Consensus about and clarity of the objectives of the cost management systems

Consensus about and clarity of the objectives of the ABC system among ABC designers and users are essential to assure that an ABC system is effectively implemented and ABC information is efficiently produced (Shields 1995). When the objectives of ABC are accurately conveyed, such as to improve the precision of cost estimation for customized products, ABC designers and users can develop a conception of how ABC should be designed and how its information should be used.

Overall, the combination of top management support, linking to competitive strategy, linking to performance evaluation and compensation, as well as clarity of the ABC objectives, shows that employees perceive the importance and benefits of ABC information to their own and their firm’s achievement. The relationship between

sufficient internal resources and training in designing and implementing ABC is an effective strategy for introducing ABC to lead employees to understand, accept and encourage the use of ABC, as well as to build non-accounting ownership. Finally, non- accounting ownership, which is the commitment of non-accountants to use ABC information, activates all functional employees to accept and to implement more ABC information (Shields 1995). It is possible that these behavioural and organisational factors may influence the implementation and success of ABC in the Thai environment.

3.8 Adoption of ABC by Thai Firms

Due to the devaluation of the baht in 1997, the prices of petroleum, gasoline, in particular, increased about 20%. This has had an impact on the costs of production leading to a rise in the price of all products. Additionally, the rising cost of raw materials and the costs of production, as a result of the depreciation of the baht, have reduced the capability of the Thai manufacturers and exporters utilizing high import content in competition in the global markets (Triwannakit 1997; Chamchoy 1997; Kunakorn 2000). Not only the manufacturers and exporters employing high import content, but also those utilizing high domestic content, such as agricultural raw materials, have faced difficulties to compete in the international markets since the currencies of competitors, such as Malaysia, Indonesia and the Philippines, have been weaker than the baht (Lwin 1998).

To survive in the increasingly competitive environment, it is necessary for Thai firms and manufacturers to improve performance and management, such as to improve production process, product design, product pricing, cost control or cost reduction, to restore sustained profitability (Simachokdee 1997; Abonyi 1999). ABC, which is claimed to offer huge benefits including cost control, cost reduction and improved profitability, may be

one of alternatives for Thai firms in improving their operations and profitability in this turbulent situation. For example, the Toyota Motor (Thailand) Company has utilized ABC in cost control and production design to build competitive advantages in the current economy (Trutassanawin 1998). Due to moving to privatisation soon, the Electricity Generating Authority of Thailand (EGAT), another example, has just employed ABC to improve performance measurement, process and planning for preparation in business competition (Chimploy 1999; Morakuland Wu 2001).

Evidence from the U.S.A. and the U.K. suggests increasing adoption of ABC as a result of facing increased competition in the recessionary environment. For example, in the 1980s, US firms had more adoption of ABC on account of facing increased competition. They found that ABC could improve their profitability (Kaplan 1990b). In the UK, another example, the pressure from the recessionary environment in the early 1990s stimulated UK firms to adopt ABC increasingly because they believed that ABC was a tool that could help them to cope with the recession (Innes and Mitchell 1995b). Moreover, Cooper (1997) claims that in the increased competition and reduced profit margins, cost management becomes more crucial to the success of the company. Accordingly, it is likely that the economic crisis and higher global competition will force Thai firms to learn and to implement ABC to improve their profitability. Furthermore, Thailand has several factors, such as high-power-distance and collectivist cultures, that are likely to facilitate the success of ABC. Therefore, it was expected that ABC might be more widely adopted by Thai firms, especially after the economic crisis.

3.9 Summary

ABC is a cost management process that assigns costs to products/service according to the activities and resources consumed. The literature shows that the rates of ABC adoption by companies around the world are not very high; however, the adoption rates of ABC and the interest in ABC are growing. Several authors claim that ABC offers many significant benefits over the traditional costing systems, such as more product cost accuracy, more cost information for performance measurement and management’s decision-making, improved cost control, cost reduction and increased competitive capability and profitability.

Many studies report that the successful implementation of ABC is affected by several variables, such as behavioural, organisational, technical or contextual variables. The implementation of ABC affects the organisational member’s behaviour and operation and the majority of previous studies shows that the behavioural and organisational variables influence the implementation of ABC. So, this study will test this issue in Thai firms by concentrating on Shields and Young’s (1989) behavioural and organisational variables. Since there have been suggestions that the implementation of innovations are contingent upon an organisation’s learning, the next chapter will provide a detailed discussion on the ‘organisational learning’.

Chapter 4