AUTHOR(s): Turney, Peter B.B. TITLE(s): Beyond TQM: with workforce activity-based management. (total quality management) illustration photograph chart Summary: Workforce activity-based management (WABM) is the use of information to emphasize the need to improve profitability, timeliness and quality to employees. In WABM, employees are divided into work groups to discuss ways to document, measure and improve their activities. Various materials are used in this process to visually represent each activity. Facilitators guide the teams through the WABM process and encourage individual contributions from each team. After the documentation and measurement activities, customers and suppliers are invited and asked to form a joint team. The joint team creates a storyboard of the overall process based on the information obtained from the storyboards of each team. The main cost drivers for the joint process and their effects on overall performance are identified and used to come up with improvement strategies. Management Accounting (USA) p28(4) Sept 1993 v75 n3 DESCRIPTORS: Personnel management_Technique Managerial accounting_Technique It builds a sense of ownership at all levels of a company. That Saturday morning the room was full of people clustered in groups around storyboards. The boards, covered with cards documenting and explaining the work done by the people, were the focal point for intense discussions by each group. These employees of an electronics company were gathered together to launch a new process--workforce activity-based management (WABM). All employees were present--including the president, the janitors, and everyone in between. What is workforce activity-based management? It is the process of using information to focus everyone on continuously improving profitability, timeliness, and quality. It combines the power of activity-based costing (ABC) information with a group process using storyboards where the development, maintenance, and application of the information involves the entire workforce. Everyone works toward a clear, complete, and measurable set of goals. Workforce activity-based management helps achieve this focus through performance measures of cost, time, and quality that reflect each work team's contribution to the organization's goals. With these measures, everyone understands how his or her contributions affect organizational performance, including the bottom line. THE GROUP PROCESS Under workforce activity-based management, employees are divided into work teams--groups of individuals who work together on a regular basis--for the purpose of documenting, measuring, and improving their activities. The primary tools for this process are storyboards, workspaces for attaching cards, dots, yarn, and other items that visually represent information about a team and its work. These communication tools help document and organize a team's ABC information and help employees brainstorm team issues and resolve problems. They do not require extensive training to use, and workers with limited education can create them just as effectively as highly trained engineers or other professionals. The overall group process is led by a facilitator, who may be a member of the team or possibly a manager or staff person. The facilitator's task is to keep the team in step with the WABM process and to encourage and focus individual contributions from the team. The facilitator starts the WABM group process by asking, "What work do we do?" Through brainstorming, team members identify the activities they perform. One member of the team writes these activities on cards, and another pins the cards onto the storyboard. This process continues until all required information is attached. Once the work has been documented, organized, and measured, the work team moves to the action phase of the process. Here the team contracts the customers and suppliers of the process and asks them to form a joint team. The joint team develops a storyboard of the overall process, which combines activities and measurements from the separate storyboards of the individual teams. It also includes a determination of key cost drivers for the joint process and their impact on overall performance. This information is used to set priorities for improvement and to develop plans for action. A POSITIVE IMPACT The workforce activity-based management group process has a positive impact on an organization and its workforce. This impact results from these characteristics: * The people who do the work have the most knowledge about what they do. Involving persons who do the work in developing the ABC information improves its quality and usefulness because they understand the work and are best able to improve it. * WABM is a bottom-up process. The work teams develop and maintain the activity-based information, which gives the ownership of the information and increases the likelihood they will use it to improve their performance. * The group process is a "shared experience." All employees share the experience of communicating and solving problems with a common language. This shared experience helps eliminate barriers to cooperation and helps customers and suppliers work together to make changes that have the largest positive impact on their joint performance. * Storyboards are easy to learn and use. Storyboards are not expert tools that intimidate workers. Their simplicity helps make workforce activity-based management an easy process to learn and practice. * WABM takes little time from the primary work of the teams. Workforce activity-based management soon becomes an integral part of a team's daily work. The process is mastered quickly by the work teams and is applied on an ongoing basis without excessive time and effort. * WABM integrates information into everyday work. Activity-based information belongs to the workforce; employees create it, possess it, maintain it, and use it daily. This procedure increases their ability to accept responsibility, bringing empowerment and accountability. * WABM allows everyone to function as his or her own accountant. Each work team and member of the work team participates in the measurement process, which eliminates the need for large numbers of staff to develop and maintain systems and changes the staff's primary role from technician to coach. ACTIVITY-BASED INFORMATION This fact-based process uses activity-based information (ABC) to describe work and its results. It applies this information to a wide variety of strategic and tactical issues such as what price to set, what product mix to sell, and which improvements to make. An ABC model contains two types of information to help answer these questions: cost information and process information. Cost information explains the cost of work and its use. Process information explains why the work is done and how well it is performed, and it describes relationships with customers and suppliers. Figure 1 shows a graphical representation of activity-based information called the two-dimensional model or ABC cross. Each type of information in the cross has a defined role in the continuous improvement process. (See Figure 1.) [SysOp note: no figure was included with the text in this file.] Information about activities enhances understanding of the team's work and the cost of doing it and is used to identify costly activities and to reveal non-value-added work. Information about objects of work explains how work and its cost are affected by the volume, lot size, design, or requirements of each product or customer. It helps the work teams plan workload and resource requirements as well as identify problem products and customers. At the company level, product cost and customer cost are useful for making strategic decisions. Cost drivers describe the causes of work. Some causes are positive, such as a customer order that presents an opportunity to serve. Other causes are negative, such as errors in documentation that cause rework. Negative cost drivers explain why work requires excess cost, time, and poor quality, and their removal is the key to permanent improvement. The identification of inputs and suppliers helps reveal the causes of waste (the cost drivers) as well as the entities that must be involved if those causes are to be eliminated. The root cause of a problem often exists within a supplier's operation, requiring the involvement of the supplier in its resolution. For example, errors in customer specifications (the input) received by engineering may originate in the sales department (the supplier). Performance measures explain how well the work is done. They cover the cost, time, and quality of the work. They are used to determine the baseline for continuous improvement and can be compared with external bench-marks. They also are used to set targets for improvement. Customers and the outputs they receive are important because they are affected by changes in work practices. The involvement of customers and suppliers in the WABM process ensures that priorities for improvement are set based on the process-wide impact of the changes. The availability of activity-based information to the workforce plays an important role in the continuous improvement process: * ABC is easy for everyone to understand and use. ABC can be applied successfully by workers everywhere regardless of industry and culture. This success has been achieved in U.S. companies even where workers have limited formal education and a limited grasp of the English language. * ABC removes barriers to communication. ABC is a common language that transcends conflicting terminology and data. It allows fact-based cross-functional problem resolution and helps customers and suppliers achieve joint performance improvements. * ABC is the only source of information about cost, time, and quality, and it allows fact-based decisions about improvement priorities. No longer just a cost system, ABC contains a full array of activity-based information. Choices can be made based on cost, time, and quality, and priorities for improvement projects are set based on hard facts rather than unquantified preferences. * ABC shows all employees how they contribute to the organization's goals. ABC information reveals how the actions of each work team affect the success of the organization and its customers and allows priorities to be set for maximum improvement in total performance. * ABC lets every employee accept financial responsibility for the success of the organization. Each employee knows how he or she affects financial performance and can take responsibility for actions that will improve the bottom line. ORGANIZATIONS MUST FOCUS A focused organization has everyone pointed and moving in the same direction. Its goals are sufficiently clear so everyone understands them, and they represent a complete statement of where the organization wants to be. In addition, the goals are measurable so all employees know when they have been achieved. Focus is crucial to continuous improvement. Without it, improvement efforts may fail to enhance overall business performance. For example, Company A selects improvement projects based on their impact on quality, but it does not measure their impact on cost. Company A is unfocused because its improvement efforts are prioritized based on the impact on quality alone rather than on quality and cost. Achieving focus requires a vision and a clear, complete, and measurable set of goals based on the vision. The vision and goals must be shared by everyone in the organization. But focus also requires that everyone have a set of performance measures based on the organization's goals. These performance measures allow all employees to see how they contribute to business performance and provide the basis for selecting priorities for improvement. For example, an automobile manufacturing company has primary goals for the profitability, time, and quality of the vehicles it produces. The company selects vehicles as its primary unit of work. It develops performance measures for profitability, time, and quality per vehicle that match its key goals. The profitability measures are average sales dollars per vehicle and average cost per vehicle. The timeliness goal is the average number of days of lead time from the day an order is placed to the time a vehicle is delivered. The quality goal is average part per million (PPM) defects. Each work team has a similar set of performance measures. Each set of measures is complete (they cover cost, time, and quality) and consistent with overall company goals and performance measures. The work teams collectively are responsible for every component of the company's profit margin, time, and quality. For example, the final assembly work team's responsibility is for the cost, time, and quality of its work. It selected the performance measures assembly cost per vehicle, assembly lead time per vehicle, and the PPM defects in assembly to reflect these responsibilities. Clarity is achieved because the measurements are simple, easy to calculate, and few. Each work team has a minimum of three performance measures (one each for cost, time, and quality) and a maximum of seven. Experience has shown the value of a limited number of measures--most people cannot achieve more than seven measures simultaneously. For instance, the purchasing work team at the automobile company has four performance measures. Its primary unit of work is the number of purchase orders processed, so its cost measure is the cost per purchase order. The team also tracks the purchasing cost per vehicle to show how it fits directly with the company's cost measure. Its other measures are purchasing lead time and purchase order errors. WABM provides such focus to everyone. While bottom-up processes fuel employee involvement, they don't always result in improved performance. On the other hand, focused performance measures allow each work team to direct its work for maximum improvement in company performance. Combining focused performance measures with the empowerment effects of activity-based information and the group process yields superior results. HOW WABM AFFECTS A COMPANY The three elements of workforce activity-based management--ABC information, a group process, and focus--combine to change an organization in several important ways, which include changes in employee empowerment, worker accountability, roles and responsibilities, decision making, and organization structure. Empowerment. Empowered workers have "responsibility, a sense of ownership, satisfaction in accomplishments, power over what and how things are done, recognition for their ideas, and the knowledge that they're important to the organization." The group process creates a feeling of job ownership and a belief that the team can change its work practices. ABC information helps workers understand what it is they do. It also shows the workers exactly how they contribute to the goals of the organization and how they can improve organizational performance. The "shared experience" with other team members as well as with customers and suppliers increases their feelings of being connected to the rest of the organization. Accountability. WABM helps move employees from an attitude of entitlement to one of accountability. An entitled employee is one who says, "I do what I am told to do. Therefore, I am entitled to my pay, raises, promotions, benefits and so on." Entitlement is an inevitable consequence of not understanding how one contributes to the organization. Without information about work and its consequences, and without the responsibility to make business decisions, workers only can be passive in their relationship to the organization. They are mentally disconnected from their work. WABM involves sharing information with workers. ABC information helps them understand what it is they do and how what they do affects the performance of the organization. This knowledge allows them to make business decisions that improve organizational performance. ABC information helps workers move from entitlement to accountability. An accountable employee is one who says, "I understand how my actions affect the financial performance of this company. Therefore, I share responsibility for the success of the business. Accountable employees are mentally connected to their organization. They understand what it is they do, why they do it, and how well they do it. They are fully engaged in the success of the organization. Roles and Responsibilities. WABM helps change the roles and responsibilities of managers and workers. The traditional role of a manager is to make decisions and give direction. This role is appropriate for managers because, in most organizations, they have the responsibility, knowledge, experience, and information to make these decisions. In contrast, workers do not possess these advantages and only can take direction from managers. These roles change with WABM because of the availability of information to the workers and because of their involvement in the group process. Workers can accept responsibility, can participate in business decisions, and can develop their skills in addition to doing work. Managers, freed from some of their traditional responsibilities, spend more time as coaches, facilitators, communicators, and resources. Decision Making. In a traditional organization, decisions are made by managers. With WABM, decisions can be made at levels below management because workers now possess the information they need in order to make knowledgeable decisions. The extent to which this happens depends not just on the availability of information, but on whether workers have been empowered to take on responsibility for business performance and have been trained to accept this responsibility. The impact can be significant. The quality of decisions improves because of the accuracy and completeness of ABC information. The speed of decision making increases because those who do the work make the decisions (the chain of command is bypassed). Organizational learning is enhanced as workers grow in experience and knowledge. Organizational Structure. WABM often reveals organization structure as the root of poor performance. The artificial dividing of work into vertical functions creates communication barriers and results in excess cost and time and in poor quality. Re-engineering the process--such as combining separate work teams into one process-wide work team--is a frequent result. For example, a joint production-sales team may decide, as a result of WABM, to move the production scheduling process into the sales department, putting the work closer to the external customer, eliminating communication problems between the two departments, and cutting overall process cost, time, and errors. ONCE AGAIN Let's review. WABM uses information to focus everyone on continuously improving profitability, time, and quality. It integrates ABC into the world of work teams and total quality management (TQM) and goes far beyond what either ABC or TQM can accomplish separately. WABM uses a group process whereby work teams develop, maintain, and apply ABC information. Teams document and measure their work on workspaces called storyboards and use them for brainstorming and solving team problems. The group process builds commitment to the overall WABM process and fosters ownership of the ABC information. WABM adds focus to improvement efforts--something that often is missing from TQM. All employees understand how they can change their work to help improve business performance and that they are accountable for their contribution to that performance. Workers accept more decision-making responsibility, and managers become a coach, facilitator, communicator, and resource. The most important connector is money. With every single employee having bottom-line responsibility, knowledge of ways to improve financial performance, and reasons to do so, a company can't help but become more profitable. [See] William C. Byham, Zapp! The Lightening of Empowerment, (Pittsburgh: Development Dimensions International Press, 1989).