World-class finance organizations outperform more typical peers on two important dimensions: They are more efficient and do their work faster at less cost, and they are more effective at delivering services to internal and external customers. They show fewer errors. They provide better forecasts. They spend 30% less time on collecting vs. analyzing information.
But despite years of perfecting their technology and processes, they’ve reached a certain plateau. Total cost of finance for world-class finance organizations has been hovering at 45% below peers for the past three to five years. So, how can they reach the next level of performance excellence? By adopting digital technologies on a mainstream basis.
According to The Hackett Group’s 2017 finance benchmark study, technology had a substantial impact on finance performance. We keep over 1,000 efficiency and effectiveness benchmarks and refresh them annually. Finance organizations that rank in the top quartile for both efficiency and effectiveness get the world-class label. The rest are called peers.
We found that by using more technology, world-class finance functions reduce operational costs. They shorten the close and budget cycle times. They have much higher efficiency rates when it comes to measures like invoice per full-time equivalent (FTE) or cost per transaction. And they don’t do it by throwing money at the problem; in fact, they spend 61% less on technology.
The digital transformation imperative
However, the finance function has now reached an inflection point. The experience of the last several years indicates that current automation and transformation initiatives are no longer yielding substantial performance gains. There’s still value in cleaning up the technology landscape and rationalizing legacy systems. That’s particularly true for peer organizations that are trying to catch up. So, where will the next wave of performance improvement come from?
In our 2017 Key Issues Study, 97% of respondents predicted that digital transformation will have a step-change impact on the finance organization’s performance. The rate of improvement will only accelerate, because new technologies and combinations of technologies are arriving at an ever-increasing pace.
So, we delved into our 2017 benchmark database. We asked this question: What additional cost savings and effectiveness gains can world-class and peer-group finance organizations accrue if they make digital technologies mainstream?
Here’s what we found:
First, new technologies will dramatically accelerate the speed at which peer-group organizations can catch up to world-class performance. They can leapfrog generations of technologies to close 80% of the cost gap between the two groups.
Second, digital tools will enable world-class finance organizations to further improve their cost by 20%. They will break through that cost ceiling. It will also make them more effective. It will increase the amount of time they spend on analytics to 75% and reduce billing errors to 1%.
The promise of digital technologies for finance is large and it is real. Finance organizations that wish to capture or maintain world-class status must adopt new solutions to reduce the cost and increase the effectiveness of their processes to reach a new level of process excellence.
For more on this topic, see Why CFOs Must Become Digitally Savvy.