Deluxe Corporation, a manufacturer of printed checks, changed strategy in the face of technological change and market developments that reduced the demand for checks as a means of settling bills.
The Challenge. Deluxe Corporation, a manufacturer of printed checks, changed strategy in the face of technological change and market developments that reduced the demand for checks as a means of settling bills. The new strategy needed the business activities to change to fit the new business focus. The new strategy also required new measurements to help implement and evaluate the new approach. In particular, the current cost system reported little if any information relevant to the business. It was limited to point-in-time cost studies for inventory valuation, and relied on special studies to provide management cost information, efforts that were limited and costly. It was noted that over half the cost of running the company was in the “cost-to-serve” area which was not costed at all.
The Solution. Deluxe created a new cost system using activity-based principles and focusing on customer profitability. It provided a process rather than an account view of the organization. This helped Deluxe focus on reducing cost by changing the process. The cost system also reported the profitability of customers, customer segments, the channels used by customers, and the impact of process and customer behavior on cost and profitability. For example, the cost of supporting one customer versus another could be explained by the different channels used for processing orders. The cumulative impact of decisions using this information was significant. The company’s return on sales increased over a four-year period from 2 percent to 26.9 percent with the new cost system contributing significantly to this increase.