Case Study Description of Activity-based Costing and Management
This case summarizes some of the challenges - managerial and technical - associated with transitioning to an activity-based costing (ABC) model. The primary objective of this case is to introduce the student to the rationale and mechanics behind the ABC accounting approach and to explore the untoward consequences of using traditional accounting methods.
Authors :: Owen Hall, Charles McPeak, Samuel Seaman
Swot Analysis of "Activity-based Costing and Management" written by Owen Hall, Charles McPeak, Samuel Seaman includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Abc Costing facing as an external strategic factors. Some of the topics covered in Activity-based Costing and Management case study are - Strategic Management Strategies, Pricing and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Activity-based Costing and Management casestudy better are - – talent flight as more people leaving formal jobs, increasing commodity prices, geopolitical disruptions, there is backlash against globalization, increasing energy prices, digital marketing is dominated by two big players Facebook and Google, increasing transportation and logistics costs,
challanges to central banks by blockchain based private currencies, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Activity-based Costing and Management
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Activity-based Costing and Management case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Abc Costing, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Abc Costing operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Activity-based Costing and Management can be done for the following purposes –
1. Strategic planning using facts provided in Activity-based Costing and Management case study
2. Improving business portfolio management of Abc Costing
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Abc Costing
Strengths Activity-based Costing and Management | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Abc Costing in Activity-based Costing and Management Harvard Business Review case study are -
High brand equity
– Abc Costing has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Abc Costing to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Learning organization
- Abc Costing is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Abc Costing is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Activity-based Costing and Management Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Abc Costing are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Analytics focus
– Abc Costing is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Owen Hall, Charles McPeak, Samuel Seaman can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Sustainable margins compare to other players in Finance & Accounting industry
– Activity-based Costing and Management firm has clearly differentiated products in the market place. This has enabled Abc Costing to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Abc Costing to invest into research and development (R&D) and innovation.
Successful track record of launching new products
– Abc Costing has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Abc Costing has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Innovation driven organization
– Abc Costing is one of the most innovative firm in sector. Manager in Activity-based Costing and Management Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Effective Research and Development (R&D)
– Abc Costing has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Activity-based Costing and Management - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Abc Costing digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Abc Costing has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Training and development
– Abc Costing has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Activity-based Costing and Management Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Strong track record of project management
– Abc Costing is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Abc Costing
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Abc Costing does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses Activity-based Costing and Management | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Activity-based Costing and Management are -
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Activity-based Costing and Management, it seems that the employees of Abc Costing don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Activity-based Costing and Management, is just above the industry average. Abc Costing needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Increasing silos among functional specialists
– The organizational structure of Abc Costing is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Abc Costing needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Abc Costing to focus more on services rather than just following the product oriented approach.
Need for greater diversity
– Abc Costing has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Lack of clear differentiation of Abc Costing products
– To increase the profitability and margins on the products, Abc Costing needs to provide more differentiated products than what it is currently offering in the marketplace.
Skills based hiring
– The stress on hiring functional specialists at Abc Costing has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
No frontier risks strategy
– After analyzing the HBR case study Activity-based Costing and Management, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Low market penetration in new markets
– Outside its home market of Abc Costing, firm in the HBR case study Activity-based Costing and Management needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Abc Costing has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Activity-based Costing and Management HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Abc Costing has relatively successful track record of launching new products.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Activity-based Costing and Management, in the dynamic environment Abc Costing has struggled to respond to the nimble upstart competition. Abc Costing has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Opportunities Activity-based Costing and Management | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Activity-based Costing and Management are -
Creating value in data economy
– The success of analytics program of Abc Costing has opened avenues for new revenue streams for the organization in the industry. This can help Abc Costing to build a more holistic ecosystem as suggested in the Activity-based Costing and Management case study. Abc Costing can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Abc Costing to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Abc Costing to hire the very best people irrespective of their geographical location.
Developing new processes and practices
– Abc Costing can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Abc Costing to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Loyalty marketing
– Abc Costing has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Abc Costing is facing challenges because of the dominance of functional experts in the organization. Activity-based Costing and Management case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Abc Costing can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Better consumer reach
– The expansion of the 5G network will help Abc Costing to increase its market reach. Abc Costing will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Using analytics as competitive advantage
– Abc Costing has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Activity-based Costing and Management - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Abc Costing to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Leveraging digital technologies
– Abc Costing can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Abc Costing in the consumer business. Now Abc Costing can target international markets with far fewer capital restrictions requirements than the existing system.
Building a culture of innovation
– managers at Abc Costing can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Abc Costing can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Activity-based Costing and Management External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Activity-based Costing and Management are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
High dependence on third party suppliers
– Abc Costing high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Abc Costing can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Abc Costing.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Abc Costing in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Increasing wage structure of Abc Costing
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Abc Costing.
Consumer confidence and its impact on Abc Costing demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Abc Costing needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Technology acceleration in Forth Industrial Revolution
– Abc Costing has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Abc Costing needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Abc Costing can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Activity-based Costing and Management .
Shortening product life cycle
– it is one of the major threat that Abc Costing is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Environmental challenges
– Abc Costing needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Abc Costing can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Weighted SWOT Analysis of Activity-based Costing and Management Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Activity-based Costing and Management needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Activity-based Costing and Management is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Activity-based Costing and Management is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Activity-based Costing and Management is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Abc Costing needs to make to build a sustainable competitive advantage.
