Summary by Rosalyn Mansour
Ph.D. Program in Accounting
University of South Florida, Spring 2004
Controllership/Control Main Page
| AIS/MIS Main Page | Structure
& Restructure Main Page
Purpose: To develop and test a model explaining the relationship between a customization strategy and design of management accounting systems.
Hypotheses Development
An adaptation of the research framework and path model has been reproduced below. In the model, several constructs were operationalized as follows:
1. Customization - is a continuum where customers can have little or no impact on the products/services to a scenario where products/services are completely customized.
2. Interdependence - how much the departments depend upon one another to get the job done.
a. Pooled interdependence - little interdependence, such as sharing common resources.
b. Sequential interdependence - function A's output is input to function B and so on.
c. Reciprocal interdependence - highest form of interdependence where inputs and outputs move back and forth between departments.
When an organizational structure if functional, there will always be at least some amount of interdependence between functions. Where a firm only produces customized goods, there will be complete interdependence between, for example, sales and production.
3. Management Accounting Systems - formal decision facilitating system. In this study, there are 4 distinct dimensions; however, there is possibly overlap.
a. Scope - consists of focus, quantification, and time horizon sub-dimensions. It is a continuum with narrow scope (traditional accounting systems) on one end and broad scope (external focus, future-oriented, and non-financial) on the other.
b. Integration - information about multi-departmental activities that would then influence activities of another department.
c. Aggregation - summary information.
d. Timeliness - has 2 dimensions in this study. Frequency of reporting refers to how often managers request information. Speed of reporting refers to how quickly mangers receive requested information.
Uncertainty is caused by a gap between information needed to make a decision and information management actually possesses. There is additional uncertainty in the customization context because each customer requirement is new whereas standard products allow decision-making processes to be programmable. Interdependency adds additional uncertainty because the actions of one department affect others and such action/reaction are not programmable decisions. Furthermore, multiple departments have multiple, and sometimes conflicting, objectives. Decision-makers need a holistic optimization solution rather than piecemeal solutions. Properly designed management information systems can help fill the information gap and facilitate multi-departmental coordination by integrating information. The aggregated dimension of an MIS enables more information to be processed by managers. Timely information allows managers to modify activities in response to demands of customization and other departments.
Hypotheses
The following hypothesis were investigated:
H1: There is a positive relation between customization and interdependence among departments (p. 225).
H2: There is a positive indirect reaction between customization and the MAS dimensions of (i) scope (ii) integration (iii) aggregation and (iv) timeliness, acting through interdependence (p. 227).
Methodology
A total of 85 mid-level production and sales managers located in the Netherlands were surveyed about the level of customization of the products/services produced by their firms. Also measured was: respondents’ perceptions about his/her department's interdependence with other departments by measuring pooled, sequential, and reciprocal interdependence. Another questionnaire asked subjects to rate (5 point Likert scale) the importance of characteristics of their company's (decision-assisting) information systems on dimensions of scope, timeliness, integration, and aggregation. All scales were validated in prior literature as well as being validated and tested for reliability in the current study (scales provided in Appendix A). Respondents were employed in either manufacturing or service organizations and no one industry was overrepresented. Company criteria for selecting the sample subjects included (1) production and sales had to be 2 separate departments (2) Subjects' firm had to be comprised of 3 or more business units and (3) Subjects' business unit had to employ at least 150 people.
The Path Model, Results/Conclusions
The relations between constructs of interest (customization, interdependence, and MAS) were explored via a multiple regression path model (represented by the two equations in the graphic above) and support for H1 and H2 was found where R21 represented the variance explained by Equation (1) and R22(i) represented to variance explained by Equation (2). Various statistics are shown in Tables 2, 3, 4 and 5 in the paper to support the following conclusion. "Customization, as a strategic priority, does not have a direct relation with MAS but rather operates via the interdependencies created when such a strategic priority is pursued (p. 234)." Scope of MAS wasn't important for decision-making and there were only minor differences between the responses of production and sales managers.
Research Contribution
This research helps toward providing an understanding of what influences the design of MAS and is the first study to look at strategic choice, interdependence, and MAS. In addition, this study's findings contradict prior literature. It also overcomes methodology shortcomings found in prior literature.
_____________________________________________
Related summaries:
Anthony, R. N. 1964. Framework for analysis. Management Services (March-April): 18-24. (Summary).
Chenhall, R. H. 2003. Management control system design within its organizational context: Findings from contingency-based research and directions for the future. Accounting, Organizations and Society 28(2-3): 127-168. (Summary).
Covaleski, M. and M. Aiken. 1986. Accounting theories of organizations: Some preliminary considerations. Accounting, Organizations and Society 11(4-5): 297-319. (Summary).
Covaleski, M. A., M. W. Dirsmith and S. Samuel. 1996. Managerial accounting research: The contributions of organizational and sociological theories. Journal of Management Accounting Research (8): 1-35. (Summary).
Ferreira, A. and D. Otley. 2009. The design and use of performance management systems: An extended framework for analysis. Management Accounting Research (December): 263-282. (Summary).
Ittner, C. D. and D. F. Larcker. 2001. Assessing empirical research in managerial accounting: A value-based management perspective. Journal of Accounting and Economics (December): 349-410. (Summary).
Langfield-Smith, K. 1997. Management control systems and strategy: A critical review. Accounting, Organizations and Society 22(2): 207-232. (Summary).
Macy, G. and V. Arunachalam 1995. Management accounting systems and contingency theory: In Search of effective systems. Advances in Management Accounting (4): 63-86. (Summary).
Neimark, M. and T. Tinker. 1986. The social construction of management control systems. Accounting, Organizations and Society 11(4-5): 369-395. (Summary).
Paladino, B. 2007. 5 key principles of corporate performance management: How do Balanced Scorecard Hall of Fame, Malcolm Baldrige, Sterling, Fortune 100, APQC, and Forbes award winners drive value? Strategic Finance (June): 39-45. (Note).
Tiessen, P. and J. H. Waterhouse. 1983. Towards a descriptive theory of management accounting. Accounting, Organizations and Society 8(2-3): 251-267. (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).
