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Managerial Auditing Journal

Emerald Article: ABC: adopters, supporters, deniers and unawares Sandra Cohen, George Venieris, Efrosini Kaimenaki

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To cite this document: Sandra Cohen, George Venieris, Efrosini Kaimenaki, (2005),"ABC: adopters, supporters, deniers and unawares", Managerial Auditing Journal, Vol. 20 Iss: 9 pp. 981 - 1000 Permanent link to this document: http://dx.doi.org/10.1108/02686900510625325 Downloaded on: 04-04-2012 References: This document contains references to 41 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 4874 times.

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ABC: adopters, supporters, deniers and unawares


Sandra Cohen, George Venieris and Efrosini Kaimenaki
Department of Accounting and Finance, Athens University of Economics and Business, Athens, Greece
Abstract
Purpose Despite the great interest in activity based costing (ABC), companies seem to be reluctant to adopt it. Our research aims at examining the rate of adoption of ABC by Greek companies that belong to all three sectors of the Greek economy, i.e. manufacturing, retail and services, as well as investigating the reasons that inuence a rms decision to change its current cost accounting system. Design/methodology/approach An empirical survey via questionnaires was conducted during 2003 on a sample of 88 Greek leading companies and four company categories were identied in respect to their perceptions towards ABC (ABC adopters, ABC supporters, ABC deniers and ABC unawares). Findings Our ndings indicate that ABC diffusion in Greece is quite satisfactory. Furthermore, we present evidence that rms that have implemented ABC (ABC adopters) have experienced multidimensional management facilitating benets from the system. However, the adequacy of resources was found to be the variable that is positively and statistically correlated with the majority of problems encountered during ABC implementation process. On the other hand, the companies that include ABC in their future plans (ABC supporters) seem to be familiar with the corresponding expected benets and potential problems of its adoption. We present evidence that the possibility of future ABC adoption is related to the degree of satisfaction from the currently used cost accounting system. Companies that do not intend to adopt ABC (ABC deniers) were found to be more satised with their existing cost accounting system in comparison to ABC supporters. We also report the characteristics of companies that still have complete ignorance of the ABC technique (ABC unawares). Originality/value The paper not only proceeds in a thorough analysis of the benets perceived in relation to ABC as they have been presented in similar research, but also moves a step further and groups these benets into distinct categories as well as ranks them in order of perceived importance. Furthermore, it analyzes the basic characteristics of the rms that have complete ignorance of ABC (ABC unawares), a group that is rarely met in ABC research papers. Keywords Cost accounting, Activity based costs, Management accounting, Greece Paper type Research paper

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Introduction Activity based costing (ABC) has attracted the interest of academics and management accountants at a considerable extent in recent years (Bjrnenak and Mitchell, 2002). However, the empirical evidence from a number of surveys shows that the diffusion process of ABC has not been as intense as expected (Lukka and Granlund, 1996; Chenhall and Langeld-Smith, 1998; Innes et al., 2000).
The authors would like to thank Apostolos Ballas and the participants of the 27th European Accounting Association Annual Congress and the 2nd Annual Congress of Hellenic Finance and Accounting Association (HFAA) for their fruitful comments and remarks on earlier versions of the paper.
Managerial Auditing Journal Vol. 20 No. 9, 2005 pp. 981-1000 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510625325

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The essence of the ABC paradox is that if ABC has demonstrated benets, why then, is not actually employed by a gradually increasing number of rms? (Gosselin, 1997; Innes et al., 2000). A plethora of parameters have been tested in the literature in order to explain this paradox (Gosselin, 1997; Bjrnenak, 1997; Malmi, 1997, 1999; Brown et al., 2001; Shields, 1995; Foster and Swenson, 1997; McGowan and Klammer, 1997; Friedman and Lyne, 1999; Anderson and Young, 1999; Cobb et al., 1992). The present paper has multiple stimuli. Our rst goal is to present evidence regarding the diffusion of ABC in Greece. In order to have a global view regarding ABC adoption we included in our survey companies that belong to all three sectors of Greek economy, i.e. manufacturing, retail and services. The second goal of our research is to assess, for the companies implementing ABC (ABC adopters), the benets that they have experienced at a multidimensional level regarding the ABC project, to identify the problems they have faced regarding the process of implementing their ABC systems and to present the technical characteristics of ABC systems in Greece. This paper contributes to the existing literature by not only proceeding in a thorough analysis of the benets perceived in relation to ABC as they have been presented in similar research, but also by moving a step further and grouping these benets into distinct categories as well as ranking them in order of perceived importance. Analogous work has been carried out only as far as the parameters that are associated with the decision to implement ABC are concerned (Anderson and Young, 1999; Brown et al., 2001). Furthermore, we try to understand why some companies, despite the theoretical benets of ABC, do not use it (non-ABC adopters). Finally, we test whether ABC adoption is related to specic observable business characteristics such as cost structure, rm size, competition intensity and overhead change trend. As far as the non-ABC adopters are concerned, we further analyze the reasons why some Greek companies do not intend to adopt ABC (ABC deniers), the views shared by those that are in favor of implementing ABC in the near future (ABC supporters) as well as the basic characteristics of the rms that have complete ignorance of ABC (ABC unawares), a group that is rarely met in ABC research papers (see section Non-ABC adopters)[1]. The categorization of Greek companies to the former three groups has been made objectively on the basis of the answers of the sample companies to specic research questions. The paper is structured as following: the literature review is presented in the second section. The third section is dedicated to the methodology of the research. The fourth section outlines the survey results along with descriptive statistics. The fth and nal section contains a discussion on the research ndings and the conclusions. Literature review Adoption rates of ABC From the literature review one can infer that despite the strong advocacy in favor of ABC (Cooper, 1988a, b; Cooper and Kaplan, 1991, 1992, 1998) adoption rates are not overwhelming (Innes et al., 2000). Survey evidence suggests that, over the past decade, there has been a growing awareness of ABC, but the overall rate of implementation has been low. UK surveys, in early 1990s, reported adoption rates of about ten percent (Innes and Mitchell, 1991). During the same period, adoption rates of 14 percent were found in Canada (Armitage and Nicholson, 1993) while US companies using ABC were in percentage more than those in the UK (Green and Amenkhienan, 1992).

More recent research reveals higher adoption rates. In the UK, Innes and Mitchell (1995) found that 19.5 percent of the rms examined had adopted ABC, while, among the largest rms in the sample, the rate was 25.6 percent. The repetition of the 1994, Innes and Mitchells survey in 1999 (Innes et al., 2000) showed a decrease in rms actually implementing ABC, as the corresponding rate fell to 17.5 percent. However, the adoption rate within the largest rms showed a considerable increase to 32.8 percent, indicating a statistically signicant size effect. This last survey also revealed a decrease of companies interest in ABC, as the percentage of companies currently considering its implementation had fallen from 27.1 percent in 1994 to 20.3 percent in 1999 (Innes et al., 2000). In Ireland, the percentage of companies having adopted ABC is lower (12 percent) than that in UK (Clarke et al., 1999). Evidence from continental Europe suggests smaller rates of adoption of ABC techniques. Rates less than ten percent are common for many countries (Israelsen et al., 1996; Ask et al., 1996; Lukka and Granlund, 1996; Scherrer, 1996; Barbato et al., 1996; Saez-Torrecilla et al., 1996) with the exceptions of the Netherlands where Groot (1999) found that 12 percent of the rms had implemented ABC, as well as Belgium (Bruggeman et al., 1996) and France (Bescos et al., 2001) where adoption rates were about 20 percent. An early survey for Greece (Ballas and Venieris, 1996) revealed that Greek companies have not adopted ABC, while a more recent study (Venieris et al., 2000) in manufacturing companies reported a 12.7 percent of ABC adoption. Findings from Australia present a mixed picture regarding ABC diffusion with rates of adoption ranging from less than 12 percent (Brown et al., 2001) to the encouraging level of 56 percent (Chenhall and Langeld-Smith, 1998). As far as US are concerned, Groot (1999) found that 17.7 percent of the companies investigated had adopted ABC, while Frey and Gordon (1999) identied a higher rate of 24.4 percent. Researchers in Canada (Bescos et al., 2001) and India (Joshi, 2001) found that adoption rates of ABC are of the same magnitude (23.1 percent and 20 percent, respectively). Finally, in Japan the adoption rates are rather low, about seven percent, but there is a considerable interest, rating at 34.5 percent, regarding the examination of the possibility of such an adoption (Bescos et al., 2001). Companies that have adopted ABC (ABC adopters) Research on ABC adoption suggests that one of the major perceived benets from implementing ABC is the more accurate cost information for product costing. Other reasons that justify ABC adoption are improved cost control, cost reduction, more accurate allocation of indirect costs, improved insight into cost causation, identication of activity costs and improvement of operational efciency. Apart from the above reasons, the decision to implement ABC is often driven by the need to improve customer protability analysis, to gain more accurate cost information for pricing or to prepare relevant budgets. Research also reveals that many companies proceed to the implementation of ABC because they want to modernize their cost accounting system in order to better depict costs or to improve their business processes. However, it should be stressed that the application of an ABC system is often accompanied by difculties. First, many adopters of ABC have reported that, during the implementation of ABC, they faced reservations from employees or managers regarding the usefulness of the new system, difculties in identifying and selecting

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activities or cost drivers, problems in accumulating cost data for the new system or lack of resources. Research indicates that in many cases the time schedule of the adoption process has been stretched, cost budgets have been exceeded or even the computer software has been proved inadequate. Also, ABC adopters seem to have encountered difculties because the process of implementing ABC is often time and resource consuming. Companies that do not consider adopting ABC (ABC deniers) Regardless of the numerous benets of ABC that are widespread in the literature there are companies that strongly oppose to the possibility of ABC adoption. According to the ndings of relevant researches, the main reasons for rejecting the adoption of ABC could be summarized to the following reasons: satisfaction with the existing costing system, ABC implementation being associated with high costs, lack of time to undertake an assessment of ABC implementation, ABCs perceived inadequacy to provide more accurate cost information, lack of management support or interest and, nally, requirement to follow parent companys directives, including the selection of cost accounting system. Companies that consider ABC implementation as a future prospect (ABC supporters) Prior studies report that the major expected benets from ABC, by the companies that include it in their future plans, relate to the better understanding of cost causation and behavior, gathering more accurate cost information for product costing, conducting customer protability analysis in a more accurate way, improving cost control, making use of better performance measures, rening the decision making process, improving protability information and using more accurate cost information for pricing. Innes and Mitchells (1995) survey on UKs largest rms revealed that almost half (40 percent) of the companies currently assessing ABC reported reservations regarding the adoption of ABC in the short run. More specically, the main problems that were indicated by the companies surveyed refer mostly to the scale, complexity and cost of designing and implementing ABC, top management support, difculties inherent in replacing a costing system which has been used for many years, lack of the appropriate expertise and nally technical issues (such as the identication of cost drivers). The perceived benets and problems regarding ABC implementation (ABC adopters), the reasons for not considering future ABC adoption (ABC deniers), as well as the expected benets and problems related to future ABC implementation (ABC supporters) that have been presented in literature are summarized in Table I. Methodology The sample surveyed included the leading Greek companies in the manufacturing, retail and service sectors. The criteria used for the selection of the companies were both their sales revenues and their net prot for the year 2002. The research was conducted between March and May 2003 and was realized in two phases. More analytically, in the rst phase a short questionnaire, which was called participation form (accompanied by a cover letter where we made a brief reference to the main goals of the study), was sent to the selected sample companies. Financial managers were asked to indicate the type(s) of cost accounting practice(s) used by their rms as well as to state correspondence information in order to address the survey questionnaire, in case they

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Companies that have implemented ABC (ABC adopters) Perceived benets More accurate cost information for product Clarke et al. (1999), Hussain et al. (1998) and costing Tayles and Drury (2001) Improved cost control Clarke et al. (1999) and Hussain et al. (1998) Cost reduction Bescos et al. (2001), Hussain et al. (1998) and Innes and Mitchell (1995) More accurate allocation of indirect costs Hussain et al. (1998) Improved insight into cost causation Clarke et al. (1999) and Hussain et al. (1998) Identication of activity costs Hussain et al. (1998) Improved operational efciency Tayles and Drury (2001) Improved customer protability analysis Bescos et al. (2001), Clarke et al. (1999), Innes and Mitchell (1995) and Tayles and Drury (2001) More accurate cost information for pricing Bescos et al. (2001), Clarke et al. (1999), Innes and Mitchell (1995), Kocakulah et al. (2000) and Tayles and Drury (2001) Preparation of relevant budgets Bescos et al. (2001), Innes and Mitchell (1995) and Tayles and Drury (2001) Modernization of cost accounting system in Hussain et al. (1998) and Malmi (1999) order to better depict costs Improved business processes Tayles and Drury (2001) Perceived problems Reservations regarding the usefulness of the Clarke et al. (1999), Gunasekaran et al. (1999), new system Hussain et al. (1998), Innes and Mitchell (1995) and Tayles and Drury (2001) Difculties in identifying and selecting Clarke et al. (1999) and Hussain et al. (1998) activities or cost drivers Problems in accumulating cost data for the Hussain et al. (1998) and Tayles and Drury new system (2001) Lack of resources Clarke et al. (1999) and Tayles and Drury (2001) Process of implementing ABC being often Gunasekaran et al. (1999) time and resource consuming Prolongation of the time schedule of the Hussain et al. (1998) and Tayles and Drury adoption process (2001) Overrun of cost budgets Hussain et al. (1998) and Tayles and Drury (2001) Inadequacy of the computer software Clarke et al. (1999) Companies that do not intend to implement ABC (ABC deniers) Reasons for rejecting ABC Satisfaction with the existing costing system Bescos et al. (2001), Innes and Mitchell (1995) and Innes et al. (2000) ABC implementation being associated with Bescos et al. (2001) high costs Lack of time to undertake an assessment of Innes and Mitchell (1995) ABC implementation ABCs perceived inadequacy to provide more Bescos et al. (2001) accurate cost information Lack of management support or interest Innes and Mitchell (1995) and Innes et al. (2000) Requirement to follow parent companys Innes and Mitchell (1995) directives (continued)

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Table I. Literature review regarding perceived benets and problems from ABC implementation, reasons for rejecting ABC adoption, and expected benets and problems associated with future ABC implementation

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Table I.

Companies that intend to implement ABC in the future (ABC supporters) Expected benets Better understanding of cost causation and Clarke et al. (1999) behavior Gathering of more accurate cost information Clarke et al. (1999), Innes and Mitchell (1995) for product costing and Innes et al. (2000) More accurate customer protability analysis Clarke et al. (1999), Innes and Mitchell (1995) and Innes et al. (2000) Improved cost control Clarke et al. (1999), Innes and Mitchell (1995) and Innes et al. (2000) Use of better performance measures Clarke et al. (1999), Innes and Mitchell (1995) and Innes et al. (2000) Renement of the decision making process Innes et al. (2000) Improved protability information Innes and Mitchell (1995) and Innes et al. (2000) Use of more accurate cost information for Clarke et al. (1999) and Innes and Mitchell pricing (1995) Expected problems Scale, complexity and cost of designing and Innes and Mitchell (1995) and Innes et al.(2000) implementing ABC Lack of top management support Innes and Mitchell (1995) and Innes et al. (2000) Difculties inherent in replacing a costing Innes and Mitchell (1995) and Innes et al. system which has been used for many years (2000) Lack of the appropriate expertise Innes and Mitchell (1995) and Innes et al. (2000) Technical difculties (e.g. the identication of Innes and Mitchell (1995) and Innes et al. cost drivers) (2000)

were interested. In the second phase of the research, the survey questionnaires were sent by post, fax or e-mail to the companies that had agreed to participate. It should be noted that two types of questionnaires were designed: one for ABC adopters and one for non-ABC adopters. The information contained in the participation forms helped us to send the proper questionnaires to the sample companies. Before the nalization of the questionnaires, a pilot testing took place. Sample characteristics The participation form was sent to 570 companies (manufacturing: 260; retail: 164; services: 146). One hundred and seventy seven rms (manufacturing: 85; retail: 54; services: 38) responded positively to the rst phase of the survey. The response rate was 31.1 percent. Next, the companies that completed the participation forms were sent the proper questionnaire on the basis of their answers (i.e. whether the companies were implementing ABC or another cost accounting system). Eighty-eight completed questionnaires were nally received (manufacturing: 42; retail: 26; services: 20) during the second phase of the survey. The response rate was 49.7 percent. The conclusions that are drawn by empirical surveys that use questionnaires in order to gather data rely heavily on the accuracy and the credibility of answers given by the respondents. There is no direct test to verify whether the respondents give objective answers, mostly in cases that the questions ask for their opinion and perception on specic issues. Thus, in order to assess the quality of their answers we

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In the following paragraphs we present evidence regarding the diffusion of ABC in Greece, we describe the technical characteristics of ABC systems, we assess the benets experienced regarding ABC and we identify the problems encountered during the process of implementing the ABC systems. Furthermore, we present the reasons why some companies do not intend to adopt ABC, the views shared by those that are in favor of implementing ABC in the near future as well as the basic characteristics of the rms that have complete ignorance of ABC. ABC diffusion According to the survey results, ABC diffusion in Greece is quite satisfactory. As shown in Table IV, 65.0 percent of companies in the service sector, 35.7 percent of manufacturing companies and 30.8 percent of retail companies use ABC. This study revealed increased adoption rates for Greece in comparison with earlier works (Ballas and Venieris, 1996; Venieris et al., 2000). Thus, we may conclude that Greek companies show a growing interest towards ABC in recent years. ABC systems characteristics The majority of the sample ABC adopters (55.2 percent) started implementing ABC since 1999. According to our data ABC systems were sporadically implemented with a pace of approximately one application per year, from mid-1980s to 1998. It is worth mentioning that before 1999 the majority of the ABC systems (84.6 percent) were developed in-house. From that year onwards almost half (43.8 percent) of the ABC systems were developed with external consultants help. However, there is not a statistically signicant relationship between these two variables, i.e. period of ABC implementation and use of consulting help (Figure 1). From an analysis of the data it can be concluded that ABC systems in Greece are not excessively detailed as they do not include a big number of cost drivers and calculate the cost of a rather small number of activities. More specically, the ABC systems applied by the sample companies use at a 65.5 percent up to seven cost drivers, at a 10.3 percent between 8 and 20 cost drivers and at a 24.1 percent more than 21. The majority of these ABC systems (58.6 percent) calculate the cost of up to seven activities, 17.2 percent calculate the cost of eight and up to 24 activities and nally 24.1 percent of these systems are capable of calculating the cost of more than 25 activities. Moreover, there is statistically signicant positive correlation between these two variables, i.e. number of cost drivers and number of activities at ve percent signicance level. That means that the more (fewer) activities an ABC system includes the more (fewer) cost drivers are used (Figure 2).

Figure 1. Development of ABC systems

Furthermore, 66.7 percent of Greek companies that have embarked on an ABC system did so without rst implementing a pilot program. ABC systems in Greece are mostly implemented at full scale, as only 25.7 percent of ABC adopters use the system to specic business departments. The majority (83.3 percent) of the survey companies declared that they use specialized software. This rate is signicantly higher than the percentage reported in UK where 58 percent of ABC adopters use a specialized package (Innes et al., 2000). Furthermore, half of the respondents who use ABC software have acquired a commercial package. A similar picture has been also evidenced in Canada and France (Bescos et al., 2001). Finally, in 63.9 percent of the rms under investigation ABC has been integrated with the rest of the information systems, and in 73.3 percent of the companies the ABC system has fully replaced the former cost accounting system (Table V). ABC implementation benets The benets that have been evidenced in international literature in relation to ABC adoption have been presented analytically in the Section Companies that have adopted ABC (ABC adopters). On the basis of this evidence we have grouped the ABC benets into six categories that are referring to cost accounting, cost management, performance measurement, decision-making, general management and relationships management. It has to be noted that analogous work, that is a thorough analysis of the benets perceived in relation to ABC that have been presented in literature and their classication into distinct categories, has been carried out only in the context of analyzing the decision to implement ABC (Anderson and Young, 1999; Brown et al., 2001). These six categories

ABC

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Figure 2. Relation between number of activities and number of cost drivers

General characteristics of ABC systems Use of a pilot program (N 36) Full scale ABC application (N 36) Use of specialized software (N 36) Development of ABC software (N 28) In-house Purchased Integration of ABC with the rest information systems (N 36) Full replacement of the former cost accounting system with ABC (N 30)

Percentage 33.3 74.3 83.3 50.0 50.0 63.9 73.3 Table V. General characteristics of ABC systems

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above were tested for reliability using Cronbachs coefcient a. An a value of 0.70 or above indicates a reliable measurement instrument. These benet categories as well as the parameters they consist of are shown in Table VI in order of perceived importance.

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Benet Category Cost accounting (N 36) Calculation of actual total product cost Identication of activities cost Cost accounting system update in order to be more accurate More accurate indirect cost allocation to products Cost management (N 36) Identication of the factors that are responsible for cost creation Overhead decrease More realistic budget preparation Cost reduction Performance measurement (N 35) Analysis and control of product protability Improvement of departments performance measurement Improvement of activities management efciency Improvement of activities performance Decision making (N 36) Improvement of the decision making process in relation to product costs Improvement of the decision making process in relation to preservation or discontinuance of activities Adjust pricing policy as to apply to increased product mix complexity Abolition of loss making products Changes of product mix in order to better suit customer needs from a value for money perspective General management (N 31) Improvement of products quality Improvement of outsourcing decision procedures Attainment of synergies with Total Quality systems Attainment of synergies with Just in Time systems Relationships management (N 31) Improvement of customers management efciency Motivation of the personnel that deals with cost accounting Identication of loss making customers Identication of loss making suppliers Note: The scale is 1=I totally disagree to 5=I totally agree

Mean value (Std deviation) 4.236 (0.612)

Mean value

Cronbachs a 0.726

4.389 4.277 4.187 4.171 4.055 (0.729) 4.228 4.064 4.059 4.000 3.871 (0.757) 4.294 3.733 3.656 3.643 3.772 (0.724) 4.400 3.709 3.600 3.533 3.207 3.162 (1.163) 3.107 3.037 2.936 2.778 3.019 (0.915) 3.071 3.035 2.965 2.790 0.722 0.871 0.732 0.758 0.805

Table VI. Benets perceived by ABC adopters

Greek rms that have implemented ABC have gained signicant benets that are not related to the core purpose of ABC, that is cost measurement accuracy. Even though the benets perceived in relation to this aspect are the most intense in magnitude (mean value 4.23), ABC adopters are also convinced that ABC is benecial in relation to cost management (mean value 4.05), as it can offer means towards cost creation factors identication and cost reduction. Moreover, ABC proved to be helpful for a complex of management uses such as performance measurement (mean value 3.87), decision-making (mean value 3.77), etc. According to ABC adopters responses, the general conclusion is that they are quite satised with their ABC cost accounting system (mean value 4.46, the scale is 1 completely dissatised to 5 completely satised). The reason for their extensive satisfaction may be due to the multidimensional aspects of ABC that expand beyond the narrow focus of the benets of a more accurate cost accounting system to the benets regarding a number of signicant parameters of the management function, as presented analytically in Table VI. Problems faced in relation to ABC The analysis of the answers revealed that ABC adopters have not faced serious difculties regarding the implementation of ABC. As shown in Table VII, the areas that were indicated by the sample companies as the ones being somewhat problematic were, mainly, software selection (mean value 1.79), data collection (mean value 1.77), adequacy of requested resources (mean value 1.74), and personnels resistance to ABC (mean value 1.69). However, when the resources, either nancial or human, within a company that decides to implement ABC are not adequate for the project undertaken this may be the cause of a variety of other problems, such as personnel s resistance, prolongation of ABC timetable, lack of top management support, etc. (Table VII). This is evidenced by the fact that the variable that describes the adequacy of resources is statistically positively correlated with almost all other variables. Similar perceived problems with ABC adoption were pointed out by the companies examined by Clarke et al. (1999) and Hussain et al. (1998). Non-ABC adopters An analysis of the companies that do not use ABC, as already shown in Table IV, revealed that 28 companies out of 52 non-ABC adopters are ABC deniers (53.8 percent), 12 companies are ABC supporters (23.1 percent) and another 12 companies are ABC unawares (23.1 percent). The companies that belong to the rst category (ABC deniers) justify their opinion on reasons similar to those indicated in other international surveys (Bescos et al., 2001; Groot, 1999; Innes and Mitchell, 1995; Innes et al., 2000). Among the most important reasons (with mean value greater than 4.00) claimed by these companies is that the change of their accounting system is not a priority (mean value 4.71) and that they are already satised with their existing cost accounting system (mean value 4.40), as shown in Table VIII. On the other hand, the companies that belong to the category of ABC supporters, have rational expectations towards ABC implementation as they expect that it will bring along benets as well as shortcomings. More specically, even though ABC

ABC

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Potential problems (N 35) Data collection 0.018 0.254 20.222 0.439 * * 0.204 0.049 0.211 0.411 * 1.000 0.203 0.522 * * 0.300 0.211 0.216 1.000 1.000 0.544 * * 1.000 0.514 * * 1.000 0.413 * 0.167 0.163 0.353 0.262 0.063 0.546 * * 0.481 * * 0.436 * 0.245 0.721 * * 0.457 * * 0.393 * 0.312 0.225 0.458 * * 0.535 * * 0.410 * 0.010 0.090 2 0.137 0.213 0.295 0.543 * * 0.176 0.162 0.289 0.256 0.271 1.000 0.299 20.213 0.085 0.302 0.534 * * 0.235 20.179 0.400 * 0.517 * * 0.782 * * 0.494 * * 1.000 0.282 0.414 * 1.000 0.001 0.378 * 0.242 0.173 0.136 0.219 0.145

Software selection Data collection Adequacy of requested resources Personnels resistance to ABC Prolongation of ABC timetable Activities identication Identication of the proper cost drivers Lack of top management support Overrun of initial estimated cost 0.290 0.273 0.091 0.395 * 0.523 * * 0.482 * * 0.275 0.080 1.000

Notes: The scale is 1=no problems encountered, 2=some difculties encountered and 3=signicant problems faced The correlations above the diagonal are Pearson two-tailed correlations and below the diagonal are Spearman two-tailed correlations *Correlation is signicant at the ve percent signicance level * *Correlation is signicant at the one percent signicance level

Table VII. Correlations among problems faced in relation to ABC implementation Overrun Adequacy Identication Lack of top of initial Personnels Prolongation of of ABC Activities of the proper management estimated requested resistance cost support timetable identication cost drivers to ABC resources

Mean Std Software value deviation selection

1.786

0.875

1.771

0.689

1.735

0.751

1.686

0.676

1.613

0.667

1.576

0.613

1.559

0.660

1.471

0.706

1.364

0.603

Reasons for rejecting ABC Cost accounting system change is not our priority We are satised from the existing cost accounting system Top management is not interested in ABC ABC implementation cost is high We are not persuaded about ABC effectiveness We dont have time to assess ABC suitability for our company We do not have adequate knowledge or/and resources for ABC implementation Employees will not accept ABC Company culture is not in favor of changes

N 21 25 21 17 17 16 15 15 16

Mean value 4.714 4.400 3.333 3.118 3.059 3.000 1.933 1.867 1.813

Std deviation 0.717 1.041 1.560 1.269 1.520 1.414 1.163 1.126 0.981

ABC

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Note: The scale is 1=I totally disagree to 5=I totally agree

Table VIII. Reasons for not considering future ABC implementation

supporters share high expectations regarding ABC adoption (Table IX) they are not unaware of the fact, on the basis of their answers, that they will probably face difculties in cost driver selection and data collection. Thus the situation in Greece is similar to what has been reported in prior literature (Innes and Mitchell, 1995; Innes et al., 2000). The analysis of the empirical evidence revealed that ABC deniers and ABC supporters have different views regarding the extent to which they are satised with their currently used cost accounting system. This nding indicates that only when companies think that their existing cost accounting system is not adequate in order to fulll the need for enhanced cost accounting information, they raise the issue of changing the system in use. Thus, ABC, at least in Greece, is not an issue of fad or fashion but rather an answer to a real problem. As Table X shows, the hypothesis of equality of means is not accepted at a ve percent statistically signicance level. Thus, the companies that see ABC as a future prospect are less satised with their
Expected benets (N 12) Protability analysis improvement Improvement of cost control effectiveness Better overhead allocation Identication of cost consuming activities Improvement of pricing policy Product/service redesign Identication of cost consuming products Improvement of outsourcing decision procedures Replacement of a less reliable and accurate cost accounting system Improvement of budget preparation procedures Attainment of synergies with Just in time systems Attainment of synergies with total quality systems Note: The scale is 1=I totally disagree to 5=I totally agree Mean value 4.818 4.727 4.455 4.455 4.273 4.250 4.091 4.000 3.818 3.727 3.667 3.600 Std deviation 0.405 0.467 0.688 0.934 0.786 0.707 0.831 0.943 1.251 1.191 0.707 0.966

Table IX. Possible benets related to ABC future implementation

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existing cost accounting system in comparison to those that do not intend to consider implementation. ABC unawares is a distinct group from the other ones studied. They are not in favor of ABC or against it because they are not familiar with its content and philosophy. It was surprising to nd that there are still senior level accountants in the largest Greek companies that do not know anything about ABC. For this reason, we decided to investigate further both the prole of the respondents as well as the characteristics of the cost accounting systems applied by these companies. Based on the answers to the questionnaire, it is interesting to note that, the majority (75.0 percent) of the respondents that belong to the ABC unawares group were executives in the top hierarchy of the nancial departments (nancial managers and chief accountants). An analysis of the time that these managers obtained the specic professional status revealed that at a percentage of 63.6 percent they held the specic position for more than six years. These ndings may be indicative both of their age and of the period they studied cost accounting. The majority (63.6 percent) of ABC unawares use absorption costing while the rest (36.4 percent) use standard costing. For these rms cost accounting information is usually used for rather traditional purposes, such as stock valuation (88.9 percent), price setting (83.3 percent), cost control (75.0 percent) and preparation of nancial statements (66.7 percent). Also, they reported that they did not face signicant problems regarding the application of the currently used cost accounting system. Finally, according to their answers, they seem quite satised with their cost accounting system (mean value 4.25, the scale is 1 completely dissatised to 5 completely satised). Probably the increased level of satisfaction along with the absence of signicant problems regarding the application of the currently used cost accounting system and the prole of the nancial departments executives have not forced them to search for another more sophisticated cost accounting system, like ABC. Are there any statistically signicant differences between ABC adopters and non-ABC adopters? The last issue we examined was the extent to which ABC adopters are different from non-ABC adopters. This means that we tried to nd whether companies that adopt ABC have any characteristics that distinguish them from companies that do not adopt ABC on the basis of the principle ABC suits best (Anderson and Young, 1999; Bjrnenak, 1997; Brown et al., 2001; Clarke et al., 1999; Groot, 1999; Innes and Mitchell, 1995; Innes et al., 2000). More specically, we looked into a number of variables such as companies cost structure, rms size (measured in terms of sales revenue and employees), perceived intensity of competition and trend of overhead change.
ABC deniers mean value ABC supporters mean value 3.833 Mean difference 0.560 Sign (two-tailed) 0.050

Table X. Difference in satisfaction from the currently used cost accounting system

Satisfaction from the cost accounting system

4.393

Note: The scale is 1=completely dissatised to 5=completely satised

To do this, we ran various tests in terms of product cost composition and period cost contribution over total operating costs. We did not nd any evidence that can statistically prove that companies that adopt ABC have a particular cost pattern in comparison to the ones not adopting ABC, in every industrial sector. All tests provide evidence of the robustness of this conclusion[2]. This evidence, within the context of an ex-ante analysis, may indicate that cost structure was not a driving force that inuenced companies towards ABC adoption. Moreover, the analysis of the data did not verify that ABC adopters differ from non-ABC adopters in terms of size, calculated both as average sales revenue and as number of employees. As shown in Table XI, the hypothesis that companies adopting ABC are more sizable, is not statistically veried. Findings from other surveys on this issue are not uniform. Size, expressed in terms of number of employees, did not signicantly discriminate ABC adopters from non-ABC adopters in the sample investigated by Bjrnenak (1997). On the contrary, Brown et al. (2001) found that size inuences the decision to adopt or reject ABC. A signicantly higher rate of ABC adoption was demonstrated among the larger, in terms of number of employees, Dutch rms, surveyed by Groot (1999). Furthermore, a statistically signicant size effect was found by Innes and Mitchell (1995) as well as by Innes et al. (2000). Overhead change in the recent past and expected overhead alternation in the future, parameters that have been extensively cited in literature as drivers for ABC adoption, seem to affect all companies to the same extent (Table XI). Thus, managers perceptions about overhead trend as well as objective measurable data on production and non-production overhead contribution to total cost, as discussed above, were not proved to be statistically different between ABC adopters and non-ABC adopters. Empirical surveys have shown contradicting evidence in respect to this issue too. Bjrnenak (1997) tested cost structure with reference to its relation to ABC adoption and found it to be statistically signicant. On the other hand, Brown et al. (2001) did not nd the level of overheads to inuence the decision to adopt or reject ABC, while at the same time no signicant difference between ABC users and non-ABC users was indicated by Clarke et al. (1999) and Groot (1999), regarding the percentage of manufacturing overhead to total cost and overhead costs (either in absolute or relative terms), respectively. Finally, the dimensions of perceived intense of competition and its evolvement over time did not statistically differentiate ABC adopters from non-ABC adopters. Our results are consistent with those of Anderson and Young (1999) who did not nd competitive environment to be a factor that promotes ABC adoption. Also, Bjrnenak (1997) reached a similar conclusion since the number of competitors did not appear to inuence adoption of ABC. As an epilogue to the comparison between ABC adopters and non-ABC adopters we can conclude that cost parameters, size and competition dimensions do not offer easy answers to the question which companies prefer best the adoption of ABC, at least for Greece. Discussion ABC has been called upon to provide a more accurate picture of cost information and to enhance competitiveness. Prior studies suggest that ABC has, more or less, helped companies satisfy not only these two needs but also to gain a number of other

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Sales revenue for the year 2002 (e mil) 2.305 3.333 3.250 4.277 3.228 3.057 4.529 3.470 3.519 20.186 20.220 20.251 0.171 2.211 0.094

Number of employees for the year 2002 *

Overhand change during the last three years * *

Expected future overhead change * *

Recent competition intensity change * *

Number of competitors * * *

Notes: *The scale is 1=less than 50 employees, 2=between 50 and 499 employees and 3=more than 500 employees * *The scale is 1=very small change to 5=very signicant change * * *The scale is 1=monopoly, 2=1-3 competitors, 3=4-10 competitors and 4=more than 11 competitors

Table XI. Differences between ABC adopters and non-ABC adopters ABC adopters mean value (N 36) Mean difference 122.9 298.17 175.23 1.015 (0.316) 0.068 (0.494) 20.816 (0.417) 21.105 (0.272) 21.441 (0.155) 0.938 (0.351) Non-ABC adopters mean value (N 52) t-value ( p value)

management facilitating benets such as improved customer protability analysis, preparation of more relevant budgets, etc. (Clarke et al., 1999; Hussain et al., 1998; Tayles and Drury, 2001; Innes and Mitchell, 1995). Moreover, empirical evidence has shown that the application of ABC is often accompanied by problems (Clarke et al., 1999; Tayles and Drury, 2001; Innes and Mitchell, 1995) which make the adoption of ABC a somewhat arduous process. Our analysis of survey data from 88 leading Greek companies from all sectors, i.e. manufacturing, retail and services, indicates that ABC diffusion in Greece is quite satisfactory. Service companies seem to implement ABC costing to a greater extent in comparison to manufacturing and retail companies. This research reported higher adoption rates than the ones presented in previous studies in Greece (Ballas and Venieris, 1996; Venieris et al., 2000). Our ndings are aligned with the fact that there is an increasing pace of ABC adoption in Greece in recent years. The survey results demonstrate that the majority of ABC systems in Greece are not excessively detailed as they do not include a big number of cost drivers and calculate the cost of a rather small number of activities. ABC adopters have successfully implemented ABC and have gained benets at a multidimensional level, i.e. cost calculation accuracy, cost management, performance measurement, etc. Hence, it appears that Greek companies that use ABC do not view it as a means to improving cost measurement accuracy, but they are aware of the fact that ABC can be implemented as a management tool with multiple aims. Furthermore, the problems ABC adopters encountered during the ABC implementation process seem to be of medium severity. Adequacy of resources has been found to be the variable that is positively and signicantly correlated with the majority of common problems presented in the literature as problems faced during ABC implementation. An important nding of our research is that companies that include ABC in their future plans (ABC supporters) have rather realistic expectations regarding ABC, as they are conscious of the benets as well as of the shortcomings that will accompany its implementation. Moreover, they share different views regarding the extent to which they are satised with their currently used cost accounting system in comparison to the companies that do not consider ABC as a future possibility (ABC deniers). More specically, ABC supporters are statistically signicantly less satised with their existing cost accounting system in comparison to ABC deniers. This means that only when rms think that their existing cost accounting system is not adequate to fulll the need for enhanced cost accounting information, they raise the issue of changing the system in use. Hence, ABC, in Greece, is not an issue of fad or fashion, but rather an answer to a real problem. This nding may explain also the existence of the ABC unawares group. The fact that the companies that belong to this last group are rather satised with their cost accounting system along with the specic prole of the nancial departments executives may have kept them away from the need to get familiar with an innovative accounting technique, like ABC. Based on our ndings, ABC adopters and non-ABC adopters do not appear to be different in terms of cost structure, size, perceived intensity of competition or change in overheads. This means that no pattern could be distinguished regarding the prole of rms that implement ABC. In sum, if we take into account the fact that all sample rms indicated that they are, more or less, satised with their cost accounting system, we could infer that the decision whether to adopt ABC does not associate to the costing or

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organizational prole of companies, nor is based on which accounting technique is deemed as more sophisticated, but it is rather determined by which technique better suits the real needs of each company.
Notes 1. In order to make the discussion in the paper easier, we refer to the companies that implement ABC as ABC adopters and those that do not use ABC as non-ABC adopters. Furthermore, we divide non-ABC adopters into the three categories already presented, i.e. (1) ABC deniers, i.e. those non-ABC adopters that do not consider ABC as a future possibility, (2) ABC supporters, i.e. those that consider ABC implementation as a future prospect, and (3) ABC unawares, i.e. those that have complete ignorance of the ABC technique. We did not nd in our research rms that belong to any of the following categories that have been identied in international literature, i.e. rms that had considered the possibility of implementing ABC but eventually preferred not to adopt it, rms that had carried out a pilot project but decided against the implementation of ABC, rms that used ABC in the past but abolished it later, or rms that were currently employing an ABC pilot project that was still in progress. 2. The tests that were performed include the one way ANOVA test (when differences among the four categories regarding ABC were controlled for) and the t-test of equality of means (when the analysis was concentrated on the pursuit of differences between ABC adopters and non-ABC adopters). Tests were also conducted under the alternative grouping of the companies into ABC adopters and ABC supporters (group A) and ABC deniers and ABC unawares (group B) and between the extreme groups ABC adopters and ABC deniers. All tests give consistent results that do not support the existence of statistically signicant differences. References Anderson, S.W. and Young, S.M. (1999), The impact of contextual and process factors on the evaluation of activity based costing systems, Accounting, Organizations and Society, Vol. 24, pp. 525-59. Armitage, H.M. and Nicholson, R. (1993), Activity based costing: a survey of Canadian practice, No. 3, Society of Management Accountants of Canada. Ask, U., Ax, C. and Jonsson, S. (1996), Cost management in Sweden: from modern to post-modern, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 199-217. Ballas, A. and Venieris, G. (1996), A survey of management accounting practice in Greek rms, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 123-39. Barbato, M.B., Collini and Quagli, P. (1996), Management accounting in Italy, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 140-63. Bescos, P., Cauvin, E., Gosselin, M. and Yoshikawa, T. (2001), The implementation of ABCM in Canada, France and Japan: a cross-national study, paper presented at the 24th Annual Congress of the European Accounting Association, Athens, 18-20 April. Bjrnenak, T. (1997), Diffusion and accounting: the case of ABC in Norway, Management Accounting Research, Vol. 8 No. 1, pp. 3-17. Bjrnenak, T. and Mitchell, F. (2002), The development of activity based costing journal literature, 1987-2000, The European Accounting Review, Vol. 11 No. 3, pp. 481-508.

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Brown, D., Booth, P. and Giacobbe, F. (2001), Organizational inuences, ownership, and the adoption of activity based costing in Australian rms, Working Paper No. 46, School of Accounting, University of Technology, Sydney, June. Bruggeman, W., Slagmulder, R. and Waeytens, D. (1996), Management accounting changes: the Belgian experience, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 1-30. Chenhall, R. and Langeld-Smith, K. (1998), Adoption and benets of management accounting practices: an Australian study, Management Accounting Research, Vol. 9, pp. 1-19. Clarke, P.J., Hill, N.T. and Stevens, K. (1999), Activity based costing in Ireland: barriers to, and opportunities, for change, Critical Perspectives on Accounting, Vol. 10, pp. 443-68. Cobb, I., Innes, J. and Mitchell, F. (1992), Activity Based Costing Problems in Practice, CIMA, London. Cooper, R. (1988a), Cost management concepts and principles: the rise of activity based costing part one what is an activity based cost system, Journal of Cost Management, March, pp. 45-54. Cooper, R. (1988b), The rise of activity based costing part two: when do I need an activity based costing system?, Journal of Cost Management, pp. 45-53. Cooper, R. and Kaplan, R.S. (1991), Prot priorities from activity based costing, Harvard Business Review, May-June, pp. 130-5. Cooper, R. and Kaplan, R.S. (1992), Activity based systems: measuring the costs of resource usage, Accounting Horizons, September, pp. 1-13. Cooper, R. and Kaplan, R.S. (1998), Cost and Effect, Harvard Business School Press, Boston, MA. Foster, G. and Swenson, D.G. (1997), Measuring the success of activity based cost management and its determinants, Journal of Management Accounting Research, Vol. 9, pp. 109-42. Frey, K. and Gordon, L.A. (1999), ABC, strategy and business unit performance, International Journal of Applied Quality Management, Vol. 2 No. 1, pp. 1-23. Friedman, A.L. and Lyne, S.R. (1999), Success and Failure of Activity based Techniques: A Long Term Perspective, Chartered Institute of Management Accountants, London. Gosselin, M. (1997), The effect of strategy and organizational structure on the adoption and implementation of activity based costing, Accounting, Organizations and Society, Vol. 22 No. 2, pp. 105-22. Green, F.B. and Amenkhienan, F.E. (1992), Accounting innovations: a cross-sectional survey of manufacturing rms, Journal of Cost Management, Vol. 6, pp. 58-64. Groot, T.L.C.M. (1999), Activity based costing in US and Dutch food companies, Advances in Management Accounting, Vol. 7, pp. 47-63. Gunasekaran, A., Marri, H.B. and Yusuf, Y.Y. (1999), Application of activity based costing: some case experiences, Managerial Auditing Journal, Vol. 14 No. 6, pp. 286-93. Hussain, Md.M., Gunasekaran, A. and Laitinen, E.K. (1998), Management accounting systems in Finnish service rms, Technovation, Vol. 18 No. 1, pp. 57-67. Innes, J. and Mitchell, F. (1991), Activity based costing a survey of CIMA members, Management Accounting, October, pp. 28-30. Innes, J. and Mitchell, F. (1995), A survey of activity based costing in the UKs largest companies, Management Accounting Research, June, pp. 137-53. Innes, J., Mitchell, F. and Sinclair, D. (2000), Activity based costing in the UKs largest companies: a comparison of 1994 and 1999 survey results, Management Accounting Research, Vol. 11, pp. 349-62.

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Israelsen, P., Anderson, M., Rohde, C. and Sorensen, P.E. (1996), Management accounting in Denmark: theory and practice, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 31-53. Joshi, P.L. (2001), The international diffusion of new management accounting practices: the case of India, Journal of International Accounting, Auditing and Taxation, Vol. 10 No. 1, pp. 85-109. Kocakulah, M., Fowler, D. and McGuire, B.L. (2000), Implementing an ABC system to stay competitive: a case study, Journal of Cost Management, Vol. 14 No. 2, pp. 15-19. Lukka, K. and Granlund, M. (1996), Cost accounting in Finland: current practice and trends of development, The European Accounting Review, Vol. 5 No. 1, pp. 1-28. McGowan, A.S. and Klammer, T.P. (1997), Satisfaction with activity based costing cost management implementation, Journal of Management Accounting Research, Vol. 9, pp. 217-37. Malmi, T. (1997), Towards explaining activity based costing failure: accounting and control in a decentralized organization, Management Accounting Research, Vol. 8, pp. 459-80. Malmi, T. (1999), Activity based costing diffusion across organizations: an exploratory empirical analysis of Finnish rms, Accounting, Organizations and Society, Vol. 24 No. 8, pp. 649-72. Saez-Torrecilla, A., Fernandez-Fernandez, A., Texeira-Quiros, J. and Vaquera-Mosquero, M. (1996), Management accounting in Spain: trends in thought and practice, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 180-90. Scherrer, G. (1996), Management accounting: a German perspective, in Bhimani, A. (Ed.), Management Accounting: European Perspectives, Oxford University Press, Oxford, pp. 100-22. Shields, M. (1995), An empirical analysis of rms implementation experiences with activity based costing, Journal of Management Accounting Research, Vol. 9, pp. 148-66. Tayles, M. and Drury, C. (2001), Autopsy of a stalling ABC system: a case study of activity based cost management and performance improvement, paper presented at the 24th Annual Congress of the European Accounting Association, Athens, 18-20 April. Venieris, G., Zorgios, Y. and Cohen, S. (2000), Modeling the interrelationships between activity based costing and exible manufacturing systems, paper presented at the 23rd Annual Congress of the European Accounting Association, Munich, 29-31 March.