Customer profitability analysis using time-driven activity-based costing : three interventionist case studies

Time-driven activity-based costing (TDABC) is a potential solution for profitability analysis, especially in industries with high overhead costs and a high number logistical or sales transactions, which would make the updating of a conventional ABC model costly. Despite a wide ranging TDABC literature, little is known how a company’s customer base influences the way profitability management systems are developed. Accordingly, this study draws on the typology provided by Lind and Stromsten (2006) and focuses on the use of TDABC for customer profitability analyses (CPA). Thus the purpose of this paper is to investigate how companies with different customer interfaces make use of time-driven activity-based costing in their customer profitability analyses. The paper is based on three interventionist case studies focusing on the use of modern costing in CPA. We build our investigation primarily on the interventionist method and participant observation. Our findings highlight the potential benefit for firms when modern costing connects with customer-focused operations. However, challenges include a lack of process time information as well as complexity of logistical processes. All in all, the successful use of sophisticated costing techniques requires functioning information systems and the ability to develop strong service delivery capabilities. We contribute to the scarce knowledge on the implementation and use of sophisticated costing methods in SMEs from a customer-oriented perspective.