ACTIVITY-BASED COSTING: HOW FAR HAVE WE COME

INTERNATIONALLY?
Alnoor Bhimani, Maurice Gosselin, Mthuli Ncube, Hiroshi Okano. Cost Management. Boston:
May/Jun 2007. Vol. 21, Iss. 3; pg. 12, 6 pgs
Abstract (Summary)
An investigation assesses the extent to which organizations have adopted activity-based costing
(ABC) in seven countries: Canada, France, Germany, Italy, Japan, USA, and the UK. It considers ABC
systems in relation to perceived usefulness as well as extent, speed, and perceived success of
activity-based costing implementations. A questionnaire was developed to collect information on
corporate costing practices in seven countries. More than 400 questionnaires were returned and
analyzed. The results of the study show continuing variations in aspects of the implementation of
activity-based costing systems. Generally, a large number of contextual variables affect the adoption of
management accounting and control system innovations. ABC implementation is no exception.
Managers who seek to understand the multitude of forces which shape accounting practices within
their organizations will develop useful knowledge from the ABC system experiences reported here as
a guide to factors at play affecting their ability to globally expand their cost management practices.

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[Headnote]
This article considers the results of an International survey of ABC in respect of perceived usefulness, the
speed, and the success of ABC Implementations, and the extent of ABC Implementation across seven
countries.

Organizations across the globe have been exhorted to adopt novel costing approaches over the past
decade. This investigation assesses the extent to which organizations have adopted activity-based
costing (ABC) in seven countries: Canada, France, Germany, Italy, Japan, USA, and the UK. It
considers ABC systems in relation to perceived usefulness as well as extent, speed, and perceived
success of activity-based costing implementations. A questionnaire was developed to collect
information on corporate costing practices in seven countries. More than 400 questionnaires were
returned and analyzed. The results of the study show continuing variations in aspects of the
implementation of activity-based costing systems.

Over the past decade, organizations across the globe have been exhorted to change their costing
practices by adopting cost management innovations such as activity-based costing (ABC). While ABC
received much publicity during the late 1980s in Canada, the United States, and the United Kingdom,
awareness of the approach trailed and differed in extent and timing in France, Germany, Italy, and
Japan. Although the implementation of ABC in different forms has affected organizational accounting
systems within firms in these countries to differing degrees, few studies reveal the extent of variations.
This article explicitly considers the results of an international survey of ABC in respect of perceived
usefulness, the speed and the success of ABC implementations, and the extent of ABC
implementation across seven countries.

Activity-based costing is not what it used to be

The relationships between the success of ABC implementation and variables within organizations that
have implemented ABC have been widely surveyed. These include investigations of the relationships
between the stages of the diffusion, adoption, and implementation of ABC and contextual factors such
as strategy, organizational structure, and product diversity. Research on ABC has also been carried
out on the relationships between ABC and organizational size, level of automation, complexity of
production processes, organizational culture elements, behavioral factors, institutional forces, and
stock market and firm performance. A small number of studies have also explored aspects of cross-
national variations in the use of ABC systems. The results of these studies enable only tentative
conclusions to be drawn concerning the contextual dependency of activity-based costing and
management (ABCM). But there clearly appears to be country-based differences in ABCM adoption
and experiences. While several surveys have been conducted in the UK, the USA, Canada, Italy,
Germany, and France, no survey has been administered across these countries at the same time and
with the same questionnaire translated in the relevant languages. This has made a more extensive
assessment of the deployment of ABC in North America, Europe, and other parts of the world difficult.
Nevertheless, the results of these studies in the aggregate, suggest variations in ABC experiences
across organizations operating in different countries.

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EXHIBIT 1 Number of Respondents by Country

EXHIBIT 2 Respondents Perceiving Potential Usefulness of ABC by Country

The emergence of ABC as a new cost management practice started in the USA. The new approach
was almost simultaneously publicized in the UK and in Canada.1 In the early 1990s, a number of
descriptive investigations of ABCM were undertaken in these two countries. Innes and Mitchell carried
out the first survey that included questions on ABCM.2 They found that among their 187 UK company
respondents, only six percent had begun to implement an ABCM system while fiftytwo percent had not
considered implementing ABCM. During the same period, Bright surveyed manufacturing firms again
in the UK.3 The thirty-two percent of ABCM adopters in this study was much larger than in Innes and
Mitchell. Another survey conducted in the UK by Nicholls showed that ten percent of the respondents
had implemented ABC,4 with a follow-up UK investigation by Innes and Mitchell in 1995.5 A
comparison of the two surveys in 2000 reports that in 1994, 19.5 percent of UK companies had
adopted ABC with 27.1 percent of firms actively considering ABC.6 By 1999, the respective figures had
dropped to 17.5 percent and 20.3 percent.
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EXHIBIT 3 Stages of ABC by Country

EXHIBIT 4 Speed of Implementation by
Country

In Canada, Armitage and Nicholson surveyed the 740 largest corporations.7 The results showed that
fourteen percent of the respondents had implemented ABC, 15 percent were reflecting on
implementing ABC, and sixty-seven percent had not considered implementing an ABC system. The
diffusion of ABCM in France trailed that in North America and the UK, though French management
accountants have often argued that a method similar to ABC has been used in France since 1930.
Similarly, Italy, Germany, and Japan experienced a lag in the publicity received by ABC compared to
the Anglo-Saxon world.8

As noted, the aim here is to directly examine the extent to which ABC has been implemented in
different countries (Canada, France, Germany, Italy, Japan, UK, and USA) and on how perceptions of
the extent, speed, success, and usefulness of ABC implementation differs across these countries.
These are relevant factors to investigate because some organizations that decide to pursue ABC may
adapt the method and concentrate their efforts on cost driver and activity analyses during the
implementation process, or they may decide to abandon the implementation process altogether. Other
organizations implement ABC on a pilot basis or use it across some business units or a majority of
business units. The speed of ABC implementation may also vary from one organization to another
depending on factors such as strategy, organizational structure, accounting and non-accounting
ownership, and links to quality initiatives.

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EXHIBIT 5 Success of ABC by Country

The success of an ABC implementation depends on several factors including training, links to
performance evaluation, links to quality initiatives, and adequacy of resources. Behavioral factors
generally play a principal role in influencing the success of cost management implementations.9,10
Understanding the variety of factors which can affect extent, speed, and success of ABC
implementation can be useful to organizations seeking to expand globally and deploy integrated cost
management information across the countries in which they operate.

Questionnaire and data collection process

A mail survey was administered in seven countries: Canada, France, Germany, Italy, Japan, USA, and
the UK. This instrument enabled the collection of information concerning strategy, speed, success, and
stages of ABC implementation as well as firmspecific information. The questionnaire was compiled in
English and translated into French, German, Italian, and Japanese by academics from these countries.
In all cases, the questionnaires were addressed to the Chief Accountant, Controller, or equivalent post
in the sample population. The Canadian companies were sent both the English and French versions of
the questionnaires.

The population surveyed in Canada included the 500 largest11 companies of the Blue Book of
Canadian Business. In the United Kingdom, the survey was sent to the 500 largest companies of the
Times 1000 UK companies. In Japan the questionnaire was sent to the 500 largest companies listed
by Nikkei Shinbun. The survey in France was sent to the 500 largest companies of the database
"L'expansion: Les 1000, performance et classement des plus grandes entreprises françaises." In
Germany, the survey was sent to the 500 largest companies from a ranking compiled by Frankfurter
Allgemeine Zeitung Gmbh Information Services. The Italian population consisted of the largest 450
Italian companies from a listing provided by the Italian Trade Center. Lastly, in the USA, the population
was made up of the largest 500 firms ranked under Moody's Industrial manual.

Four hundred and sixteen questionnaires were sent back to the researchers. Exhibit 1 shows the
number of respondents in each country. The largest groups of respondents relate to Japan (95) and
the United Kingdom (85) while Italy (32) represent the smallest. This gap may be explained by the fact
that the respondent group from the UK has had the opportunity to participate in several surveys over
the last decade. This is not the case for respondents from France and Italy where only a small number
of surveys on accounting practices have been conducted.

Results of the survey

The results in Exhibit 2 show that there are significant differences in the proportion of organizations
that considered ABC to be useful. The French responding organizations revealed the highest rate of
perceived usefulness. This was followed by Japan, US, Canada, UK, and Italy. The lowest perceived
usefulness was by the German firms.

The analysis of the stages of ABC implementation by country appears in Exhibit 3. It shows that the
proportion of organizations at each stage of implementation and in each country is significantly
different. The Japanese and the Italian respondents abandoned ABC in a greater proportion,
respectively 69.5 percent and 15.8 percent, than the respondents from the other countries. The high
abandonment of ABC by Japanese companies in the light of their equally high perception of the
potential usefulness of ABC may be explained by the existence of such information made available to
management thereby making ABC data redundant. The next largest rate of abandonment is 15.8
percent in Italy. Germany, France, UK, and USA all have relatively low abandonment rates. The mean
abandonment rate is 4.3 percent.

The proportion of organizations that implemented a pilot ABC system is 36.8 percent in Italy-the
highest. The lowest rate is in France at 10.8 percent. The average rate of pilot ABC is 19.3 percent. In
the UK and the USA, 55.8 percent and 54.4 percent of the organizations respectively are using ABC
across units while it is limited to 21.6 percent in France and 6.1 percent in Japan. Of the French
respondents, 64.9 percent are using ABC in the majority of their units, but the level is 13.4 percent in
Japan. Organizations thus implemented ABC in a different manner depending on the country. Among
the German, Japanese, UK, and USA respondents less than twenty percent implemented ABC across
a majority of units.

There are several potential explanations for these differences in stages of ABC implementation. The
size and the industry of the organizations surveyed may be different from one country to another. The
diffusion of ABC in countries like Japan, Germany, and Italy may have lagged that in Canada, UK, and
the USA. In North America, and in the UK, ABC is better known since it is in these countries that most
of the articles pertaining to ABC have been published. In France, organizations have already used a
method similar to ABC for a long period of time.

Responses to the question concerning the speed of implementation are shown in Exhibit 4. They
indicate that the speed of implementation is significantly different from one country to another. French
and Japanese managers perceive their ABC implementation as being quicker while Canadian, Italian,
and US managers see implementation as taking place more slowly. Exhibit 5 identifies the level of
success perceived for ABC. The results show that perceived success varies significantly from one
country to another. A more extensive analysis of the data shows that French, German, and Japanese
respondents seem to perceive a higher level of success relating to ABC implementation than those
from other countries. Canadian respondents tend to perceive the success of the ABC implementation
at a relatively lower level. It is also clear that the success of an ABC implementation does not
necessarily mean that ABC will be regarded as useful to managers or as irreplaceable as a cost
management technique. As noted, Japanese companies' high level of success in ABC implementation
is accompanied by a relatively high level of ABC abandonment (see Exhibit 3).

Conclusion

This article has presented the results of a cross-national survey on ABC practices conducted in seven
countries, and the results show that there are significant differences in the implementation rates,
speed, and extent across countries. Perceptions of ABC success also show extensive variations
between countries. The study results presented here limit themselves to reporting on ABC
implementation across large firms in the seven countries investigated, and to identifying some factors
associated with the extent, speed, and perceived success of such implementations. Cross-national
studies of organizational practices that reveal variations can be indicative of different explanatory
reasons as to the reported variations. There may be nation-specific factors underlying country-
specificity. Likewise, there may be cultural forces at play which coincide with national borders but
which transcend organizational specificities. An explanatory variable leading to country specific
differences in the diffusion of management practices may relate also to differing levels of
professionalism of organizational practices across different countries. Implementation variables
particular to organizational situations may likewise condition diffusion rates reported across the seven
countries focussed upon here.

Generally, a large number of contextual variables affect the adoption of management accounting and
control system innovations. ABC implementation is no exception. Managers who seek to understand
the multitude of forces which shape accounting practices within their organizations will develop useful
knowledge from the ABC system experiences reported here as a guide to factors at play affecting their
ability to globally expand their cost management practices.

[Sidebar]
THE SUCCESS OF AN ABC IMPLEMENTATION DOES NOT NECESSARILY MEAN THAT ABC WILL BE
REGARDED AS USEFUL TO MANAGERS OR AS IRREPLACEABLE AS A COST MANAGEMENT
TECHNIQUE.

[Footnote]
NOTES
1 Bhimani, A. 2005, Strategic Finance and Cost Management, London, UK: Management Press.
2 Innes, J. & Mitchell, F. 1991. "ABCM: A Survey of CIMA Members," Management Accounting (UK)
(October): 28-30.
3 Bright, J., Davies, R.E., Downes, C.A. and Sweeting, B.C. 1992. "The Deployment of Costing Techniques
and Practices: a UK Study." Management Accounting Research Vol. 3: 201-211.
4 Nicholls, B. 1992. "ABCM in the UK-A Status Report." Management Accounting (May): 22-23, 28.
5 Innes, J. & Mitchell, F. 1995. "A Survey of Activity-Based Costing in the UKs Largest Companies."
Management Accounting Research 2: 137-153.
6 Innes, J., Mitchell, F. & Sinclair, D. 2000. "A Tale of Two Surveys," CIMA Research Update (Spring) p.4.
7 Armitage, H.M. & Nicholson, R.N. 1993. "Activity-Based Costing" Hamilton, Ontario: The Society of
Management Accountants of Canada, Management Accounting Issues Paper 3, 1993.
8 Bhimani, A. 1996 (ed.) Management Accounting: European Perspectives, Oxford, United Kingdom: Oxford
University Press.
9 Shields, M.D. &Young, S.M. 1989. "A Behavioral Model for Implementing Cost Management Systems,"
Journal of Cost Management: 17-27.
10 Shim, E. and Stagliano, A. 1997. "A Survey of US Manufacturers' Implementation of ABC," Journal of
Cost Management (March/April) pp. 39-41.
11 Size was measured by the amount of revenues.
[Author Affiliation]
ALNOOR BHIMANI is Reader in Accounting and Finance at the London School of Economics where he has
been teaching since 1988. He has co-authored a number of books including Management Accounting:
Evolution not Revolution, Management Accounting: Pathways to Progress, and Management and Cost
Accounting. He has also edited Management Accounting: European Perspectives and Management
Accounting in the Digital Economy. He has undertaken management accounting related fieldwork in a
variety of global enterprises and has presented his research to corporate executives and academic
audiences in Europe, Asia, and North America.
MAURICE GOSSELIN is Associate Dean of Research and Professor of Management Accounting at
Université Lavai, in Québec city, Canada. He has published several papers on activity-based costing and
performance measurement.
MTHULI NCUBE is Professor of Finance at Graduate School of Business Administration, University of
Witwatersrand, Johannesburg, South Africa. Professor Ncube is also the Coordinator of the Ph.D. Program
and Research Seminar Series for the Business School. He was Founder and Chairman of Selwyn Capital
Group and Barbican Holdings, which specialize in Leveraged Buy-outs/Buy-ins, Fund Management, Private
Equity Investments, Banking, and general Advisory Services. Prior to joining the corporate sector, he was a
Lecturer in Finance at the London School of Economics, UK.
DR. HIROSHI OKANO is Professor of Management Accounting at the Graduate School of Business, Oska
City University. He researches strategic cost management issues and the comparative history of
management accounting. His most recent book is Global Strategy and Accounting: International Comparison
of Target Costing.