IT a Critical Enabler for Achieving World-Class Performance in Procurement, Finance

World-class IT organizations spend 7 percent more than peers, but spending generates strong ROI in other SG&A areas, Hackett finds


Atlanta — November 28, 2006 — World-class information technology (IT) organizations spend 7 percent more than their counterparts at typical companies, but this increased spending more than pays for itself by enabling improved efficiency and effectiveness in procurement, finance, human resources (HR) and other areas of back office operations, according to new research from The Hackett Group.

With the help of improved technology usage, world-class procurement organizations spend 25 percent less than typical companies on procurement operations, Hackett reported in its 2006 Enterprise Book of Numbers. World-class finance organizations also spend 45 percent less, and world-class HR organizations spend 13 percent less, the research revealed.

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.

World-class IT a Prerequisite

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 percent 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 percent 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 percent 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."

Strategically Supporting the Business

Hackett Senior Research Advisor Eric Dorr added: "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 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 percent more purchase orders per staff member than typical companies, and they cut the cost per purchase order by nearly half.

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 percent more invoices to customers electronically and, in part as a result of this move to e-invoicing, reduce billing errors by half and significantly lower days sales outstanding, thereby increasing cash flow.

World-class HR organizations clearly benefit from their increased focus on technology, with 13 percent lower HR costs per employee and 15 percent fewer HR staff. They fill manager positions 10 percent faster, and are more than three times as likely as typical companies to offer employees online access to health and welfare systems.

Best Practices for World-class

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:

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