The Journey to World-Class World Class Performance – How Properly Executed Benchmarking Can Help Maximize the Efficiency and Effectiveness of your Organization
Penny Weller, PhD, CMA Global Business Services North American Practice Leader
The Hackett Group September 2010
Penny Weller, PhD, CMA Global Business Services Advisory, North America Program Director 30 years as shared services executive with Pfizer (formerly Pharmacia) Account-to-Report, Procure-to-Pay, and Customer-to-Cash Director of Performance Management Six Sigma Motorola-certified Black Belt Former Regional VP, Institute of Management Accountants, IMA
Statement of Confidentiality and Usage Restrictions This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group. Copyright © 2010 The Hackett Group, Inc. All rights reserved. World-Class Defined and Enabled. Page 2 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
We know how the best do it, where they do it, and the benefit of doing it.
97%
80%
88%
80%
49%
35%
of the Dow Jones Industrials Page 3
of the Fortune 100
of the Dow Jones Global Titans
of the DAX 30
of the FTSE 100
of the CAC 40
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Hackett Value Grid™
World-Class Organizations results compared to Peer Median Hackett Value Grid™ (Finance Example)
EFFECTIVENESS Quality Minimized data collection Advanced degrees or certifications Financial and nonfinancial metrics Business acumen Analytical focus
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EFFICIENCY Lower overall cost Better cycle times Consolidated processing Leveraged technology
Benchmarking helps identify the gap to higher performance
HIGH
WORLD CLASS World Class EFFECTIVENESS
Function
1D 1Q
World Class EFFICIENCY
LOW
1Q
1D
% Savings Between: Peer & World-Class Efficiency
Finance
48% - 59%
HR
32% - 51%
IT
13% - 33%
Procurement
21% - 29%
Total Opportunity
25% - 42%
HIGH
Normally 20% to 50% improvement opportunity Page 5 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
The Hackett Group Definitions
World-class: top 25% both in efficiency and effectiveness. Peer group: median of non-world-class companies. Best practices: techniques and tools positively correlated to an improvement in an output performance metric Process costs: labor costs plus any process-related outsourcing costs
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Our benchmarks span General & Administrative (―G&A‖) processes Executive and Corporate Services
Finance
Cash disbursements Revenue cycle Accounting and external reporting Tax management Treasury management
Compliance Management Planning & Performance Management Business Analysis Function Management
Infrastructure Management End User Support Infrastructure Development Application Maintenance Application Development & Implementation
Quality Assurance Risk Management IT Business Planning Enterprise Architecture Planning Emerging Technologies Function Management
Workforce Development Services Organizational Effectiveness Total Rewards Planning Strategic Workforce Planning Function Management
Human Resources Total Rewards Administration Payroll Services Data Management, Reporting & Compliance Staffing Services
Procurement
Supply Data Management Requisition & PO Processing Supplier Scheduling Receipt Processing Compliance Management Customer Management
General Administration Mgt Travel & Transportation Services Real Estate & Facilities Mgt Government Affairs Legal
Quality Management Risk & Security Management Corporate Communications Planning & Strategy Executive Office
Service
Information Technology
Sourcing Execution Supplier Management & Development Function Strategy & Performance Management Sourcing & Supply Base Strategy Function Management
Order & Contract Management Service Execution Service Operations
Planning & Strategy Function Management
Marketing Marketing Communication & Program Management Brand & Product Management
Planning & Strategy Market Research & Analytics Function Management
Sales Sales Execution Sales Operations
Planning & Strategy Function Management
Hackett’s taxonomy ensures an apples-to-apples comparison
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Hackett’s Finance Taxonomy Transaction Processing Cash Disbursements – Accounts Payable – Travel and Expense Revenue Cycle – Cash Application
Compliance Management
Planning and Performance
Tax Management
Planning and Performance Management
Treasury Management – Cash Management
Business Analysis
– Capital and Risk Management Compliance Management
– Credit
– Collections – Customer Billing General Accounting and External Reporting – General Ledger
– Intercompany Accounting – Cost Accounting – Fixed Assets – External Reporting Page 8 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Management and Administration Function Management
ABC Co.’s Finance Function has Opportunities to Reach Higher Levels of Efficiency and Effectiveness EFFECTIVENESS High
EFFICIENCY
1Q
World-Class
1Q
Effectiveness
Documented Strategic Plan in place for the Finance Function Analysts with acumen to act as business partners Staff time in Business Analysis Analyst time spent collecting and compiling information Reports that address future actions vs. explanation of history Cost Analysis considered on target Rework/ Error rates - A/P Rework/ Error rates - Billing A/R posting match rate Days Sales Outstanding Credit Sales Collected within Terms Effective tax rate Up-Front involvement of Treasury Degree of reliability in the forecasting process and reporting outputs Budgeting Self-Service Reporting Self-Service
Hackett Value Grid™
Sample Only
Total Cost Total FTEs A/P & T&E process cost A/P & T&E unit cost/productivity Revenue Cycle process cost Revenue Cycle unit cost/productivity Accounting process cost Cycle time - Days to close Cycle time - A/P invoice Cycle time - A/R remittance A/P & T&E transaction automation Revenue Cycle transaction automation Cash positioning automation Automated Journal Entries
Low
Efficiency Driver is at or exceeds Median of World-Class Driver is between Median of Peer Group and World-Class Driver is below Peer Group Median
High ABC Co. Other Companies
% of Business Performance Reports generated from central repository
Transaction Application Integration
Note: The ranking of the drivers are a representation of gaps to World-Class and are not a direct indicator of where to focus/ launch initiatives. Specific action plans should not be developed until after the benchmark results are assessed within the context of the functional and business strategies. Page 9 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Finance Cost as a Percent of Revenue Places ABC Co. in the 3rd Quartile on a Pure Cost Basis Finance Cost as a % of Revenue
Sample Only
Quartile Breakdown as a % of Revenue 4.95%
1.20% 1.09%
0.13%
0.12%
Quartile 4
0.22% 0.21% 0.10% 0.09%
1.99% 0.52%
0.75%
0.04% 0.08% 0.03%
0.67%
Quartile 3 ABC Co. 1.20%
Quartile 2
0.37%
ABC Co. Labor
Peer Group Outsourcing
Technology
World-Class
1.18% 1.09%
World-Class 0.52%
Other
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Quartile 1 0.51%
Sample Only
58% ABC Co.’s Finance FTEs are focused on Transaction Processing Finance Resource Allocation
Finance Staffing (FTEs) Per ABC Co.’s Revenue 163.0 World-Class
12.0
138.0
53%
12%
26%
9%
26.0
8.0 30.7
25.0
17.5
Peer Group
61%
13%
19%
7%
23%
6%
71.0 8.0 100.0 81.8
17.0 11.0
38.0
ABC Co.
Peer Group Transaction Processing
ABC Co.
58%
13%
World-Class Control and Risk Management
Planning and Strategy
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Management and Administration
Higher Proportion of Managers Relative to Comparators Means ABC Co.’s Average Labor Rate is High
Sample Only
Average Fully Loaded Labor Cost ($) per FTE
Staff Mix
70,500
World-Class
20%
40%
40%
Peer Group
20%
40%
40%
ABC Co.
65,000
Peer Group
60,000
World-Class
Number of Staff to Managers (Span of Control) 3.60 2.80
ABC Co.
40%
Manager
20%
Professional
40%
Clerical
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3.10
Sample Only
ABC Co. Transactional Process Costs and FTEs are Significantly Higher than World-Class, Especially in Revenue Cycle Process Cost as a % of Revenue
Transaction Processing FTEs per ABC Co.’s Revenue
0.16%
35.2
0.14%
0.14%
0.10%
29.9
23.4
21.7 18.2
0.08%
0.07%
30.3
28.3
0.12%
0.08%
34.6
0.06% 10.2
Cash Disbursements
Revenue Cycle
General Accounting and External Reporting ABC Co.
Cash Disbursements
Peer Group
World-Class
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Revenue Cycle
General Accounting and External Reporting
Sample Only
More Consistent Use of Technology Could Further Reduce Billing Costs and Boost Productivity Customer Billing Cost ($) per Transaction 4.32
Customer Billing Best Practices 3.11
ABC Co.
Peer Group
Customer Bills per FTE 19,234
11,462
ABC Co.
ABC Co.
Top Performer
Percent billing transactions automated
40%
100%
Occurrence of billing errors
5%
1%
26%
90%
30%
90%
10%
90%
6%
70%
Billing application integration to sales/order entry Billing application integration to accounts receivable Customer self-service for problem resolution and inquiries Invoices are sent to customers electronically
Peer Group
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Sample Only
ABC Co.’s Finance Cost Opportunity ABC Co.’s Costs (Millions)
Finance Processes
ABC Co.’s Gap to Peer (Millions)
ABC Co.’s Gap to World-Class (Millions)
Cash Disbursements
17.4
10.1
13.4
Revenue Cycle
17.1
1.8
5.4
General Accounting and External Reporting
52.1
20.9
31.6
Tax Management
26.5
6.4
8.3
Treasury Management
15.2
5.1
6.9
Planning and Performance Management
Gap to 7.5 World-class7.4 21.8
14.5
Business Analysis
35.1
12.6
14.2
Management and Administration
17.9
6.2
13.9
236.6
118.3
182.0
Technology Cost
37.7
6.9
10.8
Other Cost
50.3
1.2
3.7
324.7
126.4
202.5
Current
Compliance Management
Total Process Costs
Total Finance Cost
Gap to Peer 33.5
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9.6
So, why benchmark?
Understand business performance through independent assessment Validate cost structure, headcount levels Clarify the business case for service delivery model Confirm best practice adoption Understand technology adoption and realization of benefits Offer an executive transparency into G&A capabilities Reveal the behaviors and characteristics of world-class companies Outline a performance improvement roadmap to World-class
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Selected Hackett Metrics
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In 2010 both World-Class and Peer Group cost and staffing performance levels declined slightly Overall Finance cost as a % of revenue
Finance FTEs per $1B in revenue 91
1.16%
47%
Peer Group
0.61%
World Class
54%
Peer Group
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42
World Class
Efficiency has improved for the world-class and peer groups
But, recession revenue declines are testing ability to hold onto cost savings
1.90%
• ERP implementation • Beginnings of shared services • Shift from mainframe to client server • Shared services • SARBOX
• Holistic service delivery strategy • E2E process mgt • Enterprise performance mgt
• Globalization • Standardization
1.70% 1.50%
1.50% 1.28% 1.10%
1.40% 1.20%
1.00%
1.26% 1.10%
1.22%
1.24%
1.08%
1.17%
1.13%
1.16%
0.90% 0.72%
0.74%
0.73%
0.67%
0.61%
0.59%
0.60%
0.61%
1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010
Revenue decline impact Page 19 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
The journey hasn’t changed, but the focus has shifted and the execution speed and outcome importance has increased IT enablement for lowest service delivery cost 4 6 Move towards World-Class performance levels
Self-Service Portals Outsource Centers (BPO)
Automate
Leveraged Delivery
Standardize 3 Reduce manual effort and errors
Simplify Strategic Alignment
Eliminate
1 Determine services needed, and metrics needed to support strategic objectives
2 Reduce complexity & implement Best Practices across enterprise
people process
technology enablers
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Centers of Scale (SSC)
Centers of Skill (COE) Specialized BU Delivery Corporate
Deliver standard services through best service points
5
World-class companies continue to demonstrate efficiency and effectiveness despite a narrowing cost advantage Other benefits of world-class performance in 2010
Overall finance cost as a percent of revenue 2010 1.16%
2009 1.13%
47%
47% 0.61%
Peer Group
World Class
0.60%
Peer Group
World Class
66% higher prevalence of a documented, strategic plan 39% higher focus on proactive decision making 32% less time collecting data for analysis 20% shorter DSO 19% fewer days required to close the books 47% less expensive 54% fewer staff/FTEs 43% fewer billing errors 59% fewer business reports generated 47% more reports from central repository 14% greater automated journal entries
* Includes credit, billing, collections, cash applications, fixed assets, general accounting, external reporting, accounts payable, and T&E Source: 2010 Functional Benchmarks Page 21 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Transacting Profile: Efficiency Performance World-Class Revenue Cycle
World-Class Cash Disbursements AP Cycle Time
Process supplier invoices 20% faster
AP Rework Rates
60% less AP invoice processing rework
Credit Reviews
4 times more reviews performed per customer
Billing Cycle time
Customer bills created in half the time
AP Productivity
Process 2 times more invoices
Billing Rework
43% less billing errors
T&E Rework Rates
75% less T&E voucher rework
Collection Contacts
T&E Productivity
Process 81% more T&E vouchers
More proactive with 2 times more annual contacts, 38% per customer
Cash Application
30% more remittances per FTE
Revenue Cycle Process Cost
65% less process cost
Cash Disbursements Process Cost
60% less process cost
World-Class General Accounting/External Reporting Journal Entry Efficiency
3 times more JEs per billion processed at only 20% the cost per entry
Fixed Asset Management
74% more fixed assets managed per FTE
Project Accounting Management
30% more projects tracked for accounting purposes
External Report Filings
2 times more filings completed
General Accounting & External Reporting Process Cost
45% less process cost
World-class companies are highly efficient in transactional processes, delivering higher volumes of timely, accurate data at minimal cost as a percentage of revenue. Page 22 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Control & Risk Profile: Effectiveness Performance World-Class Tax Management Effective Tax Rate
World-Class Treasury Management
ETR is 125 basis points lower
Interest Rate Exposure
Hedge half of their exposures vs. only 12% for the peer group
Tax Strategy Effectiveness
2X savings from tax strategies
FX Exposure
Hedge 75% of exposures vs. 40% fewer LEs and tax domains
High level of formal risk management tracking and analysis vs. low for peers
Linkage to Strategic Plan
Comprehensive investment / debt strategy tied to strategic plan twice as often
Value-added Analysis / Planning
Twice the time spent on analysis
World-Class Compliance Management External Audit Fees
55% lower
Enterprise-wide Compliance Management
High level of enterprise wide compliance processes vs. low for peers
Self-assessment Control Reviews
Twice the leverage of self-assessment control reviews
Risk-based Computer Auditing
Greater use of risk-based auditing techniques to identify/manage audit risk
World-class companies operate with highly effective control and risk processes, and are better able to protect assets, improve tax positions, while optimizing cash balances Page 23 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Planning & Strategy Performance Profile: Efficiency Performance World-Class Planning & Performance Management
World-Class Business Analysis
Staffing
41% fewer FTEs per $B revenue
Staffing
31% fewer FTEs per $B revenue
Budget cycle time
Complete the budget 25% faster
Time allocation
Budget detail
19% fewer line items in the budget
1/3 less time spent collecting and compiling data for analysis
Forecast cycle time
5 days or less compared to 2-3 weeks
Ad-hoc cycle time
28% faster at turning around ad-hoc requests
Forecast detail
Far less detail than annual budget, at peers level of detail is typically the same
Business Analysis Process Cost
29% less process cost
Reporting volumes
59% fewer performance reports per $B revenue
Technology leverage
47% more performance reports generated from a central data repository
Planning & Performance Mgmt Process Cost
54% less process cost
World-class companies are highly efficient in driving performance, delivering timely and accurate management information at a much lower cost. Page 24 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Detailed performance metrics World-class and Top performers compared to Peer
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The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status World-Class
Top Performer
Defines leading performers within a Function and Global Business Services/Shared Services
Defines leading performers within a Process
Procurement
HR
Accounts Payable
Payroll
IT
Finance
Credit & Collections
Planning/Budgeting
Hackett Value Grid™
Hackett Performance Continuum 49%
Efficiency Quartile 4
Quartile 3
Quartile 2
Quartile 1 Top Performer
Effectiveness
76% Your Organization
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Procure to Pay AP Invoices per FTE
AP Cost per Invoice $5.62
AP Labor Cost per Invoice
41,030 $3.90
$2.11 $1.14
9,507
Peer
Top performer
Peer
Top performer
Source: 2009 P2P Performance Study Page 27 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Peer
Top performer
Procure to Pay Overall first pass match rate for PO-based invoices
Percent of payments made on time
94% 85%
80%
Peer
90%
Top performer
Source: 2009 P2P Performance Study Page 28 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Peer
Top performer
Customer to Cash Process Cost as a % of Credit Sales
FTEs per Billion $ Credit Sales
0.062%
11.7
0.038%
5.1
2.1 0.008%
0.006%
0.006%
0.6
0.002%
Credit
Collections
Source: 2009 Credit & Collections Performance Study
Dispute Management Peer Group
Credit Top Performer
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1.5 0.2
Collections
Dispute Management
Customer to Cash DSO
DSO relative to terms
Best Possible DSO
48 42
40 33
17 9
Peer
Top performer
Peer
Top performer
Source: 2009 Credit & Collections Performance Study Page 30 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Peer
Top performer
Account to Report Process Cost as a % of Revenue
FTEs Per Billion of Revenue 23.0
0.16%
3.0 0.022%
1.8 0.012%
2.0
0.012%
3.1 0.031%
0.06% 0.010% 0.002% 0.005% 0.010%
0.083%
13.2
3.9
0.033%
Peer Group General Accounting Fixed Assets Cost Accounting
Peer Group
Top Performer External reporting Inter-Company Accounting
7.7 1.3 0.8 0.7 0.9
General Accounting Fixed Assets Cost Accounting
Source: 2009 Account to Report Performance Study Page 31 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Top Performer External reporting Inter-Company Accounting
Account to Report General Accounting: Days to Close 6
External audit fees per Billion of Revenue $560,361
4
$212,804
Peer
Top performer
Source: 2009 Account to Report Performance Study Page 32 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Peer
Top performer
Account to Report Days to reconcile inter-company accounts from cutoff date 2
1
Median
Percent of Inter-company transactions automated 32%
Q1
Percent of Inter-company reconciliations automated 58%
26% 21% 11% 5%
16%
5% 0%
Less than 5%
5% to 10%
11% to 25%
26% to 50%
51 % to 75%
Source: 2009 Account to Report Performance Study Page 33 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
5%
More than 75%
0%
21%
Hackett Open Performance Studies Purchase to Pay--no charge: https://member.thehackettgroup.com/survey/P2P2010 Credit to Collection--no charge: https://member.thehackettgroup.com/survey/creditandcollections Payroll: fee— request access through
[email protected] Global Business/Shared Services--no charge: https://member.thehackettgroup.com/survey/gbs2011 Or – www.thehackettgroup.com then join the Performance Network for notifications Page 34 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Contact Information The Hackett Group
Penny Weller
World Headquarters 1000 Abernathy Road Suite 1400 Atlanta, GA 30328 Phone: +1 770 225 3600
Title
Martin House 5 Martin Lane London EC4R 0DP Phone: +44 207 398 9100
Global Business Services North American Practice Leader Phone: +1 269 345 7240 Mobile: +1 269 929 0344
[email protected] www.thehackettgroup.com
Torhaus Westhafen Speicherstrasse 59 60327 Frankfurt am Main, Germany Phone: +49 69 900217 0 8, rue de Port Mahon 75002 Paris, France Phone: +33 1 53 43 0400
Strawinskylaan 3051G, 1077 ZX Amsterdam, The Netherlands Phone: +31 20 301 2210 Page 35 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.