Research Alert - The Hackett Group Warns of Widening Performance Gap In the Back Offices of Large Global Corporations
December 05 2006 - 4:30PM
Business Wire
The Hackett Group, a strategic advisory firm and an Answerthink
company (NASDAQ: ANSR), today released results from its 2006
Enterprise Book of Numbers� research. Based on its analysis of
in-depth benchmarks of back office performance at Global 2,000
companies, Hackett has identified a widening performance gap
between organizations that have achieved world-class performance
levels in their SG&A operations versus typical companies.
Hackett�s research found that by achieving world-class performance
in four core operational areas � information technology (IT),
finance, human resources (HR) and procurement � companies can
reduce annual SG&A costs by $60 million per billion in revenue.
At the same time, these world-class performers show superior
effectiveness, delivering higher quality services, increased
economic returns, and reduced risk. To achieve these gains, Hackett
found that world-class performers demonstrate strength in five best
practices categories: strategic alignment of business goals and
operating procedures; complexity reduction; technology enablement;
business processing sourcing; and cross-functional partnering.
Across the back office, the strategic use of technology plays a key
role in achieving world-class performance. Hackett research
indicates that attaining world-class performance in IT is virtually
a prerequisite to achieving superior performance in other
functional areas. As a testament to this, the research shows that
the CIO is fast becoming a more important member of the executive
team � marking a major evolution in the position from a support
function in years past to one that is strategic, reporting directly
to the CEO. �In most functional areas, world-class organizations
spend significantly less than their peers and operate with far
fewer staff. Yet at the same time they are better aligned to
strategically support business goals, and are simply more effective
overall. IT plays an important part in how they make this happen,
and the benefits are far-reaching. These world-class performers
have built more nimble SG&A operations that are better prepared
to identify and take advantage of opportunities in the market and
deal with unexpected challenges,� said Hackett Chief Research
Officer Richard T. Roth. According to Hackett Senior Business
Advisory Pierre Mitchell, �The best companies may differ in their
size, industry, or regulatory environment. But what they share is
their ability to use back-office functions, traditionally viewed as
cost centers, to generate competitive advantage. They do this,
regardless of function, by relying on specific management
approaches in the five areas we�ve identified. They support
continuous improvement -- within individual functions,
cross-functionally, and in end-to-end processes. �It�s critical to
recognize that each year these world-class performers do a little
better, pulling further away from the pack. The growing gap has a
multiplier effect that will make it more difficult for the lagging
typical companies to compete over time � a process that may soon be
irreversible for many of today�s leading corporations,� said
Mitchell. To be identified as �world-class� in Hackett�s analysis,
a company must achieve top-quartile performance across a range of
efficiency and effectiveness metrics. In its analysis of more than
14 years of ongoing benchmark studies that span 2,100 of the
world�s leading companies, Hackett has identified five best
practice areas in which the best managed global businesses excel.
Key findings by best practice across various SG&A functions are
as follows: Strategic Alignment � Instead of the traditional
hierarchical organization, world-class organizations understand
that �flatter� management structures are more effective. For
example, an IT leader who interacts with other business leaders as
an equal is more likely to be tuned into their needs and to the
overall business strategy. Hackett�s research shows that
world-class CIOs are twice as likely to report directly to the CEO
or chairman as CIOs at typical companies. Aligning IT with the
business is crucial to success, yet IT is too often seen as a
�support� service and is not included in high-level
decision-making. Having a �seat at the table� is essential to
improved performance. At 77% of world-class organizations, the
senior IT executive is a member of the company�s primary management
committee, compared to just 52% of typical companies. Complexity
Reduction � While words like �streamlining� and �standardization�
have become overutilized terms; world-class organizations achieve
tangible benefits by abolishing unnecessary complexity in business
processes. For example, world-class procurement organizations
reduce complexity through strategic sourcing, consolidating their
purchases among 78% fewer suppliers than typical companies. They
also centralize processes; Hackett found that a typical company
with $1 billion in annual spend can save $8 million in process
costs alone by increasing the percentage of contracts negotiated
centrally from 20% to 80%. Technology Enablement � Companies with
world-class IT organizations now spend significantly more on IT �
7% more per end user � than their peers, making IT the only area
studied by Hackett where world-class companies spend more than
typical ones. While world-class organizations spend more on IT,
their use of technology results in improved performance across
other SG&A areas. Hackett�s research found that of the
companies that achieved world-class status in multiple functions,
IT was one of those functions 86% of the time � proof that
cross-functional excellence relies on world-class IT performance.
Examples of the value of IT abound in Hackett�s research. In part
by using technology to streamline and automate operations,
world-class organizations spend 45% less than typical companies on
finance operations, while at the same time generating tens of
millions of dollars in savings by getting clients to pay their
bills 28% faster. World-class procurement operations show similar
results, spending 25% less than typical organizations yet driving
an additional $3.6 million in spend savings for every $1 million in
procurement operations costs. In HR, automating labor-intensive
processes helps free limited staff to provide more value-added
services, while reducing costs. World-class HR organizations offer
85% of all employees self-service access to employee health and
welfare systems, making them more than three times as likely to do
this than typical companies. Business Process Sourcing �
Understanding how to effectively leverage business process sourcing
options such as outsourcing, shared services, and offshoring are
hallmarks of a world-class company. They do this at the process
level, and do not hesitate to change sourcing solutions if they
fail to produce the desired result. Most executives miss the
potential impact of service globalization due to under-scoping of
initiatives, not realizing that offshore resources have matured
significantly in the last few years. A good example of this is in
IT. World-class IT organizations spend 17% more on outsourcing
technology infrastructure than typical organizations, but this
enables them to spend 20% less in IT labor, resulting in 8% lower
overall technology infrastructure process costs. Cross-Functional
Partnering � World-class organizations seek synergies across
business functions through cross-functional cooperation to achieve
common goals. For instance, procurement staff work alongside their
functional peers to understand business needs, plan spending, and
supplier selection (at the best price), taking into account both
current and future needs. World-class procurement organizations are
more than three times as likely as typical companies to rely on
cross-functional teaming for supplier development. World-class HR
managers are up to four times as likely as their peers to partner
with management in key areas such as developing business
strategies. 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 Hackett Group, a strategic
advisory firm and an Answerthink company (NASDAQ: ANSR), today
released results from its 2006 Enterprise Book of Numbers(TM)
research. Based on its analysis of in-depth benchmarks of back
office performance at Global 2,000 companies, Hackett has
identified a widening performance gap between organizations that
have achieved world-class performance levels in their SG&A
operations versus typical companies. Hackett's research found that
by achieving world-class performance in four core operational areas
- information technology (IT), finance, human resources (HR) and
procurement - companies can reduce annual SG&A costs by $60
million per billion in revenue. At the same time, these world-class
performers show superior effectiveness, delivering higher quality
services, increased economic returns, and reduced risk. To achieve
these gains, Hackett found that world-class performers demonstrate
strength in five best practices categories: strategic alignment of
business goals and operating procedures; complexity reduction;
technology enablement; business processing sourcing; and
cross-functional partnering. Across the back office, the strategic
use of technology plays a key role in achieving world-class
performance. Hackett research indicates that attaining world-class
performance in IT is virtually a prerequisite to achieving superior
performance in other functional areas. As a testament to this, the
research shows that the CIO is fast becoming a more important
member of the executive team - marking a major evolution in the
position from a support function in years past to one that is
strategic, reporting directly to the CEO. "In most functional
areas, world-class organizations spend significantly less than
their peers and operate with far fewer staff. Yet at the same time
they are better aligned to strategically support business goals,
and are simply more effective overall. IT plays an important part
in how they make this happen, and the benefits are far-reaching.
These world-class performers have built more nimble SG&A
operations that are better prepared to identify and take advantage
of opportunities in the market and deal with unexpected
challenges," said Hackett Chief Research Officer Richard T. Roth.
According to Hackett Senior Business Advisory Pierre Mitchell, "The
best companies may differ in their size, industry, or regulatory
environment. But what they share is their ability to use
back-office functions, traditionally viewed as cost centers, to
generate competitive advantage. They do this, regardless of
function, by relying on specific management approaches in the five
areas we've identified. They support continuous improvement --
within individual functions, cross-functionally, and in end-to-end
processes. "It's critical to recognize that each year these
world-class performers do a little better, pulling further away
from the pack. The growing gap has a multiplier effect that will
make it more difficult for the lagging typical companies to compete
over time - a process that may soon be irreversible for many of
today's leading corporations," said Mitchell. To be identified as
"world-class" in Hackett's analysis, a company must achieve
top-quartile performance across a range of efficiency and
effectiveness metrics. In its analysis of more than 14 years of
ongoing benchmark studies that span 2,100 of the world's leading
companies, Hackett has identified five best practice areas in which
the best managed global businesses excel. Key findings by best
practice across various SG&A functions are as follows:
Strategic Alignment - Instead of the traditional hierarchical
organization, world-class organizations understand that "flatter"
management structures are more effective. For example, an IT leader
who interacts with other business leaders as an equal is more
likely to be tuned into their needs and to the overall business
strategy. Hackett's research shows that world-class CIOs are twice
as likely to report directly to the CEO or chairman as CIOs at
typical companies. Aligning IT with the business is crucial to
success, yet IT is too often seen as a "support" service and is not
included in high-level decision-making. Having a "seat at the
table" is essential to improved performance. At 77% of world-class
organizations, the senior IT executive is a member of the company's
primary management committee, compared to just 52% of typical
companies. Complexity Reduction - While words like "streamlining"
and "standardization" have become overutilized terms; world-class
organizations achieve tangible benefits by abolishing unnecessary
complexity in business processes. For example, world-class
procurement organizations reduce complexity through strategic
sourcing, consolidating their purchases among 78% fewer suppliers
than typical companies. They also centralize processes; Hackett
found that a typical company with $1 billion in annual spend can
save $8 million in process costs alone by increasing the percentage
of contracts negotiated centrally from 20% to 80%. Technology
Enablement - Companies with world-class IT organizations now spend
significantly more on IT - 7% more per end user - than their peers,
making IT the only area studied by Hackett where world-class
companies spend more than typical ones. While world-class
organizations spend more on IT, their use of technology results in
improved performance across other SG&A areas. Hackett's
research found that of the companies that achieved world-class
status in multiple functions, IT was one of those functions 86% of
the time - proof that cross-functional excellence relies on
world-class IT performance. Examples of the value of IT abound in
Hackett's research. In part by using technology to streamline and
automate operations, world-class organizations spend 45% less than
typical companies on finance operations, while at the same time
generating tens of millions of dollars in savings by getting
clients to pay their bills 28% faster. World-class procurement
operations show similar results, spending 25% less than typical
organizations yet driving an additional $3.6 million in spend
savings for every $1 million in procurement operations costs. In
HR, automating labor-intensive processes helps free limited staff
to provide more value-added services, while reducing costs.
World-class HR organizations offer 85% of all employees
self-service access to employee health and welfare systems, making
them more than three times as likely to do this than typical
companies. Business Process Sourcing - Understanding how to
effectively leverage business process sourcing options such as
outsourcing, shared services, and offshoring are hallmarks of a
world-class company. They do this at the process level, and do not
hesitate to change sourcing solutions if they fail to produce the
desired result. Most executives miss the potential impact of
service globalization due to under-scoping of initiatives, not
realizing that offshore resources have matured significantly in the
last few years. A good example of this is in IT. World-class IT
organizations spend 17% more on outsourcing technology
infrastructure than typical organizations, but this enables them to
spend 20% less in IT labor, resulting in 8% lower overall
technology infrastructure process costs. Cross-Functional
Partnering - World-class organizations seek synergies across
business functions through cross-functional cooperation to achieve
common goals. For instance, procurement staff work alongside their
functional peers to understand business needs, plan spending, and
supplier selection (at the best price), taking into account both
current and future needs. World-class procurement organizations are
more than three times as likely as typical companies to rely on
cross-functional teaming for supplier development. World-class HR
managers are up to four times as likely as their peers to partner
with management in key areas such as developing business
strategies. 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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