Performance Gap Seen Widening in the Back Offices of Large Global Corporations

Top performers generating $60 million of savings per billion of revenue, while delivering improved effectiveness, reduced risk; Hackett identifies five key enablers


Atlanta — December 6, 2006 — The performance gap is widening between organizations that have achieved world-class performance levels in their back office operations versus typical companies, with top performers generating significant savings while delivering improved effectiveness and reduced risk, according to new research released by strategic advisory firm The Hackett Group.

Based on its analysis of in-depth benchmarks of back office performance at Global 2,000 companies, Hackett said its 2006 Enterprise Book of Numbers research reveals a growing performance gap in sales, general and administrative (SG&A) operations between world-class and average 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, the researchers said.

Importance of IT

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 chief information officer 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," said Hackett Chief Research Officer Richard T. Roth. "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."

From Back Office to Competitive Advantage

According to Hackett Senior Business Advisor 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."

Mitchell said that world-class organizations 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," Mitchell added. "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."

Five Best Practice Categories

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. Based on its analysis of more than 14 years of ongoing benchmark studies that span 2,100 of the world's leading companies, Hackett said it 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:

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