The pressure continues to mount on corporate C-suites as Wall Street demands ever increasing shareholder value, while Main Street demands higher quality of goods, services, and consumer value. Neither is particularly interested in segmented cost cutting measures of certain back office functions, or isolated initiatives related to quality or lean processes. Indeed, both Wall Street and Main Street expect true enterprise value, a tangible barometer of a firm’s strength and sustainability.
Leading corporate executives recognize this and are rethinking their Sales, General and Administrative (AG&A) models. Rather than examining specific back office functions (traditionally customer service and accounts payables), these business leaders instead comprehend the magnitude of these mandates. As such, they’re aggressively assessing end-to-End SG&A P&L components, with the prospect of embarking upon an SG&A Transformation.
What does end-to-end SG&A transformation actually look like? The process will vary for every firm, but these three keys are generally shared by all:
- Sales – Optimize the revenue cycle
- General – Source and procure more prudently
- Administrative – Become more productive in the back office finance organization.
The precursor to implementing this type of transformation is a carefully crafted roadmap, the principal deliverable of an assessment of these areas. Furthermore, the assessment is founded upon each of the three aspects having a unique primary objective, but common secondary objectives.
Sales (Order-to-Cash) – In today’s globally competitive marketplace, organizations continually seek to optimize revenue opportunities through the maximization of recurring revenue channels and creation of other non-recurring cycles. The efficiency of the order-to-cash organization enables stronger revenue. Whether it’s shared services, internal transformation or outsourcing, world-class sales operations are being evaluated in direct connection with an assessment of procurement and finance operations.
General (Requisition-to-Procure) – For decades, direct procurement has garnered a great deal of corporate executive attention; and as long as gross margins remain a crucial financial metric, this will be the case. However, the best of best global companies have seen substantive bottom line positive impacts to their P&L by managing and influencing a higher percentage of their indirect spend. Assessing the requisition-to-procure functions with the objective of putting more IP spend under the influence of the sourcing/supply chain organization has consistently proven to be a catalyst to secondary, but sizeable benefits. This is directly related to and complementary to a finance assessment.
Administrative (Procure-to-Pay & Record-to-Report) – As exhibited during the 80’s and 90’s with the transformation of manufacturing in the automotive industry, managing internal cost centers like back office finance has a direct correlation to EBITDA and an organization’s ability to increase quality of goods and services. Operating cost metric outliers in the procure-to-pay and record-to-report functions will weigh down a company and impede agility. Yet, evaluating finance productivity in a vacuum and untethered, particularly to req-to-procure functions will only produce a partial answer.
In the final analysis, an assessment and subsequent enterprise transformation of SG&A increases shareholder value and consumer value through:
- Optimization of the revenue cycle
- Maximization of the spend under influence and ultimately
- Reduction of Cost
Higher Revenue + Lower Cost + Operational Efficiency = Market recognized Enterprise Value (Shareholder & Consumer).
About the author
Michael Fullwood
Michael Fullwood is an ISG Partner with extensive financial planning and analysis experience. His areas of expertise include sourcing assessment and RFP management, contract negotiations and transitions. He has guided major multinational companies in the Americas and Europe through multi-functional outsourcing projects and shared services transformation. Michael has more than 20 years of experience advising clients on strategy and implementation and is an accomplished leader who articulates a compelling point of view for ROI optimization and speed to value. His work enables companies to optimize support services operations, contract for and implement digital/automation, and formalize processes, metrics, governance and reporting.
