The Journey to World-Class
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Transcript of The Journey to World-Class
The Journey to World-Class
Benchmarking Your Finance Organization
Jeffrey S. Rosengard, Principal: Global Finance TransformationPenny Weller, PhD, CMAGlobal Business Services North American Practice LeaderThe Hackett GroupSeptember 2010
Page 2
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
97%of the Dow Jones Industrials
80%of the Fortune 100
88%of the Dow Jones Global Titans
80%of the DAX 30
49%of the FTSE 100
35%of the CAC 40
We know how the best do it,where they do it, and the benefit of doing it.
Page 3Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Finance in 2010
Benchmarking – Driving Performance
Agenda
Page 4Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Historically unprecedented levels of volatility are separating the world-class further from their peers …..
Falling off a cliff
“Slow response to clouds forming on the horizon”
(Peer group)
12
3
Recovery
Healthy profitability
“Survival mode and
improvisation”(Peer group)
“Act on deteriorating business conditions”
(World-class)
“Crisis mode, trigger worst- case scenario contingency plan”
(World-class)
“Wielding the axe –Arbitrary discretionary
cuts” (Peer group)
“Use crisis to drive through structural and sustainable
change” (World-class)
Page 5Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Business is moving to global operating models
Sales & Distribution Marketing
Production / Operations R&D
G&A /Corporate Services
Source: The Hackett Group 2010 Key Issues Study
Today in 2-3 Years
Today in 2-3 Years
Today in 2-3 Years
Today in 2-3 Years
Today in 2-3 Years
Big changes underway
Page 6Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Finance: World-Class Performance in 2010 Recession revenue declines are testing ability to hold onto cost savings
1.50%1.28%
1.10% 1.00% 0.90%0.72% 0.74% 0.73% 0.67% 0.61% 0.59% 0.60% 0.61%
1.90% 1.70%1.50% 1.40%
1.20% 1.10% 1.08%1.26% 1.22% 1.24% 1.17% 1.13% 1.16%
1992 1994 1996 1998 2000 2002 2004 2005 2006 2007 2008 2009 2010
• ERP implementation• Beginnings of shared services• Shift from mainframe to client server
• Shared services• SARBOX • Globalization
• Standardization
• Holistic service delivery strategy
• E2E process mgt• Enterprise
performance mgt
Revenue decline impact
Page 7Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Moving from Conventional to World-Class Finance – How many capabilities? how fast?
Value
World-Class Finance – Business value
Conventional Finance – Financial control1. Auditor2. Scorekeeper3. Manage functional staff4. Financial statement control
experts5. Spreadsheet gurus6. Cost center masters7. Cash management
8. Direct staff mgmt. impact
9. Operationally reactive “concierge service”
10.Transaction processors
1. Risk-based compliance2. Dynamic performance mgmt.3. End-to-end process mgmt.4. Financial statement outcomes
explained5. Analytical experts6. Business driver experts7. Proactive cash forecasting
8. Key outputs impact mgmt.
9. Operationally proactive “business value orientation”
10.Information processors
Busin
ess
Strat
egy
Enab
lemen
t
Opera
ting E
xcell
ence
Comp
lexity
Red
uctio
n
Value Management
Enable the business
Drive enterprise performance
Manage risk
Report, plan, and forecast
Administer, comply, and control
HighestStrategic
Value
Foundational
Page 8Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World Class Organizations Have Employed an Optimal Service Delivery Model (SDM)
Organizational entities, structure and reporting lines.Roles, responsibilities & decision rights
How and where processes and sub-
processes are sourced
Processes, exception handling rules, mappings,
etc. associated with functional roles and
responsibilities
Architecture of the technology platforms required to support service delivery
Skills needed to deliver and successfully transform services
Clear understanding of which activities and processes are to take place where
GovernanceTop management
participationSteering committee
effectiveness
Skills in business functions and business operations
Formal training and skills development opportunities
Retention of top performers
AutomationOnline self -service access
DigitizationLevel of IT and systems integration
Transactional COEsKnowledge COEsWork done at BU level
Local standardsBU-level standardsEnterprise-wide standards
In-house versus outsourceOnshore versus offshorePhysical versus virtual
Data standards,report design, scorecards, KPIs,
master data elements, and repositories of unstructured
information
Decision-making frameworksSingle version of the truthGlobal master data standards
Source: The Hackett Group SDM v1.1
Service Delivery
Components
Service Placement
ProcessSourcing
Process Design
InformationEnabling Technology
Skills & Talent
Organization
Page 9Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-class Finance organizations focus their improvement efforts across all three major process categories
Process CategoriesTransacting Control &
Risk
• Cash disbursements
• Revenue cycle• General
accounting and external reporting
• Tax management• Treasury
management• Compliance
management
Planning & Strategy
• Planning and performance management
• Business analysis
Process Groups
2010Process Cost of
Finance as a percent of revenue
-55% / -45%* -38% / -28%* -43% / -50%*
.17%
.38%
.21%.12%
.21%.13%
.31%
.18%.24%
Overall Peer Group Median
Large Diverse Peer Median
World-Class
2010 Hackett Finance Peer Groups
2010 Hackett Finance Benchmark database*World-Class compared to Overall Peer / Large Diverse median
Page 10Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World Class Aligns Across End to End Finance ProcessesTransacting Protecting Driving Performance
Page 11Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
The Journey to World-Class Performance is consistent……but the speed of execution and importance of the outcome has increased
Strategic Alignment
Eliminate
Simplify
Standardize
Leveraged Delivery
Centers of Scale (SSC)
Automate Centers of Skill (COE)
enablers
Specialized BU Delivery
Corporate
Outsource Centers (BPO)
Self-Service Portals
Determine services needed, and delivery/management model to support strategic objectives
Reduce complexity & implement Best Practices across enterprise
IT enablement for lowest service delivery cost
Reduce manual effort and errors
Deliver standard services through best service points
1
2
3
4
5
people
process
technology
Move towards World-Class performance levels
6
Page 12Hackett 2010 World-Class Finance© 2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Finance in 2010
Benchmarking – Driving Performance
Agenda
Page 13
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
EFFECTIVENESSQualityMinimized data collection Advanced degrees or certificationsFinancial and non-financial metrics Business acumen Analytical focus
EFFICIENCYLower overall costBetter cycle timesConsolidated processingLeveraged technology
Hackett Value Grid™ (Finance Example)
Page 14
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Benchmarking helps identify the gap to higher performance
Function % Savings Between: Peer & World-Class Efficiency
Finance 48% - 59%HR 32% - 51%IT 13% - 33%Procurement 21% - 29%Total Opportunity 25% - 42%
Normally 20% to 50% improvement opportunity
HIGH
HIGHLOW 1Q 1D
World ClassEFFICIENCY
World Class EFFECTIVENESS
1D
1Q
WORLD CLASS
OPERATING
EXCELLENCE
OPERATING
EXCELLENCE
COMPLEXITY
REDUCTION
COMPLEXITY
REDUCTION
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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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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Our benchmarks span General & Administrative (“G&A”) processesFinance
Cash disbursementsRevenue cycleAccounting and external reportingTax managementTreasury management
Compliance ManagementPlanning & Performance ManagementBusiness AnalysisFunction Management
Hackett’s taxonomy ensures an apples-to-apples comparison
Information Technology
Infrastructure ManagementEnd User SupportInfrastructure DevelopmentApplication MaintenanceApplication Development & Implementation
Quality AssuranceRisk ManagementIT Business PlanningEnterprise Architecture PlanningEmerging TechnologiesFunction Management
Human Resources
Total Rewards AdministrationPayroll ServicesData Management, Reporting & ComplianceStaffing Services
Workforce Development ServicesOrganizational EffectivenessTotal Rewards PlanningStrategic Workforce PlanningFunction Management
Procurement
Supply Data ManagementRequisition & PO ProcessingSupplier SchedulingReceipt ProcessingCompliance ManagementCustomer Management
Sourcing ExecutionSupplier Management & DevelopmentFunction Strategy & Performance ManagementSourcing & Supply Base StrategyFunction Management
Executive and Corporate Services
General Administration Mgt Travel & Transportation ServicesReal Estate & Facilities MgtGovernment AffairsLegal
Quality ManagementRisk & Security ManagementCorporate CommunicationsPlanning & StrategyExecutive Office
Service
Order & Contract ManagementService ExecutionService Operations
Planning & StrategyFunction Management
Marketing
Marketing Communication & Program ManagementBrand & Product Management
Planning & StrategyMarket Research & AnalyticsFunction Management
Sales
Sales ExecutionSales Operations
Planning & StrategyFunction Management
Page 17
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-class companies continue to demonstrate efficiency and effectiveness despite a narrowing cost advantage
Overall finance cost as a percent of revenue
* Includes credit, billing, collections, cash applications, fixed assets, general accounting, external reporting, accounts payable, and T&E
Peer Group World Class
0.61%
2009
Peer Group World Class
47%
1.13%
0.60%
66% higher prevalence of a documented, strategic plan39% higher focus on proactive decision making32% less time collecting data for analysis20% shorter DSO19% fewer days required to close the books47% less expensive 54% fewer staff/FTEs43% fewer billing errors59% fewer business reports generated 47% more reports from central repository14% greater automated journal entries
Other benefits of world-class performance in 2010
47%
1.16%
2010
Source: 2010 Functional Benchmarks
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Cash DisbursementsAP Cycle Time Process supplier invoices 20% faster
AP Rework Rates 60% less AP invoice processing rework
AP Productivity Process 2 times more invoices
T&E Rework Rates 75% less T&E voucher rework
T&E Productivity Process 81% more T&E vouchers
Cash Disbursements Process Cost 60% less process cost
World-Class Revenue CycleCredit Reviews 4 times more reviews performed per
customer
Billing Cycle time Customer bills created in half the time
Billing Rework 43% less billing errors
Collection Contacts 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
World-Class General Accounting/External ReportingJournal 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 Transacting Profile: Efficiency Performance
World-class companies are highly efficient in transactional processes, delivering higher volumes of timely, accurate data at minimal cost as a percentage of revenue.
World-class companies are highly efficient in transactional processes, delivering higher volumes of timely, accurate data at minimal cost as a percentage of revenue.
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Tax ManagementEffective Tax Rate ETR is 125 basis points lower
Tax Strategy Effectiveness 2X savings from tax strategies
Complexity Rationalization >40% fewer LEs and tax domains
Value-added Analysis / Planning Twice the time spent on analysis
World-Class Treasury ManagementInterest Rate Exposure
Hedge half of their exposures vs. only 12% for the peer group
FX Exposure Hedge 75% of exposures vs. <50% peers
Risk Management 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
World-Class Compliance ManagementExternal 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 Control & Risk Profile: Effectiveness Performance
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
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 20
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-Class Planning & Performance ManagementStaffing 41% fewer FTEs per $B revenue
Budget cycle time Complete the budget 25% faster
Budget detail 19% fewer line items in the budget
Forecast cycle time 5 days or less compared to 2-3 weeks
Forecast detail Far less detail than annual budget, at peers level of detail is typically the same
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 Business AnalysisStaffing 31% fewer FTEs per $B revenue
Time allocation 1/3 less time spent collecting and compiling data for analysis
Ad-hoc cycle time 28% faster at turning around ad-hoc requests
Business Analysis Process Cost 29% less process cost
World-Class Planning & Strategy Performance Profile: Efficiency Performance
World-class companies are highly efficient in driving performance, delivering timely and accurate management information at a much lower cost.
World-class companies are highly efficient in driving performance, delivering timely and accurate management information at a much lower cost.
Page 21
2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status
World-ClassDefines leading performers within a Function and
Global Business Services/Shared Services
Top PerformerDefines leading performers within a Process
Hackett Performance ContinuumHackett Value Grid™
Procurement HRIT Finance
Accounts Payable PayrollCredit & Collections Planning/Budgeting
Efficiency
Effectiveness
Your Organization
Quartile 1Quartile 2Quartile 3Quartile 4
Top Performer
49%
76%
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
$5.62
$2.11
Peer Top performer
AP Cost per Invoice
9,507
41,030
Peer Top performer
AP Invoices per FTE
$3.90
$1.14
Peer Top performer
AP Labor Cost per Invoice
Procure to Pay
Source: 2009 P2P Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
80%
94%
Peer Top performer
Overall first pass match rate for PO-based invoices
85%90%
Peer Top performer
Percent of payments made on time
Procure to Pay
Source: 2009 P2P Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Customer to Cash
FTEs per Billion $ Credit SalesProcess Cost as a % of Credit Sales
0.038%
0.062%
0.006%0.006%0.008%
0.002%
Credit Collections Dispute Management
5.1
11.7
1.50.6
2.1
0.2
Credit Collections Dispute Management
Peer Group Top PerformerSource: 2009 Credit & Collections Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
48
42
Peer Top performer
17
9
Peer Top performer
33
40
Peer Top performer
DSO DSO relative to terms Best Possible DSO
Customer to Cash
Source: 2009 Credit & Collections Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Account to Report
0.083%
0.033%
0.031%
0.010%
0.012%
0.005%
0.012%
0.002%
0.022%
0.010%
Peer Group Top Performer
General Accounting External reportingFixed Assets Inter-Company AccountingCost Accounting
Process Cost as a % of Revenue
13.2
3.9
3.1
0.9
2.0
0.7
1.8
0.8
3.0
1.3
Peer Group Top Performer
General Accounting External reportingFixed Assets Inter-Company AccountingCost Accounting
FTEs Per Billion of Revenue0.16%
0.06%
23.0
7.7
Source: 2009 Account to Report 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.
6
4
Peer Top performer
$560,361
$212,804
Peer Top performer
General Accounting: Days to Close External audit fees per Billion of Revenue
Account to Report
Source: 2009 Account to Report Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Account to Report
58%
0%5%
0%
16%21%
32%
5% 5%
21%
11%
26%
Percent of Inter-company transactions automated
2
1
Median Q1
Days to reconcile inter-company accounts from cut-off date
Percent of Inter-company reconciliations automated
Less than 5% 5% to 10% 11% to 25% 26% to 50% 51 % to 75% More than 75%Source: 2009 Account to Report Performance Study
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
So, why benchmark?
Understand business performance through independent assessmentValidate cost structure, headcount levelsClarify the business case for service delivery modelConfirm best practice adoption Understand technology adoption and realization of benefitsOffer an executive transparency into G&A capabilitiesReveal the behaviors and characteristics of world-class companiesOutline a performance improvement roadmap to World-class
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2010 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
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
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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 GroupWorld Headquarters1000 Abernathy RoadSuite 1400Atlanta, GA 30328Phone: +1 770 225 3600
Martin House5 Martin LaneLondon EC4R 0DPPhone: +44 207 398 9100
Torhaus WesthafenSpeicherstrasse 5960327 Frankfurt am Main, GermanyPhone: +49 69 900217 0
8, rue de Port Mahon75002 Paris, FrancePhone: +33 1 53 43 0400
Strawinskylaan 3051G, 1077 ZXAmsterdam, The NetherlandsPhone: +31 20 301 2210
Jeff RosengardTitle Principal
Finance TransformationPhone: +1 440 241 [email protected]
Penny WellerTitle Global Business Services
North American Practice LeaderPhone: +1 269 345 [email protected]
www.thehackettgroup.com