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No one really believes the lesson of the tortoise and the hare

But value analytics shows the lesson to be true for business

Who would have backed a tortoise over a hare in a race before Aesop’s fable became widespread? No one. Even today many of us find the flash, cool, confidence of the hare more attractive than the boring, plodding, ugly tortoise. And that seems to be the central challenge in the story, even as it applies to the world of business.

All organisations incur operating expenses, and often these expenses are not directly related to the core business. They are quite commonly referred to as sales, general and administrative (SG&A) expenses and are possibly the least exciting and least glamorous components of a business, with all the appeal of a plodding reptile.

By contrast, new product development, marketing, and sales-related functions are more exciting, dynamic and understood as business drivers, and the costs associated with these parts of the business are seen as enablers of growth and profitability – think Energizer Bunny.

This contrast is probably why SG&A expenses continue to be largely ignored by management and are rarely considered strategic. Yet they remain an untapped source of value across every sector of the economy.

However, an astute executive who is prepared to take a strategic view of SG&A expenses is mostly likely to find some quick and sustainable wins, possibly enough to surprise their peers and become the hero in their company’s story, just like the diligent tortoise. It is a form of procurement expertise that we call value analytics.

Unlike fables, value analytics is based on real-world data. We have performed detailed analysis on over 100 publicly listed entities, using between three and six years of financials, across a diverse range of sectors. The results speak for themselves.

Value analytics has some big news

Our analysis reveals patterns and insights that can be applied to any organisation, and we are confident that new value can always be extracted from the SG&A expenses statement by using strategic procurement levers.

Firstly, in percentage terms, SG&A expenses typically grow faster than both revenue and profits. Yet rarely are these expenses questioned or subject to routine analysis

But the big news here is that a dollar saved in SG&A expenses is equal to multiple dollars gained through new revenue. Exactly how big that multiplier is depends on your organisation. Our research, using over 100 publicly traded companies, showed on average a $1 saving in SG&A expense is worth almost $20 in new revenue. Why would a ratio like this be ignored?

Moreover, a strategic analysis of SG&A expenses achieves savings that go straight to the bottom line. By contrast, revenue must grow dramatically to achieve an equal result.

Most organisations acknowledge that it is far easier to save $1 than it is to find another $20 in revenue. Why is it so easy? Largely because you have full control over the expenses of the business and a strategic review of procurement will find savings.

Inflation adds new pressure to margins and expenses

The impact of this type of analysis on the bottom line varies depending on what sort of margins your business achieves. But one thing is for sure, the arrival of inflationary pressure is putting a squeeze on all margins, from construction to financial services, to retail. If you’re a low-margin business that pressure will be immense, but even high-margin businesses would be negligent to not act to protect their margin. At the same time, inflation is only going to drive SG&A expenses up.

So, even though these expenses may typically be considered a boring, plodding, dimension of business, the extent of savings available means they really demand attention, especially now.

There are signs that the world’s economy is heading into troubled waters. The complacency that many slip into during periods of easy growth is now a danger. Applying value analytics to your SG&A expenses should be part of any business’s preparation for the changing frontier of competition. In Aesop’s story, the hare’s arrogance and false confidence led it to think it too could take a rest. The diligent tortoise made no such mistake.

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