Finance organisations can reduce costs by more than 40 per cent, by embracing digital transformation, according to a new study by The Hackett Group. The savings come from previously unattainable world-class efficiency levels say the study’s authors.
The release of the research coincides with the launch of The Hackett Group’s new “Digital World Class” analysis, an estimate of the additional benefits that world-class finance organisations can achieve through the combination of operating model changes, full technology landscape optimisation, and the successful adoption of digital technologies.
A public version of the research, “World-Class Finance: Redefining Performance in a Digital Era,” which contains nearly 90 metrics detailing the performance of typical and world-class finance organisations, is available on a complimentary basis, with registration.
The authors say that through digital transformation, world-class finance organisations can improve efficiency by nearly 20 per cent, making them 60 per cent more efficient than typical finance, the research found.
This ‘breakthrough’ can free up staff and budget resources enabling world-class finance organisations to further digital transformation initiatives, engage in more value-added activity, or fuel company growth, according to the study.
The Hackett Group’s research also emphasised that in part due to changes driven by digital transformation, next-generation finance organisations are moving beyond the inward-focused metrics of efficiency and effectiveness to also directly measure the experience of key stakeholders. As a result, The Hackett Group has added “experience” as a separate area of analysis, measurement, and transformation focus.
Both typical and world-class finance organisations can accelerate their digital transformation programs with smart automation, including robotic process automation, cognitive automation, intelligent data capture, and other leading-edge technologies. These systems can often be implemented comparatively quickly and easily, and can enable finance organisations to see significant interim improvements in efficiency and effectiveness, the research found.
The research includes a comprehensive look at the changes required to finance’s service delivery model to fully realise the benefits of digital transformation. The Hackett Group’s finance service delivery model for the digital era incorporates six interconnected capabilities: technology, service design, analytics and information management, organisation and governance, service partnering, and human capital.
Patience is a digital virtue
According to The Hackett Group Senior Research Director Nilly Essaides, “World-class finance organisations have maintained a steady 40-45 per cent efficiency lead over peers for the past decade. Digital transformation has the potential to propel peers to today’s world class levels, while at the same time redefining what ‘world class’ means for finance leaders.”
“This transition won’t be easy or happen overnight,” said Essaides. “To optimise the effects of digital transformation, finance needs to modernise or eliminate legacy systems and embrace a whole new IT delivery model, including the cloud. Expanding the reach of digital solutions is essential if finance organisations want to be able to more effectively compete in today’s fast-changing and increasingly unpredictable business environment, with its nonstop change and intensified competition.”
According to The Hackett Group Global Finance and GBS Advisory Practice Leader Jim O’Connor, “Overhauling finance’s entire IT architecture will take time and money. But our research shows that by deploying smart automation tools — which are faster to implement and produce a quicker ROI — finance can accelerate its transformation pace. Smart automation can significantly reduce manual work and free up staff time to focus on value-creating activities such as providing insight to support critical management decisions.”
“This is more of a tactical approach,” said O’Connor. “But in many cases these systems can be implemented without wholesale overhaul of the IT infrastructure, and companies can see real benefit fairly quickly, as they continue the longer-term journey to full digital transformation.”
Digital transformation is not solely about technology, The Hackett Group’s research found. Digital world-class finance organisations are also more effective and can provide their stakeholders with a better experience, despite their optimised cost model. For example, the most highly enabled finance functions experience 60 per cent fewer billing errors, close the books much faster and can spend more time analysing data than collecting it. One key here is a focus on standardisation of end-to-end processes.
New technologies are also permitting world-class companies to gain greater visibility into customers’ needs. Finance organisations that are digital leaders are 2.7x more likely to be seen by stakeholders as having a strategic vision, 2.1x more likely to be perceived as a valued business partner, and 44 per cent more likely to be seen as agile in meeting business challenges, The Hackett Group’s research found.
According to The Hackett Group Finance Transformation Principal Jeff Nourie, “It’s also important to note that while technology may be a major catalyst, it is only one of the enablers of world-class performance. As our world-class service delivery model details, it’s critical for finance organisations to focus on other improvements simultaneously.
For example, he said, human capital is key. “Finance organisations need to understand how their skills needs are changing, and appropriately align their talent management strategy and skills development plans to match the pace of change and innovation. Organisation and governance are also critical, with a focus on standardisation and migration of services into global business services organisations – and to offer specialised and differentiated services migrate activities into specialised centers of excellence to more effectively perform knowledge-based activities such as decision support.”
World-class finance organisations are those that achieve top-quartile performance in both efficiency and effectiveness across an array of weighted metrics in The Hackett Group’s comprehensive finance benchmark. Digital world-class is The Hackett Group’s estimate of the additional benefit that world-class finance organisations can derive from full technology enablement of execution of finance work and optimisation of the finance technology landscape. The Hackett Group’s world-class finance research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.
About The Hackett Group
The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading benchmarking and best practices firm to global companies, with offerings that include smart automation and enterprise cloud application implementation. Services include business transformation, enterprise analytics, global business services, and working capital management. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle and SAP practices.