Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
The purpose of this paper is to explore two questions related to the development of management accounting theory and practice using two methodological resources or frameworks. The questions are:
1. How do management accounting theories and practices develop, and
2. What are the relationships between management accounting theories and practices?
These questions are examined using actor-network theory and Giddens' concept of "the dynamics of modernity" to study the history and development of activity-based costing (ABC) and activity-based management (ABM).
Studying ABC: Methodology Frameworks
The first section of the paper includes a discussion of actor-network theory. The idea is that systems are built through the interactions of humans (actors) and non-humans (networks) where actors or system builders fight with others in the network, with competing networks, with consumers, with non-human actors and with economic forces in the development and translation of theory into practice and practice into theory. To study this phenomenon, the authors follow actors (people and organizations) as they circulate and associate intermediaries, i.e., literary inscriptions, technical artifacts, human beings and money. ABC is studied as a socio-technical system where the actors and networks interact in waves or cycles.
The other resource or framework relates to Giddens' concept of the dynamics of modernity where expert systems are created when abstract knowledge develops from activities, is acted on, disembedded and reembedded (see graphic below) through attribution of meaning (signification), value (legitimation) and power (domination). The authors use this concept to study ABC as an expert system viewing "ABC as a shifting configuration of theories and practices moving over time and space" (p. 125).
Origins of ABC: Actors and Networks
In this section Jones and Dugdale explain why they chose Bob Kaplan as the primary actor to follow (see footnote 8) and then trace the development of ABC concepts from prehistory (1984) to around 1989 (pp. 126-134) using Kaplan as the primary actor.
The story begins when Kaplan moved to Harvard in 1984. The authors mention a series of papers written by Harvard professors (most in the early 1980's) that revealed how global changes were creating threats and opportunities for U.S. manufacturers. They briefly discuss three approaches, or responses to this new environment including the strategic management strand, flexible specialization strand and the Harvard stand and fight strand advocated by Kaplan in various papers (e.g., see Kaplan 1983 and 1984). They note that although Kaplan is outside the mainstream in promoting and conducting field research, he discovers that accounting changes were lagging behind changes in practice (reported in a 1985 paper). This is followed by mention of Cooper's Schader Bellows Case (1985) and Kaplan's John Deere Company case (1987) where both companies had identified cost distortions and began to use concepts related to activity-based costing (The term first used at John Deere Company). Another case is mentioned (Weyerhaeuser, Johnson and Loewe 1987), a paper by Kaplan and Johnson, and then Relevance Lost. This series of papers and actor connections forms the Harvard network made up of Cooper, Kaplan and Johnson.
They mention a few more papers related to the Harvard network and point out that Johnson's thrust differed from the Cooper/Kaplan papers in that Johnson emphasizes managing activities rather than the more accurate measurement of product cost. (See Johnson 1988 and 1989. Johnson expanded on these ideas in Relevance Regained).
This is followed by a discussion of the CAM-I network, the CAM-I conceptual design document, a paper by Jim Brimson, and a list (Figure 3) of CAM-I sponsors, affiliated accounting firms and universities. This subsection also includes a discussion of some comments made by Mike Jeans, who was an actor in the original CAM-I network, and a table reproduced from Chapter 6 of the CAM-I conceptual design related to traditional measures that encourage waste. (See the summary of Chapter 6 for an adaptation of the same table).
The last part of this section mentions some additional articles and the fact that more allies are jumping on the Harvard/CAM-I bandwagon as many additional manufacturing companies and service companies began to use ABC concepts.
Exposition of ABC: Disembedding and Translation
This section mentions a series of articles in practitioner-oriented journals by Cooper, Kaplan and Johnson (e.g., Cooper, R. 1987. The two-stage procedure in cost accounting: Part one. Journal of Cost Management (Summer): 43-51; Cooper, R. 1987. The Two-stage procedure in cost accounting: Part two. Journal of Cost Management (Fall): 39-45; Cooper, R. 1988. The rise of activity-based costing- Part one: What is an activity-based cost system? Journal of Cost Management (Summer): 45-54; Cooper, R. 1988. The rise of activity-based costing - Part two: When do I need an activity-based cost system? Journal of Cost Management (Fall): 41-48; Cooper, R. 1989; Cooper, R. and R. Kaplan. 1988. How cost accounting distorts product costs Management Accounting (April): 20-27; Cooper, R. and R. Kaplan. 1988. Measure cost right: Make the right decision. Harvard Business Review (September-October): 96-103; Johnson, H. T. 1988. Activity based information: A blueprint for world class management accounting. Management Accounting (June): 23-30.)
All of these articles relate to what the authors refer to as the disembedding and translating of ABC. They mention the Pen Company example (See the ABKY Chapter 5 summary) and the value cost table showing the extent of cost distortions caused by traditional costing at Schrader Bellows (p. 136), the idea that excess capacity costs and research and development costs for new products should be excluded from product cost (p. 137), assigning cost to customers (p.138), and Johnson's broader agenda for ABC in this section. This body of work represents the "first-wave ABC".
Transformation of ABC: Battles and Reflections
Two processes lead to transformation: 1) battling or defending ABC against academic critics and anti-program counter-actors (e.g., Goldratt's theory of constraints), and 2) reflexive monitoring within the network. In defending ABC, Cooper and Kaplan alter the concept of excess capacity and redefine it as unused capacity emphasizing the distinction between resources used and resources unused (Cooper & Kaplan 1992). This section also refers to the cost hierarchy (unit, batch, product-sustaining, and facility-sustaining levels) and the change to exclude facility-sustaining cost from cost allocations to products. The authors view this as an extraordinary change indicating that the emphasis in ABC systems had shifted to activity analysis for decisions related to capacity usage rather than more accurate product costs. The first change is apparently second wave ABC, while the cost hierarchy addition moves ABC into the third wave.
In the original version, or wave, of ABC development, all cost were viewed as variable and should be traced or allocated to products. Now Kaplan and Cooper drop the fully allocated cost idea and according to Jones and Dugdale replace it with a contribution analysis that includes two categories of resources (supplied and used). Various actors had different responses to this change. Johnson abandoned ABC (See Johnson 1992), many textbook authors ignored the change, while others assimilated the change including both versions of the ABC concept. The authors use some of Kaplan's comments in a 1990 debate and 1992 paper as recognition that ABC had become a contribution margin approach, not an attempt to determine more accurate product costs. (But note the ABC contribution approach is very different from the original contribution margin concept).
Dissemination of ABC: Reembedding and Translation
This is another fairly long section with what I viewed as considerable redundancy, but briefly the authors discuss how ABC becomes black boxed in computer systems with ERP, how Johnson becomes hostile to ABC, some changes at CAM-I, ABC in the U.K., ABM in the U.K. and U.S., Kaplan's shift to work on the balanced scorecard, and how ABC mutates into ABM. According to the authors, ABC supplies the information while ABM uses this information to produce continuous improvement. ABC in Giddens terms signifies, legitimizes and facilitates domination in decisions to downsize, delayer and cut products and customers. ABC becomes a component of the juggernaut of modernity.
This section includes a review of the paper, and the authors suggest that the actor-network approach has much to offer management accounting research. They also add an interesting chicken or egg type discussion, i.e., which comes first, theory or practice? Apparently there are cycles of both, or cycles of disembedding and reembedding to construct the expert system. An illustration from Kaplan's 1998 paper conveys the wave idea rather well as indicated below.
Several issues are noted.
1. ABC was not authenticated by mainstream accounting journals or professional organizations. Instead management consultants at Harvard and CAM-I had a pivotal role.
2. Computer software's role in black boxing management accounting techniques, from standard costing with MRP, and ABC with ERP.
3. ABC was a response to the new manufacturing environment, but was extended to other industries and service organizations.
4. Knowledge is created through a model of translation of theory into practice in social networks that include knowledge entrepreneurs (actors) and networks.
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