DETERMINANTS OF

ACCOUNTING INNOVATION
IMPLEMENTATION
AUTHORS: MARGARET A. ABERNETHY AND
JAN BOUWENS (2005)
ACC 6620: MANAGERIAL ACCOUNTING

DECEMBER 9, 2014
SUBMITTED TO: DR JULIA BINTI MOHD SAID
Submitted By: Nurul Iffah Binti Ghazali (G1315584),
Siti Hajjar Binte Mohamed Idrus (G1314434)
 Table of Contents

1.1 Executive Summary ............................................................................................................. 2

2.1 Theoretical Model ................................................................................................................ 4

2.2 Hypotheses of Study ............................................................................................................ 4

3.1 Critical Evaluation ............................................................................................................... 6

3.1.1 Choice of Decentralization ............................................................................................... 6

3.1.2 Organization Structures Impact on MAS ......................................................................... 7

3.1.3 Culture .............................................................................................................................. 8

4.1 Conclusion ........................................................................................................................... 9

References ..................................................................................................................................... 10

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1.1 Executive Summary
Accounting innovation in this article is referring to new Management Accounting System (MAS),
conceptualized as either a new system (i.e., Balance Scorecard, Activity Based
Costing/Management, Life Cycle Assessment) or redesign of an existing system (i.e.,
Performance Measurement System, Production Control System). This new system is believed to
increase firms performance and assist managers decision in the organization and resulting to the
top managements implementing this new system. However, studies by Kaplan, 1986; Bruns, 1987;
Innes and Mitchell, 1991) showed it does not serve its objectives, moreover it increased the
resistance among lower level managers. The managers indicated reluctance to adapt this system
since the decision control provided by the new MAS had affected their wealth negatively. When
the new system is being implemented, there is a possibility for this system to directly influence on
how their performance is evaluated and rewarded.

Most of the prior literatures studied the failure of accounting innovation were due to the
weaknesses of the organizational level such as training policies, internal management, and firms
strategies. Yet, studies on the understanding attitude of the managers and employees towards the
new innovation were not many to be found. Thus, the purpose of this article is to examine factors
that influence the acceptance of Management Accounting System (MAS) innovation by lower
level managers. They assessed the choices of organizational structure within the firm that has an
impact on production managers attitude to the accounting innovation.

The main issue of this article is the choice of decentralization in decision making can limit the
potential of subunit managers resistance on the accounting innovation and thus lead to better
organizational outcome. Decentralization decision making becomes the choice of internal
structural arrangements due to various benefits namely, it relieves the burden of top management,
empowering employees and more efficient decision making. The authors argued decentralization
as the important determinant to reduce the resistance of MAS innovation. In addition, as claimed
in the article, MAS can have successful implementation in these two conditions. Firstly, the
involvement of lower level managers in designing the accounting system can influence the
managers respond to the changes. Secondly, the conducive environment that able to adapt new
system provided by accounting innovation will create positivity among the lower level managers.

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This paper used random sampling of production managers of manufacturing business units located
throughout Australia as the methodology for data collection. Of the 242 firms that the
questionnaires were sent, 11 questionnaires were left unanswered and only 83 firms responded
which equivalent to 36 percent response rate. This rate considered as reasonable by the authors
since there were no studies done on this issue previously which have a response rate higher than
that. The measurement instruments were developed from previous research where possible and
some questions were adapted by the existing instrument to suit the construct of interest.

The results of this study indicate the choice of decentralization in decision making within the firm
influences the respond of managers to the accounting change. Subunit managers will welcome the
new system easily when they are able to adapt the information provided by the new MAS and
have the opportunities to provide input into the design of the new system. The findings also
highlighted the existence of workforce that is able to assimilate and respond to new information
and environment where the subunits have the capacity to make technological change that is
essential in order to reduce the resistance of new accounting system.

The results supported the existing literatures which stated the importance of user influence in the
design process can affect the production managers attitude to the accounting innovation. The
absence of these production managers may contribute to the resistance and the worst, will sabotage
the system. Based on the paper by Zimmerman (2003), the author claimed MAS has been used to
serve decision control and decision management role and the results indicate the participation of
the managers can reduce the resistance. Minimal resistance, hence, led to the better performance
by the lower level managers and can increase the organizational outcomes.

Importantly, the findings from this article give the idea on the importance of understanding the
determinants of accounting innovation implementation failure. Organizational level problems may
contribute to this failure, but to study on the behaviour of the people who run the system is much
more vital as they have direct influence to the system. Thus, this paper shed some light on the
factors that may influence the acceptance of accounting innovation system through delegation of
rights and decision making to the lower level managers.

The theoretical model used by the authors will further explained on this relationship in the next
section.

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2.1 Theoretical Model
This paper investigates how decentralization of decision rights in the company would lead to
managers acceptance of accounting innovations and eventually improving companys
performance. The authors hypothesized that decentralization on the company would developed
two intervening paths; 1) relation between decentralization, subunit adaptability and acceptance,
2) relation between decentralization, user inuence and acceptance. Below figure 2.1 illustrates
the factors that lead to performance with decentralization choices as an important determinant of
managers acceptance of accounting innovations.

Figure 2.1: Theoretical Framework

2.2 Hypotheses of Study

2.2.1 Hypothesis 1
H1: The relation between decentralization and acceptance of MAS innovations is mediated by
subunit adaptability.

The first hypothesis explains one of the two conditions necessary to encourage acceptance of MAS
innovations by subunit managers / production managers. Decentralization empowers the subunit
manager to implement the changes that will enable the subunit to adapt to the new signals provided
by the accounting innovation. Employees able to create a culture within the subunit that is
conducive to change. An example to accounting system change concerning asset utilization. Lower

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managers is said to be able to adapt to the change if they are able to use the information from the
new system to improve the subunits performance. Adaptability is what Cohen and Levinthal
(1990) refer to as absorptive capacity that is inuenced by the extent to which the subunit manager
is both able and willing to use the information to make the necessary adaptations in the subunit.
Such as the ability of the subunit to obtain investment funds to purchase desired technology and
the willingness of individuals working within the subunit to adjust their behaviour to changing
circumstances (Scott and Bruce, 1994; Tsai, 2001).

The result of the study found that H1 is accepted.

2.2.2 Hypothesis 2
H2: The relation between decentralization and acceptance of MAS innovations is mediated by
subunit managers inuence in the design and implementation of MAS innovations.

The second condition that encourage acceptance of MAS innovations is the influence of subunit
managers on the MAS design. Decentralization enables production managers to have greater input
into the design of the MAS as it allows the lower managers sufficient authority to influence the
design of MAS. As power is pushed down to the lower managers, they get involve in the design
and it is likely to increase the extent to which the system is tailored to the needs of lower managers.
These benefit in terms of the potential to decrease the measurement error of the system when it is
used for performance assessment of lower managers (Hofstede, 1967).

The result of the study found that H2 is accepted.

2.2.3 Hypothesis 3
H3: There is a positive relation between acceptance of MAS innovations and both user satisfaction
and subunit performance.

Third hypothesis studies the direct or immediate impact of acceptance of MAS innovations in
which it leads to improvement of the firms performance as well as the users satisfaction with the
information obtained from the implementation of the new MAS system. Prior research (Hunton,
1996; Hunton and Rice, 1997) have found a positive association between the MAS innovations to
both user satisfaction and subunit performance.

The result of the study found that H3 is not accepted.

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2.2.4 Hypothesis 4
H4: The relation between acceptance of MAS innovations and subunit performance operates via
user satisfaction.

Fourth hypothesis studies the indirect impact of acceptance of MAS innovations in which its
relationship with company performance is mediated through user satisfaction. Prior studies by
Igbaria and Tan (1997) found that user satisfaction with information technology has a strong direct
effect on performance. Greater acceptance of the MAS innovation will give managers satisfaction
with the system and satisfaction brings improvement in performance through the benets gained
from the information provided to users.

The result of the study found that H4 is accepted.

MAS innovation facilitate managerial decision making and control subunit managers behaviour
by superiors through performance evaluation. Hence this study investigates the factors that would
lead to the acceptance of MAS implementation that eventually bring about performance
improvements. The result of the study illustrates that in order for the MAS to be accepted by the
lower managers, decentralize structure empowers managers to adapt to the changes. This create a
culture conducive to change. Additionally, by involving managers in the designing of MAS
through decentralization. It allows lower managers to influence change and cater the design to the
needs of the subunits that usually have a more direct interactions with customers. Lastly, the MAS
acceptance by lower managers have to bring about satisfaction or tangible benefits in the
implementation in order to lead to companys performance.

3.1 Critical Evaluation

3.1.1 Choice of Decentralization

The study of decentralization has been conducted since it was implemented during the past 18th
and 19th centuries when the problems in centralization occurred in the government organizational
structure. This broad idea of decentralization was then introduced into the management of private
organization by DuPont, an American Chemicals Company in the mid of 1920s when its senior
executives developed a multidivisional structure to cope with its diversification (Hindle, 2009).
When the company started to implement Management Accounting System (MAS), it was seems

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to assist decision making in the company and helps to show better outcome. This is in line with
the studies by Gordon & Miller, (1976) and Waterhouse and Tiessen, (1978) that argued, there is
a fit between decentralization and the MAS characteristics of broad scope and aggregation is likely
to improve managerial performance. In a decentralized organization where different subunit
managers have different specific needs, broad scope information will enable the managers to
decide more effectively, and lead to better performance. Gul & Chia, (1994) in their paper also
supported positive influence of decentralization to the firms behaviour.

Almost all articles studied by previous scholars support the decentralization that can result to
increase the performance of the firm. However, Richardson et al., (2002) found that this delegation
of rights and power also can decrease the financial performance in the firm. This is due to
decentralized decision making requires a great deal of both resources and effort and it consider as
too costly for the financial effect to the firm. They examine the decentralizations influence on
financial performance in a sample of behavioural healthcare treatment centers in US and the result
showed high decentralization in growing centers had reduce the performance of the firm,
financially. However, in the shrinking centers, involvement of more professionals and firms with
low performance aspirations, the choice of decentralization can influence the attitude of the
employees in the long term effect and may improve the firms financial performance.

The research presented here, thus, indicates that the impact of decentralization on organizational
outcomes can be fairly strongin both a positive and a negative sense. They conclude that
decentralization is not universally beneficial to all organization as the financial performance tends
to varies according to the attributes of the organizations to the decentralization. Hence, more
research need to be done to study the effect of decentralization not only to the organizational level,
but to the firms as a whole.

3.1.2 Organization Structures Impact on MAS

There are many big corporations that tapped into the benefits of centralized or decentralized
organization structure. However there are some who tapped into the benefits of both structures to
achieve performance. Such corporations adopted the hybrid organization structure. This support
the application of contingency theory to study the management accounting systems (MAS) design
and performance (Chenhall & Morris. 1986; Gul. 1991) where decentralization (or centralization)
is seen as an important contingent variable in designing MAS. The capacity for information or

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control systems (MAS) should meet the requirements or demands as a result of uncertainty facing
the organization.

An example of a successful corporation that adopts decentralize structure is the automobile giant;
General Motors. The main benefit of decentralized learning is the ability to deploy and manage
large amounts of content, all of which can be localized (Seeds and Khade, 2008). Localized refers
to the subunit levels head by the production managers whose decision making of the company is
being granted to.

An example of a successful corporation that adopts centralize structure is the leading producer of
microchips; Intel Corporation. Such Industry is unable to support decentralization as such structure
result to serious delays and cost overruns. In 1990s, Intel reshaped and redefined their company
into a completely centralized organization (Seeds and Khade, 2008). Centralization resulted to a
single facility in charge of fabrication instead of multiple facilities.

In contrast to the above, eBay is a successful corporation that adopts a hybrid structure. The hub
of the corporation is extremely centralized where major decisions and ideas are held to the higher
management and team members. Whereas what is decentralized in eBay is the customer service
approach.

Different organizational structure complexity exist in corporations and authors Cassia, Paleari &
Redondi, (2005) hypothesized that organization congurations and MAS would change
simultaneously i.e. the greater the organisation complexity, the higher the MAS evolution. Top
management support provide the impetus needed to sustain the implementation of MAS.

3.1.3 Culture
One of the limitations in this article is the authors claimed the results can be generalized to other
geographical region and no theory that predicts culture can affect the relationship of the study.
They already ensured that their sample was random and demonstrated minimal random bias error.

In the study by William and Triest (2009) on the impact of corporate and national cultures on
decentralization in multinational corporations, the results shown culture does affect the
decentralization of decision making within the firms in MNCs. Corporate culture refer to the
culture that affect the behavior and decision making of the managers including the control systems.

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The choice of decentralization in MNCs, has been identified as one of the decision making by the
managers to control the system in an organization. The authors argued that corporate culture can
be

While the national cultures refer to the culture dimensions by Hofstede, (1980). They tested on
two variables which are individualism and uncertainty avoidance of host and home country, and
how this culture affect the delegation of decision making from parent company to subsidiaries.
The study find out the headquarters in the individualism countries more tend to give the power to
decide to the subsidiaries managers since the immediate employees prefer to have more control
over the actions. The people want to make their own choices and have more control over the
decision in an individualistic culture.

However, for the host country of subsidiaries that having more uncertainty avoidance culture,
they need more guidance and rules form the parent company. Thus, they need more controls by
the headquarters managers and decentralized decision making is less applicable to this culture.
Most of the subsidiaries of MNCs are in developing nations and that gives the reasons of more
controls needed to these firms. This paper hence, provides a new finding in the area of research,
which culture can gives impact to the choices of decentralization of decision making in an
organization.

4.1 Conclusion
This study examines the diffusion factors on the successful implementation of accounting
innovations (MAS) in organizations. In this study however, with the limit of quantitative study, to
answer how decentralization and its hypotheses works is unfortunately not likely. Innovation is
said to create wealth and prompt performance however the lower managers who are affected by
the change may resist if organizations fail to create an environment to influence acceptance of
MAS. As such, decentralization was the choice of organization structure as an important
determinant of managers acceptance of MAS. It develops two intervening paths; adaptability to
MAS change and managers influence in the MAS design which leads to performance via users
satisfaction. Nevertheless, prior studies found that decentralization is not universally beneficial to
all organization as its success tends to vary according to the attributes or cultures of the
organizations. Additionally, as different organization congurations change or increase in
complexity, MAS would change simultaneously.

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