Amoeba Management–Part 3

Amoeba Management requires each group or a unit (normally consists of 20 or less people for a manufacturing/distribution company) to have a group based income statement. As previously stated in an earlier post, the Amoeba Management has three main objectives. They are:

Establishing a system of group-based profitability analysis. This system must be directly connected to the current market conditions.
Developing leaders of each group by giving opportunities to treat his/her group as an independent company. It is a superb tool to develop future leaders.
Ensure that every member of the organization pays attention to improve the profitability of his/her unit. It fosters a strong sense of teamwork.

Typically, a manufacturing department pays attention to how to minimize their cost structures. However, they do not often think about how to maximize sales. On the other hand, the sales department usually tries hard to maximize sales, but tends to neglect minimizing expenses. Under the Amoeba, each unit pays attention to both aspects of business, i.e., maximizing revenues and minimizing expenses. Under the Amoeba, the manufacturing section records sales to the sales department. The sales department buys inventory from the manufacturing section and sells them to the market.

The concept appears very cumbersome. However, the essence of Amoeba is to give a sense of contribution margin (unit profit) to each unit. Each unit makes efforts to maximize the contribution. When all of the P/L of each unit is presented, the top management can clearly see where the issue is. As you can tell, Amoeba is a massive amount of data and a massive consolidation process. When each small unit pays keen attention to its expenses as well as sales, this will lead to a significant company-wide profit maximization.

When a company fully adopts Amoeba Management, it should enjoy over 10% of operating margin. In addition, the company should enjoy far greater profit margin than its competitors.

Koh Fujimoto, Principal in Charge, International Practice
kfujimoto@cdhcpa.com