THE RELATIONSHIP BETWEEN ACTIVITY-BASED COSTING AND ORGANIZATIONAL SUSTAINABILITY

Sustainable organization is defined as one that contributes to sustainable development by delivering simultaneously economic, social and environmental benefits. Organizational sustainability focus on the impact an organization has on the environmental due to its use or misuse of resources. The management of todays organizations spend a lot of time trying to manage the sustainability of their organizations by managing such as the health and performance of their financial assets, production equipment and intellectual property. One system that can help in contributing to organizational sustainability in term of financial and other system administration component is Activity-Based Costing(ABC). ABC is an approach for allocating overhead costs.To be more specific, ABC identifies the activities that a firm performs and later assigns the activity cost to products and services by mean of cost drivers based on a cause and effect relationship. The 3 primary uses of ABC is to aid strategic decision making, as a lens into the business process, allowing resources to be more efficiently allocated and to enable cost reduction and as an allocation mechanism: transfer pricing internal and external to the organization. ABC can provide information crucial to an understanding of how a firms' competitive advantage is generated. Shank and Govindarajan (1993) highlight such an approach by asking two questions: is the activity necessary, and is the activity performed efficiently? They label this approach as "value engineering the cost structure." By more accurately attributing cost to products, services, and customers, ABC can play an important role in providing relevant information for management operating decisions, which, in turn, should impact on profitability and, ultimately, shareholder value and organizational sustainability. Ward and Patel (1990) also suggest that ABC provides a sound foundation for future cash flow projections. They argue that this leads to investment in value-added activities that support products, services, customers, and market segments, thereby increasing shareholder value. The use of ABC has been widely accepted in various businesses such as manufacturing, health care, education, banking and services industries. Example of one organization that been successful implement ABC system is Cotler Industries,a manufacturer of vibration isolation tables, mounts and systems. The company used the results of an ABC study to maneuver its customer to greater margins contributions. The company was able to drop many transactions that appeared to be unprofitable. Cotler invented a strategy for collective profit contributions by increasing prices on small, custom orders with surcharges and handling fees. As a result, Cotler was able to pick up the markets most profitable customer. A succesful company must always focus on the customers need and wants and the customers total perceived service quality. Customer or consumer tend to choose product

or services that are reasonable or competitive. By using ABC, organization can reduce their cost and then can offer competitive or better price that were acceptable and in line with the quality of the products or services. Therefore, the organization product or services can sustain in the market for a long time. Although that ABC has demonstrated benefits, there are more firms that were not actually employing it. ABC may not be suitable for every firm. A large strand of recent research shows that successful implementation depends on many aspects. For example, Anderson (1995) and Malmi (1997) argue that successful implementation depends on organizational and technical factors, with Anderson and Young (1999) citing supporting evidence from studies such as Chenhall and Langfield-Smith (1998), Foster and Swenson (1997), Knimwiede (1998), and Shields (1995). Similarly, Malmi (1999) argues that adoption depends on several factors including firm size, production lype, degree of centralization, product diversity, and the ratio of indirect to total costs. Finally, Gosselin (1997) suggests that specific characteristics in their business strategy and organizational structure lead certain firms to adopt and implement ABC and, by implication, other firms not to implement ABC. For those that were still considering in ABC, their concerns were also the costly demands that ABC adoption would have on staff and other resources, the priotization of other competing initiatives, the need to address difficult technical issues such as the identification of cost drivers, the need to provide accurate cost allocation and behavioral problems such as changing well established practice and employee suspicion about the motives for using ABC. In conclusion. Cooper and Kaplan (1992) argue that "the goal of ABC is to increase profits, not to obtain more accurate costs." While the adoption of ABC usually requires considerable organizational support and can be extremely costly, the consistency of our results across matching criteria and other robustness checks, suggests that firms were effective in reaping the net benefits, on average. The overall results are consistent with an inference that the introduction of ABC techniques improves firm performance but it is not necessarily true that companies that have not implemented ABC can improve performance by simply introducing ABC techniques. While ABC may provide a richer information base that leads to new management insights, it is ultimately management that is responsible for taking new actions that lead to value enhancement. It is very difficult to determine whether the particular management actions that led to the superior performance of our ABC firms is due to the information system or some other related factor. Consequently, the factors that drove 1 firms to implement ABC may not be present in other firms and therefore, the introduction of ABC may not provide similar benefits to new adopting firms.