The top corporate finance departments of large companies provide up to $51 million in cost savings annually and deliver services at costs that are 46 percent lower than peers, but their greatest benefit is the value-added resources those savings can now support, according to a recently released study by the Hackett Group.
Titled “The World-Class Performance Advantage: How Leading Finance Organizations Outperform Their Peers,” the study combining research and information derived from Hackett’s benchmarking service found the gap between top performers and their peers, at 46 percent, was higher for finance than any other business support function. Human resources and information technology followed, each with half the gap or less.
Finance budgets will increase only slightly in 2014 and staff counts will actually decrease, the research found, but executives will continue to have to do more with less.
“While 32 percent of finance leaders believe the function’s cost structure is their single most important challenge this year, executive management is pressuring them to help increase the effectiveness of the company’s decision-making process and top-line growth,” the study says.
In response, the study says, top finance organizations have redirected resources toward developing better business partnerships; attracting and developing critical talent; and measuring and managing the finance function’s performance and business value.
“These strategies have had the simultaneous effect of increasing both efficiency and efficiency – in other words, adding higher-value services without a corresponding reduction in services that the business has come to expect,” the study says.
The cost of corporate finance departments continued to drop this year, to 0.99 percent of total revenue at companies with $500 million to more than $50 billion in revenues compared to 1.08 percent in 2013 and 1.06 percent in 2012. Those costs have been trending down since 1994, when they stood at 1.5 percent.
Jim O’Connor, global practice leader at Hackett Group, said those cost savings are likely to continue, although less so for top performers as their peers seek to catch up. A key takeaway from the research, he added, is that the more efficiently companies’ finance departments optimize costs, the more resources they can redeploy to value added areas.
“It’s not just how does finance save more, but how does it save and also redeploy those resources to help the enterprise,” O’Connor said. He added that redeployment can take the form of bolstering risk management, working capital initiatives and cash forecasting, and the top performing finance departments redeploying cost savings are represented across the industry spectrum.
The study uncovered three “dimensions” of finance reinvention. One, companies must develop their finance executives’ skills to move to more value-added services, including business skills as well as analytic and business-partnering capabilities. In addition, to locate cost savings and redirect them higher value areas requires redesigning finance-department services, so more transactional processes are outsourced or shared with other departments in the company. Finally, finance departments must continue driving more automation, shifting resources ever more to competitive-advantage activities and away from routine transactions.