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World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado By: Penny Weller, Senior Director The Hackett Group.

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Presentation on theme: "World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado By: Penny Weller, Senior Director The Hackett Group."— Presentation transcript:

1 World-Class Defined Building a World-Class Organization NASC National Conference – Denver Colorado By: Penny Weller, Senior Director The Hackett Group March 2008

2 Page 2 © 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

3 Page 3 © 2008 The Hackett Group. All rights reserved. World-Class Defined

4 Page 4 © 2008 The Hackett Group. All rights reserved. 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

5 Page 5 © 2008 The Hackett Group. All rights reserved. Unique process taxonomy spans SG&A multiple 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 Hacketts 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

6 Page 6 © 2008 The Hackett Group. All rights reserved. Hackett insights are based on work with 2,700 of the worlds leading companies 97% of the Dow Jones Industrials 73% of the Fortune % of the Dow Jones Global Titans 73% of the DAX 30 45% of the FTSE 100

7 Page 7 © 2008 The Hackett Group. All rights reserved. Does being World-class matter? Hackett 2007 Functional Performance Data - Select SG&A Functions Overall IT cost per end user Median WC 5% World-class are investing more in IT $8,701 $9,198 Overall Finance cost as a % of revenue Median WC 51% $6.3 million in savings per $1 billion of revenue 1.24% 0.61% Overall HR cost per 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

8 Page 8 © 2008 The Hackett Group. All rights reserved. Key Focus Areas for Finance

9 Page 9 © 2008 The Hackett Group. All rights reserved. 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

10 Page 10 © 2008 The Hackett Group. All rights reserved. Transactional services 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 Analytical services

11 Page 11 © 2008 The Hackett Group. All rights reserved. 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

12 Page 12 © 2008 The Hackett Group. All rights reserved. Finance Shared Services

13 Page 13 © 2008 The Hackett Group. All rights reserved. The secret of world-class companies successbasically, their ability to do more with lesslies 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

14 Page 14 © 2008 The Hackett Group. All rights reserved. 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.

15 Page 15 © 2008 The Hackett Group. All rights reserved. World-Class Finance Shared Services Customers People/Organization Process Technology Strategic Alignment/ Partnering Technology Leverage Customer to Cash Hire to Retire Account to Report Procure To Pay Shared Services Operations Employees Business Units Suppliers

16 Page 16 © 2008 The Hackett Group. All rights reserved. Many have achieved initial success - whats 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?

17 Page 17 © 2008 The Hackett Group. All rights reserved. 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

18 Page 18 © 2008 The Hackett Group. All rights reserved. Shared Services Combines the Benefits of Both Centralized and Decentralized Operations Shared DecentralizedCentralized 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

19 Page 19 © 2008 The Hackett Group. All rights reserved. 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 Business Value 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 Business Value 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 Services Business Unit – Corporate Centralized Processing Shared Services so much more than centralization… Maturity

20 Page 20 © 2008 The Hackett Group. All rights reserved. World-class organizations use shared services to a greater extent in many processes Shared service utilization Source: Hackett SG&A Benchmark Population 2007

21 Page 21 © 2008 The Hackett Group. All rights reserved. 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

22 Page 22 © 2008 The Hackett Group. All rights reserved. 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

23 Page 23 © 2008 The Hackett Group. All rights reserved. World-Class Finance Shared Services How to transition more easily…five key areas

24 Page 24 © 2008 The Hackett Group. All rights reserved. Tools with the Highest Optimization Effect 2007 Finance Shared Services Performance Study

25 Page 25 © 2008 The Hackett Group. All rights reserved. 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 costs 21 to 40%41 to 60%>60%11 to 20%1 to 10% 46% of SSOs have saved 20% or more costs No Change

26 Page 26 © 2008 The Hackett Group. All rights reserved. Achieved Finance Shared Services – Savings with formal continuous improvement process and culture in place Planned 77% of SSOs plan to save 20% or more costs 21 to 40%41 to 60%>60%11 to 20%1 to 10% 81% of SSOs have saved 20% or more costs No Change

27 Page 27 © 2008 The Hackett Group. All rights reserved. World-class shared services 1.Leadership support and execution 2.Passion around process 3.Customer respect 4.Sourcing and technology 5.People-driven culture

28 Page 28 © 2008 The Hackett Group. All rights reserved. 1. Leadership support and execution Project plan accepted at the top Walk the talk –dont 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

29 Page 29 © 2008 The Hackett Group. All rights reserved. 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 Quality

30 Page 30 © 2008 The Hackett Group. All rights reserved. With Quality Program - Lower Accounts Payable Cost Accounts Payable Process Cost per invoice $4.30 $ % With Quality Program Without Quality Program Source Hackett Process Benchmark Research

31 Page 31 © 2008 The Hackett Group. All rights reserved. Achieve greater cost savings and quality improvements Achieve 40% or greater reduction in process cost Achieve 40% or greater improvement in quality output 11.8% 24.0% 51% With Quality Program Without Quality Program 12.6 % 20.0% With Quality Program Without Quality Program 37% Source Hackett Process Benchmark Research

32 Page 32 © 2008 The Hackett Group. All rights reserved. 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

33 Page 33 © 2008 The Hackett Group. All rights reserved. 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

34 Page 34 © 2008 The Hackett Group. All rights reserved. Organizations utilizing Service Level Agreements (SLAs) have lower costs per transaction Accounts Payable Cost per invoice (1 st Quartile) Travel Expense Cost per record (1 st Quartile) $6.03 $ % >60% SLA Utilization <20% SLA Utilization $1.56 $.87 >60% SLA Utilization <20% SLA Utilization 44% Source Hackett Process Benchmark Research

35 Page 35 © 2008 The Hackett Group. All rights reserved. 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

36 Page 36 © 2008 The Hackett Group. All rights reserved. 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

37 Page 37 © 2008 The Hackett Group. All rights reserved. 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.

38 Page 38 © 2008 The Hackett Group. All rights reserved. Change management Span of Control Accounts Payable (Median) With Change Management Program Without Change Management Program 26% Source Hackett Process Benchmark Research Travel Expense Reports per FTE (1 st Quartile) 5,461 26,667 With Change Management Program Without Change Management Program 79%

39 Page 39 © 2008 The Hackett Group. All rights reserved. Hackett Finance Shared Service Advisory Members Services provided 2007 Finance Advisory Membership

40 Page 40 © 2008 The Hackett Group. All rights reserved. Hackett Finance Shared Services Advisory Members Services provided 2007 Finance Advisory Membership

41 Page 41 © 2008 The Hackett Group. All rights reserved Finance Shared Services Performance Results

42 Page 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 Grid TM 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. Hackett Value Grid

43 Page 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. 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

44 Page 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 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.

45 Page 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. Size of Companies in StudyIndustry Distribution in Study Finance Shared Services General Demographics The median company is at $9 Billion in revenue The median company is at 26,000 employees We have a good mix of industries participating in the study Employee Size in Study 2007 Finance Shared Services Performance Study

46 Page 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. Finance Shared Services Demographics < $1B $1B - $5B$10B - $25B> $25B < 10K10K – 20K20K – 45K 45K - 75K > > 161 $5B - $10B > 75K World-Class RangeWorld-Class $12B 42K Finance Shared Services Performance Study

47 Page 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. Reasons for Selecting the SSC Location 2007 Finance Shared Services Performance Study

48 Page 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. Scope of Finance Shared Services – People 2007 Finance Shared Services Performance Study

49 Page 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. Benefits from Business Support in Finance Shared Services Degree of Process Standardization 2007 Finance Shared Services Performance Study

50 Page 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. Percent of Annual Voluntary Employee Turnover 2007 Finance Shared Services Performance Study

51 Page 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. Degreed and Certified Shared Services Employees

52 Page 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. Number of Annual Training Hours Per Service Center Employee 2007 Finance Shared Services Performance Study

53 Page 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. Improve Service, Quality, Accuracy and Timeliness Group Similar Tasks and Expertise for a Critical Mass Finance Shared Services – Level of Success in Targeted Benefits Corporate Strategy Reduce Headcount and Salary/Wages Reduce Administration CostsReduce Redundant Tasks LowMediumWorld-ClassHighNone 2007 Finance Shared Services Performance Study

54 Page 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. Improve Working Capital Finance Shared Services – Level of Success in Targeted Benefits (cont.) Reduce Infrastructure Costs Simplify Roll-out and IT System Support LowMediumWorld-ClassHighNone Standardize Services 2007 Finance Shared Services Performance Study

55 Page 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. Achieved Finance Shared Services – Savings Planned 73% of SSOs plan to save 20% or more costs 21 to 40%41 to 60%World-Class>60%11 to 20%1 to 10% 65% of SSOs have saved 20% or more costs No Change 2007 Finance Shared Services Performance Study

56 Page 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. Productivity Result of SSO Implementation Customer Service Quality 89% of companies saw more than 10% of productivity improvement 82% of companies saw more than 10% of quality improvement 79% of companies saw more than 10% of customer service improvement 21 to 40%41 to 60%World-Class>60%11 to 20%1 to 10%No ChangeNegative Impact 2007 Finance Shared Services Performance Study

57 Page 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. ERP Utilization Number of ERP Systems Utilized by Your Staff Percent of Countries or Business Units that are Using Standardized Processes Peer GroupWorld-Class 2007 Finance Shared Services Performance Study

58 Page 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. Finance Shared Services – Future Plans 2007 Finance Shared Services Performance Study

59 Page 59 © 2008 The Hackett Group. All rights reserved. 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

60 Page 60 © 2008The Hackett Group. All rights reserved. Scope of Finance Shared Services – Decision Support Today Future 2007 Finance Shared Services Performance Study

61 Page 61 © 2008The Hackett Group. All rights reserved. Finance Shared Services Trends in Shared Services – Outsourcing - Offshoring

62 Page 62 © 2008 The Hackett Group. All rights reserved. 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

63 Page 63 © 2008 The Hackett Group. All rights reserved. Finance – Overall – 2005 through 2010 In three years 2007 Finance Business Process Sourcing Study Performance Study

64 Page 64 © 2008 The Hackett Group. All rights reserved. Finance – Overall – Focus on 2007 Actual Compared to Planned 2007 Finance Business Process Sourcing Study Performance Study

65 Page 65 © 2008 The Hackett Group. All rights reserved. Penny Weller, PhD, CMA Finance Shared Services and Account to Report Advisory Programs The Hackett Group 1117 Perimeter Center West, Suite N-500 Atlanta, GA Contact Information


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