Activity Based Management: Improving Processes and Profitability

Citation

Narasimhan, K. (2003), "Activity Based Management: Improving Processes and Profitability", Measuring Business Excellence, Vol. 7 No. 2. https://doi.org/10.1108/mbe.2003.26707bae.009

Activity Based Management: Improving Processes and Profitability

Brian Plowman,Gower Publishing Ltd,ISBN 0-566-08145-8,hard back,228 pages,£45.00DOI 10.1108/13683040310478020

Activity Based Management: Improving Processes and Profitability

Brian Plowman is a Director and founding partner of the UK-based management consultancy Devlin and Partners. The reviewer met him in a conference about four years back and found his presentations clear and effective. This book is based on his over 20 years consulting experience during which he has helped in the corporate transformation. He is a regular speaker at conferences and is a co-editor to Quality Management in the CIMA.

This book comprises a brief introductory chapter and ten others grouped into four parts: Part 1 (51 pages) contains four chapters and deals with the context of ABM; Part 2 (61 pages) with four chapters is devoted to explaining ABM practice, the sole chapter of Part 3 (85 pages) contains 25 case studies and the lessons learnt from them; the conclusion entitled ''Pulling it all together'' forms the final part. In this book Brian explains, with the aid of concrete examples and 53 exhibits, how activity based management (ABM) can be used not only to increase the profitability of an organization but also support other initiatives such as business process reengineering and customer relationship management.

In the introductory chapter, Brian points out the importance of knowing customer profitability, in addition to product profitability, in gaining competitive advantage. After briefly listing the questions that traditional accounting and costing methods cannot provide answers to in the second chapter, briefly explains the relationship between cost and profitability in Chapter 3. How ABM forms a building block in performance measurement frameworks – balanced score card, business excellence models and shareholder value added is very briefly touched upon in Chapter 4. A tool for mapping the journey of change by measuring external factors (i.e. positioning the company) and internal factors (company's capability) is described.

In Chapter 5, the ABM framework is explained with the aid of three case studies. It is argued that to understand what is happening in an organization costs should be categorized into frontline, internal service, sustaining, and infrastructure costs based on activities rather than just direct and indirect costs, to identify what causes a change in cost or activity. This categorization helps to improve decision-making. Similarly, it is explained that it is better to classify activities into core, support, and diversionary to identify benefits accruing from methods improvement, etc.

An explanation of the application of ABM flow of costs is given in Chapter 6, with the aid of an example of a simple catering business comprising two sources of revenue: a conventional restaurant and a meal providing service to retirement homes. The basic principles of building ABM models from developing flow of costs to assigning costs are covered in Chapter 7. In Chapter 8, it is explained how to undertake an ABM project and the pitfalls to avoid. For example, it is emphasized that one should not embark on an AMB project without a real purpose for creating it. An ABM process checklist of each step and the desired outcome is provided to guide the project selector. In the final chapter, it is briefly explained as to how ABM can be integrated into activities such as business process reengineering, value based management, and customer relationship management.

The text is well written and easy to read. A summary of the key points covered in a chapter is given at the end of the chapter. The Introduction to the book would have improved had a brief structured description of what is to follow had been included. The 15-page glossary of terms at the end of the book is a useful addition to clarify some of the jargon used in the book

K. NarasimhanBolton Business School, Bolton Institute, UK