SG&A performance is managed using efficiency and performance indicators for each function, which are tracked at executive committee level and by operational management. The executive committee monitors the development of function-specific key ratios and strategy, whereas the operational management monitors performance and efficiency indicators.
For example, indicators to be tracked by the executive committee may include:
- Finance: cost of the function against the revenue
- Human Resources (HR): number of employees managed by each HR employee
- Information Technology (IT): running cost per user and Return on Investment (ROI) for IT projects
- Procurement: expenditure managed by each buyer
- Marketing and Communications: cost of the function against the revenue;
- Sales: revenue generated by each Salesperson and revenue from new sales by each team member
- Legal: cost of the function against the revenue
- Real Estate: average cost per square foot
- Fleet Management: average cost per working unit (e.g. number of miles traveled by the car fleet)
The following principles should be followed by the operational management:
- Defining key processes (e.g. Opportunity to Cash, Sourcing to Payment, Record to Report, Hire to Retire) and the related Total Cost of Ownership (integrating hidden costs) reduced to single working units (e.g. the total cost of the process from the purchase order to the payment of the supplier's invoice, divided by the number of invoices)
- Replacing these cost indicators with performance indicators (Days Sales Outstanding (DSO) for finance, recruitment numbers for HR, lead conversion rate for salespeople, percentage of expenditure covered by buyers, surface area per Full-Time Equivalent (FTE), etc.)
- Measuring user satisfaction (Voice of the Customer).
When setting targets, it is good practice to distinguish between variable and fixed resources. This involves identifying, from among variable resources, those which are dependent on revenue or the volume of transactions, and those which are semi-fixed.
Based on its experience, Argon Consulting has standard key performance indicators available for each function and supports its clients in developing specific indicators, and implementing a management system.