 8% in 2006, building on
their 2004/2005 decrease of 5%. World-class finance organizations
now see the cost of finance at 0.67% of revenue, 45% lower than
typical companies, where costs are now at 1.22% of revenue.
World-class finance organizations also rely on 56% fewer finance
staff (46/$US billion of revenue versus 104/$US billion for typical
companies). Hackett�s research identified an array of techniques
that world-class finance organizations use to control compliance
costs. Leading companies spend 55% less than their typical peers on
finance controls, and report 53% lower compliance costs. One key
strategy employed is complexity reduction. Leading companies have
40-60% fewer controls than typical companies in five key finance
areas � general accounting, revenue cycle, cash disbursements, tax
management, and treasury. �Our benchmark analysis shows that
typical companies are just beginning to recover from the compliance
efforts which consumed much of their attention over the past two
years,� said Hackett Chief Research Officer Richard T. Roth. �Most
companies are now resuming their focus on improving other areas of
finance operations. Meanwhile world-class finance organizations
continue to improve at a more rapid pace. Their streamlined
operations, with lower complexity, more standardization, better use
of technology, and greater use of shared services have made
compliance a comparatively painless process. They are able to
literally �have their cake and eat it too,� and have continued to
make improvements in cash and cost while at the same time
increasing service and reducing risk.� Complexity reduction was one
of five major factors that Hackett detailed in the 2006 Enterprise
Book of Numbers which empirically correspond to world-class
performance across finance and other key SG&A areas. Other
factors were: strategic alignment, technology enablement, sourcing,
and cross-functional partnering. Key findings in each of these
areas include: Complexity Reduction � In addition to streamlined
compliance processes, Hackett found that world-class finance
organizations reduce complexity in other areas. They have 45% fewer
legal entities and 33% fewer tax domains. In budgeting, they rely
on 33% fewer line items, and shift the focus from �beating the
budget� to �beating the competition.� Strategic Alignment �
World-class finance organizations emphasize the linkage of
financial and strategic planning to day-to-day business operations.
According to Hackett, world-class finance organizations are more
than twice as likely as typical companies to have fully integrated
planning and budgeting processes, and have stronger overall
alignment between strategic objectives and the budget. Technology
Enablement � World-class finance organizations rely more heavily on
technology than typical companies, and use it to automate
transactional activities and drive down costs and staffing levels,
while also improving information access. For example, managers at
world-class finance organizations are more than two times as likely
to be able to access reports online. Business Process Sourcing �
According to Hackett, world-class finance organizations spend a
smaller percentage of their finance function costs on outsourcing
than typical companies, in part due to their bright-line focus on
process automation, standardization, and centralization to reduce
cost. But they do rely on selective outsourcing, and in some cases
outsource major components like accounts payable, after clearly
defining a services globalization strategy that is integrated with
their business strategy. Cross-Functional Partnering � World-class
finance organizations are much more successful at driving a
cross-functional approach in key areas such as planning and
performance management. As a result, managers at world-class
companies are 29% more likely to report that the budgeting process
is easy and convenient. �While many typical companies still view
the finance function as a cost center responsible simply for
measuring and monitoring the financial health of the company,
world-class CFOs understand that finance can produce significant
business value in its own right,� said Hackett Senior Business
Advisor John McMahan. �By focusing in these five key areas,
world-class CFOs are able to support their companies in strategic
ways that other finance organizations can�t even imagine, providing
greater business insight and guidance in addition to bottom line
results such as lowering the cost of finance operations, planning
and budgeting improvements that drive higher equity market returns,
and improving cash flow through reductions in working capital.�
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 www.thehackettgroup.com. About The Hackett Group The Hackett
Group, a strategic advisory firm, is a global leader in best
practice research, benchmarking, and business transformation
services that enable world-class performance across selling,
general & administrative (SG&A) and supply chain
activities. Through the acquisition of REL Consultancy Group, we
offer Hackett-REL Total Working Capital services to liberate cash
flow from operations. Hackett provides strategic insight, best
practice advice and implementation services grounded in performance
metrics obtained through 14 years and 3,500 benchmark studies at
2,100 of the world�s leading companies. Book of Numbers is a
trademark of The Hackett Group. The cost of finance operations has
resumed its 14-year downward trend at typical companies, after
spiking dramatically in 2004/2005 due in part to Sarbanes-Oxley
compliance efforts, according to 2006 Enterprise Book of
Numbers(TM) research from The Hackett Group. After the 18% increase
in finance costs at typical companies in 2004/2005 - which came
largely as a result of compliance-related activities - this year's
cost reduction of 3% at typical companies should come as a massive
relief. At the same time, 2006 saw world-class finance
organizations extend their performance lead, as they have in each
of the past 14 years of Hackett's analysis. World-class finance
organizations cut costs by an impressive 8% in 2006, building on
their 2004/2005 decrease of 5%. World-class finance organizations
now see the cost of finance at 0.67% of revenue, 45% lower than
typical companies, where costs are now at 1.22% of revenue.
World-class finance organizations also rely on 56% fewer finance
staff (46/$US billion of revenue versus 104/$US billion for typical
companies). Hackett's research identified an array of techniques
that world-class finance organizations use to control compliance
costs. Leading companies spend 55% less than their typical peers on
finance controls, and report 53% lower compliance costs. One key
strategy employed is complexity reduction. Leading companies have
40-60% fewer controls than typical companies in five key finance
areas - general accounting, revenue cycle, cash disbursements, tax
management, and treasury. "Our benchmark analysis shows that
typical companies are just beginning to recover from the compliance
efforts which consumed much of their attention over the past two
years," said Hackett Chief Research Officer Richard T. Roth. "Most
companies are now resuming their focus on improving other areas of
finance operations. Meanwhile world-class finance organizations
continue to improve at a more rapid pace. Their streamlined
operations, with lower complexity, more standardization, better use
of technology, and greater use of shared services have made
compliance a comparatively painless process. They are able to
literally 'have their cake and eat it too,' and have continued to
make improvements in cash and cost while at the same time
increasing service and reducing risk." Complexity reduction was one
of five major factors that Hackett detailed in the 2006 Enterprise
Book of Numbers which empirically correspond to world-class
performance across finance and other key SG&A areas. Other
factors were: strategic alignment, technology enablement, sourcing,
and cross-functional partnering. Key findings in each of these
areas include: -- Complexity Reduction - In addition to streamlined
compliance processes, Hackett found that world-class finance
organizations reduce complexity in other areas. They have 45% fewer
legal entities and 33% fewer tax domains. In budgeting, they rely
on 33% fewer line items, and shift the focus from "beating the
budget" to "beating the competition." -- Strategic Alignment -
World-class finance organizations emphasize the linkage of
financial and strategic planning to day-to-day business operations.
According to Hackett, world-class finance organizations are more
than twice as likely as typical companies to have fully integrated
planning and budgeting processes, and have stronger overall
alignment between strategic objectives and the budget. --
Technology Enablement - World-class finance organizations rely more
heavily on technology than typical companies, and use it to
automate transactional activities and drive down costs and staffing
levels, while also improving information access. For example,
managers at world-class finance organizations are more than two
times as likely to be able to access reports online. -- Business
Process Sourcing - According to Hackett, world-class finance
organizations spend a smaller percentage of their finance function
costs on outsourcing than typical companies, in part due to their
bright-line focus on process automation, standardization, and
centralization to reduce cost. But they do rely on selective
outsourcing, and in some cases outsource major components like
accounts payable, after clearly defining a services globalization
strategy that is integrated with their business strategy. --
Cross-Functional Partnering - World-class finance organizations are
much more successful at driving a cross-functional approach in key
areas such as planning and performance management. As a result,
managers at world-class companies are 29% more likely to report
that the budgeting process is easy and convenient. "While many
typical companies still view the finance function as a cost center
responsible simply for measuring and monitoring the financial
health of the company, world-class CFOs understand that finance can
produce significant business value in its own right," said Hackett
Senior Business Advisor John McMahan. "By focusing in these five
key areas, world-class CFOs are able to support their companies in
strategic ways that other finance organizations can't even imagine,
providing greater business insight and guidance in addition to
bottom line results such as lowering the cost of finance
operations, planning and budgeting improvements that drive higher
equity market returns, and improving cash flow through reductions
in working capital." 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 www.thehackettgroup.com.
About The Hackett Group The Hackett Group, a strategic advisory
firm, is a global leader in best practice research, benchmarking,
and business transformation services that enable world-class
performance across selling, general & administrative (SG&A)
and supply chain activities. Through the acquisition of REL
Consultancy Group, we offer Hackett-REL Total Working Capital
services to liberate cash flow from operations. Hackett provides
strategic insight, best practice advice and implementation services
grounded in performance metrics obtained through 14 years and 3,500
benchmark studies at 2,100 of the world's leading companies. Book
of Numbers is a trademark of The Hackett Group.
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