Sizing Up the Digital World Class® Advantage – and the Finance Transformation Required to Achieve It

As companies navigate the impact of both inflation and slowing growth, sales, general and administrative (SG&A) expenses are under particularly intense scrutiny. Today’s top-performing finance organizations help their organizations respond to this environment – in part by running at a 42% lower cost than peers. But according to The Hackett Group’s most recent benchmarking analysis, their contribution goes well beyond that.

Digital World Class finance organizations deliver greater business value

1. They have a higher degree of digital business enablement.
   For example, they are 26% more likely to employ electronic message routing and document imaging for problem resolution. They are also 6.4 times more likely to have customers using web-based account access versus their peers – enabling customer self-service and access to real-time account status.
2. This means they can employ more knowledge workers.
   Because Digital World Class organizations have automated more transactional tasks, they employ 61% more knowledge workers than their peers—professionals with critical business partnering and data and analytics skills.
3. That makes them more effective.
   For example, they are 39% better at forecasting top-line revenue accurately and, to a lesser extent, earnings. They also excel at cash flow management: they are 20% better than peers at collecting cash within contractual terms.
4. As a result, they provide a better experience for stakeholders.
   Commensurate with these demonstrated competencies, their management teams have 33% greater confidence in forecasting reliability. These organizations are also 13% better at supporting pricing analysis that meets business requirements for pricing decisions.

Digital World Class finance organizations are operationally excellent

1. They have significantly greater process automation in receivables and payables.
   These finance leaders are 19% more likely to integrate and automate the transfer of accounting data from fixed assets to the general ledger.
2. They leverage automation, making their staff more productive.
   For example, they process 2.8 times more customer invoices/bills per full-time equivalent (FTE). They make 3.5 times more collections contacts per FTE. And they process 53% more accounts payable invoices annually per FTE.
3. Their superior efficiency lowers operational costs.
   Because of their superior efficiency and productivity, Digital World Class finance organizations, on average, have 42% lower operating costs than peers. For a company with $10 billion in annual revenue, this translates to a $39 million cost advantage. This enables greater free cash flow to invest in the capabilities they need to maintain their advantage.

Business value leaders, operational excellence leaders and Digital World Class finance organizations all deliver real impact

Any location on the yellow “arch” of the Hackett Value Grid^™ may be an appropriate finance transformation goal, depending on your industry and business strategy.

Business value leaders: Companies in fast-changing, growth-oriented industries, such as software and technology, are primarily focused on driving value through innovation and customer-centricity. Once they have achieved business value leadership, focus can shift toward improving efficiency and propelling the organization into the Digital World Class quadrant.

Operational excellence leaders: Have made continuous improvement opportunities their primary focus to drive operational cost-efficiency.

In some industries, there may be more variance. For example, a large life sciences company that has less new product development in its pipeline and is maximizing value of the current portfolio may focus on elevating operational excellence, while a smaller, innovation-led life sciences company may opt for a business value leadership strategy.

Our analysis found that, in some cases, finance business value and operational excellence leaders have significant performance advantages even compared to Digital World Class.

Orchestrating your own Digital World Class finance transformation

Most finance organizations still have a lot of work to do to move toward performance leadership. Rather than continuing to make incremental performance improvements, you will need to accelerate digital transformation and build a next-generation operating model designed specifically to perform at a top-quartile level. This requires focus in six key areas.

1. Technology enablement
   Technology enablement is at the heart of the Digital World Class performance advantage. Finance process automation initiatives have traditionally focused on transactional areas such as accounts payable and accounting. But upping the automation quotient can reduce or even eliminate manual intervention, thus significantly lowering operational cost.

   These organizations have also made substantial inroads in automating knowledge processes, freeing up staff capacity to perform value-adding work and building strong capabilities for insight generation and self-service reporting and analysis.

2. Modern digital architecture (powered by cloud services)
   Digital World Class finance transformation involves integrating or retiring legacy systems, adopting emerging technologies, migrating applications into the cloud and integrating data from disparate sources. Probably the most impactful aspect of this is the transition to the cloud. Our recent Cloud Services Study indicates that 70% of technology infrastructures will be cloud-based within two to three years.

   Digital World Class finance organizations are at the forefront of cloud services migration. They have developed clear capability ownership models within finance via process ownership roles and forged effective business partnering relationships with internal technology groups.

3. Customer-centric service design
   The expected pace of finance transformation underscores the importance of end-to-end finance process design and ownership – with customer-centricity at the forefront of design. One of the leading impediments to finance transformation was process and technology complexity. Dedicated global process owners oversee and govern the process data and technology capabilities and, therefore, can spot bottlenecks and make changes before they have significant customer impact.
4. Data and analytics centricity
   In our 2022 Key Issues Study, turning data into insight was the No. 3 finance transformation initiative on the chief financial officer (CFO) agenda. The heightened demand for faster and more accurate forecasts is forcing organizations to rethink their existing data and analytics approach and required tools. Sophisticated financial planning and analysis (FP&A) teams are creating an end-to-end view of the data and analytics process, automating data collection and embracing new analytics techniques such as predictive modeling.
5. Finance operating model evolution
   Digital World Class organizations are evolving their operating model from primarily labor-centric to technology-centric. Accordingly, the finance operating model will shift from predominantly functionally aligned resources under the control of the CFO to a hybrid model of functionally and enterprise-aligned resources – creating a future operating model with a more fluid network of resources that can be deployed to support the highest-value activities across the enterprise.
6. Talent management
   As processes become more technology-enabled or migrate to digital operations centers, leading finance organizations are rebalancing their workforce and increasing financial planning and analysis (FP&A) headcount as a percentage of total FTEs to improve their ability to foresee change and affect strategic business decisions. Highly skilled business enablement leaders are at the core of financial planning and analysis. This role requires advanced analytics acumen to drive insight and technical IQ to deliver operational efficiencies through process automation and digitization of work, as well as skills essential to business partnering. In our 2022 Key Issues Study, one-third to one-half of finance organizations said they have initiatives to bolster business partnering, and nearly one-third plan to dedicate full-time staff to business partnering.

Digital transformation matters more than ever

Ongoing geopolitical risks, talent challenges and high inflation threaten the return to stability, growth, and predictable performance. In a recent analysis, The Hackett Group found that companies with a well-coordinated response have a significant pretax margin improvement opportunity – but capitalizing on that requires digital transformation to be a critical part of the response. Without it, margin opportunity dropped nearly in half.

This is why it is so important to accelerate the journey toward Digital World Class now.

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