Finding the ROI in SG&A

World-class SG&A performance can bring exceptional benefits that help finance, IT, HR and procurement functions improve the bottom line.

When Stevan Porter talks about striving for organizational excellence he doesn't limit his discourse to a mission statement and set of long-term objectives. Although the president of Atlanta-based InterContinental Hotels Group of the Americas recognizes the importance of lofty goals, he also points out that it's the day-to-day management of processes and practices that determines success. "It's essential to support the growth objectives with solid business practices," he says.

Porter should know. He was forced to focus on those practices after InterContinental Hotels Group, a large hospitality chain with 535,000 rooms in 3,500 hotels around the globe, found itself the target of a hostile takeover bid in 2002 -- even though it had a strong balance sheet, solid cash reserves, global distribution and a solid portfolio of brands. Shareholders rejected the offer, but Porter recognized that the company would have to eliminate $100 million in overhead over the following 12 months in order to attract investors and avoid more hostile bids. More importantly, he had to establish a companywide mind-set to support a corporate strategy that centered on cost efficiency.

Over the ensuing few years, Porter became a man on a mission. He zeroed in on his company's selling, general and administrative (SG&A) functions to pare down excess costs. After evaluating operations throughout the organization, InterContinental Hotels Group built a framework for success. The end result of the initiative? The organization grew its net income by more than 1,500 percent in 2004 while slashing waste and overhead.

It's no secret that low administrative costs are an essential ingredient in the quest for improved profitability. In many instances, companies that perform well establish themselves as industry leaders and best-practice trailblazers. "Understanding the value of expenditures in the SG&A area is essential," says Richard T. Roth, chief research officer at The Hackett Group, a business process advisory firm in Atlanta. However, attaining best practices in SG&A functions requires tapping the right technology, revamping business processes and effectively managing change.