Generative AI and Its Impact on SG&A
A discussion of The Hackett Group’s new research – which finds that generative artificial intelligence (Gen AI) will enable companies to reduce selling, general and administrative (SG&A) costs and staffing by 40% over the next five to seven years – with Principal Vin Kumar, who leads Gen AI and Digital Operations, and Associate Principal Joe Nathan.
Welcome to The Hackett Group’s “Business Excelleration Podcast,” where week after week we hear from AI strategy consulting experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. This episode is hosted by Principal and AI & Digital Operations Practice Leader at The Hackett Group Vin Kumar. Vin is joined by Principal Joe Nathan.
The Hackett Group recently conducted a study, which estimated the savings a company can get by using Gen AI in their selling, general and administrative (SG&A) processes. Before getting into the study, Joe explains how The Hackett Group defines AI. AI, which is not a new process, aims to assimilate human intelligence. Cognitive AI performs work from a set of instructions, mimicking a human’s left-brain activity. As AI continued to evolve, it was able to come up with its own algorithmic pattern to follow. Gen AI aims to mimic the human’s right brain and works much better without data and instructions.
The Hackett Group advises clients to think about how they should adopt Gen AI in three specific areas: operations, product and business, or SG&A functions. To build a domain-specialized solution, Joe explains, you are required to have lots of data, access to a large pool of subject matter experts, and significant investment in training infrastructure. SG&A feels that there are better returns for enterprises to subscribe to these solutions. The best way is by subscribing to a model and then fine-tuning it for your enterprise.
The Hackett Group’s research covered all impacts of SG&A business processes that can benefit from AI capabilities. They evaluate the impact of Gen AI on SG&A processes within finance, human resources (HR), procurement and information technology (IT). Within these big process areas such as customer-to-cash, they broke down the subcomponents like management, policy, hiring, and more. Joe walks listeners through the heatmaps they created to identify hot areas. They broke down the seven functions of finance, HR, IT, procurement, marketing, sales and services into 17 end-to-end processes. Then, they looked at 75 Level 1 processes and 305 Level 2 processes across these seven main functions. They leveraged The Hackett Group’s automation framework to understand what activities are most suitable for different types of automation, and how generative AI could help enable it. They then took this heatmap and applied it to The Hackett Group’s benchmark to determine the cost and productivity impacts. Based on this data, The Hackett Group feels confident that SG&A will see an overall savings of 40% by the end of this decade.
To develop these road maps, The Hackett Group’s research first looked at the capability and availability of domain-specialized solutions. One key element of leveraging specialized solutions is also having access to the resources needed to train them. His process may not be a one-year journey, but will likely take between five to seven years.
Then, Vin shares that there are five things companies should be doing to get ahead of the curve in their AI journey. First, educate and develop policies to demystify Gen AI and demonstrate its best practices for employees. Second, mobilize through deliberate experimentation to demonstrate the true power of this technology. Third, build some solutions to determine the variables for building a long-term road map. Fourth, talk to service providers today to understand what their road maps are. Finally, come up with your own generative AI road map for your function. Then, organizations will be able to start executing that road map.
There is a large emphasis on operating model aspects for companies that want to sustain their AI advancement and use the technology responsibly. Policy and governance is a critical component for expanding AI. Companies should establish policies early on in regard to what safe uses of AI looks like and which data AI can leverage. As companies expand their AI capabilities, they should also be focusing on these aspects alongside the chief information officer’s office.
Time stamps:
0:54 – Welcome to this episode hosted by Vin Kumar.
1:30 – The Hackett Group’s AI framework.
6:42 – Uses for AI in SG&A.
13:27 – The heatmaps generated by The Hackett Group’s research study.
19:30 – Creating a road map for success with generative AI.
22:40 – Five steps for organizations to get ahead of the generative AI curve.
25:48 – What should CIO offices be doing?