The impact of contextual and process factors on the evaluation of activity-based costing systems $

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1 Accounting, Organizations and Society 24 (1999) 525±559 The impact of contextual and process factors on the evaluation of activity-based costing systems $ Shannon W. Anderson a, *, S. Mark Young b a Accounting Department, University of Michigan Business School, Ann Arbor, MI 48109, USA b Leventhal School of Accounting, University of Southern California, Los Angeles, CA 90089, USA Abstract This paper investigates associations between evaluations of activity based costing (ABC) systems, contextual factors, and factors related to the ABC implementation process using interview and survey data from 21 eld research sites of two rms. Structural equation modeling is used to investigate the t of a model of organizational change with the data. The results support the proposed model; however, the signi cance of speci c factors is sensitive to the evaluation criterion. The model is stable across rms and respondents, but is sensitive to the maturity of the ABC system. # 1999 Elsevier Science Ltd. All rights reserved. 1. Introduction Early proponents of ABC claimed superiority over traditional costing methods that stemmed from employing causally related ``cost drivers'' to assign common costs to business activities, products and services (Cooper, 1988; Cooper & Kaplan, 1988). Later studies argued that a judiciously designed ABC system provides e ective behavioral control (Cooper & Kaplan, 1991; Cooper & Turney, 1990; Foster & Gupta, Evidence of ABC implementation failures 1 has caused researchers to suggest that achieving either objective depends critically on organizational and technical factors (Anderson, 1995; Malmi, 1997) and recent empirical evidence supports this view (Chenhall & Lang eld-smith, 1998; Foster & Swenson, 1997; Gosselin, 1997; Innes & Mitchell, 1995; Krumwiede, 1998; McGowan & Klammer, 1997; Shields, 1995). This paper combines the results of previous studies with theory on organizational change to propose a structural model of the relation between evaluations of ABC systems, contextual factors and factors related to the ABC implementation process. We evaluate the model's descriptive validity using survey data from managers and system developers associated with 21 implementation projects in two automobile manufacturers. Structural equation modeling (SEM) is used to investigate the in uence of the contextual environment and the implementation process on evaluations of $ The authors are not permitted to redistribute the data of this study without permission of the participating rms. * Corresponding author. Tel.: ; fax: address: swanders@umich.edu (S.W. Anderson) 1 By some estimates only 10% of rms that adopt ABC continue to use it (Ness & Cucuzza, 1995). In reviews of international studies of ABC adoption, Innes and Mitchell (1995); and Chenhall and Lang eld-smith (1998) nd adoption rates generally less than 14% /99/$ - see front matter # 1999 Elsevier Science Ltd. All rights reserved. PII: S (99)

2 526 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 the ABC system and the in uence of the contextual environment on the ABC implementation process. The data are consistent with the proposed structural model. After establishing a plausible model structure, we investigate its applicability to di erent evaluation criteria and its stability across di erent sub-groups in our sample. Thus, the research contributes a uni ed investigation of three aspects of ABC implementation: model structure; variable de nition and measurement;and, model stability. We test a structural relation between contextual variables, process variables and ABC system evaluations that is hypothesized in ``process theories'' of ABC implementation (Anderson, 1995; Argyris & Kaplan, 1994; Kaplan, 1990; Shields & Young, 1989). By separating the in uence of the contextual environment on the ABC implementation project from its in uence on the evaluation of the ABC system, we extend previous studies that document correlation between ABC project outcomes and contextual and process factors. In a case study of an ABC project that did not survive, Malmi (1997) posits that implementation failures are related more to exogenous contextual factors than to the process of implementation Ð that even good implementation processes fail on barren ground. Our results support this observation and point to speci c exogenous factors that make ABC less suitable and that are unlikely to be remedied by improving the implementation process. The study contributes to the area of variable de nition and measurement through eld research and the use of multiple data collection methods. Multiple modes of data collection (e.g. surveys and personal interviews) provide the opportunity to address the question: What is meant by ``success'' in ABC implementation? A danger of asking managers to rate ABC implementation success without specifying the de nition of success is failure to detect cases in which individuals hold different views on the de nition of success but share views on attainment of a particular dimension of success. In light of evidence that success in ABC implementation is multi-dimensional (Cooper, Kaplan, Maisel, Morrissey & Oehm, 1992) with each dimension having somewhat di erent correlates (Foster & Swenson, 1997), it is appropriate to ask what criteria respondents use in evaluating ABC. Content analysis of interviews conducted with survey respondents reveals two dominant views of what de nes an e ective ABC system: whether ABC data are used in product cost reduction or process improvement; and, whether ABC data are more accurate than data from the traditional cost system. Further investigation indicates that the respondent's job is a predictor of which view is held. Previous studies explore determinants of di erent evaluation measures (Foster & Swenson, 1997) and document respondent-e ects on evaluation levels (McGowan & Klammer, 1997). This study investigates whether di erent evaluation measures correspond to di erent views on appropriate evaluation criteria. Then, using survey data we estimate simultaneously the contextual and process determinants of respondents' evaluations of the ABC systems according to the operative criteria. Simultaneous estimation methods allow us to consider whether the factors that in uence di erent evaluation measures are common Ð (suggesting that all criteria may be achieved) Ð or mutually exclusive Ð (suggesting that success along one dimension is achieved at the expense of another). A nal contribution of this research is investigation of the stability of the relation between evaluations of ABC implementation and factors related to context and the implementation process. The research design and sampling plan permit investigation of three potential sources of model instability: company e ects, respondent e ects and e ects of ABC system maturity. Company e ects are examined in the spirit of sensitivity analysis, to explore the degree to which the results generalize. We can not address the degree to which results generalize to di erent industry settings; however, we nd few di erences between the rms and reject the hypothesis that a rm-speci c model is warranted. The exploration of respondent e ects, speci cally of di erences between managers and ABC system developers, is a unique contribution of this study. 2 Previous research relies almost exclusively on data taken from accounting professionals. These people may hold di erent views on the ABC system as a result of proximity to or

3 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± responsibility for ABC implementation, or as a result of the degree to which ABC threatens or reinforces their professional standing. The results indicate di erences in what determines evaluations of the ABC system between managers and ABC system developers; however, statistical tests reject the hypothesis that a model that distinguishes between respondent types improves model t. Exploration of e ects of ABC system maturity on model stability continues the investigation of ``stages'' of ABC implementation in Anderson (1995) and Krumwiede (1998). The results indicate signi cant di erences in determinants of respondents' evaluation of ABC as a function of ABC system maturity. Thus, the maturity-speci c model ts the data better than a model that omits this factor. Section 2 reviews the literature and develops the research questions. Section 3 describes the research sites and data collection methods. Variable measures and descriptive statistics are presented in Section 4. Evidence on the relation between ABC system evaluations and contextual and process variables is presented in Section 5. The stability of the model between di erent companies, respondents and ABC systems of di ering maturity is investigated in Section 6. Section 7 summarizes the contributions of the research and discusses avenues for future investigation. 2. Associations between context, process and evaluations of ABC systems 2.1. Summary of prior research Practitioner accounts of ABC projects and case study research on determinants of project outcomes have long associated technical and behavioral factors with ABC implementation success (Beaujon & Singhal, 1990; Foster & Gupta, 1990; Cooper, 2 McGowan and Klammer (1997) document a signi cant di erence in the level of satisfaction with ABC between those who developed the ABC data and those who use the data. They assume a common (stable) model for both populations with di erences re ected only in a shift in the mean level of satisfaction. 1990; Cooper et al., 1992; Drumheller, 1993; Eiler & Campi, 1990; Foster & Gupta, 1990; Haedicke & Feil, 1991; Jones, 1991; Kleinsorge & Tanner, 1991; Richards, 1987; Shields & Young, 1989; Stokes & Lawrimore, 1989). Anderson (1995) surveys the literature on ABC and information technology implementation and compiles ve categories of 22 variables that are implicated in ABC project outcomes. More recent empirical studies provide evidence on the correlation between these factors and ABC implementation e ectiveness and introduce ve new variables (Chenhall & Lang eld-smith, 1998; Foster & Swenson, 1997; Gosselin, 1997; Innes & Mitchell, 1995; Krumwiede, 1998; Malmi, 1997; McGowan & Klammer, 1997; Shields, 1995). Table 1 updates Anderson's (1995) list of variables hypothesized to in uence ABC system evaluations (column 1) and summarizes the statistical relations documented in these studies (column 3). A di culty in specifying the hypothesized e ect of each factor on evaluations of ABC systems is that each study is di erent in ways that draw into question comparability of results. For example, Anderson (1995), Gosselin (1997) and Krumwiede (1998) distinguish di erent stages of ABC implementation and nd evidence that di erent factors in uence ``success'' at each stage. Foster and Swenson (1997), McGowan and Klammer (1997) and Malmi (1997) study speci c ABC implementation projects, while other studies gather data at the rm level. Moreover, Foster and Swenson document somewhat di erent correlates for four di erent measures of ABC implementation success. Finally, McGowan and Klammer collect data from di erent informants at an ABC implementation site and nd evidence of a shift in the mean level of evaluation that is associated with respondents' involvement with the ABC project. Other studies rely almost exclusively on informants from accounting functions (of the rm or the ABC site). In sum, comparing empirical studies of the determinants of ABC implementation e ectiveness requires strong assumptions about invariance of these relations across time, respondent groups, measures of e ectiveness and units of analysis. In spite of caveats concerning comparability of prior studies, the research ndings are remarkably

4 528 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 Table 1 Candidate variables for analysis of determinants of evaluations of ABC implementation: contextual factors and process factors identi ed in the research literature Candidate variables Literature Hypothesized sources(s) a e ect on evaluation of ABC b Contextual factors Process factors Research design or variable mapping d Individual factors Organizational factors ABC project management Team process c Individual characteristics Disposed to change A,C,E,F +,+,+,+ X ± ± X CHANGE Production process knowledge A + X ± ± X interviews Role involvement A,E +,+, X ± ± X COMMIT, VALUES, AND MvsD Individual received ABC training G 0 X ± ± ± MvsD Organizational factors Centralization A,D +,+ ± X ± X C1 vs C2 Functional specialization A,B,0 ± X ± X C1 vs C2 Formalization/job standardization D + ± X ± X C1 vs C2 Vertical di erentiation D + ± X ± C1 vs C2 Formal support in accounting function B,C 0,+ X X C1 vs C2 Support A,B,C,E,F,G,H +,+,+,+,+,0,+ ± ± X X Top management support ± ± ± ± ± MSUPPORT, Local management support ± ± ± ± ± MINVOLVE, Local union support ± ± ± ± ± USUPPORT Internal communications A + ± X ± X C1 vs C2 Extrinsic reward systems A,B,E,G +,+,+,+ X X REWARD ABC training investments A,B,E,G,H +,+,+,+,+ ± ± X X Team Technological factors Complexity for users A,C ±,± ± ± ± X Team Compatibility with existing systems A,B,C,I +,0,+,+ ± X ± X N/A Relative improvements over existing A,C,H +,+,0 ± X ± X INFOQUAL system (accuracy and timeliness) Relevance to managers' decisions and compatibility with rm strategy A,B,C,E,H,I +,+,+,+,+ ± X ± X IMPCOST Task characteristics Uncertainity/lack of goal clarity A,B,E,H,0,,0 ± ± ± X Team Variety A + ± ± X Team Worker autonomy A + ± ± ± X Team Worker responsibility/personal risk A ± ± ± X Team Resource adequacy B,C,E +,+,+ ± ± X ± RESOURCES Availability of ABC software B,C 0,+ ± ± X ± N/A

5 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± External environment Heterogeneity of demands A,C,D,H,I +,+,+,+,0 ± X ± ± TURB Competition A,C,H +,+,+ ± X ± ± COMPETE Environmental uncertainity A,C,D,F,I,,,+,+,+ ± X ± ± Likelihood of layo s ± ± ± ± ± LAYOFF Growth opportunities ± ± ± ± ± NOGROW Labor relations ± ± ± ± ± LABOR Importance of site to company ± ± ± ± ± IMPPLT External communications/external A,B, +,0 ± X ± X C1 vs C2 and experts Team a Source legend: A: Anderson (1995). Anderson constructs a list of factors previously implicated in ABC implementation outcomes from the research literature and from practitioner accounts of implementations and provides evidence on how these factors in uence one rm's adoption of ABC. Recent empirical research: B: Shields (1995); C: Innes and Mitchell (1995); D: Gosselin (1997); E: Foster and Swenson (1997); F: Malmi (1997); G: McGowan and Klammer (1997); H: Krumwiede (1998); I: Chenhall and Lang eld-smith (1998) b Foster and Swenson (1997), McGowan and Klammer (1997) and Malmi (1997) study speci c ABC implementation sites rather than rm-level implementation. Anderson (1995), Krumwiede (1998) and Gosselin (1997) distinguish correlates of di erent stages of implementation. Because we study plants that implemented ABC after the formal corporate adoption of ABC, we focus on factors that stage-speci c studies nd to in uence the ``adoption'' and ``adaptation'' stages. For studies that do not distinguish stage-speci c e ects or that employ multiple measures of ABC project outcomes, we report the sign of the correlation between of the variable and overall evaluations of the ABC project. c Variables associated with intrateam processes of the ABC design team (e.g. group cohesion, team leadership) are not examined in this study. d Variable treatment legend: C1 vs C2 indicates a variable that di ers between but not within companies. MvsDindicates a variable that di ers between managers and ABC developers but not within each group. The designation N/A indicates that the variable is not examined in this study because there is neither within rm nor between rm variation (e.g. all sites use a common software package and no site integrated ABC with other information systems prior to the end of the study). Team indicates a variable that re ects intrateam processes of the ABC development team. The e ects of intrateam processes on ABC system evaluations are not considered in this paper (see Anderson et al., 1999). Words in UPPER CASE are variable names of factors that are examined in this paper. ``Interviews'' designates an association that is examined in this paper using interview data but not survey data.

6 530 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 consistent. Although some studies fail to document a statistically signi cant e ect (denoted ``0''), in only one case (environmental uncertainty) do studies nd signi cant but con icting e ects. In this case, Innes and Mitchell (1995) investigate uncertainty associated with the likelihood of ABC data threatening respondents' employment (e.g. cost reduction through layo s), while other studies focus on the potential for ABC data mitigating informational uncertainties and promoting better decision-making. Thus, this is a case of di erent de nitions of uncertainty rather than substantive disagreement between the studies' results. In summary, there is widespread agreement in the academic literature on broad correlates of ABC implementation e ectiveness. Sources of instability in the relation are less well understood. These observations are the departure point for this study, which tests a structural framework among correlates of ABC system e ectiveness and examines the stability of the structural model The proposed structural framework Although the empirical literature has progressed from case studies and anecdotes to systematic evidence on correlates of ABC project outcomes, there is little correspondence between empirical studies and studies that propose process theories of ABC implementation (Anderson, 1995; Argyris & Kaplan, 1994; Kaplan, 1990; Shields & Young,1989). Process theories hypothesize that project outcomes depend critically on the implementation process and on contextual factors related to the external environment. Process theories of ABC implementation are similar to Rogers' (1962, 1983) model of organizational change and innovation. In Rogers' model, managers' consideration of an innovation is motivated or constrained by circumstances in the rm's external and internal environment and by characteristics of the individual evaluating the innovation Ð what we refer to collectively as contextual factors. Subsequent evaluations of the innovation are in uenced by comparison between the innovation, the status quo, and alternative innovations, and by factors related to the innovation experience Ð what we term process factors. Contextual factors in uence the process of implementation and the evaluation of the resulting ABC system. Process factors only in uence evaluations of the ABC system. This ``structure'' that process theories hypothesize is depicted by arrows that connect the boxes in Fig. 1 (ignore for now relations among process factors). Fig.1. Structural model of ABC implementation.

7 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± Process theories distinguish from the list of correlates in Table 1 those that relate to the context in which the evaluation of ABC is conducted Ð including factors related to organizational context and factors related to the individual asked to render an evaluation Ð and those that relate to the process of implementing ABC. This distinction is re ected in columns 4±7 of Table 1. The categories are not perfectly separableðfor example, organizational norms with respect to functional specialization may be mirrored in how the ABC project is managed (e.g. as an accounting project or as a multi-disciplinary project). Nonetheless, the separation is reasonably straightforward. Contextual factors include those related to the organization (column 4) and those related to the individual asked to evaluate the ABC system (column 5). Implementation process factors are also divided into two types: those that re ect interactions between the ABC project team and the organization (column 6), and those that re ect the internal functioning of the ABC project team (column 7, e.g. communications and goal clarity among team members). The organizational literature discusses the relation between project outcomes and internal team processes (e.g. Bettenhausen, 1991; Cohen, 1993; Cohen & Bailey, 1997). However, because these research questions are not closely related to the accounting literature that we extend, are motivated by di erent organizational theories and demand a di erent unit of analysis, we consider the variables in column 7 outside the scope of this paper. 3 We focus instead on the structure and stability of relationships between the variables in columns 4±6 and evaluations of ABC systems Research questions Two sets of related research questions are considered. The rst research questions are related to the objective of testing the descriptive validity of process theories of ABC implementation. Speci cally, we investigate whether there are associations between: 3 We investigate questions related to intrateam processes of designing and maintaining ABC systems in a second paper from this study (Anderson, Hesford & Young, 1999). 1.1 evaluations of ABC systems and contextual variables that represent individual and organizational circumstances; 1.2 evaluations of ABC systems and the implementation process; and, 1.3 the ABC implementation process and contextual variables that represent individual and organizational circumstances. These research questions are depicted in Fig. 1 as arrows between three groups of variables: contextual and process factors and implementation outcomes. Questions 1.1 and 1.2 have been considered in previous empirical research on correlates of ABC implementation e ectiveness. Question 1.3, which links process theories of ABC implementation and theories of organization change to the existing empirical literature, is a unique contribution of this study. A second set of research questions is motivated by the earlier observation that the third column of Table 1 can not be constructed without assuming very strong forms of model stability. We explore the validity of these assumptions in two ways. First, we use eld research to explore criteria that our respondents employ in evaluating ABC systems. We then investigate how the model of ABC evaluation is a ected by the evaluation criterion. Second, our research design and sample selection permits us to test for forms of model stability suggested by previous studies. Thus, we explore: 2.1 what criteria are used by managers and ABC system developers to evaluate ABC implementation e ectiveness; 2.2 do the associations examined in research questions 1.1±1.3 di er for di erent evaluation criteria; and, 2.3 are the associations examined in research questions 1.1±1.3 stable across rms, across respondents with di ering involvement in the ABC project, and across sites with ABC systems that are of di erent maturity? In summary, this paper attempts to link empirical studies of correlates of ABC implementation with process theories of ABC implementation (questions 1.1±1.3) and provides evidence on model stability across a number of dimensions (questions 2.1±2.3).

8 532 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± Research design The research design is de ned by three choices: selection of rms and speci c ABC implementation projects for study and selection of quali ed respondents for each project. Evaluating process models of ABC implementation necessitates an understanding of the rm's approach to implementing ABC and access to several ABC implementation projects at each rm. A research design that employs eldbased research o ers this level of understanding and access; however, costs of eld research and the time to develop relationships with corporate partners limit the sample size. We study two automobile manufacturing rms, both with mature corporate ABC programs and many ABC implementation sites. In the sections that follow, we discuss the rms' programs for implementing ABC and our approach for selecting sites for study ABC implementation in two automobile manufacturers The US auto industry is an appropriate setting for studying the applicability of models of organizational change to ABC implementation because rm-wide implementation demands developing ABC models for many of remote locations and because in 1995 ABC was a mature technology for two of the rms. Previous research that examines ABC adoption by the rm nds that large organizations with hierarchical structures, centralized decision-making and signi cant job standardization are more likely to adopt ABC (Gosselin, 1997). Moreover, ABC is attractive to rms in competitive environments that demand continuous cost reduction (Chenhall & Lang eld- Smith, 1998), particularly when existing cost systems fail to support decisions related to cost reduction. In the early 1980s, the then ``Big 3'' US auto manufacturers t this characterization. Consequently, it is not surprising that when ABC became visible in the practitioner literature (e.g. Cooper, 1988), at least two rms began experimenting with it and adopted it by Anderson (1995) investigates the correspondence of a model of innovation with one company's eight year experience of moving from ``problem awareness'', to experimentation and evaluation of alternative cost systems, and nally, to adoption of ABC. 4 This paper continues the exploration, adding a second rm that adopted ABC shortly after the rst rm, and shifting the unit of analysis to individuals involved in 21 ABC implementation projects. After the rms adopted ABC as a corporate initiative, corporate ABC groups were charged with supporting implementation at all manufacturing sites. Nonmanufacturing sites were to follow, as the corporate group gained implementation expertise. The process of implementing ABC at a site di ers somewhat between the two companies. Although both companies espouse a theory of activity based management Ð in which process or activity costs are as important as product costs Ð Company 2 has made this more central to the objective of ABC implementation than has Company 1. Neither company used ABC in budgeting or performance evaluation at the time of our study, although both were experimenting with these possibilities. Company 2 used an outside consulting rm to oversee site-level ABC implementation projects and augmented site teams with corporate ABC group members. Company 1 relied solely on employees at the site, although divisional liaisons were available to assist the team. Assistance most often took the form of computer software technical support. In spite of these di erences, there are striking similarities in the rms' approach to ABC implementation. Both rms had a corporate mandate to implement ABC that allowed plants to implement ABC within a three to ve year window of local management's choosing. Both rms used what Lindquist and Mauriel (1989) term a ``depth strategy'' of implementing ABC fully in a few sites and adding sites over time, rather than a ``breadth strategy'' of simultaneously implementing a more limited version of ABC across all sites. Neither rm used ABC data for inventory valuation or in performance evaluations of managers (e.g. calculating ABC-based cost variances) at the close of our study. Indeed both rms were advised by their (di erent) external auditors to delay using ABC 4 Anderson (1995) uses the rm as the unit of observation and limits consideration of speci c ABC projects to prototype projects that were critical to the rm-level adoption decision.

9 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± for inventory valuation until all sites installed ABC systems. Both rms standardized development and maintenance of ABC models over time and used the same PC-based software. Both rms managed ABC implementation from a corporate group that reports through the nance function, but attempted to gain support from the operations function. Both rms asked that the local ABC team be ``multi-disciplinary''; however, most teams included at least one accountant or budget analyst and the team always reported to the plant controller. Finally, both rms introduce the ABC project with an executive awareness session for functional managers at the site, training for ABC developers, and subsequent management reviews of project milestones Selection of ABC implementation sites and critical informants Anderson (1995) observed that, after the rm's decision to adopt ABC, continued corporate support of the ABC initiative did not depend upon success of speci c ABC projects. Rather, following a period of controlled experimentation when project success was critical, the corporate initiative acquired a life of its own. This pattern is consistent with research on innovation adoption and illustrates a critical distinction between individual and organizational adoption of innovations: Because organizations are complex hierarchical systems, contradictory part-whole relations are often produced when system-wide innovations are introduced. An organization-wide innovation of change developed by one organizational unit often represents an externally imposed mandate to adopt the innovation to other, often lower-level, organizational units. Thus... top management... may express euphoria about the innovation it developed for the entire organization, while frustrations and oppositions to that same innovation are expressed by the a ected organizational units (Van de Ven, 1993, p. 285). Studies of ABC implementation that rely on a single senior manager's evaluation of a rm's ABC system may re ect an average assessment of widely di ering project outcomes or biases of top management. To address these concerns, we gather data from several ABC projects within each rm and use local informants for each project. ABC sites are selected using three criteria. First, we select sites that initiated ABC development after the corporate decision to implement ABC but during di erent periods of the rm's ABC implementation history. We exclude experimental or prototype projects to avoid confounding routine implementations with those that were linked to the organizational decision to adopt ABC. 5 Inclusion of projects from di erent periods permits investigation of temporal in uences on ABC system evaluations. A second factor in site selection is an attempt to include all auto manufacturing production processes. Approximately half of the sites from each rm produce components that are unlikely to be outsourced (termed ``core'' components), including: major metal stampings, foundry castings, engines, and transmissions. The remaining sites produce peripheral components and face external competition. Selecting core and peripheral components sites maximizes variation in the external environment factors of Table 1 (subject to the limitation that the study occurs within a single industry), allowing investigation of the relation between these contextual factors and ABC system evaluations. In addition to traditional manufacturing sites, the service parts distribution groups of both rms are included. We were unable to match a contiguous stamping and assembly plant that was included for one rm; thus, the sample includes eleven sites from one rm and ten sites from the other rm. A nal factor in selecting sites is the perceived success of the ABC project. We wish to study sites that represent the full range of implementation outcomes. One rm adopted ABC in 1991 and consequently had fewer ABC projects from which to choose. Meeting the rst two criteria for site selection virtually exhausted the population of ABC sites; thus, it is unlikely that we were directed toward exceptional projects. The second rm adopted ABC in 1989 and had over 150 ABC models at the inception of our study. To guard 5 Anderson (1995) provides evidence of the highly charged political environment of prototype projects.

10 534 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 against the rm directing us to relatively successful projects, we examined an independent assessment of ABC project success. In a related study we conducted a survey of eight division-level ABC managers; assessments of 50 ABC implementation projects. Seven of the proposed sites were covered by the survey. Responses to questions related to ABC project outcomes indicate that the seven sites span the full range of evaluations. Selection of quali ed informants about local ABC implementation projects is guided by the literature on organizational change and evidence on ``respondent e ects'' in ABC system evaluation. McGowan and Klammer's (1997) nding that managers charged with using the ABC system hold di erent opinions about the system compared to those who develop the ABC data suggests two groups of respondents. The organizational literature goes further, arguing that organizational change is a process of changing the beliefs and behaviors of individuals (Marcus & Weber, 1989). Although key individuals may play a disproportionate role in convincing others to adopt an innovation, it is rare that a single individual can unilaterally adopt innovations on behalf of an organization. Moreover, the beliefs and behaviors of individuals toward a particular innovation are shaped by their unique, individual circumstances within the organization. 6 We attempt to obtain full participation from two populations of critical informants: ABC system developers and the site's management team (e.g. the plant manager and functional managers who report to the plant manager), and measure ``individual characteristics'' (Table 1) that are hypothesized to in uence these respondents evaluations of ABC Data collection Each research site was visited for two days between March and November of Surveys were mailed to the site one week before the visit and respondents brought the completed survey to the interview, or, if they were not available for an interview, mailed it to the researchers. Similar surveys were administered to ABC developers and managers. Survey questions about individual motivation, organizational circumstances and the ABC project were developed from established scales in the organizational and information systems literatures (e.g. Davis, 1989; Davis, Bagozzi & Warshaw, 1989; Jaworski & Young, 1992; McLennan, 1989; Robinson, Shaver & Wrightsman, 1991; Seashore, Lawler, Mirvis & Cammann, 1983; Van de Ven & Ferry, 1980). At times wording changes were necessary to t the organizational context and the speci cs of ABC system development. Questions dealing with the implementation process were based on information gathered in the rm-level study of ABC implementation and, where applicable, by using question structures that are similar to related scales (e.g. for involvement in system design, scales for ``task involvement'' were used). A survey pre-test administered to ten corporate and divisional ABC employees at each rm, all with experience implementing ABC, was used to revise the survey questions. We received 265 surveys Ð 176 management surveys and 89 ABC developer surveys (Table 2). 8 The pro les of the respondents do not di er visibly between rms. Company 2 uses slightly less experienced people as ABC system developers 6 See Pedhazur and Schmelkin (1991) for a discussion of respondent e ects associated with factors such as age, gender, and educational attainment, as well as a variety of personality traits. Weick (1995) describes individual processes of interpreting, or ``making sense'' of the environment. 7 Although some have argued that e ective use of ABC requires involvement of employees at the lowest level of the organization, the rms of this study have not disseminated ABC data to this audience. Thus we have no basis for investigating the associations between workers' attitudes and ABC system outcomes and were discouraged from doing so by both rms. Production workers are occasionally included in the survey population as ABC system developers when they served on development teams. 8 To our knowledge 15 people (all managers) who were targeted to complete a survey failed to do so. Of these, twelve were managers who claimed to be unfamiliar with ABC either by virtue of recently joining the plant or because their job responsibilities did not cause them to use the system (e.g. ve were Personnel department managers). Three plant managers who appeared quali ed to complete the survey refused to do so because of the time involved; however, even these managers agreed to be interviewed and the interviews suggested that this group included both advocates and opponents of the ABC approach. The non-respondents were scattered across thirteen of the 21 sites. In sum, we do not believe that this aspect of non-response has induced signi cant bias in the data.

11 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± Table 2 Distribution of survey respondents by site and company Number of respondents Number of respondents Plant processes Total ABC developers Plant management Company 1 Company 2 Company 1 Company 2 Core manufacturing Major stampings Contiguous stamping and assembly Foundry Engine manufacture Engine manufacture Transmission assembly Secondary manufacturing Parts assembly Parts machining and assembly Parts machining and assembly Electronics assembly Other: service parts distribution Total than does Company 1 Ð evidenced by fewer years on average with the company and in the department from which they joined the ABC project. There are no di erences between the rms in educational attainment or ABC training Ð developers typically receive 30 hours of training in ABC and managers typically receive no ABC training. Managers have longer tenure with the rms than do ABC developers; however, by virtue of promotions and company transfers, tenure at the site is not appreciably di erent between managers and ABC developers. Interviews were conducted with 236 of the 265 survey respondents. Although most interviewees returned their surveys at the start of the interview, they did not provide their names in the body of the survey and speci c survey responses were not discussed during the interview. Interviews followed a loose structure aimed at supplementing the survey data. On average 10 interviews were conducted at each plant, ranging in duration from approximately 30 minutes, for functional managers with little awareness of the ABC project, to 4 hours for system developers with years of system design and maintenance experience. With two exceptions, all interviews were taped and transcribed for content analysis. 4. Measurement of variables and process structure 4.1. Contextual variables A limitation of having only two rms is that ``organizational factors'' that re ect rm characteristics (e.g. centralization, functional specialization) are confounded (e.g. Table 1, column 8, ``C1 vs C2''). We investigate the stability of our model across rms; however, the research design does not permit us to distinguish among alternative explanations for rm e ects. Studies that use a large number of rms, each providing data on several implementation sites are needed to investigate the e ect of rm characteristics on implementation project outcomes. This study focuses on organizational factors that are more ``local'' Ð as a result of di erent products, processes and people at the sites. To explore research question 1.1, we examine the signi cance of direct associations between twelve contextual factors (Table 1, column 8). Three variables hypothesized to in uence individuals' evaluations of ABC are considered: (1) the extent to which the individual believes that change is warranted (CHANGE) Ð what the organizational psychology literature terms ``felt need for

12 536 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 change''; (2) individual commitment to the organization (COMMIT); and (3) the extent to which the individual identi es with the values of the organization (VALUES). Of the four variables identi ed as individual contextual factors in Table 1, two are captured in these measures. A third factor, ABC training received, was measured; however, because most managers receive no training and most developers receive 30±40 hours of training, this ``variable'' is confounded with other factors that di er between managers and ABC developers (e.g. role involvement in the ABC system). A fourth factor Ð the individual's knowledge of production processes and job experience, was explored in interviews only. Eight organizational contextual factors are hypothesized to in uence evaluations of the ABC system and management involvement in the implementation process: (1) the extent to which individual performance is linked to rewards (REWARD) 9 (2) the competitive environment (COMPETE); (3) the quality of existing information systems (INFOQUAL); (4) environmental turbulence (TURB); (5) the likelihood of employee layo s (LAYOFF); (6) impediments to plant growth (NOGROW); (7) the perceived importance of the plant to the company (IMPPLT); and (8) the perceived importance of cost reduction to the plant (IMPCOST). Advocates of ABC claim that new cost data are most valuable when competition or limited growth prospects cause rms to focus on cost reduction. COMPETE, NOGROW and IMPCOST measure these motivations for adopting ABC. Cost reduction e orts often produce reductions in employment (Innes and Mitchell, 1995). In a unionized environment with contractual employment guarantees, managers are often reluctant or unable to reduce employee headcount. As a result, many of the prospective bene ts of ABC systems may be unrealizable. A measure of the likelihood of layo s (LAYOFF) is 9 It is important to note that REWARD does not measure the extent to which individuals believe that they will be rewarded if they implement ABC or use ABC data. Rather, REWARD measures general reward expectancy, because management control practices and incentives were not changed to promote ABC use in any of the sites. used to capture this potential deterrent to ABC implementation. In the same vein, the quality of historical management±labor relations (LABOR) is a ninth contextual factor that is hypothesized to in uence the degree to which the local union supports the ABC implementation project (but not managers' evaluations of the ABC system). Even in rms that face heightened competition, some operations are less threatened than others. Selection of core and peripheral component plants maximizes the observed range of competition within each rm. The perceived importance of the site (IMPPLT) to the rm is included as a potential mitigating factor to external competition. Organizational theorists argue that there are limits to the amount of change that an organization can absorb. Site-speci c turbulence (TURB) is a measure of concomitant changes that compete with ABC for management attention. Finally, within a rm, sites often have diverse ``legacy'' information systems that are more or less e ective in meeting managers' information needs. Adoption of new information technology such as ABC systems depends upon t with and incremental improvement upon existing systems (Kwon & Zmud, 1987). A measure of respondents' beliefs about the quality of existing information systems (INFOQ- UAL) is used to examine how the current information environment in uences managers' commitment to or evaluation of the ABC system Process variables related to ABC implementation Appropriate process variables for analysis and the relation between process variables depend upon rm-speci c ABC implementation strategies. Previous studies that consider the relation between process variables and ABC project outcomes test for correlation between a wide range of possible process variables without knowledge ex ante of rms' implementation processes. As a result, tests that pool rms with di erent implementation strategies can not distinguish between relevant process factors that are not statistically correlated with ABC outcomes and irrelevant process factors. The ABC implementation process variables that we consider are those identi ed in Table 1,

13 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525± column 6. The hypothesized structure between the process variables (Fig. 1) was developed prior to data collection based on interviews at the corporate level and is described below. The general structure of the rms' ABC implementation process is depicted inside of the box labeled ``ABC Implementation Process Factors'' in Fig. 1. Speci cally, rm-level managers committed the company to ABC implementation prior to the ABC project at the research sites. Respondents' opinions about the strength of this commitment are measured by the variable, MSUPPORT. The management awareness sessions that each rm used to introduce ABC to local managers was intended to increase managers' knowledge of ABC and to secure their involvement in the project. Respondents' beliefs about whether local commitment was achieved are measured by the variable, MINVOLVE. The proposed relation between MSUPPORT and MINVOLVE re ects the direction of in uence described above. Both rms assigned responsibility for implementing ABC to local management. Although corporate resources were available to augment or support the team, team members were selected and freed from other responsibilities (or not) by local managers. Local managers were also given discretion in the decision to involve local union leaders in the project. The adequacy of resources committed to the ABC project is measured with the variable, RESOUR- CES. The degree to which the union was aware of and involved in the ABC project is measured by the variable, USUPPORT. The proposed relation between MINVOLVE and both RESOURCES and USUPPORT re ects the gatekeeper role that local managers are assigned. The proposed relation between MSUPPORT and USUPPORT re ects a possible ow of in uence from top managers of the rm, to the local union. Although top managers did not intervene directly in local union a airs, at least one rm noted that the rm's decision to implement ABC had become a negotiating point with labor at the national level. The proposed relation between MSUPPORT and RESOURCES re ects the support that the corporate ABC group provided development teams after local management initiated an ABC project. The relationships described above re ect rmspeci c implementation processes that have been ignored in previous research. However, nding that these relations hold is simply evidence of face validity of the data rather than evidence on the proposed research questions. To explore research question 1.2 we examine the e ects of each process variable on evaluations of the ABC system. Because implementing ABC is a local management decision, we explore research question 1.3 by examining the association between contextual factors and local managers' involvement in the ABC project (MINVOLVE) Evaluation measures of the ABC system As in previous studies we employ an overall evaluation of the ABC system (OVERALL) that allows respondents to self-de ne the evaluation criteria. However, as research question 2.1 indicates, this raises the question: ``What criteria are embedded in overall assessments of ABC systems?'' Content analysis of 236 taped interviews is used to explore this question. 10 Full text transcripts of the 236 interviews were searched for key words related to ABC system evaluations. Search results yielded 129 respondents'' opinions. 11 The 129 respondents represent 20 of the 21 sites and are split in approximately the same proportion as the survey respondents (Table 2) between the rms and between ABC developers and managers. After identifying discussions of ABC system evaluation, the transcripts were read by a researcher and a research assistant. Three evaluation criteria emerged: (1) use of ABC data for cost reduction; (2) use of ABC data for process improvements; and, (3) improved accuracy of product cost information relative to the traditional cost system. The 10 An analysis software package designed for non-numerical, unstructured data (NU.DIST 1 ) was used. The researcher codes interview passages related to constructs of interest and attributes of the interviewee. The software uses these codes to create a structured index that is useful for investigating systematic response patterns. 11 Some interviewees did not believe that they had su cient knowledge about ABC systems to o er an opinion about system e ectiveness, while others were not asked to discuss the issue.

14 538 S.W. Anderson, S.M. Young / Accounting, Organizations and Society 24 (1999) 525±559 researcher and research assistant independently coded the responses as belonging primarily to one of the three categories. The codes were compared and di erences were discussed and resolved. Although respondents occasionally combined the rst and second criteria in their discussion, very few respondents discussed the third criterion in conjunction with either of the others. Consequently, we combine the rst and second groups to form two groups who di er in the way that they de ne an e ective ABC system. In the rst group are 67 respondents who de ne e ectiveness as use of ABC data in cost reduction or process improvements. In the second group are 47 respondents who believe that increased cost accuracy de nes an e ective ABC system. 12 Contingency tables are used to evaluate the association between opinions about evaluation criteria and: the respondents' company; whether the respondent worked in a plant that faced signi cant external competition; whether the respondent was an ABC system developer; whether the respondent claimed to have received training in ABC; and the respondent's job title. Small sample sizes cause some contingency tables to have observed and expected counts that violate asymptotic assumptions for normal chi-square estimations. Consequently, we use exact test procedures that do not impose distributional assumptions. Comparing di erences between respondents who evaluated ABC system e ectiveness based on use in cost reduction or process improvement with those who base their opinion on improved accuracy of cost data, respondents' job title is the only signi cant (p <0.01) determinant of which view is held. The same result is obtained in a multivariate analysis. When a logit model is estimated for the probability of holding the ``accuracy'' view, the respondent's job title is the only signi cant explanatory variable. 13 Respondents with jobs that are linked to production (e.g. engineering, materials 12 Ten respondents (7.8%) o ered opinions that were su ciently unusual that they were discarded. Five respondents o ered valid but very di erent responses and thus are not included in subsequent analysis. 13 The logit model correctly classi es 73% of the respondents, an improvement over the naõè ve model which correctly classi es 58% of the respondents. management, production operations, quality control) are signi cantly more likely to evaluate the ABC system based on whether it provides more accurate costs than are respondents in administrative roles (e.g. plant manager, nance and accounting, information systems, human resource management). Di erences in opinions are unrelated to the respondent's rm, whether the respondent works in a site that faces competition, whether the respondent is a system developer or whether the respondent received ABC training. The content analysis is consistent with evidence (Cooper et al., 1992) that rms typically adopt ABC with one of two objectives: increased product cost accuracy (e.g. for inventory valuation) or use in process improvement (e.g. activity based management). Cooper et al. hypothesize that different ABC project objectives require di erent implementation processes. Foster and Swenson (1997) nd that di erent evaluation measures are correlated with di erent implementation process variables. We explore these issues (research question 2.2), by substituting for the OVERALL measure of success in Fig. 1, measures of ABC data accuracy (ACCURACY) and use (USE) developed from the survey data. Simultaneous estimation of both aspects of ABC system e ectiveness allow us to provide evidence on whether the two objectives are compatible or are mutually exclusive outcomes Descriptive statistics Responses to 61 survey questions are used as indicators of 16 latent contextual (12) and implementation process (4) variables and of measures of ABC implementation e ectiveness (3). Table 3 provides the full text of the survey questions developed for each latent variable, as well as summary descriptive statistics and Cronbach's (1951) measure of construct validity. Responses to 58 of the survey items generated responses that spanned the ve point Likert-type scale. With two exceptions the constructs are adequately identi- ed, with Cronbach's alpha exceeding the 0.6 level used in exploratory research. Item-level response rates from the 265 respondents ranges from 190 to 265. There are typically two reasons for nonresponse: (1) inadequate knowledge for forming