The need for management accounting innovations

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After the huge changing in the environment and shifting from direct labour to using technology by most of companies in their works. This led to increase of overhead rate and distortion in products cost, and this make traditional costing system unable to calculate accurate cost of product and service and the information from this system became much aggregated and too late to be suited for decision makers (Johnson and Kaplan 1987; cooper 1988).

Johnson and Kaplan (1987) suggested that the revolution of origination and Technology of production processes need revolution in cost accounting Systems for instance using activity based costing system, With respect to research relating to the adoption and implementation of management accounting innovations (such as ABC systems) it is important to know the theories derived from the adoption and diffusion of innovation literature. Insights into how and why innovations diffuse across firms provide an insight into all factors facilitate motivitate and faced the implementation and diffusion of ABC systems.

Previous studies such as (Bradford and Kent, (1977) defined the diffusion as a method or process by which an innovation is communicated through certain channels over time among the members of a social system. Diffusion is a special type of communication concerned with the spread of messages that are perceived as new ideas, but they defined the innovation, as "a new idea or old idea perceived as new by the individual or other unit of adoption, from above two definitions can defined the Diffusion of Innovations is a theory of how, why, and at what rate new ideas and technology spread through cultures. (Rogers 1964).

first appearing to Diffusion of Innovations theory was in 1890 by the French sociologist Gabriel Tarde also Earl Pemberton who provided examples of institutional diffusions such as postage stamps or compulsory school laws, The publication of a study of Ryan and Gross on the diffusion of hybrid corn in Iowa was the first sustainably visible contribution in a broader interest in innovations which was especially popularized by the textbook by Everett Rogers (1962),

Diffusion of innovation theory has been studied from wide range of perspective across many disciplines at individual, organisational and societal levels. This studies have attempted to collect more information about the pattern of adoption (Abrahamson, 1991) and the organizations characteristics of early and late adopters (Rogers, 1985) and the characteristics which differentiate between those innovations that are adopted activity based costing system and those that are not widely adopted (Mohr, 1982),and the barriers of the adoption and implementations(Clarke 1999), Studies have also researched the adoption and implementation processes, this research to justify and drown the relationship between creating the innovation and it is implementation.

Type of innovation

Numerous studies such as (Aitken et al. 1980;Zmud 1984;Damanpour1992) suggested that the distinguishing between the innovation types is very important, because this innovation have different attributes, also their processes of adoption are not the same and the factors or variable which effect to this type are different, Evan(1966) mentioned two types of innovation technical and administrative innovations, technical related to the basic work activity of the company, and administrative innovations which are Related to company structure and administrative processes of the company and more directly Related to its management, most of the previous studies focused to the technical innovation more than administrative innovations (Daft 1978; Aiken et al. 1980) said that technical innovation adoption rate was higher than administrative innovation adoption rate.

Researcher mentioned Other types of innovations such as process, product ,radical and incremental innovations, Process innovations contain of new elements in the company process for example task specifications, input materials and information used to produce a product or support a service, Product innovations relate to New products or services to meet market require, Finally, radical innovations are those that represent fundamental changes in the activities of the company and represent clear departures from existing practices, (Utterback and Abernathy 1975 ;Dewar and Dutton, 1986).

Elements of diffusion innovation theory

Roger (1995) Definition of diffusion contains four elements in the diffusion of new ideas this elements are:

1- The innovation

2- Communication channels

3- Time

4- The social system

The innovation

The researcher who concerned by diffusion innovation theory such as roger 1995; Askarany and Yazdifar 2007) explained five attributes to determine Why do certain innovations spread more quickly than others? Or to know which attributes will determine adoption rate of an innovation's? This characterized are: -

Relative advantage

this attributes try to know to which degree the new innovation can gain relative advantages to the company, or can defined the degree to which it is perceived to be better than what it supersedes, Rogers (2003) said that the relative advantage of an innovation can be measured by using some tool such as task done quicker, task easier, can improve the quality of service, task more effectively and, can achieve greater control over work processes.

Compatibility this attributes try to know to which degree the new innovation is consists with existing values, past experiences and needs of potential adopters, roger (1995) claimed that any innovation or new idea, the adoption rate for incompatible innovation with the values and norms of a social system will be slowly and less than an innovation that is compatible.

Complexity this attributes try to know to which degree the new innovation can be understood for the members of social system, roger (1995) said that if the new innovation was easy to understood and use, this mean that it will be adopt more rapidly than innovations that require the adopter to develop new skills and understandings, roger 1995) added that the peoples are different in their abilities to understand any new innovations or idea.

Trialability this attributes try to know to which degree the new innovation can be experimented with on a limited basis, or refers to the possibility of implementing the innovation on a trial basis before full implementation (Rogers 1995, 2003), also he claimed that New innovation that experimented with on a limited basis, in generally it will be adopt more quickly than innovations that are not trial.

Observability to those people within the social system, this attributes try to know to which degree the results of an innovation or new idea are visible and clear for all members in the social systems or other peoples, Moore and Benbasat (1991), said if the benefits of innovation are clear, can be easily reported, and if the adoption or using the innovation will enhances the profile and reputation of the company, this will encourage the other such as friends and Neighbors to adopt it.

2- Communication channels

Communication is the process which can allow for participants to share their information with one another in order to arrive to new idea or understanding, but the communication channel is the means by which method can send or exchange the information. Roger (1995) said that interpersonal channels are more effective in forming and changing attitudes toward a new idea, and thus in effecting the decision to adopt or reject the innovation, But Mass media channels are more effective in creating knowledge of innovations, and it is influencing to adopt or reject innovation or new idea is less than the interpersonal channels, because the personals evaluate any new idea through the opinions of near-peers who have adopted the innovation.

3- Time

Time contains three elements influencing to the innovations this three type as follows:

innovation-decision process

this factor or process contain from five steps to adopt the innovation passes from first knowledge of an innovation to confirmation and evaluates the results of an innovation-decision already made, and this steps as follows:-

(a) Knowledge - in this step the participants become aware of an innovation and how it Works.

(b) Persuasion - participants forms agree or non agree attitude toward the innovation

(c) Decision - person participate in activities that lead to a choice to adopt or reject the


(d) Implementation - participants start using an innovation in the organizations.

(e) Confirmation - person evaluates the results of an innovation-decision already made

Relative time with which an innovation is adopted by an individual or group.

Innovativeness is the degree of adoption by the company or units is relatively earlier in adopting innovation than other members of a social system. There are five adopter categories, or classifications of the members of a social system on the basis on their innovativeness:

(1) Innovators :- this type of innovators like the Venturesomeness and they are willing to take risks ,so Innovators are the first individuals to adopt a new idea , roger (1995) said they usually youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to scientific sources and interaction with other innovators, the innovator plays an important role in the diffusion process because they get new ideas to system and this will support the system.

(2) Early adopters:-

Roger (1995) said that Early adopters are a more integrated with the system or innovation than are innovators. Whereas innovators are cosmopolites, early adopters are localities, this type is second fastest category of adopters who adopt the new idea after the innovators, these individuals have the highest degree of opinion leadership among the other adopter categories, And they are typically younger in age, advanced education, have more financial lucidity, and are more socially forward than follows late adopters.

(3) Early majority:-

In this categories Individuals will adopt the new idea after a varying degree of time, more than the innovators and early adopters, usually they slower in the adoption process, and the usually do contact with early adopters to collect some information, and show some opinion leadership.

(4) Late majority:-

In this category the Individuals will adopt the new idea or innovation after the average member of the society, this type of adopter will be late because they have a high level of skepticism, about an innovation, and usually they have very little financial lucidity, below average social status, in contact with others in late majority and early majority, very little opinion leadership.

(5) Laggards:-

In this category Individuals are the last to adopt an innovation. Individuals in this category are different about the previous categories, because they show little to no opinion leadership. These individuals usually hate the change to any new innovation also they advanced in age. Usually they focused on "traditions and they have lowest financial fluidity, lowest social status, oldest of all other adopters, they just contact with their family and their close friends, and very little to no opinion leadership.

Innovation's rate of adoption.

This is third way in which time is involved in diffusion is in rate of adoption, the adoption rate is usually known or measures by know the number of members of the system that adopt the innovation in a given time period.

4- The social system

A social system is defined as interrelated group that are participate to solving same problem to establish a common goal. The members of a social system may be Contains individuals, informal groups, organizations, and/or subsystems,

Diffusion of innovation model.

Source: Rogers (1995)


2.4The different perspectives applied to innovation research

Innovation diffusion has been studied from a wide range of perspectives. As we mentioned before study on the diffusion of innovations relating firstly to medical drugs (Coleman et al., 1966) and new teaching methods, researchers such as (Cärlson 1965) suggested that many innovations diffuse in a like patterns. Wolfe (1994) after he read or searches the organisational innovation literature he found that most of this literature, is contain of three visible streams which developed somewhat sequentially. These three streams are concerned with the general phenomenon of organisational innovation. But the researchers focused differently to this streams Content with their research topic and their different questions. The three perspectives of research are:

1. Diffusion of innovation research (DI);

2. Organizational innovativeness research (OI),

3. Process theory research (pt).

The major aim to diffusion innovation theory is to speak, clarify or predict rates and patterns of innovation adoption over time and/or space. The research question is "what is the pattern of diffusion through a population of possible adopter organizations? the diffusion innovation try to know the innovation attributes which presumed effecting innovation (e. g. relative advantage, compatibility and complexity), and to segment the adopters who have different characteristics which may be determine their decision to adopt such as innovators, early adopters, early majority, late majority and laggards (cooper and Zmud; 1997 ).

Rogers (1985).said that the adoption decisions will start slowly at first, and the number of adopters will be not high because the uncertainty about the results of the new Innovation. After this stage the price of the new technology will be drop and the innovation establishing will be cheap this will causing a surge in demand (Attewell, 1992), And the number of adopters increases rapidly, because many firms will start adopting this innovation as other firms and the contagion will be very wide . In the final stage the adoption the innovation will arrive to Saturates case and the number of new adopters will decrease

Jensen, (1982). Argued that diffusion innovation theory fails to provide behavioral explanation of why some Firms are quicker to adopt than others because this theory focuses on innovation at the aggregate level. And it does not give any concern on the individual organization adoption decision. In the other side, Organizational innovativeness research objective is to discover the factors that determine an organization's tendency to innovate. OI theory will focuses to the individual firm as a unit of analysis. The research question is, "What determines organizational innovativeness?" Early adopters are contrasted with late adopters to generate a list of factors that relate to early adoption.

most of organizational innovativeness have concerned in the variance issues in dependent variable, organizational innovativeness, the dependent variable, has usually been operationalised as a compound achieve based on the number innovations adopted by the company . firm size, production type intensity of competition have been linked to innovation adoption, innovation champions inside the company profitability of an innovation, degree of centralization in the company , and proportion of specialists (Kimberly and Eviansko, 1981; Wolfe 1994; Bjornenak 1997; Krumwied 1998).

Process theory research of organisational innovation tries to explain and clarify the nature of the innovation process. Unit of analysis of process theory research is the innovation process itself. This theory try to found answer the research question what are the processes organizations go through in implementing innovations to determine organisational innovativeness? This theory tries to answer why and how innovations emerge, grow, develop and probably end.

Researches in process theory involves a two track, first track is called `stage model Research' and conceptualizes innovation as a sequences of stages that unfold over time. The reason is to decide whether the innovation process contain particular stages and, if so, what are this stages and what their arrange in the model. The second track is Process research. This contain in depth, longitudinal, research that is made to describe fully the sequences of, and the factors which influence to innovation Processes. This research often involves theory building and qualitative data collection. (Wolfe1994)

Cooper and Zmud (1990) they adopted the process theory adoption and implementation model in IT implementation process, it is categorized as six sequential stages: initiation; adoption; adaptation; acceptance; reutilization; and infusion, also they based in the IT stage model to describe each stage of ABC implementation process.

Source: Cooper and Zmud (1990)

Initiation: - this stage occurs when the company feels at the traditional cost allocation problems, this will do pressure to change from TCS, and there is possible to use ABC.

Adoption: - this stage happens when there is approval from top management to implementing ABC and involves a decision to invest the resources necessary for implementing.

Adaptation: - in this stage ABC will develop and installs this mean the implementation team will analyses the costs and links them to activities. Then, identify cost drivers and to trace these activities to outputs, such as products, service.

Acceptance: - organisational members induced to commit to IT application usage, and the IT application will employed in the work.

Routinization: - in this stage ABC will use as a part of normal activities in the company and it will use by different departments outside the accounting/finance function for decision making.

Infusion: - In this stage, ABC will integrated with other organisational systems and the organisational effectiveness increases by ABC using advantages.

Anderson (1995) used the first four stages of the cooper and Zmud (1990) stage model as a structure for describing the implementation of ABC by case study at the general motors ,he find evidence supporting the theoretical model. And he found that technological factors impact on the successful implementation of ABC. The search for factors that influence ABC implementation success was guided by the information technology (IT) and organizational change literatures, as well as subjective evidence of factors that influence the success of ABC implementation.

Bjornenak (1997) suggested that diffusion of innovation research give an explaining and answers of how and why an innovation diffuses over time. In other side organisational innovativeness tries to determine the differentiating uniqueness that separate between early and late adopters and process theory research helps to distinguish the stages and processes contain in organizational innovation.

Alternative explanations of innovation diffusion

Abrahamson (1991) concluded that there is different perspective to diffusion innovation the most popular perspective is Pro-innovation biases, Pro-innovation biases are presumptions said that any new innovation will diffuse if this innovation achieve benefits to the organisation, he argued that new innovation will disappear if the organizations found it not beneficial, Abrahamson oppose this idea because there is many firms may adopt new idea without expected benefit or it may be reject beneficial idea, he assign to four perspectives may take the role when the firms will imitate other firms decisions to adopt technically inefficient administrative technologies or imitate other firms decisions to abandonment technically efficient technologies. These four perspectives are



Fashion; and



Under this perspective the level of uncertainty About the aims of an company or the measurement of the technical efficiency Of an innovation will be very little. In these conditions companies will sensibly choose the innovation that will allow them to achieve their aims, this theory appeared to cover the Performance gaps which are appear between companies aims and what it can achieve (Abrahamson, 1991), also Maluri (1999) suggested that the rapidly changes in the Environmental will cases performance gaps in the company . Companies with similar goals be likely to Respond to the performance gaps by implementing the same efficient administrative technology (innovations). But companies which do not encounter these gaps, or have different goals, will do not implementing these new innovation or technology Innovations are adopted when they help to decrease performance gaps Which found as a result to the changes in the new environment(Abrahamson, 1991), or when they aid to accomplish the management's requirements. As this theories which based on the efficient-choice perspective Companies decide the adopting and rejection of innovations themselves. Therefore, their behavior is not imitative.

The forced-selection perspective

Under this perspective, a number of companies control enough power can force other companies to adopt or diffuse a new administrative technologies crosswise companies. These influential companies may have an attention in forcing a technically inefficient administrative technology to adopting or an efficient technology to be abandonment, regardless of companies' confrontation to adopting or rejecting this new innovation.

based on this perspective Theorists argued that the legitimate authority of government allows them to force the diffusion of innovations, For instance based on forced-selection perspective accountancy professional will determine which is the best method for cost allocation, pricing decisions, inventory valuation and income measurement, Malmi (1999) suggested that forced selection assumes that adopting companies face a situation of no option; their motives play no function in illumination the diffusion and rejection of innovations.

The fashion perspective

According to fashion perspective, organisation will try to imitate other companies outside the organisation group circumstances of uncertainty linking to aims and technical Efficiency, under this perspective also the organisation will concern with which strong or superior companies they must imitate, and their concern with the innovation which they tend to adopt will be very little, Although Fashion setters do not have coercive authority to force companies to imitate or go after them. Their capability to influence stems from their capacity to motivate companies to trust their option of innovation and follow them. The administrative technologies created by fashion conditions companies may or may not be efficient.

Therefore, they may encourage the adoption of efficient technologies and rejection of inefficient technologies. On the other hand, they may choose only those that they think they can market profitably, despite of how technically efficient they can be in companies.

The fad perspective

Under fad perspective diffusion of innovation will adopted when companies within a group follow other companies within that group, and this differ about fashion perspective which occur when the companies follows other companies that be located in outside the group. Companies imitate other companies in order to show legitimate by compliant to developing norms (DiMaggio and Powell, 1983; Malmi 1999) or to keep away from the risk that competitors will achieve a competitive advantage by implementing the innovation (Abrahamson and Rosenkopf,1990) fad process condition that companies that are low on certain characteristics will follows the Companies innovation that have reputations more than their possess (Abrahamson 1991).

Also Abrahamson and Rosenkot (1993) gives another explanation to fad process is that companies inside a group may face bandwagon pressures. Which are diffusion processes will forward companies to adopt an innovation, because of a bandwagon pressure caused by the sheer number of companies that have implemented the innovation not because of their individual appraisal of the innovation's efficiency or returns

Previous studies suggested to stages to fad perspective which encourage the innovation to diffuse firstly rational decision-making will control, in this stages the organisation will adopt the innovation after appraisal of the technical efficiency. The second stages return to bandwagon effect this happened when group of companies that compete with each other have adopted the innovation this will encourage non adopter to adopt the innovation by imitate this companies because the value of this innovation will increase. also and the stakeholders requirement will cases pressure to adopt the innovation, Non adoption can provide increase to the guess that management of the company does not put sufficient Targeted aims and is not able to discover ways to attain these aims efficiently This can push them to end their contribution to the company, with all the negative penalties. (Meyer and Rowan, 1977).

Malmi (1999) suggested that although the fad or f fashions' have negative Connotations, and it is do not build rational decision, he said that innovation adoption within a groups does not of necessity take the term of a fad. Perhaps, over the time, information is exposed from early adopters that help late adopters to adopt an economically rational decision in a technical economic sense.

Diffusion innovation supply side

There are two sides to diffusion process demand side and supply side researchers such as Bjornenak (1997) said that most organizations require persuasion to adopt an innovation, that is, awareness and expression. For example, the first position of adopters or consultants may take on important function as drivers of the diffusion process. He also forwarded attention to importance of the different resources such as books, articles, Media seminars and conferences as an infrastructure in the diffusion of an accounting may be used to tell and convince possible adopters.

Abrahamson (1996) said that is appositive association between the number of publications and the innovation, he suggested that an increase in the number of publications should precede and Escort the take-off of an innovation. However Malmi (1999) suggested that researchers must incorporate both the supply and demand side to interpretive the diffusion process.

Diffusion of innovation literature applied to ABC empirical studies

Few studies in the literatures described the diffusion of innovation as ABC, for example Malami (1999) study conducted in finish companies his aim was to arrive to the ABC adoption rate through the period 1986-1995, and identified three phases, the initial phase , the take-off phase and later phases representing the period after 1992 . Malami tries to discover which the factors influencing to the ABC adoption decisions. He examined nine motives contained six efficient-choice factors, one forced selection factor and two fashion and fad factors.

Malmi arrived in the initial phase that most factors return to the efficient-choice group. He also studied the supply side and arrived that consultants do not have important position in the initial phase. In that time he found no education and courses about ABC, in addition, there was no appropriate software for ABC, no local firms to imitate and a lack of knowledge and awareness of ABC therefore, the adoption rate do not return to the fad or fashion perspectives in this initial phase, Malmi Found that most of the adoption decisions were adopted by efficient-choice perspective in the initial phase of innovation diffusion of ABC not by forcing of out siding companies or any imitating decisions.

In second phase Malmi found that the factors influencing to adoption rate is the fashions perspectives and rational rate (efficient-choice), also he suggested that consultants have a role in the innovation adopting in some organizations decision and there are increasing in the publishing articles about ABC in this phase, but he found that fad perspectives do not influencing to the adoption decision, and that the force factors for innovation diffusion through this stage comes from external the group of adopting companies.

In later stage return to the period after1992 Malami arrived that organisation applied ABC because headquarter company implemented it, also he said that efficient-choice factors influencing to ABC adoption more than imitation in this late phase add to that the availability of computers and IT in this phase and this will help to available suited software and decreasing the costs of the system installation.

previous research suggested that fashion-setting companies may be able to influence adoption decisions especially when the firms start to get information on other companies, both positive and negative information will reduced rational decision may be taken in the institutions. (DiMaggio and Powell 1983), also Malmi suggested that after take-off stage efficient choice and fad perspectives illustrate adoption behavior in company and, force factors for the ABC adoption comes from inside the group of adopting companies.

Beside Malami numerous studies such as (Inns and Mitchell 1997) examined Abrahmson's four perspectives to know which of this perspectives influence to innovation adoption they found that most of this companies adopting ABC based on efficient-choice not imitating to reduce the costs in London Kennedy and Affleck-Graves (2001) added that there are increasing in financial performance to the companies which are using ABC and this mean that it is decisions to implementing based on rational choice

Ballas and Venieries 1996 said that four from 23 Greek companies adopting ABC because the parent companies adopting it, from Above argument can see that no reliable picture emerges connecting Abrahmson's four Perspectives to ABC adoption.

Studies about ABC.

Many studies searched the process theory innovation to segment ABC to adopting and non adopting considering ABC as an innovation. Gosselin (1997) said that innovation process is generally related to four Characteristic stages: adoption, preparation, implementation and Routinization. Gosselin conclude that in adoption stage the organisation will tack decision to adopt or reject the new idea, then the organization need to prepare resources to support the innovation (preparation) after the implementation stage innovation will be as apart of continuous practice (Routinization).

Researcher's give ABC adoption different definition based on this stage some of them said it is actual implementation and other said it is desire to implementation (Bjornenak, 1997; Sartorius et al. 2007; Al-Omiri and Drury, 2007), other researchers such as .( Anderson 1995; Gosselin 1997; Krumwied 1998; Arnaboldi and Lapsely 2005; Cohen et al 2005; Abdul Majid and Sulaiman, 2008) segmented ABC to different stage and they examined the influence of different factors to this stages.

Gosselin (1997) segmented Activity management to three levels activity analysis, activity cost analysis and activity based costing system. He argued that activity analysis and activity cost analysis is technical innovations, his argument was because they focus mostly on processes and activities, he also added that ABC is an administrative innovation because ABC innovation may guide to new administrative actions, policies and organisational structures. Rogers (1985) that technical innovations are easier to adopt and implement in organic organizations, also Damanpour (1991), found that mechanistic structure facilitate the implementation of administrative innovations.

However, Gosselin study also found that the company's strategy play positive role they require for an innovation in the activity management department. Organisational Structure effects to the ability of the company to implement innovations. Organic organizations are more probable to adopt activity analysis and activity costing, but mechanistic organizations are probable to be more successful in the ABC adoption and implementation.

Factors influencing the process of change in management accounting

The literature review show difference in the concept between innovation and change, (Bradford and Kent, 1977; Firth 1996) said that an innovation mean adoption a new idea, or previous idea in a new circumstance, or in a new setting. But change not necessarily to be new innovation or new idea. Zaltman et al. (1973) argue that:

`Although [all] innovations imply change, not all change involves innovations since not everything an organization adopts is perceived as new'.

Although this difference between two concepts the factors effecting the process of change in management accounting effecting to the adoption of innovation, in his study Innes and Mitchell (1990) at seven companies in electronic sector, he found three type of factors influencing to management accounting process of change this factors are facilitators, motivators and catalysts.

Facilitator's factors it is not necessary to push the company to changes or change to happen, but it makes the change in management accounting easier and more successful

For Examples to these facilitators are the availability consultants, training and availability of adequate recourses such as accounting staff and computing resources. The second type of factors are the motivators these factors Effecting the observed changes in a general manner. For Examples the Competitiveness of the market, the product cost structure and production technology. The last type of factors is catalysts were those directly linked with the changes with their incidence likewise directly to the timing of the change. For example Examples to these factors is poor financial performance, the loss of market share, new accountants or a decline in profitability.



Change in management accounting


Competitive market - reduced financial performance - accounting staff

Organizational structure - the loss of market share - computing resources

Production technology - new accountants - authority of accountants

Cost structure - decline in profitability -accommodation of statutory

Short product life cycle - organisational change

Accounting requirements

The process of change in management accounting

Source study Innes and Mitchell (1990)

However, the change in management accounting will happen as a result of the interaction between the Motivators and Catalysts factors, but facilitators will aid to make the change easier and successful, Innes and Mitchell (1990) states that the interaction of the three factors (Motivators, Catalysts, and facilitators) will encourage and Determine the nature process of change and developments in management accounting.