Summary by Nicole Sackedis
Master of Accountancy Program
University of South Florida, Fall 2000
The new business process called activity-based management (ABM), is a fundamentally different process than previously understood and used by U.S. companies in the past. ABC was seen as a "quick fix" for declining profitability or productivity. However, ABC generally failed to examine the underlying need for management training and to challenge the basic business process employed. It takes for granted that our way of doing business is the best way.
ABC to ABM: A Shift in Management
"ABC is to advanced cost management what a windshield is to an automobile." Moving toward an organizational structure that facilities a cross-functional view of the effectiveness of activities and business processes. ABC is the language used to communicate in the new environment. Previous failures of the implementation of ABC have occurred due to companies failing to change their business processes.
For ABC to work, it must be one of a set of cultural change initiatives. ABM is the umbrella structure for the cultural change and includes:
1. Activity based costing,
2. Total quality management,
4. Continuous flow manufacturing,
5. Employee empowerment,
6. Cellular manufacturing, and
7. Focused factories.
For four other descriptions of ABM see ABM Models.
Without implementing and understanding all these concepts and initiatives, implementation of ABC is unlikely to succeed.
What is ABM?Activity-Based Management includes the concepts and initiatives listed above and requires a re-education of the organization from the top to the bottom. Activities are the common denominator in the business process analysis. Only universal measures for global competition today involve the time and resource consumption of activities that support business processes. ABM is a total cost management approach.
Causes for organizations’ Decline
Continual focus on short term financial measures versus focus on performance measures. This manifests into disjointed management initiatives with narrow focuses. Many organizations do not understand the broader context in which they should be viewed. U.S. business needs to focus on the performance criteria that all global competitors can use as a common denominator - productivity and efficiency of activities that support value adding business processes. Taken up the banner of quality without being able to define the activities that add value to the quality initiative.
ABM is a Facilitator of all these Management InitiativesIt gives an organization a common basis for understanding how to evaluate cause and effect to facilitate productive.
The Change Process: Making it HappenFocus on establishing a senior-level, cross-functional team to evaluate and continually monitor the competitive factors affecting the global marketplace. Performance measurement must be the focus. Be clearly defined - driven by the strategy of the firm. Evaluate financial and nonfinancial effectiveness both internally and externally. Champion the change process by re-educating the work force. Tying the reward system to financial performance but also to the continuous improvement of activities that advance the strategy of the organization and improve the business processes enhances continuous improvement.
We are a country that has the ability to meet challenges with insight and ingenuity. However, it will take cooperation between the leaders of government, industry, and our unions to forge a new and responsive industrial bases for global challenges ahead.
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