The main research objectives of this study were to investigate influence of certain contextual factors on the implementation stages, adoption and infusion of ABC, and also to investigate whether the adoption and infusion of ABC improve Iranian manufacturing firms' performance (financial and non financial)
This chapter provided a discussion to which finding reported in the chapter five are able to provide answers to the research questions and success the research objectives set out at the beginning of the research. The finding of this study provides evidences in three distinct perspectives: implementation stages, adoption, and infusion of ABC and in these arias are tested three major contextual facÂtors: environmental factors, technological factors, and organizational factors. Thus, the next three sections discuss the results related to three major contextual facÂtors: environmental factors, technological factors, and organizational factors. Next section provides discussion on relationship between implementation stages, adoption, infusion of ABC and organizational performance. The next section presents the implication of study, and discuss about both theoretical and practical implications. This is followed by the discussion on the study's potential limitation. For overcoming such limitations, several suggestions are presented for future research. Finally, in the last section conclusion, the finding of overall study is highlighted.
6.1. Technological factors and ABC
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1) Level of information technology quality (IT): there is weak support for relationships between the IT and ABC implementation stages, and also IT and ABC infusion, in this line hypothesis 10 was also expected the positive relationship between ABC adoption and IT. For instance, it is found that IT to be negatively related to ABC adoption. This finding supported by literature (e.g. Cagwin and Bouwman, 2002; Maelah and Nasir Ibrahim, 2007). It seems firms in high information system quality that are satisfied with information provided from existing system might be reluctant to invest their resources in adopting ABC system but after adopting ABC IT does not play significant role for going to higher implementation stages of ABC and infuse ABC. Although, the negative significant of IT was opposite what was previously expected. It seems that many firms that have not reached the adoption stage have also invested in a large amount of IT. Perhaps too much IT takes the focus away from adopting ABC. These results suggest firms without high IT maybe more able to reach the ABC adoption stage.
2) Level of product diversity (DIVER): the results suggest that there are positive and significant indirect effect between DIVER and ABC implementation stages, and also DIVER and ABC adoption. This suggests that as product diversity is high, the firms make greater adopting ABC and also they are motivated to meet higher stage of ABC implementation. These finding supported by many researchers that believed that one of the primary reasons that firms need more accurate costing systems such as ABC is product diversity (e.g. Bjørnenak 1997; Clarke et al., 1999; Krumwiede, 1998b; Cagwin and Bouwman, 2002; Brown et al., 2004). The result suggests that product diversity increased the firms are more likely to using ABC system. In current study DIVER relates to the variety of product are manufactured by a firm. It seems traditional cost systems has some weakness (e.g. distorted the cost of products) and this weakness in divers environment will be increase. So for overcoming this weakness the firms that produce more than five products tend to be more likely to use ABC than firms with fewer products. But evidence shows DIVER does not affect ABC infusion. Krumwiede (1998b) found similar result. It seems catch the final stage of ABC (infused stage) is an internal challenges which effected by other variables.
3) Level of overhead (OVER): it was previously expected positive relationships between level of overhead and ABC, however, there are three different results for relationships between OVER and implementation stages, adoption, and infusion of ABC system. OVER play three rolls: in implementation stages dimension, OVER does not play role, in ABC adoption OVER play positive significant role, and OVER effects infusion of ABC negatively. This finding supported by theory that indicated a variable may have different effect on ABC implementation stages suggested by Cooper and Zmud (1990) .The measure of OVERE involved with the firm's cost structure and percentage of overhead calculated and applied as a measurement. The result suggested the firms with high OVER are more likely to adopt ABC. Kaplan (1991) believed that the overhead allocation system distort the cost in traditional costing systems. Krumwiede (1998a) argued that in low level of overhead cost is a lower potential for cost distortions, and in this condition, the benefits of ABC may be limited. In high level of overhead, potential for cost distortions is high. ABC may reduce product cost distortions substantially; however, this condition might push firms to adopt ABC system. In contrast firms with low OVER are more likely to complete adoption process and meeting infusion stage. So it seems the difficulties for finding accurate cost driver within adoption stages cause negative influence to intent infusion ABC (last stage). Because of weakness of traditional costing system to allocate overheads accurately, higher levels of overÂhead is the primary reason for changing the traditional costing system to new systems such as ABC. As shows by the descriptive statistic, in the component of cost, 52.7 percentages of firms have more than 20% overhead. Many researchers found that the percentage of manufacturing overhead expense have increased in recent decades. Because allocate method in traditional costing system is not accurate, higher levels of overÂhead is the primary reason for changing the traditional costing system to new systems such as ABC (Narong, 2009; Xiong et al., 2008). Furthermore, many researchers found that the major difficulty faced by adopting ABC successfully was determination of cost drivers and developing an activity dictionary and cost drivers (e.g. Khalid, 2005; Anand et al., 2005). They indicate that the higher the degree of OVER, the higher difficulty is for finding cost drivers is. So it seems the difficulties for finding accurate cost driver within adoption stages cause negative influence to intent higher stages and meet infusion ABC (last stage).
6.2. Environmental factors and ABC
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1) Due to expletory factor analysis for PEU, three component factors were extracted. Factor 1 was relevant to the industry called as "perceived environmental uncertainty-industrial" (PEU-IND). Factor 2 was relevant to the financial/capital markets named as "perceived environmental uncertainty-financial" (PEU-FIN). And finally factor 3 was relevant to the economic situation called as "perceived environmental uncertainty-economical" (PEU-ECO). As shows by the descriptive statistic, in highest PEU is in perceived environmental uncertainty-industrial (mean = 3.6296) and the lowest PEU is in perceived environmental uncertainty-financial (mean=3.3963). PEU in all factors are more than average (3.00), and stand in unpredictable condition, it means the economical activities of Iran are surrounded by high level of perceived environment uncertainty (PEU). In this condition the firms cannot predict future so it seems they are not motivated to implementation ABC or others new accounting innovation systems.
There is strong support for hypotheses13. Perceived environmental uncertainty appears to play a major role in the decision to adopt ABC. The results suggest that firms which face lower PEU tend to use more ABC. Three damnations of PEU measurement are based on estimating the predictability in many aspects included: firm's suppliers, competitors, customers, financial/capital markets, government regulatory, labour unions, and economics, politics/technology. There are negative and significant relationships between all three damnations of PEU and ABC adoption, indicating the lower the degree of PEU, the higher intent for adopting ABC is. This result indicated in an unpredicted condition such as Iran, firms are not motivated to apply and adopt a new innovation system such as ABC. Maybe the low rate of using ABC in Iran (6.91 %) can be explained with this finding.
In implementation stages analysis, as figure 5.2 shows, PEU- FIN has negative significant effect for involving in stage 3. It means from stage 1 (Not considered) to stage 3 (Initiation/evaluating) unpredicted condition in financial/capital markets aspect, abounding firms to evaluate ABC system. PEU-FIN is significant for infusion ABC, but it has positive effect. This result indicated that after firms adopt ABC system, the higher PEU-FIN motivates them to finish the implementation process and involve to last stage (used extensively) or final goal. Maybe they need to use ABC as main system cost accounting system to improve
These results are consistent with Anderson (1995) who indicated that environmental uncertainty promotes ABC adoption. Meanwhile, these results consist with adoption of other management accounting innovations system. For example recently Ax et al., (2008) found that the adoption of target costing was correlated with the level of PEU. The result show evidences that perceived environment uncertainty (PEU) plays an important role in implementation stages, adoption, and infusion of ABC. This result bridges such gap and extends to the existing literature on ABC study. Perceived environmental uncertainty appear to play a major role in the decision to adopt and affect to higher implement stages of ABC It is also important to note that Iranian environment seems to be as uncertain as the other country's environment highlighted in the literature. In relation to this, Heidari & Bashiri, (2009) noted that Iranian firms faced with an uncertain economic environment. Perceived environmental uncertainty is rather high, indicated by high mean score and standard deviation (3.89 > PEU > 3.02), indicate that Iranian environment is unpredictable. Such condition could result in managers having less access to information needed to make decisions and cannot assign probabilities to the outcomes of the decisions. Given the high uncertainty in the Iran environment, managers are not able to predict external environment accurately. The finding suggests that under uncertain conditions, manager (maybe for reducing the risk of the changing system) does not provide resources for implementing new innovation system such as ABC.
2) Level of competition (COMPT): competition refers to the degree of competition a firm faces in a particular market. There are strong supports for hypotheses 5 and 13. There are positive and significant relationship between level of competition and implementation stages and adoption of ABC, point out the higher the degree of COMPT, the firms make greater use of ABC in order to avoid any costing errors. These results are consistent with Cagwin and Bouwman (2002) who indicated that non-competitive situations such as oligopoly can lead to use traditional cost accounting than with ABC. Malmi (1999) argued that in competition influences the requirement of accurate cost accounting information because in highly competitive industries mistakes made while relying on the wrong cost information are likely to be exploited by competitors immediately. On the other hand, Anderson and Young (1999) believed that new cost data are most valuable when competition growth and cause firms to focus on cost reduction and the firms which face heightened competition. Anderson (1995) supported that increased comÂpetition creates pressure to reduce product costs.
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3) Business strategy: the accounting literature suggests that firms use particular accounting system, is depending on which strategy they adopt. Based on Gosselin (1997) suggestion, this study examined the degree to which firms emphasize each of the business strategy types proposed by Miles and Snow (1978 ). This typology identified four strategic types of organizations according to the rate of change products and markets: prospectors (STRA-P), defenders (STRA-D), analyzers (STRA-A), and reactors (STRA-R). Prospectors are characterized by their dynamism in seeking market opportunities. Defenders have a strategy which is the polar opposite from prospectors they operate within a narrow product-market domain characterized by high production volume and low product diversity. Analyzers stand between these two categories, sharing characteristics of both prospectors and defenders. Reactors do not follow a conscious strategy. As shows by the descriptive statistic, the highest Business strategy is reactor (32.4% of total firms) and the lowest is prospector (19.1% of total firms). For analysis three dummy variables were used for business strategy and (STRA-R) is considered as a reference group.
Implementation result shows the analyzer firms are more motivated for going to higher stages of ABC. Hypothesis 6 indicates that From Miles and Snow's typology of strategy; prospectors are more likely to be in higher stages of ABC implementation stages. The result suggests that although the firms in higher stages of ABC implementation employed a particular strategy but they are more likely to be analyzers. Analyzers stand between two categories, sharing characteristics of both prospectors and defenders. Hypothesis 15 indicates that from Miles and Snow's typology of strategy, prospectors are more likely to be ABC adopters than other types. The result suggests that ABC adopters firms are more likely to be analyzers not prospector. In contrast, the result indicated that for meeting the last stage (ABC infusion stage) firms no need to employ a particular strategy.
Although, the result were not support all hypotheses related to business strategy, it shows analyzers strategy with sharing advantages of both prospectors and defenders are better condition to adopt ABC system. It seems in uncertain environment that Iranian firms faced, analyzers firms have more tolerate and they can predict necessary elements to make ABC adoption decision, and going to higher ABC implementation stages. These results suggest firms with analyzer strategy maybe more able to reach the ABC adoption stage.
6.3. Organizational factors and ABC
1) Firm size: SIZE is measured as the level of annual sales revenue of the respondent's firms. SIZE tested in three analyses including: implementation stages, adoption, and infusion ABC. The results suggested there are positive and significant relationship between SIZE and implementation stages, adoption, and infusion of ABC. As expected, the larger the company, the more likely it is to adopt ABC, and succeeding to higher implementation stages even last stage (stage 7 infusion stage). Larger companies may also have more resources (e.g. people and money) to invest for innovations like ABC. Krumwiede (1998b) found that SIZE was a significant variable in the adoption analysis, but it did not appear to be significant for infusion analysis. But this study found SIZE plays positive major role in both adoption and infusion ABC. There are a number of reasons why large firms are better candidate for adopting and infusing of ABC. Bjørnenak (1997) believed that large firms have the required resources, such as time, funds, and personnel to finance the infrastructure and, therefore, are more capable of adopting ABC. Additionally, incorporating ABC into operations is costly and, therefore, large firms with economics of scale are more likely to afford the implementation of ABC. According to Van Nguyen and Brooks (1997) larger firms are more likely to have greater access to individuals with the knowledge to design and implement ABC.
2) Top management support (TMSUP): Because the top management support have connection with firms that have begun adoption ABC, they are not considered for the early adoption ABC, and they only tested for infusion analysis together with both technological and environmental factors. The literature has identified that if top management support the adoption of ABC, the risk of the project is reduced, access to resources is increased and reducing project uncertainty and thereby making adoption is easier. As expected top management support has positive and significant effect on infusion ABC. Anderson and Young (1999) found that local management support is positively associated with top management support and that local union support of the ABC project is positively associated with local management support. Recently, Dosch and Wilson (2007) found that one of the three most important success factors to ABC implementation was top management support. Shields (1995) argued that the role of top managers' support for ABC implementation success is important because, amongst other things, they "can deny resources for innovation they do not support, and provide the political help needed to motivate or push aside individuals and coalitions who resist the innovation"
3) Level of training: Because the Level of training have connection with firms that have begun adoption ABC, they are not considered for the early adoption ABC, and they only tested for infusion analysis together with both technological and environmental factors. The lack of significance for relationship between training and ABC infusion is also surprising. This variable tested only in adopters firms so it seems the relatively small sample size for the infusion analysis failed to play significant role. Krumwiede (1998b) suggested negative effect of train on ABC infusion. Maelah and Nasir Ibrahim (2006) did not found influence of training on ABC adoption. They argued that most of the ABC adopters firms were at the initial stage of ABC implementation. Therefore, the training in relation to ABC was not appearing as an important factor among these organizations.
6.4. Organizational performance
There are strong supports for hypotheses 9, 17, and 27. There are positive significant relationship between ABC implementation stages, ABC adoption and infusion and organizational performance (financial and non financial). The theory of diffusion of innovations suggest that organizations adopt an innovation such as ABC to obtain benefits that directly or indirectly impact organizational performance (financial and non financial). The results provide evidence on the role of using innovation accounting systems, such as ABC, to improve financial and non financial performance. Many researchers provide empirical evidence that the adoption of ABC significantly improves organizational performance (e.g. Cagwin and Bouwman, 2002; Kennedy and Affleck-Graves, 2001; Frey and Gordon, 1999; Clarke and Mullins, 2001) but there is limited number of research on ABC infusion and organizational performance. In current study ABC infusion is measured as a meeting the last implementation stage (stage seven) and a multidimensional performance measurement is conducted for measuring level of organizational performance. Two types of performance measures are typically used to evaluate a firm's performance: financial and non financial measures. Hussain (2003) asserted multidimensional performance measures improve the performance measurement.
Some researchers named infusion ABC as an ABC success while adoption is means apply ABC and start to implementing and using this system. Meanwhile, testing ABC infusion shows the clear imaging of ABC adoption success. Regarding the benefits of ABC, however, are most important evidences which indicated that ABC user increased profits and obtained more performance.
6.5. Implications of the study
The results of this study have both practical and theoretical implications. At the level of theory, the primary relevance lies in its examination in three distinct perspectives: implementation stages, adoption, and infusion of ABC.
6.5.1. Theoretical implications
The current study attempts to contribute to the theoretical body of knowledge in fields of cost accounting, performance measurement systems, strategic management, as well as management accounting innovation systems with theoretical implications. The finding can explain some aspects of organizational change theory by addressing evidences in three distinct perspectives: implementation stages, adoption, and infusion of ABC. The main contribution is conceptualization of perceived environmental uncertainty (PEU) and its investigated result that indicated influences of PEU on implementation stages, adoption, and infusion of activity-based costing (ABC). This study identified the PEU as a most important determinant for reaching the adoption and infusion of ABC. The potential for management accounting literature (MAS) to inform ABC implementation research is highlighted by this study. In addition, this study contributes to the literature regarding to applied multidimensional performance measures and test relationship between ABC adoption, infusion, and implementation stages and firms financial and non financial performance.
Furthermore, the study contributes to the strategic management literature with providing evidences concerning the identification and measurement of Miles and Snow's strategy typology. Finally, this study contributes to the accounting innovation literature concerning investigate combination effect of certain contextual factors: level of competition, level of information technology quality, level of product diversity, level of overhead, perceived environmental uncertainty, business strategy, and firm size on implementation stages adoption, infusion ABC.
6.5.2. Practical implications
From finding of this study, there are implications in three practical arias: ABC system designs, business strategy usage, and organizational performance condition. Regarding the ABC system designs, focus on factors that influence ABC adoption and infusion will provide useful results for firms who are interested for applying ABC. Based on the finding of this study, organizations in high rate of positive characteristics, as the good candidates for applying ABC, maybe improve their cost accounting methods by adopting and infusing ABC system. Moreover, firms who are interested for applying ABC may get guidelines by knowing the factors which ABC adoption is related to them.
In the respect of business strategy usage, the finding provides evidences that business strategy is a key element in the design, and use ABC system. This study found the degree to which firms emphasize each of the business strategy types proposed by Miles and Snow (1978 ) and relationship of their strategy with implementation stages, adoption, and infusion of ABC. Based on the finding of this study, firms that chose business strategy-analyzer are good candidates for applying ABC. Thus these companies may be concerning for using ABC to develop their cost accounting system. Furthermore, the most important finding of this study is adopting and infusing ABC system improves both financial and non financial organizational performance. Based on this finding, firms may motivate to applying ABC to improve their organizational performance.
As with any research, this study has many limitations that must be cited. The following limitations are the most relevant. First the choice of sampling frame is one of limitation in two aspects. This study covers only manufacturing sectors selected from Tehran Stock Exchange (TSE) and results of the study also need to be generalized with caution. There are any generalizations of the results to other sector (e.g. distribution, retail, services, transportation, and others).In this case future research should consider other sector such as service and non-profit sectors, government organization in order to get better understanding the ABC system and its application. Further, the actual population of manufacturing firms in whole Iran was not considered. In this case, future research should investigate across geographical regions in Iran to overcome the limitation of small sample size.
Second, although the response rate was fairly high at a level of 44%, there is no way to know for sure whether the non-respondents are different than the respondents. Several tests were performed to attempt preventing this problem. However, we cannot conclude that respondents are adequate alternative for the whole population of manufacturing listed on TSE. For future research suggested that uses both questionnaire survey and case study methods to avoid this limitation.
Third, all variables scores focused for measuring the respondents' perceptions. Thus, the measures are more subjective than other possible types of information. Future research should use secondary data for measuring some variable such as firm size, diversity, and performance to order gathering objective data.
Next, the decision-making processes are quite complex and probably related to additional factors which are not tested in this study. Surveys are limited by a lack of other contextual factors and also verbal exchange. In this case, future research should clarify the relationship between international PEU perception, entry mode strategy and ABC adoption.
Next, a survey approach enhances the external validity of the findings, but for further improved it should be better to conduct follow-up interviews if it been possible.
Finally, in this study the overhead cost assumes as an independent variable and its measurement was more subjective, future research should place a greater concern for overhead cost and its measurement.
Activity-based costing is a most important accounting innovation, it was developed for overcoming the product cost distortion that caused by using of traditional costing system (TCS), and researchers have agreed that ABC allocates overhead costs more accurately than TCS. In fact, the potential offered by the study may well exceed the other accounting innovations.
ABC has gained increasing performance and awareness throughout the manufacturing firms. Regarding the benefits of ABC, however, are most important evidences which indicated that ABC user increased profits and obtained more performance. In current study Logit analysis was evaluated the effects of several contextual factors on adoption and infusion ABC. These factors classified, namely, technological, environmental, and organizational factors. Moreover, t-test presents the improvement of firm's performance in adoption and infusion ABC. The primary focus of this work is not to develop new theatrical procedures to adopt ABC system, but to explore how this model would work when the environment and the factors combination are changed.
Three models are developed to capture the effect of certain factors on length of using ABC. Adoption model investigate the influences these factors when ABC is used occasionally, while in infusion model ABC is used extensively. Moreover, ABC implementation stages model attempt to find the different effect of this contextual factors on different stages.
This study fallow the theory that used by the most of ABC adoption research, which has called information systems (IS) innovation theory. ABC is defined as a management accounting innovation, and it is considered as an administrative innovation (versus technological innovation).This study is an innovation research, tried to explain implementation process by using a factor-based approach (versus a contingency approach).
This study find evidence that perceived environment uncertainty (PEU) plays an important role in implementation stages, adoption, and infusion of ABC. PEU estimated the level predictability of seven sectors and measured on a seven-point Likert-type scale (varying from "highly predictable" to "highly unpredictable"). It is also important to note that perceived environmental uncertainty in Iran in all sector were more than mean (3.89 > PEU > 3.02) indicated the unpredictable environment surrounding economical activities in Iran. The findings suggest that under uncertain conditions, manager does not provide resources for implementing new innovation system such as ABC.
The results also provided evidence on the role of using innovation accounting systems, such as ABC, to improve financial and non financial performance.