MM: Then at that point, you applied activity-based costing. We already identified that the current-state workflow entailed 300 steps. How many steps did the new, enhanced workflow—entail?

TM: 200.

MM: So clearly, a third of the steps went away?

TM: Absolutely.

MM: Now activity-based costing allowed you to calculate with fairly good accuracy the economic value of eliminating those 100 steps.

TM: That’s correct.

MM: And do you recall what that was?

TM: I couldn’t put my finger right on that number, but I know it was more than the cost of the software.

MM: Right. So in the course of that, you also were able to estimate gains in cycle time. Is that right?

TM: Yes. In fact, that was a major thrust. We knew that we wanted to produce the catalog twice. At that point, we were only producing it once a year.

MM: So basically, you were going to be able to double your cycle time. Not double, but cut it in half.

TM: Cut it in half.

MM: So once you identified that that was a change worth making, the pain associated with the gain would be that there were 100 steps missing with economic value of $500,000 or $400,000. And halving the cycle time would produce incremental sales—as a function of being able to get refreshed content out there.

TM: Yes.

Ancillary Benefits

MM: The other benefit is that now you had your website and your catalog more closely synchronized.

TM: Right.

MM: So you didn’t have one price one place and another in another.

TM: Right.

MM: That would reduce a certain number of customer service cycles. Or discounts that were more like “make-goods,” as a function of satisfying the customer. Right?

TM: Right.

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.