As productivity growth slows, top-performing organizations are moving beyond traditional cost-cutting measures to reach new levels of SG&A efficiency. Leading firms are redesigning operating models and integrating AI-powered solutions to accelerate data-driven decision-making and achieve lasting efficiency.
Great companies know how to do more with less. US organizations, for example, have spent decades squeezing waste out of operating processes, delivering year-on-year labor productivity improvements of 1 to 4 percent.1 Yet most companies have conspicuously failed to achieve similar rates of improvement elsewhere in their organizations. In 2016, our colleagues analyzed the performance of programs targeting cost reduction in sales, general, and administrative functions (SG&A) at 238 companies in the S&P Global 1200. They found that, between 2003 and 2013, only a quarter of those initiatives achieved sustained savings over four years or more.
Almost a decade after that study, the picture has changed. New analysis shows that incremental year-on-year improvements in SG&A productivity have slowed for most companies. It also reveals that a select group of companies are reducing faster and longer, and that steep and sustained reductions in SG&A costs are associated with superior shareholder returns. Over the past decade, the highest SG&A performers have seen total shareholder returns increase at 1.7 times the rate of their lower-performing peers.
This article looks at the SG&A efficiency of a larger group of companies between 2013 and 2024. Like the 2016 analysis, the present one defines SG&A cost ratio as an organization’s SG&A expenditure relative to its revenue.2 SG&A includes a company’s spend on sales, marketing, research and development, finance, human resources, and other overhead—in other words, most of the costs not associated with making a product. These costs are frequently targeted when margins are squeezed by inflation in the cost of inputs or when technology and analytics improve labor productivity. Achieving such cost reductions is complex, as it requires companies to improve efficiency while maintaining the service quality and speed required to support business objectives.
SG&A performance is rising
Our analysis identifies steady overall improvement in SG&A efficiency. The median SG&A cost ratio across companies improved by 0.75 percent per year between 2003 and 2013. And between 2013 and 2024, the median of 882 companies in our new data set improved their SG&A cost ratio by 0.43 percent per year (Exhibit 1). The rate of improvement is slowing down because companies saw lower revenue growth over this period and benefited less from SG&A spend leverage. Also, most companies had already captured the low-hanging fruit from right-shoring, technology, and standardization during the first decade of the millennium.
Critically, though, the push to optimize SG&A has not stopped. Companies in every quartile continue to drive SG&A cost reduction over time, thanks to a new set of levers, including artificial intelligence (AI). And the top quartile of companies over both time periods improved roughly twice as fast as the median, underscoring the potential for even top performers to become more competitive through effective SG&A management.
Regionally, we found only small differences between companies in Europe, North America, and Asia–Pacific. We observe greater differences between sectors, with wide ranges of SG&A performance in sectors with significant variation in the intensity of marketing, research, and customer volume (Exhibit 2). In financial services, for example, the bottom-quartile SG&A cost ratio of 53 percent is more than 2.5 times the top-quartile ratio of 21 percent, due to differences in structure and spend decisions between investment and retail banks.
The implication of these consistent and global SG&A performance improvements is clear: To remain competitive, companies must continuously strive for improved SG&A efficiency, or they risk falling behind. And while a company’s sector influences SG&A performance, it should not—and does not—limit a company’s ambition.
‘Sustained Transformers’ strive for a step change in SG&A efficiency
How are companies improving the efficiency and effectiveness of SG&A activities? As with any business improvement effort, organizations can attempt to change incrementally—for example, by setting gradually more demanding performance targets. Alternatively, they can strive for a step change in performance by implementing rapid and significant alterations to organizational structure, processes, and tools. In the case of SG&A functions, such transformation efforts may involve centralizing functions, outsourcing or right-shoring key activities, redesigning end-to-end processes, or exploiting advanced digital technologies. Most SG&A transformation efforts involve a combination of these levers.
The step change approach often drives more sustainable change, since it forces the business to fundamentally rethink ways of working. This can, however, be taken to an extreme when companies move too far, too fast, wielding a metaphorical chainsaw to enact SG&A cost reduction significantly in very short periods of time.
Significant changes are achievable under the right set of circumstances (for example, by making thoughtful choices about what work should go away), but cutting blindly can introduce risk. From 2013 to 2024, companies that reduced SG&A by a step change of 5 to 30 percent saw higher total shareholder returns (TSR) than companies that pursued gradual reductions and those that cut costs by more than 30 percent in a single year.
To evaluate the benefits of a transformative approach to SG&A performance improvement, we looked for companies in our data set that achieved a significant (greater than 10 percent) reduction in SG&A cost ratio in a single year and then managed to sustain that level of performance for at least the following four years. Of the 882 companies in our data set, 401 achieved a sufficiently large one-year drop, but 167 of those companies saw their costs rise again in the ensuing four years. Only 234 companies, around a quarter of those in our data set, qualify as Sustained Transformers by this measure.
Across the 11 years covered by our data, Sustained Transformers significantly outperformed their peers in SG&A efficiency improvement, achieving a 3.0 percent annual reduction in SG&A cost ratio, or roughly seven times faster than the overall average. By contrast, for companies outside this group, the SG&A cost ratio remained flat over the same period (Exhibit 3).
We also found a strong correlation between the sustained transformation approach to SG&A improvement and overall business performance. Companies in the Sustained Transformer group increased their TSR at 1.7 times the rate of other companies over the full 11-year period covered by our data set.
Our analysis also offers some insight into the COVID-19 pandemic’s impact on SG&A spend. The pandemic drastically altered companies’ cost and revenue structures; efficiency improvement in SG&A slowed or even reversed in 2020 as some industries (for example, travel) saw rapid revenue decline and deleveraging. In 2021 and 2022, SG&A decreased across sectors as companies significantly restructured spend areas such as real estate and travel. In 2023 and 2024, travel and real estate costs bounced back, and many companies experienced significant inflation, lifting SG&A costs back in line with prepandemic trends.
Sustained Transformers act differently
Many sectors and organizations have spent decades pursuing efficiency and effectiveness improvements in their SG&A activities and spend. With much waste and inefficiency addressed by previous efforts, the Sustained Transformers have been forced to find new ways to achieve rapid and sustained efficiency improvements. A close examination of several of those organizations suggests that today’s successful transformers are pursuing three strategies that represent a break from the traditional SG&A transformation playbook. First, they are changing the way they set and communicate their ambitions. Second, they are expanding and extending their application of both traditional and novel improvement levers. Finally, they are rethinking the infrastructure they deploy to support change across the organization.
Setting bold ambitions
Sustained transformation requires clearly communicated targets. Successful transformers are bold in their ambitions, emphasizing step change over incremental improvement. They are clear about what they want the SG&A organization to be, ruthlessly eliminating activities that don’t add value or support the strategic objectives of the business and investing in the capability areas that drive the future. Leading organizations are adapting the indicators they use to measure progress, moving away from narrow cost reduction targets and focusing on value creation and resource reallocation. These organizations have adopted multiple metrics across employees (for example, staff productivity), customers (for example, lead time reduction), and investors (for example, return on invested capital) to ensure that their efforts generate maximum impact. Leading organizations also make explicit commitments about their change plans to stakeholders, including employees within the SG&A organization, customers across the business, and investors.
Pulling more levers
Five broad improvement levers are available for SG&A organizations to apply: demand management, the operating model, digital and AI, process optimization, and talent management. Instead of limiting themselves to the point solutions and targeted interventions commonly deployed in the past, Sustained Transformers apply all five of these levers broadly. They begin by fixing the basics—reliable data and efficient processes—before going on to challenge the way work is done across all SG&A functions and value streams (Exhibit 4).
As companies challenge and evolve their operating models, for example, they no longer see shared-services centers primarily as cost-efficient locations for transactional work. Instead, they are moving up the value chain to become centers of expertise and innovation for the enterprise. One major retailer has developed integrated teams staffed by personnel in the United States and India across every SG&A function. These teams are now responsible for a range of business-critical activities that unlock significant value each year, including store design, planogramming, customer order management, and pricing and promotion. The common teams and processes that support shared services, such as automation and process improvement, are acting as a transformation engine to drive improvement across the broader enterprise.
Ambitious transformers rethinking their operating model do not always pursue more centralization, however. A leading automotive supplier worked out that it could enable SG&A cost reduction by redefining the role of its corporate center. It gave its business units more autonomy, casting the corporate center into a new role akin to a holding company. After the change, business units were given the option to take certain SG&A activities back in-house, allowing them to develop SG&A capabilities that suited their individual requirements, if those capabilities aligned with corporate-level SG&A spend targets and broader organizational strategy.
Simplifying and streamlining processes can also reduce demand for SG&A activities, allowing teams to focus on making the key decisions that support business goals. Frustrated by the time required to bring innovative ideas to fruition, one global consumer goods company reimagined its governance system for sales and marketing projects. It replaced a cumbersome formal stage gate process with a new system of “investor boards” empowered to make all development decisions. The new system cut the time taken up with preparation for governance meetings by 90 percent and aided the introduction of agile development methodologies. Most significantly, it led to breakthrough results: Under the new system, a complex global brand refresh beat its planned revenue targets by 40 percent.
Leaders are engaging in holistic efforts to reimagine end-to-end processes across functional boundaries (for example, from order to cash, from plan to perform, from idea to market) to take advantage of recent advances in automation and AI. Our C-suite survey, which has been conducted annually since 2020, has seen the share of organizations actively adopting gen AI increase from 2 percent in 2023 to 45 percent in 2025. IT functions have seen the widest adoption of gen AI technologies, but most functions are at least piloting first applications. For example, a leading global life sciences company has developed gen AI copilots to help finance and commercial leaders query data sets, run scenarios, identify top-line and SG&A trends, and proactively alert teams about critical opportunities and risks.
Agentic AI, a successor to today’s gen AI technologies, could radically change productivity, but its adoption is still more limited: Only 13 percent of respondents to our surveys indicate that their organizations have deployed agentic AI beyond pilots or research. Early results are promising, however. A market research firm has introduced multiple agents to augment a team of 500 who gather and structure data. The agent identifies anomalies and shifts in sales or market share data and tells decision makers about the most likely drivers of those changes. The system is expected to improve the team’s productivity by more than 60 percent.
In addition to these SG&A improvement levers, another major driver in improving the SG&A cost ratio is growing revenue. The median company across our data set saw slightly more SG&A productivity improvement as a result of growing revenue and realizing fixed cost leverage than as a result of SG&A cost reduction. While Sustained Transformers saw more revenue growth than the median, significantly more of their SG&A productivity was a result of real cost reduction. The highest performers were proactive and explicit in the SG&A levers pursued, even while driving top line performance.
Creating a sustained transformation organization
A different type of transformation needs a different type of supporting infrastructure. As with the levers companies employ, an effective transformation organization should combine well-proven approaches with new ones. A key first step is a move away from transient, project-based transformation offices that are set up every four to six years to support narrow cost reduction initiatives. Instead, Sustainable Transformers are balancing near- and long-term views by establishing a permanent transformation organization, which coordinates cross-functional collaboration and helps SG&A functions design, deploy, and evaluate improvement initiatives. This support organization helps set and maintain the pace of improvement by implementing ideas with the potential to achieve the desired step change in SG&A performance and by continually refilling the pipeline with more such ideas.
This organization can also act as a center of excellence for both traditional improvement levers, such as process mapping and organizational redesign, and new capabilities, such as advanced analytics and AI. During its enterprise-wide transformation, one global industrial company was keen to ensure its SG&A costs were aligned to its overall strategy of focusing on high-value-added work. The company evaluated each of its SG&A functions, taking a zero-based approach to identify waste, automate or eliminate manual tasks, and reallocate spend to more value-added work. This activity, which was led by a central transformation office to emphasize objective review, delivered significant savings, boosted productivity, and improved customer satisfaction.
Our research has some clear implications for every company. First, organizations should take stock of where they stand today. If SG&A costs as a percent of revenue are not improving by 0.5 to 1.0 percent per year over the long term, the company likely is already falling behind competitors.
Second, organizations should have a vision and plan for their next step change in SG&A efficiency and capabilities. That means being able to answer “yes” to a few key questions:
- Have you set a bold ambition for SG&A transformation?
- Are you pursuing both classic and next-gen improvement levers across processes and functions?
- Have your AI-driven investments driven material productivity, rather than just focusing on “exploration”?
- Are you going beyond growing revenue and realizing fixed cost leverage to proactively address SG&A costs?
- Are you reinvesting to add value in the places that matter?
Finally, companies need a sustained next-generation transformation engine. This entails a full pipeline of ideas for the next two to three years, along with the necessary capabilities and infrastructure for SG&A teams to keep innovating and improving their productivity, effectiveness, and the value they bring to the organization.
