European World-Class Results Are Close To Overall Results, But Fewer Top Performers On Cost

European World-Class Results are close to Overall Results, but fewer Top Performers on Cost
Finance cost, Overall

(% of revenue)
Finance cost, Europe

(% of revenue)
3.31%
3.27%
Peer Group: 1.22% 0.34%
0.67% World- class
Peer Group: 1.44% 0.43%
1.08% World- class
Source: The Hackett Group; Europe metrics based on research on Companies headquartered in Europe results do not necessarily match results of all operations in European Geography
2006 The Hackett Group, a Business Advisory Firm All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Companies is benchmarked against the median of business complexity peers and overall World-Class performance
Median of Peer Group: this comparison is against a cross-industry peer group based on complexity drivers
Complexity ranking
High
Selected companies in Global Giants

Bayer Group BMW Group BT plc. Cargill International General Electric Co. Henkel KGaA Hewlett-Packard Co. Honeywell International
Countries Operating Locations Reporting Entities Legal Entities Product Lines Organisational Structure Revenue Employees End-users Spend
70 150 3,000 200 10 Decentralised X billion Z A Y billion
Global Giants Expanding Large Consolidated Small Consolidated
Johnson & Johnson IBM Corporation Kimberly-Clark Corp. Motorola, Inc. Philips International Renault S.A. Rock-Tenn Co. Rolls-Royce plc.
t ien Cl le &A mp SG Exa
Low Small Large
Size ranking
Overall World-Class: Determined based on first quartile performance in both

efficiency and effectiveness
Sample Efficiency Measures Functional costs by key driver Process costs by key driver Technology cost per FTE Technology cost by key driver Staffing levels by process grouping Labour rates by process grouping Unit cost of transactions Utilisation of self-service for inquiry Application complexity Automation of transactions Percent spend on outsourcing Reliance on spreadsheets
Sample Effectiveness Measures ROI, Effective Tax, Cost of Capital Time allocated to planning and analysis Working Capital Days Sales Outstanding Shared services utilisation levels Percent credit sales collected in terms Quality metrics (billing, tax, reporting, forecasting) Cycle times and iterations Accuracy of forecasts and analysis Use of BSCs, simulation models, analytical reporting tools Role in strategic decision-making
based on a consistent scoring methodology used for all participants
Drivers of Change behind Finance Costs are exactly those that make up Shared Services
Finance cost as a percent of revenue
2,00% 1,90% 1,80% 1,60% 1,40% 1,20% 1,00% 0,80% 0,60% 0,40% 0,20% 0,00% 1992 1994 1996 1998 Peer 2000 2002 2004 2005 2006
1,70% 1,50% 1,28% 1,10% 1% 1,40% 1,20% 1,10% 0,90% 0,72% 0,74% 0,73% 0,67% 1,08% 1,26% 1,22%
Driver of change
Process simplification and standardization Leverage of new technology Re-alignment of the organization e.g. provided by Shared Services
1,50%
World-Class
Source: Hackett 2006
The rate of improvement by the World-class has slowed but still outpaces the peer companies
Annualized rate of financial cost improvement, 1992-2004
8,00% 6,00% 4,00% 2,00% 0,00% 7,0% 5,2%
20% 13%
6,1%
4,1%
1992-1998
Peer Group
1998-2004
1992-1998
World-class
1998-2004
Source: Hackett 2004 Book of Numbers 2006 The Hackett Group, a Business Advisory Firm All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World-class companies in 2005 and 2006 have again lower overall costs, however, Finance costs in general have increased
2005 Finance cost as a percent of revenue
1.26%
2006 Finance cost as a percent of revenue

1.22%
42% 0.73% 45%
0.67%
Peer group
LABOR TECHNOLOGY
World-class
OUTSOURCING OTHER
Peer group
LABOR TECHNOLOGY
World-class
OUTSOURCING OTHER
We use actual performance metrics to evaluate your performance against World-class performers and a relevant industry Peer group
Any size company can be World-class
Source: Hackett Executive Advisory Programs 2006 The Hackett Group, a Business Advisory Firm All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
Prioritization of recommendations focuses on processes that have the greatest opportunity for improvement
Cost Differences
$ 100 $ 90 $ 80 $ 70 $ 60 $ 50 $ 40 $ 30 $ 20 $ 10 $0 Total Savings Capped Opportunity Opportunity* Transaction Processing** Risk Management Planning & Dec. Support Mgmt-Administration Total Cost
Gap Opportunities Gap Opportunities

(versus Peer Group) $ 2.0 million $ 3.9 million $ 5.3 million $ 11.2 million $ 1.0 million $ 2.3 million * $ 3.3 million (versus World-class) $ 4.1 million * $ 6.1 million * $ 8.8 million * $ 19.0 million $ 2.2 million * $ 2.3 million * $ 4.5 million $ 2.1 million Cash Disbursements Revenue Cycle Accounting and External Reporting SUBTOTAL: Tax Management
e nc le na p Fi am Ex
(versus World Class)
$86.2
$38.6
$34.1
Treasury Management Compliance Management SUBTOTAL Planning and Performance Management Business Analysis SUBTOTAL Finance Management and Administration OVERALL TOTAL
$ 4.4 million $ 4.4 million $ 2.3 million
$ 5.6 million * $ 7.7 million $ 2.8 million *
$ 34.1 million $ 21.5 million Note: * Opportunities capped at 50% of current process cost
General & Administrative comparisons against World-Class transformation scenarios need to balance efficiency & effectiveness
Finance - Hackett Value Grid
High 1Q
Human Resources - Hackett Value Grid

High 1Q
le amp ct Ex e Proj
World-Class
World Class
World-Class
1Q
Effectiveness
Tetra Pak
Overall Peer Group
Low
Efficiency
High
Low High
Effectiveness
1Q
Efficiency
High
High
Procurement - Hackett Value Grid 1Q

1Q
Information Technology - Hackett Value Grid

1Q
World-Class
World-Class
WorldClass
Effectiveness
Effectiveness
1Q
1Q
Tetra Pak
Tetra Pak
Low Efficiency High Low Efficiency High
Improvement Potentials and Recommendation
Roadmap to Target
Improvement Package 1
Automation of processes High Priority Initiatives
5 7 8 12
le amp ct Ex e Proj
Focusing on core activities Significant impact on productivity but not on costs Initiative
4 1 2 3
Client current stage Client stage in 2 years
Initiative 01 Initiative 02 Initiative 03 Initiative 04 Initiative 05 Initiative 06 Initiative 07 Initiative 08 Initiative 09 Initiative 10 Initiative 11 Initiative 12 Initiative 13 Initiative 14
Effectiveness
4 5
Quality improvements mainly related to PO usage and posting of GR Important 9 14 Initiatives
Simplification of verification work Balances risk and effort Initiatives
6 13
6 7 8 9 10 11
Low
Efficiency
High
12 13 14
Company SG&A overall development

Headcount reductions by productivity increases and economies of scale Change in skill mix by change in delivery model Rightsizing Reengineering
le amp ct Ex e Proj
707.8 78,3
No Sourcing changes Avg. productivity increase 22%
Stronger corporate functions, less decentralization with increased scope Aggressive re-organization (regions, CAO, legal entities) Reduction of service levels Rigorous Standardization of processes and IT Corporate initiative to reduce facilities Reduced Procurement spend
580.3 60,9
279,9
No Sourcing changes Avg. productivity increase 8%
492.3 68,6
257,0 46,2 111,1 55,7 136,7

Outsourcing Other Indirect sourcing Right sizing and selective sourcing Regional Shared Services Global Shared Services with Cluster consolidation
227,0 39,1 76,8 44,2 102,4 29,9 88,9 22,4 55,6
2005
Finance Procurement Human Resources
2008
Marketing / Sales
2010
Information Technology Corporate Services
The staffing levels have also seen significant reductions since 1998
Staff per billion dollars of revenue, 1998-2006
175 150 125 100 75 50 25 0
1998 41%
152
32%
104 78 46
Peer Group
2006
1998
World-class
2006
Source: Hackett 2004 Book of Numbers 2006 The Hackett Group, a Business Advisory Firm All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.
World Class companies have successfully swapped labor for technology through efficient use of ERPs
Overall: Technology cost per finance FTE Europe: Technology cost per finance FTE $33,303 $26,607 $17,202 $16,126
Peer
World Class
Peer
World Class
2006
2006
Source: Hackett Data 2006
Cross-functional Teaming is Key Performance Driver
Cross-functional teams are standard fare for strategic sourcing, but extending them to ongoing supplier management is more elusive Helps to ensure longer term buy-in and compliance
Europe is Frontrunner in Technology Integration enabling WorldClass Performance

Overall: Integrated applications Accounts Payable / Purchasing 68% 81% 48% 1,0 1,0 Europe: Integrated applications Accounts Payable / Purchasing 100%
Peer
World Class
Peer
World Class
2006
2006
Source: Hackett Data 2006
but Europeans still love to collect data

Overall: Analyst time spent collecting vs. analyzing data Europe: Analyst time spent collecting vs. analyzing data 55% 50% 38% 45%
Peer
World Class
Peer
World Class
2006
2006
Does every company need to be world class ?

High
Top Decile
Effectiveness Adding value to the organization Drivers: Formal strategic plan Performance metrics Operational Support Minimal errors Information reporting
World-class Effectiveness
Finance cost as a percent of revenue

World-class Overall
1.22%
Effectiveness
Worldclass Efficiency
0.67%
0.69% 0.50%
Low
Efficiency
Efficiency How efficient in performing its role
Top Decile
High
Peer Worldclass overall Worldclass effectiveness Worldclass efficiency
Drivers: Self-service, Cost per transaction, Spans of control, Effective use of technology
Source: Hackett 2006
While few companies exceed industry returns, World-class companies outperform the peer group and do so with lower operating profit volatility
Source: 2005 Enterprise Performance Management Book of Numbers Research
Our Finance BPS Survey Results Validated Large Companies Preference for In-sourcing v. Outsourcing
Finance Overall
100%
13% 27%
Accounts Payable Processing

100%
18% 2%
75%
55%
75%
39%
50%
50%
58% 13% 7% 4% 4% 9% 10%
59% 24%
25%
25%
14% 2% 8%
18%
18%
0%
0%
Today
Decentralized
In 3 Years
Today
Decentralized
In 3 Years
Centralized Shared Services Onshore Centralized Shared Services Offshore Outsourced OnShore or Offshore Fully Automated
Centralized Shared Services Onshore Centralized Shared Services Offshore Outsourced OnShore or Offshore Fully Automated
Shared Services utilization increases in Europe, also definition and understanding of SSO also evolves
Do you currently have a Finance Shared Service Organization? Respondent companies length of time operating an SSO
100%
5 or more years 36%
80% 60%
36%
25%
2 to 5 years 38%
1 to 2 years
13%
40% 64% 20% 0% 2004 % Yes % No
75%
Less than 1 year 12%
Not started yet
1%
2006
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Actually achieved savings have increased slightly over last 3 years
41% - 80% decrease
13% 5%
21% - 40% decrease
27% 29%
11% - 20% decrease
24% 22%
2% increase - 10% decrease
12% 39%
0%
10%
20%
30%
2004 2006
40%
50%
60%
Process Centralization Supports Lower Costs in Cash Disbursement
$8,00 $7,00 $6,00 $5,00
Cash disbursement cost per transaction

7,21
5,57
5,78
4,14 $4,00 3,06 $3,00 $2,00 $1,00 $0,00 2,01 1,39 Cost Leaders More centralized Less centralized 2,69 3,58
Q1
Median
Q3
Shared Service Centers increase in size magic limit of 500 is broken

35% 30% 25%
20% 22% 19% 17% 15% 15% 18%
32% 30% 27% 25%
20% 15% 10% 5% 0% <10 '11-25 26-50

9% 5% 8% 8%
10% 6% 4% 2% 0% 3% 2% 3% 1%
51-100
2005 2006
101-250
in 3 years
251-500 501-1000
>1000
Cross-functional SSOs increase constantly now 4 years in row

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003 2004
Within individual functions 76% 80% 58% 55% 26% 28% 42% 45%
2005
Across several functions
2006
Imaging/Scanning & Workflow most useful technology solutions for SSO

63% 26% 60% 58% 57% 72% 53% 38% 47% 29% 41% n/a
Imaging/ Scanning
Workflow
ERP
Automatic matching & payment allocation tools
EDI
e-Invoicing
0%
10%
20%
30%
40%
2004 2006
50%
60%
70%
80%
Top 3 best practice tools in SSO with the highest optimization effect?
One single integrated ERP platform Global standard chart of accounts Electronic data interchange (EDI) with banks, for invoices, travel&expenses, etc. Measurement intensive KPI reporting End-to-end process ownership (purchase-topay, order-to-cash, etc.) Extensive training for SSO staff Independence of SSO (cost center, profit center, business unit, legal entity) Global standard cost center hierarchy Self-services (for internal and external clients, suppliers, etc., mostly web-based) Call center (for internal and/or external clients) Materiallity thresholds as balance of risk and effort
59% 45% 43% 41% 43% 30% 39% 38% 16% 16% 14% 11% 12% 13% 2% 8% 7% 5% 23% 23% 42%
65%
0%
10%
20%
30%
2005
40%
2006
50%
60%
70%
The options for Shared Services expansion continue to grow

Virtual SSO 1)
IBC 2), eSSC4), lights-out 3)
Efficiency
Outsourcing Offshoring Captive Local / Regional SSC 5) Internal Centres De-centralized Organizations
1) 2)
Global SSC
Shared Services Organization Integrated Business centre 3) Lights-out processing 4) e-Shared Services 5) Shared Service centre
Organizational maturity
Independence of Shared Service Organizations
Organizational Practices and World-Class Performance

High Top Decile
1 2b 4
5 6 6 5 3 2a
1) Shared Services are organized as separate legal entity 2) Shared Services report to senior business executive, not functionally aligned
a) Business Unit/Group Controller b) Business Unit President or Vice President
Effectiveness
1Q
3) Customers are able to select providers other than shared service center 4) Shared Services has a business development manager position 5) Shared Service managed like an independent business 6) Shared service center are separate and distinct from corporate headquarter
Low
1Q
Efficiency
Top High Decile
Hacketts recent study suggests almost 3,000 FTE per average Fortune 500 company will be impacted by offshoring
116 Million Reasons: The $116 million represents the typical Fortune 500 based upon current labor content from the most recent BON calculations spanning FN, IT, HR & PR only Each function was looked at on a process group level for:
Labor arbitrage cost differential Degree of potential transactional work Transformational improvement opportunities
The $116 million number is meant to be the high watermark your results will vary
And Hackett can help you get there
Related Hackett Press Coverage New York Times (10/23) CNN Broadcast (11/1) FAO Today (9/2006) CNN Money.com (10/31) CNBC Europe (11/2) CFO.com (11/9) Information Week (10/27) Dow Jones Newswire (11/6) New York Time 11/12)
Globalization Emerging Markets Destinations Best Talent at the Lowest Cost?

North America:
Centralization since 80s. Geographical expansion, service culture, scope increase. Wage arbitrage and technology utilization.
Western Europe: British Isles,

BeNeLux, Iberia
80s/90s: Three waves of centralization and shared services, first based on consolidation synergies, then based on wage arbitrage.
Eastern Europe: Poland, Hungary,

Czech Rep. & Co.
Emerging low cost and multi-language labor pools. Two waves of relocations for European and US based companies European captives and Global BPO service providers.
Southeast Asia:
India, Philippines and China
India continues to lead the Globalization movement with over $17 billion in ITO and BPO work. Philippines is rapidly emerging as an alternative, especially in call centers, China is emerging in captive SSOs and BPO verticals.
Central & South America:

Regional captives locate in Costa Rica, Panama, Chile & Co.. Little relative wage arbitrage potential but regional platforms increase.
Africa:
Captive and BPOs e.g. in Mauritius, Nigeria, Ghana, South Africa. Regional captive potential and BPO network additions feasible in stable areas.
Major Perceived Risks Associated with Offshoring
100%
75%
61% 53%
50%
39%
43%
25%
0%
Compliance and controls Culture Security Unknown total cost
A number of drivers will steer the development of a Sourcing Strategy

Process Sourcing Drivers
Risk Drivers Supply Side Drivers Demand Drivers Assess the Organizations Requirements and Establishes Internal Drivers Establish Market Parameters Proclivity for Process Ownership Investment in Process Third Party Perceived IT Performance Speed to Integration Capability & Risk of Implementation Improvement Benefits Friction / Scale Outsourcing Risks Initiatives Risks High High Strong High High Strong / High Third Party Transformation Capability Strong Geography Drivers Establish Geographic Orientation
Required Language Support
Required Labor Arbitrage
Outcome
Strong / High Strong / Low
Contribution Scale
Function / Process Insource v. Outsource Decision Offshore Geographic Region
Low
Low
Low
Low
Low
Weak / Low
Weak
Weak / Low Weak / High
Example: Global Chemical company in mature market

Low High Low High
Cost Reduction
Slow High Low
Risk Mitigation
World-Class
Speed To Benefits
World-class Performance
Planning & Performance Mgt
Treasury Management
Function / Provider Management
Cash Disbursements
Financial Reporting
Business Analysis
Tax Management
Compliance Mgt.
General Ledger
Revenue Cycle
Intercompany
Fixed Assets
Finance Processes Corporate Business Unit Shared Services Offshore Captive Outsourced / BPO
X X X
A modern finance function optimizes sourcing and uses a multi-tier in-/outsourced shared services model and centers of excellence to optimize efficiency and effectiveness
Organizational Split
Corp / HQ
Centers of Excellence Transactional SSO
BU
BU
BU
outsourced
Contact Information
The Hackett Group
World Headquarters Suite N500 1117 Perimeter Center West Atlanta, GA 30338 Phone: +1 770 225 3600
Tom Bangemann Vice President Business Transformation +49 174 3469974 tbangemann@thehackettgroup.com www.TheHackettGroup.com
Aldermary House 10-15 Queen Street London EC4N 1ST Phone: +44 207 003 8150 Rathausplatz 12-14 65760 Eschborn/Frankfurt A.M. Germany Phone: +49 6196 77726 0 18 rue La Boetie Paris 75008 France Phone: +33 1 53 43 0400 Strawinskylaan 3051G, 1077 ZX Amsterdam, The Netherlands Phone: +31 20 301 2210

European World-Class Results Are Close To Overall Results, But Fewer Top Performers On Cost

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European World-Class Results Are Close To Overall Results, But Fewer Top Performers On Cost

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European World-Class Results are close to Overall Results, but fewer Top Performers on Cost

Finance cost, Overall

Finance cost, Europe

Peer Group: 1.22% 0.34%

0.67% World- class

Peer Group: 1.44% 0.43%

1.08% World- class

Selected companies in Global Giants

70 150 3,000 200 10 Decentralised X billion Z A Y billion

Global Giants Expanding Large Consolidated Small Consolidated

t ien Cl le &A mp SG Exa

Low Small Large

Overall World-Class: Determined based on first quartile performance in both

based on a consistent scoring methodology used for all participants

Source: Hackett 2006

2006 Finance cost as a percent of revenue

42% 0.73% 45%

Any size company can be World-class

Gap Opportunities Gap Opportunities

(versus World Class)

$ 4.4 million $ 4.4 million $ 2.3 million

$ 5.6 million * $ 7.7 million $ 2.8 million *

Human Resources - Hackett Value Grid

Overall Peer Group

Procurement - Hackett Value Grid 1Q

Information Technology - Hackett Value Grid

Improvement Potentials and Recommendation

Client current stage Client stage in 2 years

Company SG&A overall development

No Sourcing changes Avg. productivity increase 22%

No Sourcing changes Avg. productivity increase 8%

257,0 46,2 111,1 55,7 136,7

227,0 39,1 76,8 44,2 102,4 29,9 88,9 22,4 55,6

Cross-functional Teaming is Key Performance Driver

Europe is Frontrunner in Technology Integration enabling WorldClass Performance

but Europeans still love to collect data

Does every company need to be world class ?

Finance cost as a percent of revenue

Source: Hackett 2006

Source: 2005 Enterprise Performance Management Book of Numbers Research

Accounts Payable Processing

40% 64% 20% 0% 2004 % Yes % No

Not started yet

Actually achieved savings have increased slightly over last 3 years

41% - 80% decrease

21% - 40% decrease

11% - 20% decrease

2% increase - 10% decrease

Process Centralization Supports Lower Costs in Cash Disbursement

$8,00 $7,00 $6,00 $5,00

Cash disbursement cost per transaction

Shared Service Centers increase in size magic limit of 500 is broken

32% 30% 27% 25%

20% 15% 10% 5% 0% <10 '11-25 26-50

Cross-functional SSOs increase constantly now 4 years in row

Imaging/Scanning & Workflow most useful technology solutions for SSO

Automatic matching & payment allocation tools

The options for Shared Services expansion continue to grow

Independence of Shared Service Organizations

Organizational Practices and World-Class Performance

Top High Decile

Globalization Emerging Markets Destinations Best Talent at the Lowest Cost?