The Three Hallmarks of a World-Class Finance Organization

By Nilly Essaides, Senior Research Director, The Hackett Group (NASDAQ: HCKT) And Jim O’Connor, Global Practice Leader, Global Business Services and Finance Advisory Programs, and Tom Willman, Associate Principal and Global Practice Leader, Finance Executive Advisory Program, The Hackett Group (NASDAQ: HCKT)

Nilly Essaides, Senior Research Director, The Hackett Group (NASDAQ: HCKT)

Companies today are facing a period of unprecedented volatility. Globalization is reshaping the competitive landscape. Changing regulations across multiple jurisdictions require constant monitoring. Meanwhile, digital transformation is giving rise to new products, services and business models.

"Digital transformation can play a major role in helping peer-group organizations catch up to their world-class competitors"

Digitization is also vastly accelerating the pace of change, as the amount of available data and the tools used to harness it grow exponentially. In fact, our extensive benchmarking work with Global 1000 companies shows that there’s nearly universal agreement among finance executives that digital transformation is critical to their companies’ very survival, and will reshape their business models and talent requirements.

Jim O’Connor, Global Practice Leader, Global Business Services and Finance Advisory Programs, and Tom Willman, Associate Principal and Global Practice Leader, Finance Executive Advisory Program, The Hackett Group (NASDAQ: HCKT)

Against this backdrop, finance organizations achieve excellence by pursuing three paths:

1. They increase efficiency: By taking cost out of their operations, world-class finance organizations build a leaner function, freeing up funds for redeployment in other areas in finance and operations, and improving their ability to respond to the changing demands of their internal customers.

2. They become more effective: World-class finance organizations adopt smart technologies and best practices, re-examine their service model regularly, and invest in their people to become better business partners.

3. They improve customer-centricity: World-class finance functions transform from the outside in, focusing their change initiatives on the needs of their stakeholders.

Without doubt, broader adoption of digital technologies has helped finance organizations achieve all three objectives. Our 2018 benchmark analysis shows that digital leaders’ finance cost is 43 percent lower. They employ 45 percent fewer FTEs. Their error rates are 37 percent lower and they spend 15 percent less time collecting and compiling data. As a result, they deliver a better experience for customers, who are more than twice as likely than more typical companies (which in our empirical methodology are designated as the peer group, or “peers”) to consider finance as a valued and responsive business partner (Fig. 1).

But while digital transformation is a core contributor to world-class status, it is by no means the only path to finance excellence. To achieve success, world-class finance organizations supplement the adoption of new tools with tried and true improvement methods like process optimization, better data management and service delivery optimization.

Running an Efficient Organization

World-class finance organizations (those that achieve top quartile efficiency and effectiveness in our benchmarks) continue to operate at a much lower cost than peers (Fig. 2). While their cost of operations recently has been flat, that disguises greater investment in people, the adoption of new technologies and process improvements. In fact, these organizations have consistently managed to keep cost low by employing 41 percent fewer FTEs, rationalizing expensive legacy systems, and investing wisely in their people, while shifting finance activities into global business services organizations (GBS), centers of excellence (COEs), outsourcing and offshoring.

Maximizing Effectiveness

To excel, finance must deliver value-enhancing services to its stakeholders. The expanding focus on acting as an advisor to the business requires finance to develop new skills, such as business acumen, analytical thinking and communication. Our 2018 benchmark analysis reveals that world-class finance organizations spend 60 percent more time on training, and have doubled their investment in training over the past year.

To guarantee their activities produce more effective results, world-class finance organizations have a clear view of processes from end to end. In addition, world-class finance organizations improve process effectiveness by standardizing and consolidating their data management platforms so they can draw information from the same repository, guarantee data integrity, and produce more informative reports.

By harmonizing data platforms and automating and optimizing processes, world-class finance organizations have managed to reduce the amount of time their staff spends on low-value work, and thus have more time to focus on expanded strategic activities. They are better able to connect the dots to identify how business decisions affect financial performance.

Focusing on Customer Experience

One measure of how well finance is doing is how satisfied its customers are with their experience. An important driver of satisfaction is the degree to which processes are free of errors. World-class companies make 6X fewer mistakes in accounts payable and 3X fewer mistakes in travel and expense reimbursement (T&E) processing and customer billing. Errors in AP billing often lead to unnecessary disputes with external customers that can affect relationships with strategic partners and potentially adversely impact the bottom line.

As a result, world-class finance organizations are over 3X more likely to be perceived by their stakeholders at anticipating and responding to their business needs.

Conclusions and Recommendations: How to Become a World-Class Finance Organization

Finance’s mandate from senior management and top business leaders is clear: Support strategic decision-making by delivering better information; assist with the enterprise digital transformation strategy; and collaborate with business leaders.

How can finance organizations rise to this challenge?

1. They must reduce their cost of operations by redesigning processes to take out inefficiencies and reduce manual intervention by leveraging smart technologies.

2. They must increase the effectiveness of their operations by freeing up staff time to focus on more strategic activities like analyses by optimizing and automating processes and revisiting the finance service delivery model.

3. They must work toward improving their stakeholders’ experience.

Digital transformation can play a major role in helping peer-group organizations catch up to their world-class competitors. But the reality is that the definition of world-class will continue to evolve as leading finance functions deploy smart technologies to transform themselves. Thus, the quest for achieving world-class status never ends; it requires continuous improvement of cost structure, effectiveness and stakeholders’ perceptions of how finance adds value to the performance of the enterprise.

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