The Hackett Group

Efficient and Effective Tax, Treasury and Compliance Management Lead to Outperformance in Finance, According to New Findings in 2010 Hackett Finance Book of Numbers

Capabilities in compliance, tax and treasury are essential for companies to be able to establish a solid control environment that supports the protection of company assets; improved financial reporting and cash positions; exposure to currency, commodity and interest-rate risk; and after-tax profits. World-class finance organizations achieve these goals using about two-thirds of the FTEs and at two-thirds of the cost required by the peer group. Beyond efficient and effective processes, today’s finance organizations need the capabilities that allow them to help the company preserve or free up cash so they can deal with risk and volatility and support investments needed for competitive advantage.

Ten Actions Finance Organizations Should Take Now in Enterprise Performance Management to Prepare for 2010

The likelihood of a slow economic recovery lasting well into 2010, if not longer, makes it essential to shape EPM priorities in a way in a way that will help companies be competitive within the context of an increasingly competitive global operating environment. While the cost of the overall finance function continues to drop, many areas remain in which most FP&A/Controlling organizations have room to improve. Based on its proprietary database of the best practices of over 2,000 companies, The Hackett Group has identified 10 key actions that increase the effectiveness of EPM, which can be funded by improvements in the function’s operational efficiency.

Best Practices Enable Philips Treasury to Minimize Risk, Maximize Value During Tough Economic Times and Beyond

Royal Philips Electronics, one of the largest companies in Europe, has implemented a global treasury operation and, more recently, replaced and standardized its worldwide, end-to-end treasury platform. Today, the company’s treasury organization delivers total working capital management to the entire company from its location in Amsterdam. Philips’ experience highlights how best practices can enable treasury effectiveness in supporting the business in its growth objectives by providing improved access to capital for the company and its customers.

US and European Companies Leave Billions of Dollars, Euros Untapped in Working Capital

For the first time in five years, levels of working capital relative to sales in the US stalled in 2006, a situation where, in absolute dollar terms, more cash has been tied up on the balance sheet instead of funding strategic initiatives. In their annual survey of working capital at the 1,000 largest companies in the US and the same number of companies in Europe, REL and CFO Magazine estimate that, as a result, some $764 billion (excluding the automobile sector) in working capital remains untapped. In Europe, the top 1,000 companies (again, excluding automobiles) have EUR 622 billion in cash unnecessarily tied up in working capital. This represents 32% of their total working capital. While generating slight improvements in both receivables and inventory, overall working capital gains were hindered by a reduction in the number of days companies took to pay suppliers, which increased their working capital needs.

Hewlett Packard: The Journey to World-Class Performance in Treasury

Technology giant Hewlett-Packard (HP) can be thought of as three companies in one: the world's largest consumer IT company; the world's largest IT company serving small and mid-sized businesses; and a leading provider of IT solutions for large, global enterprises. Not surprisingly, HP's Treasury organization supports an enormously complex operating structure spread across 46 countries. Yet it was able to move consistently through a three-phased improvement program that has brought it accolades from investors and business media around the world, beginning in 1997 with a global re-engineering effort seeking greater integration, standardization and efficiency through centralization. This was followed by a move beginning in 2000 to an e-Treasury focus, leveraging Internet technologies for internal operations and increased connectivity with financial business partners. Finally, in its third and current phase, Treasury has focused on providing more strategic and value-added services (like financial and business consulting) to internal business customers. This case study, adapted from a presentation by Catherine Lesjak, HP's SVP and Treasurer details the extensive process, technology and organizational changes that enabled Treasury to achieve world-class performance while addressing shifting business needs and continuously supporting the company's mission to be the world's leading information technology company.

US IT Industry Has Up to $45 Billion Unnecessarily Sitting in Cash

The markets for IT products and services are characterized by intense competition, rapid technological changes, frequent new product introductions, shorter product life cycles, industry consolidation and globalization, and cyclical market patterns, resulting in price pressures, increased volatility, unpredictability in demand, and high complexity and risk in managing businesses. The IT industry is increasingly considering the optimization of SG&A and working capital not only as a source of operational and financial efficiency, but also as a way to enhance agility and boost market differentiation. This Insight provides an IT industry overview, examines key business issues and offers observations and advice for achieving world-class performance in SG&A and working capital.

Greif, Inc. Reduced Working Capital to Sales Ratio from 17% to 9.6% in Two Years, Added $1 Billion to Market Capitalization via Top-to-Bottom Transformation Program

Greif, Inc., has a long history of growth through acquisitions, a strategy that eventually led to too much balance sheet leverage and a number of inefficiencies. In 2003, the firm launched a major change program that aimed for dramatic financial improvement and a stronger strategic position. This led to the development of the Greif Business System, which guides company operations today. When the initiative was launched, Greif had more than 17% operating working capital to sales. The goal was to reach 12% by the end of 2006. Today, however, the company is operating at a run-rate that is over 20% better than the established target. This case study, which is based on a presentation by Robert Zimmerman, Greif's Vice President, Corporate Business Development, at The Hackett Group's 2006 Best Practices Conference, highlights what Greif did to achieve this significant improvement and why changing employee behavior was a vital part of the initiative.

Pride International: Using Working Capital Management and Other Best Practices Reduces Debt by Almost $1 Billion in Two Years

A global leader in onshore and offshore drilling, Pride International operates in a highly turbulent, high-risk industry. A combination of high debt, high financial and operating leverage and a weak market had put the company at considerable risk and significant competitive disadvantage. When Louis Raspino was named CEO in 2003, the board gave him one primary objective, to pay down the debt, which was critical to gaining the financial flexibility the company needed to move forward. This case study focuses on the best practices Pride applied to reduce debt by nearly $1 billion in just two years and reduce its debt-to-capital ratio by nearly 40%, both of which led to a 70% gain in its stock price. It also describes how Raspino is transforming the company into the "new Pride," a process-driven organization focused on disciplined growth and continuous improvement of its balance sheet.

Hackett: Largest Global Companies Have More Than $1 Trillion of Cash Unnecessarily Tied Up in Working Capital

According to Hackett research findings, the 2,000 largest companies in the US and Europe have more than $1 trillion in cash unnecessarily tied up in working capital in the form of invoices paid late by customers, suppliers paid too early and inventory moving too slowing through the supply chain. Working capital is the capital invested in operating processes to buy, make and sell in order to generate profit. By implementing best practices and achieving working capital levels observed in this study, companies would also reduce annual operating costs by up to $42 billion. Typically, a reduction in operating capital can be achieved through improved collection, dispute and credit management, inventory and supply chain optimization, supplier consolidation and more efficient buying. Together, these working capital improvements could enable companies to boost net profits by up to 11%. This Insight highlights a range of best practices that leading companies use to enhance their working capital performance. Stephen Payne, Hackett-REL President, and Katie Downs, Program Leader for Hackett's Total Working Capital Executive Advisory Program, offer observations and advice for developing an effective working capital improvement program.

Struggling US Auto Suppliers Ignoring up to $7.6 Billion in Cash Tied up in Excess Working Capital, Hackett-REL Research Shows

In the face of bankruptcy filings, lagging sales and rising raw-material prices, the 15 largest US automotive suppliers are nevertheless ignoring up to $7.6 billion in cash opportunity, according to new research from Hackett-REL. The opportunity comes in the form of excess working capital tied up in invoices being paid late by customers, suppliers being paid too early and inventory lying unsold in warehouses. Further Hackett-REL analysis shows that the top 17 European automotive suppliers are similarly overlooking up to $9 billion in cash, which is frozen in excess working capital. Taken as a whole, the global auto parts supply industry could have as much as $16.6 billion in cash unnecessarily tied up in working capital. This Industry View examines results of the analysis, showing how auto industry companies can realize significant bottom-line benefits from reductions in administrative and operating expenses associated with working capital optimization. These improvements could have a direct impact on improved earnings before interest and tax (EBIT). Observations and advice are offered from Stephen Payne, Hackett-REL Global Practice Leader, and Marc Loneux, Hackett-REL Senior Analyst.

The Do's and Don'ts of Cash Management

With increasing interest rates, oil and commodity costs, and Wall Street pressures to increase shareholder value, it is surprising that many companies do not take more specific steps to drive effective cash management and increase cash flow. Working capital is a highly effective measurement of a company's operational and financial efficiency and effectiveness. The better its condition, the better positioned the company is to focus on developing on its core business. By addressing the drivers of working capital, a company is sure to reap significant operating cost and customer service improvements. This Insight details the steps to understanding and incorporating proper working capital and cash management practices in any company that will result in significant balance sheet bottom-line improvements.

Coughing Up Cash: Alleviating the Ails of Big Pharma

The pharmaceutical industry is rethinking the way it has been conducting business over the past two decades, paying more attention to working capital management as a source of cash and reduced costs. Caught up in a time of unprecedented change, the pace of sales growth for big pharmaceuticals has slowed considerably due to intensifying competition, pricing pressures, patent expirations and a slowdown in new products to market. Going forward, improved operating efficiencies should be looked to as a major contributor to long-term value growth of the industry. As a result, management has begun to pay more attention to working capital management as a way to deliver significant cash and reduced costs. Hackett-REL analysis indicates that the largest US and European pharmaceutical companies by sales have a total of $25 billion in cash unnecessarily tied up in working capital, equivalent to 1.8% of their current total enterprise value. Implementing best practice working capital strategy and processes could result in annual cost reductions of up to $1 billion.

Value Creation and Working Capital Optimization

A sizeable majority of investors and corporations still do not appreciate or understand the importance of working capital management as a key driver of business value creation. Hackett-REL recognized a need for more quantitative research and examined the impact of a significant change in working capital on sector enterprise valuations. The approach is based on a scenario of a 20% reduction in net operating working capital after one year - a rate that corresponds to results achieved when implementing observed best practices in working capital management. This Insight includes detailed metrics of the analysis regarding enterprise value multiple impacts per sector in Europe and the US.

Improving Shareholder Value through Total Working CapitalSM Management

Hackett-REL analysis of the largest public corporations in the US and Europe indicates that, on average, these firms tie up 20-30% more cash in working capital than necessary. The worst of these suffer from excessive receivables, superfluous inventory, lack of purchasing clout, high operating expenses and in extreme cases, insufficient cash to meet day-to-day obligations. Each year, this translates into forfeiture of billions in cash flow and profits, suboptimal shareholder returns and heightened vulnerability to takeovers. Many business leaders view working capital management too narrowly - trying short-term or artificial fixes, such as delaying vendor payments or haphazardly pushing customer collections, which lead to increased vendor prices and customer alienation. A better solution is to attack the problem through a holistic approach known as Total Working CapitalSM Management (TWCM). TWCM transcends the accounting definition of working capital to incorporate all business processes and transactions involving customers, suppliers and products. This Insight discusses the benefits for companies that correctly manage working capital and a a cross-functional approach to process improvement based on analysis of companies that proactively practice TWCM principles.

Compliance and Risk Management -- Treasury Management

Compliance and Risk Management -- Treasury Management

Treasury Today: Expertise in Search of a Mission

Increased scrutiny of company financials and cash flow; Pressure to reduce the cost of operations; Increased expectations about the strategic contribution of treasury to business success; How have treasury organizations responded to these and other contemporary business challenges? Exploring the impact of these business challenges was the purpose of a survey conducted in the spring of 2003 by The Hackett Group.