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Sara Lee announced today that it will cut about 700 back-office jobs and outsource some finance positions. In addition to saving between $200 million and $250 million over the next three years, the company expects to gain more efficiency and flexibility as it cuts positions in North America and Europe. Some of these jobs were held by contractors.
As companies cut some finance jobs, they are offshoring others. Nearly half of the more than 350,000 back-office jobs that will move to India and other low-cost job markets in 2009 and 2010 will be in corporate finance, according to new research by consultancy The Hackett Group.
This article spotlights findings from the new REL/CFO Europe Cash Masters scorecard, which shows a clear opportunity for European companies to improve their bottom line through an increased focus on improving cash conversion efficiency (CCE) - the amount of cash flow that companies derive from operations as a percentage of sales.
With the National Bureau of Economic Research's announcement on Monday, it's official -- we're in a recession, and have been for a year now. Among the welter of advisories from consultancies about what companies should do about it, The Hackett Group's have been standouts this year. The global strategic advisory firm was early to the game, with guidance on G&A savings published back in May (reported here). But the economic outlook has darkened since then, and Hackett has updated and extended its guidance to reflect current conditions. A new report lists five actions Hackett believes every business should take right now to e! nsure saf e passage through the storm.
Regal Beloit Corp. CFO David Barta has taken approximately 30 days out of his company's cash cycle over the past four years. But he and the rest of the leadership team at the $1.8 billion maker of motion-control products want more. "Our commitment to the board this year is to take another 3 days out of the cycle, " Barta says. "That is not a huge stretch, but it is something for which my feet are held to the fire."
The average global corporation is sitting on enough cash to buffer half the impact of a yearlong recession, if management could only figure out a way to get their hands on it That's the conclusion of a study released this week by strategic consultants at the Hackett Group. Signs abound that this recession could be severe. Motorola Inc. (MOT); recently announced it was laying off 3,000; Goldman Sachs Group Inc.(GS); 3,260; Xerox Corp. (XRX); 3,000; and Chrysler LLC; 5,000. By contrast Hackett estimates the 1,000 global companies in its study could minimize job cuts and s ave $3.2 billion, or nearly 13% of annual revenue, if companies were more strategic. Eliminating administrative steps, consolidating related activities, improving sales forecasts and collecting debts faster are all ways to mine the cash buried in the balance sheet instead of preparing for recession with an ax.
Procurement departments have been under the corporate Klieg lights recently as companies take stock of the supply continuity risks generated by the downturn and gyrating commodity markets. Few organizations have tapped into the full value of procurement. But investing in the function certainly pays off. Every dollar that a typical company ploughs into procurement yields three dollars in spend savings, according to Chris Sawchuck, procurement practice leader with The Hackett Group. Not bad. But procurement operations that Hackett identifies as world-class do much better, returning up to eight times the investment.
Earlier this year the Council on Competitiveness, a Washington, DC-based non-profit organization focused on increasing the United States' economic competitiveness in the global market, issued a report called "Thrive: The Skills Imperative, " which called for a national skills strategy to ensure that Americans are prepared to compete in the global economy and that global companies continue to invest in the United States.
Few things are more irritating to an investor than making a decision based on guidance that turns out to be rubbish. A recent study suggests that a majority of corporations may be trashing their reputations with forecasts (and, as a result, guidance) that could be considered more akin to throwing darts at a board than proper mathematical modeling. IR, of course, is left to pick up the pieces. In a study of internal forecasting completed in late 2007, management consulting firm the Hackett Group found that two out of every three companies are unable to accurately forecast earnings one quarter in advance, missing the mark by anywhere from 6 percent to over 30 percent.
Beware your survival instincts: they may dampen corporate performance more than you might expect. With a recession looming or quite possibly upon us, it can be tempting to ease up on receivables and retain inventory in order to placate cash-strapped customers. But those seemingly small sacrifices actually impose a steep cost, diverting precious cash to working capital. CFOs who want to bolster the case for strict working-capital policies may find plenty of support in the 11th annual CFO/REL Working Capital Scorecard.
Asia's top 850 companies f! ailed to make full use of US$833 billion in working capital because of inefficient cash flow practices. Last year, CFO Asia's 2007 Working Capital Survey estimated that the region's 725 biggest companies, excluding automakers, had US$535 billion in working capital unnecessarily tied up in receivables, payables, and inventories in 2006. It's the same story in this year's survey, which covered 850 of the Asia-Pacific region's top enterprises. According to REL, the U.S. consultancy that conducts the study, US$833 billion in total working capital was not put to productive use in 2007.
It's taking more time for companies to collect on their sales, longer than any time since the 2001 recession. Cash Flow consultant REL, (a division of The Hackett Group) and CFO Magazine found it took the country's 1,000 largest publicly traded businesses, excluding automakers, an average of 41 days for them to collect their money from customers in 2007. That's a 3.4 percent jump from 2006.
Corporate America is having the hardest time getting its customers to pay their bills since the last U.S. recession in 2001, according to a study released on Wednesday. The 1,00! 0 largest U.S. public companies in 2007 took 41 days on average to collect payments from their customers, up from 39.7 days a year earlier and 39.2 days in 2001, the study by consultancy REL and CFO Magazine found.
U.K. companies are now doing a worse job at managing working capital performance, as they also see their ratio of free cash flow to sales falling sharply, according to research by REL, a division of The Hackett Group.
Companies that rush to move their finance and other back-office operations to low-cost countries may cut expenses-only to find they are paying an unexpected price in missed opportunities for innovation. In a new study, the Hackett Group, a consulting and advisory firm, found that businesses that have already begun to move their general and administrative functions offshore will likely pick up the pace over the next three years.
Offshoring may be getting less air-time as a political wedge issue this year, but by no means has the practice fallen from favor. A new study by The Hackett Group, in fact, sees companies increasing their use of offshore resources by 50 percent in the next three years, while cutting costs by up to half through the use of cheaper overseas labor.
This article on how companies can reduce late payments in the current cash-strapped economy, includes insights from REL Global Practice Leader Hye Yu.
With credit at a premium, freeing up funds from working capital gains a new urgency. This cover story features findings from the 2008 REL/CFO Europe TWC Research. It also profiles two companies that have made dramatic improvements in TWC - German commercial vehicle group MAN and Italian white goods manufacturer CFO.
Companies have improved working capital management, but not by much. This article provides detailed results from the 2008 REL/CFO Europe TWC Research, and links to the complete survey results, which provide detailed metrics for the 1000 largest public companies in Europe.
We've long wondered what other top business leaders and C-suite executives think about human resources-whether they're getting what they need or expect from the function, and whether the function has their respect. At The Hackett Group's 18th Annual Best Practices Conference in Atlanta, we got a chance to find out for ourselves when a group of senior executives from finance, IT and procurement, and the CEO of a global life-sciences company, agreed to come together (at the invitation of Human Resource Executive®) to share their perceptions of HR.
A recent Hackett Group report estimates the current economic malaise could reduce profit margins at large global companies from about 9.3% as of May to 5.5%, the level seen during the last recession, in 2001. The report said the largest cost-cutting gains are to be found in information technology and finance, where spending is normally heaviest. But the research also showed that trimming from eight other areas could add back as much as 21% to 45% of any loss in pretax profits incurred during the downturn. Dow Chemical, for example, is currently in the process of completing an overhaul of its IT infrastructure as part of a three-year plan to standardize operations.
Spreading data analysis tools from the executive suite to the shop floor brings top-line and bottom-line benefits. This research piece cites data from Hackett's Enterprise Performance Management Book of Numbers detailing the superior equity market returns seen by top EPM performers, along with insights from Hackett Senior Business Advisor Tom Willman.
Everyone says we're in it, so now what do you do about it? If this recession turns out to be like the one we came out of just a few years ago, then IT is going to be cutting back a lot, again. Since most companies still view IT as a cost center; something lumped in with other G&A expenses such as finance and HR, it's only logical for the CFO to show up asking for across the board savings of say, 10 to 15%. Once this happens, the question becomes, how are you going to do this without cutting vital services and completely quashing important projects? Well, there are ways. According to a recent Hackett Group paper, this may actually be a good time to make some needed changes around your IT shop.
Last year, when we first took a look at the corporate propensity to prop up fourth-quarter results at the potential expense of the following quarter's performance (see "Fourth and Goal, " November 2007), recession loomed on the horizon. Today everyone from Warren Buffett to a bevy of economists to, in fact, CFOs say that the recession isn't just looming, it's here - and it's not leaving anytime soon.
Tough economic times make it harder for executives to stick to the course of long-term planning. "The current economic uncertainty has many companies considering some tough choices, and it's easy in an environment like this to fall back on short-term thinking, " said Wayne Mincey, president of the Miami-based Hackett Group, which brought international business leaders to Atlanta last week for its 18th annual Hackett Group Best Practices Conference. "But the best companies, " he said during his opening address, "have always been looking out five years into the future, charting a course in finance, IT, and other key back-office areas that supports their larger business strategy." The annual conference -- which focused on the question: "Are You on the Right Path to World-Class?" -- was attended by nearly 400 business leaders from all over the globe.
The weakening economy is beginning to effect the earnings of companies outside the industries that have been hit hardest by the mortgage crisis. To minimize the effects of a recession on corporate profits, benchmarking firm The Hackett Group recommends that companies make targeted cuts to their general and administrative (G&A) spending (IT, finance, HR and procurement) that quickly impact the bottom line without compromising the quality and service the company provides or its ability to grow when the economy picks up again.
It's yet another new acronym, this time courtesy of The Hackett Group, but IT BVM -- IT business value management -- is a useful and revealing concept. Consider this: Global 1000 companies that excel in IT BVM generate on average $1.07 billion more operating profit on an annual basis and $645 million higher net profit than their peers. What's more, not one company Hackett studied in its latest Book of Numbers research managed to deliver superior financial performance without also being a top performer in IT BVM.
Companies that have poured millions into new data networks, server farms and ERP systems will be interested in the results of new research from the Hackett Group. In a survey of global 1000 companies, Hackett found that typical IT investments-expensive projects to update enterprise infrastructure-tend to generate so-so results. The consulting firm found that more discrete technology enhancements on individual projects generate greater profits, return on assets, and return on equity.
Blogger Jason Busch: I recently had the chance to catch up with my old friend and colleague, Pierre Mitchell of The Hackett Group, on a variety of topics. The main focus of our chat was to discuss Hackett's latest procurement capability maturity model.
Research from a new study shows that savvy IT companies turn in far better financial results. Nicholas Carr, read the software code and weep. Yet another nail in the coffin laying to rest the premise of Carr's famous article in the Harvard Business Review asserting that IT is a commodity that doesn't yield competitive advantage will be driven home Tuesday. That's when a new research study from The Hackett Group will be released showing that companies that have mastered the use of information technology to provide maximum business value achieve significantly better financial results than their peers.
The business case for human resources outsourcing remains strong, but doubts linger about the ability of any one supplier to manage big end-to-end HRO deals. According to Hackett HR Practice Leader Stephen Joyce, transformational change in the context of offshoring offers companies much broader benefits than simple cost cutting.
In response to weaker receivables performance, CFOs have several choices, including reeling in marginal customers and tightening sales terms. But trade-credit decisions are not as straightforward as some banks' lend-or-no-lend determinations, even in the toughest economy. They require dispassionate evaluation of data and a willingness to swap some risk for potential profits. The trick, of course, is to be aware of heightened risk well before a customer asks for extended terms. This article includes insights from REL President Steve Payne and REL Senior Consultant Matthew Kreider.
Faulty forecasts have been the downfall of many CFOs. Last year the retirement of Motorola's finance chief, David Devonshire, coincided with the technology company dropping its revenue projections by a billion dollars in the first quarter. At Ericsson, the telecommunications giant, the CFO departed last October after profits came in short and share prices fell by 30 percent. Despite such consequences, companies are continuing to struggle with accurate forecasts both internally and in the numbers they report to Wall Street. New research from The Hackett Group, a business consultancy, finds that two-thirds of 70 surveyed U.S. and European companies are missing their forecasted earnings by at least 6 percent, up to a high of 30 percent.
While businesses like Coca-Cola, McDonald's and AT&T have drawn criticism for not offering earnings guidance, such a policy might be preferable to providing forecasts that are way off the mark. Turns out there's a lot of that going around. Indeed, companies are increasingly wide of the bull's-eye when forecasting earnings. "Corporations are getting worse, " said Bryan Hall, head of the finance practice at Hackett Group, a consulting firm that advises clients on best practices and benchmarking. "There are now a lot of variables in the market that companies were not exposed to a couple of years ago, and it goes to show that the forecasting models, when really put to the test, aren't working well at all."
"At kitchen tables across our country, there is a concern about our economic future, " the President said in his State of the Union address Monday night. He might well have mentioned conference-room tables, too. A new paper http://www.thehackettgroup.com/hpn/docs/rword/ by The Hackett Group notes that financial crises are an inevitable part of the business cycle, and that companies that respond rapidly and wisely often emerge stronger. For Hackett, that involves a three-part strategy: look for cost-savings from long-term structural changes, seek ways to free cash from working capital, and hone your company's planning and forecasting capabilities.
Think there's no way around sky-high audit costs? Think again. A recent study by The Hackett Group found that the average company spends $584,000 per $1 billion of revenue on audit fees. The companies that earned the "world-class" designation, based on a variety of factors, however, paid only $307,500 per billion- nearly 50 percent less. What sets the best apart from the rest? Below, we offer tips and advice from Hackett and a number of finance executives on how to winnow down audit costs.
Hackett Finance Practice Leader Bryan Hall is featured in this article on the potential impact of a recession on each finance function: tax, internal audit, treasurer, and controller, as well as the prospects for finance employees in general, and, yes, for the CFO.