activity-based management (ABM) and have undertaken ABM initiatives. According to a survey conducted by the Institute of Management Accountants in 1992, fewer than 100 ABM initiatives were under way at that time. By the end of 1998, more than 20,000 organizations were estimated to have initiated ABM
This study focuses on best practices in three areas, activity-based budgeting
(ABB), using ABM information to enhance revenues, and measuring the benefits of the ABM implementation. Known ABM implementations have exceeded 20,000, and primary and secondary research were used to identify the subset of organizations invited to participate in the study, of which 12 became best-practice partners. ABM experts leading this study were John Miller (project director), Matt Kolb, R. Steven Player, Robert Savage, and Dan Swenson.
This report contains detailed explanations of the key findings and significant
contributions of this ABM best-practice study. The following key findings include best practices for each of the three areas of focus for the study.
1. Customer profitability analysis is a dominant application.
2. Improvement efforts are directed at changing customer behavior.
3. Revenues are enhanced through advanced pricing models.
4. ABM is used at both ends of the supply chain to enhance revenues.
Measuring Results and Benefits
5. Measurement of results and benefits is application-specific.
6. Dollars is the metric of choice.
7. Cost savings and benefits are identified and classified by type.
8. Measuring the progress of the ABM initiative is becoming a priority.
9. ABB is commonly used to establish standards.
10. Organizations align activities with strategic and operating plans.
11. Accountability occurs at the process level.
In addition to the specific areas of study, the project team expanded the scope of the study to identify and document the common themes and practices consistently identified and given priority by best-practice companies. So consistent were certain messages and best practices identified, they are presented and reviewed in this report as the Seven Commandments.
1. Management must display commitment and give priority to all phases of
2. Application of ABM must add value to the organizational strategy.
3. The ABM methodology must be applied consistently throughout the process.
4. Cost-efficient and reliable reporting systems must be employed.
5. ABM information must be linked to improvement initiatives, operating and
strategic goals, performance measures, and the operating environment.
6. Linkage to incentives is required to demonstrate the importance of achieving
7. Training and education must be used throughout the various levels of the
Benchmarking Model: The Four-Phase Methodology
Benchmarking is the process of identifying, understanding, and adapting outstanding practices to help organizations improve their performance. This study was conducted using the four-phase benchmarking model of the American Productivity and Quality Center’s International Benchmarking Clearinghouse, as described below.
Phase I: Planning
In planning this study, the study team and project sponsors established
the scope, key measures, and definitions. Next, a database of potential
benchmarking partners was developed. With this framework, the screening
questionnaires and the detailed questionnaire were designed and administered. The final step in planning was to identify contacts at potential
Phase II: Collecting Data
The study team used a site visit discussion guide to collect data from the partner organizations throughout the benchmarking process.
Phase III: Analyzing and Reporting
The analyzing phase includes identifying practices that enable superior performance, identifying barriers to performance, and analyzing trends.
In addition, research reports are presented and sharing sessions on innovative
practices are conducted in this phase.
Phase IV: Adapting and Improving
Adaptation and improvement from the best practices identified throughout a
consortium study occur after the sponsor company representatives take the study
learnings back to their organizations.