MM: Let’s get to another idea that you had shared with me. Tom, Hubert remains fairly unusual in that that they use activity-based accounting. Would you explain “activity-based accounting?” And how that clarified the cost of the current-state operation?
TM: Activity-based costing at Hubert involved an exercise that was completed every year that depicted the different activities cross-referenced with percentage-of-time-spent on those activities for each position in the company.
Then, as an additional caveat, there was an activity that was called, “IT Involvement.” You could gauge how much IT or technology needs were being done for that, as well. Another piece of that, of course, was how much building space you used—and different things like that.
On a yearly basis, we would look at the different activities, define different numbers to those, and then the accounting group would take those percentages—knowing what the overhead was, and additionally knowing what money you spent. For instance, in the catalog piece, you spent so many millions of dollars to print the catalog and to buy the paper. So those pieces were applied to that activity, as well.
Then you were able to say, “Well, if it takes us this much time activity-wise to produce a catalog and we need to produce another catalog, how much activity would that take?”
Then, apply that to the timesavings that you would anticipate to enhance that or to decrease that activity—based on a particular software like database publishing. Then you have a “soft dollar ROI.”
However, as everybody knows, once you commit to a soft-dollar ROI, it becomes a hard-dollar ROI.