The Hackett Group’s Latest Book of Numbers Details How Top Cos Use EPM To Drive Higher Net Margin, Greater Shareholder Return, Other Benefits
By achieving top performance in Enterprise Performance Management (EPM), companies can see dramatic benefits, including improved net margin and greater shareholder return, according to new Book of Numbers research from The Hackett Group, Inc. (NASDAQ: HCKT).
The Hackett Group defines EPM, and its core areas of financial planning & analysis (FP&A)/Controlling as the organizational competency, business partnering skills and enabling technologies to dynamically target, react and respond to the market in pursuit of the business strategy. There is a strong correlation between superior EPM capabilities and financial outperformance, according to The Hackett Group’s research. EPM top performers see 4.4 percent higher net margin than others in their industry and deliver 21 percent better total shareholder returns, on average. Top performers are also far more successful when executing a wide array of strategic initiatives, including mergers and acquisitions, business transformation, technology implementation, new product and geographic expansion, and major supply chain improvement efforts.
EPM top performers also complete quarterly forecasts in less than half the time of typical companies (8 days vs 17 days) and are much more accurate when forecasting sales, earnings, and cash.
Taking Care of the Basics
Top performers are making huge strides in driving efficiency in core EPM activities, according to The Hackett Group’s research. They forecast in less than half the time as well, with much greater short-term and long-term accuracy, and complete their annual planning process more than 25 percent faster, with significantly fewer iterations between different levels of their organization. Forecasts are much more automated, integrate operational drivers, and execute on a procedural level akin to a financial close. As a result, top performers spend up to 50 percent less time on low-value activities such as data collection in key areas, leaving them free to spend more time on analysis
Using the New Capacity to Drive Business Performance
Through automation, redesign and work elimination, the FP&A/Controlling function has created new-found capacity. However, rather than harvesting these savings, top performers are re-investing this capacity in the business to drive better effectiveness. They are achieving nearly double the forecast accuracy of peer companies, and rapidly applying analytics to more business-impactful activities such as predictive modeling, operational analysis, pricing effectiveness and customer / product profit planning. For instance, Top Performers in EPM are significantly more successful at major organizational change initiatives such as M&A, re-structuring and/or large-scale technology transformations.
Increased Tech Leverage, But More Holistic Approach to Transformation Still Needed
Organizations are implementing EPM and related business intelligence technologies at a more rapid pace than ever before. The Hackett Group’s data confirms that technology is essential; top performers are three times more likely to use the same technology platform enterprise-wide to support strategic business planning and four times more likely to do so with financial planning and forecasting activities. However, as critical as the technology is, top performers also more broadly leverage organization / process levers, including centers of excellence, rolling forecasts, driver-based forecasts and the use of key performance indicators for reporting.
The Emerging Importance of Intellectual Property
With all of these trends, The Hackett Group is seeing a new emphasis on best practices. Historically best practices were a “nice to have” target for projects focused on EPM, though now they have fast become a requirement, even to the extent of being embedded within the technology footprint. “Top performers are quickly coming to the realization that optimal business process models are required and technology needs to ‘guard rail’ their adoption in the enterprise. Additionally, benchmarking is moving from an episodic event to a period-end, automated process by which the organization is consistently being compared to peers and top performers on a real-time basis,” said David Ketchin, The Hackett Group Managing Director, Europe.
The Hackett Group’s Book of Numbers research identified seven ways in which companies can improve EPM. Three of the most critical ways are:
Invest in Governance of EPM Process and Information – This is one key area often overlooked by most companies. To address this deficiency, companies should: establish clear organizational roles and responsibilities; identify who has the right and responsibility to make decisions about key assumptions driving budgets, service scope, technology, and other issues; and improve policies & procedures under which processes are scoped, designed, conducted, and managed.
Improve Technology Integration – The top priorities for most companies in this area include improving enterprise application systems, dashboards and reporting, and data warehouse systems. In most cases, the solution requires better integration of data across a variety of tools, many of which are already owned by today’s companies.
Work Towards Greater Integration and Partnership Through Leveraged Models and Skill Development – At present, companies make only limited use of leveraged business services arrangements such as global business services, shared services, and centers of excellence, according to The Hackett Group’s research. But this is an area where companies expect to see significant growth over the next two to three years, particularly among top performers. In addition, even among top performers, very few FP&A/Controlling organizations assess themselves to have high levels of expertise in key areas such as advising the business and producing and analyzing management information/reporting. Companies can strive to close this skills gap to change FP&A/Controlling’s reputation from “report producer and data gatherer” to “valued business partner.”
Gilles Bonelli, The Hackett Group’s European Practice Leader, EPM and Business Intelligence Executive Advisory Programs, adds that “To be effective business partners, FP&A/Controlling teams need to do more than perform baseline functions efficiently. In order for them to begin to serve a more strategic function in the business, they must contribute to value creation, build a strong foundation, develop effective governance, optimize technology investments, and push for deeper integration.”
The latest Book of Numbers Edition, “Enabling the Enterprise: The Path to EPM Excellence,” contains nearly 70 pages of data, insights, analyses, and recommendations, including 66 charts and tables containing hundreds of metrics from The Hackett Group’s benchmarking efforts and related performance studies. It is available only to members of The Hackett Group’s EPM and Business Intelligence Executive Advisory Program.
The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle EPM and SAP practices.
The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm's benchmarking metrics, best practices repository, and best practice configuration guides and process flows, which enable The Hackett Group’s clients and partners to achieve world-class performance.