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The ultimate goal of ABC is to enhance the profit result from value received by the customers (Cooper & Kaplan 1991; O'Guin 1991). Financial measures are indicators of the outcomes of past performance and will not be of assistance to guide managers to areas of critical concern (Baines & Langfield-Smith 2003). Rather than linking the business unit operational performance to the financial performance, it is opted for linking the operational performance to the perceived benefits received from ABC. Following Foster and Swenson (1997), this study

does not include financial performance measures. Instead of, qualitative financial benefits are appropriate for respondents in terms of identification and tracking to ABC. Managers would recognise and realise these benefits easily. Cost savings are important indicators of financial benefits. For example, management may think of adding controls to one of the activity centres and perform an estimation of what cost savings could be gained under each activity centre. In practice, it is rare that a decision does not affect the balance of the organisation (Hicks 1999). This is would be obvious in the correlated activities. The decision, for example, to add controls to an activity centre (1) may enable the firm to increase the output, but, in turn, an activity centre (2) may not able to deal with the excess units. In this case, management may first decide to remove the bottleneck. On the other hand, it is difficult to attribute improvements in financial performance to ABC because internal and external factors have potential impact upon the bottom line (e.g., regulations, customer preferences and conflict between operations). Asking mangers to establish a link between ABC and external financial measures is elusive. Zaman (2009) found that average managers are neutral to decide on weather ABC implementation has increased the organization’s profitability. Ittner and Larcker (1998) survey 27 executives of quality for US firms and 75 per cent of them felt pressure to demonstrate the financial consequences of their quality initiatives and 52 per cent of them found difficulty to identify quality improvement projects that offer the highest economic return. Only 29 per cent of the executives could directly relate their quality measures to accounting returns and just 12 per cent to stock returns. For customer satisfaction, only 28 per cent of the executives could relate customer satisfaction measures to accounting returns and 27 per cent to stock returns.

Al-Omiri and Drury (2007) suggest the use of satisfaction or usefulness of the management control system as outcome measures rather than organisational performance measures when adopting product costing systems. They justified this selection as to the difficulty in extracting the effects of adopting different systems on organisational performance from other events. Also, Cagwin and Bouwman (2002) claimed that overall ABC success, satisfaction with ABC and financial benefits obtained from ABC are good proxies for improvement in financial performance.

The purpose of this study is to coordinate between the alternative measures of ABC success that already identified in the literature such as management evaluation of ABC success. It is a broad measure which compares financial and non-financial benefits with costs of operating and maintaining the system. It is substitutes for profit measures especially the later are not relevant to the government sector in this study.

ABC benefits have been divided into four factors, (1) process cost improvement; (2) non-process cost improvement; (3) revenue improvement and (4) customer satisfaction. This category was selected based on the reliability test. Foster and Swenson (1997) and Fortin, Haffaf and Viger (2007) combined customer satisfaction with financial benefits. They found customer satisfaction does not contribute significantly to dollar improvements, which suggests that customer satisfaction is not related directly to financial benefits. Thus, this study deals with customer satisfaction from non-financial perspectives. Of course, ABC benefits in this study are not inclusive. The ending point of the model represents the sole measure of ABC success (i.e., overall ABC success). The ultimate goal is to investigate how the preceding factors affect management evaluation of ABC success.

Maiga and Jacobs (2007) point out that cycle time improvement and quality improvement have significant impacts on cost improvement. Ittner, Lanen and Larcker (2002) found that extensive ABC use has indirect impact on cost reductions through quality and cycle time improvements. In this study, ABC benefits refer to cost savings and revenue improvements as well as improvement in customer satisfaction. The assumption in the literature is that improvement in non-financial areas would improve the financial performance.

H7a: Process cost improvement is positively associated with quality improvement. H7b: Process cost improvement positively associated with cycle time improvement.

H8a: Non-process cost improvement is positively associated with quality improvement.

H8b: Non-process cost improvement is positively associated with cycle time improvement.

H8c: Non-process cost improvement is positively associated with activity efficiency.

Revenue improvement is one of the financial benefits derived from ABC. Zaman (2009) found that perception of ABC as a measure of strategic cost allocation method, increased efficiency and increased effectiveness have positive and significant effect on perceived overall performance. Maiga and Jacobs (2007) point out that quality improvement have significant impacts on financial performance. Also, Ittner (1999) claims that higher quality of products or services increases revenue gains through customer satisfaction and loyalty. Ittner and Larcker (1998) found that 48 per cent of the senior quality executives could link their quality measures to revenue improvement. The assumption in the literature that improving non-financial performance would improve financial performance (Baines & Langfield-Smith 2003). This leads to the following hypotheses:

H9a: Revenue improvement is positively associated with quality improvement. H9b: Revenue improvement is positively associated with cycle time improvement. H9c: Revenue improvement is positively associated with activity efficiency. Cooper and Kaplan (1991) demonstrated that customer-related ABC information helps firms identify unprofitable customers and decide on actions to improve their contributions. Firms may decide to focus customer base or expand it based on sales contribution for customers and unused production capacity. Moreover, serving profitable customers better, as indicated by ABC, affects their long-term acceptability. Considering customer satisfaction as paramount importance, Smith and Dikolli (1995) mentioned some negotionable aspects that could affect the behaviour of unprofitable customers without compromising the customer’s level of satisfaction. One aspect, for example, is the restructure of delivery run to be infrequent and on time service.

ABC systems play an important role in supporting competitive strategies, increasing activity efficiency and identifying opportunities for cost reduction. However, ABC systems also support the different elements of customer- orientation strategy such as quality, speed, delivery and innovative products. ABC eliminates waste and streamlines the process, thus expediting the process and lowering costs. Improving in operational performance would increase the level of customer satisfaction. Accordingly, the following hypotheses are therefore developed in this direction:

H10a: Customer satisfaction is positively associated with quality improvement. H10b:Customer satisfaction is positively associated with cycle time improvement. H10c: Customer satisfaction is positively associated with activity efficiency.