Literature Review on Issues in Usage of ABM for Strategic Management

This literature review discusses the issues in using ABM for strategic management in the context of performance evaluation, supply chain management, quality management, and environmental sustainability. It also highlights the importance of ABM in improving efficiency and reducing costs.

Literature Review
Strategic Management
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Table of Contents
1. Introduction..................................................................................................................................1
2.0 Literature Review......................................................................................................................1
2.1 Issues in usage of ABM in context of performance evaluation for firm success..................1
2.2 Issues in usage of ABM in context of Supply Chain Management (SCM) for viability of
business........................................................................................................................................2
2.3 Issues in usage of ABM in context of Quality Management for sustainability of firm.........3
2.4 Issues in usage of ABM in context of environment sustainability ensuring long term
viability of business.....................................................................................................................3
3. Conclusion...................................................................................................................................4
References........................................................................................................................................5

1. Introduction
ABM (Activity Based Management) is crucial in today’s business practices for gaining
smooth operations for desirable profits. Present report deals with literature review with aspect of
issue in use and nature of ABM with context to four broader perspectives. Discussion is made on
how ABM (in association with performance evaluation and supply chain management) can be
utilised for quality management and environmental sustainability.
2.0 Literature Review
2.1 Issues in usage of ABM in context of performance evaluation for firm success
As per the views of Aguezzoul (2014), ABM is a method used for evaluating
performance level of each and every activity so that efficiency can be improved up to a major
extent. This becomes beneficial for the business as it is able to attain more efficient operations
leading to higher productivity. The performance evaluation is done under financial and activity
based accounting systems. In terms of financial background, measurement is done by making
comparison between budgeted and actual results. While, in activity based framework,
performance is connected with more than financial framework. The process perspective takes
time, quality and efficiency as dimensions of performance (Van Dooren, Bouckaert and
Halligan, 2015). Process-concerned measure like cycle-time and on-time deliveries become most
crucial. Improvement in process must entail better financial outcomes. The cost per unit of
output, cost reductions and trends on-going in cost are indicators that ABM is handled in a better
manner.
Rajwani and Liedong (2015) say that performance evaluation is important for gaining
clarity of individual performances. Next vital thing is to assign rewards which should be
accordance to the policies of top management. It is important as business should share rewards in
an appropriate manner. The employees must be motivated with rewards as they are the real assets
of the company. Benefits must include salary increment, profit sharing, bonus or promotions for
good performance (Bodin, Sandström and Crona, 2017). However, it is to keep in mind that
business should make a trade-off between individual rewards and group rewards. Latter is easier
than former as financial benefits assigned to team is most economical for company than to give
similar to individuals.
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Trainor and et al., (2014) argues that gain sharing is more specific activity based reward
type and more fruitful than other rewards. Workers are allowed to share in gains in relation to
improvement projects. This technique helps in obtaining necessary buy-in for improvement
projects which are inherent to ABM. The customer value is enhanced with the help of ABM and
profits are accomplished for firm leading to attainment of desired and stated goals.
2.2 Issues in usage of ABM in context of Supply Chain Management (SCM) for viability of
business
According to Pagell and Shevchenko (2014), ABM is cost management designed
specifically for improving profitability aspect of business from various spheres. In order to
enhance efficiency and minimise cost of production, ABM is useful as it is extracted out of ABC
(Activity Based Costing). For reengineering and investigation with regards to customer or item
profitability are assessed as well. This means that ABC being referred to as fruitful cost analysis
tool provides clarity that business is able to attain desired efficiency out of the same by
implementing it to the fullest (Stark, 2015). Cost allocation handles procedure for assigning cost
of unit to certain product or is customer-centric. ABM is used for tackling consumer behaviour
and thus, cost is allocated in fair manner.
In contrast to this, Carter, Rogers and Choi (2015) says that major issue in using ABM is
lack of cost per unit of product in manufacturing department which they are unable to analyse
during similar products prevailing in the market. Using scarce resources for reduction in cost is
another issue in carrying out usage of ABM in effective manner. The resources if are not utilised
in appropriate way and wastage occurs, then failure of cost reduction exists. Varsei and et.al.,
(2014) argues that proper implementation of resources should be done by improvising on
knowledge so that wastage may be minimised up to a high extent. Allocation of cost drivers must
be attributed to product so that change in cost of producing item may be analysed quite
effectually without affecting production.
Halldórsson, Hsuan and Kotzab (2015) say that data availability and complexity is
another issue in ABM. They both are related cost and firm volume data. In former one, it
becomes crucial for differentiating cost on correct parameter for identifying cost of machinery
versus packing material. It can be analysed that departments and cost centres are not in alignment
in certain circumstances, which complicates collection of data. Moreover, quality level of ABC
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is of utmost important in collecting data through various factors. It can be assessed that SCM has
to be enabled for ABM so that better avenues may be attained with ease.
2.3 Issues in usage of ABM in context of Quality Management for sustainability of firm
Metzger and Pohl (2014) say quality management is one of the important aspect in
ascertaining cost and improve the efficiency without affecting quality of manufacturing of
product. The cost, service level quality and product delivery time are of all aspects of quality
management. ABM helps to identify management which sort of activities consumes resources in
the production process in a better manner (Sakas, Vlachos and Nasiopoulos, 2014). Focus is to
manage costly activities in order to reduce and improve upon costs for enhancing higher level of
production in the best way possible. Overheads costs in quality management are major issue in
implementation of ABM. This is because it is difficult to ascertain correct overheads for making
out production in effective manner. An overhead also includes expenses like electricity for
running machines, product engineers and inspectors salaries as well.
In contrary to this Hsieh and Lin (2014), overheads are related to allocation of cost to
commodities. Quality control inspectors’ costs more money and thus, assumptions regarding
overhead cost and products are to be made. Overhead inspections can be effectively enhanced by
incorporating ABC to proper allocation of costs so that quality aspects may be met with ease.
ABM through ABC provides accurate information and also identifying which activities cause
costs and can be determined with the help of cost of activity (Chong, 2014). The cost
identification and measurement of costs of performing activities which goes in production is
done in appropriate manner with the help of ABC. Once, firm analyses which activities cause
costs, then resultant costs can be eradicated or modify accordingly. The quality management is
accomplished by assessing which activities cause costs and measurement is done.
2.4 Issues in usage of ABM in context of environment sustainability ensuring long term viability
of business
Bocken and et al., (2014) assert that environment sustainability is crucial objective in
attainment of smoothen business process management in order to accomplish long term
stakeholders’ objective. Managers make decision at business process level. These decisions
cannot be done by not considering environmental aspects like ways to mitigate GHG (Green
House Gas) emissions into consideration (Chiauzzi, Rodarte and DasMahapatra, 2015). Another
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issue with ecosystem which management needs to take is time and cost of production along with
GHG in accordance to production of items. ABM tries to identify ways for accelerating
manufacturing level so that business may be able to achieve long term viability of business
stakeholders. Cost per unit and related cost drivers are allocated in a way which protects
environment and does not emit GHG emissions.
As per the views of Spieth, Schneckenberg and Ricart (2014), sustainability manifolds
enormous business practices for enhancing confidence level of investors. Stakeholders requires
that organisations adhere to business ethics and get in comply with environment regulations in
order to reduce impact of harmful gases on atmosphere and deterrence to environmental
degradation. IS (Information Systems) have become integral element of initiating healthy
business practices (Kothari, Mizik and Roychowdhury, 2015). Green ABM is emerging today in
which business complies with long term sustainability of ecosystem so that stakeholders do not
get dissatisfied in business practices undertaken by firm. The firms are able to ascertain what
resources are consumed in manufacturing and how to reduce costs for better production level in
the best manner possible.
Müller and Pfleger (2014) argue that cost object will consume activities and which in turn
would consume resources in effective manner. ABM is helpful in tracing costs by incorporating
resources and activity drivers from resources to activities and lastly forms activities to cost
objects in appropriate way. Green ABM is quite newer approach in meeting production level
through incorporating green technologies in order to reduce the harmful emissions (Gotschol, De
Giovanni and Vinzi, 2014). ABM can be used in ensuring quality management and
environmental sustainability as cost consumed on individual activities can be traced with the
help of proper allocation of the same in appropriate cost centres and as a result, long term
viability of business and its stakeholder’s objectives can be satisfied in a better way.
3. Conclusion
Hereby it can be concluded that ABM is useful metric for assessing efficiency aspect of
overall business operations so that improvement can be done along with reduction in cost. The
cost centres and activities consumed are ascertained and cost allocation is done to attain desirable
results.
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References
Aguezzoul, A. (2014). Third-party logistics selection problem: A literature review on criteria and
methods. Omega, 49, pp.69-78.
Bocken, N. M. and et. al. (2014). A literature and practice review to develop sustainable business
model archetypes. Journal of cleaner production, 65, pp.42-56.
Bodin, Ö., Sandström, A. and Crona, B. (2017). Collaborative networks for effective ecosystem‐
based management: A set of working hypotheses. Policy Studies Journal, 45(2), pp.289-314.
Carter, C. R., Rogers, D. S. and Choi, T. Y. (2015). Toward the theory of the supply
chain. Journal of Supply Chain Management, 51(2), pp.89-97.
Chiauzzi, E., Rodarte, C. and DasMahapatra, P. (2015). Patient-centered activity monitoring in
the self-management of chronic health conditions. BMC medicine, 13(1), p.77.
Chong, S. (2014). Business process management for SMEs: an exploratory study of
implementation factors for the Australian wine industry. Journal of Information Systems and
Small Business, 1(1-2), pp.41-58.
Gotschol, A., De Giovanni, P. and Vinzi, V. E. (2014). Is environmental management an
economically sustainable business?. Journal of environmental management, 144, pp.73-82.
Halldórsson, Á., Hsuan, J. and Kotzab, H. (2015). Complementary theories to supply chain
management revisited–from borrowing theories to theorizing. Supply Chain Management: An
International Journal, 20(6), pp.574-586.
Hsieh, F. S. and Lin, J. B. (2014). Context-aware workflow management for virtual enterprises
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Kothari, S. P., Mizik, N. and Roychowdhury, S. (2015). Managing for the moment: The role of
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Metzger, A. and Pohl, K. (2014). May. Software product line engineering and variability
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