Sustainability is Critical to SG&A Optimization

The pressure to reduce Selling, General and Administrative (SG&A) costs while improving business agility has increased over the last several years. Many business leaders believe they have reduced SG&A and these costs cannot be reduced any further, yet our experience shows SG&A expenses, both as a percent of sales and in total dollars can still be significantly reduced. Wavestone US believes many companies still have an opportunity to further optimize and transform their SG&A spend to support growth, reduce cost and create a sustainable operating model that supports future demand and value creation.

There are several levers that can be utilized to further optimize SG&A, these include: Automation, Consolidation, Sourcing, Rationalization and Process Redesign.  Some examples include:

• Automation, software tools and Software-as-a-Service (SaaS) are changing the way processes are performed. These tools span functions such as Sales and Marketing, Human Resources, Finance and Information Technology.
• Consolidation of redundant functions and use of shared services have the potential to streamline the services provided to the businesses.
• Outsourcing support functions that can be done fairly rapidly and can provide more efficient and cost effective services for many companies.
• Rationalization refers to decommissioning assets such as facilities, hardware etc. that are too dated and not fully utilized.
• Reviewing, standardizing and optimizing processes can reduce cost for the function as well as make the function a lot more efficient.

SG&A initiatives are typically transformation initiatives that require both short-term as well as medium-term commitments. The transformation often requires making hard decisions that must to be made and implemented successfully through proper program management and change management programs.

One often hears the use of benchmarking in SG&A exercises. While benchmarks offer value, they merely indicate functions where costs may be high and they may point to areas of opportunity. Only a more detailed understanding of SG&A and the client’s specific business model can provide the detailed information needed to actualize the transformation. SG&A improvements and cost reduction is not a one-size fits all initiative that is implied from benchmarking comparisons.

Proper governance and program management are needed to manage the resource demand to ensure resources are applied appropriately to the various initiatives and operations. Moreover, value creation requires a continual focus on NPV, IRR or other such measures before making any capital investments and a business plan review process that is both efficient and effective.

Above all, achieving sustainability of your SG&A operations through proper alignment with business strategy, future demand management and value creation are critical.  Alignment with the business strategy requires a planning process where anything that does not align with company end goals is continually identified, reviewed and addressed.