Las políticas públicas en la disputa del campo urbano 69

The changes in the financial services sector in the 1980s have had a significant effect on profitability, forcing financial institutions to change their focus. Reduced interest rate spreads and balances, and the increased risk of loss on lending have raised the

importance of non-interest revenues, while competitive pressures have made price or volume increases more difficult to achieve. Since the early 1990s, the majority of financial institutions in the UK have undertaken some form of cost reduction exercise (Mabberley 1992). The changes that have taken place in the UK Banking environment have already been discussed extensively in the thesis. This section will briefly reiterate some of the key changes and emphasise why ABC is seen by academics and practitioners as a means of accommodating and responding to the changes.

Financial institutions have been hit hard by the recession. Mabberley (1992) argues that in the Financial Services sector, Activity Based Costing was identified as a valuable tool for identifying the products and activities that consume costs. Innes and Mitchell (1991) argue that ABC is well suited to the service sector, as the provision of a service, like a physical product, often requires the occurrence of indirect costs which may not be volume related. By linking these costs to services through ABC cost drivers they argue that ABC facilitates the accurate costing of individual services. In addition, the main characteristics of financial services institutions are very similar to those required for the successful application of ABC in the manufacturing industry: First, a highly competitive market, second , diversity of products, processes and customers, thirdly, significant overhead costs not easily assigned to individual products and finally, demands on overhead resources placed by individual products and customers not proportional to volume.

As markets have become increasingly competitive and profit margins have been squeezed, the need to control and reduce costs has focused attention on the means of cost management within the organisation. Banks like any other organisation, are aiming to maximise profitability in either the short or longer-term and managing the cost base has been seen as the solution. ABC, with its concentration on overhead costs, and their relationships to products and customers, is suitable for financial services with its complex product-to-process relationship and high fixed cost base. Sephton and Ward (1990) believe that the introduction of ABC will provide the potential for financial services to be at the leading edge of management accounting development and gain for themselves a competitive advantage.

In the Financial Services industry, ABC was seen as a device which, in a competitive environment, would enable knowledge of the individual costs of products and services and would aid in determining which of them was profitable, or would at least make a contribution to overhead costs and ultimately profitability. ABC was seen as a means for financial institutions to remain, (or as some commentators would argue, become)

competitive and to reduce their cost bases without harming their businesses.

Significantly, we see that financial services organisations are now attempting to make their managers accountable for income, costs and profitability; managers in financial service institutions have to take responsibility for the profitability of products or groups of products and must take control of the interest and non-interest- related cost and income flows. Mabberley (1992) argues that, Activity Based Costing assists in the identification of non-interest related costs, but can only support analysis of income and interest costs if products and the volume of activity are defined. This contrasts vividly with the past, where historically, the level of management in the financial sector has been limited and managers have concentrated on the external information provided to the shareholders and regulators (Johnson and Kaplan 1987).

Sephton and Ward (1990) highlight three areas in particular where financial service institutions could gain considerable benefit from using ABC arguing that ABC is not just a basis for product costing; it is an on-going cost management process which can be used to control costs and to identify investment opportunities. Firstly, ABC can be used as part of the strategic management process; understanding cost behaviour and analysing profitability (which are discussed in detail in section 3.6). Secondly, the calculation of meaningful11 product costs. The last area where they perceive ABC to be of particular

interest is in areas like budgeting, forecasting, and performance measurement in overhead departments.

For reasons relating to competitive advantage, the emphasis has shifted away from volumetric sales targets and towards profit-related objectives. This greater emphasis on profitability has resulted in the need to identify controllable costs and the factors that cause costs to be incurred (cost drivers), as well as the need to identify profitable product and customer relationships. Managers are concentrating their attention on the costs that they can manage and beginning to link the cos^enefit analysis to the value- chain. They are focusing on the activities that add-value, and hence, differentiate their products and services or delivery capability from that offered by the competition in a way that maximises the contribution to the organisation as a whole.