CFOs, meet your new best friend
Generative AI could deliver as much as a 40% reduction in SG&A costs and a 40% reduction in SG&A staff in the next five to seven years
Generative AI could deliver as much as a 40% reduction in SG&A costs and a 40% reduction in SG&A staff in the next five to seven years
You have probably skimmed more than a few articles about the rapid advances being made in artificial intelligence (AI), particularly Open AI and other programs that use large language models to generate text, pictures, and more.
Chances are you have even played with generative AI applications a bit.
However, given most finance departments have limited need, say, for a sonnet about closing the books or drawings of your team as manga characters, it may not have been high on your agenda.
We suggest you take another look.
Using our extensive proprietary benchmarking data, we modelled and quantified generative AI’s potential impact on 80 selling, general and administrative (SG&A) processes, and found that all of them will be changed profoundly by generative AI.
Handled well, generative AI could deliver as much as a 40% reduction in SG&A costs and a 40% reduction in SG&A staff in the next five to seven years.
Between now and 2025, generative AI will be most useful as a digital assistant – something like a bright trainee with good general knowledge and instincts but little specialized/domain understanding. Then it will start to change.
Our research suggests that generative AI is unlikely to replace people in the beginning, but it will make them more efficient, improve their decision-making skills, and relieve them of the more mundane aspects of their jobs.
Between 2025 and 2030, it will start to replace employees, beginning first with sales support, customer service, information technology and human resources (HR). It will have a multiplier effect on automation as well because it will be able to serve as a kind of central dispatcher for other kinds of bots and algorithms.
We see three kinds of work that will be most impacted:
Virtually every SG&A process will be affected. Customer-to-cash, account-to-report, source-to-purchase, customer services process and many other processes that make up SG&A costs will change dramatically.
For a $10 billion company, this will translate into circa $180 million cost reduction and a head count reduction of nearly 1,400 people out of about 3,400.
At the same time, around 125 new people will need to be hired for AI-related work, adding $15.9 million to the budget.
A good starting point is to embark on a digital transformation effort to drive key functions in your organization like finance, procurement, HR and technology towards ‘Digital World Class’ – enabling top quartile performance in both business value and operational excellence.
Companies that are well on their way on this journey will be more ready to realize the full benefits that generative AI can yield.
Once you raise your performance to that level (and you can: we find companies achieving Digital World Class status in every industry), you will want to experiment on three fronts:
Points to remember
Generative AI tools are powerful today and will keep getting more powerful. You should make sure you:
Finally, keep in mind that SG&A efficiencies are only part of what generative AI will be able to do for your company. And today we are only looking at the tip of the iceberg, and generative AI will undoubtedly continue to mature at a rapid pace.
It is also sure to create a variety of new business opportunities, as companies learn how to train generative AI in whatever constitutes their expertise – and how to follow up on new ideas that it uncovers.
Vin Kumar is The Hackett Group’s AI and Global Digital Operations practice leader. John O’ Mahony is The Hackett Group’s head of Finance and Business Transformation.