Managers Divided Implementing ABC in A Portuguese

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Managers Divided: Implementing ABC in a Portuguese

Telecommunications Company
Article in Management Accounting Research · June 2005

DOI: 10.1016/j.mar.2005.01.004
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Management Accounting Research 16 (2005) 205–229
Managers divided: Implementing ABC in a Portuguese

telecommunications company
Maria Major a,∗ , Trevor Hopper b,c,d
a
Departamento de Finanças e Contabilidade, ISCTE—Escola de Gestão,
Av. das Forças Armadas, 1649-026 Lisboa, Portugal
b
Manchester Business School, University of Manchester, Manchester M13 9PL, UK
c
Stockholm School of Economics, Sweden
d
Victoria University, Wellington, New Zealand
Received 3 November 2003; accepted 14 January 2005
Abstract
This paper reports a case study of implementing activity-based costing (ABC) in a Portuguese telecommunications
firm. It proved problematic. Production engineers were reluctant to use ABC, being skeptical about its accuracy and
usefulness. Workers resisted ABC by inputting inaccurate data late. Production managers tolerated this. Production
personnel had difficulty understanding ABC, relating it to their jobs, and feared it would add to work intensification
and redundancies. In contrast, commercial managers, responsible for pricing and investment, and senior managers
were satisfied with ABC. They believed it was more accurate than previous systems, met the requirements of
regulators and financial markets, and eased consolidation of accounts. They used ABC data for decisions despite
its problems.
The results were consistent with factor and process-based research on ABC implementation. For example, top
management support and generous resources help explain why the project was evaluated favourably outside of
production. User involvement and ownership of the project was high but the prioritisation of commercial over
production needs, and education and training delays fuelled conflicts between commercial and production man-
agers. Given inter-professional rivalries and production managers’ token commitment to implementing ABC it is
questionable whether ABC could ever have been effective within production. The case confirms that evaluations of
∗
Corresponding author. UNIDE researcher.
E-mail addresses: maria.joao.major@iscte.pt (M. Major), trevor.hopper@manchester.ac.uk (T. Hopper).
1044-5005/$ – see front matter © 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.mar.2005.01.004
206 M. Major, T. Hopper / Management Accounting Research 16 (2005) 205–229
ABC implementations can vary at operating and corporate levels, and industrial relations and worker resistance are
major issues. It is argued studies of ABC implementation should incorporate issues in labour process research to
explain consent and resistance.
© 2005 Elsevier Ltd. All rights reserved.
Keywords: Activity-based costing; Portuguese telecommunications; Management accounting change; Inter-professional rival-
ries; ABC implementation and usage; Resistance to change
1. Introduction
Consultants, business schools, and the business media have promoted ABC (Jones and Dugdale,
2002; Lukka and Granlund, 2002) claiming that it gives more accurate product costs and helps man-
agers understand cost causation (Cooper, 1990a, 1988; Cooper and Kaplan, 1987; Kaplan and Cooper,
1998). Potential users have shown enthusiasm for ABC (Innes and Mitchell, 1991a, 1997) and, like their
North American counterparts, a growing number of European companies have adopted it (Brierley et al.,
2001).
However, the definition of ABC is unclear—companies can define its terminology and meth-
ods differently, thence calculate activity-based costs differently, and use them for various purposes
(Malmi, 1997; Shields, 1995). This is unsurprising for advocates of ABC often change its rationale
and methods (Armstrong, 2002) and technical doubts about ABC remain (Noreen, 1991; Shields,
1995). Moreover, behavioural problems have led researchers to stress the importance of managing
change.
Many accounts of ABC come from authors with fiduciary and consulting interests in promoting
ABC (Hopper, 1994; Lukka and Granlund, 2002). Much of this promotional literature is pragmatic,
technical, and managerialist despite an occasional veneer of transaction cost economics (Lukka and
Granlund, 2002). Academic research using surveys gives important data on ABC implementation and
diffusion (see Brierley et al., 2001) but responses may be unreliable and they cannot explore deeply
processes, shared meanings, and contextual factors. Much survey research tends to be atheoretical, de-
scriptive, and/or has a neo-human relation’s hue that presumes unitary organisations with co-operative
employees. However, this is not invariably so (Malmi, 1997): ABC can operate in arenas of conflict
and be an object of conflict. Employees may resist ABC and frustrate its operation (Ezzamel et al.,
2004).
This case study of a Portuguese telecommunications company investigates ABC implementation
and usage. The belief is that open-ended, intensive field-based methods can identify and explore is-
sues from the perspective of actors involved, cast light on previous findings, and aid theory develop-
ment.
The research did not find a unitary organisation containing actors with shared rationality and meanings.
Employees were divided, which affected how they perceived and used ABC. Previous work on ABC
implementation provided insight into this but it could not fully explain inter-professional rivalry amongst
managers and labour resistance. Thus, the research uses labour process theory to augment the analysis
of conflicts associated with ABC implementation (Armstrong, 1985, 2002; Ezzamel and Willmott, 1998;
Ezzamel et al., 2004).
M. Major, T. Hopper / Management Accounting Research 16 (2005) 205–229 207
The remainder of the paper is structured as follows. Section 2 outlines previous research on ABC
implementation and usage. Section 3 describes the history of Marconi1 —the firm studied. Section 4
outlines the research methods and theory. Section 5 analyses the ABC implementation. Section 6 relates
the empirical results to previous research and Section 7 presents the conclusions.
2. Activity-based costing
ABC’s origins lie with Cooper and Kaplan who, in conjunction with Harvard Business School, pub-
lished cases of ABC adoption in the mid-1980s based on experiments in American companies such as
Schrader Bellows, John Deere, and Weyerhaeuser (Jones and Dugdale, 2002; Innes and Mitchell, 1998).
The cases claimed ABC brought various benefits, particularly more accurate product costs (Jones and
Dugdale, 2002). Justifications for accounting change were reinforced in ‘Relevance Lost’ (Johnson and
Kaplan, 1987), which criticised management accounting (MA) for not adapting to new business cir-
cumstances and fully exploiting new information processing technologies. Johnson and Kaplan (1987)
described conventional systems as obsolete, inadequate, and a cause of inefficient and unprofitable or-
ganisations.
A powerful network—the ‘Computer-Aided Manufacturing, International (CAM-I)’2 —allied with the
Harvard ABC network to promote new costing methods (Jones and Dugdale, 2002), supported by man-
agement consulting firms (such as KPMG) and Enterprise Resource Planning system purveyors. Various
arguments were used to attract new adherents. For example, in the late 1980s, ABC was simultaneously
promising more accurate product costs, cost reduction by eliminating waste, and improved operations
management by better performance measures. Today, Cooper and Kaplan, and the ‘Harvard network’
claim that ABC helps managers to understand cost hierarchies, identify relevant revenues and costs, and
thence make better decisions. ABC has evolved from a full costing system allegedly allocating costs more
accurately and thus better calculates unit costs to one that emphasises marginal contribution analysis and
managing activities and costs (Jones and Dugdale, 2002).
Many companies have adopted ABC and it has often received favourable evaluations (Brierley et
al., 2001; Shields, 1995; Innes et al., 2000; Baird et al., 2004). Nevertheless, researchers have concerns
and reservations (Armstrong, 2002; Hopper, 1994; Jones and Dugdale, 2002; Kennedy, 2000; Friedman
and Lyne, 1995). Their questions include (Innes et al., 2000): does ABC only generate relevant costing
information for decisions under specific restrictive conditions? (Noreen, 1991; Bromwich and Hong,
1999; Noreen and Soderstrom, 1994), and is it excessively costly to implement given behavioural factors
determine success? (Bhimani and Pigott, 1992; Malmi, 1997; Shields, 1995).
ABC has been accused of merely refining conventional overhead costing (Innes and Mitchell, 1998;
Armstrong, 2002; Noreen, 1991). ABC allocates resources to activities, and then activities to cost objects,
1
The full name of the company under study is ‘CPRM—Companhia Portuguesa Radio Marconi’. For simplification it is
referred to as ‘Marconi’ throughout this paper. This company should not be confused with the UK firm ‘Marconi Corporation
plc’ (before ‘Marconi plc’) and ‘Marconi Electronic Systems Limited’, whose foundation lies in the English company created
by Guglielmo Marconi in 1900 (‘Marconi’s Wireless Telegraph Company’) and the ‘General Electric Company’. After CPRM
was created in 1925, Marconi’s Wireless Telegraph Company had a very small financial participation in it for a short period of
time. After this there were no economic or legal connections between CPRM and the UK Marconi.
2
CAM-I later was known as ‘Consortium for Advanced Manufacturing, International’. See Berliner and Brimson (1988), for
an account of its origins and aims.
through imputed causal relations based upon volume and non-volume related drivers (Cooper, 1990a,b).
However, this does not guarantee that indirect costs are correctly attributed to products (Armstrong,
2002; Hirsch and Nibbelin, 1992; Innes and Mitchell, 1993; Jones and Dugdale, 2002; Bromwich and
Bhimani, 1994)—approximation and estimation remain inherent (Innes and Mitchell, 1996; Innes and
Norris, 1997). According to Noreen (1991), ABC only provides relevant costs for product drop and
product design decisions under stringent conditions, including linear cost functions, zero fixed costs at
the cost pool level, and no joint processes. As Hirsch and Nibbelin (1992, p. 46) comment, ‘Managers . . .
risk adopting a new paradigm that includes many of the same problems that their traditional cost systems
had’.
Innes and Mitchell (1991b) and Cobb et al. (1992) found managers often decline ABC systems because
implementation is costly and disruptive. Establishing and operating ABC can be problematic, particularly
the selection and availability of drivers, and defining activities (Innes and Mitchell, 1993, 1998; Cobb
et al., 1992). Employees experience difficulties understanding ABC categories, allocating resources to
them, and interpreting the results.
However, effective implementation of ABC is often linked to behavioural rather than technical fac-
tors, though the latter cannot be dismissed (Shields, 1995). Effective implementation relies on em-
ployee consent for employees play a crucial role in operating the system. Nevertheless, workers may
resist, perceiving ABC as threatening to autonomy and job security (Hopper, 1994; Malmi, 1997).
For example, Ezzamel et al. (2004) found managers in a factory with industrial relations problems
did not implement ABC for fear it might inflame matters. Anderson and Young (1999) found local
management-labour relations and trade union support for ABC bore upon managerial evaluations of ABC
effectiveness.
Likewise, some managers may not co-operate because they question the efficacy of ABC and see it as
threatening. For example, Norris (2002) found in a ‘successful’ ABC implementation, ‘Repeated accounts
. . . of unit managers and executives who resisted the categorisation of any of their time, or any of the
tasks they set for others, as non value adding, and of senior managers who avoided the measurement and
analysis of their own activities’ (ibid., p. 233). Managers can render ABC unworkable through biasing
and manipulating data (Hopper, 1994).
To try and mitigate behavioural problems when implementing ABC, researchers have used two related
approaches to examine how changes are managed. The first identifies factors related to implementation
success. For example, Shields (1995) found top management support, links to quality programmes,
resource for the project, staff training, non-accountants’ ownership of the system, and links to rewards
were significant. Norris (2002) in a grounded study of two UK banks found visibility of charges, education
and training, top management support, and communication were associated with favourable evaluations of
ABC rather than technical factors. McGowan and Klammer (1997) found user involvement was important
along with top management support, clarity of objectives, training and resources, and links to performance
evaluation.
The second approach studies which factors have impact during various implementation stages
(Anderson, 1995; Krumwiede, 1998; Cooper and Zmud, 1990; Anderson and Young, 1999). For ex-
ample, Krumwiede (1998) divided the implementation process into ten stages. Inter alia, it was found
that potential cost distortions were important at the adoption and routinisation stages, and top management
support, non-accounting ownership, clarity and consensus on objectives, and training were important for
reaching final implementation stages. However, Anderson (1995) found ABC implementations at plant
and corporate levels could follow different paths.
Approaches advocating applying organisational change models to ABC implementations often neglect
issues of power, conflict, and resistance (Hopper, 1994; Lukka and Granlund, 2002; Markus and Pfeffer,
1983). They presume that managers can smoothly introduce ABC by following the ‘correct’ path (Cooper,
1990c, 1993; Brimson, 1991; Eiler and Ball, 1993; Hankinson and Lloyd, 1993). Non-converts to ABC
are assumed to be ignorant of its benefits and/or possess illogical, unfounded reservations (Hopper, 1994;
Malmi, 1997). This may not be so—reservations about ABC’s accuracy and relevance, or its threat to
jobs may be well founded.
Managers’ perceptions of whether ABC captures critical organisational variables and outcomes
may differ. Armstrong (2002) accuses ABC of a strong ‘productionist’ orientation at odds with
models of organisational functioning from other functions. If so, it is unsurprising that managers’
criteria for assessing ABC vary by function and hierarchical levels (McGowan, 1998; Norris and
Innes, 2002; Norris, 1994). For example, Anderson and Young (1999) found production person-
nel assessed ABC in terms of accuracy whereas support personnel emphasised its use in cost
reduction.
Anderson and Young (1999) link factor and process issues to industrial relations. They found top
management and union support, ties to rewards, and adequate resources affected managers’ evaluations
of ABC. Local management involvement was associated with top management support and the quality
of existing systems (but not adequate resources for the project), and union support was linked to local
management support, i.e., local managers were gatekeepers for worker support. Factors affecting the
perceived accuracy of ABC (resources and desire for change) were stable amongst recent and mature
adopters but factors bearing on ABC usage (resources, top management and union support, commitment
to the organisation, desire for change, rewards, and likelihood of layoffs) varied at each stage. For
example, in recent ABC implementations usage was unaffected by top management support and influenced
less by rewards. Anderson and Young (1999) agree with Malmi (1997) that, ‘in some settings ABC is
simply unlikely to thrive regardless of how skilfully the implementation is managed’ (p. 456). Industrial
relations and inter-management conflicts can render ABC impractical or inoperable. How issues of conflict
interact with significant factors in previous ABC implementation studies motivates this report of Marconi’s
experiences.
3. Marconi
Marconi was a Portuguese company founded in 1925. Long distance telecommunications ser-
vices between ‘mainland’ Portugal and its African colonies became its core business where it had
a monopoly until the full liberalisation of the Portuguese telecommunications market in January
2000. After the Portuguese revolution in 1974 Marconi remained very profitable despite the re-
duced African traffic following decolonisation. In the late 1980s, Marconi entered new business
areas—information systems, electronics, financial services, and property, and expanded its telecom-
munications activities outside Portugal, gaining a public reputation as an efficient and innovative
production-oriented company through the expertise of its production engineers—then the most powerful
professional group in Marconi. By the early 1990s Marconi was an important part of the Portuguese
economy.
In the 1990s the Portuguese telecommunications market was reorganised in preparation for full compe-
tition as stipulated by the European Commission. In 1995 Marconi was integrated into Portugal Telecom
(PT)3 and PT was privatised. Marconi became specialised on long distance telecommunications: in 1996
PT gave Marconi the sub-concession contract to operate infrastructures for international telecommunica-
tion services using submarine cables or satellite technology. The resources of Marconi’s other businesses
were transferred to its new parent—PT. In recompense PT transferred its telecommunications traffic with
Europe and North Africa to Marconi. Marconi’s employees decreased from 1482 in 1990 to less than 300
in 2002.
Marconi adopted a functional organisation structure containing two commercial departments (Con-
sumer Markets, and Carrier Services and Network Planning), a production department (Telecommunica-
tions Infrastructure), three support departments (Board Office, Planning and Control, and Legal Office),
and three logistic departments (Finance and Administration, Personnel and Development, and Informa-
tion Systems). Marconi’s Board of Directors, which had considerable delegated power, consisted mainly
of engineers.
Previously market issues were unimportant for Marconi but the imminence of full competition forced
dramatic changes—Marconi became more market-oriented. This resulted in production engineers losing
power to marketing managers in commercial departments. Managers recognised that Marconi could no
longer rely on technical innovation and cost plus pricing, and that its management accounting system
(MAS) was inadequate for pricing, cost control, and investment appraisal.
Two other events affected the development of Marconi’s MAS. First, PT was privatised to restruc-
ture and internationalise Portuguese telecommunication markets. New private investors (national and
international) and Stock Exchange listing conditions required better financial information. Second, the
Portuguese telecommunications regulator (Anacom4 ) developed a telecommunications regulatory frame-
work for Portugal based on European Union (EU) directives. To establish equal competition between
‘old’ and ‘new’ telecommunication firms, regulators needed cost information to establish prices and
determine whether markets were functioning effectively. Public concessionaires for telecommunica-
tion services and dominant market operators (25% market share or more) like PT and Marconi had
to periodically supply information on costs and service quality to Anacom. Regulatory demands, with
implications for prices and concessions granted by regulators, pressures to demonstrate efficiency to
stock markets and public interest groups, and managers’ demands for better financial information made
an improved MAS an imperative for Marconi. In 1997 it started to replace its MAS with an ABC
system.
4. Research methods and theory
An intensive case study was conducted in Marconi from January 2000 to January 2001 to study its
MA practices and explore “how” and “why” research questions (Yin, 2003; Scapens, 1990; Eisenhardt,
3
PT was created in 1994 during the Portuguese Government’s reorganisation of the telecommunications industry. This merged
public operators, namely Telecom Portugal (created in 1992 following the division of CTT (the Portuguese ‘Post Office’) into
mail and national telecommunications services), Telefones de Lisboa e Porto (which provided local and regional fixed telephone
services to the Lisbon and Oporto areas), and Teledifusora de Portugal (which managed the network and the broadcasting
of TV signals). Before this reorganisation, the Portuguese telecommunications sector was comprised of ‘old’ and inefficient
medium-size operators, each operating a specific core business as a monopoly.
4
Anacom stands for ‘Autoridade Nacional de Comunicações’. When the authors began this investigation, the Portuguese
telecommunications regulator was denominated by ‘ICP—Instituto de Comunicações de Portugal’.
1989). The investigation followed the research stages delineated by Scapens (1990) and Ryan et al.
(2002): developing a research design; preparing to collect data; collecting evidence; assessing evidence;
identifying and explaining patterns; theory development; and report writing. The steps were not followed
sequentially but interactively.
The research was conducted in two phases: an initial study from January to April 2000 and
a second study from May 2000 to January 2001. Subsequently the Director of the Telecom-
munications Infrastructure Department was interviewed to clarify how production engineers
operated ABC. Semi-structured interviews were conducted with managers and employees of Mar-
coni, its parent company, the consultants that implemented ABC, the Portuguese telecommuni-
cations regulator, and managers from other telecommunication companies in Portugal (Oni and
Jazztel). Marconi departments involved were Planning and Control; Finance and Administra-
tion; Telecommunications Infrastructure; Carrier Services and Network Planning; and Consumer
Markets. Also, three operational centres for submarine cables, switching, and satellites in the out-
skirts of Lisbon were visited, and their directors and some employees were interviewed. 53 in-
terviews were conducted lasting 73 hours. All were recorded and transcribed (except the first two
that discussed issues associated with research methods and access, and two interviewees during the
second stage refused to be tape-recorded). Interviews were performed in Portuguese—the mother
tongue of interviewees. Transcriptions were made in Portuguese to ensure idiomatic expressions
and specific meanings were not lost when analysing data. Translating interviews from Portuguese
into English earlier could reduce the quality of analysis; hence this was only done when writing
up.
Documentation was collected from Marconi, PT, the regulators, newspapers, and trade magazines.
Documentation from Marconi included financial and non-financial reports, annual reports (1990–2001),
consultants’ notes, the dictionary of activities, and outputs from ABC and the Executive Information
System—including strategic benchmarks. Documents about Marconi’s business and environment came
from the Net and Marconi’s web site. Annual reports of the Portuguese telecommunications regulator
and laws governing the Portuguese telecommunications sector since the 1980s were collected from
the regulator. Reports on the EU/world-wide telecommunications industry, including ones commis-
sioned by the European Commission, and EU directives and recommendations to national regulators
were analysed. Lastly, interactions between members of different departments within Marconi were
observed.
Different forms of evidence from various sources were gathered, crosschecked, and triangulated
to increase validity and reliability (Patton, 1987; Yin, 2003). Chains of evidence were constructed
and analysed repeatedly to create patterns and categories (Marshall and Rossman, 1999). Meanings
and significance, and relationships and linkages between dimensions were then constructed to gain
explanations. Particular attention was paid to dissimilar perceptions amongst interviewees and evi-
dence that challenged previously identified patterns (Marshall and Rossman, 1999). Feedback from
key informants helped confirm whether explanations were plausible and sturdy (Miles and Huberman,
1994).
The initial research design was deliberately open-ended and ‘grounded’. The aim was to gain a rich
description of Marconi’s ABC system, its implementation, and managers’ usage and evaluation of both.
Interviews and documentation collection concentrated on managers and systems within Marconi to de-
velop issues from the field rather than identifying specific topics and theories at the outset. Two main
issues emerged.
The first was ‘Why did Marconi adopt ABC?’ The research revealed the importance of regulators,
consultants, and financial markets in diffusing ABC across European telecommunication firms. Hence
the second research stage involved interviews with managers from these external institutions and gath-
ering documentation about them. Ultimately New Institutional Theory was used to analyse the complex
isomorphic processes leading to ABC adoption within Marconi. This is the subject of a companion paper
(Major and Hopper, 2004).
The second issue was ‘Why did only parts of Marconi use ABC?’ Why did commercial managers
use ABC for pricing and investment decisions whereas production managers and workers resisted it
and rendered data unreliable? Technical and implementation issues were pertinent but insufficient for
explaining differences in conflict and consent between organisational groups. Labour process theory was
used to supplement this analysis (see Hopper et al., 1987; Ezzamel and Willmott, 1998; Ezzamel et al.,
2004).5
Orthodox labour process theory argues that class relations (Braverman, 1974) and firms’ need to extract
maximum effort from workers whilst maximising the extraction of value from their achievements produces
struggles over the control of work and the distribution of rewards. However, whilst this may explain some
organisational behaviour, conflict is not continuous—employees often consent to organisational controls.
Also, workers and managers may not identify with the economic categorisation of classes they are
allocated to in labour process analysis. Thus, studies of ABC in this vein need to study conflicts and
resistance associated with implementation, whilst not neglecting possibilities of consent. Ezzamel and
Willmott (1998) and Ezzamel et al. (2004) argue that to do so subjectivity issues should be addressed,
especially how employees maintain self-identity by acting out narratives forged by cultural and historical
factors including gender and religion. In the workplace this creates occupational identities that give
meaning to individual action.
This refined, more subjective labour process analysis is not confined to shop floor workers. Armstrong
(1985) argues that managerial functions compete to provide capital with the means of management control.
Each develops its own rhetoric and beliefs on how to best represent organisations and control them. But
managers’ behaviour is not merely a consequence of inter-professional rivalries to gain the economic
fruits of dominance. Like workers, managers act according to self-identity formed partly by socialisation
into occupational groups, which gives rationale and meaning to the control tools they advocate For
example, Armstrong (2002) argues that ABC’s ‘productionist’ and ‘economistic’ approach may appeal
to accountants and production managers but is at odds with how other functions portray and control
organisational events.
Labour process theory helped address these issues but the research was not recast into this approach.
Instead theoretical triangulation, combining labour process analysis with technical, and factor and pro-
cess approaches was used to cast light on a practical problem, namely ABC implementation and usage.
There is no attempt at theoretical integration or coherence—this would render violence to the findings
and assumptions of each approach and, given their different assumptions, it would be philosophically
doomed. The assumption here is that ultimately users are the judges of the value of this contribu-
tion. The criteria is whether it addresses problems under their scrutiny (Scapens, 1990; Fayerabend,
1993).
5
Given that our new institutional theory incorporates economic factors within and outside organisations, and struggles within
organisations, alongside its normal cultural approach (Major and Hopper, 2004) and our labour process theory incorporates a
subjective dimension, we believe the theoretical orientations of our two papers are consistent.
5. Case history
5.1. Marconi’s MAS in the early 1990s
When Marconi faced heightened competition in the early 1990s its management accountants were
unconcerned about calculating product and service costs. They were a state concessionaire providing
public services, international telecommunication prices and profits were high, and there were few do-
mestic pressures. Top managers attached little importance to providing managers with comprehensive
cost data. Marconi’s main concern was the annual reports. The MAS coordinator of the Portuguese
telecommunications regulator—Anacom—commented:
Telecommunications companies didn’t have a proper cost accounting system for decades . . . they
didn’t need one. . . . Nowadays, with so many operators in the market, it is impossible to survive
without identifying and controlling costs.
Annual budgets were produced but ceremonially: they were not management tools but a means of
justifying costs to the Portuguese government and shareholders.
In 1992 Marconi’s senior managers began to prepare for the liberalisation of telecommunication mar-
kets by implementing a new MAS. The chief management accountant observed:
In 1992 the cost accounting system was implemented on the initiative of Marconi’s Board of Di-
rectors . . . to provide managers with more detailed and accurate information . . . The first signs of
liberalisation were appearing and it was evident that very soon Marconi would need to decrease
costs and rationalise activities.
The new MAS identified the activities of each main function, though these were generic and varied.
Resource costs were allocated to activities on labour hours. The definition of activities differed from
those in the ABC model subsequently adopted. Managers believed the MAS was an important step in
improving Marconi’s MAS and reducing indirect costs but by 1996 it no longer met Marconi’s needs.
Marconi’s MAS co-ordinator noted that:
Although Marconi’s system was more complex than the traditional cost accounting systems, this
system was not providing all the information that both managers and PT were asking for.
In 1997 Marconi replaced this cost system with ABC.
5.2. ABC implementation
The Board of Marconi and PT strongly supported ABC from the outset, allocating substantial resources,
time, and personnel to it. This facilitated its implementation in 1997. Senior managers were briefed on the
importance of implementing ABC quickly and successfully to provide PT with cost data to consolidate
its accounts and provide reports to the regulator. The commercial departments’ need to grapple with
competitive pressures, and the cost demands of Anacom and PT were prioritised. Engineers from the
Telecommunications Infrastructure Department were deemed to have less cost-oriented tasks hence their
needs were seen as less urgent. However, as discussed later, the Board’s decision to prioritise commercial
managers’ cost accounting needs was not well received by production managers and engineers, previously
the most powerful professional group in Marconi.
Marconi’s management accountants began implementing ABC aided by external consultants. The latter
was one of the biggest in the world with considerable experience in implementing ABC in telecommuni-
cation firms, especially in the USA and, to a lesser degree, in Europe. They had previously implemented
ABC in PT and had prepared studies for the European Commission on accounting topics such as intercon-
nection pricing between incumbent operators and new market entrants, and accounting separation. These
had influenced European Commission recommendations to national telecommunications regulators on
the cost accounting systems operators should adopt (European Commission Recommendation, 1998).
The ABC implementation had six steps: selection of teams; team training; definition of activities;
definition of conceptual model; collection of data; and definition of ABC software. In July 1997, following
the selection and training of teams, activities were identified and the ABC model devised by September.
Inputs of ABC and data were collected from September to December 1997 when the software to support
ABC was chosen. The implementers decided that initially the ABC system would operate alongside the
‘old’ MAS and, after a short test period, replace it. ABC needed integrating with financial accounting so
an ABC historical cost system was devised. In March 1998 the 1997 accounts were produced using ABC.
The consultants created two committees to facilitate ABC implementation. The first consisted of the
General Finance Director and directors of Marconi’s departments (Finance and Administration, Planning
and Control, Consumer Markets, Carrier Services, Telecommunications Infrastructure, and Development
and Information Systems). The second comprised of members responsible for implementing ABC, i.e.,
the consultants, Marconi’s management accountants, and commercial and production departments’ rep-
resentatives. The aim was for operational departments to share ownership of the system with the Finance
and Administration Department. A consultant explained:
It was our objective to involve all Marconi’s operational areas. . . . From the beginning we—the
consultants and the steering committee—defined that the system should belong to the system users.
. . . That includes the commercial areas, and also the engineering divisions. . . .We didn’t want to
develop a financial system that was bureaucratic and useless.
Consultants realised that engineers from the production department (Telecommunications Infrastruc-
ture) despite their diminished power had to be involved with the ABC implementation for it to be success-
ful. However, despite their involvement, engineers in the production department were never committed
to ABC, whereas the commercial departments were. The engineers’ discontent is unsurprising, given
their MA needs were secondary to those of commercial managers. The latter urgently needed reliable
product costs to devise product price strategies, whereas the engineers were more concerned with inter-
nal efficiency. The engineers managed operations and monitored the efficiency of telecommunications
systems and equipment using non-financial measures from engineering databases. They did want better
cost data to support their decisions but Marconi’s Board was conscious that engineers had dominated
control system design for seven decades, resulting in MA having low priority and leaving the commercial
departments bereft of vital data.
Training programmes were held to discuss the design of the ABC model, implementation objectives,
and the implementation process but because of the perceived strategic importance of ABC only committee
members and those directly involved with the project were involved. Hence discussions and the shaping
of ABC’s features were confined to a relatively small group. Workers were not consulted.
The definition of activities followed the training meetings. First, the consultants and the manage-
ment accountants identified functions and processes for the entire organisation. The employees were
interviewed to determine what activities were performed. Employees’ job descriptions were obtained,
Table 1
Some examples of Marconi’s ABC activities
Main activities
Activities oriented to customers
Defining strategies in telecommunications business
Researching and analysing new business opportunities
Elaborating and controlling marketing plan
Researching markets and customers
Developing products and services
Commercialising products and services
Billing
Management of customers’ debts
Maintenance of customers’ services
Assuring the quality of services
Activities oriented to network

Following telecommunications network technology trend
Planning network telecommunications
Managing telecommunications technology development
Developing and implementing telecommunications network
Managing the use of network resources
Operating traffic
Operating infrastructures
Restoring telecommunications network
Preventive maintenance
Corrective maintenance
Supporting activities
Developing and managing human resources
Managing internal communication and information
Managing financial and physical resources
Managing the image and the firm’s external relations
Legal support
Source: Marconi’s dictionary of activities.
analysed, and compared to identify activities regardless of departmental boundaries. The consultants
asked employees to estimate times spent on each activity. Work distribution charts summarising em-
ployees’ activities in each department were produced, along with flow charts of each activity performed.
These linked and graphically represented inputs and outputs of activities to business processes. Table 1
presents a summary version of the final list of Marconi’s major activities. These totalled 71 (35 oriented
to customers and 36 to the network) and 44 supporting ones (not all activities are listed in Table 1 for
reasons of brevity).
The consultants identified cost objects. They believed the commercial departments and the regulator
needed multiple cost objects to ascertain costs of products and services; systems; routes; carriers; and
routes by services and carriers. Commercial managers priced Marconi’s products and services, and ne-
gotiated telecommunication traffic solutions with customers and suppliers. They needed detailed costs to
devise competitive services. The management accountants reiterated that the consultants should design
ABC to meet the commercial areas’ needs.
The consultants classified Marconi’s products and services into five business segments: fixed tele-
phone; telematics (telex, telegraphy, data communication, and stored and forward fax); leased capacity
(MID—Marconi’s Internet Direct, broadcasting and video-communications, TV and radio restoring,
and leased circuits); alliances with other operators (e.g., Concert); and others (satellite communica-
tions, Inmarsat1-C, TCR—telemetry, cable engineering services, and international projects). The con-
sultants got the information they requested whilst identifying activities and defining cost objects. They
believed that all areas were co-operating, though the two commercial departments were most heavily
involved.
A dictionary of activities was prepared defining each activity in a short statement of roughly five
lines. The aim was for employees to use consistent definitions of activities when completing the PMO
(Ponto de Mão de Obra—in English ‘labour time disclosure’). PMOs (time sheets in Excel) had existed
in Marconi’s 1992 MAS but only a few workers and managers in each department had had to complete
them. Now every three months all Marconi’s employees (only Board members were exempted) had to
allocate times spent on each activity and feed them into the ABC system so it could allocate resource costs
to activities, and activities’ costs to cost objects. The dictionary was distributed to directors and managers
responsible for developing ABC, who became accountable for explaining activities to employees should
queries arise. A consultant claimed the dictionary would embrace all employees’ tasks, as employees had
helped prepare it and they would ‘mirror themselves in that language’.
After defining Marconi’s main functions, processes, and activities, the consultants began identifying
cost drivers. In Marconi’s 1992 MAS cost drivers did not allocate costs to products: activity costs were
imputed to products or services only if directly associated with a cost object. Costs of activities not
directly related were recorded as indirect costs in the income statement and allocated to cost objects on
the basis of direct costs. In contrast, Marconi’s 1997 MAS used both resource and activity cost drivers.
The consultants used labour hours as drivers in the first stage of allocating resources to activities. Costs of
resources pooled by department (e.g., Consumer Markets) or by equipment (e.g., switches) were allocated
to activities according to employees’ disclosure of time per activity in PMOs. The consultants used labour
hours in the belief that it imputed costs to activities in a simple but effective way. When an activity’s
cost could be directly related to specific equipment, system, route, carrier, or product/service then it was
directly attributed to it.
The consultants used a more ambitious conception of causality in the second-stage of attributing
activity costs to cost objects. Drivers were based on several factors. Labour hours, equipment capacity,
and traffic volumes were used most for the consultants believed they best expressed causality between
activity costs and cost objects.6 When this was considered not so, another driver in Table 2 was used. For
instance, driver 1 (number of invoices valued by effort) attributed billing costs to products and services
according to the total rows in an invoice. Drivers 2–4 attributed costs of managing customers’ debts to
products and services.
After identifying activities and cost drivers, the consultants constructed the conceptual model of Mar-
coni’s MAS. The Board reiterated that it should be oriented to commercial areas, with the production
department being its main feeder of data. The consultants and management accountants identified direct
costs as: ‘operator costs’ (costs of using telecommunication capacity of international operators); ‘leased
6
Labour hours allocated labour intensive activities to intermediate cost objects (systems and routes) and to final cost objects
(products and services). Capacities allocated systems’ costs to carriers. Telecommunication traffic allocated carriers’ costs to
products and services.
Table 2
Drivers of activities
Description
Driver 1 Number of invoices valued by effort
Driver 2 Number of documents (incoming traffic) × 80% + number of open positions > 6 months × 20%
Driver 3 Number of invoices per product/service
Driver 4 Number of invoices × 70% + number of open positions > 6 months × 30%
Driver 5 Setups (broadcasting—accidental services)
Driver 6 Number of processes valued by duration
Driver 7 Number of alterations in network valued by the type of service
Driver 8 Routes valued by number of circuits
Driver 9 Similar allocation for the respective pseudo-department
Driver 10 Reallocation according to computer applications/machines DDS
Source: Finance and Administration Department—Marconi.
capacities’ (basic transport infrastructure for wholesale and retail services costs); ‘rent’ (sub-concession
contract rentals payable to PT); ‘transmission costs’ (costs of submarine cables, satellites, terrestrial ca-
bles and networks); ‘switching costs’ (costs of managing the network); and ‘costs of activities’ (costs
oriented to customers and the network).
Data collection began in September 1997. In December 1997, after writing the software7 to support
the system, Marconi generated its first cost data for the first semester of 1997. The implementation had
taken nine months. After March 1998 Marconi regularly provided the regulator, PT, and its managers
with detailed costs from ABC.
Before ABC, Marconi’s direct costs were circa 70% of total costs. In 1998, after implementing ABC,
they were 74%. The consultants found a small proportion (approximately 3% of total costs in 1998) of
joint costs,8 which they attributed between: products; carriers; and transmission systems and switching
capacity available but not used. However, common costs remained high, i.e., 23% of total costs. Common
costs were mainly costs of activities not directly associated with cost objects (or families of products);
support activities that could not be reallocated to primary activities; costs of capital for fixed assets not
directly related to products or services; remuneration and fringe benefits of the Board and personnel
temporarily transferred to PT or new telecommunication companies; pension funds; depreciation of fixed
assets not directly associated with cost objects (e.g., equipment used by the Board, telecommunications
systems not in use); and extraordinary costs.
The accountants analysed each set of common costs to reduce their proportion of Marconi’s costs.
They established causal relationships, albeit superficially, between some common costs and cost objects.
Depreciation of equipment not in use was allocated to cost objects using the calculus for when in use,
and pension funds according to labour hours per activity. These efforts helped to decrease common costs
in 1999 to 22.5% and joint costs to 2.5% but common costs remained high.
7
Oros was chosen as the most appropriate to support ABC. Previously Marconi used Millennium but they decided to replace
it with a SAP application.
8
Biddle and Steinberg (1984, pp. 4–5) distinguish common costs from joint costs stating that “joint cost will apply to a setting
in which production costs are a non-separable function of the outputs of two or more products” whereas “common cost applies to
a setting in which production costs are defined on a single intermediate product or service which is used by two or more users”.
From the start Marconi had appreciated ABC’s heavy implementation costs, so it decided to ‘learn’
as much as possible about operating ABC from the consultants. The consultants reciprocated this desire
and were in the company every day. One claimed:
It doesn’t make sense to come here and implement the system and then to say to Marconi’s managers,
‘Here you have the system implemented, now you can do everything you want.’ . . .We need to
guarantee that . . . after we leave, people are ready to manage the system without our help.
The consultants stressed the importance of good communication with all departments, involving them
in the implementation, and consulting them about their information needs. Nevertheless, resistance and
difficulties emerged from the outset.
5.3. Internal resistance to ABC and operational problems
Engineers in the Telecommunications Infrastructure Department described the ABC system as too
detailed and complained of spending inordinate time feeding it without receiving useful information
in return. Feeding a system devised to mainly serve commercial managers was unacceptable for them.
Production engineers believed that the survival and success of Marconi depended on their know-how and
expertise, especially regarding innovative telecommunications technologies. They were a self-confident,
proud and cohesive professional group, and a strong production orientation still permeated their routines
and practices. A market manager from the Carrier Services and Network Planning Department explained:
Till recently, Marconi was dominated by engineers. They were very powerful. . . . I think it must be
very difficult for them accept all these changes. . . . Some people still think that they [the production
department] are the best, that the most important thing the company should do is to continue being
focused on the improvement of telecommunications equipment and to develop Marconi’s technical
expertise in telecommunications. . . . They still believe that Marconi’s survival depends more on the
efficiency of internal operations than on a fast response to the market’s demands.
The engineers’ antagonism towards the commercial departments was evident in their language. One
described the functions of commercial managers thus:
There are plenty of customer managers, market managers and managers of this and that. . . .The
commercial reports have acquired vital importance. . . . Some activities of engineers have became
undervalued and considered banal. . . . This is because the power of the commercial managers has
been consolidated within Marconi. They analyse the market and then leave the company at 6 p.m.
[production engineers leave later] and they make their personal phone calls and so on. They are
considered more important than engineers often dealing with a large number of problems in the
operational centres. It isn’t only in companies that these things are occurring. . . .This is related to
the country we live in, with the politicians we have. . . . This is a terrible cultural problem. . . . The
information flows between departments are not good. . . . People protect themselves. . . . Before all
these changes the participation and interaction between Marconi’s departments was higher.
Many production engineers found ABC’s emphasis on serving Marconi’s commercial managers and
meeting the Board’s desire to satisfy the regulator and PT unacceptable. The Director of production said:
I am a critic of our cost accounting system. . . . It’s too detailed and this detail is not important to the
managers. . . . A system like ours is too unwieldy, so it wastes the company’s precious resources.
. . . The usefulness of the system to support managers’ decision-making is slight compared with
the resources it involves. . . . The work we have to feed ABC is considerable, and so it should be
balanced with costs.
His comments mirrored the discontent of production engineers.
The Telecommunications Infrastructure Department was responsible for efficient telecommunications
services. Their production engineers maintained network resources and equipment capacity based on
traffic estimates from managers in Carrier Services and Network Planning. Most decisions were based
on non-financial data from personal and engineering databases, especially SIGIR9 and INFOP. SIGIR
gave production engineers information for managing the network, especially changing and activating
circuits; monitoring engineering tasks; determining available network resources; interconnecting circuits
by switch; and data on faults and repairs. INFOP provided information on incoming and outgoing traffic
to national and international destinations on fixed and mobile networks, traffic volume per switch, daily
reports on specific issues, and weekly reports of long-distance calls per switch.
Production engineers perceived ABC data as too generic and ‘too heavy’ and they distrusted it. They
alleged that common costs were high and the data was unreliable and inaccurate. They did not value product
cost information from ABC: they wanted more specific, timely and accessible data. They complained of
insufficient time to search a ‘confused system’ to gather pertinent data. Their Director explained:
Frequently we need to decide whether the capacity of equipment (for example, a switch) should
be increased . . . to guarantee . . . a certain level of security margin . . . or. . . to assure that we will
have enough capacity to face forthcoming demands. I know the ABC system provides information
on how much system X or system Y costs but this is not the sort of information we need to manage
in the production department. . . . We need to know the incremental cost of each unit of equipments’
capacity. (emphasis added).
The Director claimed production engineers needed cost information but did not use ABC because it
was irrelevant. He explained:
We would like to get cost accounting data from ABC. . . . If we don’t have this data we will make
decisions exclusively on a technical point of view. . . .Clearly, there is the risk of taking decisions
that are not the best for the company from an economic perspective. . . . This costing information
should be provided to us on time in a user-friendly format.
He argued that production engineers wanted to know marginal costs of circuits and routes; incremental
costs of equipment; personnel costs; rationales for allocating indirect costs to cost centres; compara-
tive cost analysis of network systems; replacement costs of Mbps volume in switchers; and, somewhat
wickedly, the impact on switching costs of closing Marconi’s headquarters on ‘Rua D. Luı́s’. He alleged
ABC failed to generate marginal costs of important production decisions because:
The firm didn’t face competition for a long time. . . .With the approach of full liberalisation of
the telecommunications market we were told that now the most important thing is to sell and be
9
In 2002 the SIGIR database was replaced by SIGRE. Engineers in the Telecommunications Infrastructure Department
managed SIGIR but the Information Systems Department managed SIGRE.
competitive, and low prices determine success and beating competitors. . . .Consequently, the [power
and resources went] . . . to the commercial area. It’s the commercials that make decisions about
prices and what are going to sell . . . so they need all the information about costs. . . . Management
accounting serves their interests not ours. . . .The production area is interested in managing internal
operations and making engineering decisions.
Because Marconi’s accountants’ priorities lay outside operations, production engineers continued to
use non-financial data from engineering databases for decisions and they resisted ABC.
Production engineers input data into SIGIR, which contains information crucial for Marconi’s ABC
system. Important inputs include: data on systems capacity and utilisation; operational centres’ use of
switching systems (modem and multiplex); usage of testing equipment, supervision, and air-conditioning
by transmission systems (cable and satellite) and switching; usage of ‘bubble’ systems10 by Marconi’s
products/services; allocations of production employees’ time to activities; and allocations of resource costs
to transmission and switching systems. Marconi’s ABC system cannot generate cost data without this
information. Its effective operation relies on co-operation between production engineers and management
accountants. But this did not materialise.
Important operational data for ABC came from the switching centre in Linda-a-Velha, whose engineers
complained that ABC failed to serve their needs despite them being its main feeders. Consequently they
frequently delayed submitting data, claiming they had insufficient time to meet accountants’ demands for
punctual information and keep operational centres working efficiently simultaneously. They concentrated
on the latter.
This was exacerbated by job losses and work intensification. The chief management accountant com-
mented:
The operational centre of switching is critical to Marconi’s cost accounting system but it has . . . seen
the number of its engineers falling continually and their work increasing as a result of the increase
in international traffic.
The Director of the satellite operational centre in Sintra also claimed that production personnel were
too busy to do more than their normal jobs:
Three years ago we had more than 70 people working in this centre. . . . Now we have 34 or 35. . . .
People are overloaded. . . . We used to leave the company at 6 p.m. but now we leave at 9 p.m. or
10 p.m. . . . so our motivation to do things not directly related to our job can’t be very high.
From commencement the ABC system failed to generate cost data on time.
ABC also encountered resistance from workers, especially in the production department. They were re-
luctant to disclose information about activities, fearing it might curtail their autonomy, threaten job tenure,
and anyway it was irrelevant to their job. PMO and ABC became associated with increased workloads
and meaninglessness. International telecommunications traffic had grown after Marconi’s incorporation
into PT but employees who left had not been replaced. Workers were unreceptive to increases in their
workload. An engineer from the Carrier Services Department commented, ‘People do not understand
why every three months they are forced to spend a whole morning or afternoon preparing PMO instead
10
Some switching systems are not automated and hence require production engineers to manually identify their usage by
products.
of doing their job’. Similarly, the Director of the operational satellite centre claimed that ‘PMO does not
mean anything to Marconi’s workers apart from additional work’.
Production employees had problems describing their jobs according to the dictionary. The final list of
activities was often a rough approximation of employees’ work and did not capture important dimensions.
Employees found definitions of activities and allocating labour time puzzling, which made completing
PMOs difficult. Even if they were willing to report the ‘real’ time spent on each activity, their recollections
were hazy as they did this infrequently.
The implementation teams’ neglect of employee education and training may have compounded this.
However, many production managers were overtly unenthusiastic about ABC from the outset. They
never pressed workers to complete PMOs thoroughly or on time, their hostility to ABC was public, and
they did not train subordinates to operate ABC. Hence, workers delayed allocating their labour time to
activities and PMO returns were often inaccurate. The Director of the Telecommunications Infrastructure
Department expanded:
ABC depends on the inputs inserted. . . . Probably [the production department] don’t load the system
as we should. . . .We cannot take care with PMO as the management accountants would like. . . . PMO
doesn’t make sense. . . . It’s an illusion to think that people are watching their activities and taking
notes about the time they spend on each operation. . . . The system should be not so demanding. . . .
I’ve got a senior manager spending hours preparing data for insertion into ABC. . . . For production
it gives too much work and very little useful information.
Marconi’s MAS co-ordinator and the Chief Management Accountant initially attributed worker
resistance to poor communication. Accountants had been too busy implementing ABC to educate
and train workers, consequently most were unaware of why and how they should disclose time spent
on activities. The accountants had not recognised the repercussions of more employees disclosing
PMO information and had failed to convince them to do so. The accountants tried to solve the
apparent communication problem by creating ‘facilitators’ to liaise with workers. However, only
one person, from the commercial area, was allocated to this job. A similar position created in the
production department failed to address workers’ queries because engineers redefined the task to other
ends.
The accountants then attributed poor communication with production employees and ABC and PMO
problems to the exodus of Marconi employees to other telecommunication firms. Many managers involved
in implementing ABC had left. Their replacements tried to motivate employees to accept PMOs but they
had insufficient familiarity with the ABC system to convince sceptics. Overall, the language, configuration,
and outputs of ABC lacked meaning to production managers and workers. They could not relate them
to their conception of their role. Insofar that they could, ABC appeared alien and threatening, for it
signalled the decline in production values relative to commercial ones, diminution of their power, work
intensification, and potential job losses.
The consultants realised that PMOs often provoke worker resistance but they appeared unconcerned.
They argued that even the most collaborative organisations cannot obtain 100% accurate allocations.
Nevertheless, they suggested adapting PMO to secure workers’ co-operation. Marconi’s accountants
followed the consultants’ advice and told workers to complete their PMO every six rather than every
three months. The accountants were desperate because late PMOs made ABC cost data late. However,
problems getting punctual and reliable PMO returns from workers persisted.
5.4. Perceptions of ABC in the commercial and accounting departments
In contrast, the commercial departments in Marconi were reasonably satisfied with ABC outputs. They
claimed that ABC costs were more accurate than those of the previous MAS, despite inaccurate and late
PMOs. A market analyst stated, ‘Until there is evidence coming from the market or from the knowledge
we have about product costs. . . that the system is not providing us with reliable cost data, we will use
ABC’. Commercial managers contended that no cost system is perfect and that they understood product
and service costs for many had been engineers in production departments prior to the reorganisation
in the 1990s. Possible inaccuracies or common costs were not perceived as impediments if ABC was
used ‘sensibly’ (market analyst) when pricing, i.e., checking it against external information, especially
competitors’ prices. They also used ABC data for investment decisions. They explained that costs relevant
to decisions (e.g., costs of carriers, systems, and routes) do not often change so ‘fresh’ cost data was not
needed frequently. Their confidence was surprising given the considerable common costs but they argued
that the previous MAS gave higher indirect costs and anyway direct costs are the greatest proportion
of total costs. Commercial managers complained about receiving ABC outputs 6–12 months late, and
its inflexibility in generating data. Nevertheless, they maintained that ABC was useful for pricing and
investment decisions, whilst meeting the regulator’s demands.
Marconi’s accountants, who had to return costs to PT, regulators, and financial markets, were ambivalent
about ABC. On the one hand ABC met external agencies’ stipulations and signalled apparently good
costing practice to them, and the commercial departments believed it was an improvement. However, on
the other hand, the accountants were concerned about ABC’s technical accuracy, slowness, and decision
relevance given unreliable data input and high common costs. They were aware of its non-use in production
and how it aggravated inter-professional rivalries between the commercial and production functions. The
Director of the Finance and Administration Department ruminated that Marconi’s ABC system had proven
expensive, given that it had only reallocated circa 5% of indirect costs to direct costs. He claimed that if
the regulator (Anacom) and the PT ceased to recommend ABC he would advocate its abandonment.
The technical deficiencies of ABC and problems implementing it provoke several interesting questions,
namely: Why did the production and commercial functions react so differently to ABC? Why did the
change processes involving more communication prove ineffective? Lastly, why was ABC maintained
given its marginal relevance to operational cost control and its dubious accuracy? These questions are ad-
dressed with reference to previous research on ABC implementation using factor and process approaches.
Support for the latter’s findings is forthcoming but it is argued that issues raised by labour process theory
are needed to explain resistance and consent.
6. Discussion
Top management support throughout the implementation enabled ABC to become operational and
gain acceptance from many managers, consistent with findings by Shields (1995), Krumwiede (1998),
Norris (2002), and McGowan and Klammer (1997). The goals of Marconi for ABC were clear and con-
sistent throughout, i.e., satisfying external demands—especially from regulators, easing consolidation,
and better information for pricing and investment decisions by commercial departments. This facilitated
the implementation and favourable reception of ABC in the domains it served, consistent with Shields
(1995) and Krumwiede (1998). However, from the outset there was a lack of goal consensus, though the
production department’s opposition was not immediately apparent. This affected the path ABC took and
hence its unfavourable reception and non-usage within production, consistent with Krumwiede (1998).
Implementation paths and outcomes were different within production. Here local managers acted as
‘gatekeepers’ of worker support, as observed by Anderson and Young (1999). Senior production man-
agers from the outset only gave token assistance to implementing ABC. Their overt hostility and their
tolerance of production workers submitting delayed and inaccurate PMOs helped render ABC slow and
less accurate.
ABC in Marconi was not directly linked to rewards or performance evaluations—a critical factor in
studies such as Shields (1995) and McGowan and Klammer (1997). Doing so might have alleviated
ABC implementation and usage problems in Marconi but nobody raised this during the research [or
ABC’s contribution to quality (Shields, 1995) and visible charges (Norris, 2002)]. Moreover, commercial
department personnel accepted ABC without any reinforcement by rewards.
Shields (1995), and McGowan and Klammer (1997) found resources devoted to projects were impor-
tant for effective implementations. Marconi devoted large resources to ABC—it was their most expensive
management innovation ever. The lack of accountants’ and consultants’ time devoted to education and
training could have been due to cash limits but the researchers were informed otherwise. The imple-
mentation teams determined how education and training should be handled—their decisions were not
constrained by frugal resources.
From the outset the consultants and the implementation team espoused ownership of the project by
non-accountants, as commended by Krumwiede (1998), McGowan and Klammer (1997), and Shields
(1995). This was reflected in the composition and brief of the implementation committees. Marconi’s
accountants sought good communication and involvement at all levels (Norris, 2002) but, in retrospect,
they mistakenly assumed that implementation committee members from production would persuade
colleagues of the merits of ABC. Later the accountants tried to rectify this by appointing ‘facilitators’
but this proved unsuccessful because production managers redefined the role to other ends. Krumwiede
(1998) identifies education and training as crucial for completing ABC implementation. The lesson from
Marconi is that this is essential from inception at all levels, especially when operatives input the system
and antagonism and conflict prevail. But this will not necessarily guarantee consent (Malmi, 1997).
Consistent with McGowan, (1998), Norris and Innes (2002), Norris (1994), and Anderson and Young
(1999) managers’ criteria for evaluating ABC varied by function and hierarchy. The parent company,
top managers, and accountants evaluated ABC favourably for it satisfied external constituents, not
least regulators, and promoted consolidation. The commercial departments used ABC and evaluated
it favourably for it appeared more accurate. This may be so, but dubious allocations of times to activities
rendered ABC’s accuracy questionable and persisting common costs lowered its relevance for pricing
and investment decisions. The commercial managers’ reactions are consistent with users evaluating
ABC according to perceptions of its accuracy relative to previous systems. The validity of the com-
mercial managers’ beliefs is difficult to judge given remaining arbitrary cost allocations and inaccurate
inputs.
Production managers evaluated ABC differently. Previous studies noted that criteria for evaluating
ABC vary by function and hierarchical level (McGowan, 1998; Norris and Innes, 2002; Norris, 1994;
Anderson and Young, 1999). This was so in Marconi. Commercial managers’ criteria were accuracy
relative to previous systems, satisfying external constituents, and usefulness for pricing and investment
decisions. In contrast production personnel emphasised absolute accuracy and whether it helped secure
cost reductions within operations. Production personnel judged ABC unfavourably in both respects. Their
accusations of inaccuracy and slowness were well founded for they did much to achieve this. They saw
ABC as clumsy, irrelevant, and a waste of their time. They were cost conscious but they used their own
physical data for cost estimates. ABC might have met their needs if configured differently, for Kaplan and
Cooper (1998) claim that ABC can identify marginal costs accurately. However, this was not attempted
in the rush to meet the commercial departments’ needs, which was probably erroneous as ABC depended
upon inputs from production.
Wells (1994) argues that ABC is no improvement on traditional costing methods for production
decisions. It can contain arbitrary overhead cost allocations of questionable value (Armstrong, 2002;
Bromwich and Bhimani, 1994; Hopper, 1994). This was so at Marconi—ABC made dubious cost allo-
cations. If ABC cannot trace costs directly to cost objects then its accuracy over traditional absorption
costing cannot be proven (Armstrong, 2002; Innes and Mitchell, 1998; Jones and Dugdale, 2002). Some
academic opinion supports Marconi’s production managers’ doubts about ABC, not least its subjective,
unreliable allocations. For example, activities in Marconi’s dictionary were often crude representations
of employees’ tasks. Employees found definitions of activities and allocating labour time puzzling, which
made completing PMOs difficult, consistent with observations by Innes and Mitchell (1993), Cobb et
al. (1992) and Innes and Mitchell (1998). Even had they been willing to report ‘real’ times spent on
each activity, they could only report hazy perceptions as this was only done at six monthly intervals.
In addition, production managers’ allegations that ABC data was rendered unreliable by high common
costs finds support from Noreen (1991) and Noreen and Soderstrom (1994). Moreover, even Marconi’s
accountants began to express doubts towards the end about the cost-benefit nexus of ABC given its tech-
nical and behavioural problems, as noted elsewhere by Bhimani and Pigott (1992), Malmi (1997) and
Shields (1995).
Whether ABC could have served production effectively cannot be ascertained definitively but it would
have been difficult given prevailing tensions. Factor and process research casts light on the ABC im-
plementation at Marconi but it can only explain resistance in terms of poor communication, training,
or an inappropriate implementation process. Events in Marconi are reminders that following the ABC
implementation literature does not guarantee acceptance and effective practice. In ‘difficult’ sites such
as Marconi’s production department, ABC may have been doomed from inception. Factor and process
approaches see implementation as an essentially ordered process amongst participants with shared goals.
However, this may not be so: ABC can bring winners and losers in terms of status and material bene-
fits. Moreover, it assumes that employee beliefs are controllable by organisations whereas they are often
determined by external factors. Thus, implementation can be a political process amongst parties with
divergent interests. A deeper analysis requires examination of material and subjective factors.
ABC was resisted by workers because it threatened their autonomy and might facilitate management
strategies of downsizing, outsourcing, job process redesign, and work intensification (Armstrong, 2002).
Their suspicions were not unreasonable given that this had been ongoing prior to ABC. ABC contains a
‘turkeys queuing for Christmas’ syndrome: it expects victims to volunteer the evidence for their demise.
In situations of distrust ABC systems that rely on employees divulging sensitive information are likely
to fail (Innes and Mitchell, 1996).
Similarly, production managers had seen the scale of their activities diminish and their power within
management recede. The design of ABC symbolised the dominance of financial and marketing controls
over production engineers’ physical, technical systems. This marked the eclipse of the latter’s high status
and rewards stemming from providing the primary means of controlling labour processes (Armstrong,
1985). The commercial departments’ power rose because it dealt with the now critical domain of external
regulation and competition. Thus, the introduction of ABC fuelled inter-professional rivalry. Production
workers and managers believed they had interests to protect—hence their resistance.11
However, there is a subjective element to this (Ezzamel and Willmott, 1998; Ezzamel et al., 2004).
Production workers and managers alike had problems establishing the meaning of ABC definitions of
activities, and allocations of their labour time to activities. The resultant ABC data appeared irrelevant to
their tasks and work orientations and thence their self-esteem and occupational identity. For managers,
alleged technical difficulties of ABC bolstered their negative disposition.
Miller and O’Leary (1993) claim management innovations like ABC constitute changes in philosophies
of governance. Often such programmes embrace new rhetoric to try and transform beliefs of employees
as a prelude to changing behaviour. In Marconi, possibly because the imperative for change appeared to
be generally accepted, there was no such programme. Whether this was wise is debatable in retrospect.
However, the ability of management to change individual self-esteem systems is difficult for they are not
exclusively under their control. The fate of the consultation and training exercises is testament to this.
ABC failed in production partly because its representatives never seriously executed their allotted tasks,
though they gave an appearance of doing so. Instead their latent hostility led them to foster resistance
and frustrate ABC for they shared colleagues’ beliefs that it threatened their self-identity and material
well-being.
If factor and process studies are to make inroads into understanding when ABC is prone to fail, then
it must address sociological work that identifies factors relating to resistance and conflict. Our findings
bear similarities to those of Ezzamel and Willmott (1998) and Ezzamel et al. (2004) on how managerial
initiatives can reinforce perceptions of division, inconsistencies, and injustice. Similar problems in the
production department at Marconi might have been alleviated by bargaining over economic grievances
concerning workloads, remuneration, and job tenure. These were issues and the lack of trade unions may
have suppressed their voice but resistance was also related to issues of self-identity. Marconi’s production
personnel’s experience of ABC was additional, meaningless work, on behalf of agents with suspicious
intent. It bore little relation to the activities they valued and it reinforced the ascendancy of financial and
market values over production values of operational efficiency, technical innovation, and service.
The failure of ABC in production could be attributed to the failure to articulate and persuade production
personnel of an idealistic vision or failures in the implementation process. However, these would have
needed to be highly compelling to overcome the deep hostilities within production. User involvement
strategies or similar artifices will not eliminate resistance if the reasons are structural (Malmi, 1997;
Markus and Pfeffer, 1983) and they do not address subjective issues. This requires analysis rooted in the
broader politics of production.
7. Conclusions
Obviously a single case is not conclusive evidence of the benefits or otherwise of ABC. However, it
adds to the growing literature on ABC implementation in three areas, namely technical issues concerning
ABC’s relevance and accuracy, management of change processes, and issues regarding resistance and
consent.
11
Trade unions were not an issue in Marconi, which had always been non-unionised. It had a reputation for being a high
wage/benefit company.
Firstly, there were technical problems associated with joint and common costs. These are significant
in telecommunications. The ABC system did not meet the stringent conditions for providing valid data
laid down by Noreen (1991) and others. The implications of this for regulatory policy and the public
good are beyond the scope of this paper. However, there is confirmation that determining activities
and cost allocations leads to confusion amongst employees and arbitrary, subjective allocations, which
compounds reliability problems. This was reinforced by employee resistance, which led to late and
inaccurate allocations of times to activities. ABC’s reliance upon employee inputs is its ‘Achilles heel’,
especially in a climate of job cuts and work intensification.
Managerial reactions to technical problems varied. All but production managers (though the accoun-
tants started to have doubts) evaluated ABC favourably for it satisfied regulators, facilitated consolidation,
and allegedly gave better information for pricing and investment decisions. They benchmarked ABC data
against previous systems and saw it as an improvement. In contrast, production managers benchmarked
ABC according to technical accuracy and usefulness for operational decisions. It was found wanting
and no improvement upon data available from physical information systems maintained by themselves.
The engineers’ scepticism was linked to technical deficiencies of ABC, notably the large proportion
of common costs and allocation problems. Whether their reservations owed more to their antagonism
towards ABC’s aims and inter-professional rivalries or genuine doubts about the technical accuracy of
cost data is difficult to discern. However, their claims of technical deficiencies were not irrational or
unfounded.
Secondly, the case corroborates previous findings by factor and process research on ABC implemen-
tation. Outside production the ABC implementation was judged a ‘success’ (in terms of evaluations and
usage). This was associated with top management support, adequate resources, clear goals, and employee
commitment, though the project was not linked to rewards or performance evaluations. The implementer
tried to give employees ownership of the project, and involve, educate and train, and communicate with
them. This used a ‘cascade’ approach that relied on department representatives to educate and train in
their respective departments, aided later by ‘facilitators’. This appeared to work outside production. How-
ever, implementation paths and results were different within production, partly because the consensus
upon goals did not extend there. Production managers acted as gatekeepers to workers’ collaboration as
observed elsewhere.
Lastly, the case illustrates the difficulty of implementing ABC in sights beset by conflict. The pro-
duction engineers’ resistance stemmed from inter-professional rivalries for control, resentment of their
waning power, and ABC not representing factors critical to their conception of control or their occupa-
tional values. Production workers saw ABC as threatening to autonomy, employment prospects, work
intensification, and generally constituting a confusing and meaningless exercise—hence the resistance to
it throughout production. Much of the ABC literature neglects power and conflict in organisations. How
ABC gained consent in commercial departments but not in production involved issues of material inter-
ests of employees, the politics of production, inter-professional rivalries, and self-identity. Untangling
problems of implementing ABC in difficult sites needs to embrace such factors.
Acknowledgments
The authors gratefully acknowledge the helpful comments of two anonymous referees, Bob Scapens
(the editor), John Innes, Salvador Carmona, Paul Collier and participants at the European Accounting
Congress 2004 in Prague, April 2004, the Grudis Congress in Lisbon, February 2004, and the 4th Work-
shop on Management Accounting Change in Groningen, May 2003. Also, the authors thank Marconi, in
particular Maria João Mendes and Mário Lima, for their support. The first-named author is too thankful
to “Fundação para a Ciência e Tecnologia” for their financial support.
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Maria Major Trevor Hopper

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Managers divided: Implementing ABC in a Portuguese

4. Research methods and theory

5.1. Marconi’s MAS in the early 1990s

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