Dissertation: Activity Based Management vs Traditional Methods

This dissertation explores the significance of Activity Based Management (ABM) over traditional management techniques within the UK manufacturing industry, using Glaxo Smith Kline (GSK) PLC as a case study. The research delves into the background of accounting and management practices, highlighting the importance of cost reduction and quality improvement in business. It outlines the rationale for selecting the topic, emphasizing the researcher's interest in management and the potential for understanding ABM's advantages over traditional methods in terms of cost allocation and efficiency. The dissertation includes an extensive literature review, examining themes such as the trends of ABM in the UK manufacturing sector and the value of ABM techniques. The methodology chapter explains the research approach, while the results and discussion chapters analyze the findings. The study aims to explore ABM trends, assess its value for GSK, and identify ways to increase its dependency on ABM for improving production. The dissertation covers the scope, aims, and objectives of the research, along with specific research questions to guide the investigation. The final chapters provide conclusions and recommendations based on the research findings, supported by a comprehensive list of references.

Dissertation

TABLE OF CONTENTS
CHAPTER 1 : INTRODUCTION..................................................................................................3
Background of the study ............................................................................................................3
Information about company........................................................................................................5
Rationale for selecting specific topic for investigation...............................................................5
Significance of research .............................................................................................................6
Scope of dissertation...................................................................................................................6
Aims and objectives ...................................................................................................................6
Research questions......................................................................................................................7
CHAPTER 2 : LITERATURE REVIEW........................................................................................7
Introduction ................................................................................................................................7
Themes .......................................................................................................................................7
CHAPTER 3 METHODOLOGY..................................................................................................17
CHAPTER 4 : RESULTS .............................................................................................................28
Theme : Output of the activity based management system in accounting . ..................................49
CHAPTER 5 : DISCUSSION........................................................................................................52
CHAPTER 6 CONCLUSION........................................................................................................54
Recommendation...........................................................................................................................55
REFERENCES..............................................................................................................................58

CHAPTER 1 : INTRODUCTION.

Background of the study
Accounting is considered to be as one of crucial business activity which is very much
essential to be performed for smooth function of business. Financial growth of firm is completely
based on them management practice. A successful company is that which has ability to improve
quality as well as reduce costs. Finance manager in an organisation generally utilises the two
approaches of management for managing the expenditures these are activity based as well as
traditional method of management. In relation to the traditional method of management. All the
expenditure is assigned indirect expenses to goods on the basis of estimated overhead rate.
Activity based management is considered to be as an appropriate technique which can be applied
in an enterprise for reducing the costs. It will also help an organisation in increasing profit
margin. Activity based management can be referred to as discipline which mainly emphasises
on administration of different business activities as the route for enhancing the value received by
clients as well as profit earned by organisation by delivering value. It is the management
technique which has great significance as specific method assists manager in assigning the
expenses to different business activities which are performed within an organization. In addition
to this, activity based management also assist management in determining the price at which
goods or services are required to be sold to customers. The activity based management mainly
emphasizes on responsibilities for tasks rather than costs. It also focuses on maximisation of
system wide performance instead of individual performance. The activity based management is
important as it helps in increasing efficiency of different business operations. Activity based
management technique include different tasks these are activity analysis, performance
measurement etc. Activity based management system mainly involves identification of activities
which are performed within an enterprise, it also includes computation of cost associated with
each activity and determination of cost of each business activity. The accounting system allows
an enterprise to control its activities in proper manner. Specific cost management accounting has
proven to be useful in context of reducing wastage. It has been proven to be beneficial in terms
of bringing improvement in quality of procedures as well as shortening lead time as well as
launching new goods in short period. The activity based management system is can be applied to
all types of organisation. Management in an enterprise can be assessed on the basis of cost
benefit analysis.

Both traditional and activity based management determines the overhead costs related to
the production of goods as well as then assigns those expenditures to goods on the basis of cost
driver rate. Traditional as well as activity based management are different in terms of accuracy
and complexity of two management techniques.
Activity based management is more complex than traditional management method. But
the activity based management produced more accurate outcome as compared to traditional
management practice. Activity based management is much more important as it provides more
precise breakdown of indirect expenditure. In organisational context, the activity based
management plays very much crucial role in development of long term business strategies as
well as plans in order to gain competitive cost advantage. The activities based management
technique mainly emphasises on allocation of overhead costs to goods. It supports management
in identifying the suitable ways for reducing the costs. Activity based management also assist
manager in identification of those business operations which are adding unnecessary costs to
firm. It is the management which is important as helps in making important business decisions.
Activity based management is very much crucial as it assists an organization in developing a
path for analysing as well as justifying enhancement in manufacturing cycle time. Activity based
costing is considered to be as strategic tools which helps in planning and costing of different
business activities. It is the activity based management system in accounting which assist in
bringing improvement in the business procedures. In addition to this, an activity based
management system also aid in preventing the wastage of resources. Activity based management
system in accounting can also be considered to be as tool which can be helpful in relation to the
controlling the expenditures at activity level. It is the system in accounting which mainly
emphasises on different procedures or business activities that are performed for generating goods
or services. Strategic activity based management includes identification of the products or
services to be produced for selling to customers. Documentation is considered to be as crucial
part of activity based management system in accounting. The documentation in Activity based
management system includes the following such as business procedure relationship map, list of
min business activities, detail about the benchmarking procedure, requirement of resources for
implementation of system etc. Idea of management in an organisation behind utilising the
activity based management system in accounting is to analyse all the activities related to
business. Activity based management system in accounts mainly focuses on analysing the cause

of the various costs involved in performing specific business activity. It is the activity based
management system in accounting which helps manager in determining the requirement for
bringing the changes in the cost structure. The specific accounting management system is
basically utilised in a target costing program. It basically targets the costing procedure which has
been developed for new as well as existing goods for facilitating the life cycle cost management.
The dissertation will have focus on analysing the importance of activity based
management over traditional management technique. It will include the detail information about
the various methods which has been used for performing the investigation on specific topic.
Dissertation also emphasizes on analysing the view of different authors as well as scholars about
topic.
Information about company
Glaxo Smith Kline (GSK) PLC is a British global pharmaceutical organisation which has
headquarter in London. Firm is the Sixth largest pharmaceutical organisation in the world. The
products or services offered by business entity include vaccines, oral health care, over the
counter medicines as well as nutritional goods. An enterprise has team of 98462 talented and
highly skilled workers. During the year 2018, an organisation has earned revenue on 30.821
billion pounds. An organisation has an effective accounting system. Earlier business entity
utilises the traditional accounting system but to continuous error in the recording of business
transaction theretofore, management in Glaxo Smith Kline (GSK) PLC has decided to implement
the new activity based management system.
Rationale for selecting specific topic for investigation
The specific theme has been chosen for performing the investigation for analysing the
importance of activity based management in manufacturing sector. The other reason is that
researcher has interest in management field. In addition to this, by performing the study on
specific topic researcher intends to develop the understanding about the way activity based
management is useful over traditional technique of management. Other rationale for choosing
particular topic for investigation is to explore the way activity based management is beneficial in

reducing the expenditure as well as allocation of costs for increasing the efficiency as well as
profit margin.
Significance of research
Study in topic importance of activity based management over traditional method is
crucial as it will assist Glaxo Smith Kline (GSK) PLC in monitoring as well as controlling costs.
In addition to this, the information gathered during the investigation will assist management in
addressing the advantages as well as disadvantages of both management technique. It will assist
manager in identifying the best technique which can be applied fort tracking as well as managing
overheads.
Scope of dissertation
The scope of research on topic significance of activity based management over traditional
management is limited as in present investigation complete focus is on only two management
technique. In addition to this, only few activities such as data collection, analysis and
interpretation has been performed by researcher. The statement of management accounts is to
solve the various issues faced by an enterprise related to the management of activities as well as
costs.
Aims and objectives
Aim of research : To analyse the significance of Activity based management over traditional
technique of management in UK manufacturing Industry – A investigation on Glaxo Smith Kline
(GSK) PLC.
Objective of investigation :
 To explore the trends of activity based management existing in UK manufacturing
industry.
 To gain the knowledge about the importance of Activity based management
 To analyse the value of activity based management technique in Glaxo Smith Kline
(GSK) PLC in relation to improvement in overall business performance.
 To suggest the ways through with Glaxo Smith Kline (GSK) PLC could increase in
dependency on activity based management technique for improving production of goods.

Research questions
 What are recent trends of activity based management is prevailing in UK manufacturing
industry ?
 What is the value of activity based management technique for Glaxo Smith Kline (GSK)
?
 What is the main significance of activity based management method ?
 Which is a main way through with Glaxo Smith Kline (GSK) PLC could increase in
dependency on activity based management technique for improving production of
goods ?
CHAPTER 2 : LITERATURE REVIEW
Introduction
Literature review can be defined as comprehensive summary of existing investigation
conducted by different researchers. In context of present study, the information which has been
written in literature review has been gathered from secondary sources such as using magazines,
newspaper, internet, Accessing to account books as well as website of organisation. Literature
review section in the dissertation has great significance as it assists researcher in reaching to the
conclusion. The main aim of literature review section in the dissertation is to create new
argument. In relation to the present study, the literature review part will have focus on analysing
the perception of different authors about the significance of activity based management over
traditional management technique.
Themes
Theme : Trends of activity based management prevailing in UK manufacturing industry.
According to the opinion of Shahzadi, Toor and Haq, 2018. , activity based costing can
be defined as management technique which is utilized for determining the true costs. However,
it has been argued by other authors that activity based management is basically a technique
utilize by manager in an organisation for identification as well as evaluation of different business
activities. As per view of Moschidis, Chatzipetrou and Tsiotras 2018 , activity based
management can be referred to as systematized, combined approach which describes the decision
of management that utilize activity based costing information for providing the high level of
satisfaction to clients. The author also stated that activity based management mainly involves

different aspects these are product mix as well as pricing decisions. According to the opinion of
Walliman, 2017, activity based management system in accounting can be defined as cost
administration execution of activity based costing. The author has also stated that activity based
management system is accounting is basically an administrative approach which mainly focus on
managing the different business activities in an effective as well as efficient manner to bring
improvement in the quality of goods or services offered by an organization to its customers.
Activity based management also supports the other types of managerial decisions such as
related to bringing improvement in business procedure as well as application of specific strategy
for reducing costs. However, it has been argued by other authors that activity based management
is basically utilization of activity based costing information for administrative purpose or for
making strategic as well operational decisions.
According to the opinion of Allain and Laurin, 2018. , activity based management can
be considered to be as an information system which has broad objectives such as bringing
improvement in decision-making by rendering the accurate cost related information.
During last few years there has been great improvement in the way activity based
management technique has been utilized by different organizations in UK manufacturing
industry. According to the opinion of Hiebl, 2018. the activity based management technique is
utilized by managers in an enterprise for deploying the non value work. However, it has been
argued by other authors that activity based management method is implemented by manager in a
firm for bringing improvement in business procedure as well as operations. As per the
investigation performed by researcher Hiebl, 2018. , results of which represents that activity
based management technique is deployed for setting the priorities of tasks in order to bring
improvement. However, it has been argued by other authors that activity based management
technique is utilized by manager for making important business decisions such as related to
production of new goods or services. According to the opinion of Abdel-Kader, Dugdale and
Taylor, 2018 the specific management technique is used for determining the capacities of
different business activities to help firm in accomplishment of desired business goals. However,
it has been argued by other authors as well as researchers that many of firms in manufacturing
industry utilize activities based management system for re pricing good or services to be sold.
According to the opinion of Peljhan and Marc, 2018., in context of management
accounting practices, many of enterprises in manufacturing industry are shifting from managing

vertically to horizontally. The author has also stated that management accounting practice has
moved from function orientation to procedure oriented. However, it has been argued by other
authors that with the passage of time as well as during last few years, activity based management
technique has been used by managers in an organization for preparing budget. As per the view
of Oldman and Tomkins, 2018, earlier activity based management was utilized particularly by
industrial enterprises. But now it can be utilized for all types of organization. It has been argued
by some authors that changes in the traditional management practices provides management
with guidance about implementation of best practices. However it has been argued by other
authors that many of the companies in manufacturing sector are utilize single indirect as well as
shared expenditure pool which allocates resource expenditure on the costs based on individual
cost factor that further violates cost accounting principle. The author has also stated that the
outcome of such activity is shift in commodity driven differentiation to service driven
differentiation which can assist an gaining competitive advantage. According to the opinion of
Hague, 2018., in relation to the activity based accounting, the latest trend in the manufacturing
sector is that there is increase in role of management accounting with the enterprise performance
management. Both management accounting and enterprise performance management assist n
organisation in increasing profit. As per opinion of Kaplan and Atkinson, 2015, in context of
manufacturing sector in UK there has been great shift in the predictive accounting. According to
the investigation conducted by author (Labro, 2019) result of which reveals that there is increase
in gap between management accounting as well as wants of managers as well as workers. The
researcher has also stated that there has been great deviation because of continuous changes in
needs of mangers. Earlier managers in an enterprise need to keep themselves aware about
limited information but with the passage of time managers in a company requires to have
complete detail information about the estimation costs or other expenditure which might occurs
in the future.
According to the Monroy, Nasiri and Peláez, 2014, activity based management is one of
the best method of evaluating and identifying activities that the company perform, using activity
based costing to re engineering initiatives or carry out the value chain analysis in order to
improve operational and strategic decision in firm effectively. Activity based management in
accounting is very beneficial as it help to manage overall functions. In simple words it is the cost
accounting term which allow management to use past performance activity and cost as the

benchmark to control or adjust recent activities as well as current organization goals. With the
help of this technique management can be able to eliminate unnecessary activities and able to
reduce extra costing activities.
Theme: Significance of activity based management over traditional technique.
As per the perception of Tsai and Jhong, 2019. , activity based management technique
has great importance as it provides an ease in administration of different business activities as the
path of increasing the value received by clients. However, it has been argued by other authors
that activity based management can be defined as technique of internal assessment which assist
management in identification of business operations within an enterprise which is adding the
costs to company has adverse effect on its profitability. According to the opinion of Bedford,
and Speklé, 2018. , activity based management technique has great significance over traditional
method as it assist manger in identification of different business opportunities. However, it has
been argued by other authors that activities based management technique is very much
important as it supports business excellence by providing information for facilitating long term
strategic decisions related to product mix as well as sourcing. According to the opinion of Bell,
Bryman and Harley, 2018, activity based management is very much crucial as enables designer
of the goods to develop the understanding about effect of different designs on cost as well as
flexibility. The author have also stated that activity based management supports manager in
determining the need of modification in the products. As per the thinking of Allain and Laurin,
2018, activity based management is very much essential as it helps in bringing improvement in
business procedure by enabling manager to gain insight into the performance of different
business procedure. However , it has been argued by other authors as well as investigators that
management information system are now being utilized by the firms in manufacturing sector for
tracking as well as providing information related to horizontal aspects of business. The author
state that it is the activity based management technique which assist manager in filling gap by
providing information related to cost as well as business operations.
As per the view of Shahzadi, Toor and Haq, 2018. , Activity based management has great
importance as it establishes relationship between different overheads expenditures as well as
various business activities so that the costs of products, services or customer segments can be
calculated more accurately. However, it has been argued by other authors that activity based

management assist in minimizing the costs of production by positively influencing as well as
supporting continuous improvement. According to the perception of Allain and Laurin, 2018. ,
activity based management has great importance as it provides enterprise an ease in controlling
its business activities in systematic manner. However, it has been argued by other authors that
activity based management has great significance as it supports business excellence by providing
formal management system which compels an individual to develop the understanding about
their work. According to the opinion of Bell, Bryman and Harley, 2018, the activity based
management has great significance as it helps management in development of business
procedure for controlling as well as making sure consistency in business performance. According
to the opinion of Labro, 2019., the activity based costing in accounting traces the expenditure
into cost with resources as well as activity driver. The author has also stated that activity based
costing in accounting provides much more visibility of the expenditures and other hidden cost as
compared to traditional accounting. As per the opinion of Maas, Schaltegger and Crutzen, 2016,
management activity based accounting is very much essential as it assist in development of
financial plan for an enterprise. However, it has been argued by some other authors that the
activity based accounting assist an organisation in identifying the suitable ways of reducing or
controlling the unnecessary expenditure. According to the perception of McVay, Kennedy and
Fullerton, 2016., with the passage of time there has been continuous increase in the value of
accounting information. However, it has been argued by other authors that because of an
exponential rate an individual shift from activity based accounting to cost reporting. As per the
opinion of Medudula, Sagar and Gandhi, 2016., activity based accounting is crucial as it assists
management in identifying the costs or expenditure associated with performing particular
business procedure. However, the other authors argues that activity assists manager in estimation
of relevant cost associated with the execution of specific business activity. According to the
opinion of Modugno and Di Carlo, 2019., activity based management has great importance and it
is considered to be as analytical tool which can be helpful in making decisions. The author has
also stated that activity based management is essential as it assists in planning, costing and in
administrating the other business functions which are based on the activities. According to the
opinion of Ndemewah, Menges and Hiebl, 2019. , activity based management in accounting is
considered to be as highly important as it helps management in developing the understanding
about the goods as well as about customers profitability. It has been argues by other researchers