How long would it take to build a house if you were given unlimited resources? If you have ever attended a Stephen Covey “7 Habits of Highly Effective People” workshop, you know that the answer is a mere 2 hours and 45 minutes. While it will take you longer than 3 hours to successfully build your Activity Based Management (ABM) information system, many of Covey’s “habits” provide us insight how best practice organizations are optimizing and sustaining ABM results.
What you don’t know is as important as what you do. Read everything that you can get your hands on regarding ABM and ABC. Fill your knowledge voids. Once limited to a small handful of journals, ABM is now a regular topic in industry specific magazines such as PROGRESSIVE GROCER, SUPPLY HOUSE TIMES and the AMERICAN SUPPLY ASSOCIATION NEWS.
Ask your librarian to do quarterly database searches for new ABM books, magazine articles, and newspaper accounts. For example, Peter Drucker’s new book MANAGING IN A GREAT TIME OF CHANGE has an entire chapter on how senior management should use ABM information. And don’t overlook the Internet. A recent word search on the World Wide Web turned up 100’s of ABM articles.
To successfully implement, optimize, and sustain ABM, you must educate your executives, staff experts, and general employees on the principles, methodology, and many uses of ABM information.
Regular updating and use of your ABM software will identify results to celebrate. Remember “You get what you measure.” If you regularly measure activity performance, employees will quickly learn the good and bad consequences of their activity or inactivity. Managing activities is not instinctive for most employees. An ABM Pilot Project is simply the first step of an ongoing process of change.
The greatest opportunities to improve financial results are centered in enhancing value added activities and business processes. For example, identifying action plans to improve your Sales Order Process will simultaneously reduce costs and increase sales.
A continuous improvement program that reflects a balance of optimizing value and minimizing waste sends a positive message to employees. Re-deploying resources from non-value to value allows an organization to simultaneously grow sales and profitability.
The president walked out of the presentation after 15 minutes. That is what recently happened to the project leader and consultant at the final review of a very large ABC implementation project. While ABC product costs were significantly different than the existing system, the president was not impressed. The implementers had not asked senior management before implementation, “What is your top priority this year, improved product costing (ABC) or improved product profitability (ABM)?” Don’t repeat this mistake.
Before and after implementation, talk to the customers of ABM. Listen to their wants and needs. Before implementation compile a formal needs assessment list. Talk to employees in every function of the organization. While ABM will not solve every need, employees are much more likely to embrace it if they understand from the onset that ABM is being created with their collective needs in mind. Follow-up after implementation to insure that employees understand “how to use” ABM to meet their needs.
Would an Olympic rowing team have any chance of winning a race if everyone placed their oar in the water simply whenever they wanted? Certainly not. Each rower must synchronize their stroke with teammates to optimize speed and minimize effort. To win the race with competition in the marketplace, organizations must use their ABM systems to synchronize business processes and continuous improvement initiatives.
Organizational charts imply that companies function vertically. ABM, however, exposes that the organization actually functions horizontally via a web of cross-functional activities. To this end, an increasing number of organizations are creating a new position titled Business Process Manager. For example, a Procurement Process Manager would be responsible for synchronizing the workloads of activities performed in Purchasing, Receiving, Quality Assurance, Warehouse, and Accounts Payable. While an important role remains for the functional manager, process managers are needed to steer and synchronize cross-functional teams in the race towards the 21st century.
Effective ABM’ers should synchronize their annual workplans with other initiatives to optimize financial results and minimize confusion. For example, Waterloo Industries formed a team of employees from their Total Quality Management, Activity Based Management, and Time Based Competition initiatives. This team meets regularly to synchronize annual goals, eliminate duplication of effort, and minimize interruption to functional areas throughout the company.
For medium to large organizations, the long term goal should be a single, fully integrated ABM information system that will efficiently and effectively support internal and external reporting, ABC decision making, budgeting, and ABM continuous improvement requirements. While smaller companies can embrace the same objective, their needs and resources will more likely be better served with a PC-based ABM software tool that can be used ad hoc for ABC pricing, profitability analysis, budgeting, and ABM value analysis.
There are three essential components of good directions if you wish to successfully reach the intended destination – time, anticipation, and failure.
An ABM Pilot Project should take no more than 90 days. Based on a 1995 INSTITUTE OF MANAGEMENT ACCOUNTANTS survey, organizations on average are consuming 3.5 years to convert pilot projects into an ongoing single system practice of ABM. To pay for the cost of this conversion, organizations should anticipate significant profit improvement as a direct result of ABM’s improved decision-making and continuous improvement applications. The success rate of ABM implementations has improved 200% during the last 18 months. Failure to achieve and sustain significant benefits are certainly grounds for re-thinking both your ABM direction and destination.
To be highly effective, your organization’s employees must truly believe and embrace the principles and benefits of Activity Based Management. A firm trust in ABM will not automatically occur. It must be nourished and developed. Use the seven principles to successfully implement, sustain and optimize your organization’s ABM effectiveness.