The cost of finance operations rose for the first time in decades this year, and the typical global company saw an increase of 7.5%, according to The Hackett Group’s latest research.
But for a select group of companies — what The Hackett Group calls “digital world-class” organizations — the costs of running a finance department fell by 1.3%.
The digital world-class companies (not named) are those in the top quartile of business performance and operational excellence. The Hackett Group’s research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.
How could the world-class group beat inflation and rising wages to keep costs down? For one, most finance organizations employed more staff in 2023, while digital world-class finance organizations reduced staff by 7%.
Two, world-class companies ran finance with half the number of staff their peer group companies used, according to Hackett. For example, digital world-class finance departments operated with 63% fewer full-time equivalents (FTEs) in transactional roles, according to this year’s analysis.
In 2023, the world-class group has driven down finance operations costs to be 53% lower as a percentage of revenue than the costs peer group companies incurred in 2013, the first year Hackett performed the analysis. All other companies in The Hackett Group analysis incurred finance operations costs that were 12% lower than in 2013.
“The difference is largely about how [digital world class companies] approach finance transformation by focusing on … data and analytics, modern cloud architecture, operating model evolution, end-to-end process design, and talent management.”
The important point from The Hackett Group’s research is that, for companies looking to get more efficient in finance, the big driver of lower costs has been technology, or what technology has achieved. This includes optimized operations to enhance agility and resilience, streamlined processes, and greater process automation, among other improvements, according to Tom Willman, principal in the finance executive advisory program at The Hackett Group.
Although the world-class group spends 10% less on technology as a percentage of revenue, according to Hackett, “they have a far more technology-intensive operating model and spend a larger component (15%) of operating cost on technology than peers (9%).”
Said Hackett Group Senior Director Shawn Fitzgerald: “The difference is largely about how they approach finance transformation by focusing on … data and analytics, modern cloud architecture, operating model evolution, end-to-end process design, and talent management.”
According to Hackett, the digital world-class “are at the forefront of architecture modernization and cloud migration. They have developed clear capability ownership models within finance via process ownership roles and forged effective partnerships with their internal technology groups.”
The more significant and effective technology deployment produces many efficiencies: lower transaction processing costs, a closing/consolidation process 35% faster than peers, and 55% more finance staff time spent on analysis rather than collecting and compiling data, according to The Hackett Group. They also saw:
- 37% Lower transaction processing cost as % of revenue
- 42% Lower process cost per accounts payable invoice
- 41% Faster close-to-report cycle
- 73% Less time required to process an AP invoice for payment
- 29% Shorter annual budgeting cycle
- 88% Fewer business reports per billion dollars of revenue
- 56% More suppliers submit their invoices electronically
- 66% Greater share of automated cash management transactions
- 94% More customer payments are automatically matched and posted at the account level
Because the digital world-class get more value from emerging technologies such as smart automation, advanced analytics, and collaboration tools, they also have a higher percentage of FP&A roles in finance, 41%, versus 31% for peers. For job-seeking finance graduates, that can also make them a more attractive workplace.