A discussion of findings from our first-ever SG&A scorecard research for North America and Europe, detailing how companies have cut costs in these key areas, and how top performers did dramatically better than their peers at improving efficiency without sacrificing effectiveness. With The Hackett Group Principal and North American Benchmark Practice Leader Murray Shevlin and Associate and European Benchmark Practice Leader Tom Kellaway.
Welcome to The Hackett Group’s “Business Excelleration Podcast,” where week after week we hear from experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. This episode is hosted by Tom Kellaway, leader of The Hackett Group’s European Benchmarking practice. Today’s episode will discuss the key results of The Hackett Group’s most recent report – the 2022 SG&A Study and Scorecard. Joining him is colleague Murray Shevlin of The Hackett Group’s North American benchmarking team.
As part of their 2022 SG&A Study and Scorecard, The Hackett Group analyzed the SG&A cost as a percentage of revenue for the top 1,000 companies in both North America and Europe. For each region, they isolated the top-performing companies by industry segment. The full report, which identifies the key areas of SG&A, is available for download on The Hackett Group’s website. Tom unpacks the term SG&A, which stands for sales, general and administrative costs. These costs are a sum of items companies are required to report in their quarterly or annual earnings. These elements are not directly attributed to the production of product or delivery of service – things like finance, human resources, information technology and sales expenses. Most organizations want to optimize their SG&A expenses, and provide effectiveness and a great customer experience.
Looking at SG&A costs as a percentage of revenue over the last decade, we see very little fluctuation. However, looking at cost changes from 2020 to 2021, the report highlights much more dramatic shifts in performance. The organizations that perform the best do so in both volatile and stable environments. Unlike much of The Hackett Group’s research, which draws on intellectual property, this particular study focuses on publicly available data from those top 1,000 organizations. Tom identifies a few of the key observations of the report. First, both North American and European organizations managed to reduce their SG&A costs by a substantial number. There is a big difference, he explains, in cutting costs and driving efficiency in your service delivery model to allow for productivity. What is not important is that organizations take the challenges they face as opportunities to rethink and reshape their ways of working.
Looking at the top five organizations within each of the 10 industry subgroups, The Hackett Group’s report reflects that these organizations are investing in a high-performing, agile service delivery model. The data proves that focusing on high-performing organizations really does pay off. They are able to achieve this by first focusing on a fact-based perspective of their organization. Thus, they are able to understand their strengths, identify their improvement areas and take detailed action. This also helps with getting executive alignment. Next, it is all about leveraging and cultivating an improvement culture that takes action. Digital transformation includes automating transactions, deploying self-service tools for reporting and analytics, and leveraging artificial intelligence.
Going back to the data, the report also found that the gap between the haves and have-nots only continues to increase. While the best performing companies improved at a rate of 3X faster than the lower quartile, the laggards on the other hand are spending 3X more in SG&A costs.
The top quartile companies, on average, are spending $1.8 billion less on SG&A costs. However, Murray notes, Digital World Class™ organizations are not sacrificing quality by achieving this. They are actually making decisions faster based on current data and producing fewer business reports by narrowing them down to critical information.
When working with Digital World Class organizations, what The Hackett Group sees is a holistic service delivery model. These organizations seek to address their people, process and technology within their transformation plans and initiatives. It is all about taking disadvantages and turning them into advantages in the service delivery model. High-performing organizations also are very precise around the areas where they need to excel vs. the areas where good is good enough. This may sometimes mean trading off efficiency for effectiveness. Culture of performance management is also important. The majority of The Hackett Group’s clients benchmark on a regular basis because they recognize that they have the courage to decide who they want to be. Fundamentally, those Digital World Class organizations are building their delivery service models based on best practice of what’s right for them. They also have gotten it right culturally as well – in terms of building that culture of performance management at transparency within the organization.
As the conversation wraps up, Murray recaps a few of the key points of the study discussed in the episode today.
First, it is important to understand where your organization is today to know where within SG&A is your greatest priority. While the costs are going down, the best organizations only continue to get better. Finally, make sure that you’re homing in from a quantifiable manner the highest priority areas using the data to build alignment and consensus.
- 0:56 – Welcome to this episode hosted by Tom Kellaway.
- 1:39 – Murray gives an overview of the study.
- 2:31 – What is SG&A?
- 4:15 – The overall highlights of the report.
- 8:07 – Tom shares key observations from the report.
- 12:46 – How the top five organizations are driving sustainable improvements.
- 17:35 – The widening gap between the haves and have-nots.
- 23:55 – How Digital World Class organizations have been able to achieve top performance.
- 31:34 – Murray recaps the key points of the discussion today.
- 35:48 – Thanks for listening to this episode and stay tuned for the next!