Dive Brief:

• For the first time in at least a decade, most large companies reported that the cost of operating their finance functions rose 7.5% year-over-year in 2023, according to research announced this week by the Hackett Group, based on a May snapshot of the financials of a database of public and private companies with annual revenue of $500 million or more, and a spokesperson.
• At the same time, the top performing 25% of the companies analyzed by the Miami, Florida-based business advisory firm were able to trim finance function budgets by 1.3% over the same period, in part by cutting staff by 7% and by leaning more heavily on automation to eliminate the need for manual intervention in such areas as accounts payable.
• The top performers were able to use technology and other tactics to offset inflation that ran at about 8% over the year to keep operating cost as a percentage of revenue to just 47% as compared to 88% for the average companies, according to Hackett Senior Research Director Shawn Fitzgerald. Noting that the difference between the groups is “massive,” in an interview with CFO Dive he likened the average finance department to a gas-guzzling monster truck and the top tier group to a more fuel-efficient Prius.

Dive Insight:

The budgets analyzed include the costs for all facets of the finance function, ranging from tax, treasury and accounting to business forecasting and analysis, Fitzgerald said.

The Hackett Group has measured the gap in cost between top finance functions and their peers, with the cost gap narrowing gradually as peers began to catch up. However, the gap has begun to widen again and the researchers pointed much of the blame on the peer group’s more sluggish adoption of technology and inflation.

“Technology is the big diffrentiator for companies,” Fitzgerald said. Tactics more efficient finance functions are taking beyond smart technology investments include moving finance to a centralized global business center, outsourcing, or offshoring.

Looking ahead, he said finance functions that fail to streamline will likely face a headwind from stiffer environmental, social and governance standards.

“Peer group companies will continue to struggle to get costs under control while trying to deliver on additional disclosures, including ESG, relative to world class companies that are in front of the wave,” Fitzgerald said. 

The Securities and Exchange Commission aims to achieve uniformity and consistency in corporate reporting on the impact from climate change, CFO Dive previously reported. But the agency has postponed twice a final rule mandating that companies describe on Form 10-K their levels of greenhouse gas emissions and strategy toward reducing climate risk. It plans to release the rulelater this year.