Hackett (NASDAQ:HCKT)
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As the recession looms, many companies are reacting by mandating across
the board cuts in key General & Administrative (G&A) areas such as IT,
finance, HR, and procurement. But new research from The Hackett Group,
Inc. (NASDAQ: HCKT) offers an alternative approach –
targeted, strategic reductions that can offset up to almost half the
impact of a potential recession while minimally affecting service
delivery and the ability to provide strategic value.
According to Hackett, typical Global 1000 companies (with $23.4 billion
in annual revenue) can generate $200-$400 million per year in savings
through targeted G&A cuts, an amount that represents up to 45% of the
potential decline in pre-tax profit due to a recession. The cost
reduction opportunities are focused in two primary areas. More than 40%
of the potential savings, or up to $171 million per year, comes from IT
alone. More than a third, or up to $145 million per year, comes from
finance.
Hackett’s research details the strategies and
tactics companies can use to accomplish cost reductions, including
reducing labor costs, cutting technology spending, and selective
globalization of business processes. Hackett also identifies the 10
process areas where companies can find the largest savings, the least
risk, and the quickest return.
Three primary approaches to improving process improvements are also
detailed. By utilizing empirically-proven best practices, companies can
cut costs while minimizing impact on business delivery. Companies can
also simplify or eliminate processes, an approach that often involves
the use of outsourcing for activities that can be done faster and
cheaper by a specialized provider. Process standardization is also a
powerful approach, although it may require companies to make technology
investments and can demand strong commitment from senior management.
In IT, for example, Hackett’s research showed
that companies can cut infrastructure management costs in half by
achieving world-class efficiency levels through strategic
transformation. Another area to target is application maintenance, where
cost reductions of over 40% are possible, largely by reducing the
complexity of the application portfolio, taking a more disciplined
approach to application disposition planning, and improving demand
management.
Hackett also announced that its REL division is currently preparing a
separate research piece addressing working capital optimization
strategies to address a possible recession. The current economic climate
has made access to capital challenging, and many CEOs and CFOs are
focusing on working capital optimization to address this. REL’s
research estimates the working capital improvement opportunity for an
average Global 1000 company at $2.9 billion.
“In today’s economic
environment, reductions in back office functions costs are virtually a
given,” said Hackett President Wayne Mincey. “But
one of the biggest challenges faced by senior executives is knowing when
to pare back costs, where to make the cuts, and by how much. Our
analysis provides some very clear guidelines, identifying areas that
offer the maximum potential for cost savings in the short to medium term
and that are likely to put the business in the best position for
long-term success.”
According to Hackett Chief Research Officer Michel Janssen, “This
is an area where each company is going to make its own decisions. There’s
no one right answer to the best way to cut costs. But our research
offers companies several strong options to consider, individually or in
combination. Companies can look at reducing labor costs through process
optimization -- basically streamlining, standardizing, and implementing
best practices. Technology costs, one of the largest spend areas, offer
another area where inefficiencies can be eliminated, demand can be more
effectively controlled, and suppliers managed to drive significant
savings.
“Finally, companies cannot overlook the cost
savings opportunities available through globalization,”
said Mr. Janssen. “Under recessionary
conditions, time to benefits is key, and one of the ways of accelerating
the potential cost reduction is not to try to untangle a web of
complicated processes but rather consider a lift and shift scenario,
that is, moving processes in their as-is state offshore to take
advantage of labor arbitrage opportunities.”
Hackett’s understanding of how world-class
companies deliver back office, or G&A, services is based on empirical
data and research derived from over 4,000 benchmark studies it has
performed since 1992. This insight allows Hackett to identify those
areas where potential cost reductions can be made without damaging the
overall performance of key business functions. According to Hackett’s
research, companies that achieve world-class performance in back office
functions achieve significantly lower overall cost while delivering
superior performance and providing greater business value.
To estimate the ability of its recommendations to offset the impact of a
possible recession, Hackett began with the assumption that if a
recession took place in 2008 average pre-tax profit margins of Global
1000 companies could potentially fall from their 2007 level (9.3%) to
those seen in 2001 recession (5.5%). Under these circumstances, the G&A
savings opportunities identified in Hackett’s
research would absorb between a low of 21% and a high of 45% of the
commensurate drop in pre-tax profits.
A Research Insight providing more details on the findings described here
is available, with registration, at the following URL: http://www.thehackettgroup.com/studies/ga/
About The Hackett Group
The Hackett Group, Inc. (NASDAQ: HCKT), a global strategic advisory
firm, is a leader in best practice advisory, benchmarking, and
transformation consulting services, including shared services,
offshoring and outsourcing advice. Utilizing best practices and
implementation insights from more than 4,000 benchmarking engagements,
executives use Hackett's empirically based approach to quickly define
and prioritize initiatives to enable world-class performance. Through
its REL brand, Hackett offers working capital solutions focused on
delivering significant cash flow improvements. Through its Hackett
Technology Solutions group, Hackett offers business application
consulting services that helps maximize returns on IT investments.
Hackett has worked with 2,700 major corporations and government
agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune
100, 73% of the DAX 30 and 45% of the FTSE 100.
Founded in 1991, The Hackett Group was acquired by Answerthink, which
was renamed The Hackett Group in 2008. The Hackett Group has global
offices in the United States, Europe and India.
More information on The Hackett Group is available: by phone at (770)
225-7300; by e-mail at info@thehackettgroup.com;
or on the Web at www.thehackettgroup.com.