Without a thorough understanding of the organizations' work, even the best manager cant' create an effective plan.
Before any manager attempts to plan, budget, cut costs or improve performance, he or she must thoroughly understand what drives the organization's costs. The best way to do that is by defining of the organization's work in terms of its activities.
Activities--or what an organization does--are not emphasized enough in current management practices. The complexity of modern business requires elaborate organizations and procedures. Unfortunately, discussion and action then tend to follow these organizational and procedural lines. Saying, "I am in sales" only tells you what a person does in the broadest sense. Activity statements, on the other hand, convey more information: "I make cold calls and sales presentations on products A, B and C in Ohio."
Consider the flow of materials into a factory. The functions involved may be material management, quality control and accounting. The material flow and associated costs can be budgeted and managed in terms of these functions as well as a material overhead rate. Much more information, however, is contained in descriptions of the activities involved: receive material, inspect material, move material, store material, pay for material and supply material to assembly. Terms that describe activities provide a better basis for managing the work, improving performance, predicting costs and reducing costs.
An activity is the way a business employs its resources (labor, materials, time, information and technology) to produce particular outputs. These activities are determined by 1) required outputs, but also by inputs (automating time records in the payroll function eliminates or changes review, data entry and error correction activities without changing the output); and 2) management decisions regarding processes and procedures.
There are always hierarchies in activities; choose the level that is significant for the work and cost. For example, "prepare reports" contains the subsidiary activities "create reports" and "type reports." Only a word processing bureau would find these subsidiary activities significant. An engineering function may not even find "prepare reports" significant, choosing to include reports in activities such as "design product X" and "modify product Y."
Work Definition Process
Defining an organization's work in terms of its activities and cost drivers requires determination of its inputs, outputs and what dictates the outputs. The logical process is shown in the accompanying box (see page 36).
The last step in the process is necessary to see if there is a better or cheaper way to do the work. Different inputs change the required activities, an improve your organization's performance and/or lower its costs. Also, most organizational outputs within a company are another organization's inputs. Are there different outputs that will improve company performance and costs? For example, introducing a zero defects quality responsibility in a factory assembly organization changing its output quality specifications) eliminates certain inspections by a separate quality control organization.
Most organizations have more inputs, outputs and activities than are recognized intuitively. For instance, the outputs of a payroll organization may include timely pay checks for every employee, in the right amounts, with the correct deductions withheld; all the correct records needed for business, tax and employee purposes; submission of all required payroll tax returns; and satisfactory answer to inquiries and complaints. Its inputs may include pay and deduction instructions, charging instructions, time records, computer programs, data entry procedures, and company policies and procedures. Its activities may include reviewing and entering time records, reviewing payroll data prepared by the computer, entering changes in salaries and deductions, correcting errors, making adjustments, delivering pay checks, preparing tax returns and handling inquiries. …