Rest
of the Story - Part 1
by Tom
Pryor
Are
you red,
yellow or
green?
If
you do business with First Union Bank in Charlotte, North Carolina, the customer
service department knows you by name, account number and by color … red,
yellow or green.
When it comes to answering yes or no to a customer’s request for a lower credit
card interest rate or to escape the bank’s $28 bounced-check fee, the First Union
customer service rep’s answer will be determined by the color of a tiny square
that pops up next to your name on the rep’s computer screen.
For
customers with red
squares the answer will likely be “No”. Their accounts
are not profitable for the bank. Green
means the customers generate hefty profits for First Union and should be granted
waivers. Yellow
is
for in-between customers. The rep may negotiate with you.
First
Union’s computer system is called Einstein. It takes just 15 seconds to pull up
the customer profitability analysis. “ Everyone isn’t all the same anymore,” says
Steven G. Boehm, general manager of First Union’s customer information center
in a Wall Street Journal cover story
January 7, 1999. First Union estimates that the Einstein customer
profitability analysis system added $100 million annual revenue from extra fees
paid by unprofitable customers plus income generated from holding on to preferred
customers who might have otherwise left the bank if not for the extra “yes’s”.
What
secret formula is the basis for this powerful
Einstein system you may
ask?
What
kind of cost system could report with any degree of accuracy the profitability
of a specific customer? What cost system could be so simple that non-financial
employees in a bank could use it? What cost accounting method could actually help
add revenue and profits to the top line and bottom line of the P&L?
The
Wall Street Journal does not mention
the name of the method that First Union used to achieve their tremendous achievement.
But as soon as I read the story I knew the answer. A phone call to First
Union confirmed my guess. It is called Activity
Based Costing (ABC). Yes, it’s the same ABC method that ICMS
makes available today to every manufacturing, distribution, governmental and service
organization worldwide. First Union Corporation not only implemented ABC, they
use it and sustain it.
As
Paul Harvey says “And now you know the rest of the story.”
Epilogue
Does your organization need to improve decision making like First Union Corp? Do you need to know where you are making money and losing money? ICMS has the books, training and software tool kits to help you do ABC profitability analysis and ABM cost improvement. Call us today at 1-817-475-2945. Or send an e-mail to Tom Pryor at tompryor@icms.net.
If this article has inspired you and your organization to cut costs this year, call us at 817-475-2945, or e-mail your needs to tompryor@icms.net.
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