What Would Apple do to make benchmarking more fun?

SSON News and Analysis
Posted: 07/09/2012

Hackett’s transformation

Sarah Clayton (Global Director Strategy & Planning, SSO Network): I am talking to Ted Fernandez, Chairman and CEO of The Hackett Group and SSON partner for the last eight years. Hackett has recently launched a new offering and I wanted to grab the opportunity to catch up with Ted.

I would like to kick off by asking you if you could talk me briefly through the transformation that Hackett has been through and how you are positioning Hackett for the next 10 years.

Ted Fernandez (CEO, The Hackett Group): Thank you, Sarah. I always welcome the opportunity to talk about all things Hackett. But specific to our transformation, five years ago we decided that we wanted to build our entire organisation around the very unique data that we gather from our benchmarking process. As you know, we have been benchmarking the leading global companies now for 20 years and believe we have built unmatched intellectual capital in the areas that we benchmark. We wanted to then build a business model that would take that permission and build a series of transformation offerings around them. This would allow us to tell clients what their opportunity to improve is and also help them implement the outcome. So we made sure that the offerings that we were taking under the Hackett brand allowed us to implement the ideas that we were bringing forward to clients. Lately, we have been looking for ways to measure and benchmark clients’ performance in ways that are more efficient. That led to the recent introduction of the Hackett Performance Exchange.

Commoditisation of performance benchmarking

Sarah Clayton: On chatting with you and some of your team over the last few weeks one issue came up, which is the commoditisation, if you like, of performance benchmarking. How are you evolving it for the 21st century to make it more 3.0?

Ted Fernandez: First of all, we have demonstrated our ability to deliver and develop benchmarking offerings. We also believe we have global market leadership. But clients were also telling us that they would love to have the ability to measure their performance, more frequently. Some clients also wished it took less effort to execute a benchmark. They said it would be beautiful if we were able to know exactly how we were doing and how we compared, but to do that in some very efficient manner. Those comments led to what we have defined as the Benchmark 3.0 Initiative where we said how do we respond to that client demand? That led to the advent of the Hackett Performance Exchange The Exchange is a software as a service product that allows us to extract information directly from the client’s ERP system on a fully automated basis. We believe that it is directly responsive to the client’s concerns about their efforts relative to benchmarking. More importantly, when you consider the fact that clients close their books every month in order to evaluate their operating results, would they also like the same kind of information about how efficiently they are operating their business? That's precisely what the Hackett Performance Exchange allows clients to do.

Objections to benchmarking

Sarah Clayton: Looking at Hackett, whose core business is benchmarking, talk to me about some of the objections to benchmarking that you have experienced over the years. I cannot think of anyone better placed to answer that question than Hackett, whose name is pretty synonymous with benchmarking. How do you get past those objections? What are they and how do you get past them? You have a lot of clients, you are used to this.

Ted Fernandez: The primary objection is the level of effort they have to accept, so then the question became how could we address that but still give client’s meaningful insight about their performance and make sure that we had valid comparisons about those things that we were measuring. If you think about it, everybody would like to know as much about their performance as possible. The problem is the effort that is required. I would like to know today how physically fit I am, but I really do not like having to take the time for an annual physical. Clients say something similar when they tell us, ‘I would like to know exactly where I stand, but I would like for it to be as effortless as possible’. This is the concern we responded to, because when you look at our client base, 97% of Dow Jones companies have used our benchmarking services, along with over 50% of the FTSE and nearly 50% of the DAX. So you are really talking about virtually all the leading global companies have used Hackett at some point in their transformation efforts Our work with these companies has led many to understand that in order to achieve world-class performance, it's critical to continuously measure and pursue excellence. The benchmarking relationship that they have had with Hackett had ended up being more episodic, something they would do once every three to four years. So the question then became how we could introduce an offering that would allow clients to measure their performance nearly effortlessly. The fully automated dashboard in our Hackett Performance Exchange does this, providing companies with in-depth information on how they are doing. It's exceptionally valuable to have that information on a monthly basis, along with great comparisons to other leading global companies that can be used to drive best practices implementations. We think we have responded to that call.

Differentiation

Sarah Clayton: I said earlier that the name Hackett is synonymous with benchmarking, but you do have competition. How do you differentiate Hackett from the perhaps more recent emergence of benchmarking providers, for example the Big Four? Has that made Hackett raise its game? How do you differentiate?

Ted Fernandez: First of all, I do think that competition makes everyone raise their game. What has made the Hackett brand synonymous with benchmarking is the fact that we have built an entire business model around the benchmarking effort. It is something we started 20 years ago and have only built on that capability since then. As you know, competitors see what we have and believe that by having some element of it they can improve their overall business level, so we see entrants come in and out of the process.

We welcome the competition and I will tell you why. If our competitors – and some of these are large consulting organisations – are promoting the value of benchmarking to clients, we believe that gives us, as the market leader, a chance at some point to offer our products to those same clients. The fact that the competition is there we believe increases the size of the market and, hopefully, over time also gives us a chance to go to those clients and demonstrate just why we are so unique.

Why are we so unique? One, we committed to a business model around benchmarking and started 20 years ago. What that has allowed us to do is build intellectual capital that is unique to Hackett. It starts with the proper taxonomy: how do we roll up information so that we have some consistency in that data capture?

Two, we have gathered data and understand the data we capture so well that we have built quantitative tools that allow us to validate the data or take out data that we know is not reasonable relative to other comparisons. That allows us to validate the data pretty quickly. About 10% of the data that clients give us when they are doing their profile is automatically kicked out. That happens through an automated quantitative toolset that again is unique to Hackett.

Lastly, we have become very good at driving comparisons and reporting all of that information to clients. Our skills that have evolved around performance analytics come not only from 20 years of this effort, but also from the size of our database. We have such a large participant base that it has given us a chance to refine that effort and allowed us to remain a market leader.

Competition has not hurt our business. I think it enhances the value of benchmarking and I agree with you it has also made sure that we have raised our game as well.

Development of The Exchange

Sarah Clayton: Let’s take a couple of steps back. What kind of feedback led to The Exchange being developed? What was its provenance and how do clients differentiate your classic benchmarking provision from The Exchange? How do you determine which solution is most appropriate for which client?

Ted Fernandez: We introduce all of our offerings to clients and they decide what they prefer. We tell them that the more information we gather about them and the more they know about themselves the more prescriptive we can be or they can be to effect change. However, there are clients who are predisposed to a transformation initiative and are prepared to move forward with more limited data. Therefore, I think the key for us is to explain to clients the value of the different tools we have and for the clients to determine, given their organisational goals, what is most appropriate. If they want a detailed validated business case we recommend that they do the complete traditional benchmark where they can have quantities of data at a level of detail that allows them to be very confident about the opportunity they are pursuing.

The Hackett Performance Exchange gives them a different point of view. The Hackett Performance Exchange quantifies and tells a client ‘How long is it taking you to do something and how does that compare to others? What is the level of automation that you are using in that process?’ Because automation level is the highest determinant of efficiency and effectiveness in the execution of any process. Lastly, we measure their success or their error rate to determine an effectiveness rating. It is the combination of those three variables and our ability to gather that on an automated basis that allows the client to know exactly how well they are executing those activities. They can do that because it is highly responsive to their desire to measure the efficiency of their operating platform.

The Exchange and other dashboards

Sarah Clayton: The Exchange has been up and running for a while now, for the majority of this year, and you have had time to figure out where the wrinkles might be since launch and you have been generous enough to share those with me, so I am going to talk to you about those now.

How do you use The Exchange in combination with other dashboards – dashboards owned by CFOs, other functional areas? How does that work?

Ted Fernandez: We have told our clients that this should be a complementary solution to their other business intelligence efforts, because it is hard to tell a client, especially when you consider the price point at which we are offering our modules, that the information we provide will satisfy all of their needs. What we have told them is when they look at the information they are gathering to measure how efficiently and effectively they critical end-to-end processes are operating, we believe that The Hackett Performance Exchange solution is incredibly efficient. As you said, we have been developing this tool for nearly two years. We now have over 30 clients and 56 modules that we are in the process of installing in client systems in some stage or form. We are going to be getting feedback about what information is valuable to clients not only from one client but we are going to be gathering information now from 30 and, hopefully very soon, hundreds of clients. Imagine if we do that correctly and we take the best of that feedback and continue to augment that into our business intelligence tool. We are going to develop a very valuable tool and hopefully continue to deliver that at a very efficient cost. Again, the cost of a Hackett Performance Exchange module, in most cases, is less than half of a fully loaded FTE. We hope that the value proposition is overwhelming.

To talk about the difficulties, what we have also found, as we have shared with you, is that when you have something new and that new software tool is going to extract information directly from production data, you have to present a very convincing case to the CIO community about how safe it is, and address any security issues they may raise. We have told them we feel certain that the security risk associated with this tool is virtually nonexistent, due to the nature of the information we pull and how we utilise and deliver it back to them. We do not change any data; we simply read information from their tables, develop our metrics from that and then present that back to them.

The big learnings are: to make sure we get the feedback from clients and make sure that we are dealing with any security-related concerns they have when they install and run it.

Clients and cost

Sarah Clayton: How do you respond to clients wondering about the cost and why this model is predicated on them paying you and handing over their data when some of the companies that they are dealing with, like Nielsen, are paying them?

Ted Fernandez: I do face this question and I tell them if the data they are giving me could be sold to a much broader audience profitably, I would have that model. The information that Nielsen gathers is very valuable to media and advertising companies and they end up having a model that is dependent upon the sale and use of that information to an entirely broader, larger audience. We do not have that. The information we gather about clients is simply information about individual clients’ performance. By bringing together information from a large group of clients what we are able to do is give clients insight about how they compare to others. However, the universe of revenue or value add today is inside that user group, so we look at the total cost that we invest, we look at what we think is a reasonable value to clients, we take the value as the price that we ask those clients to pay and hopefully they will believe that it is very compelling. However, I assure our clients that if I had a secondary market for that information that I could profit from, I would charge them either very little or, in fact, pay them.

Workflow automation

Sarah Clayton: Fair enough. I just want to understand at a tactical level how the performance improvement project that clients are tracking by The Hackett Performance Exchange – for example, work on automated cash management technology – how are those working? How is the benefit quantified?

Ted Fernandez: As I said, The Exchange measures a lot of different things, but if you break it up, at a very high level it measures how long it takes a client to do something, the level of automation in those activities and then the error and fail rates related to the effectiveness. When we look at automated workflow, clients really like this feature. We are now telling clients out of a total opportunity of X relative to automation level, how much of that workflow automation opportunity they are achieving. We do not know any other dashboard offering that attempts to measure this workflow automation aspect and it is a very important one because, as I mentioned earlier, your ability to achieve the highest level of automation possible normally defines the highest position, the most efficient and effective delivery of that process. The focus we think is right, the way we evaluate the automation opportunity is a unique Hackett advantage at that is point. It is one of the very valuable aspects of The Hackett Performance Exchange.

ROI rationalisation

Sarah Clayton: I have a couple more questions in a similar vein. Clients are commenting that they are constantly investing in process change or the implementation of automation tools. The clients still struggle with ROI rationalisation. Help me understand how The Exchange contributes to that.

Ted Fernandez: It is important for clients to do that, because what is happening is that automation and other techniques are allowing clients to continuously improve the productivity of their operating platform. When you look at that opportunity to improve, the Hackett Performance Exchange uses an algorithm to analyze current performance and estimate the opportunity to improve. Companies can also drill down into the data to compare performance by business unit and region, and see where the biggest opportunities lie. So clients can quickly then say the return on investment from a specific performance improvement effort would be X. We think it is highly responsive to the client’s desire to understand ‘If I invest X to effect a change, can I directly measure the return it provided me?’ The information that we provide in the dashboard, which estimates an annual performance-improvement opportunity, allows the client to see whether that number is going up or down and be able to see that performance improvement quantified, in our view, at a pretty granular level. So, hopefully, it is highly responsive to ROI-related measurements and ROI-related initiatives.

Platform objectivity

Sarah Clayton: Historically, Hackett has taken somewhat of, understandably, the high ground in terms of objectivity and you do not recommend specific BPOs or ERP platforms. How will working so closely with SAP and Oracle and other platforms you may have to do so in the future compromise that objectivity?

Ted Fernandez: Objectivity is at the forefront of everything we do at The Hackett Group. But for The Exchange, we must work closely with software developers as they release new and updated modules. We began developing The Exchange after a software provider approached us to say, ‘We are going to release a new module and the clients will be able to use this to manage their business more efficiently, but we would love to have those clients have some basis to compare their performance to some peer group and we would like to see if Hackett could provide that capability’. But we have built the dashboard independently. We went out and then said okay, what can we measure from an SAP and Oracle environment on an automated basis? Where can we leverage the performance-analytics expertise of Hackett? However, remember, the information delivered on that dashboard and the clients’ individual performance numbers are empirically determined, totally objective. The numbers, which are simply the aggregation of peer groups that leads to averages which then clients compare that performance to, are entirely empirically determined, totally objective. If they wanted to influence our process it could be on what other metrics we could use, but interestingly enough, today they are asking us for that decision with that objectivity.

The beauty of our model is that the information you populate is empirical and comes from your performance. The averages are determined in the same way. Therefore, the output is totally objective and independent and solely determined by the information that we gather from the direct performance of each of the clients in our database.

Software licensing

Sarah Clayton: Hackett is not a software company. However, as we have discussed, The Exchange demonstrably takes Hackett into the software-licensing realm. How do you morph from a fixed-fee, one-time consultancy model into a licensing model and what kind of message does that send?

Ted Fernandez: When we evaluated our opportunity to do this the one thing we said was, ‘Let’s make sure that we use capabilities that we know we have and can sustain’. So the same Web technology that underlies our current functional benchmarks has been applied to The Hackett Performance Exchange. We have augmented and expanded it in order to deliver an automated tool. But the way we capture data, which is using a Web-based tool, and the way we calculate the performance-analytics information, is consistent with capabilities that we have historically used in our functional benchmarking. We have become a lot smarter in areas such as dashboarding and security, so yes, we have augmented our skills. But we think it really takes Hackett into a very exciting area. Software as a service, leveraging the Web, is quickly becoming the most effective way to deliver many business services. For us, it was a natural way to go, to see now that we are going to be able to allow clients to have this insight on a monthly basis because of a fully automated tool is very exciting. However, the core components that we started to work from were the same Web-based technology skills that we have developed over the years in the delivery of our functional benchmarks, but now augmented to business intelligence and dashboard presentation user interface skills, computing skills, encryption skills that really have expanded our capabilities. We are delighted to have them.

What would Apple do?

Sarah Clayton: My last question and I have to say I was pretty pleased with myself for thinking this one up, but I understand you guys sit around quite a lot and kick around ideas on how to make the whole experience cooler for your customers, so I understand this was not such a new idea for you. The question is: what would Apple do to make the benchmarking process more intuitive or fun to use?

Ted Fernandez: What a phenomenal question. I think it would be seamless and it would be presented as beautifully as possible. We are getting pretty good grades about how easy it is to load the tool. They have been very complimentary about the user interface, the look and feel of the dashboard itself. We are getting a lot of feedback from clients about how to make that better. I am going to say that Apple would make sure that it really is listening to the clients’ feedback as the product is being issued and try to continue to meet and exceed those expectations. I hate to be compared to Apple, but we are very proud of the product, if you want to call it our ‘version 1.0’ offering. We are very proud of it. Hopefully, it will continue to evolve, get better and some day be as cool as one of those Apple offerings.

Sarah Clayton: Let’s stay in touch on The Hackett Performance Exchange. When you guys first started talking to us about it we thought it sounded like an absolute no-brainer, so I think it is going to be great fun to see how it takes off. Thank you for taking the time to talk to us.

Ted Fernandez: As I said, we welcome the opportunity to talk all things Hackett. We really appreciate your interest and we are delighted to be part of the SSO Network.

Sarah Clayton: Thank you.

 

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SSON News and Analysis
Posted: 07/09/2012

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