In LO9019 Michael McMaster notes that:
"the example of 'just take care of the customers and the financials will
take care of themselves' is simplistic and can be dangerous".
I agree. It seems to me that the challenge is to create both customer and
economic value by enhancing processes, eliminating costs that do not add
value and developing people. In this respect, it may be useful to view a
product as the means by which a company delivers a unique set of
competencies to a particular customer. These competencies comprise
elements based on product leadership, operational excellence and
relationship management. It is apparent that different costs are
associated with the delivery of each of these components and that
determining an appropriate balance between them should drive decisions
about which markets a company can, or should, serve and how these markets
should be accessed.
In LO9067 Stephen Weed suggests that Activity Based costing / Management
is:
"one tool which in some fashion bridges the systems theory to current
management practice"
The problem with most accounting systems is that they:
- Do not distinguish between value-added and non-value added costs. Not
even activity based systems do this. John Neill at Unipart has estimated
that 65% of total costs are unnecessary and do not add value, 35% are
necessary but do not add value and that only 5% are necessary and add
value.
- Non value-added costs are caused by delay, excess and variation.
Typically these are process driven and are not measured.
- The way in which overheads and expenses are allocated distorts costs.
Thomas Johnson, who is the Retzlaff Professor of Quality Management at
Portland State, has suggested that "to optimise their systems companies
must listen to the 'voice of the customer' and the 'voice of process'.
Accounting systems are deaf to both voices. To achieve the targets
mandated by top management, subordinates are left to manipulate the
process in any way they see fit. The long-term result is unstable
processes, unhappy customers and loss of jobs."
He goes on to suggest that companies should make total customer
satisfaction their goal and that companies that improve their
customer-focused processes find that the process improvement eliminates
most of the overhead activity that prompted the development of the ABC
tools in the first place.
There is more on this, together with details of an approach called Process
Accounting, on the Glandore Associates web site.
It is interesting to note that Relevance Lost was co-authored by Johnson
and Robert S Kaplan, that Kaplan was one of the leading proponents of ABC
but subsequently went on to develop the Balanced Scorecard with Robert
Norton. The Balanced Scorecard seeks to develop a set of measures based on
customer, financial, process and learning and growth measures. More
details of the Balanced Scorecard are available from Renaissance
Solutions. There is a link to their web site under the "Consultants" page
on the Glandore Associates web site. This is accessed from the "Learning
>From The Internet" link on the home page.
I look forward to discussing this some more.
In the meantime does anybody know what happened to the BPR list?
Best wishes.
Julian Macnamara
100317.2417@compuserve.com
Glandore Associates
<http://ourworld.compuserve.com/homepages/glandore>
--J Macnamara <100317.2417@CompuServe.COM>
Learning-org -- An Internet Dialog on Learning Organizations For info: <rkarash@karash.com> -or- <http://world.std.com/~lo/>