World class companies spend 7% more on IT
TweetI have been investigating typical SG&A (Sales, General and Administrative) spends to prepare for a management class led by Prof. Bala Balachandran, I attended couple of weeks back. His brilliant lecture on Strategic Cost Management was a major eye-opener. Back to SG&A, first, I wanted to determine if there is a thumb rule, by which you can say, you should be spending X% of your revenues on SG&A. I came across this interesting press release from The Hackett Group that mentions that a typical company spends approximately 15% of revenues on SG&A:
Hackett’s 2006 Book of Numbers research revealed that world-class
companies are now spending 40 percent less than typical companies
overall on SG&A (9 percent of revenue versus 15 percent) and as a
result generate $60 million in savings/billion of revenue. By function,
they spend 45 percent less on finance, 13 percent less on HR, 25
percent less on procurement and 7 percent more on IT.
It appears the best companies have already shaved off a whopping 40% off of that number down to 9%. What caught my attention though is the fact that these leading companies actually are spending 7 percent more on IT. As they say, correlation does not imply causation, but at the same time, we have seen many times that a good IT implementation can actually drive costs down. This also goes against Nick Carr‘s argument “Does IT Matter”? If IT really doesn’t matter, how come the leaders are seeing such results? I am sure Vinnie will concur with the findings that the leaders are spending 25 percent less on procurement.
