It is easier to start or stop than it is to sustain.
- Diets and exercise are easy to start or stop. Keeping a healthy lifestyle is difficult but worthwhile.
- Joining a church is easy. Staying home is easier. Keeping a daily commitment to Bible study, prayer and living a holy life is difficult but worthwhile.
- Starting Activity Based Costing (ABC) is easy. Stopping ABC is even easier. Keeping an ABC system running is apparantly not easy but worthwhile.
People are often surprised when I inform them that 90% of the organizations that implemented ABC during the past 15 years have abandoned the system. Dr. Annie McGowan of Texas A&M University confirmed this statistic in a study she published Summer 2001. But when I recently re-read the study and it’s abandonment headline, I noticed that all the organizations studied had experienced measurable benefits (1).
I asked myself “Why did organizations that benefited from ABM stop it?” I came up with three primary reasons:
- Some organizations abandoned ABM because that was their plan all along.They never intended to convert to ABM/ABC. Instead, ABM/ABC was intended to be a one-time project to address a specific business need, i.e. identify $100,000 cost savings, confirm a product line profitability strategy, re-engineer a process, etc.
- Some organizations simply lost interest, focus or attention.They did not make a decision to stop ABM. Instead, it just happened. “Just as attention deficit disorder is diagnosed with increasing frequency in individuals, organizations can suffer from ‘organizational ADD’.” (2)
- Some organizations abandoned ABM because their managers did not know how to sustain improvement.No one had compiled a list of what the 10% do to successfully sustain the benefits of ABM, ABC and other continuous improvement tools.
Instead of continuing my guessing, I interviewed people who have sustained ABM/ABC in a wide variety of industries. The lengthy list of interviewees included truck manufacturer Navistar, also a user of Six Sigma. I talked with healthcare distributor Owens & Minor and book distributor Amazon.com. I benefited from discussions with overnight carrier Federal Express, shared services firm Exult, the U.S. Patent & Trademark Office plus many others, some of which I will quote later in this article.
I’ve named the people and companies I studied “Improvement Keepers”. From them comes the following list of best practices that I call the Ten Traits of the Ten Percenters.
- Improvement Keepers are leaders, not just supporters of change. When I started ICMS in 1988, I emphasized to my customers the importance of top management support. I have since learned that “support” is a passive verb. Sustained success needs active verbs coming from top management such as “follow” me.
Management “support” is characterized with the approval of the ABM Project, signing a purchase order for ABM software or telling employees “I’m behind the project 100%.” Those are all well and good tasks, but you can’t lead if you’re bring up the rear. The 90% who abandoned ABM had passive management. The 10% who are Improvement Keepers have passionate leaders.
Passive supporters are willing to give up something good to move on to something else. Ten percenters, on the other hand, are active. Improvement Keepers will not let go of a good thing, a significant trait of lasting success.
Eileen Morrissey of Merck says one of the best examples of an active, passionate leader of ABM is Mr. Larry Bossidy, CEO of Honeywell. Larry led the use of ABM at Allied Signal and now Honeywell. As Mr. Bossidy explains in his new book titled “EXECUTION“, success is not achieved with talk … instead it’s achieved with walk. Mr. Bossidy clears a wide and straight path for his employees to walk the talk of ABM, Six Sigma and continuous improvement.
- Improvement Keepers have a servant’s attitude. In Jim Collins’ book “Good To Great“, he lists seven traits that separate good companies from great companies. Mr. Collins’ research found great companies have humble, servant leaders. I found the same trait when I interviewed Improvement Keepers.
When ABM is successful, humble leaders look out the window and say, “All these people helped accomplish the results.” If ABM is not successful, humble leaders look in the mirror and say, “I’m the reason ABM failed.” If someone grabs the glory solely for personal gain, the organization is left with a void and the ABM system usually fails. According to Mr. Collins, servant leaders are low-key, bullheaded determined to get the job done and humble when the goal is accomplished. Humble, servant leaders have a loose grip on ABM.
To open a recent workshop, I asked a group of 80 business owners to answer the following question … “What would you do in your business if you were guaranteed success?”
One answer stuck out. The business owner said, “I’d expand the business and let all the employees share in the wealth.” That company has a humble, servant leader. Make sure your improvement effort has a great leader. A person that wants to serve his or her company, to make it better.
K. Tip:An ABC project targeted at solving a specific need does not require a humble, servant project leader. A conversion to ABC does require a leader who is willing to serve.
- Improvement Keepers are committed to making things better.
Mediocrity is becoming the by-word of our times. Every imaginable excuse is used to make it acceptable, hopefully preferred. Budget cuts, deadlines, majority opinion, and hard-nosed practicality are out shouting and out running excellence.
If you go to fish market, look for a basket of crabs. Notice that fisherman don’t have to put a lid on the basket. When one crab tries to crawl out of the basket, other crabs grab hold and pull him/her back. That’s what happens in 90% of the organizations that implement ABC, ABM or other improvement tools. The persons who attempt to use ABM for continuous improvement are often pulled back by other employees who do not want to change. They’re satisfied with mediocrity.
Improvement Keepers are unhappy with mediocrity. They want to make a difference. Continuous improvement is their process. ABM is their tool. Excellence is their goal. While there were numerous examples of commitment to ABM and continuous improvement that came out of my research, three immediately come to mind.
- The head of Activity Based Costing at Chrysler told me, “ABC fails unless it’s the only system.” Commitment is not characterized by maintaining two systems.
- Tom Akright, long time head of ABM for Nestle-Purina said, “We are convicted to change rather than committed to change.” If you were accused of doing ABM in a court of law, would you be convicted?
- During my research I talked with Brian McMahon at Hershey’s. Brian told me “I feel ABM is part of the puzzle in figuring our what makes a company successful versus not. Having said that, we are seeing that ABM/ABC can become a key piece of the decision puzzle. All this work takes time and it requires relentless effort from the top and the bottom of the organization.”
- Improvement Keepers don’t just analyze … they act.
Improvement Keepers don’t just think … they do.
Improvement Keepers don’t just consider … they change.
Superficiality is the curse of our age. The desperate need today is not for a great number of intelligent people, but deep people. People who are deeply committed to using ABM to improve decision-making.
- Improvement Keepers re-produce themselves. My wife and I recently had a group of friends over for dinner. To prove a point and foster discussion, I asked our guests to name the past five Miss America winners. No one had the answer.
Then I asked them to name the last five Heisman Trophy winners. No one had the answer. Then I asked our guests if they could name two teachers who made a difference in their life. Without fail, everyone in the room had an answer.
People who make a difference are not those who have the most impressive credentials or owners of the largest financial portfolios. The real difference makers in life are those who come alongside you to pour a little of themselves in you.
In my ABM Boot Camps, I tell the participants on Day One to “prepare to re-produce yourselves”. I do this for three reasons:
- First, people pay more attention when they are asked to pass information on to someone else.
- Second, adults learn and retain more when they teach others. When you teach ABC to someone else, you learn it for a second time.
- Third, I teach the “Power of Multiplication”. If one person focuses on one activity and defines one plan that results in $1,000 savings for one month, the company saves $1,000. If you multiply two people focusing on two activities each with two improvement plans for each activity at $2,000 each, the company saves $32,000!
- When ABC is re-produced, it rarely fails. If closely held, ABC is typically abandoned.
- Improvement Keepers are accountable. Improvement Keepers get measurable results because the have written goals linked to positive and negative consequences.
ABC is often abandoned if it is used solely to allocate cost. Ten Percenters use ABC to both allocate and account for performance. Information Technology (IT) groups, such as Molly Olson and Rajeev Singh of Intel, allocate IT activities to customers and also use the data for cost improvement. For example, the activity cost of support desk calls is not only charged to IT customers, but IT is also held accountable for achieving the budgeted cost per call. Likewise, IT customers are held accountable for the quantity of calls they consume. Activity accounting without accountability measures tend to fail.
Steve Porter of the U.S. Patent & Trademark Office told me, “I guess the single biggest success factor that I see is that ABC system data has to be used in the budgeting process. If it is not, the business lines will eventually ask themselves, ‘why am I going to all this trouble?’” Migrating from ABC to ABB is an excellent way of increasing accountability in your organization.
The difference between ordinary and extraordinary is E-X-T-R-A … extra. Accountability helps organizations gain the extra results that optimize and sustain financial benefits.
- Improvement Keepers are reliable and trustworthy.
Reliable and trustworthy… now there’s a couple of words we haven’t seen associated with accountants in the Wall Street Journal recently!
Improvement Keepers are straightforward, open and honest in all communications related to change. Sustained commitment to improvement requires honest answers, honest leaders and honest measures. Improvement Keepers know broken promises lead to broken projects.
Because most improvement projects are abandoned, employees of most organizations do not trust three letter acronyms… ABC, JIT, BPR, TQM, CRM. Managers have not reliably finished the improvement projects they started. I repeatedly heard during my interviews with Improvement Keepers that 80% of a good ABC system is better than 0% of a perfect ABC system. Simple ABC systems that are easy to maintain often get more results than complex ones.
Peter Drucker, a supporter of ABC, says, “Innovation is not being brilliant, it’s being conscientious.”To build trust in your organization, reliably communicate and achieve goals, even if they are not lofty goals.
- Improvement Keepers are keepers, not sitters.
I am the proud grandfather of twin two-year old grandsons. Someone asked me recently what I was going to do over the weekend. I was about to say, “Babysit my grandsons”, but something quickened in my spirit.
My daughter and son-in-law could hire a baby sitter. And I’m sure the sitter would do a good job watching the boys. But sitters leave. The role of a grandfather is to “keep” those boys. Keep means to nurture, hold, value, love and guide. Ten Percenters I interviewed were keepersof their ABC systems, not sitters.
Kari Rathjen, ABC analyst for Northwest Natural Utility told me, “I would agree that the world has too many ABC-sitters. We are currently in the process of acquiring the local electricity distributor. The company we are acquiring attempted ABC 7 years ago, used the initial information for some significant decisions, and then let it drop to the wayside. They were ABC-sitters.”
Don’t waste your time babysitting ABC, TQM or Six Sigma for a while. Keep it. ABC is the best cost management method in the world and has been for over 15 years. Nurture it. Invest in it. Hold it. Use it. And watch the results grow!
- Improvement Keepers are joyful.
One of the primary reasons organizations implement Activity Based Costing is to gain wisdom. Solomon, the wisest man in the Bible said, “a joyful heart is good medicine.”(Pro. 17:22) I found during my interviews that joy is a common trait of many Improvement Keepers.
Susi Fryer, leader of Delta Faucet’s continuous improvement department for many years says, “You can spot an Improvement Keeper in everything they are involved in professionally and personally.” Improvement Keepers look forward to change. Improvement is fun. They feed on positive thoughts, not worry. They reward themselves and others for making progress, finding ways to make improvement contagious.
I found three key things Improvement Keepers are doing to make ABM/ABC simultaneously fun and results driven:
- They do not reward negative peopleon their ABC team or management team. Negative people typically change positive people to negative. Get them off your team.
- Ten Percenters expect good ABC results,not bad. In Laurie Beth Jones’ book “The Power of Positive Prophecy”, she asks readers to recall a positive prophecy someone once said about them. Most people can list negative prophecies that affected their life, but not positive. If your employees think ABC, Six Sigma or process improvement will fail, you will have a self-fulfilling prophecy. Your attitude determines your altitude. Think positive about ABC.
- And, Improvement Keepers hang out with positive people. They look for and find other ten percenters. Seek wisdom and joy. You should do the same. If you don’t know any positive ABC people, contact me and I’ll point you in their direction.
- The employees of Southwest Airlines are some of the hardest working people in the airline industry. They are also the most joyful. A recent SWA flight had a “who has the biggest hole in their sock” contest. Like SWA’s employees, have an attitude of joy as you go about the tasks of creating, using and sustaining ABM, ABC and continuous improvement.
- Improvement Keepers are disciplined.
Discipline always produces dynamic results. Let me say that again… Discipline ALWAYS produces dynamic results. Yet only 10% of people or organizations have the discipline necessary to achieve and sustain the financial benefits of ABM/ABC.
Richard Foster, in his book Celebration of Discipline, defines discipline as a focused effort to develop a habit. Managing activities, processes, value, and cost drivers is NOT instinctive. You can’t achieve significant, sustainable financial results by trying ABM. Winning takes trying and training.
Imagine for a second, that you’re sitting on the couch, eating your favorite snack food and the phone rings. It’s someone from the White House. They have an urgent request. The person who was supposed to run the marathon for the U.S. Olympic team has fallen sick and your country needs you to run the race. You picture yourself running in front of millions of people. But then it dawns on you… right now you cannot run to the kitchen, much less a marathon.
Disciplined ABM’ers are not highly systematic, rigidly scheduled, report makers. Instead, they do the right thing at the right time in the right way for the right reason. A great example of that trait is Health-E-Quip’s Velma Goertzen. Velma purchased an ABM Toolkit from ICMS and self-implemented in 1997. She updates her activity costs every three months, using it to help her home health company thrive. Velma is a disciplined Improvement Keeper.
ABM’ers should be some of the most disciplined people in the world. Ten Percenters continuously improve themselves and their organization. They are decisive, focusing on achieving daily, weekly and monthly goals. Without the trait of discipline, all other traits are dwarfed.
- Improvement Keepers are non-conformist. Improvement Keepers transform outdated practices, processes and procedures. They challenge the status quo, not afraid of being different. They “color outside the lines”.
Walt Disney, arguably among the most creative individuals America has ever produced, was drawing flowers in his elementary-school classroom. His teacher looked at his paper and said, “Walter, flowers do not have faces!”
- Walt answered,“Mine do!”
- The genius of non-conformance is captured in a single, simple word… AND. “And” is a rejection of “Or”. Nonconformist figure out ways to have “A and B”, not “A or B”.
Improvement Keepers creatively define ways for Activity Based Costing to serve long AND short-term needs, serve internal AND external customers, and to serve external AND internal reporting requirements.
To be a Ten Percenter, use the word AND, not OR!
“Looked at from a distance, it’s easy to think that management is only about economics and engineering, but up close it’s very much about people.” (3), says Joan Magretta in her new book, What Management Is. Chuck Swindoll, in his old book Living above the level of Mediocrity says, “Everyone I know who models a high level of excellence has won the battle of the mind and taken the right thoughts captive.” (4) New and old alike agree that achieving and sustaining improvement, including Activity Based Cost Management, begins and ends with people.
Howard Hendricks once said, “Where there’s light, there are bugs.” (5) The better and brighter the light, the more bugs you’ll attract. When you shed light on the cost, quality and cycle time of your organization’s activities, process and products, the “bugs” who don’t want to change will come out. I encourage you to use the Ten Traits of the Ten Percenters to keep the continuous improvement light burning bright in your organization.
(1) Activity-Based Change Management: A Literature Search, Prof. Annie L.McGowan, Texas A&M, 2001
(2) The Attention Economy by Thomas Davenport and John Beck, Harvard Business School Press, 2001
(3) What Management Is, Joan Magretta, The Free Press, 2002
(4) Living Above the Level of Mediocrity, Charles R. Swindoll, Word Publishing, 1987
(5) “Where there’s light, there are bugs.” “Paul”, Charles Swindoll, W Publishing Group, 2002