Factors of selection affecting successful implementation of ABC

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Ever since the dawn of industrial revolution, costing methods have continually been changed and refined in order for managers to make better decisions and maximize profits. Considered to be superior to the traditional volume-based costing method, Activity Based Costing (ABC) is used in all kinds of businesses like merchandizing firms, manufacturing firms and service firms. The advantages of ABC system over traditional methods and its impact on company's performance have compelled researchers to take up various empirical studies on it. Previous research on the subject has covered various aspects like impact of ABC techniques on firm performance, determinants measuring success of ABC, the adoption levels of ABC in different countries, the problems related to ABC, the reasons for implementing ABC, the critical success factors influencing ABC and many more. The following paper focuses on the research conducted on ABC in the last decade, from 1995-2008, from this review the research gaps were identified. The paper mainly puts light on factors of selection affecting successful implementation of ABC, variables used in previous research and their definitions.


Industrialization, globalization, competition has totally changed the business scenario in the past few years. An organization has to be very vigilant about impacts of the changing economy and come up with productive and efficient ways to thrive and prosper in the market. Adoption of automation, use of robotics and modernization in the manufacturing procedures has entirely changed the way any business is carried out, basically changing the way a product should be priced. Traditional method could no longer produce accurate costs needed to price the commodity. [25] (Johnson and Kaplan, 1987).

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overheads. It then assigns the cost of those activities only to the products that are actually demanding the activities (Harold Averkamp (CPA)) [22] making it a more accurate way of calculation of overheads. Thus enhancing a firms' performance and making Activity-Based-Costing popular with every passing day. ABC further helps in providing more accurate cost information necessary to make appropriate strategic decisions about product mix, sourcing, pricing, process improvement, and evaluation of business process performance.(Cooper and Kaplan) [15] , (Swenson)[48] Hence leading to adoption of ABC by several firms. Resulting in popularizing the use of Activity-Based-Costing instead of the traditional volume based cost model in several firms.

Activity-Based-Costing implementation comprises of six different stages. Namely,







The positive impact as well as advantages of Activity-Based-Costing on the firm performance motivated numerous academics to advocate and study the various aspects of ABC. Among such studies are Innes and Mitchell [24,25], Khalid [28], Ruhanita et al. [40], Majid et al. [32] and Yanren [50] who conducted researches on the various factors affecting the adoption and implementation of ABC, Baird [4,5] Gosselin [21], McEwen [33,34] and Sheilds [43] concentrated especially on the influence of the factors on the implementation stage, McGowan [34] assessed the integrity of ABC success.

Whereas at the same time, we have enough evidence that suggests that many organizations experienced problems in implementing the costing system and in some extreme cases organizations had to abandon the use of the ABC. Among the disadvantages of ABC some are :

ABC is a time consuming process

The cost of buying, implementing and maintaining ABC is very high.

ABC still faces issues in allocating some overheads such as Supervisors Salary etc.

Question that remains unanswered is how is it possible that in some companies ABC implementation is successful whereas in some it fails. This question led many brains to recognise that assessing the factors that influences successful implementation of this costing system is an important research area. Some of the researchers who contributed to the issue are Sartorious et al. [42], Byrne et al. [10], Anderson [2] and Shield [43]

This report has two main objectives; the first objective is to identify research methods used by the researchers and the second is to find the research gaps based on the revision of previous studies. This report is organised as follows : Section II presents a discussion on the findings of previous researches conducted. Section III discuss the research methods involved in the research. Limitations in previous studies and the research gaps are mentioned in the Section IV and the final section presents the conclusion.

Previous Research

Numerous researches have been conducted by various researchers on the topic, factors affecting the successful implementation of ABC in any organization. Research undertaken at the early stages by Cooper[14], Morrow and Connelly[36] mainly comprised of the technical factors which affected the implementation of the ABC, leading to a detailed identification of the technical factors, such as the identification of main activities, selection of cost drivers, problem in accumulating cost data. Based on the research conducted by similar master brains in the field of indentifying the factors affecting the successful implementation of ABC many organizations opted for adoption and implementation of the ABC system. However, as assumed by some academics, technical were not only the deciding factors, non-technical factors like contextual, behavioural, organizational etc. also played a important role in the process. Hence, even with its advantages ABC failed in being successfully adopted in certain organisations.

Some other researchers had also conducted research on the non technical factors that affect the implementation of the ABC system. Further the non-technical factors were identified as the involvement of non-accounting in ABC implementation process, top management support, competition, adequate training program to employees about the objectives and benefits of ABC, relevance of managers decisions, task uncertainty, adequate resources, personal performance measures as pay and appraisal, usefulness of cost information, compatibility with existing systems, size of firm, IT existence, hierarchical and communication structure, proportion of dedicated professionals etc.. As the factors started being identified with every passing research work done on the non technical factors they were broadly classified as Contextual, Behavioural and Organizational factors. The major contribution in identification of non-technical variables influencing the successful implementation of ABC was of Cooper et al. [16] followed by Shield [43], Anderson[1], Shields and McEwen[45]

Apart from the above mentioned reasons some researchers have also worked in the areas of effects of national culture on the implementation of ABC. Researchers who brought this issue to light were Brewer[8], Supitcha and Frederick[47] according to them the research done affirmed that the national culture also affects the success rate of the implementation of ABC. During their research it was found that success rate of implementation of ABC is much higher in some countries as compared to other countries. This variation was noticed basically due to the work culture of the particular countries.

Baird, Harrison and Reeve conducted research affirming that even the corporate culture affects the implementation of ABC. With the completion of the researches carried out it was evident that there exists is a significant relationship between the corporate culture of an organization and the ABC implementation. All the above said studies have been conducted using different research methods like Mail survey, Questionnaires and randomly selected samples.

Research Methods

Research is a systematic investigation which involves study of materials, sources, articles, journals, books etc., in order to establish facts and reach to conclusions that contribute to any body of knowledge. A research method is simply a technique of collecting data. It can involve a specific instrument, such as self-completion of questionnaire or a structured interview, or participant observation whereby the researcher listens to and watches others.

The most popular research methods are :


Case Studies

Archival Research Mehthod


Focus group interviews


Table 1.1 is an accumulation of all the research work discussed in the previous section, the table highlights all the methods used to conduct the research, variables that affect the successful implementation of ABC and the stages at which the research were conducted.

Limitations and Research Gaps

After going through several articles, journals and studies it is observed that there are certain gaps in the researches which were executed for determining the factors affecting successful implementation of ABC in a common market. This section highlights these limitations and research gaps observed in the review. Some of the major research gaps are as follows -

Majorly the research carried out are based on behavioural and organisational variables like top management support, adequate resources, linking ABC system to performance evaluation and compensation, training for the implementation of ABC in a organisation, etc. but only one research has been conducted discussing the effect of organization structure on implementation of ABC by Gosselin [21]

Research on implementation of ABC in developing countries is negligible compared to the developed countries this deprives us from understanding the actual effect of work culture on the successful adoption and implementation of the costing system on the business, Lana and Fei (2007)[31] have tried to explain the same issue in their article

Rarely any researches have been conducted to discuss the matter, where answers to question such as : At which stage should ABC be implemented in any organisation? When is it best to implement and what are the factors relating to the business environment which will affect the successful implementation of ABC in the company?

Only two researches Brewer(1998)[8], Supitcha and Frederick(2001) [47] discussed the effect of national and corporate culture on the adoption of ABC. Since different business cultures affect the same problem in a different manner, it would be interesting to understand how different cultures behave differently in successful implementation of ABC in some countries and fail in some.

Mostly all the research conducted till date are on the basis of quantitative methods such as questionnaires and interviews rather than being on qualitative methods which can mislead the research due to various reasons such as low response rate and lack of interest in the subject of the people filling the questionnaires etc.


The revelations of the paper indicate the lack of research done to study the significance of organisational structure and culture, and the factors affecting the successful implementation of the ABC system.

Cultural Variable is further differentiated as Natural Culture and Business Culture.

The Activity-Based-Costing system is a great aid to a wide range of people throughout the globe, and the research done in its behavioural, organisational and technical variables has only added to its vast pool of knowledge.