World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado...

World-Class Defined

Building a World-Class Organization

NASC National Conference – Denver Colorado

By: Penny Weller, Senior Director

The Hackett GroupMarch 2008

© 2008 The Hackett Group. All rights reserved.

Agenda

World-Class Defined and The Hackett Group Role of Shared Services – why so many organizations have gone this way Trends in Shared Services


World-Class Defined


Hackett Value Grid™ − the foundation for how Hackett defines world-class performance

Hackett Value Grid™ (Finance example)

EFFECTIVENESS

Industry relative total excess return

Operating profit volatility Cost of capital Days sales outstanding Days payables outstanding Days Inventory on-hand Quality metrics Accuracy of forecasts and

analysis Functional role in strategic

decision making Percent of time analytic focus in

on proactive decision making

EFFICIENCY

Overall function cost as a % of revenue

Process cost as a % of revenue Technology cost per function FTE Staffing levels by process Cycle times and iterations Unit cost of transactions Utilization of self-service for

inquiry Application complexity Automation of transactions Reliance on spreadsheets Percent of business reports

distributed electronically


Unique process taxonomy spans SG&Amultiple functions across 59 process groups

Finance

Cash disbursements Revenue cycle Accounting and external reporting Tax management Treasury management

Compliance Management Planning & Performance

Management Business Analysis Function Management

Hackett’s taxonomy ensures an apples-to-apples comparison

Information Technology

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

Human Resources

Total Rewards Administration Payroll Services Data Management, Reporting &

Compliance Staffing Services

Workforce Development Services Organizational Effectiveness Total Rewards Planning Strategic Workforce Planning 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 insights are based on work with 2,700 of the world’s leading companies

97% of the Dow Jones Industrials

73% of the Fortune 100

88% of the Dow Jones Global Titans

73% of the DAX 30

45% of the FTSE 100


Does being World-class matter?

Hackett 2007 Functional Performance Data - Select SG&A Functions

Overall IT costper end user

Median WC

5%

World-class are investing more in IT

$8,701$9,198

Overall Finance costas a % of revenue

Median WC

51%

$6.3 million in savings per $1 billion

of revenue

1.24%

0.61%

Overall HR costper employee

Median WC

9%

$1.7 million in savings per 10,000

employees

1,995

1,822

Overall Procurement cost as a % of spend

Median WC

23%

$1.9 million in cost savings per $1 billion of spend

0.63%

0.82%

What are your performance improvement opportunities?

2007 Finance Benchmark


Key Focus Areas for Finance


World-class Finance organizations continue to differentiate themselves from the peer group

• ERP implementation• Beginnings of shared services• Shift from mainframe to client server

• Refinement of shared services• Advent of web and self service• Data warehousing increasing• Maturing shared services

• Globalization• Increasing focus on planning and

analysis• Sarbanes-Oxley

Finance cost as a percent of revenue

2007 Finance Benchmark


Transactionalservices

Process & Technology Enablers

Traditional Finance Emerging Finance

Traditional Shared Services

Focus – Managing The Numbers

Finance is being transformed…..

Focus – Managing The Business

Transactional services

Analytical services

Analyticalservices


With decision support processes being added to the mix, a new chapter is being written in the history of shared services

Historically, the shared services story has essentially been the consolidation of transactional processes

That story is changing; increasing numbers of companies are moving higher-value finance processes, such as performance reporting and business analysis, into shared services organizations

Moving activities performed in shared services further up the value chain is a core element of the emerging finance delivery model

2007 BOOK OF NUMBERS™ Research Series: Performance Metrics and Practices of World-Class Finance Organizations


Finance Shared Services


“The secret of world-class companies’ success—basically, their ability to do more with less—lies in getting the mix right: streamlining processes, embedding controls within the processes, reducing or eliminating manual handoffs, and leveraging the functionality of technology are essential to driving lower error rates and lower overall costs.”

Profile of World-Class Finance


What is Shared Services? (Definition)

Shared Services is an approach (operating model) used by companies around the globe to organize and deliver internal support services more efficiently and effectively.

It generally involves removing work activities from business units, and standardizing & consolidating the way in which those services are delivered to provide value to the business units in the form of reduced overall G&A costs and increased service performance.


World-Class Finance Shared Services

Customers

People/Organization

Process

Technology

Strategic Alignment/ Partnering

Technology Leverage

Customer to

Cash

Hire to

Retire

Account to

Report

ProcureTo

Pay

Shared Services Operations

EmployeesBusiness

UnitsSuppliers


Many have achieved initial success - what’s next – expanding scope & geographies -- how to be ‘virtual’ – process, technology or sourcing

Expanding scope of services Expanding geographies

Global hubs Regional centers Competency centers

Centralize

Standardize

Process Management &

Technology Leverage

Offshoring Outsourcing

Virtualization

‘location neutral’

World-Class

Quantum Leap Forward

Next Quantum Leap?


Key shared services’ operating principles

Benefits primarily from “economies of scale” and standardization Shares resources and costs across business units Provides process or knowledge-based services Operates with a “business mentality” Uses contractual arrangements (SLAs) to define service level and

responsibilities Embraces metrics to sustain contribution; typically including internal charging to

drive desired performance Uses an end-to-end approach to ensure the entire process is optimized


Shared Services Combines the Benefits of Both Centralized and Decentralized Operations

Shared

Decentralized Centralized

No Business Unit Control of Central Overhead

Inflexible to Business Unit

Needs

Remote from Business

Unresponsive

Higher Costs

Different Control Environments

Duplication of Effort

Variable Standards Independent of

Business

Synergies

Lean, Flat Organization

Dissemination of Best Practices

Economies of Scale

Consistent Standards &

Controls

Common Systems &

Support

Business Unit Maintains Control of Decisions

Responsive to Client Needs

Greater Visibility

Companies impacted by regulations like Sarbanes Oxley see many benefits from shared services


Staff

Cost Center

Controls

Functional Specialist

Allegiance to Departments

Functional Organization Boxes

Bureaucracy

“My Job Performance”

“Not My Job”

Entitlement

Up the Ladder

One-way Feedback

Supplier/Partner

BusinessValue

Service Provider

Allegiance to Customers

Pooled Resources

Economies of Scale

Shared Measures and Rewards

“How Can I Help?”

Accountability

Two-way Responsibility

Metric-Centric

Passion for Process Management

Supplier/Partner

BusinessValue

Service Provider

Allegiance to Customers

Pooled Resources

Economies of Scale

Shared Measures and Rewards

“How Can I Help?”

Accountability

Two-way Responsibility

Metric-Centric

Passion for Process Management

Shared ServicesBusiness Unit – Corporate Centralized Processing

Shared Services so much more than “centralization”…

Maturity


World-class organizations use shared services to a greater extent in many processes

Shared service utilization

Source: Hackett SG&A Benchmark Population 2007


Shared Services enables world-class performance

Error Rates

Balanced Scorecard

Hours of Training

Technology Spend

100% More Mature Balanced Scorecard Programs

38% More Training

5% More Technology Investment

60% Less Transactional Processing Staff

Transaction Processing Staff

Finance

63% Fewer Errors in Billing

Peer group

World-class


Shared services decisions

“Size of the Prize”How big is the Opportunity from Shared Services?

“Insource or Outsource”Should I implement a shared services strategy with my internal team or partner with an outside organization?

“Location Assessment”What location best meets my organization today and into the future?

“Process Transformation”How do I design my processes to take advantage of best practices? How to measure success? KPIs, Scorecards

“Functional Analysis”How am I performing compared to peers? Develop the business case well enough to achieve executive and business unit support


World-Class Finance Shared ServicesHow to transition more easily…five key areas


Tools with the Highest Optimization Effect

23%

13%

28%

31%

46%

65%

44%

25%

33%

42%

58%

75%

83%

83%

Change management mentality

Extensive staff training

Measurement intensive KPI reporting

Standard chart of accounts

End-to-end process design

Single integrated ERP platform

Continuous improvement / qualityprogram

World-Class

Peer Group

2007 Finance Shared Services Performance Study


31%

6%

31%

9%

14%

9%6%

11%

25%

6%

52%

Achieved

Finance Shared Services – Savings without a formal continuous improvement process and culture in place

Planned

69% of SSOs plan to save 20% or more costs69% of SSOs plan to save 20% or more costs

21 to 40%41 to 60%>60% 11 to 20% 1 to 10%

46% of SSOs have saved 20% or more costs46% of SSOs have saved 20% or more costs

No Change

Associate

right = have


2%

30%

16%

7%

45%

5%

16%19%

5%

55%

Achieved

Finance Shared Services – Savings with formal continuous improvement process and culture in place

Planned


21 to 40%41 to 60%>60% 11 to 20% 1 to 10%


No Change

Associate

right = have


World-class shared services

1. Leadership support and execution

2. Passion around process

3. Customer respect

4. Sourcing and technology

5. People-driven culture


1. Leadership support and execution

Project plan accepted at the top Walk the talk

– don’t “back down” – acknowledge as a key initiative

Build “tension” – stretch goals– Performance gaps– Make the “tough” decisions– Sense of urgency

Assign “stars” – transformation team, global process owners


2. Passion around process

Metric-centric: (scorecards, strategy maps)– Quality, Cost, Delivery

Benchmark externally End-to-end process design Value ideas and creativity

– Quick wins! Continuous improvement

– 6 Sigma, LEAN, Baldrige– Activity based management

Time

Qua

lity


With Quality Program - Lower Accounts Payable Cost

Accounts PayableProcess Cost per invoice

$4.30

$2.6838%

With Quality Program

Without Quality Program

Source Hackett Process Benchmark Research


Achieve greater cost savings and quality improvements

Achieve 40% or greater reduction in process costAchieve 40% or greater improvement in quality

output

11.8%

24.0%

51%



12.6%

20.0%



37%



End-to-end process design

Organization appoints global end-to-end process owners within shared services who have responsibility for process standardization and process direction on a global basis

– develop targets– accountable for process – measure success


3. Customer respect – internal partnerships

Market the center – clear messaging Connections – integrate with other initiatives and teams, customer councils,

governance Invite self and promote contributions

Alignment of functional priorities with business Customer surveys – leader involvement Complaints are gift


Organizations utilizing Service Level Agreements (SLAs) have lower costs per transaction

Accounts PayableCost per invoice

(1st Quartile)

Travel Expense Cost per record (1st Quartile)

$6.03

$1.68

72%

>60% SLA Utilization

<20% SLA Utilization

$1.56

$.87

>60% SLAUtilization

<20% SLA Utilization

44%



4. Sourcing and technology

Focus on reducing business complexity Alignment of functional priorities with business Leveraging ROI on technology for both transaction processing as

well as information access


5. People-driven culture

Clear purpose and mission– Engagement

Create the culture – Encourage risk taking– Celebrate success

Formal change management Formal process management Metrics that focus on desired behaviors –

performance Commitment to invest in people


Change management

Formal change management process in place to include activities like ensuring major process changes agreed to with customers before implementation

Too often, an SSC thinks they know what their customers want or how best to provide services.


Change management

Span of ControlAccounts Payable (Median)

8.83

12.0

With Change Management

Program

Without Change Management

Program

26%


Travel Expense Reports per FTE(1st Quartile)

5,461

26,667

With Change Management

Program

Without Change Management

Program

79%


Hackett Finance Shared Service Advisory Members

•

Services provided

2007 Finance Advisory Membership


Hackett Finance Shared Services Advisory Members

•

Services provided

2007 Finance Advisory Membership


2007 Finance Shared Services Performance Results

2007 Finance Shared Services Performance Study© 2007 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

The Hackett Value GridTM

EFFICIENCY

Cost Cycle Time Technology Enablement Complexity Governance

EFFECTIVENESS

Partnership

Quality

Talent Management

Although this is a sample, each dot on

The Hackett Value Grid will represent

organizations that participated in the

2007 Performance Study. The star will

represent your organization and

indicate how it compares in the areas of

efficiency and effectiveness to the other

participants.

Although this is a sample, each dot on

The Hackett Value Grid will represent

organizations that participated in the

2007 Performance Study. The star will

represent your organization and

indicate how it compares in the areas of

efficiency and effectiveness to the other

participants.

Hackett Value Grid™

Associate

define world class shared service tm


Executive Summary

No surprises that the survey shows that Finance Shared Services are well established and are delivering benefits

What we have found is:– Increasing value add within SSOs – 25% of world-class SSOs already have business analysis in

their SSO with 75% intending to within the next three to five years

– Increasing focus on talent – world-class SSOs make a higher investment in staff training and benefit from a markedly lower turnover of staff compared the peer group (42% have staff turnover below 5% compared with only 16% of the peer group)

And there are still some basic ways to improve SSOs:– Governance – 16% of SSOs are still operating without SLAs

– Addressing activity drivers – 33% of world-class SSOs are now explicitly pricing to change behavior


The 2007 Finance Shared Services Performance Study Included 167 Organizations Across Various Industries and Geographies – The Following is a Partial List

Alcoa, Inc. Alfred McAlpine Infrastructure Services Ltd. Avis Rent a Car System, LLC BAE Systems PLC Basell Polyolefins UK Ltd British American Tobacco p.l.c. The British Council Cargill, Incorporated The Caterpillar, Inc. Citibank, NA The Coca-Cola Company COLT Deutsche Lufthansa AG Diageo plc DPD GeoPost (Deutschland) GmbH & Co Kg Global Hyatt Corporation Gold Fields Shared Service (Pty) Ltd H.B. Fuller Company

Alcoa, Inc. Alfred McAlpine Infrastructure Services Ltd. Avis Rent a Car System, LLC BAE Systems PLC Basell Polyolefins UK Ltd British American Tobacco p.l.c. The British Council Cargill, Incorporated The Caterpillar, Inc. Citibank, NA The Coca-Cola Company COLT Deutsche Lufthansa AG Diageo plc DPD GeoPost (Deutschland) GmbH & Co Kg Global Hyatt Corporation Gold Fields Shared Service (Pty) Ltd H.B. Fuller Company

H.J. Heinz Company Infineon Technologies AG InterContinental Hotels Group PLC International Paper Company Marriott International, Inc. Metso Shared Services Oy NetworkRail NHS Shared Business Services Novo Nordisk A/S Pitney Bowes Inc. RWE Systems AG Sappi Fine Paper Seagate Technology LLC Siemens AG Sprint Nextel Corporation State of Tennessee Tetra Pak International Viacom Inc.

H.J. Heinz Company Infineon Technologies AG InterContinental Hotels Group PLC International Paper Company Marriott International, Inc. Metso Shared Services Oy NetworkRail NHS Shared Business Services Novo Nordisk A/S Pitney Bowes Inc. RWE Systems AG Sappi Fine Paper Seagate Technology LLC Siemens AG Sprint Nextel Corporation State of Tennessee Tetra Pak International Viacom Inc.


Size of Companies in Study Industry Distribution in Study

Finance Shared Services General Demographics

The median company is at $9 Billion in revenue

The median company is at $9 Billion in revenue

The median company is at 26,000 employees

The median company is at 26,000 employees

We have a good mix of industries participating in the study

We have a good mix of industries participating in the study

Employee Size in Study

Less than 10k

21%

10k - 20k19%

20k - 35k15%

35k - 50k12%

50k - 100k23%

Greater than 100k10%

Financials4%

IT13%

Telecoms / Utilities

3%Consumer

Goods24%

Healthcare14%

Govt / Non-profit3%

Resources, Mfr, Capital

Goods39%

Less than $1 billion

14%

$1 billion - $5 billion

17%


21%


20%


19%

Greater than $50 billion

9%



Finance Shared Services Demographics

< $1B $1B - $5B $10B - $25B > $25B

< 10K 10K – 20K 20K – 45K 45K - 75K

2 3 - 4 > 41

2 - 5 6 - 16 > 161

$5B - $10B

> 75K

World-Class RangeWorld-Class

$12B

42K

2

12



20%

10% 10%

20%

10% 10%

20%

15% 15%

12%

18%

1%

5%

15%

Labor arbitrage Employee skills /languages

Low risks Exceptionalinfrastructure

Culturally acceptable T im zone availability Existing facility

Peer Group World-Class

Reasons for Selecting the SSC Location



33%

29%

10%11% 11%

3% 3%

31%

27%

10%12%

6%

8%

6%

Less than 100 100 to 250 250 to 400 400 to 700 700 to 1000 1000 to 1500 1500 to 2000

Today Future

Scope of Finance Shared Services – People



Benefits from Business Support in Finance Shared Services

70%66%

100%

80%

Yes, efficiency increased Yes, quality increased


Degree of Process Standardization



Percent of Annual Voluntary Employee Turnover

16%

25%

32%

28%

42%

8%

17%

33%

Less than 5% Between 5 and 10% Between 10 and 20% Greater than 20%




100%

50%

30%

80%

20% 20%

40%

100%

48% 50%

100%

25%

50%

60%

Management Degreed ManagementAdvanced Degreed

ManagementCertification

Professional Degreed Professional AdvancedDegreed

ProfessionalCertification

Clerical Degreed


Degreed and Certified Shared Services’ Employees


Number of Annual Training Hours Per Service Center Employee

28%

14%10%

48%

17%

0%

8%

75%

Less than 20 hours Between 20 and 30 hours Between 30 and 40 hours Greater than 40 hours




45%

52%

3%

Improve Service, Quality, Accuracy and Timeliness

Group Similar Tasks and Expertise for a Critical Mass

Finance Shared Services – Level of Success in Targeted Benefits

40%

2%

51%

7%

Corporate Strategy

Reduce Headcount and Salary/WagesReduce Administration CostsReduce Redundant Tasks

LowMedium World-ClassHigh None

12%

37%

5%

46%

7%

40%

53%

13%

49%

38%

27%

72%

1%



Improve Working Capital

Finance Shared Services – Level of Success in Targeted Benefits (cont.)

Reduce Infrastructure Costs

Simplify Roll-out and IT System Support

LowMedium World-ClassHigh None

41%

5%

28%26%

28%

15%

24%

33%

Standardize Services

40%

1%

52%

7%

46%

8%

33%

13%



4%8%

21%

23%

6%

38%

5%

14%

22%

5%

54%

Achieved

Finance Shared Services – Savings

Planned


21 to 40%41 to 60% World-Class>60% 11 to 20% 1 to 10%


No Change


Associate

right = have


Productivity

Result of SSO Implementation

Customer ServiceQuality

89% of companies saw more than 10% of productivity improvement89% of companies saw more than 10% of productivity improvement

82% of companies saw more than 10% of quality improvement

82% of companies saw more than 10% of quality improvement

79% of companies saw more than 10% of customer service

improvement

79% of companies saw more than 10% of customer service

improvement

25%

34%

21%

10% 9%1%

21 to 40%41 to 60% World-Class>60% 11 to 20% 1 to 10% No Change

13%

35%

25%

13%

1%9%4%

16%

23%

23%

17%

3% 7%11%

Negative Impact



ERP Utilization

Number of ERP Systems Utilized by Your StaffPercent of Countries or Business Units that are Using Standardized Processes

14%

16%

40%

31%

0%

8%

42%

50%

Less than 20%

Between 20 and50%

Between 50 and80%

Between 80 and100%

Peer GroupWorld-Class

6%

5%

33%

56%

9%

9%

9%

73%

>10

6-10

2-5

1



Finance Shared Services – Future Plans

25%

25%

33%

42%

17%

33%

42%

27%

48%

44%

22%

23%

24%

31%

31%

37%

39%

42%

75%

83%

e-Procurement

Automatic matching & payment allocationtools

Data analysis & reporting tools

Data warehouse

Self-service capabilities

ERP

e-Invoicing

Planning new / additional shared servicelocations

Planning to extend scope of services /countries serviced by existing SSO

Continuous improvement / qualityprogram

World-Class

Peer Group



Finance Shared Services – Moving Up The Value Chain

Shared Service Organizations are eliminating work as they deliver benefits, and are taking on additional responsibility for decision support activities

Strategy

Decision Support

Transactions

Eliminate . . . Automate . . . Offshore

© 2008The Hackett Group. All rights reserved.

Scope of Finance Shared Services – Decision Support

Today Future

3%

0%

0%

0%

0%

20%

10%

20%

20%

25%

30%

50%

Cost Accounting

Budgeting

Cost Analysis

BusinessPerformance

Analysis

Outlook / InterimForecasting

BusinessPerformance

Reporting


22%

25%

41%

41%

41%

26%

25%

38%

50%

63%

75%

75%

Outlook / InterimForecasting

Budgeting

BusinessPerformance

Reporting

Cost Accounting

Cost Analysis

BusinessPerformance

Analysis




On-going Research – Business Process Sourcing -

1. Decentralized

2. Centralized / shared services – onshore within the country or region being serviced

3. Centralized / shared services – offshore at a lower labor cost location outside the country or region being serviced

4. Outsourced onshore or offshore – to a third party

5. Fully automated – manual intervention is minimal

www.thehackettgroup.com/studies/sourcing


Finance – Overall – 2005 through 2010

4% 3% 5% 10% 18% 18%5% 6% 8%11%

10% 11%

6% 6% 5%

11%7%

14%60% 52% 54%

56% 52%47%

25% 33% 27%12% 13% 10%

2005 2006 2007 2008 2009 2010

Fully Automated Outsourced Onshore or Offshore

Centralized Shared Services Offshore Centralized Shared Services Onshore

Decentralized

In three years

2007 Finance Business Process Sourcing Study Performance Study


Finance – Overall – Focus on 2007 Actual Compared to Planned

2007 Finance Business Process Sourcing Study Performance Study


Penny Weller, PhD, CMAFinance Shared Services and Account to Report Advisory Programs

The Hackett Group1117 Perimeter Center West, Suite N-500Atlanta, GA 30338-5451

[email protected]

Contact Information

World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado...

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