See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/228300946

The Adoption of ABC and the Improvement of Performance: The Case of the
Central Bank of Morocco

Article  in  SSRN Electronic Journal · July 2010

DOI: 10.2139/ssrn.1640113

CITATION READS

1 2,022

2 authors:

Pierre-Laurent Bescos Karim Charaf

Nice Graduate School of Management (IAE-GRM), Côte d’Azur University, Nice, Fra… ESC Dijon - Ecole de commerce
30 PUBLICATIONS   177 CITATIONS    8 PUBLICATIONS   42 CITATIONS   

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Pierre-Laurent Bescos on 24 October 2017.

The user has requested enhancement of the downloaded file.

The Adoption of ABC and the Improvement of

Performance: the Case of the Central Bank of

Morocco

PIERRE-LAURENT BESCOS* & KARIM CHARAF**

* EDHEC Nice, France ** ESC Dijon, France

Abstract:

The adoption of Activity-Based Costing (ABC) is motivated by the search for greater

efficiency in the face of competitive pressures resulting from globalization, and particularly

the introduction of high-quality and low-priced Asian-made products and services into the

Moroccan markets. The search for greater efficiency through the application of ABC is still to

be determined. The purpose of this paper is to examine the relations between ABC and

performance, particularly on non financial performance. With this objective a field study was

undertaken between 2007 and 2009 at the Central Bank of Morocco (Bank Al-Maghrib) to

highlight the direct effects of ABC implementation on performance.

Correspondence Address:

Pierre-Laurent BESCOS, EDHEC, BP 3116. 393, Promenade des Anglais, 06202 Nice cedex, France,

E-mail : pierre-laurent.bescos@edhec.edu

Karim CHARAF, ESC Dijon, 29, rue Sambin- BP 50608, 21 000, Dijon, France. E-mail :

karim.charaf@escdijon.eu

Paper presented in the “European Accounting Association” (Istanbul, 2010) and in the Join Research
Conference (Oxford Brookes University Business School/ Burgundy School Of Business)

Electronic copy available at: http://ssrn.com/abstract=1640113

1. INTRODUCTION

The number of books, papers and articles relating to the Activity-Based Costing (ABC) is

considerable of particularly interested are the theoretical underpinnings of the method

(Cooper and Kaplan 1987; Cooper, 1988, 1990; Kaplan and Cooper, 1998), factors

influencing its adoption (Gosselin, 1997, Brierley et al., 2001, Baird et al., 2004, Baird, 2007)

and measuring the success of its implementation (Shields, 1995; McGowan and Klammer,

1997; Foster and Swenson, 1997).

The adoption of ABC is motivated by the search for greater effectiveness in responding to

competitive pressures arising from globalization (Johnson and Kaplan, 1987). However, the

search for greater efficiency through the use of ABC is yet to be demonstrated. To evaluate

the legitimacy of this innovation in management accounting, it is necessary to go further to

find links between the adoption of the ABC and improvement of performance in

organizations. The previous researches on this subject are inconclusive. The reason is mainly

that the criteria for measuring the performance too often rely on financial indicators such as

profitability ratios. It is difficult to isolate the specific effects of the implementation of ABC

systems solely based on financial performance. In addition, for financial benefits from the

implementation of ABC to take effect, a significant lead time is often required (Kennedy and

Affleck-Graves, 2001).

The aim of this paper is to shed light on relations between ABC and performance, including

non financial performance measures. With this objective in mind, a field study was conducted

between 2007 and 2009 at the Central Bank of Morocco (Bank Al-Maghrib). By this way, we

wish to understand the direct effects of ABC on performance.

Electronic copy available at: http://ssrn.com/abstract=1640113

The remainder of this paper is structured as follows. The following section reviews the

literature on ABC and the improvement of performance. Then the paper provides background

on the Central Bank of Morocco. The next section describes the research methods and theory,

followed by an analysis of ABC implementation. The paper concludes with a summary of the

results.

2. ABC AND IMPROVEMENT OF PERFORMANCE

The theories of diffusion of innovations (Kwon and Zmud, 1987) and transaction cost

economics (Roberts and Silvester, 1996) suggest that organizations adopt an innovation (such

as ABC) to get benefits that directly or indirectly impact financial performance.

With the definition of activities, a better allocation of costs and more relevant information for

decision making (Cooper, 1990, 1988; Cooper and Kaplan 1987; Kaplan and Cooper, 1998),

ABC should improve performance in several ways (Cagwin and Bouwman, 2002, Ittner et al.,

2002, Kennedy and Affleck-Graves, 2001). According to its supporters, ABC can reduce

inaccuracy of costs (Ittner et al., 2002; Cooper and Kaplan, 1991) and improve performance

(Ittner et al., 2002; Cagwin and Bouwman, 2002; Kennedy and Affleck-Graves, 2001).

Furthermore, Cooper and Kaplan (1991) estimate that with the benefits of ABC, firms can

improve their profit, by removing non-value-adding activities identified, a better selecting of

subcontractors, reducing the lead-time between orders and deliveries, improving efficiency in

resource use, the concentration of resources on the value chain, reducing costs of products and

services, setting more realistic prices, etc..

According to Turney (1991), strategic decisions based on information from the ABC include

analysis of customer value, competitiveness studies, highlighting the opportunities for

outsourcing and analyzing production strategies. According to Pizzini (2006) improved

process of decision making with ABC would result in increased profitability, competitiveness

3
and ultimately shareholder value.

Improving quality is also often cited as one of the benefits of ABC (Ittner et al. 2002; Ittner,

1999). The cost of obtaining quality and the cost of non-quality will take into account the

costs of inspection and prevention, costs of failures (internal or external) and the costs of lost

trade. Data from the ABC could provide this information which is also useful for the

management and quality improvement, particularly by encouraging the elimination of low

value-adding activities for customers.

A review on the research conducted on the relationship between ABC and performance will

allow us to specify the nature of these relationships. By reviewing studies published between

2000 and 2008, we were able to identify four important contributions in linking ABC with

performance (see Table 1).

4
 Table 1: The main contributions on the relationship between ABC and performance (period 2000-2008)

Authors Objectives Samples (*) Indicator(s) of performance Results

Kennedy Study the relationship between 853 UK firms (234) Holding Period Returns (HPR), Firms adopting ABC techniques
and implementation of ABC and cumulative Abnormal Returns outperform matched non-ABC firms.
Affleck- the firm value. (CAR) ABC adds to firm value through better
Graves cost controls and asset utilization,
(2001) coupled with greater use of financial
leverage
Cagwin Study the improvement in 990 internal Return On investment (ROI) There is a positive association between
and financial performance that is auditors who are ABC and improvement in ROI when
Bouwman associated with the use of members of the ABC is used concurrently with other
(2002) ABC, and the conditions under Institute of Internal strategic initiatives, when implemented
which such improvement is Auditors (IIA) in complex and diverse firms, when used
achieved (210) in environments where costs are
relatively important, and when there are
limited numbers of intra-company
transactions.
Ittner et al. Evaluate the association 25 361 firms Return on net plant assets Extensive use of ABC is associated with
(2002) between the ABC and the (2 789) (ROA), product quality, cycle higher quality levels and greater
operational and financial time of production, cost improvements in cycle time and quality,
performance of companies. variation. and is indirectly associated with
manufacturing cost reductions through
quality and cycle time improvements.
Banker et Evaluate the impact of ABC on Plant managers and Improvements in unit ABC has no significant direct impact on
al. (2008) adoption of world-class controllers from manufacturing costs, cycle time, performance (but an indirect impact on
manufacturing (WCM) Industry-Week’s and product quality non financial performance)
practices and plant (1 250)
performance.
(*) In brackets indicates the number of questionnaires received and used in the research cited

5
Kennedy and Affleck-Graves (2001) came to the conclusion that the value of the shares of

companies that have adopted ABC has increased more than those who have not implemented this

approach. By measuring performance by increasing the value of shares for three years, they found

that an improvement of performance from ABC is not immediate and it takes time to manifest

itself.

Again using financial criteria, the study of Cagwin and Bouwman (2002) investigates the

improvement in financial performance that is associated with the use of ABC, and the conditions

under which such improvement is achieved. Internal auditors furnish information regarding

company financial performance, extent of ABC usage, and enabling conditions that have been

identified in the literature as affecting ABC effectiveness. Results show that there is indeed a

positive association between ABC and improvement in ROI when ABC is used concurrently with

other strategic initiatives and also implemented in complex and diverse firms. This is also the case

when used in environments where costs are relatively important and when there are limited

numbers of intra-company transactions.

In another study published the same year, Ittner et al. (2002) tried to introduce industrial

performance variables related to quality or manufacturing cycle time. The authors examine the

association between ABC and manufacturing performance. Results indicate that extensive use of

ABC is associated with higher quality levels and greater improvements in cycle time and quality,

and is indirectly associated with manufacturing cost reductions through quality and cycle time

improvements. However, on average, extensive ABC use has no significant association with return

on assets. Instead, they find weak evidence that the association between ABC and accounting

profitability is contingent on the plant's operational characteristics. In conclusion, the authors argue

that ABC has an indirect and significant effect on production costs through improved quality and

manufacturing cycle time. However, they found no significant association between ABC and

financial performance (ROI).

6
Finally, Banker et al. (2008) studied the impact of ABC on adoption of world-class manufacturing

(WCM) practices and plant performance. In contrast to earlier research that estimates the direct

impact of ABC on plant performance, they developed an alternative research model to study the

role of world-class manufacturing practices as a mediator of the impact of ABC. The results

indicate that ABC has no significant direct impact on plant performance, as measured by

improvements in unit manufacturing costs, cycle time, and product quality. They find, however,

that WCM practices completely mediate the positive impact of ABC on plant performance.

Ultimately, the results of studies on the relations between ABC and performance have yielded

inconsistent results and are mainly focused the industrial sector. The review of existing research is

sometimes inconclusive. We believe that the reason is the use of performance criteria that are too

general or vague. It should also recognize that the links between ABC and performance are

probably complex and therefore difficult to demonstrate by a survey.

If we want to assess the legitimacy of implementing ABC, it is necessary to go further. In our

opinion, this can be done by using a field study in order to identify appropriate performance

criteria that are relevant. In particular, it seems that the comparison between the original objectives

of implementation of ABC and achievement of those objectives is very important to appreciate the

dynamic link between innovation and performance management.

3. THE CENTRAL BANK OF MOROCCO

The Central bank of Morocco, named "Bank Al-Maghrib", is a public legal entity endowed with

financial autonomy. It was created in 1959 in place of former "Banque d'Etat du Maroc".

This bank issues banknotes and coins that are legal tender in the Kingdom. They also set monetary

policy by issuing financial that help to ensure price stability.

The organization chart is composed of seven primary departments responsible for conducting the

basic tasks of the Bank, five support departments and a controlling department (Audit and Risk

Prevention). The primary departments are: Monetary Operations and Exchange, Economics and

7
International Relations, Banking supervision, Network and Corporate Relations, Dar As-Sikkah

(this department is an industrial unit responsible for banknotes' fabrication and coin's

minting), Currency museum, Research. The support departments include Human Resources,

Organization and Information Systems, Financial, Logistics, Communication.

4. RESEARCH METHODS AND THEORY

A field study was conducted at the Central Bank of Morocco (Bank Al-Maghrib) from January

2007 to mid-March 2009 to measure the effects of the implementation of the ABC on performance

in that institution. Ahrens and Chapman (2006) stressed the importance of qualitative research in

the field of management control. We followed the stages of research proposed by Yin (2003):

Designing case study, collecting the evidence, analyzing case study evidence and report writing.

The steps were not followed sequentially but interactively.

This case study was conducted in three phases (see figure 1). The first phase, spanning from

January to June 2007, was to help the Central Bank of Morocco to implement ABC with the

support of a team of consultants. It also gave us the opportunity to study the characteristics of the

ABC model that was implemented at the Central Bank of Morocco. During this time, we deepened

our knowledge of the organization of the Bank and the flow of information circulating between the

different departments that may use the information from the new ABC system.

Phase two took place between September 2007 and end-December 2007. It consisted of an analysis

of initial benefits from the ABC implementation. Comprehensive tours of the Central Bank of

Morocco were undertaken. During the tours case notes were made to record observations. This

provided evidence concerning the use of ABC information in decision making, the decision actions

taken with ABC information and the measure based on management evaluation as to the overall

success of ABC.

8
Phase three (March 2008 to mid-March 2009) was conducted to confirm or reject the findings

made during the phase two. The managers, consultants and heads of department were interviewed

during the last two phases to determine the impact of ABC on non-financial performance, and

particularly to see if improvement goals sought at the beginning had been obtained. Thirty three

interviews were conducted in person or by phone, in the language of the interviewees (Moroccan

Arabic dialect). The interviews generally lasted between one and two hours. These interviews were

semi-structured, recorded and transcribed verbatim. The interview transcripts and additional

feedback were analyzed based on a grid technique whereby data were coded and explanatory

patterns were mapped across various themes (Yin, 2003).

To ensure the internal validity of our research, we used data triangulation. To this end, we used

many sources simultaneously (documents, archival records, interviews, direct observation,

participant-observation, etc.). Throughout the research process, we had several opportunities to

communicate informally with our key informants, namely: implementation teams’, managers,

heads of department, etc. The interview transcripts, documentary evidence and notes taken were

compared to enhance reliability.

9
 Figure 1: Timeline of the case study

- Assist the Central Bank to implement the ABC within a

January 2007 team of consultants
to
(7 interviews)
June 2007
May 2007: Project Completion

September 2007
- Analyze the first benefits from the ABC
to
December 2007
(12 interviews)

March 2008
to - Confirm or disprove the initial findings
Mid-March 2009
(14 interviews)

5. CASE HISTORY

5. 1. The Central Bank of Morocco’s in the early 2000s

To ensure their mission is accomplished, the Central Bank of Morocco has undertaken its own

upgrade to compete in international market by adopting for the first time in 2004, a strategic plan

covering the period 2004-2006. The plan identified the challenges of these reforms, set guidelines

and action plans.

10
This first strategic plan has set a policy to modernize the organization and management activities,

seek to optimize management and improve the quality of its services. The ABC project is part of

this strategic plan. Indeed, the Bank wanted to identify value adding activities for different cost

objects (coins, banknotes, passports, opening accounts, foreign exchange swap, etc..). Meanwhile,

the bank wanted to limit or eliminate the non-adding values activities, including those resulting

from poor organization. Moreover, to support its modernization strategy, this organization needed

a useful tool for calculating costs.

5.2. ABC implementation

ABC was chosen because it meets all expectations of the Financial Department. According to the

Head of this department, who was also the internal project manager: "... the objectives of

implementation of ABC are:

- Having a vision for using the resources of the Bank;

- Having a tool to assess the pricing of products and services provided to the clients;

- Enrich the information by cost calculations;

- Prepare the budget;

- Controlling the cost structure ... "

Because the bank wanted to implement the project quickly, they mobilized significant internal

resources, and made sure that the implementation was adopted by most of the staff.

The manager of the project group worked full time on the project and made all the coordination

and implementation decisions. The project group was assisted by external consultants who helped

steer the process. The consultants brought experience with ABC implementation and processes as

well as methodology. ABC training was conducted by ABC project team to help employees

understand the concepts of ABC and its implications for more accurate and relevant cost

information.

11
In each department of the bank, a contributor was in charge to give technical and methodological

recommendations. This also allowed to ABC project team to legitimize the relevance and

usefulness of cost data. Moreover, the diversity of opinion can be a positive force as team

members are challenged to consider other ideas (Anderson et al., 2002). The bank purchased a

software package dedicated to the ABC system and was implemented.

During the implementation, the Bank of France has also provided technical assistance, because this

institution was one of the first central banks to adopt ABC. Indeed, the establishment of the ABC

in this organization was effected from 1995 to 1997. The deployment at all levels has been made

since 1997. In late 2003, a cooperation agreement was signed between the Central Bank of

Morocco and the Bank of France. The purpose of the agreement is to strengthen existing

relationships, as well as to develop concrete technical assistance and to provide training in several

areas of activities of a central bank (source: Annual Report of the Bank of France, 2003).

In total, the project lasted nine months (see figure 2). Indeed, significant work to update and

updating the data had to be done in parallel. Another unique characteristic that justifies this time

horizon was the need to create a management control department that did not exist before. This

department had to take into account the objectives of the Bank, the missions of this type of

organization and the context. As stated by some managers "This is an ambitious project. No one

expected that the project ends after 9 months”

It should be noted that the following aspects played an important role in determining the context of

implementing ABC:

- The absence of a pre-existing cost system,

- Some other projects conducted before helped to build an ABC model, namely the process

optimization project and the quality approach. As explained by the head of accounting

department ―the linkage of ABC to other important projects gives each project greater

power and additional visibility‖.

12
 Figure 2: Project Planning

- Training, project preparation and planning phases;

- Setting targets and objectives of cost accounting
September 1, 2006 system;
to - Definition of global and local goals for each
September 29, 2006 Department;
- Definition of the scope of analysis.

- Identification of cost pools and cost centers;

October 02, 2006
- Identification of processes, activities and cost objects
to
- Data collection.
February 28, 2007

- Data collection;
- Setting the recommended solution "Focus Data: ABC
March 1, 2007 Enterprise";
to - Validation of results;
May 31, 2007 - Preparation of output reporting.

(9 months)

13
6. RESULTS

6.1. Use of ABC information in decision making and actions taken with ABC information

The purpose of our case study is to make an assessment of the consequences of adopting ABC and

to determine whether the original objectives set for ABC have been achieved. To verify this, a

series of interviews were conducted six months after the implementation of the ABC system1.

Initially, we wanted to ensure that information from the ABC implementation cover the four levels

of activity management. To check this, respondents were asked2 to vote yes or no on items adapted

from Gosselin (1997). These four levels3 represent the range from simple activity analysis without

cost tracing to full activity-based budgeting:

- Activity analysis (AA) : consists of identifying the activities and procedures carried out to

convert material, labor and other resources into outputs (Gosselin, 1997);

- Activity cost analysis (ACA) subsumes (AA), but adds the process of explaining the

structural determinants of the costs of the activities (Gosselin, 1997);

- Activity-based costing (ABC) enables management to measure product and service costs

with more accuracy (Cooper, 1988). ABC requires the completion of the (ACA) and (AA)

levels (Gosselin, 1997)

- Activity-based budgeting enables management to plan and prepare a budget based on

an ABC model.

Overall, all people responded positively to the presence of these four levels of ABCs in the model

of the Bank.

A perspective adopted by Cagwin and Bouwman (2002), should also identify the departments that

use the ABC as a result of its implementation to measure the benefits.

1
According to Kennedy & Affleck-Graves (2001), for financial benefits from the implementation of ABC take effect, a
significant delay is often required.
2
One person per direction
3
Compared to the three items from Gosselin (1997), a fourth-level concerning budgets has been added.

14
Regarding the Central Bank of Morocco, we initially asked the cost controller about the

departments using the ABC results. In a second step, we contacted the Department of the Central

Bank of Morocco to confirm or disprove his answers. In general, the controller's assertions are

consistent with those of the managers. It is interesting to note that certain support departments

(Logistics Department, Organization and Information Systems Department) tend to use more

information than the operational departments. From this perspective, the implementation has

reached its goal, and this is probably explained by the fact that the model was very consensual at

the outset. As explained by the head of accounting department:

"A successful ABC project requires the participation of all Departments. Each manager should be

a major player in the modeling process so that the ABC techniques are understood and shared by

everyone. It's very important that managers should be involved and take ownership of the results

produced by the Financial Department”.

The relevance of data from the ABC implementation and the perceived usefulness of this data in

making decisions, are considered as criteria for successful implementation of the ABC (Anderson

and Young, 1999). To determine if this is true in our case, we identified for each Department of the

Bank the main uses for making decisions, thanks to the mobilization of many data sources:

documents, archival records, interviews, direct observation, participant-observation, etc. It should

be noted that the use is considered only if confirmed by at least three sources.

15
 Table 2: Examples of uses information from the ABC by Department

Departments Examples of uses

Network and Corporate Relations

Cost per study or periodic
Department

Human Resources Department Cost of activities: payroll, training, recruitment

Monetary Operations and

Transaction costs of withdrawals
Exchange Department
Economics and International
Cost of the annual report
Relations Department

Legal Affairs Division Cost of legal proceedings instituted against the Bank

Cost per project or applications

Organization and Information Cost of technical support
Systems Department Cost of technical incidents reported by managers
(Failure Costs)

Banking Supervision Department Cost of controlling the activities of Moroccan banks

Audit and Risk Prevention Costs of: planning, preparation and performing of
Department audit assignments

Cost of real estate projects

Logistics Department
Cost of surfaces, vehicles

Costs of activities: Promotion of museum, preparation

Currency Museum Division
of exhibitions

Communication Division Cost per type of communication operation

Dar As-Sikkah (As Cost of production of local currency

noted earlier, this department is Cost of activities of movement control values. These
are mainly costs of inspection and prevention
an industrial unit)

16
Note also that the choice of the ABC has enabled the Bank to achieve a multidimensional

benchmark:

- An international dimension by comparing with other central banks;

- A time dimension by the ability to track changes in costs and margins;

- A geographic dimension by comparing performance in cost between its twenty agencies;

- A size based on comparisons of similar products within the same family.

It can be argued that the primary objective of the ABC implementation, namely "having a vision

for using the resources of the Bank based on activities", was achieved and this remark illustrates

this point:

“With ABC, we are able to use practical information for decision making. Now we have four level

of cost analysis. It is very instructive”.

ABC is also cited as a factor facilitating the analysis of the value chain. The value chain model is a

useful analysis tool for defining a firm's core competencies and the activities in which it can pursue

a competitive advantage (Porter, 1986).

The ABC implementation helped to define the processes, to identify non-value added activities and

to reduce resources when needed. In some cases it will be possible to remove these non-value

added activities by simplifying tasks and controls.

In this regard, a manger in the Network and Corporate Relations Department explains:

"Our processes were formalized during the quality management project... With ABC, these

processes have been detailed and will be allocated the necessary resources and be driven to

achieve objectives and, especially, to improve the satisfaction of internal stakeholders outside the

process ..."

Thanks to the ABC, it was possible to identify some improvements:

- Reduction or elimination of the cost of activities of non-quality for which the value for the

customer is low.

17
 - Better organization of other activities that reduce costs without decreasing the value of the

service to the customers.

- Increase the client perceived value, which may require new resources.

Results from interviews indicate that other targets originally assigned to the ABC implementation

have been achieved, including the introduction of a tool for assessing the pricing of products and

services, as well as an enhancement of the information system for costing, budget monitoring, etc.

It should be noted that support departments often use the information from ABC to make

outsourcing decisions. For example, the Human Resources department has outsourced part a of the

process "recruitment" because of the fact that management was overwhelmed by the influx of

responses when offered a position.

However, the majority of Primary Department members said they are not concerned by the

outsourcing decisions. An operative from the Primary Department says that "the Bank will focus its

resources on activities that are part of its core business (eg the activity prepare and monitor

monetary policy and exchange rate)‖. This is not the case within the support department, as

recognized by one of its manager: "Sometimes we do make some activities to:

- have greater flexibility in terms of resource availability,

- focus on strategic activities for the Bank".

"It's out of the question to completely substitute a provider from an internal department by an

external provider to reduce the costs of the Bank" says another manager assigned to a Support

Department.

18
6.2. Perceived financial improvements from ABC implementation

Cooper and Kaplan (1991) estimate that with the benefits of ABC, companies can improve their

profit in the first instance by identifying and removing non-value adding activities but also through

better selection of subcontractors, reducing the lead-time between orders and deliveries, improving

efficiency in resource use, concentration of resources on the value chain, reducing costs of

products and services and setting more realistic prices, etc.. As said by a manager in Dar As-

Sikkah Department:

"We have found some industrial operations at the Bank. As we initiate reflections, to improve the

financial profitability of the Bank"

The ABC system should facilitate the reengineering process to achieve greater productivity while

enabling better analysis of the allocation of costs and, ultimately, increased quality of services

provided. What emerges from our study, based on the observations collected is this:

"In analyzing the costs of activities and cost drivers, we found many issues to improve efficiency.

The improved process reduces the cost and eliminates some activities" says a manager in Logistics

Department.

With the definition of activities, better allocation of costs and more relevant information for

decision making, the ABC system has allowed this bank to improve performance in several ways.

It pushed for the re-engineering of processes and helped management to achieve greater

productivity or eliminate shortcomings. It has also resulted in direct positive effects on reducing

costs by highlighting non-value activities to eliminate or outsource, by reconfiguring the

consumption of activities by the products (or services) offered, or also by reducing operating costs

of activities. The most direct effects and the fastest are clearly expected in the field of non-

financial performance.

19
6.3. Impact of ABC on Organizational Performance

According to managers, the implementation of ABC has resulted in improved communication

between the different departments as explained by the head of the Financial Department:

“A cross-functional vision of the cost system allowed us to improve the communication between

departments. Thanks to ABC, we use henceforth a common language understandable by all”

Improving quality is also often cited as one of the benefits of the ABC. The cost of obtaining

quality and cost of non quality will take into account the costs of failures (internal or external), cost

of inspection and prevention and the costs of lost trade. Indeed:

"The costs of non quality are mainly the following:

- Activities poorly calibrated, poorly organized and performed as required occasionally

- Time lost in excessive demands of some customers,

- Time lost to redo or correct the provision for dialogue with the customers was not

organized ..." specifies a manager in Economics and International Relations Department.

Data from the ABC system may lead to provide this information. This is also useful for managing

and improving quality by encouraging the elimination of low-value-added activities for customers.

The Central Bank was able to calculate the number and cost of activities of movement control

values (costs of inspection and prevention), business registration and monitoring of technical

incidents reported by managers of the Bank (costs of failures) and the cost of legal proceedings

instituted against the Bank (commercial damage costs).

These results confirm those obtained by Turney (1991) and Pizzini (2006). According to Turney

(1991), strategic decisions based on information from the ABC system, include analysis of

customer value and competitiveness studies, highlighting opportunities for subcontracting and

analysis production strategies. The study by Bescos et al., (2002) shows that French firms use data

from ABC for making strategic decisions and operational analysis of the value chain, cost

management standards, analysis and strategic positioning reducing costs. The Pizzini study (2006)

20
shows, in turn, improving the process of decision making through a system of ABC resulting in

increased profitability, competitiveness and ultimately shareholder value.

We asked managers about the different items that can reflect the improvements in financial and

non financial performance. These items were adapted from Innes and Mitchell (1995) and Foster

and Swenson (1997).

The respondents believe that reducing costs by eliminating low-value-added has not been

completed. We found a wide divergence of views on the operational impact of ABC on reducing

costs by eliminating low value added activities. It seems that the Support Departments is more

concerned than Primary Department. Such a decision takes time and is often very difficult to

implement, which explains, perhaps, some reservations about it.

Respondents also argue that the ABC has allowed the Central Bank of Morocco to determine the

full costs of its activities, to know and justify the origin of its expenditures by activity and

ultimately streamline the process for determining the rates that the Central Bank could offer.

7. SUMMARY AND INTERPRETATION

Our paper attempts to enrich the debate on the benefits of ABC and the role it could play to

improve performance. An effort is made in this paper to define the dimensions of performance that

can be improved by implementing ABC, how to realize their benefits and how to evaluate them as

objectively as possible.

The previous researches about the impact of ABC on financial performance used most often survey

by questionnaire. These studies are both scarce and have mixed results. Thus, our research focuses

on the impact of ABC on non-financial performance through a case study to make a significant

contribution. This case helped to highlight the beneficial role played by a broad process of

consultation in the implementation of ABC. These initiatives results in a particularly broad use of

information procured for the decision-making within the organization, a source of improved future

21
performance. Indeed, the implementation of ABC affects performance through improved

communication between different departments in decision making. Finally, we observe an increase

in the quality of services rendered to customers by the bank. More traditional factors such as

availability of resources, leadership support, employee involvement and training also contribute to

the success of a development project such as implementing ABC, and thereby to achieve the

original objectives for improving performance. Our case study has also stressed that time must be

taken into account in assessing the link between ABC and performance. These objectives can then

all immediately and simultaneously deliver the expected benefits on performance. Some targets are

realized in the six months following implementation, while others take longer to obtain, such as

those concerning the identification of non-value adding activities. Our research also shows that

being a large organization is not an obstacle to benefit from short-term improvements in

performance through implementing ABC, provided that the success factors outlined above are met.

One of the other benefits of our case study is to demonstrate the applicability of ABC is not limited

to organizations operating in a competitive environment. Our study demonstrates that ABC can be

implemented in a public organization successfully, provided that issues of performance

improvement are identified by the management staff and the leaders are supporting the project. The

recent study by Baird (2007) confirms these results, stating that public organizations should adopt

the first level of ABC (activity analysis) to the same extent as private companies4.

4
We refer here at the ABC distinguished by Gosselin (1997) and included in our analysis.

22
REFERENCES:

Ahrens T., Chapman S. (2006), « Doing qualitative Weld research in management accounting:

Positioning data to contribute to theory », Accounting, Organization and Society, Volume 31,

Issues 8, p. 819-841.

Anderson S., Young S., (1999) « The impact of contextual and procedural factors on the evaluation

of activity based costing systems.» Accounting, Organizations and Society 24, p. 525–559.

Anderson, S. W., Hesford, J. W., & Young, S. M. (2002). « Factors influencing the

performance of activity based costing teams: a field study of ABC model development time

in the automobile industry. » Accounting, Organizations and Society, 27(3), p. 195-211.

Annual Report of the Bank of France, 2003

Baird K. (2007), « Adoption of activity management practices in public sector organizations »,

Accounting and Finance, Vol. 47, n°4, p. 551–569.

Baird, K.M., Harrison, G.L., Reeve, R.C., (2004) ―Adoption of activity management practices: a

note on the extent of adoption and the influence of organizational and cultural factors‖.

Management Accounting Research, Vol. 15, p. 383–399.

Banker R. D., Bardhan I. R., Tai-Yuan Chen (2008), « The role of manufacturing practices in

mediating the impact of activity-based costing on plant performance », Accounting, Organizations

and Society, Vol. 33, n°1, January, p.1-19.

Berry, A. J., Otley D. T., (2004), « Case-based research in accounting », p. 231-255, in Humphrey,

C. et Lee, B. (editors), The real life guide to accounting research: a behind-the scene view of using

qualitative research methods, Elsevier Ltd.

Bescos P.L., E. Cauvin, M. Gosselin (2002) « La comptabilité par activités et la gestion des

activités : Comparaison entre le Canada et la France », Comptabilité, contrôle et audit. Numéro

spécial. Mai 2002, p. 209-229.

23
Brierley, J.A., Cowton, C.J., Drury, C., (2001). Research into product costing practice: a European

perspective, European Accounting Review. 10 (2), 215–256.

Cagwin D., Bouwman M. (2002), « The association between activity-based costing and

improvement in financial performance », Management Accounting Research, Vol. 13, p. 1-39.

Cooper R., Kaplan R. S. (1991), « Profit Priorities from Activity-Based Costing », Harvard

Business Review, May-June, 130-135.

Cooper, R. (1988). The rise of activity-based costing-part one: what is an ABC system? Journal of

Cost Management (Summer), 45-49.

Cooper, R., (1990). Cost classification in unit-based and activity-based manufacturing cost

systems. Journal of Cost Management, 4 (3, Fall), 4–14.

Cooper, R., Kaplan, R.S., (1987). How cost accounting systematically distorts product costs. In:

Bruns Jr.,W., Kaplan, R.S. (Editions.), Accounting Management—Field Study Perspectives.

Harvard Business School Press, Boston, pp. 204–228.

Foster G., Swenson D. (1997), « Measuring the success of activity-based cost management and its

determinants. », Journal of Management Accounting Research, Vol. 9, p. 109–141.

Gosselin M. (1997), «The Effect of Strategy and Organisational Structure on The Adoption and

Implementation of Activity-Based Costing », Accounting, Organisations, and Society, Vol. 22,

n°2, p.105-122.

Innes J., Mitchell F. (1995), « A Survey of Activity-Based Costing in U.K.s largest Companies »,

Management Accounting Research, vol. 6, p. 137-153.

Ittner C., Lanen W. N., Larcker D. (2002), « The association between Activity-based costing and

manufacturing performance », Journal of Accounting Research, vol. 40, p. 711-726.

Ittner, C. D. (1999). Activity-based costing concepts for quality improvement. European

Management Journal, 17(5), 492–500.

24
 Kaplan, R.S., Cooper, R., (1998). Cost & Effect: Using Integrated Cost Systems to Drive

Profitability and Performance. Harvard Business School Press, Boston.

Kennedy T., Affleck-Graves J. (2001), « The impact of activity-based costing techniques on firm

performance», Journal of Management Accounting Research, vol. 13, p. 19-46.

Kwon, T. H. and Zmud, R. W., (1987). Unifying the Fragmented Models of Information Systems

and Implementation, in R. J. Boland, R. Hirscheim (eds), Critical Issues in Information Systems

Research, New York,Wiley.

Pizzini M. (2006), « The relation between cost-system design, managers evaluations of the

relevance and usefulness of cost data, and financial performance: an empirical study of US

hospitals », Accounting, Organizations and Society, vol. 31, p. 179–210.

Porter M. (1986), L’avantage concurrentiel, Inter Édition.

Roberts, M. W. and Silvester, K. J., (1996). Why ABC failed and how it may yet succeed, Journal

of Cost Management, Winter, 23–35.

Turney P.B.B. (1991), Common cents: The ABC performance breackthrough, Hillsboro, Oregon,

Cost Technology.

Yin R. (2003), Case Study Research, 3rd edition, Sage Publications.

25

View publication stats