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DOCUMENT DE TRAVAIL 2004-017

STRATEGY AND ACTIVITY BASED COSTING :

A CROSS NATIONAL STUDY

Alnoor BHIMANI Maurice GOSSELIN

Version originale : Original manuscript : Version original :

ISBN – 2-89524-207-0

Série électronique mise à jour : On-line publication updated : Seria electrónica, puesta al dia

07-2004

STRATEGY AND ACTIVITY BASED COSTING:

A CROSS NATIONAL STUDY*

ALNOOR BHIMANI LONDON SCHOOL OF ECONOMICS

HOUGHTON STREET,LONDON WC2A E-mail: A.Bhimani@lse.ac.uk

MAURICE GOSSELIN UNIVERSITÉ LAVAL

QUÉBEC CITY, CANADA G1K 7P4 E-mail: Maurice.Gosselin@ctb.ulaval.ca

May 2004

* The authors of the study would like to thank the following for their valuable input to the study: Thomas Ahrens, Franck Bonzemba, Lawrence Habib, Armin Helic, Yutaka Kato, Kazbi Kothavala, Hiroshi Okano, Angelo Riccaboni and Holger Vieten.

2

STRATEGY AND ACTIVITY BASED COSTING: A CROSS NATIONAL STUDY

ABSTRACT

This study assesses the association between the corporate strategy of organizations and

experiences with activity based costing. It considers strategy-based contingencies in relation

to the decision to implement activity based costing, as well as the extent, speed and perceived

success of activity based costing implementations. A questionnaire was developed to collect

information on corporate costing practices and strategic orientation in seven countries:

Canada, France, Germany, Italy, Japan, USA and UK. More than 400 questionnaires were

returned and analysed. The results of the study show that strategy and the perception of ABC

implementation success are associated. However, strategy orientation was not found to affect

the decision to implement activity based costing, nor the speed or stage of activity based

costing implementation within the firms investigated. The investigation is indicative of the

stability of ABC-corporate strategy relationships across different country contexts. The results

of the study signify also the outcome-based rather than the process-based dependency between

activity based costing and corporate strategy orientation across large organizations in the

countries investigated.

3

STRATEGY AND ACTIVITY BASED COSTING: A CROSS NATIONAL STUDY

INTRODUCTION

A number of studies postulate relationships between the success of activity based costing

(ABC) implementation and a variety of variables (Shields 1995; Swenson, 1995; Foster and

Swenson, 1997; Al-Omiri and Drury, 2003). These studies consider that rather than technical

factors, it is behavioral and organizational variables which influence ABC implementation

success. Such variables could include organizational culture, top management support, links

between accounting system and performance evaluation, availability of resources, training,

consensus about and clarity of the objectives of the system, and linkages between the cost

system and corporate strategy (McGowan and Klammer, 1997; Shields and Young, 1989).

Researchers have also investigated the relationships between the stages of the diffusion,

adoption and implementation of ABC and several contextual factors such as organizational

structure, product diversity and strategy (Bjornenak, 1997; Gosselin, 1997; Malmi, 1999 (see

also Bjornenak and Mitchell, 2000)). The literature is indicative of strategy orientation as

significantly affecting the activity based costing and activity based management (ABCM)

experiences of enterprises.

The present study seeks to more extensively assess associations between activity based costing

(ABC) implementation issues and organizational strategy orientation. The motivation for

considering strategy-based contingencies stems from the prior accounting literature which

conceptually suggests the existence of strong links between strategic orientation and ABC

practices though there remains a relative dearth of empirical research specifically focusing on

strategy and ABC implementation experiences. Additionally, there is little research

4

documenting the stability of relationships between dimensions of management accounting

system implementations and corporate strategic orientation across countries. The present

study addresses both concerns.

The paper is organized as follows. In the next section, the results of scholarly studies relating

to linkages between organizational variables and implementation experiences with activity

based costing and activity based management (ABCM) are reviewed. The section also

develops the hypotheses that are tested in the light of this prior research with particular

reference to corporate strategy orientation and ABCM. Section three focuses on the research

design including the questionnaire instrument used and the data collection process. Section

four provides a description of the analyses performed to test the hypotheses and a discussion

of the results. The last section discusses the contribution and the limitations of this study and

addresses opportunities for further research in this area.

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

Scholarly research on activity based costing has been carried out on the influence of

organizational size (Armitage and Nicholson, 1993, Gosselin, 1997, Innes et al., 2000), level

of automation (Drury and Tayles, M. 1994), complexity of production processes and product

diversity (Bjornenak, 1997), organizational culture elements (Friedman and Lyne 1999),

behavioral factors (Anderson, 1995; Anderson and Young, 1999; Argyris and Kaplan, 1994;

Bhimani and Pigott, 1992; Foster and Swenson, 1997; Krumwiede, 1998; McGowan and

Klammer, 1997; Shields, 1995), institutional forces (Armstrong, 2002; Colwyn Jones and

Dugdale, 2002; Malmi, 1999; Sisaye, 2003), and stock market and firm performance (Gordon

and Silvester, 1999; Kennedy and Affleck-Graves, 2001). A small number of studies have

5

explored aspects of cross-national variations in the use of ABC systems (Aptel and Pourjalali,

2001; Groot, 1999). Gosselin (1997) has investigated a variety of organizational variables

including the links between corporate strategy type and the adoption of activity management

within a set of Canadian companies. Gosselin’s (1997) data related to a variety of

organizational determinants and business strategies argued in the past literature to find

linkages with costing practices. His study is the most conclusive to date regarding the

relationship between strategic posture and the adoption and implementation of activity

management approaches in that Gosselin (1997, p.114) concludes that “prospectors tend to

adopt activity analysis, activity cost analysis and activity based costing more frequently than

analysers and defenders”. The present study’s purpose is to extend Gosselin’s (1997) study in

terms of the diversity of ABC implementation issues considered and to assess the stability of

strategy and ABC linkages across different country contexts.

Whilst conjectures may be made concerning ABC–strategy linkages based on monocountry

data sets, one test of the stability of posited relationships is to determine how pervasive these

are across different country contexts. ABC as a costing approach provides an appropriate

frame of reference for a multi-country study because of the relatively fast pace through which

it has gained recognition internationally. The emergence of ABC, as a cost management

innovation, started in the USA with articles by Cooper (1987; 1988a; 1988b; 1989a; 1989b)

and Cooper and Kaplan (1988a; 1988b). The new approach was almost simultaneously

publicised in the UK and in Canada. The diffusion of ABCM in France started, a little later,

with the work of Evraert and Mévellec (1990) and Mévellec (1990). However, French

management accountants have often argued that a method similar to ABC has been used in

France since 1930 (Bescos and Mandoza, 1995; Lebas 1994; 1996). Even though, the

diffusion process for ABC has not been similar across the seven countries investigated here

6

(Bhimani, 1996; Brierley et al., 1997; McGowan and Klammer, 1997; Sakurai, 1996; Shim

and Stagliano, 1997), it is held that the strategic posture of an organization will be associated

with costing system experiences in the same manner across different country contexts. This

follows in that organizational priorities can be notionally limited to strategic orientation and

broad managerial pursuits (Chenhall and Langfield-Smith, 2001; Palmer, 1992).

Consequently, corporate stance towards ABC is likely to be strategy dependent across

different country contexts. Shields’ (1998) observation that there is no evidence of country

specificity or lack of convergence in management accounting practices and that decisions

pertaining to management accounting systems tend to align across countries lends further

support to this argument.

ABCM has been regarded as a management accounting innovation that has rapidly diffused

and spread across many organiztions, industries and nations in a manner worthy of scholarly

inquiry (Bjornenak, 1997; Colwyn Jones and Dugdale, 2002, Malmi, 1999). Strategy has been

argued to play a key role in influencing management control practices and the diffusion

process for innovation (Simons, 1994; 1995; Langfield-Smith, 1997). The necessity to

innovate is driven by the type of strategy employed by a firm (Guilding et al., 2000).

Identifying conceptions of strategic types is essential in order to assess links to the diffusion of

ABC and implementation characteristics. Miles and Snow (1978, 1994) identified four

strategic types of organizations according to the rate at which they change their products and

markets: prospectors, defenders, analyzers and reactors. The fundamental difference among

these types is the rate of change in the organizational domain. Prospectors are characterized by

their dynamism in seeking market opportunities, their capability to develop and produce new

products to meet customers' needs, their large expenditures related to research and

development, and their dependence on teamwork. They are usually innovators that create

7

change in their respective industries. Defenders have a strategy that is the polar opposite of

that of prospectors. They operate within a narrow product-market domain characterized by

high production volume and low product diversity. Defenders compete aggressively on price,

quality and customer service. They engage in little or no product or market development and

stress efficiency of operations. Defenders are likely to face a lower level of environmental

uncertainty than prospectors (Slocum et al., 1985, Govindarajan, 1986). Analyzers stand

between these two categories, sharing characteristics of both prospectors and defenders.

Reactors do not follow a conscious strategy. They are viewed as a dysfunctional organizational

type. The premise of the Miles and Snow typology is that prospector, defender and analyzer

strategies, if properly implemented, can lead to effective performance (see Chenhall, 2003).

The Miles and Snow typology is chosen in this study to explore the interactions between

organizational strategy orientation and ABC implementation within organizations. The

rationale for using the Miles and Snow typology as Gosselin (1997) has noted is that first, the

capacity of an organization to innovate is the key dimension of this typology. It is therefore

particularly appropriate for examining the issue of the decision by enterprises to adopt

innovation in management accounting systems and to study their post-implementation

experiences with the innovations. Second, this typology is consistent with Porter's (1980;

1985) well documented low-cost and differentiation generic types which have also been

adopted by researchers in management accounting (Dent, 1990; Palmer 1992; Roslender and

Hart, 2003). Hambrick (1983) suggested that prospectors pursue a particular type of

differentiation and defenders another type of differentiation or cost leadership strategy. Miller

(1987) associated prospectors with a differentiation strategy complex product innovation.

Govindarajan (1986) also suggested an alignment between a differentiation strategy and

prospectors and a low-cost strategy and defenders. Third, the Miles and Snow typology is

8

academically well accepted and internally consistent having been tested in several studies not

focused on accounting innovations (Hambrick, 1981; 1983; Simons, 1987; Shortell and Zajac,

1990; Slocum et al., 1985; Snow and Hrebiniak, 1980). Gosselin’s (1997) study which was

concerned with the effect of strategic posture and organizational structure on the adoption and

implementation of activity management approaches lends strong validity for the Miles and

Snow typology.

If strategic orientation is sought to be linked to an organization’s cost management priorities,

one might point to the notion that defenders compete on price and stress efficiency of

production and volume output. Their focus on value render defenders likely to be receptive to

ABC. But this assumes generic acceptance that ABC is the approach of choice for contexts

where efficiency of production and price/value relevance are priorities. Yet, ABC in effect

remains an innovation. Several surveys have been conducted in different countries across

Europe and North America to assess the degree to which ABCM has been adopted by firms

(Innes and Mitchell, 1991; Bright et al., 1992; Nicholls, 1992; Institute of Management

Accountants, 1993; Armitage and Nicholson, 1993; Cobb et al, 1992; Drury and Tayles, 1994;

Innes and Mitchell, 1999; Lukka and Granlund, 1996; Bjornenak, 1997; Gosselin, 1997; Innes

et al., 2000). Innes and Mitchell (1991) carried out the first survey that included questions on

ABCM. They found that among their 187 UK company respondents, only 6% had begun to

implement an ABCM system while 52% had not considered implementing ABCM. During the

same period, Bright et al. (1992) surveyed manufacturing firms again in the UK. The

percentage of ABCM adopters, 32%, was much larger than in Innes and Mitchell (1991). The

authors questioned these results and suggested that the low response rate and the potential

non-response bias may explain this high level of ABCM diffusion. Another survey conducted

in the UK by Nicholls (1992) showed that 10% of the respondents had implemented ABC. A

9

later UK investigation by Innes and Mitchell (1999) was again carried out. Innes et al (2000)

who compare the two surveys, report that in 1994, UK companies revealed a 19.5% rate of

ABC adoption with 27.1% of firms actively considering ABC. By 1999, the respective figures

were 17.5% and 20.3%. In Canada, Armitage and Nicholson (1993) surveyed the 740 largest

corporations. The results showed that 14% of the respondents had implemented ABC, 15%

were reflecting on implementing ABC with 67% had not considered implementing an ABC

system. In Germany, Italy, France and Japan, surveys indicate that ABC adoption is gaining

popularity but just as in North America and the UK, it remains innovatry (Boons et al, 1992;

Bestos and Canvin, 2000; Barbato et al. 1996; Cescon, 1998, Cinquini et al, 1999; Brunnetti

and Cescon, 2002; Sakurai, 1996).

Given that ABC is a cost management innovation rather than an established management

accounting technique, its appeal can be argued to be influenced by its innovatory quality.

Since prospectors search continually for market opportunities and have a broad product-

market domain, they will tend to adapt their cost management system innovations swiftly to

their needs and thus more readily implement activity-based costing than defenders (Chenhall,

2003; Langfield-Smith, 1997; Palmer, 1992).

The likelihood of ABC implementation is also influenced by corporate strategy orientation in

another regard. ABC has been reported to be particularly relevant to firms with high product

and customer variety (Cooper 1988b; 1989a; Cooper and Kaplan, 1988a; 1988b). It is a cost

management approach which lends greater transparency to the cost of variety by indicating

which products or customers contribute to profitability/losses. Since prospectors tend to stress

high variety relative to defenders, they can be expected to be highly prone to implement ABC.

10

This and the fact that ABC is still an innovation undergoing different rates of diffusion in

different countries lead us to hypothesise that:

Hypothesis 1 (H1): Prospectors are more likely to implement ABC than defenders.

As argued above, prospectors are organizations that tend to adopt changes and innovations

more often than defenders (Chenhall, 2003; Guilding, 1999; Langfield-Smith, 1997). By

definition, they are typically first in the market and move swiftly. Their effectiveness as

prospectors is time sensitive. Thus, they can be expected to implement ABC within a shorter

period of time than defenders. We consequently hypothesise that:

Hypothesis 2 (H2): Among organizations that implement ABC, the speed of ABC implementation is likely to be higher for prospectors than for defenders.

The success of the implementation of ABC depends on several characteristics according to the

prior literature. Shields (1995) has shown that the success of an ABC implementation

depends on factors such as training, performance evaluation, competitive strategy adopted,

adequacy of resources, top management support, clarity of objectives and non-accounting

ownership. Studies by Anderson, 1995; Cobb et al, 1992; Krumwiede, 1998; McGowan and

Klammer, 1997; Malmi, 1997, Shim and Stagliano, 1997, confirm the relevance of these and

other related technical and organizational variables in affecting the success of ABCM

implementations. Forster and Swenson (1997) in their study of alternative measures of

ABCM success in models testing ABCM success determinants conclude that broad-based

measures (like how ABCM data is used in decisions) yield the highest explanatory power.

11

If an ABC system is implemented effectively, it is likely that it will give rise to information

concerning costs which is more reflective of resource consumption and therefore of providing

cost information that is perceptively regarded as more accurate than the conventional system

being replaced. Defenders are typically viewed as organizations that emphasize the need for

more accurate cost information and which seek to enhance the effectiveness of cost allocation

(Palmer, 1992; Langfield-Smith, 1997). Therefore, the perception of the success of the ABC

implementation can be expected to be higher among defenders than among prospectors.

Whilst defenders may be less likely to adopt a management innovation as readily as

prospectors and once adopted, less swift in the actual implementation process as argued above,

their perception of ABC success once implemented is likely to be higher given their focus on

value provision, volume of production and efficiency of operations. Thus, we propose the

following hypothesis.

Hypothesis 3 (H3): Among organizations that implement ABC, the success of ABC implementation is higher for defenders than for prospectors.

Prospectors are organizations that are always searching for innovations. Once they embark on

change, they seek out subsequent avenues for effecting ongoing change. Therefore, in the

context of organizational experiences with ABC, there are two potential behaviors for

prospectors: they may either stop implementing ABC and move to other management

innovations or they may roll out ABC across the entire firm.

Therefore, we propose the following hypothesis:

Hypothesis 4 (H4): The proportion of organizations that abandon ABC or that use ABC across the majority of their business units is higher for prospectors than defenders.

12

QUESTIONNAIRE AND DATA COLLECTION PROCESS

To test the hypotheses discussed in the previous section, a mail survey was administered in

seven countries: Canada, France, Germany, Italy, Japan, USA and UK. The instrument

enabled the collection of information concerning strategy, speed, success and stages of ABC

implementation as well as firm specific information. The questionnaire included questions

pertaining to activity based costing practices, corporate strategic orientation and background

information. The English version of questions on ABC and strategy is shown in the

Appendix. This questionnaire was translated into French, German, Italian and Japanese by

academics from these countries. The questionnaires were translated back into English by

different academics. This resulted in some stylistic revisions for the non-English language

questionnaires.

The population surveyed in Canada included the 500 largest1 companies taken from the Blue

book of Canadian Business. In the United Kingdom, the survey was sent to the 500 largest

companies of the Times 1000 UK companies. The questionnaire in France was sent to the 500

largest companies of the database “L’expansion: Les 1000 - performance et classement des

plus grandes entreprises françaises”. In Germany, the survey was sent to the 500 largest

companies from a ranking compiled by Frannkfurter Allgemeine Zeitung Gmbh Information

Services. In Japan, the questionnaire was sent to the 500 largest companies listed by Nikkei

Shinbun. The Italian population consisted of the top 450 Italian companies from a listing

provided by the Italian Trade Center. Lastly, in the USA, the population was made up of the

1 Size was measured by the amount of revenues

13

top 500 firms ranked under Moody’s Industrial manual. In all cases, the questionnaires were

addressed to the Chief Accountant, Controller or equivalent post in the sample population.

The Canadian companies were sent both the English and French versions of the

questionnaires.

RESULTS

The response rate for a survey across a multitude of countries can be expected to be non-

standard unlike mono-country studies. The absence of follow-up procedures is a common

limitation in cross-country studies. In this investigation, the response rates in Canada and Italy

are the lowest at a rate of 7% and highest in Japan with 19%. UK, Germany, USA and France

produced response rates of 17%, 15%, 11% and 8% respectively. These rates take into

account the fact that only questionnaires received during the first five weeks of the survey

period were included in the analysis. Before undertaking the statistical analysis, tests on the

non-response bias was performed to confirm that early respondents during that period were

not statistically different from the late respondents. Four hundred and sixteen questionnaires

were sent back to the researchers. The study’s concern with the specificity of strategy

orientation and ABC implementation experience rather than nation-based relationships

provided a final sample size with sufficient basis for statistical discrimination.

Table 1 shows the number of respondents in each country. The largest groups of respondents

relate to Japan (95) and the United Kingdom (85) while Italy (32) represents the smallest. This

gap may be explained by the fact that the respondent group from the UK have had the

opportunity to participate in several surveys over the last decade (Innes and Mitchell, 1991;

Bright et al., 1992; Nicholls, 1992; Drury and Tayles, 1994; Innes et al., 2000). This not the

14

case for respondents from France and Italy where only a small number of surveys on

accounting systems have been conducted.

(Insert Table 1)

As noted, the literature suggests that strategy plays a key role in the design of management

accounting systems and more specifically in the decision to implement ABC. Respondents

were asked to classify their organization according to the Miles and Snow typology (Miles and

Snow 1978). This typology has been used widely in the management accounting literature

(Simons 1987, 1988, 1990; Gosselin 1997; Langfield-Smith 1997). The instrument developed

by Snow and Hrebiniak (1980) was employed. The self-typing process resulted in a fairly

identical proportion of analyzers, prospectors and defenders as shown in Table 2. This is

consistent with Miles and Snow (1978) who suggested that in an industry the number of each

strategy type should be relatively similar.

(Insert Table 2)

Strategy and ABC Implementation

It was suggested in hypothesis 1 that prospectors would be more likely to implement ABC

than defenders. To test this hypothesis, we used the following logistic model:

ABC = a + b1 PRO + e (1)

where ABC was set equal to 1 if the firm implemented ABC and equal to 0 if not. PRO is a

dummy variable for strategy. PRO was given a value of 1 if the respondent had classified his

organization as a prospector and a value of 0 if the organizations was an analyzer or a

defender. The results of the logistic regression are reported in Table 3. They do not support H1

15

at the 5% level. Strategy does not influence the decision to implement ABC. Although

acceptable at the 10% level, these results do not replicate the findings of Gosselin (1997)

which more conclusively indicated that prospectors were more frequent adopters of activity

management approaches than firms with other strategic orientation.

(Insert Table 3)

Strategy and Speed of ABC Implementation

Hypothesis 2 relates to the relationship between the speed of implementation and strategy. It

was suggested that the speed of implementation would be higher for prospectors than for

defenders. To test this hypothesis, we used the following model:

SPEED = a + b1 PRO + e (2)

where SPEED represents the ordinal measure of the perceived velocity of ABC

implementation which is measured on a five-point scale. PRO, the dummy variable for

strategy, was given a value of 1 if the respondent had classified the organization as a

prospector and a value of 0 if the organizations was an analyzer or a defender. The results

included in Table 4 show that strategy type does not affect the speed of implementation.

Prospectors do not implement ABC more quickly than defenders.

(Insert Table 4)

Strategy and Success of ABC Implementation

The success of ABC implementation depends on a variety of factors that have been identified

in several studies (Foster and Swenson 1997; Shields 1995; Swenson 1995; McGowan and

16

Klammer, 1997). In this paper, we hypothesise that the perceived success of ABC

implementation would be higher among defenders than among prospectors. The rationale for

this is that defenders are highly focused on cost containment and ABC is regarded as

enhancing the accuracy with which product costs are reported. To test this hypothesis, a

reduced regression model with strategy as the independent variable and perceived success of

ABC as the dependent variable was employed. Success was measured on a five-point scale

from unsuccessful to successful while strategy was represented by a dummy variable DEF.

The value of DEF was set to 1 if the organization was a defender and to 0 if it was an analyzer

or a prospector. The results of the test supports hypothesis 3 and are summarized in Table 5.

The independent variable DEF has a positive and significant coefficient at the 5% level. ABC

implementations are perceived as more successful among defenders than among prospectors

and analysers in the group of organizations investigated.

(Insert Table 5)

Strategy and Stages of ABC Implementation

Organizations may decide to implement ABC as a pilot, to use it across the units or in the

majority of units. They may also decide to abandon ABC. Hypothesis 4 suggests that

prospectors would be more likely to abandon ABC or to use it in the majority of units in

comparison to defenders who would prefer to conduct a pilot ABC or use ABC across units.

To test this hypothesis, a Chi-square analysis was performed. The results of the analysis do not

support hypothesis 4. The value of the chi-square is 8.17 and the p-value is 0.226 (see Table

6). Strategy does not affect the extent of deployment of ABC after system implementation.

(Insert Table 6)

17

DISCUSSION

The study is concerned with ABC implementation experiences across large firms in seven

countries in terms of associations between the decision, extent, speed and perceived success of

ABC implementations vis-à-vis corporate strategic orientation. The results show that the

respondents’ view of their organizations’ strategy is associated with the perception of

implementation success of ABC. However, strategy type does not seem to affect the decision

to implement ABC nor the extent or speed of implementation.

Cross-national studies of organizational practices which reveal variations can be indicative of

different explanatory reasons as to the underlying reported variations. There may be nation-

specific factors underlying country differences and cultural forces at play which may coincide

with national borders but transcend organizational specificities (Harrison and McKinnon,

1999). This study’s concern has been to identify associations between ABC implementation

characteristics and corporate strategy posture as relationships which overarch nation-specific

influences. The hypothesis test results are indicative of the stability of such linkages. This

investigation has not sought to assess national influences as causal factors of differences.

Such associations may potentially be identified and discernible from larger scale cross national

data. This would present an interesting avenue for further research focusing specifically on

strategy linked factors underpinning ABC implementations. Additionally, a larger scale study

which engages in more extensive data collection and second mailing of initial non-respondents

is likely to lead to higher response rates. This would further enhance the statistical

discrimination that could be achieved.

18

The hypothesis test results do not suggest statistically significant relationships between

strategic type and the ABC implementation decision, extent of deployment or speed of

implementation. These are factors relating to the process of cost management system changes.

Conversely, the perception of ABC success was higher among defenders than prospectors and

analysers. The product of cost management change was, therefore, seen to be associated with

corporate strategy type. The results presented here thus posit outcome-based rather than

process-based relationships between ABC implementation and corporate strategy. A possible

reason for this is that strategic posture is itself reflective of the outcome of managerial efforts,

rather than as conferring managerial particularity. This proposition offers an avenue of

research worthy of further inquiry.

A large number of contextual variables aside from strategic orientation have been considered

to affect management accounting and control systems (see Chapman, 1997; Chenhall, 2003).

Exploring the multitude of forces which shape accounting practices including experiences

with the adoption and implementation of ABC remains a task for researchers wishing to

contribute to our understanding of the wider contingencies affecting cost management

practices.

19

TABLE 1

NUMBER OF RESPONDENTS BY COUNTRY

Canada France Germany Japan Italy United

Kingdom United States

Total

Number of respondents

35 (8.4%)

39 (9.4%)

73 (17.6%)

95 (22.8%)

32 (7.7%)

85 (20.4%)

57 (13.7%)

416 (100.0%)

TABLE 2

THE STRATEGIC ORIENTATION OF ORGANIZATIONS SURVEYED

Type Number of firms Percentage

Analyzers 164 40.2%

Prospectors 120 29.4%

Defenders 124 30.4%

Total 408 100%

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TABLE 3

ADOPTION OF ABC AND STRATEGY: LOGISTIC REGRESSION RESULTSa

Expected Sign

Coefficient (Std. Error)

Intercept - 0.3235 (0.1392)

PRO + 0.0916* (0.054)

Canada - 0.034 (0.2781)

France 0.335 (0.269)

UK -0.151 (0.264)

USA 0.168 (0.266)

Japan 0.356 (0.149)b

Germany 0.2286 (0.264)

Italy -0.109 (0.270)

Model X2 = 64.514, p = 0.0001

aThe model is ABC = a + b1 PRO + b2 Canada + b3 France + b4 UK + b5 USA + b6 Japan + b7 Germany + b8 Italy + e. Variables: ABC indicates whether the respondents implemented ABC (=1) or did not (=0); PRO was set to 1 for prospectors and 0 for analyzers or defenders. Significance levels are determined using two-tailed X2 tests.

21

TABLE 4

SPEED OF ABC IMPLEMENTATION AND STRATEGY: REGRESSION RESULTSa

Expected Sign

Coefficient (Std. Error)

Intercept - 2.80468 (0.1119)

PRO + 0.02344 (0.1940)

R-square = 0.0001

aThe model is SPEED = a + b1 PRO + e. Variables: SPEED represents the level of speed of the implementation; PRO was set to 1 if prospectors and 0 if analyzers or defenders.

TABLE 5

SUCCESS OF ABC IMPLEMENTATION AND STRATEGY: REGRESSION RESULTSa

Expected Sign

Coefficient (Std. Error)

Intercept - 2.10769 (0.0907)

DEF + 0.37507** (0.1633)

R-square = 0.0276

**p-value = 0.0228

aThe model is SUCCESS = a + b1 DEF + e. Variables: SUCCESS represents the level of success of the implementation; DEF was set to 1 if defenders and 0 if prospectors or analyzers.

22

TABLE 6

STAGES OF ABC BY STRATEGY

Abandoned Pilot ABC Use across units

Use in majority of units

Total

Analyzers 34 (51.5%) 20 (35.7%) 45 (46.4%) 24 (33.3%) 123 (42.3%)

Prospectors 12 (18.2%) 18 (32.2%) 28 (28.9%) 26 (36.1%) 84 (28.9%)

Defenders 20 (30.3%) 18 (32.1%) 24 (24.7%) 22 (30.6%) 84 (28.8%)

Total 66 56 97 72 291

The percentages represent the proportion of strategy types in each ABC stage.

Chi-square = 8.17, p-value = 0.226 with 6 degrees of freedom

23

APPENDIX

QUESTIONS FOR CROSS NATIONAL STUDY OF ACTIVITY BASED COSTING ...........................................................................................................……………………………… 1. Please indicate (by placing a checkmark on desired rating) the potential usefulness to

your company of assigning costs to products/services using volume and non-volume based cost drivers (ie. activity based costing):

Very important Unimportant 1 2 3 4 5 2. If an activity based costing system has been implemented in your organization:

(a) This implementation has been relatively: Quick Slow 1 2 3 4 5 (b) In terms of expected benefits, implementation has been relatively: Successful Unsuccessful 1 2 3 4 5 (c) Activity based costing is now (tick one only) : � � � � Abandoned Being tried In use across In use across on a pilot basis some business units the majority of business units

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3. Compared to other companies in your industry which of the following descriptions most closely matches your company (tick one only):

(a) We operate in two types of product-market domains, one relatively stable, the other changing. In the stable areas, we operate routinely and efficiently through use of formalised structures and processes. In more turbulent areas, top managers watch competitors closely for new ideas, and rapidly adopt those which appear to be the most promising. � OR (b) We continually search for market opportunities, and regularly experiment with potential responses to emerging environmental trends. We are often the creators of change and uncertainty to which our competitors must respond. However, because of our strong concern with being "first-in" in new product and market areas, we may not maintain market strength across all areas. � OR (c) We have a narrow product-market domain. Top managers are highly expert in the company's limited area of operation but do not tend to search outside of their domains for new opportunities. We seldom need to make major adjustments in technology, structure, or methods of operation. Instead we devote primary attention to improving the efficiency of existing operations and doing the best job possible in a limited area. �

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4. (a) What type of industry does your company operate in: ......................................................................

...................................................................... (b) The company's product range is relatively: diversified _ OR standard _ (c) Please indicate what percentage of the product range is: high volume % low volume % (d) Your company's latest sales volume is: ............... (e) The current number of employees is: ............... (f) Your position is: .......................………………............... 5. If you would like to comment on any of the above issues, please do so below: Your time and effort with this research project are very much appreciated. Please return this questionnaire in the envelope provided. If you would like to obtain the results of this study please put your name and address on the back of the envelope. Thank you.

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