Research
Hackett Research: Inflation, Geopolitical Unrest, Other Factors Drive Up Operational Costs of Finance for the First Time in Decades
Miami, FL — July 13, 2023 — For the first time in decades, most finance organizations experienced a significant increase in operating costs in 2023, driven by inflationary pressures, geopolitical unrest and other uncertainty factors, according to new research from The Hackett Group, Inc. (NASDAQ: HCKT). During this same period, Digital World Class® finance organizations were highly resilient and managed to reduce costs to nearly half that of their peers while delivering dramatic improvements in value, including efficiency, effectiveness and customer experience.
A public version of the research, “Resilience: The Digital World Class Finance Advantage,” is available free, with registration, at https://go.poweredbyhackett.com/rdwcafin2305sm. It contains more than 50 metrics detailing the performance gap between Digital World Class finance organizations and their peers – plus six key areas where Digital World Class companies excel and a proposed action plan to close the gap.
While most finance organizations experienced an operational cost increase of 7.5% in 2023, Digital World Class organizations managed to reduce costs by 1.3%, demonstrating greater agility and resiliency. Also, most finance organizations employed more staff in 2023, while Digital World Class finance organizations reduced staff by 7% and operated with only 50% of the finance staff of peers. Digital World Class finance organizations improve continuously and now have accumulated a $48 million annual cost advantage over their peers (for a typical $10 billion enterprise).
The research answered the question as to why companies aspire to Digital World Class by highlighting an undeniable correlation between Digital World Class and improved overall enterprise performance. The data concluded that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians, including an 80% improvement in net margin, 24% higher earnings before interest, taxes, depreciation and amortization margin, 89% greater return on equity, and 44% higher total shareholder return
The Hackett Group defines Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics) in The Hackett Group’s comprehensive finance benchmark. The Hackett Group’s Digital 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.
While Digital World Class finance organizations spend 10% less on technology than their peers, they invest more strategically in digital transformation and derive tremendous value from emerging technologies such as smart automation, advanced analytics and collaboration tools, the research found. These investments improve productivity and help drive cost reductions in labor, outsourcing, real estate, travel and other areas, the research shows. And by equipping knowledge workers with modern digital tools, they allow employees to reallocate time to higher value services that benefit the business and its customers.
The research measures the performance gap between Digital World Class and typical finance organizations. Digital World Class companies provide:
- Enhanced insight and analytics, with 2.2X more staff focused on business analysis,
- Higher levels of experience, delivering 28% greater forecast reliability,
- Greater digital business enablement, making them 2.1X more likely to provide self-service reporting and analysis capabilities,
- Higher efficiency, with 37% lower transaction processing costs and 42% lower processing costs per accounts payable invoice,
- More advanced business process automation, with 56% more suppliers submitting invoices electronically
According to The Hackett Group Principal, Finance Executive Advisory Program, Tom Willman, “For several years, we’ve seen a narrowing cost gap between Digital World Class finance organizations and their peers. But this year, most finance organizations have been unable to hold the line on costs. They simply couldn’t offset the impact of inflation, geo-political unrest, supply chain challenges, and more with productivity improvements and cost savings. At the same time, Digital World Class finance organizations still managed to decrease costs slightly despite these factors because they have optimized their operations to enhance agility and resilience, streamline processes, implement greater process automation, and provide more strategic insights to their companies. That’s an impressive accomplishment.”
The Hackett Group Senior Director Shawn Fitzgerald added “Technology is a key driver to how Digital World Class finance organizations achieve their superior results. Although they spend less on technology than their peers, the difference is largely about how they approach finance transformation by focusing on five other key areas – data and analytics, modern cloud architecture, operating model evolution, end-to-end process design, and talent management. When done correctly, all this can drive greater reliability, more and faster value creation, and elevated status as a valued business partner.”
About The Hackett Group
The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class® performance.
Drawing upon our unparalleled intellectual property from more than 25,000 benchmark studies and our Hackett-Certified® best practices repository from the world’s leading businesses – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – captured through our leading benchmarking platform Quantum Leap® and our Digital Transformation Platform, we accelerate digital transformations, including enterprise cloud implementations.
For more information on The Hackett Group, visit: https://www.thehackettgroup.com/; email info@thehackettgroup.com; or call (770) 225-3600.
The Hackett Group, Hackett-Certified, quadrant logo, World Class Defined and Enabled, Quantum Leap, Digital World Class and Hackett Excelleration Matrix are the registered marks of The Hackett Group
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