Preparing for the future of SG&A

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As the volatile business environment of the past several years continues, it is clear that leaders need to reimagine their sales, general, and administrative (SG&A) functions beyond just ambitious cost-management programs. For many companies, the pandemic was a catalyst for transformative changes to operating models, and once-temporary fixes are now becoming embedded into new ways of working. Moreover, as macroeconomic and geopolitical uncertainties multiply, organizations are increasing the frequency of forecasting and shortening their planning cycles, building granular, driver-based budgets while preparing for multiple scenarios, allowing them to be more resilient and better manage volatility.

Simultaneously, a dispersed and evolving workforce continues to be a challenge. And, as the mass transition to remote working continues, and leaders embark on the next wave of automation and digital journeys—both for their own teams and their customers—plans are focusing on reskilling the current workforce and shifting investments towards digital channels and tools.

We see these trends come to life in the findings of our Global Executive Pulse Survey (see sidebar, “Our methodology”). Respondents report working on increased cost-reduction targets, rapidly modifying operating models, and redefining functional priorities. This major survey is undertaken on a semiannual basis. The latest iteration asked functional leaders across a wide range of industries and functions about how they are thinking about the future of SG&A.

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Change is under way: five emerging trends

Before the pandemic struck, the nature of SG&A functions was already changing to adapt to new workforce and customer needs—as well as to absorb wider socioeconomic effects. We found five emerging trends that are likely to shape SG&A functions throughout the coming decade.

Some of these trends were accelerated by COVID-19; as organizations managed its effects, overseeing a globally dispersed workforce and accommodating new talent requirements for SG&A work grew in importance. The extreme digitization of work became a clear priority, as well as an imperative to develop mitigation plans against increasing volatility. At the same time, shareholder concerns have kept evolving, encompassing far more than just financial performance (Exhibit 1).

Five emerging trends are shaping the future of G&A.

The next wave of cost management

Over the last ten years, SG&A functions such as HR, finance, and IT have continued to drive gains in efficiency. However, amid volatility, cost-reduction targets, cost-reduction targets continue to become more aggressive. In our latest survey, respondents said they were aiming for an average cost-reduction target of about 16 percent for SG&A over the next year. This figure represents a 45 percent increase over our first survey, when targets hovered at around 11 percent—a time when organizations still had a more optimistic outlook on the business environment (Exhibit 2).

A higher cost-reduction appetite still shows different aspirations across functions.

This urgent push can be seen in organizations embarking on the next wave of cost-management programs. One in two executives said that they planned to begin a cost-reduction program in 2021. However, uncertainty around the success of these programs continued to grow, with 70 percent of respondents saying they are unsure of whether the work will be successful—compared to 66 percent with that sentiment a year earlier (Exhibit 3).

Organizations are preparing for the next wave of SG&A cost management.

This urgent push can be seen in organizations embarking on the next wave of cost-management programs.

Planning for uncertainty

As the pandemic continued, CFOs were required not only to act for the present, but also to start planning to become more resilient in the future. In response to questions about planning discipline, three out of five CFOs said they were increasing forecasting frequency, undertaking more regular scenario planning, and using the outcomes of these exercises to build driver-based budgets (Exhibit 4).

CFOs are increasing forecast frequency and building driver-based budgets.

The next wave of digital and analytics is here

The past several years have shown the importance of digital and analytics solutions and automation for both SG&A teams and their customers. That importance has been reflected in investment levels, with two out of three executives saying that they had already increased spending in this area, and expected to continue to do so in future (Exhibit 5).

Regardless of goal, automation efforts were more likely to succeed when linked to strategic priorities, not short-term returns.

However, the reasons behind the investments varied, ranging from continued spending on existing strategic priorities to paying for short-term cost improvements. It should be noted that investments linked to strategic priorities were judged to be more successful than those with a short-term focus—a factor of success we’ve noted in our earlier work.

The corporate center: Driving the next normal

The corporate center: Driving the next normal

Preparing for changing talent needs

As organizations evolve their operations for the next normal, their talent requirements are simultaneously evolving. While the importance of reskilling is almost unanimously acknowledged, with 89 percent of respondents telling us that they believe reskilling will be essential in the future to meet new needs, organizations are not clear on the best way to run such programs. Strategies range across creating new programs for the whole organization, taking a more targeted approach, or relaunching existing programs. However, 29 percent of respondents have yet to identify how they want to develop any program (Exhibit 6).

Reskilling programs are necessary, but getting started is hard.

As a result, many organizations have not begun reskilling programs, hampered by a mix of budget restrictions, a lack of understanding of future talent requirements, and insufficient senior-leader sponsorship.

Much of the early pandemic was spent applying sticking-plaster solutions to allow organizations to act quickly. Now is the time to formalize new processes, such as frequent scenario planning, and embed them into daily working. And it is also the time to ensure that people have the skills they need to get the most from digital, analytics, and automation solutions. Doing so can improve resilience for the long term—even if uncertainty persists for the foreseeable future.

This article was updated in June 2023; it was originally published in February 2021.

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