"We believe the results of this work deliver up some valuable lessons for any company thinking about ABM, about to start ABM, or recovering from a failure with ABM. . . . We hope our views on the pitfalls that impede successful implementation of ABM help the reader and that by book's end, you'll be as convinced as we are that ABM can be a key weapon in today's international business arena."-from the Preface

Now revised and expanded, Activity-Based Management covers the tools and techniques needed to implement ABM as smoothly as possible and use it to its maximum potential over the long-term. Along with revealing case studies from companies across industries, this comprehensive resource includes thirty lessons to be learned in three crucial areas: starting off right, developing the pilot, and moving from pilot to mainstream.

Instrumental in decreasing or eliminating misallocation and misinformation, activity-based management (ABM) is a discipline that focuses on the management of activities as the route to improving the value received by the customer and the profit achieved by providing this value. While a host of Fortune 500 and other growth companies are using ABM, not all are doing so with maximum results, demonstrating clearly that proper application requires certain tools and techniques. The fundamentals needed for the effective deployment of ABM are presented and explained in this comprehensive resource, now completely revised and updated.

Edited by Steve Player and David E. Keys, with cases written by members of Arthur Andersen's Advanced Cost Management Practice, Activity-Based Management defines what kind of organization should employ ABM, why it should be implemented, and how it can link with other improvement initiatives to enhance a company's management performance. Along with straightforward guidelines on ABM do's, Player and Keys offer important details on the don'ts, highlighting thirty lessons to be learned in three crucial areas: getting off to the right start, developing the pilot, and moving from pilot to mainstream. Covering potential pitfalls, as well as what to do to overcome them, the authors pinpoint such problems as unclear objectives, misallocation of costs, inadequate software, and poor project management.

For a frontline perspective, Activity-Based Management features revealing case studies from various corporations. Presenting their experiences with ABM and activity-based costing (ABC), these firsthand accounts examine a wide range of topics, including using storyboarding to develop ABM systems, how to use ABM for profitability, using ABM to support reengineering, and using ABC for target-costing, activity-based budgeting, and benchmarking.

In addition, the next wave of tools are examined. These include customer profitability, revenue profitability, performance management systems, target costing, and reporting ABC information.

Packed with proven strategies and practical tips, this accessible and exhaustive resource is indispensable reading for anyone looking to implement activity-based management smoothly and successfully.

Jacket Design: Andrew Liefer.

Table of Contents:

Foreword xi

Preface xiii

Acknowledgments xv

PART ONE 30 Pitfalls of ABM and How to Overcome Them

1 Getting Off to the Right Start: Pitfalls No. 1 to 10 3
Steve Player and David Keys

2 Developing the Pilot: Pitfalls No. 11 to 20 26
Steve Player and David Keys

3 Moving from Pilot to Mainstream: Pitfalls No. 21 to 30 52
Steve Player and David Keys

PART TWO Case Studies

4 Distribution: Knowing What It Takes—and What It Costs 73
Hewlett-Packard—North American Distribution Organization, Santa Clara, California
Steve Player, Cathie Wier, and Craig R. Collins

5 A Process Manufacturing Company’s Prescription for Profitability 83
Hoffmann-La Roche, Inc., Nutley, New Jersey
Robert G. Cummiskey and Chuck Marx

6 Using Storyboarding to Develop an ABM System 90
Johnson & Johnson Medical, Inc., Arlington, Texas
Mark A. Moelling

7 Using ABM to Support Reengineering 96
Pennzoil Exploration & Production Company, Houston, Texas
Craig R. Collins and Angela A. Minas

8 Continuous Implementation Yields Deeper Results 104
Current, Inc., Colorado Springs, Colorado
Robert C. Thames and Joseph W. Bagan

9 Multiple Project Roll-Out Creates Leverage 111
The Marmon Group, Chicago, Illinois
John F. Vale and Chuck Marx

10 Using ABC for Process Analysis, Customer Profitability, and Manufacturing Flexibility 120
Bliss & Laughlin Industries, Inc., Harvey, Illinois
Chuck Marx with Jason Balogh

11 Using ABC to Increase Revenues 130
TTI Inc., Fort Worth, Texas
Steve Player and Michael B. Kramer

12 Using ABC for Shared Services, Charge-Outs, Activity-Based Budgeting, and Benchmarking 138
American Express Travel-Related Services, New York, New York
David M. Aldea and David E. Bullinger

13 Using ABM to Understand Telecommunications Maintenance and Provisioning Processes 146
Telecommunications Corporation
Richard Storey and Ellen Fitzpatrick

14 Advanced Use of ABM: Using ABC for Target Costing, Activity-Based Budgeting, and Benchmarking 152
AT&T Paradyne Corporation, Largo, Florida
Jay Collins

15 Increasing Customer and Stakeholder Satisfaction, and Supporting Benchmarking and Performance Measurement with ABM 159
AT&T Business Communication Services, Manassas, Virginia
Terrence B. Hobdy

PART THREE Future Weapons: The New Wave of Lessons

16 Customer Profitability Puzzle: Seven Steps to Profitability Planning 171
Joe Donnelly and Chuck Marx
Vignette: Columbia Pipe & Supply
Karen Schreiber

17 Using Activity-Based Management to Grow Revenues Profitably 182
James W. Gibson and Max Locke
Vignette: Boise Cascade Office Products
Steve Player

18 Elements of a Performance Management System 193
Craig R. Collins and Marieta Gundova
Vignette: Implementing Performance Management in an Information Technology Department
Mark T. Miller

19 Target Costing: Profit Planning for New Product Development 208
Randolf Holst and Joseph P. Donnelly
Caterpillar
John Dutton with Reid Dalton and Joe McNeely

20 Reporting ABC Information: Asking the Right Questions Gets You to the Right Answers 228
Cathie Wier and Billie Gayle Lewis

21 What the Future Holds 240
Steve Player

APPENDICES

A. Pitfalls Encountered (with Translations) When Launching an ABM System 245

B. Activity-Based Costing Criteria for Selecting Successful Pilot Sites 247

C. Stages of Cost and Performance Measurement Systems Development 251

Glossary 253

Index 261