Research Alert - The Hackett Group Warns of Widening Performance Gap In the Back Offices of Large Global Corporations.
ATLANTA -- The Hackett Group, a strategic advisory firm and an Answerthink company (NASDAQ: ANSR), today released results from its 2006 Enterprise Book of Numbers([TM]) research. Based on its analysis of in-depth benchmarks of back office performance at Global 2,000 companies, Hackett has identified a widening performance gap between organizations that have achieved world-class performance levels in their SG&A operations versus typical companies.
Hackett's research found that by achieving world-class performance in four core operational areas - information technology (IT), finance, human resources (HR) and procurement - companies can reduce annual SG&A costs by $60 million per billion in revenue. At the same time, these world-class performers show superior effectiveness, delivering higher quality services, increased economic returns, and reduced risk.
To achieve these gains, Hackett found that world-class performers demonstrate strength in five best practices categories: strategic alignment of business goals and operating procedures; complexity reduction; technology enablement; business processing sourcing; and cross-functional partnering.
Across the back office, the strategic use of technology plays a key role in achieving world-class performance. Hackett research indicates that attaining world-class performance in IT is virtually a prerequisite to achieving superior performance in other functional areas. As a testament to this, the research shows that the CIO is fast becoming a more important member of the executive team - marking a major evolution in the position from a support function in years past to one that is strategic, reporting directly to the CEO.
"In most functional areas, world-class organizations spend significantly less than their peers and operate with far fewer staff. Yet at the same time they are better aligned to strategically support business goals, and are simply more effective overall. IT plays an important part in how they make this happen, and the benefits are far-reaching. These world-class performers have built more nimble SG&A operations that are better prepared to identify and take advantage of opportunities in the market and deal with unexpected challenges," said Hackett Chief Research Officer Richard T. Roth.
According to Hackett Senior Business Advisory Pierre Mitchell, "The best companies may differ in their size, industry, or regulatory environment. But what they share is their ability to use back-office functions, traditionally viewed as cost centers, to generate competitive advantage. They do this, regardless of function, by relying on specific management approaches in the five areas we've identified. They support continuous improvement -- within individual functions, cross-functionally, and in end-to-end processes.
"It's critical to recognize that each year these world-class performers do a little better, pulling further away from the pack. The growing gap has a multiplier effect that will make it more difficult for the lagging typical companies to compete over time - a process that may soon be irreversible for many of today's leading corporations," said Mitchell.
To be identified as "world-class" in Hackett's analysis, a company must achieve top-quartile performance across a range of efficiency and effectiveness metrics. In its analysis of more than 14 years of ongoing benchmark studies that span 2,100 of the world's leading companies, Hackett has identified five best practice areas in which the best managed global businesses excel. Key findings by best practice across various SG&A functions are as follows:
Strategic Alignment - Instead of the traditional hierarchical organization, world-class organizations understand that "flatter" management structures are more effective. For example, an IT leader who interacts with other business leaders as an equal is more likely to be tuned into their needs and to the overall business strategy. Hackett's research shows that world-class CIOs are twice as likely to report directly to the CEO or chairman as CIOs at typical companies.
Aligning IT with the business is crucial to success, yet IT is too often seen as a "support" service and is not included in high-level decision-making. Having a "seat at the table" is essential to improved performance. At 77% of world-class organizations, the senior IT executive is a member of the company's primary management committee, compared to just 52% of typical companies.
Complexity Reduction - While words like "streamlining" and "standardization" have become overutilized terms; world-class organizations achieve tangible benefits by abolishing unnecessary complexity in business processes. For example, world-class procurement organizations reduce complexity through strategic sourcing, consolidating their purchases among 78% fewer suppliers than typical companies. They also centralize processes; Hackett found that a typical company with $1 billion in annual spend can save $8 million in process costs alone by increasing the percentage of contracts negotiated centrally from 20% to 80%.
Technology Enablement - Companies with world-class IT organizations now spend significantly more on IT - 7% more per end user - than their peers, making IT the only area studied by Hackett where world-class companies spend more than typical ones. While world-class organizations spend more on IT, their use of technology results in improved performance across other SG&A areas. Hackett's research found that of the companies that achieved world-class status in multiple functions, IT was one of those functions 86% of the time - proof that cross-functional excellence relies on world-class IT performance.
Examples of the value of IT abound in Hackett's research. In part by using technology to streamline and automate operations, world-class organizations spend 45% less than typical companies on finance operations, while at the same time generating tens of millions of dollars in savings by getting clients to pay their bills 28% faster. World-class procurement operations show similar results, spending 25% less than typical organizations yet driving an additional $3.6 million in spend savings for every $1 million in procurement operations costs. In HR, automating labor-intensive processes helps free limited staff to provide more value-added services, while reducing costs. World-class HR organizations offer 85% of all employees self-service access to employee health and welfare systems, making them more than three times as likely to do this than typical companies.
Business Process Sourcing - Understanding how to effectively leverage business process sourcing options such as outsourcing, shared services, and offshoring are hallmarks of a world-class company. They do this at the process level, and do not hesitate to change sourcing solutions if they fail to produce the desired result. Most executives miss the potential impact of service globalization due to under-scoping of initiatives, not realizing that offshore resources have matured significantly in the last few years.
A good example of this is in IT. World-class IT organizations spend 17% more on outsourcing technology infrastructure than typical organizations, but this enables them to spend 20% less in IT labor, resulting in 8% lower overall technology infrastructure process costs.
Cross-Functional Partnering - World-class organizations seek synergies across business functions through cross-functional cooperation to achieve common goals. For instance, procurement staff work alongside their functional peers to understand business needs, plan spending, and supplier selection (at the best price), taking into account both current and future needs. World-class procurement organizations are more than three times as likely as typical companies to rely on cross-functional teaming for supplier development. World-class HR managers are up to four times as likely as their peers to partner with management in key areas such as developing business strategies.
More information on The Hackett Group is available: by phone at (770) 225-7300; by e-mail at firstname.lastname@example.org; or on the Web at www.thehackettgroup.com.
About The Hackett Group
The Hackett Group, a strategic advisory firm, is a global leader in best practice research, benchmarking, and business transformation services that enable world-class performance across selling, general & administrative (SG&A) and supply chain activities. Through the acquisition of REL Consultancy Group, we offer Hackett-REL Total Working Capital services to liberate cash flow from operations. Hackett provides strategic insight, best practice advice and implementation services grounded in performance metrics obtained through 14 years and 3,500 benchmark studies at 2,100 of the world's leading companies.
Book of Numbers is a trademark of The Hackett Group.
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|Date:||Dec 5, 2006|
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