Industries, headquartered in Chennai, India, supplies equipment such as insulators,
lightning arrestors, transformers, capacitors, and circuit breakers to companies that transmit and distribute electrical power. As competition intensified in the 1990s, the company could no longer pass on cost increases in the form of higher prices. It had to hold its prices constant or even reduce them. W.S. Industries wanted to protect its strong market position in India, where it was among the top three in market share, while expanding aggressivelyinto international markets in Asia, Europe, Africa, and the United States. Among its primary goals for success was to achieve a quantum improvement in productivity. It turned to ABC as the primary tool to achieve this business objective. It formed an ABC project team consisting of middle managers from operations, research and development, quality, information systems, and only one finance representative. W.S. wanted operating people to have ownership of the new system, not to feel that it was developed and mandated by finance. The team mapped all process and activities into a database, classifying each as either value added or nonvalue added (a nonvalue-added activity, such as moving parts back and forth into inventory, was one that could be eliminated with no deterioration of product attributes). Employee teams used the new ABC information to suggest continuous improvement projects (CIPs) that would either eliminate nonvalue adding activities or reduce the cost of performing value-adding activities. For example, one team received approval to break down a wall that was causing excessive quantities of internal movement. The team saw from the ABC analysis that the benefits from reduced material movement costs exceeded the cost of the renovation. The highly unionized workforce was initially concerned about job loss due to successful improvement projects. The company guaranteed that the benefits from the CIPs would be captured by higher sales growth, not job losses. To reinforce the culture of employee empowerment and informed continuous improvement, the company instituted the following reward program: A CIP would be eligible for a reward only if it were successfully implemented by a team and the savings were realized without any adverse side effects. Expenses to implement the project would be deducted when calculating the actual savings achieved. Employees would receive a fixed proportion of the savings either one time or annually if savings continued to occur. All rewards would be disbursed equally to all team members in an open forum of all employees. In the first three years, the company completed 56 CIPs yielding savings of Rs. 13.62 million (about U.S. $300,000).More significantly, factory capacity had increased from9,000 metric tons of product to 11,700 metric tons per year. Material movements dropped by 15,200 metric ton-meters per day; reductions in waste, scrap, and inventory yielded savings of Rs. 10 million per year; and the available time on bottleneck machines increased from less than 85% to more than 95%. On-time delivery to customers had also improved dramatically. Source: V. G. Narayanan, Activity-Based Management at W.S. Industries (A), HBS No. 101-062 (Boston: Harvard Business