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ABC BALANCED SCORECARD

Implementing and the at a

PUBLISHING t HOUSE
BY

RALPH FORSYTHE, CPA; JAMES A. BUNCH, CPA; AND E. J. BURTON, CPA, CFE

FALL 1999

T RADITIONAL

of performance grounded solely in financial return simply do not provide sufficient information to address todays business environment. Consequently, managers are forced to take a serious look at information their current systems provide and evaluate whether that information is sufficient for them to remain viable.The United Methodist Publishing House (UMPH) is no exception.
MEASURES Moving forward in our redesign of the company, we must be capable of assigning significant costs in the organization to the activities that consume our resources. Only through this capability can we effectively evaluate financial strategies of UMPH in the future.
THE NEED
FOR

UMPH is a nonprofit religious organization that is completely self-funding (supported only through our sales) with a staff of 1,000 employees; we obtain sales through the Internet, 70 retail stores throughout the United States, wholesale, and retail direct sales through a 1-800/catalog process. Annual sales are approximately $112 million. Competitive pressures at UMPH increase as customer loyalty continues to erode and as the membership rolls of the United Methodist Church continue to decline. UMPH must develop new markets and products to remain a viable entity into the next millennium. The company must become more responsive, innovative, adaptive, effective, and efficient as it addresses these new competitive pressures. Recognizing these facts, UMPH has begun a major transformation effort: retooling information systems (IS) capabilities with client/server technologies, comprehensively reorganizing from functional silos to interdependent work teams, implementing a structured performance measurement system in an effort to improve our line of sight from strategy to practice, and seeking ways to promote increased innovation and accountability in producing results. With all of these initiatives in progress simultaneously, UMPH recognized a need for a comprehensive framework for monitoring results and for continuously modifying our approach over the years ahead. Senior management determined that implementing activity-based management and balanced scorecard approaches would provide UMPH with a dynamic mechanism for comprehensively achieving and monitoring our strategic vision. Systems that have relational database technologies are replacing current financial reporting systems, allowing us to interrelate data. These new systems provide flexibility to produce profitability information in more discrete and interrelated views than ever before. We can associate costs with revenue-producing streams by the sales channel of distribution, by the product line, and by the market segment. Historically, we have produced operating results by sales channel only to the contribution margin level. As a result, significant production and overhead departments have not been associated with the revenue streams used to underwrite their costs.

CHANGE

Historically, UMPH has used a variable costing approach in producing internal management financial reports. Over the years, this approach has eroded our ability to discern which sales channels and product lines consume which internal resources. With the introduction of client/server technologies and the personal computer, new ways of accumulating and processing data exist that provide end-users the capability of performing complex analysis quickly and with little technical knowledge. Our retooled information infrastructure provides the mechanisms for achieving more complex business processing routines. Now we can associate expense classifications through complex allocations logic into many different views of the same operating results. The use of cost pools and cost drivers provides the mechanism. For our managers to make decisions that support the corporate strategy, systems must provide sufficient detail to evaluate the current opportunities the company faces, be easily accessible, and be relevant. Therefore, more comprehensive economic models and financial information must be available in UMPH to assist in the selection of alternate courses of action and use of our resources. Of high priority to UMPH is understanding the effects that additional item production will have on product-line profitability, sales channel profitability, and resulting company-wide profitability. Having this marginal costing information will help UMPH capture new markets and increase market share. The advantage of having additional information on the financial impact of these decisions will assist the company in accomplishing its overall strategies.
THE BUSINESS UNIT STRUCTURE

In an effort to manage cost and decision-making processes better, each unit in UMPH has adopted a

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business unit structure. The business unit structure follows classical responsibility center concepts of expense, revenue, and profit centers. The units are Shared Resource Units (SRUs) (that is, expense centers), Sales Business Units (SBUs) (that is, revenue centers), and Market Business Units (MBUs) (that is, profit centers). SRUs are support units of UMPH that add value to the company by helping to achieve its goals, but they do not generate revenues directly. Under the traditional approach to accounting, a predetermined rate controls the allocation of expense center costs to the various revenue and profit centers; combined operating results report these costs. The nonspecific association of this approach, however, creates difficulty in determining a true cost picture for product lines or market areas in UMPH. Therefore, we want to know which SBUs and MBUs consume the services that SRUs provide. Association of SRU costs with SBUs and MBUs will improve our understandings of SRU efficiency and effectiveness. SBUs sell products and services, but they generally have little direct cost involved. The sole purpose of our SBUs is to produce revenue streams by selling goods created by the MBUs. Selling these goods involves minimal direct costs compared to the revenue generation levels. Therefore, in evaluating an SBUs effectiveness, one must understand the amount of cost that should be associated with the unit from supporting SRUs and MBUs. The SBUs profitability is only understood comprehensively when the SRU and MBU costs are properly associated with the revenues produced. Market Business Units generate revenues and direct expenses in the product development and production process. The MBU is responsible for all activities in the effective selection, evaluation, and development process for UMPH products and services. The units incur considerable direct costs in achieving their mission. However, the cost of SBUs used to sell products and the cost of SRUs used to support the unit are not presently associated in reporting its financial results. As trade-offs must be made on new ventures and opportunities within each MBU and across all MBUs, fully allocated costs and resulting unit profitability views are essential for effective ongoing management of these units. Providing information that serves all the needs identified previously is a tremendous challenge. It requires multiple views of information based on the decisions at hand. For decisions regarding expense controls, traditional accounting information may be sufficient. How-

ever, product and distribution analysis necessitates activity-based accounting information. Implementing activity-based costing (ABC) concepts provided necessary information to improve decisions and will help in evaluating which products we should produce and what methods we should use to deliver them.
I M P L E M E N T I N G A C T I V I T Y- B A S E D CONCEPTS

Previous articles in Management Accounting have discussed the processes and purpose of ABC. In fact, some of those articles were very influential in the decision to implement ABC at UMPH. Examples of cost drivers in use in the distribution center include orders processed and lines shipped. These cost drivers allocate costs of forward line and warehousing expenses to products or to customers. ABC is not a replacement of the traditional accounting system; it is merely an enhancement. Generally accepted accounting principles continue to require the use of the traditional accounting system. However, ABC is more useful for gathering and utilizing information. Many companies use the system for internal reports to help improve performance and manage costs. For internal reports, ABC does more than allocate costs; it attempts to aid management in identifying the reasons for the existence of that cost. ABC provides UMPH with vital insight into the reasons for costs in our operating structure and the relationship of those costs to products and markets. By implementing an activity costing approach, UMPH attributes costs to the processes that generated the expense. UMPH has an improved representation of true costs associated with the production of products and services. The company also has a better understanding of all the costs of producing and distributing any particular product. Now costs are known by product, and the incremental profits generated by that product are evaluated more easily. Also, based on the dual tracking of activities by product line and sales channel, UMPH better understands product profitability across sales channels. Typically, after implementing ABC, companies uncover the fact that some customers consume more costs than the revenues they produce. ABC has allowed customer profitability to be determined, which traditional accounting was unable to do. UMPH is discovering new information in relation to existing perceptions of product and channel profitability through implementing ABC concepts. Given different circumstances, a profitable product line might be unprofitable in a certain sales channel.

FALL 1999

To illustrate, Southern Gospel Music is a highly profitable product for UMPH. However, only looking at that product in a sales channel format might have forced executives to make an unprofitable decision. Southern Gospel Music is most profitable in the southern part of the United States. If the company based future sales of the product on the West Coast sales channels, the conclusion would most likely be that Southern Gospel Music does not have much market potential and would need to be considered for discontinuance. A similar situation could have resulted from looking at sales from a sales channel. If a sales channel was determined to be unprofitable, the decision might have been made to discontinue it. However, that channel could be critical to delivery of one of UMPHs most profitable products. In the analysis of contributions by both channels and products, UMPH discerns financial impacts more comprehensively and may alter operating decisions as a result. Utilizing the dual tracking capabilities of ABC, UMPH now analyzes sales information more comprehensively and determines the components of success and failure that manifest themselves in our blending of distribution strategies across market segments. In reporting ABC results, our accounting reports associate costs in three tiers or levels: direct, controllable, and indirect. The level of the expense is important to a units ability to change or influence individual expense items. Direct costs are operationally defined as those amounts directly associated with the reported activities. Additionally, they are directly controllable within the reported activity. Controllable costs are those amounts, either direct or indirect, under the direct influence of the reported units. Indirect costs are allocated to the business unit. These costs may be amounts that the unit is capable of influencing, or they may be of a general overhead nature. With the establishment of new reporting levels for capturing data, management is determining how to use this new information effectively. They are developing new reports to complete the purpose of capturing the dataproviding relevant information to assist with dayto-day operational decisions while working toward the corporate strategies. These new reports must be capable of serving a multitude of individuals from lower management all the way to upper management. Obviously, no one report provides this information comprehensively for all purposes. As a result, the report formats must be highly flexible to accommodate the various needs of the managers.

The majority of challenges encountered with the implementation of ABC are overcome with better planning and control. The main obstacle to implementation is underestimating the task of gathering information. Under traditional costing approaches, one or two measuressuch as direct labor hours usedare employed for costing purposes. ABC often operates on dozens of different cost drivers, however. Within the implementation of our new financial systems, UMPH has the ability to define numerous cost drivers for activities in the business units. These drivers are established as statistical accounts in the system for tabulation. At the end of the period, these account totals form a basis for the sophisticated allocations process used in ABC. Format issues presented other challenges. Getting a consensus on what new information was necessary was itself a difficult task. Establishing a uniform way of presenting that information raised the difficulty level. Unless serious thought had been utilized in the planning stages, UMPH would have received either too little, too much, or useless information because the format was not understood. As previously stated, getting everyone involved was difficult. Gaining everyones agreement that ABC was necessary and would increase our effectiveness in making decisions was the first hurdle. The implementation of ABC would most likely have been a failure unless the people directly affected concurred that ABC would benefit them in managing their operations. Therefore, it was vital to discuss the merits of ABC with managers and contrast the results obtained from ABC systems with those of traditional accounting systems. Additionally, the evaluation of the ABC process required a structured method for measuring performance. The most logical choice for UMPH was to implement a balanced scorecard to monitor the reorganization and resulting performance for years to come.
IMPLEMENTING THE BALANCED S C O R E C A R D AT U M P H

As the organization sought to implement performance measures that supported the new operating structure, the balanced scorecard provided an integrated format that supported the strategic focus. In essence, the corporate scorecard is a sophisticated business model that helps UMPH understand what really drives its success. The scorecard seeks to provide measurements grounded in the organizations strategic objectives and competitive demands. Unlike traditional measures that focus on financial results, short-term time frames, and historical activities, the balanced scorecard seeks to cre-

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The balanced scorecard was developed on four dimensions:

customer satisfaction internal processes finance organizational innovation and learning


00
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ate measures that are multidimensional as well as forward looking and integrate strategy development with its implementation. The scorecard brings together, in a single management report, the elements of the companys competitive agenda: becoming customer oriented, shortening response time, improving quality, emphasizing teamwork, reducing new product launch times, and managing for the long term. The balanced scorecard was developed on four dimensions: finance, customer satisfaction, internal processes, and organizational innovation and learning. The financial dimension measures the companys ability to implement strategies that contribute to improved profitability and shareholder value. The customer dimension seeks to explain how we appear to our customers. The internal process dimension tells us where we must excel to meet our customers expectations. Finally, the innovation and learning dimension gauges our ability to continue to provide value to our customers and be successful in a dynamic, changing business environment. These four dimensions correlate directly with the emphasis we place on our new business structures and the performance measurement areas that gauge our success.
Developing the Four Dimensions. Implementing the scorecard continues to take a concerted effort on the part of senior management. However, the scorecard provides us with a mechanism for systematically integrating measurement criteria with improvement initiatives. The scorecard is a management system that can motivate breakthrough improvements. Each of its dimensions is essential to our ongoing success and provides direct linkages to our strategic plan and desired results. The balanced scorecard is tailored to the competitive environment and different market situations and product strategies of our organization. In fact, a major value of the scorecard is its ability to reflect the business units competitive strategy through its measures. A review of our organizational effectiveness measures shows the company has a strong base for implementing the scorecard within our existing measurement structure. Our balanced scorecard begins with the measures we defined to support our business strategy. Financial Dimension. The UMPH is unique within the United Methodist Church. It is the only self-sustaining agency within the church and must produce revenues sufficient to cover expenses and provide reserves for the future. The primary measures of finan-

cial performance focus on this reality and support the need for increasing profitability, sales growth, and stakeholder value. The financial dimension of our balanced scorecard focuses on three major objectives defined within our organizational effectiveness measures: increased sales growth; achieved corporate earnings before interest, taxes, depreciation, and amortization (EBITDA) percentage; and achieved ROI percentage by each MBU. These measures provide the necessary gauges of our continued financial viability and achievement of our long-term strategic plan. Each of these measures is defined with existing targets and initiatives to achieve the targets within the organization.
Customer Satisfaction Dimension. Our customer concerns tend to fall into four categories: time, quality, performance and service, and cost. UMPH employs measures that support each area of concern in its operational effectiveness measures. First, we monitor our ability to attract and retain customers. Second, we measure our customer satisfaction levels through qualitative survey instruments. Finally, we measure on-time product development and delivery schedules to ensure the products are available as promised to our customers. These measurement areas collectively provide the comprehensive information necessary to ensure that our customers receive high-quality products and services that meet or exceed their needs. Internal Process Dimension. We had to determine how to meet our customers expectations. In the initial business process perspective, executives identified the critical internal processes in which the company must excel. UMPH developed key measures of organizational effectiveness to gauge and evaluate the internal process dimension of the scorecard. First, we developed measures to ensure our distribution system produces low error rates on shipments. Second, we developed measures that gauge our ability to produce high-quality, cost-effective products on time. Finally, we developed measures of operational excellence based on best practices to ensure all internal processes achieve operational effectiveness and efficiencies necessary to increase shareholder value. Organizational Innovation and Learning Dimension. The fourth dimension of the balanced scorecard

identified the infrastructure that the organization must build to create long-term growth and improvement. UMPH has worked for years to build an innovative,

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learning organization. Our new organizational structure is designed on the premise that UMPH will continue to improve abilities in this critical dimension. We developed key operational effectiveness measures to gauge our ability to become more innovative and creative as an organization. These measures focused on producing substantially new products, projects, and services within each MBU and SBU. Additionally, we developed measures to achieve excellence in staff competence in an effort to create a learning organization. Finally, we established learning goals for all salaried staff. These goals collectively provide the mechanisms necessary within the balanced scorecard to evaluate the innovative and learning dimension.
LINKING UMPHS EFFECTIVENESS M E A S U R E S T O S T R AT E G Y

mechanism. We are measuring our ability to provide customers with high-quality, innovative solutions that meet or exceed their expectations while providing appropriate financial returns to the company. Within each dimension of the scorecard, we are developing measures within the context of mission. Thus, as we measure short-term results, we associate them with the underlying strategy that supports our mission.
C O M M U N I C AT I N G
AND

LINKING

The organizational effectiveness measures defined for UMPH provided the opportunity for implementing the balanced scorecard. These measures, when coupled with the implementation of an activity-based management system, provide our organization with a comprehensive model to produce long-term, sustainable growth, increased stakeholder value, and achievement of our strategic vision. The balanced scorecard enables us to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets that will produce future growth. The scorecard complements traditional management systems and provides a mechanism for translating short-term results into achievement of long-term strategies. Its linked series of objectives and measures creates a bridge between strategy development and implementation. The scorecard provides the mechanism for development of a new strategic management system within UMPH. Managers using the scorecard do not rely on financial measures as their sole indicators of the companys performance. Instead, managers can discern the complex interaction and relationship of all four dimensions of the scorecard. As a result, there is and will continue to be greater emphasis placed on achieving long-term results in each business unit of the company. Our challenge will be to provide processes that assist our managers in linking the scorecard results to strategy.
T R A N S L AT I N G
THE

The balanced scorecard provides us with the mechanism for integrating corporate objectives through business units and team and individual objectives and initiatives. The personal scorecard contains three levels of information. The first describes corporate-level objectives, measures, and targets. The second leaves room for translating corporate targets into targets for each business unit. The third translates business unit targets into individual and team objectives. These objectives are supported by individual achievement initiatives and by up to five performance measures that monitor their implementation. The personal scorecard gives individuals and teams a mechanism for translating objectives into meaningful tasks and targets for themselves. The scorecards become the direct communication process for linking overall corporate strategy with team and individual goals for achievement.
BUSINESS PLANNING

One difficult issue for most organizations is linking the business planning process with the financial planning process. Often, separate organizational units perform these activities at separate times under separate procedures. UMPH was no exception. Historically, we performed our strategic planning sessions in isolation from our budget and resource allocation planning sessions. By using the balanced scorecard, we ensure the linkage of our financial budgets with our strategic goals. Scorecard users select measures of progress across all four dimensions. They determine which actions drive them toward their targets, and they develop measures to monitor progress. Thus, the business plan for UMPH is directly linked to financial results through the personal scorecards.
FEEDBACK
AND

LEARNING

VISION

One of the most difficult activities for any organization is translating its mission into short-term action. At UMPH the balanced scorecard serves as a translation

The first three processes are vital for implementing strategy, but are not sufficient. Together they form an effective process for evaluation of a static or constant objective. In many cases, however, the objective must be adapted as issues emerge, and planned trajectories

FALL 1999

Getting Everyone

INVESTED
tals of bookkeeping as well as how to read basic financial and UMPH statements. Members of the accounting staff were available to assist participants in completing this exercise and to answer any questions about it. Each subsequent session began with a review of the previous session, a review of the homework exercise, and a discussion of the advanced preparation materials. Module 2, Cost Behavior and Cost-Volume-Profit (CVP) Analysis, was intended to improve understanding of the UMPH operating statements, cash reports, and balance sheet, to introduce concepts of cost behaviors and revenue/ cost relationships that can be seen from accounting information, and to provide practical experience with the concepts. The class follow-up work was a continuation of caseettes presented in the module. These were short, UMPHspecific examples created by the accounting staff to illustrate specific points of interest. They used realistic situations and numbers to demonstrate the application of the materials to job situations. As with the first module, the accounting staff was available for those who desired additional help. Module 3, CVP Analysis, Risk, and Uncertainty, was intended to help participants determine CVP relationships, understand the assumptions, factors, and complexities of CVP, apply CVP to planning and forecasting scenarios, and continue the preparation and background for developing budgets and preparing business plans. Participants prepared by completing a simple CVP graphing and computation case and reading a specially prepared text on forecasting. The work assignment that followed required participants to use the concepts in a practical, UMPH-specific case example. Module 4, Budgeting, Forecasting, and Performance Measurement, the capstone module, proceeded from the general and theoretical to the practical and UMPH specific. It provided participants with an eight-step planning process taken from Total Business Planning, described the overall budget development process as well as the budgeting process at UMPH, and described how to apply the UMPH performance measures. Participants prepared by reading two articles, How to Link Strategic Planning with Budgeting, and Budget: A Tool for Navigating Your Business. A return to the normal work environment and the application of all of the tools and techniques in everyday practice followed this session.

The implementation of ABC and the balanced scorecard brought significant, even monumental, changes in the way we organize and manage our business at United Methodist Publishing House. While our people were supportive of what we were attempting to achieve, they were asked to make major adjustments in the way they managed their areas. Without training to orient them, these changes would have been difficult at best and incomprehensible at worst. Senior management agreed to do whatever was necessary to provide the training to allow the people of the organization to understand the new rules. With an experienced consultant we outlined a seminar series titled Continuous Improvement in Financial Management that would be provided to all management-level employees. It contained four modules of four hours each: 1. Understanding Basic Accounting: Process and Product; 2. Cash Flow Analysis and Budgeting; 3. Cost Accounting Fundamentals Including Cost-VolumeProfit Concepts; and 4. Business Planning. For each module we provided some advance preparation for participants approximately one week prior to their session, concluding application exercises based upon UMPHspecific issues, and a follow-up on these exercises after approximately two weeks. With the input of the accounting staff, the consultant created an outline of the basic training materials, and the accounting staff created accompanying UMPH-specific exercises. The application approach was basics-theory-practical. Training was scheduled over a period of approximately six months, with each module presented five times. The next module in the series was developed and modified as the current one was presented and evaluated. This helped to ensure that we gave appropriate consideration to what was working and what was not, as well as to materials which might have been planned but, for whatever reason, were not adequately covered. Flexibility and attention to feedback from the participants was vital to the success of the program. Each module was team taught by the consultant and a member of the UMPH accounting staff. Module 1 included a very short bookkeeping exercise for the participants in order to help them better understand the complete accounting cycle. They learned the fundamen-

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must be altered. The feedback and learning process inherent in the balanced scorecard provides the necessary elements for adapting the companys objectives. First, the process articulates the companys shared vision, defining in clear terms the results the organizations members seek to achieve. Second, the scorecard supplies the essential strategic feedback system necessary for continuous evaluation of objective validity. Finally, the balanced scorecard facilitates the strategy review that is essential to strategic learning. In using the balanced scorecard, UMPH has a model that assists in developing, monitoring, and refining its organizational effectiveness measures. The model provides consistent mechanisms for modifying our assumptions and evaluating the results. The value of the model is that it forces UMPH to reexamine assumptions about what really drives performance. It forces a much more explicit focus on what matters to customers and stakeholders in the business. As a result, the scorecard will improve our ability to define and improve UMPH performance measurement systems.
THE POWER SCORECARD
OF

dimension of the system reinforce changes made elsewhere. The balanced scorecard is invaluable to the organization as a communication vehicle and agent of change as we implement our aggressive vision of the future at UMPH. s James A. Bunch, CPA, is senior financial analyst at Central Parking Systems corporate office located in Nashville, Tenn. Ralph C. Forsythe, CPA, is vice president of accounting at the United Methodist Publishing House. E. J. Burton, Ph.D., CPA, CFE, is dean of the College of Business at Middle Tennessee State University.

FURTHER READING
Baxendale, Sidney J., and Mahesh Gupta. Aligning TOC and ABC for Silkscreen Printing. Management Accounting (USA), April 1998, pp. 39-44. Chow, Chee W., Kamal M. Haddad, and James E. Williamson. Applying the Balanced Scorecard to Small Companies. Management Accounting (USA), August 1997, pp. 21-27. Chaffman, Beth M., and John Talbott. CMA. Activity-Based Costing in a Service Organization. CMA Magazine, December/January 1991, pp. 15-18. Clinton, B. Douglas, and Ko-Cheng Hsu. JIT and the Balanced Scorecard: Linking Manufacturing Control to Management Control. Management Accounting (USA), September 1997, pp. 18-24. Coburn, Steve, Hugh Grove, and Tom Cook. How ABC Was Used in Capital Budgeting. Management Accounting (USA), May 1997, pp. 38-46. Compton, Ted R. Implementing Activity-Based Costing. The CPA Journal, March 1996, pp. 20-27. Cooper, Robin, and Robert S. Kaplan. Profit Priorities from Activity-Based Costing. Harvard Business Review, May-June 1991, pp. 130-135. Davis, Tim R. V. Managing Knowledge-Work Support Functions. Journal of General Management, Autumn 1996, pp. 68-84. Epstein, Marc J., and Jean-Francois Manzoni. The Balanced Scorecard and Tableau de Bord: Translating Strategy into Action. Management Accounting (USA), August 1997, pp. 28-36. Kaplan, Robert S., and David P. Norton. The Balanced ScorecardMeasures that Drive Performance. Harvard Business Review, January-February 1992, pp. 71-79. __________. Putting the Balanced Scorecard to Work. Harvard Business Review, September-October 1993, pp. 134-142. __________. Linking the Balanced Scorecard to Strategy. California Management Review, Fall 1996, pp. 53-77. __________. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review, January-February 1996, pp. 75-85. Krumwiede, Kip R. ABC: Why Its Tried and How It Succeeds. Management Accounting (USA), April 1998, pp. 32-38. Krupnicki, Michael, and Thomas Tyson. Using ABC to Determine the Cost of Servicing Customers. Management Accounting (USA), December 1997, pp. 40-46. Kurtzman, Joel. Is Your Company Off Course? Now You Can Find Out Why. Fortune, February 17, 1997, pp. 128-130. Landry, Steven P., Larry Wood, and Tim M. Lindquist. Can ABC Bring Mixed Results? Management Accounting (USA), March 1997, pp. 28-33. Ness, Joseph A., and Thomas G. Cucuzza. Tapping the Full Potential of ABC. Harvard Business Review, July-August 1995, pp. 130-138. Pirrong, Gordon D. As Easy As ABC...Using Activity Based Costing in Service Industries. The National Public Accountant, February 1993, pp. 22-26. Sharman, Paul. ABC and the Bottom Line on Customers. CMA Magazine, September 1996, pp. 20-24. Silk, Scott. Automating the Balanced Scorecard, Management Accounting (USA), May 1998, pp. 38-44.

ABC

AND THE

BALANCED

The concepts of ABC and the balanced scorecard provide UMPH with a tremendous amount of power in achieving the initiatives under way. Implementing ABC provides the organization with mechanisms for understanding cost and activity relationships. It is through understanding these cost relationships with all the dimensions of the business that the company will achieve its vision. This is the first step in understanding overall profitability in the enterprise in proactive terms. Additionally, cost driver methodology allows UMPH to satisfy the reasons for performing cost allocations, including performance evaluation and pricing, by using cause/effect relationships. The capabilities of ABC are a strong force in implementing a detailed management reporting system that provides action information to drive our business strategy. As we seek to drive business strategy through improved information and measurements, the balanced scorecard provides the comprehensive model for monitoring success. The balanced scorecard enables UMPH to align its management processes and focus the entire organization on implementing long-term strategy. The scorecard provides the mechanism for ongoing alignment of strategy to tactics within our organization. As a comprehensive model, the scorecard monitors causeand-effect linkages across the four dimensions of operating performance. As a result, changes in one

FALL 1999

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