True or false: The typical large, corporate accounting operation has been cleared of waste and inefficiency. According to APQC benchmarking metrics, a lot of flotsam remains. And this is despite a decade of cost reduction campaigns by CFOs and controllers. What gives?
First, let's look at the broad cost picture. The total cost to conduct general accounting activities varies widely from the very best to the very worst performing organizations. Figure 1 provides two views. We can see the relative performance among those that do not deploy a shared services model for general accounting. We can also see how the use of shared services impacts the total cost, which is expressed in terms of overall annual revenue.
Bear in mind that these organizations filled out the APQC Open Standards Research benchmarking survey. This is not something that can be done at the drop of a hat; it takes a bit of effort to compile numerous inputs. But organizations that want to learn how they stack up don't mind. And we can surmise that the 224 organizations in this population that do not use shared services centers for general accounting are very keen to figure out the economic benefit of making that move.
It's clear from this picture that the use of shared services leads to a much lower cost profile. Among the top performers, which make up the top quartile, shared services get the job done at half the cost. (The top quartile is the performance level above which 25% of all responses occur. The bottom quartile is the performance level above which 75% of all responses occur. The median is the middle value in a set of values that are arranged in ascending or descending order.) Among the bottom performers, shared services also provide a leg up.
Putting aside the issue of whether a shared services solution is involved, we also know from our benchmarking work that top performers have increased their automation capabilities in general accounting processing. That translates into higher productivity and overall lower process costs. If we consider the top 10 all-around best performers, we find that they perform manual journal entries at rates between 0.75 percent and 6 percent. However, when we look at the remaining survey participants, we see that, at the median, manual journal entries account for 25 percent of all entries. Shockingly, the very worst of the bunch are up to their necks in manual journal entries: 57 percent of all entries. Clearly, this is a time sink that sucks out any hope of increased productivity. Labor costs account for roughly 60 percent of the total cost of finance. Surely, that talent could be put to better use.
Mary Driscoll is a senior research fellow with APQC, a nonprofit benchmarking and best-practices research organization. She is a regular contributor to Business Finance.