Pump up the Volume : 5 Actions to Create a More Agile GBS

Research presented in our recent article, Top 5 Actions for GBS Leaders to Excel in SG&A Cost Optimization, demonstrates that organizations tend to achieve higher sales, general, and administrative (SG&A) efficiency¹  when volumes are rising, but face greater challenges during periods of volume decline. This article examines the influence of artificial intelligence (AI) on this dynamic and details actionable strategies for GBS leaders to leverage volume increases and mitigate the risks associated with volume decreases. 

How do SG&A costs respond to changes in volume? 

We analyzed the sensitivity of SG&A expenses to revenue fluctuations for the Shared Services and Outsourcing News (SSON) 2025 20 Most Admired GBS and Shared Services Organizations (SSOs). As the chart below shows, these organizations were able to tightly manage their SG&A efficiency ratios when revenue fluctuated within 10% in a year.  When revenue increased more significantly, SG&A costs increased at a slower rate.  When revenue decreased more significantly, SG&A costs decreased at a lower rate. 
 
 
The elasticity of SG&A expenses relative to volume is largely determined by the proportion of fixed versus variable costs. Within narrow volume shifts, companies can readily adjust variable SG&A expenditures. For example, reductions in volume may prompt cutbacks in discretionary marketing and sales activities. GBS leaders might delay projects, refrain from filling vacancies, or limit overtime during downturns. However, substantial changes in volume amplify the impact of fixed costs. Organizations can benefit from spreading fixed costs over higher volumes, but experience reduced flexibility when volumes contract. 

How will AI change the G&A cost structure of companies? 

While this fixed/variable cost structure has long characterized GBS organizations, the adoption of AI is expected to intensify its effects. Overall, GBS costs are projected to decrease through AI integration, yet the fixed-to-variable cost ratio will likely rise. 

To illustrate this expectation, generative AI was utilized with the following key findings: 

Fixed Costs Increase 

AI implementation generally leads to higher fixed costs, including: 

1. Model development and customisation 
2. Software licences or long-term SaaS contracts 
3. Minimum cloud infrastructure commitments 
4. Data engineering and integration 
5. Cybersecurity and compliance 
6. AI talent (e.g., ML engineers, data scientists) 
7. Training and change management 

These expenditures are typically incurred upfront or on a recurring basis, independent of output volumes. The result is greater operating leverage. 

Variable Costs Decrease 

AI reduces costs that scale with activity levels, such as: 

1. Labor per unit (via automation of repetitive tasks) 
2. Customer support cost per interaction 
3. Error rates, rework, and quality control failures 
4. Marginal cost of decision-making and analysis 
5. Time-based billing (due to increased throughput)

In many applications, the marginal cost for additional digital outputs approaches zero. 

Organizations experiencing stable or growing volumes may automatically benefit from enhanced SG&A scalability. Nevertheless, some may not be fully capturing potential advantages. Those facing volume volatility—such as cyclical commodity businesses or firms affected by global disruptions (e.g., tariffs, pandemics, global unrest)—must remain especially vigilant. 

5 Actions for GBS Leaders to Optimize the Impact of Volume Shifts 

GBS leaders do not need to be passive observers of company volume changes; they can proactively enhance the benefits of growth and reduce exposure to declining volumes. Consider the following strategic and tactical steps: 

1. Outsource volume risks. Evaluate outsourcing as a means of risk transfer. Providers with broad client bases can distribute volume fluctuations, sharing or reallocating costs as appropriate. 
2. Adjust internal chargeback models. Optimize service charging mechanisms between GBS and internal clients—whether via direct chargeback or showback—to incentivize business units to increase volume and spread fixed costs efficiently. For example, vary your direct chargeback or showback cost per transaction based on volume tiers. 
3. Refine outsource pricing structures. Review and calibrate outsourcing pricing models in light of AI’s impact on cost categorization. The most common business process outsourcing model of a fixed base (within a volume band) and variable pricing with Additional Resource Charges (ARCs) or Reduced Resource Charges (RRCs) for volume changes outside the band should reflect new efficiencies to prevent undue benefit transfer to providers. 
4. Negotiate AI technology licenses based on volume. Secure tiered licensing agreements that align fees with actual usage, rather than fixed charges. 
5. Develop a long-term plan to convert semi-fixed costs. Address costs like facilities, equipment, and furnishings, which require extended timelines to adapt, aiming to transition these towards variable structures as AI adoption reduces variable direct labor costs. 

Embracing some combination of the above actions will help you create a more resilient and agile GBS organization.

^{1. SG&A efficiency ratio is calculated as annual SG&A expenses (sales, marketing, distribution, and other general overhead non-production costs) divided by annual revenue.}