Research Alert - World-Class IT Organizations Spend 7% More Than Peers; But Spending Generates Strong ROI in Other SG&A Areas
November 28 2006 - 9:30AM
Business Wire
World-class information technology (IT) organizations spend 7% more
than typical companies, according to 2006 Enterprise Book of
Numbers� research from The Hackett Group. But this increased
spending more than pays for itself by enabling improved efficiency
and effectiveness in finance, procurement, human resources (HR),
and other areas of back office operations. With the help of
improved technology usage, world-class finance organizations spend
45% less than typical companies on finance operations. World-class
procurement organizations also spend 25% less, and world-class HR
organizations spend 13% less. In each case, these functions operate
with fewer staff and also show improved performance across a range
of metrics tracking effectiveness and strategic alignment. For
example, Hackett found a direct correlation between improved IT
effectiveness and key value metrics in finance and procurement. In
fact, Hackett found that in most cases, achieving world-class
status in IT is a prerequisite to achieving superior performance in
other back office functions. Hackett�s research found that 86% of
all companies that achieve world-class performance in two or more
business functions within Selling, General and Administrative
(SG&A) areas are world-class in IT. Hackett�s research found
that world-class IT organizations now spend $9,024 per end user
while typical companies spend 7% less, or $8,485. This is a
continuation of a trend that was first identified in 2005 and makes
IT the only area studied by Hackett where world-class performers
outspend typical companies. World-class IT organizations are
investing 17% more on technology-enabled solutions than typical
companies. �Our research clearly shows how IT is the foundation for
world-class performance across SG&A functions,� said Hackett
Senior Business Advisor Scott Holland. �While many companies
continue to slash IT budgets, companies with world-class IT
organizations understand that by selectively investing in IT they
can drive down overall SG&A spending. At the same time, IT
serves as an enabler of improved effectiveness in finance,
procurement, and HR.� According to Senior Research Advisor Eric
Dorr, �By focusing on IT, world-class companies generate benefits
well beyond cost, driving improvement to the bottom line and a back
office that is better aligned strategically to support the needs of
the business. Technology plays a role in how the best companies do
everything from close their books faster each month to achieve
higher customer satisfaction and hire and train their staff more
effectively.� In finance, Hackett�s research shows a direct
correlation between IT effectiveness and improved access to finance
information. World-class finance organizations also deliver 57%
more invoices to customers electronically and in part as a result
reduce billing errors by half and significantly lower Days Sales
Outstanding, thereby increasing cash flow. In procurement, Hackett
found a direct correlation between IT effectiveness and procurement
efficiency. As a result of their technology usage, staff at
world-class procurement organizations process 36% more purchase
orders per staff member than typical companies, and cut the cost
per purchase order by nearly half. World-class HR organizations
clearly benefit from their increased focus on technology, with 13%
lower HR costs per employee and 15% fewer HR staff. They fill
manager positions 10% faster, and are more than three times as
likely as typical companies to offer employees online access to
health and welfare systems. In its 2006 Enterprise Book of Numbers
research, Hackett also identified five major best practice areas
where world-class performers excel: strategic alignment, complexity
reduction, technology enablement, business process sourcing, and
cross-functional partnering. Key findings in select best practices
areas include: Strategic Alignment - To ensure IT strategic
alignment and elevate the role of IT as an enabling strategic
asset, world-class IT organizations are twice as likely as typical
companies to have a CIO who reports to the CEO or Chairman rather
than reporting to the CFO or another functional executive.
World-class CIOs are also 48% more likely to be a member of their
company's primary management committee. Complexity Reduction - The
human and financial costs of maintaining multiple data centers,
packaged applications, customizations, operating systems,
programming languages, hardware/telecom standards, etc., contribute
to a marked increase in total IT cost. Reduction of unnecessary IT
system complexity - hardware, software and networks - directly
reduces complexity, liberating time and money for investment in
value-adding activities. For example, world-class procurement
organizations are more likely to have a single master database for
suppliers and items, providing executives with a more accurate
picture of where things stand. In finance, world-class companies
are 28% more likely to generate management reports from a
centralized data repository, improving information access and
offering an enterprise view of performance while reducing time
spent searching for and cross-checking data from multiple sources.
Cross-Functional Partnering - IT organizations (and their external
service providers) need to work as business partners to make sure
that applications delivered are capable of achieving business
goals. A key part of this is maintaining high user adoption and
internal client satisfaction rates. World-class IT organizations
use a project management office (PMO) to manage 90% of all
projects, making them 130% more likely to do this than typical
companies. Using a PMO provides better visibility, coordination,
and planning on projects, which is why the level of PMO adoption is
a key predictive metric of world-class performance. 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. World-class information technology (IT)
organizations spend 7% more than typical companies, according to
2006 Enterprise Book of Numbers(TM) research from The Hackett
Group. But this increased spending more than pays for itself by
enabling improved efficiency and effectiveness in finance,
procurement, human resources (HR), and other areas of back office
operations. With the help of improved technology usage, world-class
finance organizations spend 45% less than typical companies on
finance operations. World-class procurement organizations also
spend 25% less, and world-class HR organizations spend 13% less. In
each case, these functions operate with fewer staff and also show
improved performance across a range of metrics tracking
effectiveness and strategic alignment. For example, Hackett found a
direct correlation between improved IT effectiveness and key value
metrics in finance and procurement. In fact, Hackett found that in
most cases, achieving world-class status in IT is a prerequisite to
achieving superior performance in other back office functions.
Hackett's research found that 86% of all companies that achieve
world-class performance in two or more business functions within
Selling, General and Administrative (SG&A) areas are
world-class in IT. Hackett's research found that world-class IT
organizations now spend $9,024 per end user while typical companies
spend 7% less, or $8,485. This is a continuation of a trend that
was first identified in 2005 and makes IT the only area studied by
Hackett where world-class performers outspend typical companies.
World-class IT organizations are investing 17% more on
technology-enabled solutions than typical companies. "Our research
clearly shows how IT is the foundation for world-class performance
across SG&A functions," said Hackett Senior Business Advisor
Scott Holland. "While many companies continue to slash IT budgets,
companies with world-class IT organizations understand that by
selectively investing in IT they can drive down overall SG&A
spending. At the same time, IT serves as an enabler of improved
effectiveness in finance, procurement, and HR." According to Senior
Research Advisor Eric Dorr, "By focusing on IT, world-class
companies generate benefits well beyond cost, driving improvement
to the bottom line and a back office that is better aligned
strategically to support the needs of the business. Technology
plays a role in how the best companies do everything from close
their books faster each month to achieve higher customer
satisfaction and hire and train their staff more effectively." In
finance, Hackett's research shows a direct correlation between IT
effectiveness and improved access to finance information.
World-class finance organizations also deliver 57% more invoices to
customers electronically and in part as a result reduce billing
errors by half and significantly lower Days Sales Outstanding,
thereby increasing cash flow. In procurement, Hackett found a
direct correlation between IT effectiveness and procurement
efficiency. As a result of their technology usage, staff at
world-class procurement organizations process 36% more purchase
orders per staff member than typical companies, and cut the cost
per purchase order by nearly half. World-class HR organizations
clearly benefit from their increased focus on technology, with 13%
lower HR costs per employee and 15% fewer HR staff. They fill
manager positions 10% faster, and are more than three times as
likely as typical companies to offer employees online access to
health and welfare systems. In its 2006 Enterprise Book of Numbers
research, Hackett also identified five major best practice areas
where world-class performers excel: strategic alignment, complexity
reduction, technology enablement, business process sourcing, and
cross-functional partnering. Key findings in select best practices
areas include: -0- *T Strategic Alignment - To ensure IT strategic
alignment and elevate the role of IT as an enabling strategic
asset, world-class IT organizations are twice as likely as typical
companies to have a CIO who reports to the CEO or Chairman rather
than reporting to the CFO or another functional executive.
World-class CIOs are also 48% more likely to be a member of their
company's primary management committee. Complexity Reduction - The
human and financial costs of maintaining multiple data centers,
packaged applications, customizations, operating systems,
programming languages, hardware/telecom standards, etc., contribute
to a marked increase in total IT cost. Reduction of unnecessary IT
system complexity - hardware, software and networks - directly
reduces complexity, liberating time and money for investment in
value-adding activities. For example, world-class procurement
organizations are more likely to have a single master database for
suppliers and items, providing executives with a more accurate
picture of where things stand. In finance, world-class companies
are 28% more likely to generate management reports from a
centralized data repository, improving information access and
offering an enterprise view of performance while reducing time
spent searching for and cross-checking data from multiple sources.
Cross-Functional Partnering - IT organizations (and their external
service providers) need to work as business partners to make sure
that applications delivered are capable of achieving business
goals. A key part of this is maintaining high user adoption and
internal client satisfaction rates. World-class IT organizations
use a project management office (PMO) to manage 90% of all
projects, making them 130% more likely to do this than typical
companies. Using a PMO provides better visibility, coordination,
and planning on projects, which is why the level of PMO adoption is
a key predictive metric of world-class performance. *T 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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