Summary by David Miller
Master of Accountancy Program
University of South Florida, Summer 2001
"A significant number of companies are modifying their cost management systems to reflect changes in the business environment. Activity-based cost management systems are positioned to be a solution to the problems caused by the mismatch between traditional cost management systems and the modern business environment. The ultimate goal of an organizational unit in implementing ABCM is to improve employees’ performance on the job and ultimately the performance of the entity." Improved performance is tough to achieve if the user reacts negatively to the implementation of the system. "A significant challenge to the successful implementation of an information system is motivating the users of that information to change their behavior to help the firm respond to the changes brought by the use of ABCM. The purpose of this article is to examine the perceived impact of ABCM implementation on the job performance and environment of users at four implementation sites."
"In a field survey conducted at these four locations, interviews and questionnaires were used to collect data from users concerning their perceptions of the impact of ABCM implementation on their jobs and work environment. The questionnaire was developed from a list of claimed benefits associated with ABC implementation abstracted from prior case studies. The results of the survey presented in this article also provide insight into factors that can be exploited to improve the efficiency of future implementations of ABCM."
"The data collection process from the four sites resulted in a total of forty-nine useable questionnaires from ABCM users at various organizational levels and job functions. Initial interviews with the management of each organization were held to gather information about each company’s operations and cost management system. These interviews also provided information useful in selecting participants for the survey. Questionnaires were used to measure:
Site 1 is a regulated service company located in the southwestern United States. It offers a full line of specialty risk management services including claims, loss prevention, and other administrative services. Primarily an implementation team, who used interviews to collect the necessary data, handled the ABCM implementation process at Site 1. Aside from the members of this team, employees had very little direct involvement in the implementation process. The resulting ABCM system provides detailed information concerning the costs of services organized by profit center and line of business. Due to increased pressure from regulators, management had established improved profitability as the primary objective of the new system.
Site 2 is a division of a major semiconductor manufacturer. The parent company is a global competitor. The company produces thousands of products and serves several large, growing, and interrelated markets. The implementation of ABCM was conducted using a cross-sectional storyboarding procedure in which all functional areas participated and interacted. Site 2 cited accurate and comprehensive product costing and improved profitability as their primary objectives
Site 3 is a wholly owned subsidiary of a Fortune 100 company that specializes in the production of personal and medical care products. The division manufactures and markets products for use in surgery and medical examinations. Primary customers are hospitals and other health care providers. Similar to Site 2, the implementation of ABCM was undertaken using a cross-functional storyboarding approach, with an external consultant heading a conglomerate of internal work teams. After failed attempts with other approaches, participants viewed the storyboarding approach as a success. The cost management system is characterized in terms of its focus on quality improvements and pricing, with a long-run focus of maintaining a leadership position in the market through price competition.
Site 4 is a direct mail catalog company offering greeting cards and small gifts to individual customers. This company manufactures the majority of its paper products, but imports many of its specialty gift items. Site 4 makes extensive use of non-financial performance measures in managing its operations, some of which are produced by the ABCM system. Many of these measures, however, are produced and monitored informally, while modifications to the system appear to be ongoing.
Proponents of activity-based systems have long argued that these systems provide information that is far superior to that of traditional volume based systems. The users surveyed in this study tend to agree that the implementation of ABCM is associated with improvements in the quality of information, the usefulness of information, and the understandability of information. However, further analysis reveals that there is significant variation across the implementation sites in users’ perceptions of information quality, usefulness of information, and understandability of information.
It has been suggested that ABCM systems act as a tool to foster increased understanding of operations and inspire confidence, as well as to increase satisfaction and lower frustration levels among users. Further, the use of information produced by these systems is purported to encourage employees and managers towards more innovative problem solving techniques. Overall, respondents to the survey perceive that ABCM implementation has contributed to significant improvements in the quality of decision-making, increased confidence in their work, and also increases in job satisfaction, performance, and productivity. Further, users associate ABCM implementation with an increased amount of influence that they have over others. Alternatively, users do not perceive the implementation of ABCM to have had a significant impact on the amount of frustration encountered in making job-related decisions. Nor do they perceive that having ABCM information has made it easier for them to reach the level of performance expected of them.
The results presented in this article indicate that, on average, users at four implementation sites reacted positively to the implementation of ABCM. Users in this study associate the adoption of ABCM with higher quality information that is useful to them in their jobs. Further, although users perceive ABCM adoption to have had a positive impact on their jobs, their performance, and their confidence in their work, they do not perceive that the change in the cost management system has made it any easier to meet their performance expectations. In fact, during interviews, users often cited the additional demands placed on them due to the implementation and adoption procedures as a major impediment to reaching performance targets, even though they found the outputs of the system useful."
Berliner, C., and J. A. Brimson, eds. 1988. Cost Management for Today's Advanced Manufacturing: The CAMI Conceptual Design. Boston: Harvard Business School Press. (Short Summary of Concepts.) (Longer Summary.)
Cokins, G. 1999. Using ABC to become ABM. Journal of Cost Management (January/February): 29-35. (Summary).
Cooper, R. and R. Slagmulder. 2003. Interorganizational costing, Part 1. Cost Management (September/October): 14-21. (Summary).
Cooper, R. and R. Slagmulder. 2003. Interorganizational costing, Part 2. Cost Management (November/December): 12-24. (Summary).
Gaiser, B. 1997. German cost management systems. Journal of Cost Management (September/October): 35-41. (Summary).
Gaiser, B. 1997. German cost management systems (part 2). Journal of Cost Management (November/December): 41-45. (Summary).
Johnson, H. T. 1988. Activity based information: A blueprint for world class management accounting. Management Accounting (June): 23-30. (Summary).
Johnson, H. T. 1989. Professors, customers, and value: bringing a global perspective to management accounting education. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 7-20. (Summary).
Keys, D. E. 1994. Tracing costs in the three stages of activity-based management. Journal of Cost Management (Winter): 30-37. (Summary).
Keys, D. E. and R. J. Lefevre. 1995. Departmental activity-based management. Management Accounting (January): 27-30. (Summary).
Martin, J. R. Not dated. Activity based management models. Management And Accounting Web. http://maaw.info/ABMModels.htm
Martin, J. R. Not dated. The CAM-I conceptual design. Chapters 1-3.Management And Accounting Web. (Summary).
Martin, J. R. Not dated. The CAM-I conceptual design. Chapter 6. Management And Accounting Web. (Summary).
Van der Merwe, A. 2007. Management accounting philosophy I: Gaping holes in our foundation. Cost Management (May/June): 5-11. (Summary).
Van der Merwe, A. 2007. Management accounting philosophy II: The cornerstones of restoration. Cost Management (September/October): 26-33. (Summary).
Van der Merwe, A. 2007. Management accounting philosophy III: The management accounting evaluation framework. Cost Management (November/December): 20-29. (Summary).
Van der Merwe, A., B. D. Clinton, G. Cokins, C. Thomas, K. Templin and J. Huntzinger. 2012. Conceptual Framework for Managerial Costing: Draft Report of the IMA Managerial Costing Conceptual Framework Task Force. IMA. (Summary).