Activity-Based Management in Strategic Management

This paper outlines the major concerns related to Activity Based Management implementation in the context of supply chain management, performance evaluation, quality management, and environmental sustainability.

Strategic Management

Running Head: Strategic Management
For any organisation the customers are the driving force. While this is not considered as
innovative insights that precipitate behind the organisational structures development.
Reflecting the determination that the interdependent processes play a key role in creating
customer value, the organisations are now shifting from managing their operations vertically
to horizontally. This paper is aimed to outline the major concerns related to Activity Based
Management implementation in the context of supply chain management, performance
evaluation, quality management and environmental sustainability (Johnson, 2007).
Improving and creating the processes to improve the shareholder value and the customers is
the primary objective of the manager in the organisation. In order to meet this objective, the
managers are required to remain transparent, defensible, and relevant. Yet, the creation of
information system management is to provide and track the facts and figures about the value
improving the factors of a business which shows a delayed impact which is significantly
behind manager’s requirement. The monitoring of the information system is to know if the
information assist and motivate in getting the tactical, operational, strategic aim in an
efficient, effective, and timely manner. The activity based management provide the operating
and cost information that reflect the horizontal view. The activity based management
determines the key activities which are performed in an organisation while giving a
transparent and defensible value of their related causes and costs (Capusneanu, 2009). The
activity based management comprises of performance measurement, cost driver
determination, and value analysis in order to support, drive, initiate and improve the process
of decision making. The activity based management implements the lead cost analysis into
the required series of measuring tools which are utilised by the accounting professionals.
This helps in building the economically rich solution for in order to support business. There
are number of organisations and companies which are embracing the activity based
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Running Head: Strategic Management
management since 1994 and has grown significantly to more than 15, 000 from 3, 000.
However, the organisations which use the activity based management with varying outcomes
provides recommendation that the successful incorporation of activity based management
may need the skills of management techniques and tools as well mind-set of the manager.
Improving, measuring, and defining the organisation ability to create the measure which has
to encourage the MIS (Management Information System) as well as decisions and actions
supported by them. Therefore, the activity based management focuses on achieving these
goals (Kren, 2018).
It has been presented by Baykasoglu & Kaplanoglu that many organizations are trying hard to
make better Supply chain management utilization by implementing distinct techniques like
computer generated enterprise resource planning, total quality management, schedule just-in-
time, lean production, Kaizen and activity-based costing, etc. The activity-based costing can
be considered as one the latest techniques for fostering the supply chain management and
performance in organizations (Ismail, 2010). The findings of Qian and Ben-Arieh suggests
that nowadays, the cost estimation role for services and products lead to more critical as the
historical cost accounting systems were not able to fulfil the requirements of latest business
management and in the times of the latest business management, accounting was just utilized
to save the services or products costs. However, the prominent cost information role and cost
estimation role get into the introduction after the launch of latest business management
techniques (Zondervan, 2009).
Kaplan, Atkinson, Banker and Young describes the activity management system as a process
of management that utilizes the information of activity cost in order to foster the profitability
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Running Head: Strategic Management
of the organisation. The similar view has been offered by Key and Player claiming that
activity based management is the broad area or field that emphasis on achieving the profit of
the organisation and customer value through the activities management. Unlike the approach
of traditional cost, the activity based management regards the organisation as a series of
interlinked processes that deliver and create the value to the activity based management. It
provides the managers with analytical information and the concept to effectively run the
processes in a manner that place the fewest demands on the organisation resource
(Gunasekaran & McNeil , 2011).
Cobb recommended that the major concerns experienced with Activity Based Costing and
Activity Based Management with regard to the lack of adequate resources, which are internal
to the system particularly computer resources and time of the staff members. It has also been
determined by the Anderson the factors, which are related to the external environment, the
technology employed, the task, organization structure, individuals involved, which impacted
the implementation of Activity Based Management. Although it may be possible to create the
prominence of distinct aspects at different stages of implementation, such aspects fail to
provide the solution for both the complementing and competing methods of controlling
activities and obtaining information in organizations, and the existence of many stakeholders
in the Activity Based Management process of implementation. So, complementing strategies
are need to get the insights on the questions on what were the sources of resistance to change.
In addition to Kaplan and Argyris, Markus also claimed that resistance of the staff members
to innovative information systems can be comprehended in terms of politics and
organizational power (Kumar & Mahto, 2013).
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Running Head: Strategic Management
The success of activity based management depends on the availability of approximations of
activity cost. The activity based management cost information more accurately mirrors for
activities or the areas within the supply chain when their efforts and energy is expanded when
compared with the traditional cost approach. The activity based management partially
implements the requirements of the customer into the procedures for creating the value of an
activity. Nevertheless, the activity based management is not a satisfactory framework for the
management of supply chains (Grieve & Marri, 2011). This is because, in the typical activity
based management analysis, the activity is performed without the customer input advantages
and the designation may mirror the policy of the organisation, the suggestions of activity
based management, or the perspectives of the participants in the study of activity based
management. In either of the aforementioned case, there is no guarantee that the value of the
activity is created by the activity based management which reflects the requirements of the
customers. The other concerned with activity based management valuation is that the values
become the input for non-value added cost and the managers are expected to utilise the cost
figures in order to determine the opportunities for improvement and motivates the managers
to become more efficient and effective in reforming the current activities and thus, it does not
motivate the senior level managers to engage in the process of exploring the new
opportunities in order to determine the ways to reconstruct the existing activities and create
the customer value in order to provide the greater value to the customer. For this reason, the
activity based management may result in optimising the short term efficiency of the supply
chain rather than the detriment of its long term profitability and survivability (Lockhamy,
2012).
Activity based costing is typically viewed as output cost estimation mechanism. Activity
based management is an Activity based costing extension, which is considered as the process
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Running Head: Strategic Management
of utilizing the activities in order to foster the efficiency of the processes. Therefore, the
Activity based management provides the targets and goals for managers in reduction or
elimination of non-value added activities, fostering the process efficiency and improving
throughput. These targets and objectives are prominent management performance
dimensions. The targets and goals of Activity based management measure the management
decisions quality in order to meet the desired results and are not just limited to production
managers. Virtually all strategic business managers in an organization contribute to the goals
of Activity based management. The potential for activity based management to impact the
staff functions performance is directly proportional to the claims made for the scope of
Activity based management. In general, it comprises of least routine staff activities and is
more creative and least fits with the accountability framework, which are under threat (CIMA
Golbal, 2016).
Contributing to the activity based management and supply chain management literature, the
present study determines the various types of improvement which the activity based
management can offer to Supply Chain Management and Organisation performance and it
also determines the extent of link between the business industry as well in business size
(Kaplan & Anderson, 2007). In order to foster the organisation performance and supply chain
management while increasing the incorporation and adaptation of activity based costing and
capital in the organization, one of the main finding implications is that the activity based
costing for adoption in smaller organisations require more attention as compared to large
organisations regardless of their industry depending on manufacturing and non-
manufacturing organisation. However, it has been explained by Askarany that, when the
decision is required to be made in order to adopt the activity based management, non-
manufacturing organised implementation of activity based management (Seth, 2019).
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Running Head: Strategic Management
The activity based management can add to the supply chain management as it is
recommended to meet all the needs by giving more up to date, accurate and detailed
information on all processes and activities within the organisation. In this intense Global
competition era, the supply chain management assist in the improve the performance,
profitability and productivity of the organisation. In doing so, the supply chain management
needs more accurate information regarding all process and activities within the organization.
It has been investigated by the Feridun & Al-Khadash that the relation between activity based
costing just in time practices as the initiatives in strategy and the improvement in Pune the
awareness level plays a prominent rule and the use of strategic initiative results in improving
the financial performance of the organisation (Armstrong, 2012).
Hutton has been examined that the activity based costing plays a role in the logistic
management environment. The areas of production management for logistic management,
Accounting concept revealed that many programs related for cost reduction are carried out in
activity based costing are inappropriate and the utilisation of logistic technique will help in
reducing the cost, which has significant situations for organisational structures and activity
based costing. Anderson and Kaplan has described the time driven activity based costing
approach for the allocation of overhead and to assist in providing the accurate product unit
cost with environment. It has been suggested that the unit cost can go insights with lean
accounting approach in order to eliminate the waste. Vazakidis described that in the modern
economic environment, the objective of quality improvement with regard to the price and
value of services is important as well as capable management through the application and
development of analytical tool. The organisational capability, individual market performance,
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Running Head: Strategic Management
strategic interpretation helps in creating the competitive advantage and value creation
(Johnston, 2014).
It can be scrutinized from the report that Activity-Based Management methods have wide
range of uses, allowing the utilization of Activity Based Costing information for different
operations and functions of the company like time-based accounting, strategy support,
monitoring wastage, productivity management, process analysis, and total quality
management. However, there are the concerns related to the adaptation and incorporation of
Activity based management. Thus, to mitigate the concerns, the managers are required to
identify and embrace the global view in terms of supply chain. The supply chain must be
managed and viewed in holistic manner and the steps are required to be taken in order to
maximize the capability of supply chain as much as possible. In relation to serve market,
effort is required to be created in order to control and improve the supply chain performance.
The managers are required to aim for accurate profit and cost drivers, accurate costing
systems, and Activity-Based Management along with an aim for value chain analysis, process
analysis, and sustainable enterprise systems (Ojala, 2013). Activity-Based Management
information should meet requirements of decision makers of organization and must support
their efforts to create all stakeholders value.
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Running Head: Strategic Management
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Running Head: Strategic Management
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