“Our company is like the heavyweight champion of the world. Thousands of contenders are trying to knock us off. We’re a bit like Rocky and Apollo Creed. It’s between rounds; we’re in the corner. We’re bruised, battered, and bloodied. But we’re going to stay in the ring. We’re not going to give up. We’re still going to be champions when this is over. No matter whom we face, we will never, never, never give up!” (1)
The preceding quote is called an emotional word picture. Word pictures grab and direct attention. They bring communication to life. The average person remembers only 7 percent of a half-hour speech or lecture. But word pictures significantly increase retention.
Word pictures are a time-tested method used by the world’s greatest communicators. John F. Kennedy spoke of the need to “let every other power know that this hemisphere intends to remain the master of its own house.” Advertisers use word pictures to insure the message outlives the commercial, i.e. “You’re in good hands,” “Like a good neighbor,” “Own a piece of the rock”. And Biblical writers used word pictures on nearly every page. One of the most familiar passages, Psalm 23, begins with, “The Lord is my shepherd …”, a picture of hope for people everywhere as they cross through their own personal “valley of the shadow of death”.
Activity Based Cost Management and the acronyms ABM or ABC are catch phrases that often go in one ear and out the other. Upon investigation, managers of organizations with ABC systems are often surprised to discover that employees are not using the system because they cannot “picture” ABC’s uses or benefits. By themselves, ABC’s words, numbers and reports leave no lasting impression. Yet when ABC is properly painted with word pictures, the result can capture people’s attention and make the message memorable.
My book, Using ABM for Continuous Improvement, explains five steps to improve an activity or business process. During workshops, I use word pictures … a red truck, a weed, big ears, five frogs on a log and a fever thermometer… to help people remember those five steps. The following word pictures help participants of my half-day, cost improvement workshop understand, use and remember the principles, purposes, process, and payoff of Activity Based Cost Management:
STEP ONE: Red Pickup Truck
I live in Texas. Like most Texans, I own a truck. A few years ago I decided to buy a new red, Ford pickup truck. On my way home from the dealer, my daughter yelled, “Look, Dad. There goes a truck just like the one we bought.” She was right. And the next day running errands with my wife, Sue pointed at a traffic light, “There goes a truck just like ours.”
Were those trucks never in town before? Sure they were … we weren’t looking for red, Ford pickup trucks. Step One of ABM works the same way. When you start looking for activities to improve, employees will frequently say, “I see another activity that I want to improve.”
STEP TWO: Weed
It’s only February, but soon we’ll be mowing lawns in Texas. My lawn has some weeds. To eliminate the unsightly weeds, my neighbors mow them down. But in a week, they’re back! Why? Because mowing the top does not kill the roots. When the roots live, the weed comes back.
Managers tend to treat symptoms, not the root cause of problems. They eliminate workers, not the work. Management treats symptoms of cost by cutting headcount or freezing spending. Neither addresses the root causes of cost, often found to be error-filled processes, outdated procedures or faulty product design. Step Two of ABM works the same way. To eliminate cost, identify the root causes of an activity or business process. Root causes become the target, not workers. When the roots are eliminated, the costs disappear.
STEP THREE: Big Ears
During my first visit to a Dana factory in Minneapolis, the plant manager offered to take me on a plant tour. Detained by a phone call, he told me, “Tom, walk around the plant and simply ask anyone what they’ve done to help us win The Shingo Award.” Because that’s an award that recognizes the ten most improved companies, I was anxious to learn what employees had done.
Walking through the plant I came upon a giant of a man working in a metal stamping work center. I asked, “What have you done to help the plant improve?” He pointed at a large machine and said, “To change out the dies on that machine used to take six hours. Now it takes only fifteen minutes.”
Surprised, I asked, “Who came up with a way to do that?” expecting him to say a consultant or engineer.” Instead he said, “I did.” Cautiously, I asked, “How long have you worked here?” “Seventeen years”, he replied.
You probably can guess my last question … “If you’re worked here that long, why didn’t you come up with that idea before?” And you probably know his answer … “No one ever asked me for my improvement ideas.” Step Three of ABM is identify possible solutions. Managers need to listen twice as much as they talk. Employees know most of the solutions that will solve root causes of cost. Unfortunately, managers have rarely asked or listened. ABM opens the door to invite more participation in the improvement process.
STEP FOUR: Five Frogs on a Log
There were once five frogs sitting on a log. Four decided to leap. How many were left? Five … because the frogs “decided” but they did not “do”.
Steps One, Two and Three of ABM are relatively easy because they require analysis, not change. Step Four requires action. Action means change. And as you likely remember from reading Who Moved My Cheese?, most people don’t want to change.
Step Four of ABM requires employees to “Say what you’re going to do and do what you said”. During Step Four employees develop implementation plans, request senior management approval and then put activity improvement plans into action. They “leap”, doing the changes necessary to achieve improvement … including changes to headcount, spending and workload.
STEP FIVE: Fever Thermometer
During an October 2001 interview in Business 2.0 magazine, Peter Drucker was asked, “What do you think were the things that had the greatest impact on the 19th century practice of medicine?” Was it anesthesia or antisepsis? No, Drucker responded, “The fever thermometer.” The fever thermometer enabled mothers to determine if their children were sick. In terms of scientific value, the thermometer is zero; thermometers have been around since the 17th century. But when it was downsized and placed in the hands of an average person, its impact created modern medicine, as we know it today.
Step Five of ABM is much like the fever thermometer. When understandable measurements are placed in the hands of everyday people, improvement will be achieved and celebrated. Step Five is monitor the improvement. Activity measurements bring accountability, insure action, monitor progress and report results.
When it comes to Activity Based Costing, is your intent to exclude or include non-financial employees? While I am certain your desire is to share ABC with everyone, your choice of words signals intent. Acronyms and academic terms exclude. Word pictures include. ABC teams that exclusively use words such as cost pool, cost driver and cost object, inadvertently exclude non-financial employees from using and benefiting from the ABC system. The lowest common denominator of effective, memorable communication is a mental picture.
Do ABC reports combined with the five steps and pictures get results? In less than eight hours, forty-six participants at a recent onsite workshop identified twelve improvement plans totaling $1.9 million of cost savings. The next time you or the workshop participants see a red truck, you will think: “There goes another opportunity for improvement.” That’s step one of ABM. It has been said throughout time that a picture is worth a thousand words. It’s been said by customers of ICMS’ ABM workshop that “Pictures linked to our ABC system are worth over a million dollars!” Picture that on your Profit & Loss Statement!
(1) “The Language of Love” by Gary Smalley and John Trent, Ph.D.