Deluxe Corporation (Deluxe) is the world’s largest printer of checks as well as a provider of electronic products and services to financial institutions and retail companies. The company serves nearly 1.8 million small businesses annually and provides 2 million products—each with personalized information, most within two days of receiving the order, with 98% order accuracy. Revenues in 2002 were $1.28 billion, with operating income of $214 million. Deluxe was ranked by Fortune magazine as the 936th largest U.S. Company.
Although Deluxe has been profitable in all but one year since it was founded in 1915, market shifts in 1997 from paper-based to electronic transactions were causing margins to erode and revenues to decline in Deluxe’s core check printing business. These competitive pressures brought about many changes in Deluxe’s management and strategy. The major management process change was a new measure called Deluxe value added (DVA). DVA measures the incremental profits of customers and customer segments after the costs of capital assets required to support these customers are covered. This focus on the profitability of customers was a significant change in view from the company’s previous focus on the profitability of its check products.
Measurement of DVA at Deluxe requires accurate cost information. However, at the time that Deluxe adopted DVA, Deluxe’s costing system was used primarily to value its check inventory for financial statement purposes. Hence, in 1997 the company decided to implement an activity based costing (ABC) system to measure the costs of specific customers. A comprehensive project structure was put into place in order to design and implement the new ABC system. An executive sponsor provided focus, resources, and leadership, and reviewed performance. A steering committee approved the project plan, established priorities, and approved ongoing progress and results.
Two project managers were responsible for quality control, problem resolution, leadership, and training. Field teams consisting of full- and part-time members were responsible for executing the work plan.
A multi-phased project was initiated with a time line of six months. The plan included forming project teams, analyzing activities and linking costs to customers, analyzing customer profitability, and building a sustainable ABC information system that could be updated on a regular basis as activities and customers changed.
Answer the following questions:
1. Deluxe implemented ABC over a time period of six months. Does this time period seem too short, too long, or just right? Explain your answer.
2. Upon implementing ABC, Deluxe involved teams and groups from various departments within the company. Why do you think it was important for Deluxe to involve so many employees in its implementation of ABC?
3. Is Deluxe’s approach to implementation likely to increase or decrease management’s use of ABC information for decision making? Explain your answer.