Organisational and technological factors influence the success of ABC implementation. These factors are either individual (for example, disposition to change); organisational (for example, top management support); technological (for example, information technology quality); task related (for example, task uncertainty); or environmental (for example, competition).
Shields (1995) surveyed 143 firms in the US. He developed a comprehensive model consisting of seventeen organisational and technical variables that may affect two alternative measures of ABC success (i.e., perceived financial benefits and overall success). He found that ABC success is significantly correlated with five variables, namely, top management support, implementation training, link to performance evaluation and compensation, link to quality initiatives and adequacy of resources. However, these relationships between organisational factors and ABC success describe links between two sets of anchors and do not provide constructive steps of how they may link to each other.
Foster and Swenson (1997) tested the findings of Shields’s study and added two variables that were not included in prior studies: number of applications and time- in-use of application in relation to ABC success. They found support for the five variables in Shields’s study. They also found that more applications and more time-in-use ABCM lead to larger amounts of benefits. They claimed that benefits start emerging after a short time of using ABC. The study investigated the relationships between organisational factors and four measures of ABC success (i.e., information use, decision actions, financial improvements and management
evaluation). However, the study did not investigate to find the relationships among these alternative success measures.
Anderson and Young (1999) studied the influence of contextual and process factors on ABC evaluation. ABC implementation process factors used in the study are top management and union support of the ABC project, local management involvement and adequacy of resources. Contextual factors include individual feeling of the need for change, individual commitment to the organisation, individual sharing of organisational values, competitive environment, quality of information systems, environmental turbulence, impediments to plant growth, quality of labour relations, importance of the plant to the company, importance of cost reduction to the plant, the likelihood of lay-offs and the expectation of performance rewards. Two criteria are used to evaluate the effectiveness of ABC system: (1) use of ABC data for process improvement and (2) improved product cost accuracy. They found that adequacy of resources is the common variable related to these criteria. However, the study did not operationalise these theoretical criteria to show how the contextual and process factors achieve these objectives.
Baird, Harrison and Reeve (2007) investigated the association between organisational and cultural factors and the success of activity management practices. Organisational factors are top management support, training, link to performance evaluation and link to quality. Cultural factors are outcome orientation, team orientation, attention to detail and innovation. At the ABC level, top management support, training and link to quality were associated with the success of ABC, as were outcome orientation and attention to detail. ABC success was measured as the sum of multiple items related to activity and product management and decisions with no reference to the organisational performance. the study did not refer to the term ‘Activity-based Costing’ in surveying participants. The benefit of not using the term ABC is getting a large number of respondents who may title ABC differently. Gosselin (1997) identified three levels of activity management. The lowest level is (AA) which identifies the activities performed to produce the final products and services. The middle level is (ACA) which identifies cost drivers and allocates activity costs to cost pools.
The highest level is (ABC) which allocates the costs of activities to final products and services. Given that these levels are interrelated, it is possible that ABC adopters select one of these terms to refer to ABC. Indeed, these levels are considered as levels of adoption of ABC (Askarany, Yazdifar & Askary 2010). Nassar et al. (2009) used the term ABC to refer to all levels of activity management. Importantly, this study associates (AA) and (ACA) with only non- ABC adopters.
Some managers may be reluctant to use the term ABC because they perceive it as an undesirable badge of cost cutting as well as a myopic and unrealistic focus (Askarany & Smith 2008). The major shortcoming of not using the term ABC is the probability of getting non-ABC responses. The term ABC is usually well known across the world and if not used it may lead to misunderstanding among participants. For example, in the previous study, ABC was described as follows: ‘our business unit identifies and calculates the costs of the various activities involved with providing services or producing goods for the purpose of enabling a more accurate assessment of product costs’(Baird, Harrison & Reeve 2007, p. 65). This definition looks insufficient to reflect the ABC model, specifically the lack of allocation base or activity cost drivers. Accordingly, the statement is vulnerable to non-ABC responses.
Maiga and Jacobs (2007) linked the organisational factors (i.e., Management support, training, non-accounting ownership and clarity of objectives) to the operational and financial performance (see Figure 2.9). Although improvements in performance may consider as a measure of success, the model does not include a direct measure of ABC success.
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Figure 2.9: The Model of Maiga and Jacobs (2007)
Management Support Training Non- accounting Ownership Clarity of Objectives Quality Improvement Cost Improvement Financial Performance Improvement Cycle Time Improvement
2.13 The Relationship between Organisational and Technological Factors and