2023 SG&A Cost Study and Scorecard Highlights

December 11, 2023
Season 5, Episode 7

In this episode of the Business Excelleration® a discussion of The Hackett Group’s new research, which details how difficult it has been for companies in both North America and Europe to sustain reductions in selling, general & administrative costs. With Benchmarking Principal Murray Shevlin and Benchmarking Principal 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 Murray Shevlin, principal within The Hackett Group’s North American Benchmarking team. Today’s episode will discuss The Hackett Group’s new research, which details how difficult it has been for many companies to sustain selling, general and administrative (SG&A) expenses. Murray is joined by Tom Kellaway, principal in The Hackett Group’s London-based benchmarking organization.

The Hackett Group analyzed the financial results of the largest 1,000 companies in North America and Europe over the last 10 years. A greater emphasis was placed on year-after-year comparisons over the last several years, focused specifically on revenue changes and SG&A cost changes to determine how well organizations are managing their SG&A cost structure. SG&A costs include things like finance, human resources, information technology, procurement, sales, marketing and legal costs. In terms of the macro trends observed for this year, revenue and revenue growth were strong in both 2021 and 2022. We also saw unprecedented levels of improvement in 2021. In 2022, SG&A costs as a percentage of revenue were rather flat in the U.S. This tells us that costs were growing at the same rate as revenue. Of the 1,000 companies surveyed in Europe, almost one-half of them increased SG&A costs. Inflation was higher in Europe than in the U.S. When we think about the more agile organizations, 13%-14% of companies managed to increase costs at a slower rate than inflation. About 15% of European and 30% of North American companies increased absolute costs at a faster rate than inflation, thanks to revenue growth and improved SG&A performance. While revenue increased overall, only a fraction of companies were able to reduce SG&A costs to positively impact their margins. Only 7% of organizations in America and 12% in Europe improved their SG&A year-after-year cost structure for six out of 10 years. This means that as revenue dips or stays flat and cost structures aren’t flexible, margins begin to erode. It also means there is less funding available overall to invest in other areas.

The top-performing companies are what The Hackett Group refers to as Digital World Classâ. They are identified by leveraging the continuous proprietary database of benchmarking organizations. Companies that are top performers in operational excellence and business value fit into the Digital World Class category. On average, 44% of these organizations are more likely to be viewed as valued business partners to their internal customers. They deliver better insights about decision-making and support the enterprise more effectively. They typically have much more efficient access to information to make faster decisions and are leveraging automation and technology. This begins with benchmarking progress and data. Then, companies on their way to Digital World Class should be learning from other organizations on the same journey. It typically takes two to five years for organizations to achieve Digital World Class performance.

Crafting the right solution is unique to every organization. A key piece to achieving Digital World Class performance is figuring out the right tools and resources to leverage. Projects should have clear business objectives to avoid deploying the wrong solutions and wasting time and resources. In The Hackett Group’s 2022 Key Issues Study, they found that companies are investing in things like artificial intelligence and transactional automation. Having a fact-based set of results also helps in prioritization. Another key element of the study was procurement professionals having excellent visibility into what you are spending with suppliers and protecting you from inflationary price increases or supply chain disruptions. Finally, organizations on their way to Digital World Class performance must be able to attract, retain and develop the right top talent to unlock value.

Time stamps:

  • 0:49 – Welcome to this episode hosted by Murray Shevlin.
  • 2:05 – An overview of The Hackett Group’s study.
  • 2:55 – The macro trends observed this year.
  • 6:42 – What this data means.
  • 10:02 – How The Hackett Group defines Digital World Class organizations.
  • 13:12 – How companies achieve Digital World Class performance.
  • 16:19 – The importance of leveraging the right resources.
  • 18:20 ­– The elements of prioritization and visibility.
  • 21:47 – Other important steps to Digital World Class performance.
  • 24:40 – Reflecting on the key points of today’s discussion.