With increasing intensity there is talk of the need to integrate various management tools that companies have available to improve their performance in the administration and execution of businesses.
This article deals with a referential framework to integrate three of them: the Balanced Scorecard, the activity cost system (ABC / ABM) and the Budget.
Much has already been said about the benefits that these tools bring to the organization that applies them. However, there is new evidence that said benefits are much greater when they are applied in an integrated and not individual way.
The use of tools in an integrated manner produces the appearance of unsuspected benefits and increases the capacity and use of information systems.
Some of these benefits are:
- Overcoming the traditional limitations of Budgets, which generally take a lot of time and effort and quickly become out of date Better understanding of the effects that operating activities have on financial results Realism in the definition of Objectives Increased Value added in products and services that the company offers to its clients Greater coherence between the Strategies and actions developed throughout the organization Realistic understanding of the economic possibilities of carrying out the Strategies Greater productivity in internal processes due to the continuous measurement of costs, planning and strategic monitoring Better risk management
What is Integration?
Until now, there are few successful cases of a good integration between these business management mechanisms. But those companies that do achieve a surprising advance in their productivity and efficiency.
Let's look at the following integration diagram:
In this tight example, the Dashboard is where profitability strategies and their objectives are defined.
For a correct calculation of the Client's profitability, an ABC / ABM cost model is used; But profitability is not the only thing that can be calculated with ABC / ABM: the activities that make up a process can be calculated and analyzed if they constitute an obstacle to achieving the strategic objective.
Finally, the necessary resources are stipulated to develop this strategy, which are included in the budget of the organization.
The most important thing about this Diagram is the close link between the three tools that allows setting coherent and achievable objectives (Dashboard), which are supported by powerful real information (ABC / ABM) and careful planning for their fulfillment (Budget).
The joint and integrated application of these tools offers a unique opportunity to create value and directional business management with a different mechanism than those commonly applied.
An administrative management based on this management architecture can benefit from the following aspects:
- The active use of Tactics and Strategies as a framework for decision-making Availability of adequate information Coherent functional coordination throughout the organization Strategic alignment Development of strategic mindset at all levels of the company
In more concrete terms, when a management system such as the one described is developed, it is possible to aspire to achieve ambitious objectives that require permanence over time.
Some examples of what companies can do are:
Long Term:
- Reduce process times (for example 30%) Dramatically improve strategy execution Implement continuous cost reduction policies
Short Term:
- Identify and eliminate worthless activities, especially those carried out in central departments Present a better segmentation of the client portfolio and set differential prices according to them etc.
