The Journey to World-Class

Transcription

1 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

2 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

3 We know how the best do it, where they do it, and the benefit of doing it. 97% of the Dow Jones Industrials Page 3 80% of the Fortune % of the Dow Jones Global Titans 80% of the DAX 30 49% of the FTSE % of the CAC 40

4 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 EFFICIENCY Lower overall cost Better cycle times Consolidated processing Leveraged technology Page 4

5 Benchmarking helps identify the gap to higher performance HIGH 1D 1Q World Class EFFECTIVENESS WORLD CLASS Function % Savings Between: Peer & World-Class Efficiency Finance 48% - 59% HR 32% - 51% World Class EFFICIENCY IT 13% - 33% Procurement 21% - 29% Total Opportunity 25% - 42% LOW 1Q 1D HIGH Normally 20% to 50% improvement opportunity Page 5

6 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 Page 6

7 Our benchmarks span General & Administrative ( G&A ) processes Finance Executive and Corporate Services Cash disbursements Revenue cycle Accounting and external reporting Tax management Treasury management Compliance Management Planning & Performance Management Business Analysis Function 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 Information Technology Service Infrastructure Management End User Support Infrastructure Development Application Maintenance Application Development & Implementation Human Resources Total Rewards Administration Payroll Services Data Management, Reporting & Compliance Staffing Services 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 Order & Contract Management Service Execution Service Operations Marketing Marketing Communication & Program Management Brand & Product Management Sales Sales Execution Sales Operations Planning & Strategy Function Management Planning & Strategy Market Research & Analytics Function Management Planning & Strategy Function Management Procurement Supply Data Management Requisition & PO Processing Supplier Scheduling Receipt Processing Compliance Management Customer Management Sourcing Execution Supplier Management & Development Function Strategy & Performance Management Sourcing & Supply Base Strategy Function Management Hackett s taxonomy ensures an apples-to-apples comparison Page 7

8 Hackett s Finance Taxonomy Transaction Processing Compliance Management Planning and Performance Cash Disbursements Accounts Payable Travel and Expense Revenue Cycle Cash Application Credit Collections Customer Billing General Accounting and External Reporting General Ledger Intercompany Accounting Cost Accounting Fixed Assets External Reporting Tax Management Treasury Management Cash Management Capital and Risk Management Compliance Management Planning and Performance Management Business Analysis Management and Administration Function Management Page 8

9 Effectiveness ABC Co. s Finance Function has Opportunities to Reach Higher Levels of Efficiency and Effectiveness Sample Only 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 High Low Hackett Value Grid 1Q 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 World-Class ABC Co. High 1Q Other Companies EFFICIENCY 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 % 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

10 Finance Cost as a Percent of Revenue Places ABC Co. in the 3 rd Quartile on a Pure Cost Basis Sample Only Finance Cost as a % of Revenue Quartile Breakdown as a % of Revenue 1.20% 4.95% 0.13% 1.09% 0.22% 0.12% Quartile % 0.21% 0.09% 1.99% 0.75% 0.67% 0.52% 0.04% 0.08% 0.03% 0.37% ABC Co. 1.20% Quartile 3 Quartile % 1.09% ABC Co. Peer Group World-Class World-Class Quartile % 0.51% Labor Outsourcing T echnology Other Page 10

11 Sample Only 58% ABC Co. s Finance FTEs are focused on Transaction Processing Finance Staffing (FTEs) Per ABC Co. s Revenue Finance Resource Allocation World-Class 53% 12% 26% 9% Peer Group 61% 13% 19% 7% ABC Co. 58% 13% 23% 6% ABC Co. Peer Group World-Class Transaction Processing Control and Risk Management Planning and Strategy Management and Administration Page 11

12 Higher Proportion of Managers Relative to Comparators Means ABC Co. s Average Labor Rate is High Sample Only Staff Mix Average Fully Loaded Labor Cost ($) per FTE 70,500 65,000 60,000 World-Class 20% 40% 40% Peer Group 20% 40% 40% ABC Co. Peer Group World-Class Number of Staff to Managers (Span of Control) ABC Co. 40% 20% 40% Manager Professional Clerical Page 12

13 ABC Co. Transactional Process Costs and FTEs are Significantly Higher than World-Class, Especially in Revenue Cycle Sample Only Process Cost as a % of Revenue Transaction Processing FTEs per ABC Co. s Revenue 0.12% 0.14% 0.14% 0.16% % 0.07% 0.08% 0.10% % 10.2 Cash Disbursements Revenue Cycle General Accounting and External Reporting Cash Disbursements Revenue Cycle General Accounting and External Reporting ABC Co. Peer Group World-Class Page 13

14 More Consistent Use of Technology Could Further Reduce Billing Costs and Boost Productivity Customer Billing Cost ($) per Transaction Sample Only Customer Billing Best Practices ABC Co. Top Performer Percent billing transactions automated 40% 100% Occurrence of billing errors 5% 1% ABC Co. Peer Group Customer Bills per FTE 19,234 11,462 ABC Co. Peer Group 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 26% 90% 30% 90% 10% 90% 6% 70% Page 14

15 ABC Co. s Finance Cost Opportunity Sample Only Finance Processes ABC Co. s Costs (Millions) ABC Co. s Gap to Peer (Millions) ABC Co. s Gap to World-Class (Millions) Cash Disbursements Revenue Cycle General Accounting and External Reporting Tax Management Treasury Management Current Gap to Peer Gap to World-class Compliance Management Planning and Performance Management Business Analysis Management and Administration Total Process Costs Technology Cost Other Cost Total Finance Cost Page 15

16 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 Page 16

17 Selected Hackett Metrics Page 17

18 In 2010 both World-Class and Peer Group cost and staffing performance levels declined slightly Overall Finance cost as a % of revenue 1.16% Finance FTEs per $1B in revenue 91 47% 0.61% 54% 42 Peer Group World Class Peer Group World Class Page 18

19 Efficiency has improved for the world-class and peer groups But, recession revenue declines are testing ability to hold onto cost savings 1.50% 1.90% 1.28% ERP implementation Beginnings of shared services Shift from mainframe to client server Shared services SARBOX 1.70% 1.50% 1.40% 1.10% 1.00% 0.90% 1.20% 1.10% 1.08% Globalization Standardization Holistic service delivery strategy E2E process mgt Enterprise performance mgt 1.26% 1.22% 1.24% 1.17% 1.13% 1.16% 0.72% 0.74% 0.73% 0.67% 0.61% 0.59% 0.60% 0.61% Revenue decline impact Page 19

20 The journey hasn t changed, but the focus has shifted and the execution speed and outcome importance has increased 6 Move towards World-Class performance levels IT enablement for lowest service delivery cost 4 Self-Service Portals Outsource Centers (BPO) Strategic Alignment 1 Eliminate Determine services needed, and metrics needed to support strategic objectives Simplify 2 Reduce complexity & implement Best Practices across enterprise Standardize people process Automate 3 technology enablers Reduce manual effort and errors Leveraged Delivery Centers of Scale (SSC) Centers of Skill (COE) Specialized BU Delivery Corporate Deliver standard services through best service points 5 Page 20

21 World-class companies continue to demonstrate efficiency and effectiveness despite a narrowing cost advantage Overall finance cost as a percent of revenue % 1.13% 47% 47% 0.61% 0.60% Peer Group World Class Peer Group World Class Other benefits of world-class performance in % 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

22 World-Class Transacting Profile: Efficiency Performance World-Class Cash Disbursements World-Class Revenue Cycle AP Cycle Time Process supplier invoices 20% faster Credit Reviews 4 times more reviews performed per customer AP Rework Rates 60% less AP invoice processing rework 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 T&E Productivity Cash Disbursements Process Cost 75% less T&E voucher rework Process 81% more T&E vouchers 60% less process cost Collection Contacts Cash Application Revenue Cycle Process Cost More proactive with 2 times more annual contacts, 38% per customer 30% more remittances per FTE 65% less process cost World-Class General Accounting/External Reporting Journal Entry Efficiency Fixed Asset Management Project Accounting Management External Report Filings 3 times more JEs per billion processed at only 20% the cost per entry 74% more fixed assets managed per FTE 30% more projects tracked for accounting purposes 2 times more filings completed General Accounting & External Reporting Process Cost Page 22 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.

23 World-Class Control & Risk Profile: Effectiveness Performance Effective Tax Rate Tax Strategy Effectiveness Complexity Rationalization Value-added Analysis / Planning World-Class Tax Management ETR is 125 basis points lower 2X savings from tax strategies >40% fewer LEs and tax domains Twice the time spent on analysis Interest Rate Exposure FX Exposure Risk Management Linkage to Strategic Plan World-Class Treasury Management Hedge half of their exposures vs. only 12% for the peer group Hedge 75% of exposures vs. <50% peers High level of formal risk management tracking and analysis vs. low for peers Comprehensive investment / debt strategy tied to strategic plan twice as often External Audit Fees Enterprise-wide Compliance Management Self-assessment Control Reviews Risk-based Computer Auditing World-Class Compliance Management 55% lower High level of enterprise wide compliance processes vs. low for peers Twice the leverage of self-assessment control reviews 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

24 World-Class Planning & Strategy Performance Profile: Efficiency Performance Staffing World-Class Planning & Performance Management Budget cycle time Budget detail Forecast cycle time Forecast detail Reporting volumes Technology leverage Planning & Performance Mgmt Process Cost 41% fewer FTEs per $B revenue Complete the budget 25% faster 19% fewer line items in the budget 5 days or less compared to 2-3 weeks Far less detail than annual budget, at peers level of detail is typically the same 59% fewer performance reports per $B revenue 47% more performance reports generated from a central data repository 54% less process cost Staffing Time allocation Ad-hoc cycle time Business Analysis Process Cost World-Class Business Analysis 31% fewer FTEs per $B revenue 1/3 less time spent collecting and compiling data for analysis 28% faster at turning around ad-hoc requests 29% 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

25 Detailed performance metrics World-class and Top performers compared to Peer Page 25

26 The Hackett Group Identifies Leading Performers by Empirically Defining both World-Class and Top Performer Status World-Class Defines leading performers within a Function and Global Business Services/Shared Services Top Performer Defines leading performers within a Process Procurement HR Accounts Payable Payroll IT Finance Credit & Collections Planning/Budgeting Hackett Value Grid Hackett Performance Continuum Efficiency 49% Quartile 4 Quartile 3 Quartile 2 Quartile 1 Top Performer Effectiveness 76% Your Organization Page 26

27 Procure to Pay AP Cost per Invoice $5.62 AP Invoices per FTE 41,030 AP Labor Cost per Invoice $3.90 $2.11 9,507 $1.14 Peer Top performer Peer Top performer Peer Top performer Source: 2009 P2P Performance Study Page 27

28 Procure to Pay Overall first pass match rate for PO-based invoices Percent of payments made on time 80% 94% 85% 90% Peer Top performer Peer Top performer Source: 2009 P2P Performance Study Page 28

29 Customer to Cash Process Cost as a % of Credit Sales FTEs per Billion $ Credit Sales 0.062% % % 0.008% 0.006% 0.002% Credit Collections Dispute Management Credit Collections Dispute Management Source: 2009 Credit & Collections Performance Study Peer Group Top Performer Page 29

30 Customer to Cash DSO DSO relative to terms Best Possible DSO Peer Top performer Peer Top performer Peer Top performer Source: 2009 Credit & Collections Performance Study Page 30

31 Account to Report Process Cost as a % of Revenue 0.16% 0.022% 0.012% 0.012% 0.031% FTEs Per Billion of Revenue % 0.06% 0.010% 0.005% 0.002% 0.010% % 3.9 Peer Group Top Performer Peer Group T op Performer General Accounting Fixed Assets Cost Accounting External reporting Inter-Company Accounting General Accounting Fixed Assets Cost Accounting External reporting Inter-Company Accounting Source: 2009 Account to Report Performance Study Page 31

32 Account to Report General Accounting: Days to Close External audit fees per Billion of Revenue 6 $560,361 4 $212,804 Peer Top performer Peer Top performer Source: 2009 Account to Report Performance Study Page 32

33 Account to Report Days to reconcile inter-company accounts from cutoff date 2 1 Median Q1 Percent of Inter-company transactions automated 32% 26% 21% Percent of Inter-company reconciliations automated 58% 5% 5% 11% 0% 5% 0% 16% 21% Source: 2009 Account to Report Performance Study Less than 5% 5% to 10% 11% to 25% 26% to 50% 51 % to 75% More than 75% Page 33

34 Hackett Open Performance Studies Purchase to Pay--no charge: Credit to Collection--no charge: Payroll: fee request access through Global Business/Shared Services--no charge: Or then join the Performance Network for notifications Page 34

35 Contact Information The Hackett Group World Headquarters 1000 Abernathy Road Suite 1400 Atlanta, GA Phone: Martin House 5 Martin Lane London EC4R 0DP Phone: Penny Weller Title Global Business Services North American Practice Leader Phone: Mobile: pweller@thehackettgroup.com Torhaus Westhafen Speicherstrasse Frankfurt am Main, Germany Phone: , rue de Port Mahon Paris, France Phone: Strawinskylaan 3051G, 1077 ZX Amsterdam, The Netherlands Phone: Page 35