By revealing the links between activities and resource consumption, ABC points directly to profit opportunities. Profit Priorities from Aotivity-Based Costing by Robin Cooper and Robert S. Kaplan In recent years, companies have reduced their dependency on traditional accounting systems by developing activity-based cost management sys- tems. Initially, managers viewed the ABC approach as a more accurate way of calculating product costs. But ABC has emerged as a tremendously useful guide to management action that can translate directly into higher profits. Moreover, the ABC approach is broadly applicable across the spectrum of company functions and not just in the factory. ABC is a powerful tool - but only if managers resist the instinct to view expenses at tine unit ievei. Because ABC reveals the links between perform- ing particular activities and the demands those activities make on the organization's resources, it can give managers a clear picture of how products, brands, customers, facilities, regions, or distribution channels both generate revenues and consume re- sources. The profitability picture that emerges from the ABC analysis helps managers focus their atten- tion and energy on improving activities that will have the biggest impact on the bottom line. Fully exploiting ABC as a guide to profitability, however, requires a conceptual break from tradition- al cost accounting systems and a willingness to act on tbe insigbts ABC analysis provides. Managers must refrain from allocating all expenses to individ- ual units and instead separate the expenses and match tbem to the level of activity tbat consumes tbe resources. Very simply, managers sbould sepa- rate tbe expenses incurred to produce individual units of a particular product from tbe expenses need- ed to produce different products or to serve different customers, independent of bow many units are pro- duced or sold. Tben managers must be prepared to act. First, they should explore ways to reduce the resources required to perform various activities. Then to transform Robin Cooper and Robert S. Kaplan are, respectively, asso- ciate professor of control and Arthur Lowes Dickenson Professor of Accounting at the Harvard Business School. They are coauthors of The Design of Cost Management Systems (Prentice-Hall, 1991). 130 HARVARD BUSINESS REVIEW May-June 1991