Theme of the article - The future of Activity-Based Management.

Question: How do organizations know if ABM is working for them?

    § Tangible costs and intangible benefits.

    § No visible reductions in inventories and cycle times like JIT.

    § Is ABM just another "non-value added" exercise?

    § Few good examples of integrated ABM systems.

    § False starts.

    § Organizations try ABM without clear objectives.

    § It isn't one approach, but three.

Answer: It's too soon to know!

Three ways to view ABM:

    Project Approach

    Model Approach

    System Approach

Purpose - Improve processes and performance,
                Improve strategic decision making,
                Improve dynamic operating decisions.

Focus Eliminate undesirable cost drivers.

    Activity analysis.

    System analysis.

Performance Measures:

    Cost-driver analysis; value-non value added analysis.

    Spreadsheet analysis Customized to users' needs - standard formats, charts & graphs.

    Acquisition of Information.

    Informal - Storyboards.

    Informal - interviews, surveys Fully integrated with other systems - accounting, HR, maintenance.

Dimensions One-dimensional - process One-dimensional - product Multi-dimensional - product and process.

Users of Information Local, temporary Local; infrequent Widely distributed; frequent (constant).

Analogy Book on a shelf Snapshot (static) Motion picture.

Many firms abandon ABM when it is approached as a project or a model. Using ABM as a more mature system-wide approach is fairly new so the jury is still out, but appears to be the best chance for successful integration of ABM. It is the only methodology that provides managers with dynamic information. Managers need dynamic information:

1. For managing and motivating cost improvement.

    § Allows cost information to be aggregated by process rather than function.

    § Activities are the building blocks of processes.

2. For improving organizational learning.

    § Association of cause and effect through immediate feedback.

    § Financial information available daily rather than monthly or quarterly.

3. For supporting cost-based operational decisions.

    § Faster feedback improves day to day decisions of operating managers.

    § Allows learning across organizational functions.

Conclusion: Perhaps one of the reasons for the less than enthusiastic response from some organizations regarding ABM is that many have implemented it as a model or project and have expected the results that come from a systems approach.