According to Hackett's 2010 Finance Book of Numbers, "Outperformance: Finance's Journey Starts Today," the gap between world-class performers in finance and typical companies continues to grow. The efficiency gap translates into an annual cost savings of nearly $140 million for a typical Global 1000 company (with $26.38 billion in revenue). According to Hackett, world-class finance organizations have successfully reduced their cost of finance by 40 percent since 1998, while typical companies have only achieved a 19 percent cost reduction.
Hackett's research groups finance activities into several key areas where world-class organizations outperform their peers: transactional capabilities, including revenue, disbursements and general accounting; capabilities such as compliance, tax and treasury; and capabilities that drive performance, including planning and performance management and business analysis. World-class performers are those that achieve top-quartile performance across a range of both efficiency and effectiveness metrics in Hackett's finance benchmark.
The greatest gap between world-class and typical companies comes in spending and staffing on transactional capabilities, which represent the largest overall cost and staff component of most finance organizations. Key to these superior results are the focus of world-class companies on simplification and standardization, technology leverage and the global service delivery model. With their superior transacting capabilities, world-class finance organizations are able to dedicate more of their total finance process cost and staff to the higher-value activity of driving business performance.
To drive greater effectiveness, world-class organizations focus on enhanced planning, budgeting, forecasting, reporting and business analysis. This enables them to improve agility, make better strategic decisions, evaluate performance and more effectively make course corrections as necessary, Hackett said. Analysts at world-class finance organizations spend 32 percent less time collecting data and commensurately more time analyzing it than their peers at typical companies, in part because they are much more likely to generate management reports from a centralized data repository.
In addition, analyses at world-class organizations include financial and non-financial measures 42 percent more often than at typical companies, address future actions 45 percent more often, and are more likely to use sensitivity, investment and value analysis techniques. Budgets are completed in only three months compared to four at typical companies, with fewer budget iterations and 21 percent fewer line items. Analysis staff members at world-class finance organizations are also 31 percent more likely to have experience in both finance and company operations.
In addition, world-class finance organizations are more disciplined in key areas such as compliance, tax and treasury. They establish a solid control environment that supports the protection of company assets, improved financial reporting, better cash positions, higher after-tax profits, and reduced exposure to risk from currency, commodity and interest rate fluctuations.
"Today many finance organizations have been strained nearly to the breaking point by demands that they 'do more with less,'" explains Sean Kracklauer, president of advisory services and finance executive advisory practice leader at Hackett. "But at the best finance organizations, we're seeing a powerful new model emerge."
These best-in-class organizations, Kracklauer says, are successfully driving towards "outperformance" through a clarity of purpose and plan, creation of a global operating model, rationalized investment and superior effectiveness that simply isn't seen at typical companies. "They can reduce costs and staff while at the same time strengthening the broader enterprise's performance, earnings and cash flow results," the analyst says.
Michel Janssen, Hackett's chief research officer, adds that top performers in finance understand that what's important is to create an operational model that is agile and flexible, while at the same time achieving industry-leading cost, quality and cycle-time performance levels. "Service delivery strategy is key," Janssen says. "Companies have to look at finance holistically and make careful decisions about issues such as service placement, process sourcing and organizational modeling — basically which finance activities are done where, by whom and how. It's a complex challenge, but well worth the effort."
Hackett's latest Finance Book of Numbers research, which is available to members of Hackett's advisory programs, contains more than 130 pages of research, decision frameworks and analysis, including over 100 charts presenting efficiency and effectiveness metrics for world-class and typical companies.
The book also includes Hackett's new Finance Capability Maturity Model, which provides 25 pages of details regarding specific practices of finance organizations at four progressive capability levels — lagging, achieving, exceeding and leading — along with a self-rating system enabling companies to assess their own maturity.