Metric Definition

At most companies, business units are given leeway to choose the secondary applications that best support their business needs, but this comes at a cost: As use of technology increases, transactional process cost falls, but technology costs rise. World-class finance organizations rationalize the number of secondary applications they use to support both transactional and planning and reporting processes.

Figure 1. Source: The Hackett Group, 2009

Why It's Important

All else being equal, additional technology investment drives down finance's transactional process cost, in part because it permits organizations to operate with fewer full-time equivalent staff, or FTEs. A lower FTE number also corresponds with a reduction in technology cost, because a large component of IT costs is proportional to the number of staff supported (e.g., software licenses, PCs, technical support cost). For companies that are world-class in finance, this reduction in staffing cost more than offsets the cost of automating the processes.

A healthy balance between technology spend and transactional process cost can be achieved by emulating the model of world-class companies, which run a very

lean and relatively technology-intensive operation. However, they do operate at a relatively low level of technology spend per billion dollars of revenue.

For the purpose of this Metric of the Month, "technology" encompasses all information technology supporting a company's administrative, managerial and commercial processes (typically referred to as selling, general and administrative, or SG&A), as well as its product development, operational and supply chain processes. Specifically, it includes all technical infrastructure, applications, telecommunications, internal and external IT resources, and services.

Strategic Implications

Given the implications of the FTE/technology cost tradeoff discussed above, finance executives should consider the following issues as they seek to deliver more value through technology:

• What should our investments in business intelligence and analytical systems encompass?

• How should we determine which systems to invest in first, which aspects of the business to focus on first, and which vendors to select?

• Should we expand the footprint of our existing ERP?

• What is the best way to increase the usage and availability of a common ERP system/platform?

• To what extent can we consolidate business applications by moving to a common ERP system or maintaining the existing consolidated ERP application environment?

• How should investments in function-specific, best-of-breed systems be determined?

• Should we "get out of the technology business" as much as possible through business process outsourcing (BPO)

• Are we better off maintaining our existing, albeit fragmented, business application landscape?

About The Hackett Group

The Hackett Group, a global strategic advisory firm, is a leader in best practice implementation, advisory, benchmarking, and transformation consulting services, including shared services, offshoring and outsourcing advice. Utilizing best practices and implementation insights from more than 4,000 benchmarking engagements, executives use Hackett's empirically based approach to quickly define and prioritize initiatives to enable world-class performance. Through its REL brand, Hackett offers working capital solutions focused on delivering significant cash flow improvements. Through its Hackett Technology Solutions group, Hackett offers business application consulting services that helps maximize returns on IT investments. Hackett has worked with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune 100, 73% of the DAX 30 and 45% of the FTSE 100.

Founded in 1991, The Hackett Group was acquired by Answerthink, which was renamed The Hackett Group in 2008. The Hackett Group has global offices in the United States, Europe, Australia and India and is publicly traded on the NASDAQ as HCKT.

The Hackett Group

Email: info@thehackettgroup.com • Atlanta +1 770 225 3600 • London +44 20 7398 9100 • www.thehackettgroup.com

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