eBay Inc.
eBay, a service industry company, was founded in 1995 (Cohen, 2003). eBay Inc. is a public company that operates in more than 30 countries globally. The headquarters of the company is in San Jose, California, United States. The multinational company enhances ecommerce, making it possible for entrepreneurs and customers to buy and sell commodities online. eBay Inc. provides an online platform that allows for customer-to-customer and business-to-customer business transactions through the utilization of the internet. The growth and development of technology has contributed immensely to the exponential growth of the company (Stross, 2009). Access to internet and the automation of various business processes have also contributed to the growth of eBay Inc. The company is also involved in the shipment business. Once a client locates goods online, the company offers the delivery services at a cost. Diversification of the business processes has given the company a competitive edge.
eBay’s competitive edge has also been enhanced through their acquisition strategies. Some companies that have been acquired include PayPal, Skype, and StubHub. The main reason for the PayPal acquisition was to ensure that eBay attains its goal of enhancing online transactions globally. While the sales revenue of the company has reduced marginally in 2015, there was a significant increase in operating income, total assets, and net income. The company has a net income of $1.72 billion and total assets worth $17.78 billion. With more efficiency, especially in the allocation of resources towards certain activities, eBay Inc. will be able to generate more profits and maintain their competitive edge.
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Implementation of ABC System in eBay
The activity based costing (ABC) is a costing method for allocating overhead costs that gained popularity in the past two decades. The implementation of ABC cost system involves a series of steps, which include the following:
Determining the ABC needs in an organization: This assists the company determine if there is a need to apply the ABC costing method
Empowering the management on ABC through training: The management needs to be conversant with the application of ABC, its benefits, and weaknesses.
Examining the goals and objectives of ABC implementation
Establishing the particular activities, products, or services in the organization
Determine how the resources will be allocated
Determine if the implementation of ABC costing method will be viable
The ABC system performs two major roles. Firstly, an ABC system identifies all activities, products, and services in the company (Mocciaro, Picone, & Minà, 2012). Secondly, the ABC system allocates resources for each activity, product, and service. One reason for utilizing the ABC system is to eliminate any excess products, services, or activities that are unprofitable (Mocciaro, Picone, & Minà, 2012). In addition, the ABC system may also assist in obtaining crucial information to address the weaknesses that hinder profitability of certain services, products, and activities.
The ABC system will be implemented for eBay with a goal of eliminating wastage of resources. The implementation process will include four steps. The first step is to identify and classify the activities and assign overhead costs to each activity pool. eBay’s cost pools are courier services, e-commerce site, and personalized services. An analysis should involve the identification of the ABC needs in eBay. The company provides courier services, a platform for sellers to sell their products, and services such as personalized items, repairs, etc. With the acquisition of PayPal, eBay fosters the transfer of money from one place to another regardless of the geographical location. Additionally, Skype offers a platform for communication. The mentioned services offered at eBay Inc. need to be assessed with a view to determine their effectiveness and profitability. As indicated above, the revenue for the company reduced in 2015. This may signify that some products and services are not performing as expected. The operating expenses have also been on the rise.
The use of ABC system will assist in major decision making processes. For instance, how effective is Skype service as far as helping the company achieve its goals is concerned. Currently, Skype faces stiff competition from social media platforms, especially Facebook, which has a feature that allows users to communicate via video calling free of charge. Facebook offers services like that of Skype. Therefore, with that kind of competition, Skype service may face a reduction in sales and profits. The ABC system will help eBay to determine whether the operation of Skype services is a viable idea. The goal will be to determine the profit margins and the resources allocated. However, it is imperative to note that the goal of ABC cost system is not about eliminating the underperforming activities, products, and services. The main goal is to establish the reasons behind the inefficiencies of a given activity. The ABC system provides data that can be used in decision making. If issues leading to underperformance can be addressed, then the company may decide to continue providing the service. However, if the service does not help the company generate profits and gain a competitive edge, then it is imperative to eliminate it.
Some of the services that eBay relies on to generate more profits include PayPal services, income from online marketing, and shipping services. For instance, PayPal serves a customer base of more than 150 million customers globally. With the increase of all online transactions, it is expected that the number of clients using PayPal to pay for goods and services offered at eBay will be on the rise. Therefore, an ABC system should be implemented to determine how much resources would be allocated towards making the profitable service more accessible, effective, and efficient. For instance, eBay Inc. should increase the number of customer care personnel to respond promptly to the various needs of customers. In other words, the ABC system will assist eBay in establishing its main strengths and weaknesses. The company may decide to focus on the strengths and eliminate all the activities that increase the liability.
Benefits of ABC cost system to eBay
The main benefit of an ABC system to eBay would be to enhance efficiency and effectiveness (Mocciaro, Picone, & Minà, 2012). For instance, a company that uses ABC costing method minimizes the wastage of resources. The ABC system provides vital information to the management concerning the performance of individual activity. The information assists not only in the allocation of resources, but also an estimating the future economic performance of the business. Additionally, the information provided by the ABC system is important for decision making, especially on the allocation of resources to various activities. The management can also estimate the resources that are needed in each activity. The other important benefit is the flexibility of the ABC system. The system can be manipulated to accommodate changes in customer demands and processes in the company. The ABC system is also one of the least expensive and easier to apply in a company.
Competitive Edge and impact on Business Performance
The application of the ABC system will assist eBay to maintain its growth and development. At first, the company will remain productive, efficient, and effective in all its operations. The company will enhance customer attraction and retention strategies by improving the quality of services. The ABC cost system will assist eBay to focus on the most profitable activities. It will also assist in the elimination of services, which are deemed unprofitable. Thus, the company will reduce unnecessary expenses, thereby, generating more profits. The company will be able to increase its customer base because of improved services. The competitive edge of eBay will play a huge role in helping the company to become a price leader in the market.
Impact of Time-Driven ABC Costing on Services
Today, online business transactions have gained momentum because of several reasons. One, online transactions fosters convenience. Customers only need the internet and the click of a button to visit eBay to select products and services that they need. Communication between the customer and the company is also enhanced. In the traditional method, one must physically visit the stores to select goods. The traditional channels lead to the wastage of time and monetary resources. The second benefit of online business transactions is the increased customer base. EBay is accessible in more than thirty different countries, including the most populous countries of China and India. However, the traditional channels of business transactions may require a lot of resources to reach a huge market. Therefore, in the application of the ABC system the traditional channels might create some challenges. Tracing the performance of a company where traditional channels are used is a challenge. The lack of automation leads to wastage of resources and the challenge of accounting for certain costs. The ABC system is difficult to implement for companies that are not automated. The reason is that the cost driver is difficult to measure. That may hinder the ability of such companies to make any significant improvements. Therefore, there is a need for an internal system overhaul to ensure that a company improves its efficiency and effectiveness. In such an environment, the application of the ABC system will play a huge role in eliminating wastage and aiding eBay to maintain a competitive edge over their competition.
References
Cohen, A. (2003). The perfect store . Boston: Back Bay Books.
Mocciaro, A., Picone, A. & Minà, A. (2012), Bringing strategy back into financial systems of performance measurement: Integrating EVA and PBC, Business System Review, Vol 1. Issue 1. p.85-102
Stross, R. (2009). eBays: The first inside account of venture capitalists at work . Ballantine Books p. 28–29.
