Top 10 Opportunities for G&A Savings

Whether we're already in a recession, heading into one, or just in a slowdown, belt-tightening is much on the minds of consumers and corporate strategists alike. For some businesses, trimming costs can make the difference between survival and disaster when economic times are tough. But any cuts have to be made judiciously, or they may compromise service delivery and the organization's ability to respond when the time comes to gear up again.

So the question is -- where to cut?

Global strategic advisory firm The Hackett Group estimates that typical companies can take out 19 percent of their total G&A spend by focusing on 10 processes that pose the lowest risk and offer the biggest opportunities for cost savings in the short to medium term. For the average Global 1000 firm, the savings come to about $158 million.

Hackett has always advised companies to adopt practices aimed at maximizing the overall effectiveness of their G&A functions, rather than striving only for cost efficiency. "We think that if you go to efficiency all the way, you start to sacrifice things like DSO -- if you cut too many people or the wrong people in your billing area you could actually impair your cash flow," says Michel Janssen, chief research officer with The Hackett Group. But in the current economic climate, "companies that have been the most stressed may have to think about those kinds of things," he says.

Here are the top 10 G&A cost-cutting targets, together with the estimated savings that a typical Global 1000 firm might achieve by adopting the practices that are characteristic of world-class organizations:

1. Infrastructure management: $25.1 million. IT hardware is a prime target for rationalization. Servers, in particular, have proliferated in recent years. "It's easy to get them; it's hard to get rid of them," notes Janssen. "Some companies are supporting thousands of servers. There's redundancy, and there's maintenance upkeep." You have to keep applying security patches, he adds. And many organizations end up supporting obsolete server technologies that should have been retired years ago.

2. Revenue cycle: $22.7 million. Any cutbacks in a company's billing and collections processes must be done with care and with an eye on customer relationships. The level of interaction with the customer varies widely. If you're in retail, for example, you need to ensure that your team has a clear understanding of write-downs and deductions. "But in other cases, it's just black box in, black box out," says Janssen. "To the extent that you can automate that or cheapen the load on that, there's lots of money to be had there."

3. Application maintenance: $21.6 million. Like IT infrastructure, software assets can be costly in terms of upkeep.

4. General accounting: $17.9 million. Transactional finance functions are good candidates for an outsourcing strategy, but many companies still haven't explored the possibilities, according to Janssen.

5. Application development: $15.8 million.

6. Compliance management: $13.4 million.

7. End-user support: $12.7 million.

8. Human resources transactional: $11.7 million. HR's process taxonomy is smaller than that of other G&A functions, Janssen notes, but there's considerable potential for savings in some payroll, benefits and administrative processes.

9. Cash disbursement: $10.6 million.

10. Purchase order processing: $6.4 million.

Hackett's calculation of the potential cost reductions in these processes encompasses outsourcing, but not services globalization. Companies may be able to secure even greater savings by handing off work to offshore providers or using their own captive operations in low-cost geographies. Indeed, a typical Global 1000 company could save almost $100 million by implementing a comprehensive globalization strategy, according to Hackett research.

Given the need for speed, CFOs may want to consider a bare-bones "lift and shift" approach -- moving a targeted process offshore as-is to capitalize on labor arbitrage opportunities. "If you already have a relationship with a supplier or a captive open, you can make this happen in three or five months," Janssen reports. "If you're going to start from scratch, it could take you as long as nine to twelve months to figure out the scope, build the relationships and build out infrastructure. And if you've really got a complex [process] and you want to do a megadeal, it can take you 18 to 24 months."

Clearly, companies that have already made some moves toward globally distributed processes will be able to react faster than others. "If you're not prepared there, well shame on you," says Janssen. "You'd better get competitive, otherwise it won't be a recession you'll be worried about -- it'll be global competition. You may never come out of the recession."

Read the full report from The Hackett Group here (requires free registration).