As internal functions, back-office tasks, whether payroll processing or purchase order issuance, face no competition: without a market, there’s no way to prove if they’re competitive or not. Outsourcing is only applicable under certain conditions and mainly for large companies, and third-party proposals rarely serve as efficiency benchmarks. Therefore, when seeking competitiveness in these functions, how can one determine if they are efficient? How can improvement goals be set? How can we identify and understand the factors that explain the efficiency or productivity of these functions in order to improve them?

Ten years ago, Montblanc, together with one of its major clients, decided to conduct a benchmark focused on back-office functions, allowing participants to understand their competitiveness, prioritize their improvement efforts, and eventually set goals for these improvements. To achieve this, we had to understand the details of transaction costs and the explanatory factors of costs and productivity for each participating company. Then, in 2022, we repeated this exercise and today we contrast the results.

Over the past 10 years, we have observed a slow but steady transformation of back-office functions, achieving significantly greater efficiency and productivity. For example, functions like treasury have halved the treasury expense-to-revenue ratio through strong automation of operations and reconciliations.

However, these improvements may not be sustainable over time given the significant 50% gap in IT investment and spending compared to peers in North America. Over the past 10 years, companies have, on average, maintained the proportion of IT investment and spending relative to their revenue, and larger companies, in particular, have tended to lower the ratio as they have already made the key technological investments necessary to compete—investments that smaller companies have begun to make more recently.

Regarding the most recent survey period, overall and on average, the unit costs of back-office functions have not changed much in nominal terms: companies have maintained their back-office expense management at the same level, and the expected significant reductions from automation or digital transformation (DT) have not materialized; end-to-end process automations are still few.

Other relevant functions show significant opportunities for improvement, such as:

• Procurement: Centralization remains low, with two-thirds of companies having less than 60% of their purchases centralized, which is still well below the 82% average in large North American companies. Similarly, the application of purchase agreements or pricing agreements also appears low at 24% or 17%, depending on whether goods or services are considered. While the Purchase Order (PO) process has been automated for many, few participants report automation in other processes, and the application of Artificial Intelligence (AI) is only seen in the generation of inventory codes.
• Accounting: 40% of participants have automated invoice processing, accounting report generation, and account reconciliation, and 90% issue invoices via EDI (electronic invoices platform). Neither going public nor the number of legal entities shows a direct relationship with efficiency, but business volume does.
• Management Control: On average, 50% of the reports issued by the area are automated.
• Human Resources (HR): There are still large differences between participants in the costs of non-transactional functions such as Organizational Development, Talent Management, Culture, etc., and thus in the total HR cost per employee. The average is higher than for North American companies. The level of automation outside of ERP, by RPA or AI, is very low. We do see a change in training delivery, with more than half now online. Transactional process costs show economies of scale.

The results indicate that there is still a significant opportunity to improve the efficiency and productivity of back-office services.