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Top executives are no longer focused solely on cutting costs in their general and administrative operations, and the pressure of globalization is the reason, according to speakers at the 16th annual Best Practice Conference of The Hackett Group. With consumers demanding the lowest possible price (and then some), companies continue to search for every possible way to reduce overhead. But they also see a need for increased agility, with the rise of offshore manufacturing and the expansion of global markets. As customers acquire more power and insist on better service, change must come faster than ever before. So executives are seeking to improve performance in finance, information technology, human relations, procurement, working capital and other areas.
Some 400 executives from top companies attended Hackett's annual two-day conference in Atlanta this year. Speakers included executives from Alcoa, Citigroup, Constellation Energy, HP, Greif, Nissan and U.S. Steel. Richard T. Roth, Hackett's chief research officer, said at the event that executives are under growing pressure to provide both superior pricing and product flexibility, all the while delivering greater shareholder value while fending off competitors. (See above item about why a dwindling number of U.S. managers dream about being CEOs.) "The best companies understand that in today's market, you simply don't have a choice," Roth said. "Costs must continue to drop, driven by everything from global forces and low-cost sourcing to new technology and new competitors. In G&A, this means companies must raise the bar on efficiency, while maintaining a bright-line focus on operational excellence."
Previewing its 2006 "Book of Numbers" research at the conference, Hackett revealed that world-class companies are spending 40 percent less than typical companies on selling, general and administrative (SG&A) costs (9 percent of revenue versus 15 percent). In the process, they are generating $60m in savings per $1bn of revenue. By function, Hackett said, top performers spend 45 percent less on finance, 13 percent less on HR, 25 percent less on procurement, and 7 percent more on IT. In the last category, increased spending is necessary for world-class companies to reduce costs and improve performance in other areas of SG&A, Hackett said.
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