STUDY ON

PERFORMANCE BASED
MANAGEMENT FOR
BEST PRINTER
INDUSTRIES LTD

CORPORATE
PERFORMANCE
MANAGEMENT

Submitted by
Nishant Bhaskaran

STUDY ON PERFORMANCE BASED MANAGEMENT FOR

BEST PRINTER INDUSTRIES LTD
Introduction
Performance-based management is a systematic approach to performance
improvement through an ongoing process of establishing strategic performance
objectives; measuring performance; collecting, analyzing, reviewing, and reporting
performance data; and using that data to drive performance improvement.

In todays cost-cutting environment, companies have been successful in cost

management and reducing costs by outsourcing, by using supply chain management
to manage suppliers and customer, and by reducing the number of employees. This
chapter focuses on the customer profitability area, an emerging area in todays
marketplace. A lot of benchmarking efforts are under way for understanding the new
product introduction costs and for establishing, by simulating and modeling, the
impact of their market insertion.
Activity based costing/management (ABC/M) becomes a foundation and an
enabler to identify costs and understand the causal impact of the driver data. In this
area, the value of data and information is essential.

About the Industry

Best Printer Industries Ltd (BPIL), a leading check printer, is over 20 years old and
generates over Rs 12700 crore in annual revenue. The quotation at the beginning of
the chapter became a rallying cry as the company determined to build and deploy a
sustainable ABC/M system in six months and during a simultaneous SAP
implementation.
The urgency was born of competitive necessity. For Best Printer Industries Ltd
(BPIL), understanding customer profitability amid a maturing check market and an
intensely competitive pricing environment was essential. At the same time, Best
Printer Industries Ltd (BPIL) believed it could improve relationships with its
customers by using ABC/M to identify costs along the supply chain and help
customers reduce their costs and improve their profitability.
Heightening the urgency was the need to fund a growth strategy to ensure the
check-printing companys long-term survival as the Indian market begins to shift to a
more electronically oriented payment system. Using ABC/M, Best Printer Industries
Ltd (BPIL) identified ways to maintain and enhance the precious fuel (i.e., profits
from BPILs core check business).
Realizing that SAP did not offer the needed ABC/M flexibility, Best Printer Industries
Ltd (BPIL) decided to develop a bolt-on solution to SAP using leading commercial
ABC/M software. The team set out to:
Define profit by each of Best Printer Industries Ltd (BPIL)s more than 18,000
customers.
Create a sustainable ABC/M system.
Build and deploy an ABC/M system in six months.
Deliver results of major impact, namely information that could strengthen sales
strategy in an extremely competitive pricing environment and competitive banking
industry.
Given the standards of quality set for the project and other significant changes under
way at Best Printer Industries Ltd (BPIL), including the SAP implementation and
restructuring and downsizing, many of the potential partners invited to a special
request-for- proposal (RFP) day deemed six months from start to finish impossible.
Many also cited the big obstacle of gaining acceptance from senior and middle
management and employees and transforming an eight-decade-old manufacturing
culture in such a short time. The Best Printer Industries Ltd (BPIL) response was:
We can. We will. We have to. The company was proud to say We did.
ORGANIZATIONAL ISSUES
Founded in the early 1900s, Best Printer Industries Ltd (BPIL) is a large check
printer firm. As a service to banks and their customers, it prints more than 100 million
check orders a year. Although it has ventured into new payment-related areas, such
as payment protection services and electronic funds transfer processing, the
company still derives more than half of its annual revenues and net income from
check-printing services provided to approximately 18,000 Indian financial services

companies (primarily commercial banks) and small-business customers.

Like other manufacturing companies trying to make the transition from the Industrial
Age to the Information Age, Best Printer Industries Ltd (BPIL) has sometimes been a
victim of its own success. Best Printer Industries Ltd (BPIL)s 80 years of prosperity
gave the company no compelling reason to understand its costs in detail. The result
was an unwieldy organization (people plus brick-and-mortar infrastructure) and a
just-say-yes service philosophy in which the company provided what was essentially
customization to each of its thousands of bank customers. In this environment, Best
Printer Industries Ltd (BPIL)s cost to serve was close to its cost to produce. The cost
system was much like a Stage II System which means that this type of system
satisfies regulatory requirements but provides poor feedback for learning and
improvement.
In the 1990s, things changed for Best Printer Industries Ltd (BPIL) as the company
began to witness pressure on its check-printing revenues from the deregulation of
the banking industry. At this time, the check market began to mature. The forecast
was that it would begin a gradual decline after the year 2000 as other payment
options credit cards, debit cards, smart cards, and online paymentsgained market
share.
This rapid growth of alternative payment methods and the fact that financial
institutions were endorsing and funding new payment and business models caused
a significant impact to Best Printer Industries Ltd (BPIL)s business (see Fig 1). As a
result, banks continue to squeeze every opportunity for fee income from both their
customers and their suppliers.
As pricing pressure and a maturing market began to erode Best Printer Industries
Ltd (BPIL)s check-printing revenues, the company needed to reduce costs and
increase productivity. It also had to re-evaluate its high-touch, high-cost service
philosophy and develop a more effective sales strategy in which successful bids
would result in profitable business. Also mixed into the equation was that check
printing remainedand would remaina wonderful profit generator for Best Printer
Industries Ltd (BPIL), but it needed to be an even better profit generator to fuel the
companys growth strategy and ensure its long-term survival.

Light Grey BPIL

Dark Grey Financial Institution margin

Fig.1 Financial Institutions Continue to Increase Check Order Revenue with Price Increases While
Seeking Steeper Discounts

New senior management came on board beginning in May 1995 (chief executive
officer, executive vice president, and chief financial officer joined over three years in
that order) to oversee building a new Best Printer Industries Ltd (BPIL). The top

areas of new managements focus were:

Consolidating operations and infrastructure to improve efficiency and

productivity and reduce costs

Divesting nonstrategic businesses.

Implementing a value-added economic philosophy to calculate the

return on any investment in the business and proceed only if the return meets
approved targets

Determining a growth strategy centered on information solutions that

help banks and retailers increase their profits and lower their risks in a swiftly
changing payment system.

Transforming the corporate culture into one of personal accountability

Initial Efforts
According to the Law of the Lid in the book The 21 Irrefutable Laws of Leader ship
Leadership ability determines a persons level of effectiveness.4 BPIL was lucky to
have strong leadership. That leadership would not only determine the projects
effectiveness but the organizations effectiveness. As BPIL moved to implement SAP,
the ABC/M team, led by the director of Customer Profitability, set out with help from a
respected consulting firm and on-site technical consulting from its ABC software
vendor to build a flexible solution in its ABC package that would link with SAP.
The project scope was very broad: 18,000 customers, 8,700 employees, and
hundreds of products and services representing more than Rs 6400 Crores in annual
revenues and Rs 2551Crores in annual selling, general, and administrative costs.
Given that time was of the essence, a key point about the project staffing is that it
was not a finance project, developed by and for the bean counters and delivered to
the masses with a resounding: Here. Implement. End of story. To avoid surprises,
the project was set up to involve the right people from all levels.
It was an inclusive effort, with cross-functional teams consisting of middle managers
and others from across the process-driven organization who were challenged to
understand the business, develop a better way of operating it, and address the
urgent business need to define customer profitability.
Senior management buy-in was attained early in the project, and senior
managers participated on the steering committee. Communication was consistent
and two-way: bottom up and top down. Training, from ABC/M fundamentals to
database modeling, was integrated into the various project phases so there would be
no surprises once the system went live.
Project Team

The project team consisted of 40 people at four levels of engagement:

1. Executive sponsor (1 member). Provided focus, resources, monitored
progress, and resolved high-level issues.
2. Steering committee (12 members). Approved the project approach, agreed
on priorities, reviewed and approved interim findings, ensured senior
management alignment, and approved deliverables.
3. Project managers (2 members). Developed methods and plan; were
responsible for quality control, issues resolution, leadership, and training.
4.
Field teams (25 members). Consisted of full and part-time team
members responsible for executing the detailed work plan.
Project Description
The project is planned to be progressed in five phases:
Phase 1: Establishing a Foundation
In Phase 1, Best Printer Industries Ltd (BPIL) identified and confirmed the business
issues to be faced. There was a clearly understood base of knowledge and a
common focus. During this phase, Best Printer Industries Ltd (BPIL) also created a
project team and developed a detailed work plan.
In essence, this was a stage of definition. For example, Best Printer Industries
Ltd (BPIL) adopted a supply chain view of its businessBest Printer Industries Ltd
(BPIL) Paper Payments Systemsredefining it from a functional (vertical
organization) to a process driven framework (horizontal), which would lend itself to
ABC/M (Fig 2). As part of defining ABC/M, management determined how it could be
linked to a new value-added philosophy or discipline that the company was adopting.
Referred to as Best Printer Industries Ltd (BPIL) Value Added (SDVA), this theory is
similar to the value-based management/value-added theory other companies have
implemented. Best Printer Industries Ltd (BPIL) also defined ABC/M as the enabling
system to help the company determine its return on investment (or SDVA) by a
particular customer relationship.
In Phase 1, it was agreed that ABC/M was an analytical tool that would provide
insight into value-added activities, nonvalue-added activities, performance
improvement ideas, and customer profitability. There was also agreement on the
major questions that the project needed to answer:
Who are our most profitable customers?
Which practices create win-win or profit-building situations for BPIL and its
customers?
What new practices should we adopt?

Fig 2 Process driven Frame work

Business Events
What new products and services should we provide?
How can we reengineer customer relationships to be more efficient while
lowering costs?
What is our cost to serve, and how does that cost affect customer
profitability?
Phase 2: Activity Analysis
In Phase 2, all cost-driving activities and processes were in the Best Printer
Industries Ltd (BPIL) Paper Payment Systems. The result was a dictionary of 150
activities. As BPIL looked at the business, it also identified process development
ideas and opportunities to be explored.
Phase 3: Activity Costs Linked to Cost Objects
Calling a product or a customer a cost object may seem insensitive, but it is
necessary in the world of ABC/M. In Phase 3, Best Printer Industries Ltd (BPIL)
finalized all cost drivers, linked activity costs to cost objects, and raised awareness of
key cost drivers through continued training. The result of this phase was ABC/M
costs by customer.
Phase 4: Detailed Profitability Analysis
Phase 4 was when the revelations began to occur. With costs now linked to cost
objects, Best Printer Industries Ltd (BPIL) validated revenue per cost object, then
determined profitability. In this phase, management learned the profitability and
SDVA for each of its 18,000 customers.

Phase 5: System Deployment

In Phase 5 (Fig 3), all of the recommendations were finalized, the process
improvements were ranking in order of importance, and an architecture was
developed for a self-sustaining ABC/M system that interfaced with SAP R/3.

Fig 3 Final System Data Flow

Initial Benefits
The Best Printer Industries Ltd (BPIL) project team achieved the primary objectives
of understanding profitability and SDVA by customer, identifying and making process
improvements, and creating a sustainable ABC/M system (numbers refreshed
monthly) that interfaces with SAP. The base for choosing a software package was its
ability to interface with SAP. A package created by ABC Technologies was chosen to
deliver seamless integration between SAPs R/3 and the Oros ABM (now SAS
Activity-Based Management) software. Best Printer Industries Ltd (BPIL) was
pleased when, in 2002, SAS acquired ABC Technologies. SAS ABM, the next
release of the Oros Software, now has extended capabilities for leveraging not only
SAP R/3 data but also SAP B/W data and a SAS ABM Adaptor for R/3 with a modelbuilding wizard that can automatically load and build a model.
Sales Strategy/Customer Relationships
With a new understanding of customer profitability (see Exhibit 4.4) and cost drivers,
Best Printer Industries Ltd (BPIL) is poised to identify win-win practices in its
customer relationships.
For instance, check orders submitted via paper order forms are labor intensive and
costly compared to orders submitted via Best Printer Industries Ltd (BPIL)s
electronic order channel. ABC/M tells Best Printer Industries Ltd (BPIL) exactly what
the cost differences are and enables it to present a supply chain approach to
customers, positioning Best Printer Industries Ltd (BPIL) as a partner and

establishing the sales personnel as profit-building consultants. This insight has

supported a strategy for migrating banks to the electronic ordering channel, as well
as a streamlined paper order process to improve a banks customer satisfaction
levels and reduce Best Printer Industries Ltd (BPIL)s internal costs.
Understanding customer profitability allows Best Printer Industries Ltd (BPIL) greater
advantage in bid situations and contract negotiations to make customer relationships
more profitable. Business below certain price points may be declined if a customer is
unwilling to collaborate with Best Printer Industries Ltd (BPIL) to remove cost along
the supply chain. Moreover, Best Printer Industries Ltd (BPIL) considers its new
understanding of customer profitability a best practice in its industry that enables the
company to submit bids with the confidence that an ensuing contract will be
profitable for Best Printer Industries Ltd (BPIL) and the customer.
Initial Lessons Learned
Undoubtedly, the most challenging aspect of this project was the time frame. BPIL
had to build and install an ABC/M system, gain acceptance, and transform a culture,
and do it all during a simultaneous SAP implementation. So how did it do it?
First, Best Printer Industries Ltd (BPIL) invited all potential consultants to a special
RFP day to hear the same story from the same source. As Best Printer Industries Ltd
(BPIL) communicated its objectives, schedule, and expectations, management
emphasized that failure was not an option.
We can, we will, we have to is what management told its prospective partners.
Several consulting firms declined right away, saying the projectgiven the quality
standardscould not be done so quickly. The consultants who signed on did so with
enthusiasm and a can-do winning attitude. The project got off to a great start with
everyone aware of and ready to take on a major challenge.
Second, to gain acceptance and transform the just-say-yes service culture, BPIL built
cross-functional teams, got the right senior managers on board early, and challenged
all team members to market ABC/M as it would a product.
As a marketing effort, Best Printer Industries Ltd (BPIL) developed key messages
and ready-to-use PC-based presentations that enabled each team member to be a
true ambassador for ABC/M. These presentations featured videos of senior
management and key leaders speaking about the necessity of ABC/M and urging all
employees to support the ABC/M team. As the team members spread the news
about ABC/Ms ultimate benefits, management energized the employee group of
almost 9,000.
As part of gaining acceptance, Best Printer Industries Ltd (BPIL) incorporated
training at every possible step in the project to define and deliver the reasons for
ABC/M. Both employees and senior managers were trained. Everyone understood
ABC/M and participated in what was an inclusive effort.
Finally, to overcome the obstacle of a concurrent SAP implementation, theoretically
two models had to be developedone legacy and one anticipating the new SAP

environment. ABC/M actually enhanced the SAP implementation by improving the

accuracy of the activity costs and streamlining more than 500 cost center feeds into
SAP and enabling SAP to go live smoothly. The company has been asked many
times: What was the return on investment of your ABC project? Although it is
difficult to articulate in hard dollars, Best Printer Industries Ltd (BPIL) would reply:
What would it be worth to you if you could cut your SAP implementation time in
half?
Initial Next Steps
The main goal of the project was to understand the profitability of the Best Printer
Industries Ltd (BPIL) customers. After the project was on track, Best Printer
Industries Ltd (BPIL) realized that it would be advantageous to use ABC/M
budgeting. Since wrap-up of the initial implementation, Best Printer Industries Ltd
(BPIL) has begun to use activity-based budgeting as part of its annual operating plan
process, including capital justification initiatives. It is also using ABC/M for
forecasting purposes to provide additional information about financial results.
Beyond the budgeting aspect, the team identified that there could be a
standardization of services. This new knowledge has aided in standardization
services and elimination of those services that provide little or no value to their
customers.
This standardization removed a significant amount of overhead from Best Printer
Industries Ltd (BPIL)s cost structures. Custom services are still offered, but at
custom prices. Most important, results from recent customer satisfaction surveys
show that service levels are improving. The Best Printer Industries Ltd (BPIL) goal is
to provide consistent excellent customer service that customers want while making
those services cost effective and efficient to meet shareholder approval.
Current State: Today
The current theme at Best Printer Industries Ltd (BPIL) is Continuous Improvement
and Performance Measurement. Its efforts in benchmarking and trending span
internally to departments, locations, production sites. The information is used to
justify new business cases and also contract negotiations. Best Printer Industries Ltd
(BPIL)s process improvement efforts are supporting the identification of which
process will be improved, what processes will be measured, and which key
performance indicators (KPIs) can be surfaced in the future on a scorecard or
balanced scorecard. One side benefit of the ABC project was channel costing.
Understanding its costs of channels, products, and customers will influence the
methods Best Printer Industries Ltd (BPIL) uses to acquire new companies and how
it creates new marketing programs.
The ABC/M model is also used to evaluate these needs:
Investment justification
Make versus buy decisions
New product and service evaluations
New equipment evaluations

Next Steps/Future Plans: Today and Beyond

One of the four major deliverables that the ABC/M team set out to provide was
results of major impact, namely information that could strengthen sales strategy in an
extremely competitive pricing environment and competitive banking industry.

Fig 4 Implications for Sales effectiveness

The implementation proved that there are often significant opportunities to increase
selling time. Based on recent surveys, less than 40% of a salespersons time is
actually spent on selling activities. Best Printer Industries Ltd (BPIL) is now looking at
the implications for improving sales effectiveness (Fig 4).
Eight sales management pillars depicted in Fig 5 encompass the disciplines Best
Printer Industries Ltd (BPIL) must master to maximize its ability to grow profitably.
Decisions in each pillar may vary over time, to reflect changing business
environments. Best Printer Industries Ltd (BPIL) must assess the alignment of each
pillar continually to optimize the organizations effectiveness and growth capacity. In
the future ABC/M will be used to enhance decisions in all of the pillars.

Fig 5 Sales Process

SUMMARY
There has been an educational/cultural transformation at Best Printer Industries Ltd
(BPIL). At Best Printer Industries Ltd (BPIL), the ABC/M project has blended well with
the overall corporate goal of transforming the culture into one of personal
accountability. Using formal and informal training, ABC/M is being incorporated into
everyday thinking at Best Printer Industries Ltd (BPIL).
Employees now clearly understand that time is money: What an employee does
counts toward the companys costs, SDVA, and bottom line. We cant charge for
that is a catch phrase understood to be part of an outdated just-say-yes service
philosophy that Best Printer Industries Ltd (BPIL) can no longer afford, given market
and industry conditions.
The results an ABC/M team can achieve with the proper focus, support, partners,
and motivation in a short time frame is amazing. As with mission control of launching
Chandrayaan successfully, Best Printer Industries Ltd (BPIL) had no choice but to
succeed. Having accomplished its objectives, the firm is now reaping the benefits
that a sustainable ABC/M system can deliver to an organization and its customers.