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Activity-Based Management 2000: Best Practices in Shared Services and Information Technology

  • ID: 40834
  • Report
  • September 2000
  • 95 pages
  • American Productivity & Quality Center, APQC
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The fourth study, Activity-Based Management 2000: Best Practices in Shared Services and Information Technology, is the most targeted effort to date. As an increasing number of organizations develop shared service centers, the need increases for effective cost and performance management methods. Activity-based cost management allows managers to understand the cost to deliver a service and to communicate the cost of services and performance levels demanded by users.

The purpose of this study is to highlight best practices in cost and performance management that can be used by organizations to optimize their shared services and information technology operations. This ABM best-practice study was initiated in October 1999 in order to make a significant and comprehensive study of emerging ABM practices in the management of shared services and information technology. This study includes definitive guidance on implementation strategies and critical success factors for creating effective cost management and performance management practices for leaders of shared service organizations.

The combined knowledge and resources, participation by more than 20 leading companies, involvement by five subject matter authorities (including two from academia), and the willingness of 11 best-practice organizations to share their insights and knowledge contributed to more than 28 weeks of intensive research. This report is designed to be a lasting reference and implementation guide for the study participants and other interested parties.

Study KEY Findings

This Best-Practice Report contains a summary of the key findings and significant contributions of this project. These key findings, covered in more detail later in the report, include the following:

1. The essential element in the shared service center is the provision of a commonly used service, such as accounts payable processing, by a single organizational entity for two or more business units. Service-level agreements and performance management

2. The service-level agreement process is the foundation for performance management and continuous improvement in a shared services environment. It is a learning process to reach common ground.

3. An effective method of charging out the costs of shared services to users is critical to focus on cost reduction and long-term performance improvement.
Planning, budgeting, and capacity management

4. Activity-based cost management information provides the foundation for more
robust planning, budgeting, and capacity management practices.

Outsourcing

5. Outsourcing of potential shared service activities among our best-practice
organizations is limited. Many important issues must be addressed when
considering an outsourcing arrangement.

Change management and training

6. Training, change management, and effective ongoing communication are the
most consistent and significant keys to success.

Performance management and compensation

7. ABM information supports individual performance measures and compensation
as part of the service-level agreement process.

Benchmarking Methodology

As organizations looked for ways to survive and remain profitable, a simple but
powerful strategy called “benchmarking” evolved. Benchmarking is the process organizations use to learn. A good, working definition is “the process of identifying, learning, and adapting outstanding practices and processes from any organization, anywhere in the world, to help an organization improve its performance.” The underlying rationale for the benchmarking process is that learning from the principles and specifics of best-practice cases is the most effective means of developing successful practices.

The most important factors of benchmarking are twofold. First, benchmarking is
not a fixed technique imposed by experts, but it is rather a process driven by participants who want to improve their organization. Second, benchmarking is not prescribed solutions to a problem, but instead a process through which participants learn about successful practices in other organizations and then draw on those cases to develop solutions that are most suitable for their own organizations. Benchmarking is not copying, networking, or passively reading abstracts, articles, or books. It is active learning, as demonstrated in the following description of the consortium methodology. Benchmarking is not simply a comparison of numbers or performance statistics. Numbers are helpful for identifying gaps in performance, but actual-process benchmarking identifies the hows and whys for performance gaps and helps organizations perform at higher levels.

Benchmarking Model: The Four-Phased Methodology

Planning

In planning this study, the study team and project sponsors established the scope, key measures, and definitions. An intensive literature search formed the foundation for the scope and the search for best-practice partners. Next, a database of potential benchmarking partners was developed. With this framework, the survey screening questionnaires and format for the detailed questionnaire were designed and distributed. The final step in planning is to identify contacts at potential partner companies. Phone interviews were conducted with more than 50 potential partner companies as part of the screening and selection process.

Collecting Data

Questionnaires, site-visit discussion guides, and phone interviews
were used to collect data throughout the benchmarking process.
Because this comprehensive and detailed study covered many aspects
of ABM in a shared services environment, the site-visit questionnaires were custom designed to the specific agenda areas. The questionnaire included a detailed survey instrument designed to collect objective and qualitative information about the specific areas of study. Focused one-day site visits at six best-practice organizations allowed the research team to gain insights into interview responses and to witness 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 concluded each site visit.

Analyzing

The analysis phase involves identifying practices that enable superior performance, addressing barriers to performance, and analyzing trends. An interim assimilation workshop-a new feature for this study-featured presentations from an additional five best-practice organizations, as well as workshop exercises designed to synthesize the observations from the site visits and develop the structure for the final report.

Adapting and Improving

The study concluded with a knowledge-sharing day. Company A, Dow Chemical,
and Northeast Utilities presented aspects of their ABM initiative to the sponsors. Research reports were presented and sharing sessions concerning innovative practices were conducted. Additionally, the study team presented an executive summary of the study findings, Charles Horngren shared his observations from the site visits, and the U.S. Navy shared a diagnostic evaluation that was conducted over the course of the project.

Eleven sponsoring organizations funded this consortium study. 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. All of the best-practice organizations that agreed to release summaries of their site visits are contained in this report.
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4 Sponsor and Partner Organizations<BR><BR>A listing of the sponsor organizations in this study,<BR>as well as the best-practice (“partner”) organizations<BR>that were benchmarked for their innovation and<BR>advancement in activity-based management.<BR><BR>6 Executive Summary<BR><BR>A bird’s-eye view of the study, presenting the key<BR>findings discovered and the methodology used<BR>throughout the course of the study. The findings<BR>are explored in detail in following sections.<BR><BR>13 Key Findings<BR><BR>An in-depth look at the seven key findings of this<BR>study. The findings are supported by quantitative<BR>data and qualitative examples of practices employed<BR>by the partner organizations.<BR><BR>51 Implementation Strategy<BR><BR>The findings are followed by an implementation<BR>strategy, a conclusion, and the next steps.<BR><BR>61 Partner Organization Case Studies<BR><BR>Background information on the partner<BR>organizations, as well as their innovative<BR>ABM practices.<BR><BR>83 Appendices
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