Executive Summary: Achieving Digital World Class excellence
In the face of economic challenges, companies are recognizing the value of resilience and agility. Research shows that Digital World Class organizations – those with top-quartile performance in business value and operational excellence measures – navigate uncertainty more adeptly. They excel in data utilization, efficient execution and talent attraction. These leaders operate 29% more cost-effectively, with 56% higher perceived value as business partners.
Their advantage stems from six dimensions:
- Technology: Automation mastery streamlines transactions and processes
- Data: Skilled analysis leads to accurate forecasts and informed decisions
- Cloud: Agile architecture enhances performance
- Operations: Insourced work and partnerships yield tangible gains
- Processes: Streamlined ownership drives efficiency
- Talent: Investments yield skilled, aligned professionals
Proactive digital leadership propels companies toward Digital World Class success, positioning them for growth and efficiency amid uncertainty.
Digital leadership drives resilience
Multiple macroeconomic factors – including inflation, geopolitical unrest, supply chain challenges and workforce labor dynamics – have created unprecedented levels of uncertainty across all dimensions of business. Additionally, growing concerns about an economic slowdown have increased the focus on profitable growth. While controlling cost is always critical, we cannot underestimate the importance of agility. Companies that champion resilience are better able to absorb shock, navigate trials and accelerate past their peers.
Our research shows that resilience is closely tied to digital leadership. Digital World Class organizations – those with top-quartile performance in business value and operational excellence measures (see The Hackett Value Grid™) – are better at navigating uncertainty, risk and complexity than peers because they are more disciplined at maintaining strategic focus and more adaptive to rapidly changing circumstances.
Their competitive edge comes from their ability to harness data more efficiently, provide swifter and superior insights, and use it to inform smarter decisions. They also execute more effectively, focusing on the things that matter most in times of uncertainty. These strengths are attractive to top talent, further positioning them to consistently attract the best minds in the industry.
Digital World Class organizations are more efficient, running at a 29% lower cost than peers – a $110 million advantage for a typical $10 billion enterprise – with 38% fewer full-time equivalent (FTE) staff and are 56% more likely to be perceived as a valued business partner within their organizations.
Why Digital World Class matters
Our analysis shows a strong correlation between Digital World Class and superior enterprise financial performance. When we compared companies with at least one business services function operating at a Digital World Class level with their industry median, we found a five-year average performance premium across several key financial metrics. While this advantage is not solely due to the presence of Digital World Class business services, these companies do tend to display greater innovation, and operational and commercial capabilities, in part because of their higher-caliber talent, analytical capabilities, and technology architecture.
The Hackett Value Grid™
The Hackett Group defines Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics).
Built on insights from over 25,000 benchmarking engagements, involving nearly 8,800 major global companies spanning various industries – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – the Hackett Value Grid is a useful compass for charting the course toward top-quartile performance.
By evaluating their own benchmarking results in the context of industry peers and top-tier performers, companies can gain a unique understanding of their competitive positioning and identify opportunities for growth.
Digital World Class widens the cost gap
The Hackett Group annually measures the gap in general and administrative cost between Digital World Class functions and their peers. Over the past decade, top-quartile technology functions have developed and maintained a significant cost gap over peers. Even though their costs have increased this year – likely due to higher inflation – Digital World Class organizations maintained a cost advantage of 29% in 2023.
Elements of Digital World Class technology
Managing the portfolios of applications and services in the information technology environment has traditionally enabled top-performing technology organizations to continue to modernize the technology landscape, which explains why their outsourcing cost is 45% less than that of peers.
Rationalizing the technology environment has traditionally enabled top-performing organizations to continue to modernize the technology landscape, which explains why their technology cost is just 3% less than that of peers. But they also invest in technology architecture modernization and emerging technologies – such as smart automation, advanced analytics and collaboration tools – that enable greater automation, further reducing labor cost. As the portfolio shifts toward higher-value services, leaders also invest to equip their knowledge workers with modern digital tools.
The Digital World Class advantage
Beyond operating with an 29% cost and 38% FTE advantage, Digital World Class organizations excel across all facets of business value and operational excellence. Here are some highlights:
Elevated business enablement and influence
Digital World Class organizations build better capabilities for enabling the business. In human resources (HR), for example, they fill manager positions 25 days faster than peer organizations and retain 97% of new managers after their first year. In procurement, they influence or manage 20% more spend than the peer group – a key enabler to driving cost savings. They are also 23% more likely to get involved at the start of the sourcing process when requirements are defined, and they can guide the selection of suppliers that will best meet those requirements. In 88% of Digital World Class technology organizations, executives are always or often engaged in business strategy discussions and decisions.
Higher degree of reliability
Digital World Class organizations are more accurate in their work. Among other benefits, that helps them deliver insight and reporting that instills confidence. For example, 82% of organizations with a Digital World Class finance function place a high degree of reliability on the annual forecast – that is up from 74% in 2022 – while confidence in peer group forecasts dropped six percentage points, illustrating the difficulty of handling multiple uncertainties simultaneously.
Greater perceived value
Through automation and higher-quality processes that reduce manual effort and rework, Digital World Class organizations have more time to focus on value-added activities – for example, 27% more HR business partner time focused on organizational and leadership development, and 55% more finance time spent on analysis versus collecting and compiling data. Finance teams are approaching optimal levels by collecting 96% of receivables within agreed terms, helping their organizations manage the cash cycle more effectively. While procurement teams in all organizations are working hard to battle inflationary price increases, top-performing functions returned 1.9 times more overall cost savings. Their return on investment – which compares total procurement cost savings to the cost of the procurement function – is 2.4 times greater.
Digital World Class organizations deliver services and support more productively than the peer group. For example, HR organizations serve 66% more employees per HR FTE at a labor cost that is 39% less. They also achieve 87% more total placements/hires per recruiting and staffing FTE, while the total cost per hire/placement is 45% less.
Digital World Class procurement organizations’ sourcing cycle time – the business days from communication of requirements to the signing of a supplier agreement – is 17% shorter, allowing teams to meet the needs of the business faster. They also order ad hoc purchases 42% faster and process catalog orders 66% faster. Similarly, Digital World Class finance organizations complete the closing/consolidation process 35% faster – they improved by 23% just in 2023 – and financial reporting 41% faster. That enables executives to learn and react sooner.
Organizations with Digital World Class technology functions allocate 68% more technology spend to emerging technologies such as artificial intelligence (AI), workflow automation, chatbots and immersive experiences that enable greater self-service. This has broad implications across the business – not the least being the ability to realize the competitive, financial and other benefits of being digital.
Elevated stature as a business partner
Together, the qualities above contribute directly to greater enterprise agility and resilience. It is not surprising then that Digital World Class organizations are 56% more likely to be viewed as a valued business partner. That said, business functions in many organizations – both those performing at a Digital World Class level and in the peer group – have significant room to continue improving their stature as a business partner.
Digital World Class organizations get it done by focusing on six key dimensions
1. Technology enablement
The Hackett Group’s 2023 Key Issues Study found that across the board business function workloads are expected to grow more than budgets and head count. Executives are relying on technology to help fill the productivity and cost gaps. Automation is a central theme. When asked about their business applications strategy and approach, 44% of executives said their aim was to automate as much as possible through technology.
Digital World Class organizations have a 64% advantage over the peer groups in overall level of automation. Proper automation requires cleaning up processes first so their advantage produces additional benefits beyond eliminating mundane tasks. In some business functions, transactional automation is nearing an optimal level – for example:
- Procurement: 100% electronic processing of purchase requisitions, purchase orders (POs) and PO change orders
- HR: 99% of time and attendance entries, 98% of payroll administration transactions, and 97% of pension and savings transactions
- Finance: 96% of journal entries
Leaders are employing automation beyond transactional activities. They are automating business processes – for example, 100% of Digital World Class finance organizations have a high percentage of credit applications completed online by customers or sales representatives, compared to only 11% of the peer group. Top-performing procurement functions use electronic auction tools to source 6.9 times more spend than the peer group. And Digital World Class HR organizations use digital tools to a greater extent to enable talent processes – they are more than twice as likely to offer mobile-enabled job searches and application submissions.
Also, top performers continuously explore opportunities to digitize processes that drive additional value, such as AI enablement, which will have a major impact on how work is performed. In the 2023 Key Issues Study, 44% of executives expressed a significant probability that the company will leverage AI/digital capability in the next three to five years.
2. Data and analytics
The heightened demand for faster and more accurate insight and forecasts is forcing organizations to rethink their existing data analytics approach and required tools. In the 2023 Key Issues Study, turning data into actionable insight and improving or enabling analytical, modeling and reporting capabilities were often among functional executives’ top priorities. These capabilities are essential for supporting growth strategies, retaining talent, ensuring supply continuity and accelerating preparedness for uncertainty.
In the same study, inconsistent data management across operational and financial reporting was the No. 3 internal challenge hindering growth, and a top five concern individually for all functions (finance, HR, procurement and GBS). One-third of organizations have an enterprise program underway to address it – a higher percentage than for any of the other 10 top internal challenges.
Executives also see data and analytics as keys to combating economic uncertainty. “Accelerating digital transformation – automation, advanced analytics and modeling” topped the list of actions that organizations are taking to prepare for economic downturn or recession, with 45% of organizations indicating that they are taking such action to improve efficiency and/or business value.
Across our benchmarking studies of specific business functions, several of the characteristics that distinguish those operating at a Digital World Class level include:
- Use of a central data repository
- Online access to self-service tools and reports, with the ability to run ad hoc analyses
- A higher percentage of staff focused on analysis and planning
- Well-defined data architecture
3. Modern cloud architecture
The Digital World Class transformation involves integrating or retiring legacy systems, adopting emerging technologies, migrating applications into the cloud and integrating data from disparate sources. Modernizing architecture design and managing it effectively are absolutely critical for simplifying the complexity. Probably the most impactful aspect of architecture modernization is the transition to the cloud. The Hackett Group’s 2023 Key Issues Study found that 32% of organizations have implemented a cloud-first approach to new applications in the past five years, and 31% are planning to migrate most transactional and analytical functions to the cloud in the next three to five years. Nearly one-quarter (23%) of respondents expect their organization to be 100% in the cloud by 2025 – that’s a significant increase from the 7% of companies that run completely in the cloud today.
4. Operating model evolution
Business services functions must reimagine, redesign and evolve their operating model as digital operations mature. Operating model success in the future involves decisions about scope, modality and placement of work that leverages organizations’ centers of excellence, customer-facing business units, the role of global business services (GBS) and strategic partnerships.
The pandemic and recent economic challenges have led to a major rethink of where work can be done. This is driving renewed interest in GBS and shared services strategies, which can deliver tangible cost, productivity, quality and customer service benefits.
5. End-to-end process design and ownership
The rapid pace of transformation and deployment of new capabilities underscores the importance of end-to-end process design and ownership within technology. Process complexity remains a critical challenge for many organizations and business function executives. For example, in The Hackett Group’s 2023 Key Issues Study, finance executives cited process complexity as the No. 3 impediment to successful finance transformation. When a process is executed in a piecemeal fashion, it is not only more expensive; it also undermines the ability to respond quickly to changes in business conditions or stakeholder needs.
Dedicated global process owners oversee and govern the process, data, and technology capabilities from start to finish and, therefore, can spot bottlenecks and make changes more easily. Digital World Class organizations have an advantage over the peer group in this regard because they are 57% more likely to have established end-to-end process design and ownership. Customer-centricity must be at the forefront of end-to-end process design, and organizations must have the requisite skills to enable it.
6. Talent management
If organizations want to achieve Digital World Class performance, they must consistently invest in making sure professionals have the right skills, experience and motivations for their evolving roles. In the 2023 Key Issues Study, “developing/retaining skills and talent” was a top priority for most functional executives, but many feel ill-prepared to address it. For example, technology executives have low confidence in their ability to deliver, yet only 12% have a major talent program initiative for 2023.
With the challenges of finding talent, organizations will need to refocus their approaches to training and development – and invest accordingly. Digital World Class organizations stand apart from the peer group in this area, providing 56% more training hours per FTE.
Training must be focused on the right skills. For example, highly skilled business enablement leaders are critical to the Digital World Class journey. This is a role that requires advanced analytical acumen to drive insight and technical IQ to deliver operational efficiencies through automation and digitization of work. It also requires skills essential to business partnering such as emotional intelligence, relationship management, innovation and change orientation.
An action plan for achieving Digital World Class
With so much uncertainty all around us, this is the time to be proactive and accelerate digital leadership. Companies that forge ahead with confidence will be best positioned to accelerate growth, gain market share and – yes – run more efficiently. Here’s how:
Are you ready to close the gap to Digital World Class technology performance?
Backed by our unparalleled benchmarking data and best practices repository, as well as experience across the full transformation life cycle, The Hackett Group is ready to support you.
Contact us to start your journey toward Digital World Class success.