TripAdvisor Company: Activity-Based Costing

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The Service Company: TripAdvisor, Inc.

TripAdvisor, Inc. is US-based travel Web site company that offers reviews of travel related contents to customers globally, and the company provides interactive travel forums for its community of users (TripAdvisor, Inc., 2016). The company refers to itself as ‘the world’s largest travel site’, which allows travelers to arrange and book seamless trips. Millions of travelers depend on TripAdvisor for advice related to multiple types of travel choices and trip planning. It seamlessly links visitors to numerous booking search tools that assess thousands of Web sites to locate the perfect hotel prices.

The company boasts of the largest travel community globally because of its many branded sites that serve more than 340 million different visitors every month. Additionally, it also gets 350 million reviews and opinions from customers accounting for over 6.5 million hotels, restaurants, and attraction sites. TripAdvisor sites are found across 48 markets globally. It is listed in the NASDAQ as TRIP. The company has other 24 affiliates, which it manages and operates to generate more than $1.5 billion annually. TripAdvisor currently employs over 3,000 people. The company is considered among the early adopters of user-generated content, which is free to users, but the business model is based on the advertisement revenues.

The purpose of this essay is to show how time-driven activity-based costing can be applied at TripAdvisor, Inc. (a service company).

In most instances, firms face critical challenges with regard to cost of product or service determination, specifically in highly competitive business landscapes in which low-cost strategies are applied to drive market leadership. Firms use costing systems to assess costs of products and services they offer. Direct costs associated with labor and materials can be easily determined and can be linked to specific items (Siguenza-Guzman, Van den Abbeele, Vandewalle, Verhaaren, & Cattrysse, 2013).

On the other hand, other indirect costs, such as plant depreciation, marketing, and training among others, cannot be directly linked to cost of product or service. As such, indirect costs are thus attributed to a cost object based on costing systems (Cokins, 2001). The ABC systems were formulated in the 1980s to assist with the accurate product-cost determination (Stout & Propri, 2011).

Kaplan and Anderson (2004) introduced Time-Driven Activity-Based Costing (TDABC) as a cost allocation system to improve allocation of indirect costs to specific cost objects to enhance accuracy and set priorities for product development, pricing, process enhancement, and customer satisfaction. Overall, the main objective of an ABC system is to attribute indirect costs in a manner that they can be captured under cost data more accurately based on resource requirements and usages of a firm’s cost objects, including services, products, and customers.

Time-Driven Activity-Based Costing (TDABC) at TripAdvisor, Inc. and related Benefits

A time-driven activity-based costing system is an updated version of the traditional ABC system that strives to capture cost objects accurately and simply. The TDABC has been designed to assess only two types of indicators. That is, time units spent on activity linked to cost objects and cost for every unit time. It is easier to implement TDABC at the company relative to other traditional ABC systems.

The TDABC is extremely imperative for TripAdvisor, Inc. because it offers time-driven services demanded by millions of people globally. The company can apply the TDABC system to assess unused capacity. As previously observed, TripAdvisor runs and manages other 24 travel Web sites, which offer various services, including advice to visitors on hotels, attractions, and restaurants, as well as, booking tools that locate the better deals and prices for travellers. Hence, the implementation of the TDABC system would greatly assist the company.

TripAdvisor can implement the TDABC to determine utilization of capacity for travel and booking. Employees, for instance, may be available to process such requests while customers are not readily available. In such instances, pricing policies may be implemented to support idle staff, which leads to customer dissatisfaction. On this note, the TDABC would assist the company to determine the exact number of employees required to perform travel and booking processes during both low and high seasons.

TripAdvisor can also implement the TDABC to determine demand for resource capabilities based on time. It can easily evaluate the unit time needed to conduct every activity within a cost center based on visitors’ order requests, priority lists, and even customer behaviors that influence time. Hence, it will know unutilized capacities within a cost center. TripAdvisor can go further to calculate the cost of every time unit (minute) for every employee based on service delivery and employees’ practical performance. Consequently, it would be able to allocate costs based on TDABC by multiplying time consumed by every client with all clients and then dividing by capacity cost rates (Stout & Propri, 2011).

The TDABC would offer TripAdvisor numerous benefits. The company would determine the effectiveness of its online services based on the time taken to deliver customer queries. More important, TripAdvisor would greatly benefit from monitoring and controlling resource capacity, specifically staffing and capacity cost. It would be able to collect valuable data to determine if the cost center is performing below the capacity.

TripAdvisor will also be able to estimate unit time for every process using the TDABC. This approach would eliminate subjective process of making staff account for their time (Stout & Propri, 2011). Thus, the TDABC system would offer reliable estimates of resource and capacity usage for a cost center. Overall, staffing decisions and cost control will be vital outcomes for implementing the TDABC system. Cost cutting could be passed to customers to make the company more competitive in the crowded travel and booking industry. Appropriate staffing would also enhance efficiency and service delivery to customers.

The ABC System for Competitive Advantage at TripAdvisor, Inc. and Impacts on Business Performances

For TripAdvisor, which significantly depends on accurate information for decision-making and providing advice to customers, the TDABC system is extremely useful. It must determine profitability based on information gathered to control costs and ensure effective utilization of resource and capacity. The company can easily determine cost estimates for every activity using the system.

TripAdvisor will use the system to eliminate unused capacity, thereby reducing unnecessary costs. All inefficient and unwarranted activities can be eliminated to enhance profitability.

Activity and cost classification would also assist the company to determine the best pricing strategies for its different services offered through various Web sites. Consequently, it would realize competitive edge based on effective pricing strategies across different Web sites.

Enhanced service delivery and efficiency will ultimately differentiate TripAdvisor from its competitors. The company will continuously add value to customers based on seasons while leveraging available data for effective decision-making.

The TDABC in e-Commerce and in Traditional Companies

Relative to e-commerce firms, the TDABC can significantly help in improving time efficiency through effective utilization by relying on data platforms that determine time spent on specific activities. Traditional companies cannot effectively track these processes without automated systems. It is also simple to assess employee performance since the system determines time spent on specific activities. Online activities ensure that accurate information is collected from users, notwithstanding some false data submitted. However, the system eliminates all subjective processes associated with traditional firms and their justification processes. Thus, it is most likely that management will make informed decisions based on available data and information (Zeller, 2000).

Traditional business models are associated with significant amount of time spent on customers. For instance, customers who make travel and booking arrangements physical are most likely to consume more time interacting with staff. Conversely, online processes eliminate more time spent interacting with customers physically. This implies that traditional firms incur more expenses relative to e-commerce companies that have seamless means of delivering services.

TripAdvisor, for instance, can serve millions of customers from various parts of the world every month because of its online platforms. Conversely, a traditional company can simply be overwhelmed and be restricted to specific geographies. The TDABC system ensures effective utilization of capacity and time on activities to deliver value to customers.

For management, effective staff deployment and utilization is an important means of enhancing cost-effectiveness and cost-cutting when unnecessary staff members are not employed. Hence, productive capacity of every employee is important for cost controls (Bogdanoiu, 2009). Improving efficiency and eliminating unused capacities in cost centers are known to reduce wastages.

Overall, the TDABC system would offer numerous advantages, including effective staff utilization, cost-cutting, profit increments, and resource-capacity management. It is also a vital decision-making tool for executives.

References

Bogdanoiu, C. (2009). Activity Based Cost From the Perspective of Competittive Advantage. Journal of Applied Economic Sciences, 4(1/7), 5-12.

Cokins, G. (2001). Activity-Based Cost Management. New York, NY: John Wiley & Sons, Inc.

Kaplan, R. S., & Anderson, S. R. (2004). Time-Driven Activity-Based Costing. Harvard Business Review, 1-9.

Siguenza-Guzman, L., Van den Abbeele, A., Vandewalle, J., Verhaaren, H., & Cattrysse, D. (2013). Recent Evolutions in Costing Systems: A Literature Review of Time-Driven Activity-Based Costing. Review of Business and Economic Literature, 58(01), 34-64.

Stout, D. E., & Propri, J. M. (2011). Implementing Time-Driven Activity-Based Costing at a Medium-Sized Electronics Company. Management Accounting Quarterly, 12(3), 1-11.

TripAdvisor, Inc. (2016). About TripAdvisor.

Zeller, T. L. (2000). Measuring and Managing e-retailing with Activity-Based Costing. Journal of Cost Management, 14(1), 17-30.

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