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.