It Depends

Is it true that reducing the cost of support – General and Administrative Expenses (G&A) – improves profits? One response might be “it depends.”

In a given industry, it is common for financial benchmarks to show competitors’ G&A expenses, as a percent of sales, varying by a factor of two. Yet, at either extreme, a company could be doing well in terms of profitability. Which raises the question – which company is better positioned for future growth? We observe that the answer to the future growth question often reflects the way a company spends on transactional vs. value-add projects in various support areas (e.g., IT, HR, Finance).

Using HR as an example, transactional spending might include maintenance, monitoring, management of reporting tools – leave, health & safety, tracking of hours worked/absent, and benefits. While value-add spending might include improvements to recruiting programs, learning, or development of an innovative compensation approach.

As the example indicates, choices made to spend on transactional or value-added support are strategic in nature. Growth in a mid-size firm usually begins with the recognition that some of the organization’s most important work value producing activities – finding and developing talent, innovation, and resource allocation – take place in the G&A bucket.

 

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