HOW TO IMPROVE THE PERFORMANCE USING INTERNAL

CUSTOMER SERVICE AND ACTIVITY BASED COSTING (ABC)

Today one of the main factors for the success of the organisation is customer satisfaction. Client
satisfaction is not limited to external customer but to everyone who receives the product/service of
the company. We referred to as customer to all people or functional areas that make part of the
organisation.
One of the advantages of the ABC is that it allows an improvement in the efficiency of the functional
areas that support the business (Administrative, Accounting, Finance, Human Resources, etc) by a
cost and quality analysis of the service they provide to the different business units (BUs) or income
generating areas.
Generally, a service comprises by one or more activities. When the activity costs of the support
areas are determined, you can automatically determine the cost of the service provided given,
compare it to the outsourcing market and know how efficient that service is.
It is important not only to determine the cost of the service, but also to know what we can do to
make it more efficient and more competitive.
To illustrate better this ABC application, we refer to a service provided by our firm to an important
transnational company.
One of the goals of our client with this project was the accurate determination of the cost and
satisfaction of their BUs with the services provided by the support areas, because the actual
profitability calculation by BU was questioned by many of the executives.
We found that, before the project was started, to measure each BUs profitability, most of the
support areas costs were assigned by the amount of sales by each BU, whilst other criteria used
were the number of people or the total surface area (m2) of each support area. The use of this
method showed that the Bus that have more sales generated greater costs, which differed very
much from the results of the ABC, because with this method the costs were assigned by each of the
activities taking place in these areas, and using the most adequate criteria for each one of them.
For example:
- In the Logistics area the cost of the imports customs cleaarance service was taken to the BUs
using the number of shipments imported by each BU. On the other, for the distribution service the
number of deliveries was used.

- In the Collections and Credits area, for the cost of the collection service was used the number of
documents receivable that each BU generated.
- In General Services, for the maintenance and cleaning services of the building as well as for the
security service, the surface area (m2 )occupied by each BU was used.
Additionally, considering that the service cost by itself is not sufficient information to improve its
efficiency because the service cost can be reduced by lowering its quality; all the BUs were
interviewed to evaluate the quality, credibility, time of response and other non financial indicators of
each service.
The results obtained in the project were very interesting, because not only each service cost was
obtained but also were identified the most important issues in which that service needed work to
improve its cost as well as the customer satisfaction.
A total of 47 services were evaluated from which only 2 had a below average standard. One of the
most important issues to be discussed, in terms of satisfaction, was the time of response to answer
the Bus requests.
When the results were submitted, these referring to the services costs were the most significant, in
the support areas as well as in the BUs. The people responsible for the services that had a highest
cost than the corresponding outsourcing services (e.g. payrolls, accounting, etc) showed their
concern because they knew that if in a short period of time they did not lower their costs to a
competitive level they could be replaced by the outsourcing services. On the other hand, the BUs
realised which was the collection unit of each service and assured that in the future they will be
much more careful when requesting that service.
For example, in the collections service, which had as collection unit, the number of documents
collected, they said they would try not to issue collection documents for amounts under US$300 to
reduce the total number of documents and hence decrease the service cost for their BU.
In conclusion, the results of the ABC application enabled to help the insourcing / outsourcing
decision making of the services provided by the support areas, and create a costs conscience o
costs culture in the organisation and in the areas of the company, in the support ones as well as in
the Business Units, helping in a substantial improvement in the performance of the organisation as
a whole.