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Activity-Based Management


Description: This study and related survey represent the most comprehensive piece of work undertaken in the emerging area of ABM. The intent was to identify best practices in the installation, application, and use of ABM information systems. SCOPE As part of this study, the organizations attempted to identify all known ABM implementations undertakenin North America. More than 750 of the 3,000+ organizations identified were invited to participate ina detailed survey designed to identify best practices inABM. The instructions with the survey stated thatonly those organizations that had achieved positiveresults from ABM efforts need complete and respondto the survey. Overall, 167 qualified responses werereceived. Based on the survey responses, 40 companies were identified as best practice sites-15 of which participated and hosted site visits. Criteria for selection of best practice sites included maturity of installation, scale of coverage, scope of application, results attained, and anticiated learning opportunities. The 15 site visits were selected as representative of the 40 organizations identified as best practice. The selection of site visits was based on availability, scheduling, and willingness to participate. PROPRIETARY INFORMATION This consortium study was funded by 60 sponsoring organizations. Some of the study results and findings are proprietary to these organizations. This final report is a summary of the study results and findings and contains no proprietary information. Eleven of the best practice companies agreed to release summaries of their site visit write-ups, which are contained in this report. Additional reports and documents developed as part of this study include the following: - Kick-off Meeting (September 28, 1994) - Mid-study Review (December 15, 1994). - Executive Summary (February 1995). - Proprietary Survey Database (April 17, 1995). - Final Study Review and Best Practices Model (April 17-18, 1995). - Presentation Material (April 17-18, 1995). - Proprietary Site Visit Database (June 30, 1995). METHODOLOGY The data collection tools used to collect information included both questionnaires and site visit interviews. The two questionnaires included (1) a detailed questionnaire designed to collect objective and quantitative data, and (2) a site visit questionnaire designed to collect qualitative information about the development, application, and use of ABM information systems. The survey questionnaire was designed to be completed in one our and consisted of 44 questions, five of which were optional. Many of the questions provided multiple answers. In total, 104 discrete pieces of data were gathered from each of the 167 companies that completed the survey. The survey was subdivided into nine areas: company/organization information, best practice site information, installation criteria, data collection, status of ABM information system, evaluation of ABM information system, result of efforts, implementation environment, and optional questions. As this was a comprehensive study covering many aspects of ABM, the site visit questionnaire was designed to provide flexibility and allow the best practice company to select specific agenda areas for review and discussion. The three principle areas for discussion were results achieved, linkage to business environment, and integration with existing information systems. Areas of discussion for results achieved included: - Process improvements, - Decision support information, - Measurements, - Competitiveness, and - Innovation. Topics under linkage to business environment included: - Improvement initiatives, - Strategy, rewards and recognition, - Compensation and benefits, and - Supply chain management. Topics related to integration with existing information systems included: - MIS and function integration, - Credibility/acceptance, - Cultural characteristics, - Ease of data collection, - Ease of use, and - Internal/external customer requirements. These focused one-day site visits at each of the 15 best practice companies allowed the research team to gain insights into interview questions and to experience the organization’s culture. In addition, subsets of sponsors attended each site visit to participate in discussions with best practice companies. A free-flowing question-and-answer session also was allowed at the conclusion of each site visit. The study concluded with a sharing day where eight of the best practice companies presented an aspect of their ABM initiative to the sponsors over a two-day period. The presentation areas included: - Ibm-changes in the business environment that prompted the move to ABM - First Tennessee Bank-Organization support and transfer of ownership/support to operations - GM Service Parts Operations-Customer and distribution channel profitability - Parker Hannifin Compumotor Division-abm use in total purchasing and design for manufacturability - UTC Carrier Corporation-abm use as a decision support tool - Delco Electronics-cost improvement process - Acxiom Corporation-training and education of personnel in ABM techniques and uses, and - Eds-embedded ABM reporting system. KEY FINDINGS This report contains a summary of the key findings and significant contributions of the ABM Best Practice Study. These key findings, covered in detail elsewhere in this report, include the following: ABM Best Practices Model Perhaps the most significant contribution of the ABM Best Practice Study was the development of the Best Practices Model for ABM. Widely used and frequently quoted, this Model is a structural framework to understand best practices in the development, application, and use of ABM. The Model groups best practices around themes of methodology, management needs/direction, applications, integration, and embracement. Since its release in April 1995, the ABM Best Practices Model has become the industry standard and has been used in articles, publications, and presentations. ABM Value Cycle Another significant contribution of this ABM Best Practice Study was the development of the ABM Value Cycle that specifies 16 frequently used applications of ABM information. The study consolidates the benefits and value of these applications into three areas: process related, decision making, and performance measurements. Best practice companies have learned that single and limited use of ABM information fails to capture the full value and potential of the information. Therefore, they consistently seek new applications and uses of ABM information. Consistent Application of ABM Methodology Best practice companies consistently apply generally accepted ABM methods, procedures, terms, techniques, and practices. Examples include the consistent use of the Cam-i ABC Basic Model and its Glossary of Activity-Based Management, the IBC Process Classification Framework, and general and industry-specific activity dictionaries. Most of the time the methods and techniques were adapted to the specific requirements of the best practice companies. Each organization insisted on a common language that could be understood across the organization. For example, the ABC two stage cost tracing methodology is well known and understood, and people clearly understand the distinction between ABC and ABM. Management Commitment and Priority Leadership commitment and support were identified as critical success factors to a successful ABM implementation at every best practice company. Thirteen of the 15 best practice companies identified senior management commitment to ABM as either a high or top priority. The ABM initiatives at each of the best practice companies had high visibility and were important to the success of the organization. At best practice companies, commitment and priority were not only stated in words but also demonstrated through the commitment of resources. Examples include the commitment to training, level of ABM sponsorship, the frequency of involvement by senior and operations managers, and the percentage of total personnel involved in the implementation. Cost Efficient, Reliable, and User-Friendly Systems Best practice companies place significant emphasis on installing the systems, procedures, and methods necessary to collect and report activity-based information on a regular basis. The frequency of ABM reporting ranged from continuous and real time to periodically (quarterly or yearly). Most often the reporting period was monthly. In general, those organizations using ABM information in the applications of process improvement, cost control, measuring operational performance, and day-to-day operational decision making tended to report ABM information more frequently and in more detail. Best practice companies that used ABM information in the more strategic applications, like product cost and customer profitability, tended to report ABM information less frequently. Either way the systems, procedures, and methods that are installed are responsive to the needs of the users, easy to update and maintain, reliable, and cost efficient. If the ability to collect and report ABM information to the level of specificity required at the frequency demanded by the users is absent, the ABM implementation is a non-event. A lesson from the Best Practice companies is that the systems and software aspect of the ABM implementation cannot be ignored in fact it must be emphasized Culture that Supports Change Best practice companies manage their internal environment by nurturing a culture that supports change. Teamwork, trust, and a common vision were evident at each of the best practice companies. While all of the best practice companies acknowledged that external factors were the drivers to implement ABM, each was willing to embrace change and meet the challenge created by the external environment. For example, best practice companies position ABM as a business analysis tool that serves as an enabler for decision making and process improvement. ABM is used to address the entire value chain for their products and services. Suppliers are used to support product development and reductions in total part costs. Customers are used to support product development and reductions in customer support costs. Emerging Management Tool Every best practice company indicated that it had not fully implemented ABM and had a long way to go. Each expressed surprise as to having been selected as a best practice company, as no one is satisfied with the status of his initiative. The lesson here is that we must continue to “push the envelope” in terms of understanding the use and application of this managementtool. When we initiated this ABM Best Practice study in September 1994, we intended to make this the most significant and comprehensive study ever conducted in the emerging area of ABM. We wanted to create a landmark work that would provide value and longterm impact to those managers and organizations that elect to implement ABM in their organizations. The combined knowledge and resources of the Cam-i, sponsorship by more than 60 leading companies, involvement by six subject matter authorities (including two from academia), 167 organizations willing to complete a detailed survey of ABM, and the willingness of 15 best practice companies to share their insights and knowledge, would indicate that we accomplished our objective. Our vision for the study included sharing knowledge gained, lessons learned, insights, methods, and practices of successful ABM initiatives with others. Our vision was to lay a foundation for others to build upon and improve. This final report document is the fulfillment of that vision and mission.


Contents: Sponsor Companies
Best Practice Partner Companies
Executive Summary
Key Findings
Best Practice Company Summaries:
Acxiom Corporation
United Technologies Corporation-Carrier
Deere & Company
Electronic Data Systems (EDS) Strategic Support Unit
First Tennessee Bank
General Motors–Service Parts Operations
IBM-Endicott Panel
Parker Hannifin Compumotor Division
PCS Health Systems, Inc.
Texas Instruments
Valvoline Company




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