A CROSS NATIONAL INVESTIGATION OF FACTORS INFLUENCING ACTIVITY-BASED COST MANAGEMENT IN SEVEN COUNTRIES

AL BHIMANI LONDON SCHOOL OF ECONOMICS HOUGHTON STREET, LONDON WC2A 2AE, UK TEL: 0171 955 7329 FAX: 0171 955 7420 E-MAIL: A. BHIMANI@LSE.AC.UK MAURICE GOSSELIN UNIVERSIT LAVAL QUBEC CITY, CANADA G1K 7P4 TEL: 418-656-5158 FAX: 418-656-2624 E-MAIL: MAURICE.GOSSELIN@CTB.ULAVAL.CA

DECEMBER 2002

A CROSS NATIONAL INVESTIGATION OF FACTORS INFLUENCING ACTIVITY-BASED COST MANAGEMENT IN SIX COUNTRIES ABSTRACT Organizations have been exhorted to adopt novel costing approaches over the past decade. This study assesses the extent to which organizations have altered their practices along these lines, the perception of their success and their association with several contextual factors. A questionnaire was developed to collect information on corporate costing practices, strategic orientation, organisational culture and other information 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 national context are associated with the design of costing systems. These factors also affect accountants perception of the usefulness of these systems within their organizations.

Key words: structure

Activity-based costing, innovation, strategy, organizational

A CROSS NATIONAL INVESTIGATION OF FACTORS INFLUENCING ACTIVITY-BASED COSTING IN SEVEN COUNTRIES

1. Introduction During the 1990s, organizations have been challenged to change their costing practices and more specifically to adopt new cost management innovations such as activity-based cost management (ABCM). The impact of these pressures seems to have varied from one organization to another. The literature on ABCM has already considered the influence of organizational size (Armitage and Nicholson 1993; Gosselin 1997; Innes et al. 2000), level of automation (Drury et al. 1994), complexity of production processes and product diversity (Bjornenak 1997) on ABCM adoption and implementation. Empirical studies have to some extent considered the influence of

organizational culture elements (Friedman and Lyne 1997, 1998), strategic positioning and organizational structure (Gosselin 1997). All these empirical ABCM studies have been conducted in one country at the time. The diffusion process for ABCM has been different from one country to another. While ABCM emerged during the end of the 1980s in the United States, it slowly spread to the United Kingdom, Canada, continental Europe (France, Germany and Italy) and Japan. The present study seeks to investigate the influence of organizational, structural, cultural and strategic factors on ABCM

implementation

across

seven

different

countries.

This

cross-country

comparative investigation will provide some insights on the potential influence of country-specificity to the adoption, the success and the speed of ABCM implementation and the extent to which it interacts or is subsumed by organizational factors.

This paper is organized as follows. In Section One, the results of surveys conducted during the last ten years in several countries and pertaining to the areas of activity-based costing (ABCM) are reviewed. Section Two includes a discussion about the hypotheses that are tested in this research project. Section Three focuses on the research design. In this Section, the questionnaire used is described and the data collection process is indicated. Section Four includes a description of the analyses performed to test the hypotheses and a discussion of the results. Lastly, Section Five includes a discussion of the contributions and the limitations of this study and of the opportunities for future research in this area.

2. Surveys on activity-based cost management (ABCM) Since the emergence of ABCM in 19871, several surveys have been conducted in different countries from Europe and North America to evaluate

Some claim that ABCM was developed earlier.

the degree to which ABCM has been adopted by firms (Innes and Mitchell 1991; Ask and Ax 1992; Bright et al. 1992; Nicholls 1992; Institute of Management Accountants 1993; Armitage and Nicholson 1993; Drury and Tayles 1994; Innes and Mitchell 1995; Lukka and Grunland 1996; Do et al. 1996; Bjornenak 1997; Gosselin 1997, Innes et al. 2000). (Insert Table 1) These surveys can be classified into two categories: descriptive and research-oriented. Descriptive surveys are aimed at collecting information on cost management systems including ABCM. They provide a rich description of the systems and their purposes. Research-oriented surveys attempt to examine the relationship between several contextual factors and the adoption, the implementation and the success of ABCM.

Innes and Mitchell (1991) carried out the first survey that included questions on ABCM. They found that among their 187 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 nonresponse bias may explain this high level of ABCM diffusion. Ask and Ax

(1992, 1997) undertook a quite similar study in Sweden. Consistent with Innes and Mitchell, they found that 7.2% of the respondents had started implementing ABCM and that larger firms had a greater tendency to adopt ABCM.

In Canada, Armitage and Nicholson (1993) surveyed the 740 largest corporations. The results showed that 14% of the respondents had implemented ABCM, 15% were reflecting on implementing ABCM and 67% had not considered implementing an ABCM system. Innes and Mitchell (1995) administered a second survey of UK firms companies in 1994. The rate of adoption of ABCM had increased to almost 20%, showing that the diffusion process for ABCM had evolved since 1991.

During the second part of the 1990s, a second generation of survey studies has been conducted. Here, researchers have attempted to examine the relationships between the success of ABCM implementation and various variables (Shields 1995; Swenson 1995; Foster and Swenson 1997, McGowan and Klammer 1997, Cagwin and Bouwman 2002), focusing only on organizations that installed ABCM. Others examined the diffusion process for ABCM from an innovation perspective. They examined the relationships between the stages of the diffusion, adoption and implementation of ABCM and several contextual factors such as strategy, organizational structure and 6

product diversity (Bjornenak 1997; Gosselin 1997, Malmi 1999).

The results of all the surveys mentioned in this Section show that despite the massive attendance at ABCM seminars, the large number of articles in professional journals recommending ABCM and the considerable amount of consulting activity predicated on ABCM, few organizations adopted and implemented ABCM. In the beginning of the 1990s, Miller et al. (1992) had indicated that U.S. managers considered ABCM to be one of the latest improvement initiatives with the lowest pay-off. This perception does not seem to have change. Furthermore, even though most articles in the professional literature provide descriptions of organizations which have successfully installed ABCM, there is evidence that some firms which had started to implement an ABCM system have decided to stop the

implementation process (Horngren 1990; Cobb et al. 1992; Nanni et al. 1992; Madison and Power 1993; Gosselin 1997, Innes and Mitchell 2000).

While several surveys have been conducted in the UK and the USA, only two were conducted in Canada (Armitage and Nicholson 1993; Gosselin 1997, Bescos et al. 2002), one in Italy (Cinquini et al. 1999), Germany (Scherrer 199n6) and France (Cauvin and Bescos 2000). Furthermore, no survey has been administered in several countries at the same time and with the same questionnaire. Therefore, it is very difficult to make a clear and complete 7

assessment of the diffusion of ABCM in North America and in Europe. One of the major contributions of this paper to the ABCM literature consists of examining the extent to which ABCM has been implemented in different countries (Canada, France, Germany, Italy, Japan, UK and USA) and how factors such as country, strategic orientation and organizational structure influence the diffusion process for this innovation.

3. Hypotheses 3.1 Country The emergence of ABCM, as a new cost management practice, started in the USA with the articles from Cooper (1987) published in the Journal of Cost Management. The new approach was almost simultaneously diffused in the UK and in Canada. The diffusion of ABCM in France started, a little later, with the work of Evraert and Mvellec (1990) and Mvellec (1990). However, French management accountants have often argued that a method similar to ABCM has been used in France since 1930 (Lebas 1994). Even though, the diffusion process for ABCM has not been exactly similar in the six countries (Bhimani 1996), it may be hypothesized that the proportion of organizations that have experienced ABCM in each country is identical in the absence of nation-specific influences. Shields (1998) suggested that he has not witnessed any differences and that decisions pertaining to management

accounting systems tend to converge from one country to another. Therefore, the following hypothesis is tested:

Hypothesis 1 (H1): The proportion of organisations that experienced the implementation of ABCM is similar from one country to another.

Some

organizations

that

decided

to

pursue

ABCM

may,

during the

implementation process, adapt the innovation and concentrate their efforts on cost driver and activity analyses (Gosselin 1997) or may decide to abandon the implementation (Innes and Mitchell 2000). Other organisations will implement ABCM on a pilot basis or will use it across some business units or the majority of business units. While the utilization of ABCM may vary from one company to another, it should not vary from one country to another. Therefore, the following hypothesis is tested.

Hypothesis 2 (H2): Among organizations that experienced ABCM, the proportion of organisations that abandoned ABCM after having experienced it, tried ABCM on a pilot basis, used it across some business units and used ABCM across the majority of their business units is similar from one country to another.

The speed of implementation may vary from one organization to another depending on factors such as strategy, organizational structure, accounting and non accounting ownership and links to quality initiatives. The country of

the organization should not affect the speed at which organizations implement their ABCM system

Hypothesis 3 (H3): Among organizations that experienced ABCM, the speed of implementation of ABCM is similar from one country to another. Shields (1995) has shown that the success of an ABCM implementation depends on several factors: training, links to performance evaluation, links to quality initiatives, adequacy of resources. These factors play a key role in influencing the success of the implementation which exceeds any countrybased influence on the perceived level of success of the ABCM

implementation. Then, the following hypothesis is suggested:

Hypothesis 4 (H4): Among organizations that experienced ABCM, the success of ABCM implementation is similar from one country to another. 3.2 Strategy Strategy plays a key role in the diffusion process for innovation. The necessity to innovate is driven by the type of strategy employed by a firm. 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

10

opportunities, their capability to develop and produce new products to meet customers' needs, their investment in large amounts of financial resources related to research and development, and their enhancement of teamwork. They are usually innovators that create change in their respective industries. Defenders have a strategy that is the polar opposite from 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/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.

The Miles and Snow typology was chosen for this study for the three following reasons. First, the capacity of an organization to innovate is the key dimension of this typology. Therefore, this typology is more appropriate for examining the issue of innovation in management accounting systems. Second, this typology is consistent with Porter's (1980, 1985) low-cost and 11

differentiation generic types. Hambrick (1983) suggested that prospectors are a particular type of differentiation and defenders another type of differentiation or cost leadership. Miller (1987) associated prospectors with a differentiation strategy; this strategy was labeled complex product

innovation. Govindarajan (1986) compared a differentiation strategy to prospectors and a low-cost strategy to defenders. Third, the Miles and Snow typology is academically well accepted and internally consistent. Additionally, it has been tested in several studies such as Hambrick (1981), Snow and Hrebiniak (1980), Hambrick (1983), Slocum et al. (1985), Simons (1987, 1988 and 1990) and Gosselin (1997).

Since prospectors search continually for market opportunities and have a broad product-market domain, they will tend to adapt their cost management systems to their needs and experience activity-based cost management. Therefore we may hypothesize that:

Hypothesis 5 (H5): Prospectors are more likely to experience ABCM than defenders. Prospectors are organizations that tend to adopt changes and innovations more often than defenders. Thus, they should be able to implement ABCM in a shorter period of time than defenders.

Hypothesis 6 (H6): Among organizations that experienced ABCM, the speed of ABCM implementation is more likely to be higher for 12

prospectors than for defenders. The success of the implementation of ABCM depends on several factors that have been identified in Shields (1995). Defenders are organizations that emphasized the need for more accurate cost information. Therefore, the perception of the success of the ABCM implementation would be higher among defenders than among defenders. Thus, we propose the following hypotheses.

Hypothesis 7 (H7): Among organizations that experienced ABCM, the success of ABCM implementation is higher for defenders than for prospectors.

Prospectors are organizations that are always searching for innovations. Once they have started to make a change, they move to other avenues for effecting change. Therefore, within an ABCM context, there are two potential behaviors for prospectors: they may either stop implementing ABCM and move to a more agile change such as reengineering or process analysis or they may use ABCM across the entire firm.

Therefore, we draw the following hypotheses:

Hypothesis 8 (H8): The proportion of organizations that abandoned ABCM or that used ABCM across the majority of their business units is higher for prospectors than defenders.

13

3.3 Organizational structure Organizational structure has been found to play an important role in the implementation of activity-based costing but does not affect the decision to adopt ABCM (Gosselin 1997; Krumwiede 1998). Thus, we may propose that

Hypothesis 9 (H9): Organisational structure does not influence the propensity of organizations to experience ABCM.

4. 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. This instrument enabled the collection of information concerning strategy, organizational structure, speed, success and stages of ABCM implementation and capital budgeting practices. The questionnaire (Appendix 1) included three Sections. The first Section consisted of four questions pertaining to cost management and investment appraisal practices. The second part focused on information about management style and strategy while the third part concentrated on background information.

The population surveyed in Canada included the 500 largest companies of the Blue book of Canadian Business. Five questionnaires were returned incomplete. In the United Kingdom, the survey was sent to the 500 largest

14

companies2 of the Times 1000 UK companies. The survey in France was sent to the 500 largest companies of the database Lexpansion: Les 1000, performance et classement des plus grandes entreprises franaises. In Germany, the survey was sent to the 500 largest companies. The list was provided by Frannkfurter Allgemeine Zeitung Gmbh Information Services. Nine questionnaires were returned incomplete. Again, we only included the questionnaires received during the first five weeks of the survey period. The Italian population consisted of the top 450 Italian companies and the list was provided by the Italian Trade Center. Fifteen questionnaires were returned incomplete. Lastly, in the USA, the population was made up of the top 500 firms in the Moodys Industrial manual. Three questionnaires were returned incomplete in that country.

The response rate for a survey in such a large number of countries cannot be expected to be as high as in a standard study. The researchers could not perform follow-up procedures because of the costs involved as well as the language barriers. The absence of follow-up procedures is a common limitation in this type of cross-country study. The response rates in Canada and Italy are the lowest at a rate of 7% and the UK has the highest, 17%. Germany and France and the USA have response rates of respectively 14.6%, 7.8% and 11.4%.

Size was measured by the amount of revenues

15

5. Results

5.1 Country The survey was sent to controllers in seven different countries: Canada, France, Germany, Italy, Japan, The United States and the United Kingdom. Four hundred and sixteen questionnaires were sent back to the researchers. Table 2 shows the number of respondents in each country. The largest groups of respondents are from Japan (95) and the United Kingdom (85) while Italy (32) represents the smallest. This gap may be partially explained by the fact that controllers 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) while it is not the case for controllers from France and Italy where only a small number of surveys on cost accounting system have been conducted.

(Insert Table 2) 5.1.1 Organizations that experienced ABCM The results in Table 3 show that there are significant differences in the proportion of organizations that experienced ABCM. The highest percentage is in France (94.9%) while the lowest is in Germany (43.8%). A Chi-square analysis shows that the difference between the countries is significant (Chisquare 65.22, p-value < 0.001 with 6 degrees of freedom). The rejection 16

of hypothesis 1 suggests that the diffusion process for ABCM has been different from one country to another. There are several explanations for these results. French organizations have been using a method quite similar to ABC (mthode des sections homognes) for several decades (Lebas 1994). Thus, French managers consider that their firms have experienced ABCM for a long period. This explains the high rate in France.

The adoption rate in this survey is larger than in any other survey conducted before on ABCM. The question in this survey did not refer to the adoption or the implementation but to the extent to which firms have experience ABC. As we will notice further, this rate includes firms that are using ABC as well as those that have abandoned ABC. This explains the difference between the results of this study and other surveys on ABCM.

(Insert Table 3)

5.1.2 Stages of ABCM implementation

The analysis of the stages of ABCM implementation by country is included in Table 4. It shows that the proportion of organizations at each stage of implementation and in each country is significantly different. The Japanese and the Italian respondents abandoned ABCM in a greater proportion, respectively 69.5% and 15.8%, than the respondents from the other 17

countries. The next largest rate of abandonment is 4.4% in the USA and the mean is 4.3%. The proportion of organizations that implemented a pilot ABCM is only 10.8% in France while it is 36.8% in Italy. The average rate of pilot ABCM is 19.3%. In the USA, 54.4% of the organizations are using ABCM across units while it is limited to 21.6% in France. French respondents are using ABCM in the majority of their units, 64.9%. This rate is above the average of 29.2%.

A Chi-square analysis shows that the stages differ significantly across the countries (Chi-square = 191.37 with a p-value of 0.001)3. These results are in opposition with hypothesis 2. Organizations are implementing ABCM in a different manner depending on the country. More than 70% of the Canadian, German, UK and USA respondents are engaging in implementing ABCM and are using it across units. French organizations tend to implement ABCM in the majority of the units. There are several potential explanations for these differences. The size and the industry of the organizations surveyed may be different from one country to another. The diffusion of ABCM in countries like Canada, Germany and Italy may have been slower than in France, the UK and in the USA. In France, organizations have already used a method similar to ABCM for a long period of time while in the USA and in the UK, ABCM is

These results seem largely driven by the Japanese respondents. The chi-square test was performed without the Japanese data. The results were still significant with a chi-square of 43.91 and a p-value 0.001.

18

better known since it is in these countries that most of the articles pertaining to ABCM have been published.

(Insert Table 4)

5.1.3 Speed of ABCM implementation

Ex ante, the speed of the implementation of ABCM can be expected to be similar from one country to another. Responses to the question concerning the speed of implementation are included in Table 5. They show that the speed of implementation is significantly different from one country to another. French and Japanese managers perceive their ABCM

implementations as being quicker while Canadian, Italian and US managers think that they are slower. The Chi-square analysis shows that country is significant since the Chi-square is 56.58, with a p-value of 0.002 with 24 degrees of freedom. Thus, hypothesis 3 is rejected. Speed of implementation varies significantly from a country to another.

(Insert Table 5)

19

5.1.4 Success of ABCM implementation

Hypothesis 4 suggested that the perceived level of success for ABCM should be similar from one country to another. The results show that success varies significantly from one country to another since the Chi-square is 33.88 and the p value 0.09. Hypothesis 4 is not confirmed.

The result show that French, German and Japanese managers seems to perceive a much higher level the success relating to ABCM implementation than managers from other countries. Canadians tend to perceive the success of the ABCM implementation at a relatively lower level.

(Insert Table 6)

5.2 Strategy

It is suggested in several studies that strategy plays a key role in the design of management accounting systems and more specifically in the

implementation of ABCM. Thus, 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 recent management accounting literature (Simons 1987; 1988; 1990; Gosselin 1997; Langfield-

20

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 it is shown in Table 7. This is consistent with Miles and Snow (1978) who suggested that in an industry the number if each strategy type should be relatively similar.

(Insert Table 7)

Before testing the hypotheses that pertain to the influence of strategy on cost management, an analysis of the relationship between strategy, country and organizational variables was performed. The results, included in Table 8, show that in the sample the proportion of prospectors, defenders and analyzers varies significantly from one country to the other. The Chi-square is 35.87 with a p-value of 0.001 with 12 degrees of freedom. The percentage of prospectors ranges from 18.3% in Japan to 41.1% in Germany and 22.6% in Japan and 43.6% for defenders in France.

(Insert Table 8)

5.2.1 Strategy and organizations that experienced ABCM

It was suggested in hypothesis 5 that prospectors would tend to experience ABCM more than defenders. To test this hypothesis, we used the following

21

logistic model: ABCM = a + b1 PRO + e (1)

where ABCM was set equal to 1 if the firm experienced ABCM and equal to 0 otherwise. Of the 321 firms that responded to the survey, 190 had experienced ABCM. PRO is a dummy variable for strategy. PRO was given a value of 1 if the respondent had classified his organisation as a prospector and a value of 0 if the organisation was an analyzer or a defender. The results of the logistic regression are reported in Table 9. They support H5. Strategy does influence the decision to experience ABCM. Prospectors are more likely to have experienced ABCM after having controlled for the effects of country. The results are similar to previous studies that have examined the association between strategy and the adoption of ABCM (Gosselin 1997, Malmi 1999).

(Insert Table 9)

5.2.2 Strategy and speed of ABCM implementation

Hypothesis

pertained and

to

the It

relationship was

between that

the the

speed speed

of of

implementation

strategy.

suggested

implementation would be higher for prospectors than for defenders. To test

22

this hypothesis, we used the following model: SPEED = a + b1 PRO + e (2)

where SPEED represents the ordinal measure of the perceived velocity of ABCM 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 his organisation as a prospector and a value of 0 if the organisation was an analyzer or a defender. The results included in Table 10 show that strategy type does not affect the speed of implementation. Prospectors do not implement ABCM more quickly than defenders. (Insert Table 10)

5.2.2 Strategy and success of ABCM implementation

The success of ABCM implementation depends on several factors that have been identified in several studies (Shields 1995, Swenson 1995, Foster and Swenson 1997). In this paper, we hypothesise that the perceived success of the ABCM implementation would be higher among defenders than among prospectors. To test this hypothesis a reduced regression model with strategy as the independent variable and perceived success of ABCM as the dependent variable was employed. Success was measured on a five-point scale from unsuccessful to successful while strategy was represented by a

23

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 7 and are summarized in Table 11. The independent variable DEF has a positive and significant coefficient. ABCM implementations are perceived as more successful among defenders than among prospectors and analyzers.

(Insert Table 11)

5.2.2 Strategy and stages of ABCM implementation

Organizations may decide to implement ABCM as a pilot, to use it across the units or in the majority of units. They may also decide to abandon ABCM. Hypothesis 8 suggested that prospectors would be more likely to abandoned ABCM or use it in all the majority of units in comparison to defenders who would prefer to conduct a pilot ABCM or use ABCM across units. To test his hypothesis, a chi-square analysis was done. The results of the analysis do not support hypothesis 8. The value of the chi-square is 8.17 and the p-value is 0.226. Strategy does not affect the outcome of the ABCM system after its implementation. (Insert Table 12)

24

5.3 Organisational structure

Organizational structure was measured with an instrument based on Gordon and Narayanan (1984) that focused on three dimensions of the structure: centralisation, formalisation and planning. To test this hypothesis a logistic regression model with centralization (CENT), formalisation (FORM) and planning (PLAN) as the independent variable and whether or not the organization experienced ABCM was employed as the dependent variable was run. The model employed was: ABCM = a + b1 CENT + b2FORM + b3PLANN +e (3)

where ABCM was set equal to 1 if the firm experienced ABCM and equal to 0 otherwise.

(Insert Table 13)

The results of the test supports hypothesis 9 and are summarized in Table 13. Centralisation and planning have an influence on the extent which a firm has experienced ABCM but the coefficient has a p-value just below 0.1. The coefficient for formalization is not significant.

25

6. Conclusion

The purpose of this paper was to present the results of a cross national survey on ABCM, conducted in six countries. The results show that there are major differences in the diffusion process for ABCM and that strategy has some influence on this process. Based on the results of this survey, French, Japanese and US organisations tend to experience more extensive ABCM implementations in comparison to Canadian, German, Italian and UK organisations. The results also confirm that strategy and organizational structure does not affect the extent to which firms have experienced ABCM. The overall results show that the diffusion process for ABCM is quite different in each country and that local adaptation may affect the role of many determinants on the diffusion process. Research should be undertaken to identify what are the attributes of the ABCM and how they vary from one country to another. This paper contributes to the management accounting literature since it is the first and the only international survey study on one of the most important management accounting innovation: ABCM. Of course, such study has several limitations. First, the response rate in each country is not high. Second, there are in each country adaptations and even re-inventions. This may affect the influence of the determinants on the implementation of ABCM.

26

However, we do not know to what extent this situation affects the result of the empirical work performed in this study.

27

Table 1 Surveys on the diffusion of ABCM Country Innes and Mitchell (1991) Ask and Ax (1992) Bright et al. (1992) Nicholls (1992) Armitage and Nicholson (1993) Drury and Tayles (1994) United Kingdom Sweden United Kingdom United Kingdom Canada United Kingdom Population Members of the CIMA Engineering Industry Manufacturers 179 companies that attended an ABCM seminar in May 1990 Financial Post list of 700 largest companies in Canada Sample of 866 business units drawn from a population of 3,290 manufacturing firms Period September 1990 January to April 1991 Latter half of 1990 January 1991 Summer 1992 1991 Adoption rate 6% began to implement ABCM 2% are applying ABCM 32% are applying ABCM4* 10% had implemented ABCM 14% are applying ABCM 4% are applying ABCM

The authors of this study regard the validity of the disclosed usage of ABCM in their survey with some reservation given the results of other surveys.

28

Table 1 (suite) Surveys on the diffusion of ABCM Country Innes and Mitchell (1995) United Kingdom Population Firms listed in TIME 1000 Period Early 1994 Adoption rate 20% consider ABCM applicable to their organizations (Only 8% used it extensively) N/A

Shields (1995)

United States of America Finland Norway

List of ABCM adopters provided by the CAM-I Manufacturing firms Manufacturing organizations

1994

Lukka and Granlund (1996) Bjornenak (1997))

1992 - 1993 1994

5% are implementing 40 % wanted to implement, were currently implementing or had already implemented ABCM 30.4% are implementing ABCM 19% of the firms have implemented ABC

Gosselin (1997) Innes et al. (2000)

Canada United Kingdom

Manufacturing strategic business units Firms listed in TIME 1000 TABLE 2

1994 - 1995 1999

29

NUMBER OF RESPONDENTS BY COUNTRY

Canada Number of respondents 35 (8.4%) France 39 (9.4%) Germany 73 (17.6%) Japan 95 (22.8%) Italy 32 (7.7%) United Kingdom 85 (20.4%) United States 57 (13.7%) Total 416

TABLE 3 ORGANIZATIONS THAT EXPERIENCED ABCM BY COUNTRY

Canada Number of respondents 23 (65.7%) France 37 (94.9%) Germany 32 (43.8%) Italy 19 (59.4%) Japan 82 (86.3% United Kingdom 52 61.2% United states 46 80.7% Total 291 70%

The percentages in parentheses represent the proportion of respondents that experienced ABCM in each country. Chi-Square = 65.22, p< 0.001, with 6 degrees of freedom

30

TABLE 4 STAGES OF ABCM BY COUNTRY Canada Abandoned Pilot ABCM Use across units Use in majority of units Number of respondent s 1 (4.3%) 8 (34.8%) 9 (39.1%) 5 (21.7%) 23 France 1 (2.7%) 4 (10.8%) 8 (21.6%) 24 (64.9%) 37 Germany 0 (0%) 10 (31.2%) 16 (50%) 6 (18.8%) 32 Italy 3 (15.8%) 7 (36.8%) 5 (26.3%) 4 (21.1%) 19 United Kingdom 2 (3.8%) 8 (15.4%) 29 (55.8%) 13 (25%) 52 United States 2 (4.4%) 10 (21.8%) 25 (54.4%) 9 (19.6%) 46 Japan 57 (69.5%) 9 (11.0%) 5 (6.1%) 11 (13.4%) 82 Total 66 (22.7%) 56 (19.3%) 97 (33.3%) 72 (24.7%) 291

The percentages in parentheses represent the proportion of respondent that abandoned ABCM, installed a pilot ABCM, use ABCM across units and use ABCM in the majority of the units in each country. Chi-Square = 191.37, p< 0.001, with 18 degrees of freedom

31

TABLE 5 SPEED OF IMPLEMENTATION BY COUNTRY Canada Quick 1 (5.6%) France 3 (7.9%) Germany 0 (0.0%) 10 (37.1%) 10 (37.1%) 7 (25.9) 0 (0.0%) 27 Italy 0 (0.0%) 4 (22.2%) 9 (50.0%) 5 (27.8%) 0 (0.0%) 18 United Kingdom 2 (4.3%) 13 (28.3%) 19 (41.3%) 10 (21.7%) 2 (4.3%) 46 United states 2 (4.6%) 6 (14.0%) 15 (34.9%) 13 (30.2%) 7 (16.3%) 43 Japan 8 (30.8%) 4 (15.4%) 11 (42.3%) 3 (11.5%) 0 (0.0%) 26 Total 16 (7.4%) 56 (25.9%) 78 (36.1%) 51 (24.1%) 14 (6.5%) 215

4 15 (22.2%) (39.5%) 7 7 (38.9%) (18.4%) 3 10 (16.7%) (29.0%) Slow Number of respondents 3 (16.7%) 18 2 (5.3%) 37

The percentages in parentheses represent the proportion of respondent for each level of speed of implementation from 1 = Quick to 5 = Slow. Chi-Square = 56.58, p< 0.0002, with 24 degrees of freedom

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TABLE 6 SUCCESS OF ABCM BY COUNTRY

Canada Successful 1 (5.3%) 7 (36.8%) 10 (52.6%) 1 (5.3%) Unsuccessfu l Number of respondents 0 (0%) 19 France 7 (18.4%) 17 (47.4%) 11 (29.0%) 1 (2.6%) 1 (2.6%) 37 Germany 2 (7.7%) 17 (65.3%) 7 (27%) 0 (0%) 0 (0%) 26 Italy 3 (16.7%) 4 (22.2%) 6 (33.3%) 5 (27.8%) 0 (0%) 18 United Kingdom 3 (6.7%) 22 (48.9%) 16 (35.6%) 3 (6.7%) 1 (2.2%) 45 United states 6 (15.0%) 13 (32.5%) 18 (45.0%) 2 (5.0%) 1 (2.5%) 40 Japan 6 (23.1%) 11 (42.3%) 7 (26.9%) 2 (7.7%) 0 (0.0%) 26 Total 28 (13.2%) 92 (43.4%) 75 (35.4%) 14 (6.6%) 3 (1.4%) 212

The percentages in parentheses represent the proportion of respondent that experienced ABCM in each country. Chi-Square = 33.88, p< 0.09, with 24 degrees of freedom

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TABLE 7 STRATEGY* Type Number of firms 164 120 124 408 Percentage

Analyzers Prospectors Defenders Total

40.2% 29.4% 30.4% 100%

* 9 organizations have not responded to the strategy questions

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TABLE 8 STRATEGY BY COUNTRY Canada Analyzers Prospectors Defenders 15 (44.1%) 9 (25.5%) 10 (29.4%) France 10 (25.6%) 12 (30.8%) 17 (43.6%) Germany 13 (17.8%) 30 (41.1%) 30 (41.1%) Italy 11 (34.4%) 11 (34.4%) 10 (31.2%) United Kingdom United states Japan Total 164 (40.2%) 120 (39.4%) 124 (30.4%)

36 24 55 (43.4%) (44.4%) (49.1%) 24 17 17 (28.9%) (31.5%) (18.3%) 23 13 21 (27.7%) (24.1%) (22.6%)

The percentages represent the proportion of strategy types in each country. Chi-Square = 35.87, p< 0.00035, with 12 degrees of freedom

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TABLE 9 EXPERIENCE OF ABCM AND STRATEGY: LOGISTIC REGRESSION RESULTSa Expected Sign Intercept PRO Canada France UK USA Japan Germany Italy Model X2 = 64.514, p = 0.0001
aThe model is ABCM = a + b PRO + b Canada + b France + b UK + b USA + b Japan 1 2 3 4 5 6 + b7 PRO + e. Variables: ABCM indicates whether the respondents experienced ABCM (=1) Significance levels are determined using two-tailed X
2

Coefficient (Std. Error) 0.3235 (0.1392) 0.0916* (0.054) - 0.034 (0.2781) 0.335 (0.269) -0.151 (0.264) 0.168 (0.266) 0.356 (0.149) 0.2286 (0.264) -0.109 (0.270)

or did not ABCM (=0); PRO was set to 1 for prospectors and 0 for analyzers or defenders. tests.

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TABLE 10 SPEED OF ABCM IMPLEMENTATION AND STRATEGY: REGRESSION RESULTSa Expected Sign Intercept PRO + Coefficient (Std. Error) 2.80468 (0.1119) 0.02344 (0.1940)

R-square = 0.0001
aThe model is SPEED = a + b PRO + e. Variables: SPEED represents the level of speed of 1 the implementation; PRO was set to 1 if prospectors and 0 if analyzers or defenders.

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TABLE 11 SUCCESS OF ABCM IMPLEMENTATION AND STRATEGY: REGRESSION RESULTSa Expected Sign Intercept DEF + Coefficient (Std. Error) 2.10769 (0.0907) 0.37507** (0.1633)

R-square = 0.0276 **p-value = 0.0228

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

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TABLE 12 STAGES OF ABCM BY STRATEGY Abandon ed Analyzers Prospectors Defenders Total 34 (51.5%) 12 (18.2%) 20 (30.3%) 66 Pilot ABCM 20 (35.7%) 18 (32.2%) 18 (32.1%) 56 Use across units 45 (46.4%) 28 (28.9%) 24 (24.7%) 97 Use in majority of units 24 (33.3%) 26 (36.1%) 22 (30.6%) 72 Total

123 (42.3%) 84 (28.9%) 84 (28.8%) 291

The percentages represent the proportion of strategy types in each ABCM stage. Chi-square = 8.17, p-value = 0.226 with 6 degrees of freedom

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TABLE 13 ABCM AND ORGANIZATIONAL STRUCTURE: REGRESSION RESULTSa Coefficient (Std. Error) Intercept Centralisation Formalisation Planning R-square = 0.01 None of the three variables are significant.
aThe model is ABCM = a + b Centralisation + b2 Formalisation + b Planning + e. ABCM 1 3 indicates whether the respondents experienced ABCM (=1) or did not ABCM (=0). Significance levels are determined using two-tailed X
2

1 3485 (0.0756) 0.1474 (0.098) 0.1097 (0.223) 0.1422 (0.098)

tests.

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