“What do you make of the recent so-called recession?” asked the Fortune magazine reporter.

“What we have been going through these past three years is most definitely not a recession. It’s a transition — a transition with a lot of incongruities,” (1) responded ninety-four year old guru Peter Drucker in a January 2004 interview.

Most people can handle recessions effectively. Seasoned CEO’s, managers and employees have experienced several recessions. Like riding a roller coaster, they handle an economy that goes up (prosperity) and down (recession) by simply hanging on.

Transitions are different. Likened to a new amusement park ride, we don’t know what to expect from an economic transition. Where will it go? Will I get a seat? Will I enjoy it? Will it go up & down or some other direction?

Transitions with incongruities present an even greater challenge. Webster’s Dictionary defines incongruous as “not harmonious, not conforming or inconsistent with itself.” Drucker describes three incongruous aspects of our transition into the 21st century:

• “There is an enormous amount of surplus capital in the world for which there is no productive investment.” (1) Cash sitting in banks exceeds the supply of investment opportunities.
• “We are going to have both fewer young people because of our own (U.S.) birth rate, and yet more young people because of immigration. But the immigrants have a mismatch of skills: They are qualified for yesterday’s jobs.” (1) The ladder of opportunity that has existed since WWII is now leaning against another building.
• “Manufacturing production in this country (U.S.) has doubled in the past ten years, even as factory employment has gone down.” (1) American productivity has eliminated thousands of jobs.

While both recessions and transitions represent change, their impacts differ greatly:

• In a recession we experience temporary job layoffs. In a transition job types are eliminated, requiring conversion to a new career.
• In a recession we experience temporary drops in sales volume. In a transition we have to invent new products to survive and thrive.
• In a recession we drop prices. In a transition we replace pricing methods (e.g. reverse auctions, competitive bidding, gross margin profiling).
• In a recession we pressure supply chain partners for price concessions. In a transition we eliminate partners from the supply chain. For example, for decades the music industry has had five links to the supply chain… musician, record company, distributor, retailer and customer. Selling MP3 files on the Internet has eliminated distributors and retailers from the supply chain.

ABM in Transition
Like your business, Activity Based Management (ABM) and ICMS have experienced an incongruous transition. Since our inception in 1988, recessions have previously been good for ICMS’ revenue. When sales and profits slipped in various industries, managers turned to ABM/ABC systems for waste reduction insights and improved decision-making information. For three reasons, that did not happen in 2001-2003:

• Already lean financial staffs were given added responsibilities to comply with Sarbanes-Oxley legislation in 2002, leaving little or no time to implement or sustain improved cost management systems. “Complying with Sarbanes-Oxley is taking quite a toll on corporate finance staffs there days – particularly on controllers.” (2)
• Lots of managers have been led to believe that ABM is an expensive, time-consuming software system. Because CFO’s and CIO’s had no budget or inclination to implement a new system during a recession, ABM/ABC software sales dropped significantly in 2001-2003.
• Managers are used to new management methods every 3-5 years with three-letter acronyms. Adopting ABM, albeit still best practice, seemed old hat in 2003.

In 2004, I believe three transitions in the field of ABM/ABC will dominate the business scene:

• Organizations will outsource ABM/ABC. 
Financial staffs that want to implement ABC or sustain an existing ABM system don’t have time. Yet the need for ABM/ABC’s improved product costing, customer profitability analysis and performance metrics continues to grow. CFO’s will outsource ABM much like they currently do payroll checks, tax returns and financial statement audits. ICMS has assembled a team of coast-to-coast ABM specialists to visit companies one to four times per year to either implement or update the ABM software model, prepare ABM reports, analyze ABC findings and recommend action plans. Drucker recommends specialists because a “person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects.”
• Excel spreadsheets will become the standard ABM/ABC system.
Most people are familiar with Excel software. As a result, there is little or no learning curve when Excel is used to do ABM/ABC. ICMS has used Microsoft Excel and Access with small to medium sized customers the past year for activity analysis, activity accounting, ABC customer & product profitability analysis, ABM value analysis and ABB budgeting. Version 5.0 of ICMS’ CMS-PC software will look and feel like Excel. To request an Excel ABM template example, send a request to tompryor@icms.net.
• Methods are many, principles are few. Methods may change, but principles rarely do.
Balanced Scorecard, Lean Six Sigma, Customer Relationship Management and other newly introduced methods have an appealing newness to managers. Yet upon investigation, the basis for every best practice improvement method can be traced to ten principles. As explained in my new book titled THE PRINCIPLES, the ten founding principles of ABM go back over 2,000 years to Old Testament times. Those principles can and will serve you and your organization well as you transition in 2004. To order your copy of THE PRINCIPLES, go to ICMS.netor call 817-475-2945.

Are you or your organization in transition? Are you re-inventing yourself? If yes, take heart. You’re not alone. Author Rick Warren sold 15 million copies of The Purpose Driven Life last year to people in transition. Rick reminds readers that “Goals are temporary; purposes are eternal.” (3) I know my purpose. Do you?

(1) Peter Drucker Sets Us Straight, Fortune, January 12, 2004, pg. 115
(2) Controller Issues, CFO magazine, January 2004, pg 58
(3) The Purpose Driven Life, Rick Warren, Zondervan, 2002