Implementation of ABC

3.5.1 Variables relating to the implementation of ABC

A number of researches examined the implementation of ABC and factors influencing success. Shields (1995), Anderson (1995), McGowan and Klammer (1997), Krumwiede and Roth (1997), Krumwiede (1998) and Innes and Mitchell (1998) made studies of ABC implementation in similar perspectives in Canada, the U.S.A and the U.K. Anderson (1995), who did a case study of General Motors, found that technological factors impacted on the success of ABC whereas the study results of Shields (1995), who examined the relationship between a diversity of behavioural, organisational and technical factors, and the success of implementation of ABC, show that variables influencing the success of implementing ABC involve behavioural and organisational variables, as opposed to technical variables. These variables comprise top management support, linkage of the ABC system to competitive strategies, linkage of the ABC system to performance evaluation and compensation, sufficient internal resources, training in designing and implementing ABC and non-accounting ownership, which is the commitment of non-accountants to use ABC information.

Shields’ (1995) study, based on Shields and Young’s (1989) theoretical framework, is supported and extended by several studies. Norris’ (1997) study results agree with Shields’ (1995) findings in that the successful implementation of ABC is associated more

with behavioural and organisational variables than with technical variables. Shields and McEwen (1996) found that a significant cause for the unsuccessful implementations of ABC of several companies was the emphasis of architectural and software design of the ABC system by overlooking behavioural and organisational issues. Krumwiede and Roth (1997) also found that behavioural and organisational variables, claimed by Shields (1995), can overcome the barriers of each stage in the implementation of ABC and can lead to the successful implementation of ABC.

In addition, Krumwiede (1998) surveyed U.S. manufacturing firms to study how contextual factors, such as the potential for cost distortion or size of firms; and organisational factors, such as top management support, training or non-accounting ownership, affect each stage of the ABC implementation process. He found that the different factors affected the various stages of implementation of ABC and the degree of importance of each factor varies according to the stage of implementation. A company’s potential for cost distortions (a contextual factor) is a highly important factor in its decision to adopt and implement an ABC system, and top management support, non- accounting ownership and implementation training (organisational factors) can lead to reaching the highest stage of implementation of ABC. Krumwiede (1998) concludes that firms considering or implementing the ABC system should take organisational and contextual factors into account.

According to O’Guin (1991), the success of ABC relies on four crucial factors: top management support; comprehension by employees; accessibility to the ABC system; and to the system ownership by internal people. In other words, the ABC system is required to be simple for employees to understand and to use and employees and management must be internally committed to the ABC system. When they support it, all

obstructions to the implementation of ABC are eliminated. Similar to Argyris and Kaplan (1994), an ‘education’ and ‘sponsorship’ process is essential, but it is inadequate for the implementation of an innovation like ABC because organisational members usually create the organisational defensive routines, which is the protection of themselves from embarrassment or threat, when an organisation implements an innovative initiative. Overcoming these barriers is ‘creating internal commitment’.

Turney (1996) also states that initial steps needed to succeed in implementing ABC are to generate interest in ABC at all levels of the company, to remove any barriers to adopt ABC and to obtain management’s commitment to support the implementation of ABC. The results of Norris’ (1997) study confirm that internal commitment of the individual managers to the change influences the successful implementation of ABC. Morrow (1992) also claims that the implementation of ABC is likely to be unsuccessful without the commitment and sponsorship of users, and senior management. Even if Briers and Chua (2001) claim that the fulfil implementation of ABC is contingent not only on top management support, but also on external consultants, several studies (Shields 1995; Shields and McEwen 1996; Roberts and Silvester 1996; McGowan and Klammer 1997; Krumwiede 1998) contend that the most essential factor influencing the successful implementation of ABC is top management support, which means the encouragement, by senior management, of ABC developing teams.

It is possible that top management support may be one of the most important factors in implementing ABC in the Thai environment on the grounds that top executives or senior managers in the Thai organisation are the ones who have the power to take action and make most of the decisions in the organisation (Morakul and Wu 2001). However, there

is little evidence to indicate what factors affect the implementation of ABC or influence the success of implementation of ABC in the Thai environment.

In practice, the implementation of ABC has some problems. The results of several surveys (Bailey 1991; Nicholls 1992; Cobb et al. 1992; Oliver 1994; Booth and Giacobbe 1997; Innes and Mitchell 1998; Chen et al. 2001) show that the main problems with the implementation of ABC are the difficulties of data collection. ABC involves the collection of a great deal of data relating to cost-drivers and item’s relationship to specific products (Booth and Giacobbe 1997). Thus, the difficulties of data collection are usually the problems that both companies implementing ABC and companies rejecting ABC confront.

Booth and Giacobbe (1997) and Innes and Mitchell (1998) also found that other higher priorities were the pre-eminent problems for companies considering or rejecting ABC, especially small companies, because they thought that ABC was a big change for their companies. In addition, the survey results of the Chartered Institute of Management Accountants (CIMA) (1990, presented in Innes and Mitchell 1998) report that problems in practice include activities crossing departmental boundaries and the difficulties of choosing suitable cost drivers (Roberts and Silvester 1996; Innes and Mitchell 1998). Chung et al.’s (1997) and Chen et al.’s (2001) studies also indicate that inability to integrate with the current accounting system is a major problem of implementation of ABC.

Roberts and Silvester (1996) argue that most problems in implementing ABC are ascribed neither to technical imperfections of ABC nor to the way of applying theory. The key problem is organisational resistance. But in the Thai environment,

organisational resistance may not be the key problem in implementing ABC because characteristically, Thai people prefer to avoid conflict and tend to accept and to act what superiors tell them (Vivanichakul and Udomsri 1990; Cooper 1994). Nevertheless, it is unclear what problems most Thai firms have encountered in implementing ABC and what the key problem is.

3.5.2 Stages of the implementation process of ABC

Even if ABC installations may have some problems, the enhanced knowledge and grasp about ABC makes it valuable (Glad 1993). Krumwiede and Roth (1997) state that many firms adopting ABC may not use it successfully since they do not perceive the behavioural, organisational and political aspects of each stage in the implementation. Krumwiede and Roth (1997) claim that ABC is an information technology (IT) innovation, which provides information for managers to make their decisions, as opposed to a pure technical innovation. Accordingly, managers need to comprehend the stages of the IT implementation process to implement ABC successfully. The IT implementation process is categorized as six sequential stages: initiation; adoption; adaptation; acceptance; routinization; and infusion (Cooper and Zmud 1990). Krumwiede and Roth (1997) adapted Cooper and Zmud’s (1990) IT stage model, based on the organisational change, to the implementation of ABC. They describe each stage of the implementation process of ABC.