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The world's largest companies have for the most part failed in their effort to reduce the cost of functions such as finance, IT, human resources and procurement over the past year, exacerbating the impact of dramatic declines in revenue, profits and earnings, according to research from the Hackett Group.
Hackett's analysis of the latest financial results of nearly 200 of the 1,000 largest public companies in the world that have reported second quarter 2009 financial information, showed that only one company in four was able to manage their selling, general and administrative (SG&A) costs in line with revenue reductions over the past 12 months.
While these companies saw average revenue reductions of 23.7 percent, they were only able to cut SG&A costs by 6.7 percent. As a result, SG&A costs as a percentage of revenue for Global 1000 companies have risen over the same period, going from 12.6 percent of revenue to 15.5 percent of revenue. Hackett's research found that typical Global 1000 companies (with $26 billion in annual revenue) are losing out on up to $1 billion in annual cost savings as a result of this lack of agility.
"Agility is a competitive weapon that has become a requirement in today's marketplace, where hyper-global competition and economic uncertainty reign supreme. Companies should have been able to rapidly reduce their overall G&A costs to more closely match the revenue reductions they are seeing," said Hackett Chief Research Officer Michel Janssen. "But despite lots of tough talk about freezing discretionary spending and making across the board cuts, most companies appear to have failed in their efforts to manage their G&A cost structures. This trend has been getting worse each quarter, with the 'agility gap' growing wider."
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