Hackett: IT Complexity Directly Linked to Increased SG&A Costs; Selective Standardization Drives Significant Savings

By reducing IT complexity, companies can generate significantsavings, including lowering the overall cost of finance and humanresources functions, according to Book of Numbers(C) research from TheHackett Group, a business process advisory firm (NASDAQ:ANSR).

Hackett's new Book of Numbers analysis and research volume,"Optimizing a Return on Business Complexity: Performance Metrics andPractices of World-Class Companies," focuses exclusively on the valueof complexity reduction in back office and administrative functions.Hackett finds that to successfully reduce business complexity, ITleaders must convince business unit executives of its value, andcombat the oft-held belief that unique IT configurations are criticalfor a business unit to effectively compete.

The challenge of defeating this "need to customize" can besignificant, but the potential benefits are substantial. According toHackett's research, companies that fail to reduce the complexity of ITspend 30 percent more on finance operations and 18 percent more on HRper employee than companies that succeed in this area.

In addition, IT complexity reduction can also help to improve theefficiency and effectiveness of their IT operations. According toHackett, world-class IT organizations spend 18 percent less than theirpeers and operate with 36 percent fewer staff, while bringing inprojects on time and under budget over 25 percent more often. Invirtually every area, world-class companies show reduced complexity,with fewer customer and supplier databases, less software and hardwaresuppliers, more consistent use of data standards, and higher overalllevels of standards enforcement.

The Hackett Group is a world leader in best practice research,benchmarking, and advisory services that empower executives to achieveworld-class enterprise performance. Hackett offers analysis andinsight backed by metrics derived from 3,300 benchmark studies over 13years at nearly 2,000 of the world's leading companies, including 93percent of the Dow Jones Industrials.

"The bottom line is simple: our empirical research shows thatcompanies which embrace IT complexity reduction as a mission spendless across virtually every area of the back office," said Hackett ITPractice Leader David Hebert. "But this can be a tough sell. CIOs areconstantly faced with business leaders who truly believe that theirparticular group or unit is 'different,' and has unique requirements.These leaders will resist standardization efforts, fearing they willlose their competitive edge. IT leaders need to hold the line, sellthe value of standardization and simplification, and at the same timebe aware of situations where a valid business case exists to supportcustomization."

Hackett Quantifies Value of IT Complexity Reduction to Finance, HR

Hackett data reveals a clear correlation between the cost of thefinance function and the number of primary applications in use.Dividing companies in Hackett's benchmark database into two groupsbased on those with the more than 10 applications and those with theless than 10, the former report 30% higher finance costs as a percentof revenue (1.3 percent of revenue versus 1 percent).

According to Hackett, the median HR cost per employee also risessubstantially as the number of applications per 1,000 employeesincreases. HR functions that report no common software applicationssee a median HR cost per employee that is 18 percent higher thancompanies that have a high level of commonality ($2,338/employeeversus $1,976). Overall, world-class HR functions are 87 percent morelikely than typical companies to deploy common applications globally.

The cost implications of moving to a common infrastructure andapplications are marked. In finance, companies with less than 10applications spend $3 million per billion in revenue less thancompanies with more than 10 applications. In HR, companies with nocommon software applications spend more than $3.6 million/year morefor every 10,000 employees than companies with a high level of commonsoftware applications.

NOTE TO JOURNALISTS: A chart illustrating select findingsdescribed above is available on request, and will be distributed viaBusinessWire.

To make this complexity reduction approach work, top companiestypically redefine their approach to the application-developmentprocess. Typical companies often start with the development of their"unique" requirements and then build or purchase and customize anapplication to meet their internal requirements. In contrast,world-class companies find the application with the closest fit to therequirements, then map their business processes to the selectedapplication. Customizations are done only when a solid business casecan be made for doing so.

Complexity Also Impacts IT Cost

Hackett found that within IT, infrastructure complexity is highlycorrelated with cost. The median total IT cost per end-user rises withthe number of database platforms in use per 1,000 end-users, andworld-class IT organizations rely on 69 percent fewer customerdatabases per 1,000 end-users and 67 percent fewer supplier databasesthan typical companies. They also rely on 67 percent fewer softwaresuppliers and 43 percent fewer hardware suppliers.

Complexity reduction at world-class companies clearly extends toapplication development activities as well. According to Hackett,world-class IT organizations use 80% fewer programming languages per1,000 end-users than typical companies. They are also more likely touse data standards to a high degree across all systems andsignificantly more likely to have implemented a high level ofstandards enforcement across hardware, networking, and softwareapplications.

Two Companies Describe Real Benefits of Complexity Reduction

During a recent Hackett Webcast, one global automaker describedhow it executed a two-year effort to simplify its ERP environment aspart of an upgrade. In its original implementation efforts, driven byIT leadership, attempts to accomplish Y2K goals and be highlyresponsive to individual business units led to a 24 percentcustomization level. This significantly impacted IT operating costs byincreasing the level of IT staffing needed to maintain the system.

As part of the upgrade, the automaker created a three-tieredreview process for all customization that was to be carried forward,requiring business units to justify and re-justify any requests todeviate from a standard implementation. Business unit leaders andsenior management played an active role in the review process, anddeveloped an understanding of costs tied to customization and processreengineering that could be used to eliminate the need for it. By theend of the project, the automaker had reduced customization to just 3percent, well below the initial 10 percent target recommended byPeopleSoft. The decustomization effort enabled the automaker toimmediately reduce IT support staff, and significantly cut total costof ownership. Current estimates are that the next ERP upgrade willcost the company 50 percent less to execute.

A telecommunications giant also shared with Hackett advisorymembers how it dramatically reduced the cost of its finance operationsthrough an application consolidation and standardization effort. Aftera Hackett finance benchmark identified significant room forimprovement across a wide range of metrics, the company implemented abroad application standardization and simplification effort that wasdriven by business transformation objectives. A dedicated team wasassigned to focus on improving business value from applications, andprocedures were put in place to do follow-up audits to ensure thatbusiness case and cost savings objectives were met for ERP upgrades.As a result of its efforts, when the company re-benchmarked withHackett as part of its ongoing improvement effort, the companyachieved first-quartile performance. The company also estimated thatthe changes were generating over $50 million/year in annual savings.

The Hackett Group's research into world-class performance iscompiled in its Book of Numbers series, which provides seniorexecutives fact-based performance metrics and insights based onHackett's extensive database of best practices and process metrics inIT, finance, HR, procurement, and other areas. Hackett Book of Numbersvolumes are available exclusively to members of Hackett's ExecutiveAdvisory Programs -- premium-value, membership-based programsproviding confidential advisor inquiry, best practices research, andpeer learning opportunities.

More information on The Hackett Group is available: by phone at(770) 225-7300; by e-mail at info@thehackettgroup.com; or on the Webat http://www.thehackettgroup.com.

About The Hackett Group

The Hackett Group (http://www.thehackettgroup.com), a businessprocess advisory firm and an Answerthink company, is a world leader inbest practice research, benchmarking and advisory services thatempower executives to achieve world-class enterprise performance. OnlyThe Hackett Group empirically defines world-class performance insales, general and administrative (SG&A) and supply chain activitieswith analysis gained through 3,300 benchmark studies over 13 years atnearly 2,000 of the world's leading companies.

The foundation of Hackett's benchmarks, transformation services,and membership-based advisory programs is our proprietary database ofHackett-Certified(SM) Practices, approaches which are proven tocorrelate with superior performance metrics. This unparalleledknowledge repository enables Hackett business advisors to providedata, advice, and strategic insight with a level of integrity andauthority available nowhere else. As of this writing, Hackett clientscomprise 93 percent of the Dow Jones Industrials, 76 percent of theFortune 100 and 90 percent of the Dow Jones Global Titans Index.

Hackett-Certified and Hackett World-Class Passport are servicemarks of The Hackett Group.

Certain statements in this press release are "forward lookingstatements" within the meaning of the Private Securities LitigationReform Act of 1995 and involve known and unknown risks, uncertaintiesand other factors that may cause the Company's actual results,performance or achievements to be materially different from theresults, performance or achievements expressed or implied by theforward looking statements. Factors that impact such forward lookingstatements include the ability of the Company to attract additionalbusiness, changes in expectations regarding the information technologyindustry, the ability of the Company to attract skilled employees,possible changes in collections of accounts receivable, risks ofcompetition, price and margin trends, changes in general economicconditions and interest rates as well as other risks detailed in theCompany's reports filed with the Securities and Exchange Commission.