The diffusion of management accounting innovations : a study of the factors influencing the adoption, implementation levels and success of ABC

During the late 1980s considerable publicity was given to the criticisms of management accounting. In response to these criticisms new innovations emerged. The innovation that has attracted the greatest interest has been activity-based costing (ABC). This study gathers empirical data to examine various issues relating to ABC derived from an extensive review and synthesis of the relevant literature, including the contingency theory literature. The major aims of the study are to investigate the extent to which various contextual factors influence the adoption of ABC systems, to determine the reasons and factors which have discouraged firms from adopting ABC and to examine the impact of various factors in determining the success of ABC systems. Other objectives include examining the importance of specific motives for implementing ABC systems and examining the extent to which other accounting innovations and strategic management accounting practices are associated with the adoption/non-adoption of ABC systems. A postal questionnaire was conducted using 1,000 UK manufacturing and nonmanufacturing organisations with an annual sales turnover in excess of £50 million as the target population. Not-for-profit organisations were excluded from the population sample. The findings are based on 176 responses (a usable response rate of 19%). Strong support was found for the intensity of the competitive environment, size, extent of the use of lean production techniques (including JIT techniques), importance of cost information, extent of the use of innovative/strategic management accounting techniques and corporate sector having a significant influence in the adoption of ABC systems. Using factor analysis, three factors were found to be significantly associated with ABC success. They were managerial understanding and the ability to use ABC information, positive attitudes by accounting staff towards ABC and adequate training for ABC and a clear understanding of its purposes. The dominant motives for implementing ABC related to the deficiencies of the existing system such as the existing system not providing useful information to management, it was necessary to update the existing costing information system and the existing costing system was not reliable. The most important reasons for not implementing ABC were that the perceived benefits did not justify the cost of implementing it, most of the indirect costs were fixed, the existing system was considered satisfactory for controlling overheads and the general lack of support from top management or individuals to act as champions. A distinguishing feature of the study is that it overcomes the deficiencies of previous ABC studies that have used bivariate statistical tests. These studies have examined independently, without controlling for the impact of other variables in the model, whether the difference between ABC adopters and non-adopters are statistically significant in respect of each of the selected contextual variables. This study uses mutivariate binary logistical regression that systematically controls for the impact of the other explanatory variables that are likely to influence the adoption of ABC.