Best Practices for Best-in-class Performance Highlighted

Metrics, strategy alignment, balancing needs, executive sponsorship key to reaching world-class, Hackett reports

Metrics, strategy alignment, balancing needs, executive sponsorship key to reaching world-class, Hackett reports

Atlanta  July 29, 2005  Achieving world-class performance in sales, general and administrative (SG&A) functions is no simple matter, yet the rewards are exceptional and can include reduced cost and staffing, improved strategic alignment and other benefits that enable finance, information technology (IT), human resources (HR) and procurement operations to have a significant impact on a company's bottom line, according to speakers at the 15th annual best practices conference of business process advisory firm The Hackett Group.

Speakers at Hackett's conference, dubbed "Enterprise Performance Management: Building Harmony in Purpose and Execution," shared practical insights into how they have enhanced the value their organizations deliver to the business and shareholders. Several common themes were discussed by the speakers.

For example, executives described how they relied on metrics to focus and drive continuous improvement, and they stressed the value of aligning SG&A activities with the strategic priorities of the business. Several described how they balanced the competing needs for cost reduction and improved value delivery, particularly in the context of business process sourcing decisions. Executive sponsorship to drive successful process transformation was clearly articulated, as was the importance of attracting talent to enable changes in the operating environment.

Nearly 400 executives from many of the world's largest companies attended the two-day conference in Atlanta. They heard from CEOs, chief information and financial officers, and other senior executives from 12 top companies, including Alcoa, Georgia-Pacific, Honeywell, InterContinental Hotels Group and Nextel Communications, among others. In addition, The Hackett Group provided an overview of its recent findings into world-class performance metrics and best practices.

Using Metrics to Drive Continuous Improvement

Richard T. Roth, chief research officer at Hackett, set the stage with his presentation of preview findings from The Hackett Group's 2005 Book of Numbers research. Hackett's research quantified the performance gap in efficiency and effectiveness between world-class and typical companies in finance, information technology (IT), human resources (HR) and procurement. For 2005 finance costs rose at both typical and world-class companies for the first time since Hackett began capturing this data 13 years ago, in part due to increased spending on compliance as a direct result of regulations related to Sarbanes-Oxley. World-class companies also focus on reducing complexity and lowering error rates across the board.

Using metrics to drive continuous improvement was a theme that carried through many of the speaker presentations. At Georgia-Pacific Corp., benchmarking has played a key role in helping the $20 billion company take $100 million out of its IT budget over the past few years, and the company is using metrics to tee up another $33 million in savings. "Benchmarking can uncover opportunities where you simply don't expect to find them," said James Dallas, Georgia-Pacific vice president and chief information officer. "They're also an exceptional catalyst for galvanizing an organization for change. They get people's attention."

InterContinental Hotels Group Americas President Stevan Porter also found that benchmarking and its resulting metrics helped his company confront the "burning platform" of reducing costs and increasing shareholder value in the face of a hostile takeover bid. "We had a powerful balance sheet, cash, global distribution and a solid portfolio of brands," Porter said. "We truly didn't think we had too many issues. But we suddenly found ourselves getting some pretty harsh criticism. Metrics played a key role in helping us determine where, when and how to achieve our goal of taking out $100 million in overhead over a 12-month period."

The Value of Business Alignment

Several speakers stressed the value of aligning SG&A activities with the needs and strategic priorities of the business. In IT, where world-class executives bring in major projects on time 30 percent more often than typical companies, and also meet specs and come in on budget significantly more frequently, service-level agreements (SLAs) are a common tool for helping to accomplish strategic alignment. Hackett's 2005 Book of Numbers research found that world-class IT organizations are 61 percent more likely than typical companies to have formal SLAs in place.

In procure-to-pay, Mary Stubbs, a Six Sigma Black Belt for Honeywell's Global Business Services, made a similar point. "We use SLAs with both penalties and rewards, to incentivize the right behaviors and get people excited," Stubbs said. "We also take a very customer-centric approach, by understanding how we can add value, managing expectations, and focusing on communications, education, and relationship-building."

Balancing Priorities

Balancing between the need for efficiency and effectiveness, particularly in the context of outsourcing, is another key success strategy that speakers discussed. While world-class companies generate superior results in both areas, speakers pointed out that the focus should be on evaluating processes individually to determine how best to approach them.

Outsourcing is not always the best solution, according to Roth. "Highly transactional areas like HR administration, payroll or technology infrastructure can be strong candidates for outsourcing, if you begin by optimizing processes and reducing complexity," said Roth. "But for activities that provide real competitive advantage, companies may choose to hold onto these within their organization areas. You want people handling them who are close to the business."

InterContinental Hotel Group's Porter said that this type of prioritization was a key element in his company's effort to improve shareholder value. The company evaluated activities based on their strategic value to the company and created three categories. In areas which directly impact profit generation, the company determined that world-class performance levels were required. For areas deemed as strategic support, the decision was made to target performance levels that were superior to the competition, but not necessarily world-class. Finally, for areas deemed as business necessities, the focus was almost exclusively on efficiency, standardization and cost reduction. A key part of the strategy for this last category was the establishment of finance shared service centers around the globe.

Executive Sponsorship

Many speakers stressed that getting buy-in from senior leadership, then using it to drive participation in process transformation efforts, is another key strategy for success.

At Georgia-Pacific, building support for transformation efforts was critical. The CEO, chief operating officer and other members of the senior leadership team set the tone for their transformation efforts, and this helped ensure that functional leaders understood why this plan was right for them.

In addition, senior leadership was actively engaged in coordinating efforts through an executive steering committee. This helped ensure a focus on end-to-end process improvement. "You've got to expect resistance, and leadership from the top is one way to deal with it," Dallas said. "It plays a major role in helping get the front line people engaged."

Right People in the Right Places at the Right Time

Fostering and managing talent also is critical as companies make major changes across SG&A functions, according to several speakers. Hackett's 2005 Book of Numbers research showed that in most cases, world-class organizations are willing to pay their staff more, as a result of the greater business acumen and experience. This is of course only possible once the routine transactional activities have been minimized.

In procurement, for example, world-class pay staff 41 percent more and dedicate 74 percent more hours of training per employee than typical companies. In HR, world-class companies are five times more likely to have formal retention plans in place.

Leaders also need to examine the mix of talent within their organization in the context of business process transformation efforts ensuring that as changes are made to business processes and sourcing, they assess whether staff has the right skills, the ability to make change and are empowered to make decisions.

Additional Articles of Interest

 For more information on solutions for business process management, see "BPM Rising," the Net Best Thing column in the October/November 2002 issue ofiSource Business (now Supply & Demand Chain Executive) magazine.

 As technology's benefits hit the wall, one provider believes business process management can boost competitiveness. Read the article Finding Adaptability in BPM for more on this topic.

 Is your company looking closely at procurement outsourcing, but doesn't quite know where to begin? These 10 steps are a good place to start for any finance professional who is studying this growing market. Read the article "Procurement Outsourcing: The 10 Things Finance Professionals Want to Know," an exclusive.