Towards Explaining Activity-Based Costing Failure: Accounting and Control in a Decentralised Organisation

Management Accounting Research, Vol 4, No 4, December 1997

Posted: 15 Oct 1997

See all articles by Teemu Malmi

Teemu Malmi

Aalto University School of Business

Abstract

Many of the Activity-Based Costing (ABC) systems introduced in recent years are said to fail (e.g., Cooper, at al., 1992; Argyris & Kaplan, 1994; Shields, 1995; Roberts & Silvester, 1996). The use of ABC for surveillance by the group management, with no consequent actions, leads us to propose that claims on ABC failure result in part from assessing the use and value of ABCs from the decision-making perspective. The decision-making perspective may be insufficient for capturing the multitude of uses to which ABCs are put in practice. As this study shows, in the context of strategic decision-making the success of ABC cannot depend on whether its results require any actions or decisions to be taken, but on its ability to make a correct diagnosis of the situation. Consequently, some of the so- called ABC failures may not be failures. They may merely reflect a limited appreciation of the uses of accounting and control systems in practice. Nevertheless, failures and resistance are real in a number of organisations. This study explored the origins of resistance to ABC in a case setting, looking at diverse interests of organisational stakeholders, and the role of existing control and information systems in ABC implementation. We show that the resistance may have several sources; some related to the cost and benefits of ABC, some associated with organisational power and politics, and some pertinent to organisation culture. The practical implication of this study hinged on the notion that although the resistance to ABC may come from various sources, these sources appear fundamentally structural and are unlikely to be dealt with by employing implementation-based strategies.

JEL Classification: M40, M46

Suggested Citation

Malmi, Teemu, Towards Explaining Activity-Based Costing Failure: Accounting and Control in a Decentralised Organisation. Management Accounting Research, Vol 4, No 4, December 1997, Available at SSRN: https://ssrn.com/abstract=36920

Teemu Malmi (Contact Author)

Aalto University School of Business ( email )

P.O. Box 21220
Aalto, 00076
Finland
+358 40 5100827 (Phone)

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