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December 11, 2019

Proof that your success depends on IT

By Rick Pastore  – Senior Director & IT Research Advisor at The Hackett Group

How important is IT performance to the other business functions? Analysis of businesses benchmarked by The Hackett Group shows that G&A functions (finance, HR, procurement and global business services) perform more effectively and efficiently at companies with highly effective IT organizations. The reverse is also true: Performance suffers when IT effectiveness is low. This may sound obvious, but what surprises many is the high degree of correlation, which shows IT to be a force multiplier for performance.

In the chart below, each dot represents one company that has completed a Hackett Group benchmark in IT and at least one other function. As IT effectiveness (indexed to 100) rises along the X axis, G&A performance climbs on the Y axis. The correlation is both visually and mathematically strong, with a 0.81 Pearson coefficient.

G&A effectiveness and efficiency correlates with IT effectiveness

 

 

We also find that companies with highly effective IT organizations (those positioned to the right of the dashed line in the chart) are twice as likely to achieve world-class performance levels in one or more other G&A function – indicated by the yellow dots on the chart. We define world-class performers as those with top quartile performance in both efficiency and effectiveness benchmarks, which is typically 10% to 15% of the benchmarked population. Of companies plotted on the strong (right) half of the graph, 42% achieved world-class effectiveness and efficiency levels in one or more G&A function, while only 20% of companies on the lower half did so. Clearly, G&A world-class performance is easier to attain with an IT organization that is an asset rather than a liability.

Rather than accepting a cause and effect here, some may conclude that companies that invest in strengthening performance in one function (including IT) are likely to invest in all, thus raising performance across the board. However, this is not supported by the data. Of all companies in our benchmark study, only 31% have at least one world-class G&A function, and of those, only 56% are world-class in two or more functions. That means 44% of companies have been unable to replicate world-class results in more than a single function. Yet, at companies with two or more world-class functions, IT is one of them in 80% of cases. IT does appear to be a force multiplier in G&A.

Neglected and deficient IT organizations have the opposite effect. When there is little investment in digital modernization, migration and standardization, complexity will grow exponentially. Lower productivity, agility and innovation rates are among the consequences of technology complexity. For example, in the finance function, high application complexity (measured as the number of applications per unit of revenue) increases total finance costs by 151%, compared to functions with low tech complexity. The number of finance FTEs on the payroll also jumps 186% where application complexity is high.

While G&A leaders already realize they need support from IT for their digital transformation and to optimize their efficiency and effectiveness, many may not appreciate how much their performance is linked to IT’s. Our analysis makes clear that efforts to digitally transform the G&A function and close the gap to world-class performance will lag or fail without commensurate investment in IT maturity and modernization. CFOs, CHROs, CPOs and GBS leaders should demand CEO commitment to IT effectiveness and expect cooperation and accountability from their CIOs. Beyond that, these G&A functions, with IT, should adopt a unified digital operating model that raises and reinforces performance and capability multilaterally – something The Hackett Group will be refining early in 2020. Contact us to learn more.