Achieving WorldClass Performance in Finance, HRPayroll, IT and Procurement NASACT Benchmarking Overv

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Achieving World-Class Performance in Finance,
HR/Payroll, IT and ProcurementNASACT
Benchmarking Overview

• Q3, 2007

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Topics

• Benchmarking in state government background
• Why did the State of Arizona participate?
• Overview of the benchmark deliverables and
  process
• What is the State of Arizona doing now?
• Objective Understand how benchmarking and
  corresponding process improvement can demonstrate
  strategic leadership and success!

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Background

• State steering Committee formed in 2004. A state
  steering committee was formed with NASACT in
  early 2004 to explore the use of benchmarking.
  The Hackett-Accenture team was selected to
  conduct a benchmarking pilot for the finance
  function.
• Pilot Benchmark project. Six states and selected
  agencies participated in the finance benchmark
  pilot (Alaska, Arizona, Nebraska, Oregon,
  Tennessee and Washington). Pilot results were
  presented at Biloxi conference in November 2004.
• State RFP issued through NASACT. In April 2005
  NASACT conducted a formal RFP to select a single
  benchmarking service provider.
• Vendor selected and tailored program for states.
  In June 2005 The Hackett-Accenture team was
  formally selected to support the NASACT
  benchmarking program in Finance, HR/Payroll,
  Procurement, and IT. Program launched at NASACT
  annual conference, August 2005. Contract vehicle
  now in place for states to select any or all
  benchmarks, based on their needs.

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States Participating as of 7/1/07
Program Launched at NASACT Conference in Portland
in August 2005
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There are many, and different, reasons for State
Governments to benchmark

• Back office Performance Metrics/Data - Where are
  we and how do we compare to other states, as
  well as world-class organizations. Helps to
  establish project priorities.
• Baseline and future measurement for technology
  investments - Provides a baseline, supporting a
  before and after comparisons when undertaking
  an improvement project (such as a new ERP)
• Foundation for Business Case - Provides
  performance insights and quantitative measures
  into process areas for improvement that will be
  the starting point for change and a business
  case.

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The performance gap between world-class
organizations and their median peers continues to
be significant
Hackett 2007 Functional Performance Data
PROCUREMENT
HUMAN RESOURCES
FINANCE
IT
IT cost per end-user
Finance cost as a of revenue
HR cost per employee
Procurement cost as a of spend
6
9
1,995
30
Median
1.24
Median
Median
0.82
World- Class
9,198
49
Median
8,701
World- Class
0.63
World- Class
1,822
World- Class
0.61
6.3 million in savings per billion of revenue
1.7 million in savings per 10,000 employees
1.9 million in savings per billion of spend
World-class are investing more in IT
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Hacketts HR/Payroll benchmark framework
Management Administration
Employee Life Cycle
Transactional
Planning Strategy

• Total Rewards Administration
• Health and Welfare Administration
• Pension and Savings Administration
• Compensation Administration
• Payroll Services
• Time and Attendance
• Payroll Administration
• Data Management, Reporting and Compliance
• Compliance Management
• EE Data Management
• HR Reporting

• Staffing Services
• Recruiting and Staffing
• Exit Process
• Workforce Development Services
• Learning and Development
• Career Planning
• Performance Management
• Organizational Effectiveness
• Labor Relations Administration
• Organization Design and Measurement
• Employee Relations

• Total Rewards Planning
• Benefits Planning
• Compensation Planning
• Strategic Workforce Planning
• Workforce gap assessment
• Leadership gap assessment

• Function Management
• Function oversight
• Personnel management
• Policy and procedures oversight

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Hacketts Procurement benchmark framework
Sourcing Supplier Management
Planning Strategy
Operations Compliance

• Customer Management
• External Customer Management
• Internal Customer Management
• Product Development and Design Support
• Sourcing Execution
• Requirements definition and supplier bidding
• Negotiation and supplier contract creation
• Supplier Management and Development
• Supplier Management
• Supplier Partnering

• Function Strategy and Performance Mgt
• Strategic and operational planning
• Sourcing and Supply Base Strategy
• Sourcing and Supply Base data gathering
• Sourcing and Supply Base Analysis

• Supplier Scheduling
• Supply requirements review
• Supplier scheduling
• Order release
• Inbound tactical supply management
• Delivery coordination
• Receipt Processing
• Materials and goods
• Services
• Compliance Management
• Internal Compliance Management
• External Compliance

• Supply Data Management
• Supplier master management
• Item master/content management
• Catalog management
• Contract master management
• Requisition and PO Processing
• Requisition processing
• Purchase order processing
• Requisition and purchase order support

Management Administration

• Function Mgt
• Function oversight
• Personnel mgt
• Policy and procedures oversight

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Hacketts IT benchmark framework
Technology Infrastructure
Planning Strategy
Management Administration
Control Risk Management
Application Management

• Infrastructure Management
• Operations Management
• Security Management
• Disaster Recovery Planning
• End User Support
• Help Desk
• End User Training
• Infrastructure Development
• Planning
• Construct
• Implement

• Application Maintenance
• Application Support
• Enhancement Delivery
• Upgrade Execution
• Application Development and Implementation
• Planning
• Construct
• Implement

• Quality Assurance
• Change Management
• Risk Management
• Audit and Compliance

• IT Business Planning
• Alignment
• Project Prioritization
• Communication
• Enterprise Architecture Planning
• Governance
• Standards Management
• Emerging Technologies
• Technology Evaluation

• Function Management
• Function oversight
• Personnel management
• Policy and procedures oversight

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Data collection activities - Web based collection
tool and reporting
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Hacketts process taxonomy assures
apples-to-apples comparisons

Process Groups Cash disbursements

• Processes
• Accounts payable
• Travel and expense
• Freight payments

• Sub-Processes
• Sourcing execution
• Supplier set-up
• Pre-processing
• Verification / approval
• Processing
• Discrepancy resolution
• Payments
• Inquiry response
• File / store / retrieve
• Reconciliation/ accrual/compliance

Data collection

• Activities
• Processing and routing of incoming mail specific
  to the cash disbursements process including the
  handling of invoices, bills of lading receiving
  documents and expense reports
• Matching of supplier invoice, purchase order,
  receipt acknowledgement and other required
  documents or information to validate and verify
  payment can be made to suppliers.
• (More)

Empirical data is collected based on activities
performed, regardless of job title, reporting
hierarchy, geographic location, or organization
structure
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NASACT Utilizes Hacketts Proven Benchmark
Process and Tools (12-16 week process from
kickoff)
Enablement through tools and methodology
Collection of baseline data as well asvalidation
of data with Hackett
Analysis of baseline data versus
benchmarkdatabase - development of
recommendations
Planning/Kickoff
Data Collection Other Inputs
Data Validation
Analysis / Draft Report
Results Presentation

• Present Benchmark Results and Associated Findings
  to State/Agency Leadership
• Quantification of Financial Impact of Improved
  Performance
• Prioritization of Opportunities
• Determine Actions Required to Close Performance
  Gaps

• Collect All Required Quantitative Data
• Practice Assessment Workshop
• Conduct Executive Interviews
• Conduct Stakeholder Survey

• Data Consolidation
• Data Review and Validation
• Client Signoff on Data Accuracy Reflecting
  Operations of the State/Agency

• Conduct Data Analysis
• Develop Recommendations and High Level Action
  Plan
• Assemble Draft Results Report for State
  Leadership
• Review Draft Report

• Review Question Set Scope and Definitions
• Identify Data Sources
• Establish Project Coordinator
• Identify Location / Function Coordinators
• Conduct Project Education and Training

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Hacketts Benchmarks can be executed in 12-16
weeks (approximate timeline)
Week 1-2
Week 3-4
Week 5-6
Week 7-8
Week 9-10
Week 11-12
Week 13-14
Week 15-16
Pre-Planning
Training
Data Collection
Data Validation
Analysis Preliminary Results
Final Results
Draft Data
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Benchmark program costs

• State resource needs
• State coordinator half time for 6-8 weeks
• Agency coordinators half time for 1-2 weeks
• Agency data collectors 2-3 days
• Core team and management to participate in data
  review and final report meeting (3-6 hours)
• Administrative fee to NASACT 3

Plus travel related expenses capped at
10,000 for the first benchmark and 9,000 for
each additional benchmark
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The Hackett Value GridTM

• EFFECTIVENESS (y-axis)
• Partnership
• Quality
• Talent Management
• Flexibility
• Access To Information

Hackett Value Grid

• EFFICIENCY (x-axis)
• Cost
• Cycle Time
• Technology Enablement
• Complexity

Although this is a sample, each dot on The
Hackett Value Grid will represent organizations
that participated in the 2007 Performance Study.
The star will represent your organization and
indicate how it compares in the areas of
efficiency and effectiveness to the other
participants.
ABC Co.
Company
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What does it take to achieve world-class
performance?Common characteristics of executives
leading world-class organizations

• Track and communicate progress consistently to
  established performance targets
• Fact-based award recognition

World-Class
Continuous Measurement

• Use metrics to determine priorities, not
  intuition
• Establish infrastructure to lead change
• Evaluate strategic alternatives and business case

Execute
Prioritize and Manage

• External comparison of internal performance to
  world-class standards

• Develop a holistic solution encompassing
• People (Organization)
• Business Process
• Technology configuration and rapid execution

• Use of Information
• Technology

Identify Certified Practices
Objectively Quantify Opportunity

• Understand proven approaches of world-class
  organizations
• Select right practices vs. maximum possible

Benchmarking and Best Practices are the foundation
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Arizona Benchmark Overview
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Capitalizing on identified opportunities will
enable State of AZ to increase finances
effectiveness and efficiency

• Key Effectiveness drivers
• Company standard for data definitions and
  code standards
• Suppliers making inquiries using web
  application
• Cost analysis provided on target
• Integration of strategy, tactics budgeting
• Credit sales collected within terms
• High return rate on invested funds
• Formal documented strategic plan
• Days to report general accounting results
• - Billing errors
• - Role of Finance in strategy
• - No balanced scorecards
• - Time spent on business analysis
• - Managers perform BPR online
• - Use of non-financial measures
• Key Efficiency drivers
• Days to Close Report
• General Accounting as a of operating budget

High
1Q
World-Class
1Q
Finance has the right structure in place to
provide value
State of AZ
Low
High
How efficiently is Finance meeting business
demands
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Overall findings and observations

• State of AZs finance cost as a percent of
  revenue/operating budget is 0.33, placing it in
  the 1st quartile of the peer group
• A solid shared service infrastructure is in place
  and overall vision is strong, however,
  opportunity exists to expand to larger
  agencies/departments
• State of AZs resource allocation reflects a
  greater focus on transactional activities than
  World Class
• Transactional FTEs are comparable to World Class
  but only 13 of Arizonas Finance staff is
  focused on planning and analysis compared to 25
  in World Class organizations
• Organizational fragmentation of processes exists
• Business requirements are being satisfied by
  brute force efforts in many cases
• Ability to mine and use information for strategic
  purposes is challenging with significant
  reliance on standalone spreadsheets
• Benchmark indicates low utilization of best
  practices in several areas further limiting the
  ability of Finance to drive incremental value to
  the State
• State of AZ is under-investing in technology
• World Class organizations spend 11 of total
  operating budget/revenue on technology vs. 5 for
  the State
• Limited tools exist (common ERP, web-based tools
  and self-service reporting) to enable best
  practice based solutions

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Summary findings by Process Group

• Transaction processing
• Opportunities exist in all the transactional
  processes to reduce cycle times
• The cash disbursement process has low automation
  process fragmentation, resulting in high
  staffing, high transaction costs, and low
  productivity. Staffing is fragmented across 20-25
  locations, with an average of 10 FTEs per
  location
• Revenue cycle staffing and costs are comparable
  to World Class but effectiveness is reduced by
  greater error rates
• Risk Compliance
• Inherent government complexity may be leading to
  significant compliance management staffing
  requirements
• Decision Support
• There are minimal resources to focus on the value
  added processes of planning, performance
  management, and business analysis
• Effectiveness opportunities exist by positioning
  the finance function as a strategic partner with
  operations and fully integrating tactical and
  strategic business plans
• Although considered easy, the budget process is
  manual and long

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The State of AZ allocates 68 of its finance
staff time to transactional activities
Transactional
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Finance cost as a of revenue/operating budget
places State of AZ in the first quartile of the
peer group
Quartile breakdown as a of revenue/operating
budget
Finance cost as a of revenue/operating budget
0.73
0.70
Quartile 4
Quartile 3
0.33
World Class 0.73
Quartile 2
Quartile 1
State of AZ
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State of AZs total FTEs are less than the Median
or World Class, but only 13 focus on planning
and analysis
Finance Staffing (FTEs) (Median and World-Class
are normalized based on revenue/operating budget)
Finance resource allocation
25
852
800
626
13
25
State of AZs average labor rates are 35 lower
than World Class and may be masking overall
inefficiency
Average fully loaded labor rates
The Hackett Group is not a compensation analysis
firm. The Median and World Class figures
represent organizations throughout the United
States. They are not specific to only the
Arizona Market.
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Comparative Process Analysis
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Resources committed to Cash Disbursements is
greater than both median and world class
Transaction processing FTEs
Process cost as a of Revenue/operating budget
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Transactional cycle times exceed the Median and
World Class in Cash Disbursements and Revenue
Cycle
Transactional cycle times in days
General accounting days to close report
Complexities and/or regulatory requirements of
private sector organizations do not exist at the
State of Arizona
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Low automation, and process fragmentation are
driving Cash Disbursement units costs to be 3
times World Class
Cash Disbursements cost as a of Revenue/operatin
g budget
Cost per transaction (invoices/TE reports)
Transactions per FTE
Percent cash disbursement transactions automated
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The highly fragmented Cash Disbursements process
should be considered a candidate for shared
services
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Best practices analysis for cash disbursements
Top Performer
Best practices
State of AZ

• Degree of integration of the purchasing
  application to the accounts payable application
• Suppliers submit their invoices electronically
• Percentage of travelers completing and submitting
  their expense reports via an online application
• Percent of expense reports requiring management
  approval
• Percent of expense reports audited for compliance
  (e.g., sample size)

None/Completely Manual
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Revenue cycle staffing and process costs are
comparable to World Class, effectiveness is
impacted by re-work
Revenue Cycle cost as a of Revenue/operating
budget
Revenue Cycle FTEs
Percent customer bills processed electronically
Occurrence of billing errors
33
General accounting external reporting are
performing at World Class
Accounting external reporting cost as a of
revenue/operating budget
Accounting external reporting FTEs
Days to close
Percent automated journal entries
34
Inherent government complexity may be requiring
greater compliance staffing than World Class
Compliance management cost as a
of Revenue/operating budget
Compliance management FTEs
Audits per internal audit FTEs
External audits fees (000)
35
There may be an opportunity to rationalize the
number of bank accounts required in Treasury
management
Treasury management FTEs
Treasury management cost as a
of Revenue/operating budget
Bank accounts
Annual gross banking fees (000)
36
State of AZ is achieving favorable results in
Treasury investments
Average return on invested funds
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Focusing on decision support processes will
enable finance to increase its overall
effectiveness
Planning, analysis and decision support FTEs
Process cost as a of revenue/operating budget
38
Budget complexity (line items) is World Class but
automated tools may improve the overall cycle time
Days to complete the budget
Percent of customers that describe the
budget process as convenient and easy
of operation managers using online budgeting
application
Number of line items in budget
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The few resources focused on business analysis
consider themselves operational partners and are
productive
Business analysis cost as a of Revenue/operating
budget
Business analysis FTEs
Self assessment of finance analysts level of
partnering with operations management
Programs/services per FTE
40
State of AZs analysts spend less time analyzing
information than the Median or World Class
Allocation of analysts time for standard reports
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Technology Analysis
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Investment in technology is lower than the Median
or World Class, when viewed against staffing or
revenue/budget
Technology cost as a of total cost
Labor v. technology cost per FTE
16
15
16
Finance technology cost as a of
revenue/operating budget
43
Low integration and cross functionality within
transactional processes impacts Finances
efficiency
Customer billing application integration
AP to GL application integration
Note graph represents a distribution of median
companies
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There is limited deployment of decision support
tools and a greater leverage of spreadsheets for
the budget process
Use of data management and analysis tools (Data
Warehousing/Data Marts)
Business-simulation models used scenario analysis
Spreadsheet usage in budgeting and forecasting
Note graph represents a distribution of median
companies
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Technology does not adequately support the cash
remittance or internal reporting processes
Percent of reports distributed electronically
Percent of remittances settled electronically
Hackett defines Electronic Distribution as
completely system driven. Reports attached to
e-mails do not count as electronic. E-mail
addresses must be pre-loaded into an application
that sends the reports.
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Recommendations(Discussion)
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In summary, the overall benefits available to the
State of AZ Finance are significant

• Ability to significantly leverage the scale
  opportunities of the State
• Improved efficiency and effectiveness across
  Finance and its stakeholders
• Rapidly improved transaction processing service
  levels (i.e., shorter cycle times, reduced error
  rates)
• Improved ability to enhance available
  information, optimize processing costs and
  purchased costs through strong integration and
  partnering with stakeholders
• Easier access to information will reduce the
  Brute Force effort required today, freeing up
  more time for value-added analysis
• Richer jobs and an enhanced Finance reputation by
  performing more strategic/advisory role vs.
  controllership/transaction oriented role

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Improving all key business drivers simultaneously
is essential to becoming world-class
How you manage your staff
How you enable your staff
How you execute
World-class performance
Process
Technology
People

• Technology leverage
• System complexity
• Standardization
• Centralization

• Staffing levels
• Resource allocation
• Partnering
• Organizational

• Productivity
• Cycle times
• Complexity

• Low cost
• High value
• Service levels
• Risk management

Information

• Performance measurement
• Access/availability

• Data vs. intelligence
• Actionable

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To move from transaction processor to business
partner the best have followed the same path
Observed Best Practices
Eliminate
Simplify
Automate

• Chart of Accounts
• Allocations
• Cost Centers
• Technology standards and systems
• Data Definitions
• Customer/Supplier Databases
• ETC

• Redundant or ineffective approvals (e.g. expense
  reports, requisitions)
• Duplicate data capture
• Immaterial transactions (journal entries, small
  payments)
• Paper invoices/Checks
• Allocations
• Manual JEs
• ETC

• Employee/Customer/ Supplier Self service
• Delivery of management information
• Remaining manual JEs
• ETC

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We recommend that the State of Arizona focus on
three high priority actions

• Action 1 - Develop best practice based solutions
  for each core finance process
• Action 2 - Define and implement an expanded
  shared Finance operating model
• Action 3 - Better leverage technology across
  Finance

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Next Steps

• Validate benchmark findings
• Decide on a maximum of 2 4 initiatives that
  will be the focus for improvement
• Establish transition committee and process owner
• Evaluate current project landscape to avoid
  duplication / competition of effort
• Start initiatives and measure permanent progress
• Set quarterly timelines including quantitative
  targets
• Measure, report and communicate progress on a
  quarterly basis
• Keep focus and communicate, communicate,
  communicate

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What is the State of Arizona strategically doing
now?

• Submitted Budget Request for ERP/Purchasing
  SystemLeverage Technology
• Travel Management SubsystemUtilizes technology
  to implement cash disbursements best practice
• Web-based Vendor InquiryUtilizes technology to
  provide payment information to vendors (cash
  disbursements best practice)
• Expanding Shared ServicesCentral Services Bureau
  Human Resources
• Data Warehouse PlannedUtilizes Technology to
  address Business Information Analysis
• Participating in Payroll Benchmark

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What does it take to achieve world-class
performance?Common characteristics of executives
leading world-class organizations

• Track and communicate progress consistently to
  established performance targets
• Fact-based award recognition

World-Class
Continuous Measurement

• Use metrics to determine priorities, not
  intuition
• Establish infrastructure to lead change
• Evaluate strategic alternatives and business case

Execute
Prioritize and Manage

• External comparison of internal performance to
  world-class standards

• Develop a holistic solution encompassing
• People (Organization)
• Business Process
• Technology configuration and rapid execution

• Use of Information
• Technology

Identify Certified Practices
Objectively Quantify Opportunity

• Understand proven approaches of world-class
  organizations
• Select right practices vs. maximum possible

Benchmarking and Best Practices are the foundation
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Questions or Comments?
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