What’s the Digital World Class® Finance Advantage?

September 28, 2023

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 in the top quartile of business value and operational excellence – navigate uncertainty adeptly. They excel in data utilization, efficient execution and talent attraction. These leaders operate 47% more cost-effectively, with 44% higher perceived value as business partners.

Their edge stems from six dimensions:

  1. Technology: Automation mastery streamlines transactions and processes
  2. Data: Skilled analysis leads to accurate forecasts and informed decisions
  3. Cloud: Agile architecture enhances performance
  4. Operations: Insourced work and partnerships yield tangible gains
  5. Processes: Streamlined ownership drives efficiency
  6. 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 for finance leaders. Additionally, growing concerns about an economic slowdown have increased the focus on profitable growth. While controlling cost is 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 in the top quartile of business value and operational excellence (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 edge over the competition lies in 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 finance organizations are more efficient, running at a 47% lower cost than peers – a $48 million advantage for a typical $10 billion enterprise – with 50% fewer full-time equivalent (FTE) staff, and are 44% 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 operational excellence.

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.

The finance Digital World Class gap continues to widen

The Hackett Group annually measures the gap in cost between Digital World Class finance functions and their peers. Over time, the cost gap has narrowed gradually as top-performing finance organizations optimized their cost structure and peers began to catch up. Recently, however, digital transformation has begun to widen the gap again.

While peer companies have seen operating costs increase, Digital World Class finance organizations have expanded their cost advantage from 42% in 2022 to 47% in 2023 despite inflationary impacts.

Elements of Digital World Class

Top-performing finance organizations continue to modernize their tools, which explains why their technology cost is 10% less than that of peers. They also invest in updating their finance strategy and technology architecture by adopting emerging technologies like smart automation, advanced analytics, and collaboration tools. These investments lead to increased automation, reducing labor costs even more. This investment becomes evident when we compare costs of labor, outsourcing, technology and other costs from 2022 to 2023. For Digital World Class organizations, the cost as a percentage of revenue decreased for labor, outsourcing and other costs in 2023, while it increased for technology.

Not all technology investments are aimed at reducing labor, however. Finance leaders are also investing in modern digital tools for their workforce. Although Digital World Class finance organizations spend less overall on technology as a percentage of revenue than peers, they have a far more technology-intensive operating model and spend a larger component (15%) of their operating cost on technology than peers (9%).

Digital World Class finance outfits traditionally operate with significantly fewer FTE staff than peers. In 2023, this gap increased to 50% from 46% in 2022. Peers slightly increased FTEs per billion in revenue, while Digital World Class organizations reduced FTEs by 7%, largely via automation. Remarkably, Digital World Class finance units have fewer FTEs per billion in revenue than peers have in transaction roles alone. They operate with 63% fewer FTEs in transactions, but only 33% fewer in financial planning and analysis (FP&A) roles, and 32% fewer in specialist finance roles. This resource shift contributes to their higher value and a 22% larger management span of control.

Evidence suggests peers lag in implementing automation as part of their finance strategy compared to Digital World Class finance entities. Since 2019, peers reduced transaction processing FTEs per billion in revenue by 10%. Meanwhile, Digital World Class finance organizations saw a 23% drop in transactional FTEs, even from a smaller starting point.

The Digital World Class finance advantage

Beyond operating with a 47% cost and 50% FTE advantage, Digital World Class finance organizations excel across all facets of business value and operational excellence. Here are some highlights and finance best practices:

Superior reliability

Digital World Class finance organizations produce more accurate analyses, resulting in greater trust and dependability in their forecasts. Management’s confidence in annual forecasts from Digital World Class finance units grew by 28% and annual forecast reliability rose from 74% to 82%, while peers saw a 6% decline.

Our benchmarking analysis reveals their finance strategy: focusing on a single source of truth enables them to generate 61% more business performance reports from a central data repository. Additionally, they are 94% more likely than peers to equip cost center managers to enter budgets online. This streamlined approach reduces reporting complexity by 89% per billion of revenue.

More focus on value creation

Digital World Class finance organizations are more accurate in their work. Top companies produce 54% fewer customer billing errors and 75% fewer accounts payable transactions requiring corrections.

That means they have more time to focus on value-added activities – and building better capabilities for supporting the business. For example, they do a better job of helping the enterprise manage and improve its cash cycle, which is particularly critical amid today’s economic uncertainty. While both Digital World Class finance organizations and peers show continued improvement in percentage of receivables collected within terms, Digital World Class companies are approaching optimal performance at 96% collected within agreed customer terms.

Faster time-to-value

Digital World Class finance organizations outpace their peers by completing the closing/consolidation process 35% faster. Further, Digital World Class have accelerated their advantage by improving faster than the competition (23% in 2023). They also have a 29% shorter annual budgeting cycle and 41% faster close-to-report cycle. While both groups made strides in 2023, Digital World Class finance organizations are approaching optimization under generally accepted accounting principles reporting requirements. This efficiency empowers them to learn and respond more swiftly – a crucial and sustainable competitive edge.

Their swifter pace and quicker value delivery stem from process automation. For example, they are 57% more likely to have automated customer-to-cash processes and 22% more likely to distribute customer invoices electronically.

Better business partners

With increased reliability, value orientation and speed, top finance organizations directly contribute to enterprise agility and resilience. It’s not surprising that Digital World Class finance organizations are 44% more likely to be seen as valued business partners. That perception gap widened significantly in 2023 – from 19% previously – while peers’ perception as a valued business partner declined slightly. Both Digital World Class finance organizations and peers have room for growth in their business partnership roles. Notably, this is a top 10 priority for finance executives, as highlighted in our 2023 Key Issues Study.

Digital World Class finance organizations get it done by focusing on six key dimensions

1. Technology enablement

Traditionally finance automation centered on transactional tasks like accounts payable and reducing manual efforts and costs. Digital World Class finance entities lead in transaction automation, automating 96% of journal entries (compared to peers’ 80%), receiving 84% of invoices electronically (versus peers’ 54%), and posting 94% more customer payments automatically.

Their leadership is also evident in business process automation. For example, 100% of Digital World Class finance groups handle credit applications online, contrasting with peers’ mere 11%. Similarly, 73% fully automate their accounts payable – 20% higher than peers – marking an 11% improvement in the past year.

Digital World Class finance organizations are also more likely to employ self-service and automation, freeing up capacity for value-added tasks. For example, 78% provide online management reports, ad hoc analysis (compared to peers’ 38%), and 87% have a central data repository for report versus only 54% of peers.

2. Data and analytics

The heightened demand for faster and more accurate forecasts is forcing organizations to rethink their existing data analytics approach and required tools. In our 2023 Key Issues Study, turning data into actionable insights was again a top 10 finance function priority (No. 6). But data and analytics are also vital to many of finance executives’ other top priorities, including supporting growth strategies, accelerating preparedness for uncertainty and optimizing working capital.

Digital World Class finance organizations have a significant head start. They have 2.2 times more staff (FTEs) focused on business analysis, and spend 2.1 times more time employing sensitivity, investment and value analysis techniques. They spend 55% more time on analysis rather than collecting and compiling data. And they spend 60% more analytical time focused on proactive decision-making, rather than historical reporting – a gap that has widened significantly from 38% two years ago.

3. Modern cloud architecture

In the Digital World Class finance transformation, legacy systems integrate or retire, new tech is adopted, apps move to the cloud and data is integrated. Effective management of modern architecture is crucial to simplify complexity. Key to this is transitioning to the cloud. The Hackett Group’s 2023 study found 32% adopted a cloud-first approach in five years, and 31% plan transactional and analytical migration in three to five years, with 23% aiming for full cloud use by 2025, up from 7% today.

Digital World Class finance are leaders in modernization and cloud migration. They own capability models in finance and partner with tech groups, using skills from both areas. Those with extensive cloud use outperform peers by 68% in meeting business goals – up from 32% in 2021.

4. Operating model evolution

As digital operations mature, business services must reimagine, redesign and evolve their operating model. The future success of the operating model hinges on decisions regarding the scope, method and placement of work. This involves tapping into the strengths of centers of excellence, customer-facing business units, the role of global business services (GBS) and strategic partnerships.

The pandemic and recent economic challenges have caused employers to rethink where work can be done. In The Hackett Group’s 2023 Key Issues Study, 30% of finance executives projected an increase in insourced work, and 53% projected an increase in the volume of work moving to captive-only, low-cost locations. 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 highlights the need for comprehensive process design and ownership in finance. The Hackett Group’s 2023 Key Issues Study identified process complexity as the No. 3 challenge in finance transformation, after funding and skills. Fragmented processes are costly and hinder adaptability. Global process owners oversee the entire process, spotting bottlenecks. Digital World Class finance groups lead, being 74% more likely to have a dedicated owner for end-to-end processes, like general ledger accounting. Prioritizing customer-centric design is essential, requiring appropriate skills.

6. Talent management

Retaining skills is a top 2023 priority for finance executives, yet their confidence in delivering is low. Just 8% have major talent initiatives. To ensure Digital World Class performance, urgent investment in skills, experience and motivation is vital. Digital World Class finance groups lead, with 41% in FP&A roles versus peers’ 31%. Skilled business leaders are crucial, demanding analytical acumen for insight and technical IQ for automation and digitization. Emotional intelligence, relationship management, innovation and change orientation are essential. Alignment with business operations is key. They are 2.8 times more likely to hold certifications and 2.1 times more likely to link staff performance with strategic plans.

Your action plan to achieve 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 finance performance?

With The Hackett Group’s benchmarking expertise, companies can achieve excellence in key areas:

  • Finance best practices and performance benchmarking
  • Digital finance transformation strategy, automation and analytics
  • Finance and global business services optimization
  • Talent management and skills development
  • Enterprise performance management and technology road maps
  • Transformation management and cost optimization
  • Working capital and cash acceleration

Contact The Hackett Group to start your journey toward Digital World Class success.