members of the business and academic committee
An Empirical Analysis of Factors
Affecting the Success of Activity-Based
Costing
Shaik Ali Fikri Bajunid Bin S Fauzi
And
Che Ruhana Isa* (PhD)
Faculty of Business and Accountancy
University of Malaya
50603 Kuala Lumpur
Malaysia
*corresponding author
email: cruhana@um.edu.my
Abstract
This paper provides empirical evidence on 52 Malaysian
manufacturing firms’ degree of success with ABC and its
association with ABC implementation variable. This study
is based on the model developed by Shields (1995). There
are several primary results. First, there is considerable
variation in the degree of success firms have with ABC.
Second, all of twelve behavioural and organisational
variables are found to be significantly associated with ABC
success.
Third, result shows behavioural and organizational
variables explained a significant portion of the variation in
ABC success, specifically, top management support, clear
and concise objective, consensus about objective, link to
competitive strategy, link to quality initiative, link to JIT
and speed initiative, accounting ownership, non-accounting
ownership, training in designing, implementing and also in
using ABC system. Fourth, ABC success is not significantly
associated with the use of four technical implementation
variables, specifically canned software, custom software,
external consultants and stand-alone vs. integrated system.
Finally, this study offers several suggestions and
recommendations for future research.
1. Introduction
Almost all business decision depends on the
availability and relevance of accounting
information. Issues related to accuracy of
products and services costing have been the
subject of many researches. This has lead to the
change from the traditional volume-based cost
model to new costing methods such as activity-
based costing (ABC). Today, more and more
have enriched both the management accounting
literature and practice. These researches have
concentrated on various aspects including
assessing the integrity of the ABC process
(McGowan, 1997); examining its application and
implementation in a single case study situation
(Cooper, 1990); assessing the degree of interest
and adoption (Innes and Mitchell 1995);
examining the factors impacting the success of
the implementation of ABC (Shields and Young
1989 and Shields 1995).
Despite the substantial number of studies
found in the Anglo-American countries, little
attempts have been made to examine empirically
the extent of ABC implementation and its
implementation experiences in Malaysia or Asian
context. Studies on western and European firms
have shown that the success of ABC
implementation rest on various behavioural,
organizational, and technical factors (Argyris and
Kaplan 1994; Shields and Young 1989 and
Shields 1995). It is necessary to shed light on this
matter as the Asian culture and way of doing
business may have a different impact on the
extent of ABC adoption and implementation. This
study will also shed some light on the firms’
implementation experiences with ABC.
The remainder of this paper is organised in
the following manner. Section 2 provides
development of the theoretical framework that
depicts the relationships under investigation.
Section 3 presents the sample description and
measures. The descriptive statistics and results of
the empirical finding follow in Section 4. Finally,
discussion and conclusions are presented in
Section 5.
1.1. Research Objectives and Justification
and Significance of Stud
In recent years, many organizations have
designed and implemented ABC systems.
However, there is mounting evidence, suggesting
that most of these firms are having problems in
1
implementing ABC and, in extreme cases, are not
having success with it, which later resulted in
abandoning the ABC system altogether. A single
most significant reason is that the introduction of
ABC in many firms has focused on the
architectural and software design of ABC, with
not enough attention given to various
organizational and behavioural factors involved
(Cooper et al., 1992, Argyris and Kaplan 1994).
Achieving the best architectural and software
design, however is not sufficient for the long-
term success of an ABC system. Because ABC
system is a part of administrative innovations,
certain organizational and behavioural factors do
have an impact on it continual success or failure.
Hence this study seeks to explore, to what extent
does various organizational, behavioural, and
architectural and software design factors explain
the variation in ABC success that the firms have
experienced.
The general purpose of this study is to
provide empirical evidence on the degree to
which various behavioural, organizational and
technical factors are associated with the success
of ABC implementation. The following are the
specific objectives of the research:
1 To examine the extent of ABC
implementation in Malaysian
manufacturing firm.
2 To examine the extent of a successful
ABC implementation in Malaysian
manufacturing firm.
3 To examine the extent of which
behavioural and organizational, and
technical factors influence the success of
ABC implementation.
In the last decade, many firms have designed
and implemented activity-based costing systems.
Many of these systems can be bought on store
shelves or from various ABC consulting firm.
Many ABC systems have also been developed
and designed in-house by the firm itself. But,
there is growing evidence that shows many of
these firms are experiencing problems with
implementing ABC and, in some cases, are not
having success with it. This study will examine
the extent of which behavioural, organizational
and technical factors influence the success of
ABC implementation in Malaysian
manufacturing companies. The result from this
study could be useful in helping to identify how
Malaysian companies are implementing ABC and
the implementation strategies that are successful.
Additionally, this study will help to contribute to
the generalisability of the existing body of
research with respect to Asian countries
specifically and the world generally.
2. Literature Review and Theoretical
Framework
The traditional or conventional product or
services costing approaches have been the subject
to various criticisms in the past few years. Several
key limitations have been pinpointed by several
researchers. Among the limitations are the lack of
visibility given to increasingly important areas or
resource consumption (Miller and Vollman,
1985), the systematic distortion of product costs
caused by the perpetuation of convenient but
inappropriate volume-based methods of
production overhead absorption (Cooper, 1987),
the neglect apparent in the development of
suitable means of unitizing non-production
overheads (Cooper and Kaplan, 1988), the
absence of reliable long-term variable cost
information for strategic decision-making
(Johnson and Kaplan, 1987) and the lack of
costing data availability at the pre-production
stages in the product life cycle (Berliner and
Brimson, 1989).
Based on this premise that Activity Based
Costing (ABC) has emerged during the last
decade as one means of addressing these
shortcomings. The increasing interest in ABC is
evident in the number of professional and
academic publications in the recent years
particularly by Cooper and Kaplan. The
widespread interest in ABC is also evident in the
conference activity and management consultancy
2
advocation held by various firms and
organizations.
2.1 Previous Research
In spite of these interest conveyed by various
firms and researchers, there is evidence to suggest
that its adoption has proceeded at a fairly slow
rate not only in the U.K. and the US but also in
other parts of the world. A series of surveys
(Nicholls, 1992; Cobb et al., 1992 Ask and Ax,
1992; Drury et al., 1993; Armitage and
Nicholson, 1993; Lukka 1994; Innes et al., 1995;
Innes et al., 2000) shows adoption rates in the
U.K. Europe and North America at a maximum
of 19% and typically well below this level. To
even more compound the issue, some firms that
had implemented ABC, in the extreme, have to
quit the system during the process or after the
launch of the system (Cooper et al., 1992; Player
and Keys, 1995; Gosselin, 1997)
The disappointing rate of ABC adoption, as
empirically observed across a range of countries
and industries have motivated some researcher to
find a solution for the “ABC Paradox” a term
coined by Gosselin (1997). A number of studies,
although only a handful, have examined the
likelihood impact of selected organizational,
behavioural, environmental, technological and
technical factors on the adoption and
implementation of ABC. Gosselin (1997), for
example, investigated the potential influence of
strategy posture and organizational structure on
the adoption and implementation of ABC. Also,
Bjornenak (1997) questioned the effect of cost
structure, competition and the like on the
tendency of manufacturing companies in Norway
to adopt and ultimately implement ABC. In
addition, Shields (1995) posited that the success
of ABC is largely attributed to several
organizational and behavioural variables.
Overall, the conclusions reached have at best
confounding, and at worst, conflicting. This can
be seen where those that have implemented ABC,
there are both failure and success stories. For
instance, Miller et al., (1992) in his survey of vice
president of manufacturing for large US firms
report that they rated ABC as providing the
second-lowest payoff of the 26 innovations
applicable to manufacturing operations and, in
contrast, a fax-based survey of management
accountants found that ABC is “… worth the
investment” (Jayson, 1994).
Innes and Mitchell (1991), in a mail survey of
187 British management accountants, found that
52 percent of the firms for which the respondents
worked had not considered using ABC while 33
percent currently were considering to use it. Of
the 15 percent of firms that had decided to use it,
9 percent had subsequently rejected it while the
other 6 percent were still using it. Thus, 60
percent of the firms that had implemented it
subsequently stopped using it. A follow-up study
by Innes et al., (2000) found that 47 percent of
the firms for which the respondents worked had
not considered using ABC while 20 percent were
currently considering to use it. Out of 33 percent
of firms that had decided to use it, 15 percent had
subsequently rejected it while the other 18
percent were still using it. Thus, 45 percent of the
firms that had implemented it subsequently
stopped using it. This shows that there is an
increase in the adoption and retention rate of the
ABC system in the firms that have implemented.
In another study, Cobb et al., (1992) found
that the biggest problem experienced with ABC
was the lack of adequate internal resources,
particularly employee time and computer
resources. Cooper et al., (1992) provide more
insight into why firms are have problems in
getting ABC used for decision and actions.
Although the firms these firms use state-of-the-art
technical approaches to ABC design (i.e.
hierarchical cost driver analysis, activity
mapping, canned ABC software, external
consultants), Cooper et al., (1992) attribute these
implementation problems to specific behavioural
and organizational problems. In most of the firms
studied, ownership of ABC remained with the
accounting employees and there was no link to
performance evaluation and compensation. The
most successful implementations materialized
3
when specific target individuals were identified in
the early stages of the ABC project, and there was
a sponsor who was a member of top management.
If these two conditions were not present, a
frequent result was continued ownership of ABC
by the accounting employees.
Cooper et al., (1992) also noted that a key
source of resistance to the use of ABC by
employees is that ABC advocates is focusing too
much on technical issues and not on the people
and organizational issues involved with
introducing change (i.e. ABC implementation).
They suggest that implementation of ABC will be
more effective when ABC advocates begin the
project by focusing on early involvement of non-
accountants who will be the primary users of
ABC information, the sponsor is a member of top
management, and the training programs focus on
the logic, design, implementation and use of
ABC. Shields (1995) have expanded on the
conclusion of Cooper et al., in his research of 143
firms, and he found that several behavioural and
organizational implementation variables are
important in explaining cross-sectional variation
in ABC success. However, he also found out that
ABC success is not significantly associated with
several technical implementation variables,
specifically, canned software, custom software
and stand-alone vs. integrated system.
2.2 Behavioural and Organizational Variables
Shields and Young (1989) and Shields (1995)
developed a comprehensive theoretical model
about the implementation of cost management
systems. The model can be applied to activity-
based costing system. Their model is based on
various reviews and analyses of literatures on the
implementation of administrative and technical
innovations in organizations. This model takes
the implementation of a cost management system,
in this case ABC, as being an administrative
innovation rather that a technical innovation
(example, a new machine or computer).
The distinction between administrative and
technical is paramount because the adoption and
implementation success of an administrative
innovation are determined more by particular
behavioural and organizational factors. Whereas,
the adoption and implementation success of a
technical innovation is more determined by
various economic and technical consideration or
requirement. For any administrative innovations,
a successful implementation will depend on how
well the organization sets its preferences, goals,
strategies, agendas, skills and resources and also
the support of various members of the
organization especially the top management. The
same goes for the implementation of ABC system
in organizations. So, the key to successfully
implement ABC lies in effective and efficient
management and handling of specific behavioural
and organizational variables.
There are seven behavioural and
organizational variables that are deemed to be
important to the implementation of a cost
management system. They are: top management
support; linkage of the cost management system
to competitive strategies, particularly speed and
quality strategies; linkage of the cost management
system to performance evaluation and
compensation; sufficient internal resources
(example, employee time); training in designing,
implementing and using cost management
system; non accounting ownership; and
consensus about and the clarity of the objectives
of the cost management system.
These variables are important because they
determine what is important to employees and
their preparedness to accept and work with
innovations. The support of top management, the
linkage to competitive strategies, performance
evaluation and compensation, and the consensus
about and clarity of objectives will provide
incentives for employees to attend to and use
ABC information. Like any other administrative
innovations, top management support is
paramount because they can focus and direct
resources (money, talent, time and etc), goals and
strategies on activities that they think worthwhile.
They also provide the political help required to
motivate individuals or groups who resist the
4
innovations. In motivating and rewarding
employees to appropriately focus and use ABC
information to improve their firm’s competitive
position and profits, linkage to competitive
strategies, performance evaluation and
compensation will be important.
Lastly, it is necessary that consensus about
and the clarity of the objectives of ABC are
established to ensure that ABC system and
information are produced efficiently and are
effectively used. Training will provide a
mechanism for employees to understand and
accept ABC as well as to feel comfortable with it
and thus reducing resistant to change. As the
information generated by ABC will be used by a
variety of employees for various reasons, it is
good that non-accounting ownership be
established. And lastly, sufficient internal
resources are necessary so that employees won’t
feel the ABC initiative is pressuring them to do
more without adequate resources.
2.3 Technical Variables
In the same research, Shields and Young (1989)
argued that, the successful implementation of cost
management system does not depend solely on
technical resources, such as whether (or what
type of) software is used, whether the system is
integrated with other accounting systems or stand
alone, or whether external consultants are used.
However, Shields (1995) stated that it is
important to recognize that these technical
resources can help increase the success of ABC if
they are used in conjunction with and support the
previously identified behavioural and
organizational variables.
2.4 ABC Implementation Success
The success of ABC systems has been a
prominent topic of investigation in recent survey-
based research studies. These have specifically
focused on the factors that can be associated with
successful ABC applications. Shields (1995)
discovered that users’ perceptions of ABC
success were linked to six behavioural and
organizational variables: top management
support; integration with competitive strategy
initiatives, such as TQM and JIT; performance
evaluation and compensation; non-accounting
ownership of the ABC project; training provided
in designing, implementing and using ABC; and
the provision of adequate resourcing. Technical
characteristics of the system, such as the type of
software adopted and the development of stand-
alone systems had no association with success.
McGowan and Klammer’s (1997) results
confirmed that three of the factors identified by
Shields (top management support, performance
evaluation links, and adequacy of training and
training resources) were significant ‘explanators’
of participants’ perceptions of how effective ABC
implementation had been. In addition, their
research suggested that user involvement in the
implementation, and their perceptions of the
quality of information produced by the system,
correlated positively with the degree of
satisfaction they expressed with ABC
implementation.
Additionally, Foster and Swenson (1997)
found that the variables with the highest
explanatory power with respect to ABC success
were: integration with performance evaluation
linked to compensation, links to quality
initiatives, top management support,
implementation training and resource adequacy.
Thus, the U.S.A. research findings have
evidenced a high degree of consistency in
identifying the factors that apparently influence
ABC success.
Less research has been done on ABC
success in the U.K. but Friedman and Lyne
(1999) have used the case-study method to
investigate, from a long-term perspective, the
factors associated with its success and failure.
Their results are largely supportive of the U.S.A.
studies, and they conclude that ABC success is
associated with the following factors: a clearly
recognized need for it at the outset; broad-based
support for it, including specifically that of top
management; accountants working closely with
5
other specialists with respect to ABC
development and use; the embedding of ABC in
organizational structure and practice; its adequate
resourcing; and its synergistic links with other
activities, such as TQM.
2.5 Research Framework
Based on the previous discussion on the various
behavioural and organizational, and technical
variables impacting the success of ABC
implementation, the following research
framework has been constructed.
Hypotheses
Based on the conceptual model, the following
hypotheses are developed. The two hypotheses
are to test the relationship between the two
independent variables with the dependent
variable, in this case the ABC success:
H 1: Behavioural and organizational variables
explain significant variation in ABC
success.
H1a: Organisational support and coherence
explain significant variation in ABC
success.
H2b: Training explains significant variation in
ABC success.
H 2: Technical variables do not explain
significant variation in ABC Success.
H2a: External consultant engagement do not
explains significant variation in ABC
success.
H2b: ABC software do not explains significant
variation in ABC success.
Figure 1
The Research Model of the Study
Behavioural &
Organizational
Variables:
Organizational Support
and Coherence
1.Training
ABC
Success
Technical Variables
1.External Consultant
Engagement
2.ABC Software
3. Research Methodology
3.1 Sample
The research was undertaken using a survey
design, where primary data were obtained from
companies operating in the Malaysian
manufacturing sector. Mail questionnaire was
conducted for data collection. The sample
comprised manufacturing companies listed in the
latest Federation of Malaysian Manufacturers
(FMM) Directory 2005. In order to yield results
comparable to previous research, a sample of
around 90 respondents is targeted. Assuming an
average respond rate of 10% (average return rate
for mail questionnaire in Malaysia), a total of 900
companies were involved in the survey with a
targeted number of respondents of at least 175.
Since organizational change would normally
involved the top management of companies, the
survey will be addressed to the chief executive
officers or the financial controllers of the
companies
Respondents working in various sectors were
contacted and questionnaires were distributed
personally, via normal mail and also via e-mail.
6
Respondents were given two weeks to complete
the questionnaire. Follow-up efforts through e-
mails were made regularly during the two-week
period. A total of 29 completed questionnaires
were received a week after the first two weeks.
As the required number of completed
questionnaire received were not enough to satisfy
the requirements of this research, a second batch
of 200 questionnaires were sent personally and
via e-mail. This is to supply the respondents with
a new set of questionnaire after most of them
might lost or misplace the first set. A total of 23
completed questionnaires were received after the
second two weeks period. Finally, a total of 52
completed questionnaires were received.
3.2 Measurement of Variables
A simple and direct approach was used to
measure the variables in the survey. The survey
has also collected descriptive information about
the firms, the respondents, and their ABC
systems. The design of the questionnaires was
primarily derived from the issues and questions
raised in the literature reviewed. Academicians
with expertise in the topics were consulted in
developing the questionnaires. The following
table summarises the instruments for measuring
the independent and the dependent variables:
4. Data Analysis and Findings
The data were processed using SPSS statistical
package. The findings will be presented in the
following order. Characteristics of the 52 firms,
characteristics of the individuals who filled out
the survey, characteristics of the ABC systems
and, lastly, the statistical associations between
ABC success and the two implementation
variables were discusses.
4.1 Characteristics of the Sample Firms
Table 2 presents the average annual revenue of
the firms. Forty percent of the respondents have
annual revenue of RM 10 to RM 50 million.
While 23% of the respondent have annual
revenues of RM 100 million or below. On the
other hand, only 12 % of the respondents have an
annual revenue of more than RM 500 Mil.
Almost 60 % of the firms have the total number
of full-time employees of less than 2,500, 35%
have 2,501 to 7,000 full time employees and only
6% have more that 7,000 full time employees. A
majority (40%) of the firms’ in the survey
belongs in the Electrics / Electronics sector.
Textiles, F&B and Timber/Furniture make up
10%, 15% and 6% of the firms respectively.
Lastly, 29% of the firms belong in other various
industries. Only 37 % of the firms are locally
owned, while 40% are MNC and 23% are joint
venture.
4.2 Characteristics of the respondents
Eighty percent of the respondents to the survey
are accounting manager or controller. Eight
percent are operations manager or controller and
4% of the respondents are Chief Operating
Officer / Vice President Finance and Chief
Executive Officer / President each. With regards
to the respondents’ role in the ABC
implementation of their firms, 44% of the
respondents were facilitators and 56% were
leaders. Surprisingly, none of the respondent who
took part in the survey is a mentor. Sixty three
percent of the respondents have more than 5 years
experience in the industry, while the remaining
37 % have 5 years or less.
7
 Table 1: Measurement of Main Variables

VARIABLE MEASUREMENT
ABC status 4-item instrument adapted from Shields (1995), measuring the current
status of ABC initiative. Likert scale of 1 (No work) to 5 (Work
Completed)
Behavioural and 12-item instrument adapted from Shields and Young (1989, 94),
Organizational measuring Organizational Support and Coherence, and Training. Likert
Variables scale of 1 (Very Low) to 5 (Very High)
Technical Variables 5-item instrument adapted from Shields (1995), measuring External
Consultant Engagement and ABC Software. Likert scale of 1 (Very Low)
to 5 (Very High)
ABC Success 2-item instrument adapted from Innes, Mitchell and Sinclair (2000) and
Shields (1995). A Likert scale of 1 (Very Unsuccessful) to 5 (Very
Successful) and a dichotomous scale of 1 (Yes) and 2 (No)

Table 2: Firm Profile

Frequency Percent
Annual Revenue:
RM 1 Mil – RM 5 Mil 6 12 %
RM 5 Mil - RM 10 Mil 7 13 %
RM 10 Mil - RM 50 Mil 21 40 %
RM 50 Mil - RM 100 Mil 12 23 %
More than RM 500 Mil 6 12 %
Total number of full-time employees:
51 – 500 employees 9 17 %
501 – 2500 employees 22 42 %
2501 – 7000 employees 18 35 %
More than 7000 employees 3 6%
Type of Industry:
Electric / Electronics 21 40 %
Textiles 5 10 %
Food and Beverage 8 15 %
Timber / Furniture 3 6%
Others 15 29 %
Ownership Status:
Multinational 21 40 %
Locally owned 19 37 %
Joint venture 12 23 %

4.3 ABC System dispersion in the work completed on four

purposes of ABC. Averaged over the firms,
The current status of ABC initiative of the firms Activity analysis was the most completed (mean=
was measured on a five-point Likert scale 3.37), followed by product costing (3.15),
anchored by 1 (No work completed) to 5(Work performance measurement (2.37) and
completed). Table 3 shows that there is a great reengineering (2.23).

8

ABC Implementation Variables
Reliability of the measures was checked using
Cronbach alpha reliability of coefficient based on
Nunnally’s (1978). The Independent Variables
(Behavioural and Organizational variables, and
Technical variables) was measured by 16 items.
The value of Cronbach alpha is 0.802. As the
Dependent Variable (ABC Success) was
measured by only one item, no Cronbach alpha
test was done. As the alpha value was above the
average value of 0.600, the internal consistency
of the reliability of the measures used in this
research was found to be good.
Degree of Factors Present During ABC
Implementation
Table 4 lists the 17 variables ordered by
descending mean. From the table, we can see that
there was a wide dispersion among the 17
variables in their degree of presence. Based on
the Likert scale of 1 (Extremely Low) to
5(Extremely High), the five implementation
variables that were most present were stand-alone
system (mean=3.83), top management (3.40),
canned ABC software (3.31), Link to competitive
strategy (3.15), and clear and concise ABC
objectives. The five factors that were the least
present were; link to performance evaluation
(2.35), external consultants (2.48), link to JIT and
speed initiatives (2.58), training in using ABC
(2.69) and lastly, training in implementing (2.87).

Table 3:Current Status of ABC

Purpose of ABC No Work Work Completed
1 2 3 4 5 Mean
Product Costing 4% 23 % 34 % 31 % 8% 3.15
Activity Analysis 10 % 17 % 25 % 23 % 25 % 3.37
Reengineering 40 % 25 % 15 % 10 % 10 % 2.23
Performance Measurement 35 % 21 % 23 % 15 % 6% 2.37

Table 4: Degree of Factors Present During ABC Implementation

Extremely Low Extremely High
1 2 3 4 5 Mean
Stand-alone ABC system 2% 11 % 25 % 25 % 37 % 3.83
Support of Top Management 6% 17 % 29 % 27 % 21 % 3.40
Canned ABC Software 2% 25 % 33 % 21 % 19 % 3.31
Link to Competitive Strategy 8% 19 % 35 % 27 % 11 % 3.15
Clear and Concise ABC
6% 19 % 50 % 15 % 10 % 3.04
Objectives
Training – Designing ABC 6% 21 % 42 % 25 % 6% 3.04
Customised ABC Software 19 % 19 % 21 % 23 % 18 % 3.00
Consensus About ABC
8% 15 % 52 % 21 % 4% 2.98
Objective
Non-accounting Ownership 12 % 19 % 38 % 21 % 10 % 2.98
Resource Adequacy 8% 29 % 36 % 19 % 8% 2.90
Link to Quality Initiative 6% 29 % 42 % 17 % 6% 2.88
Accounting Ownership 10 % 21 % 46 % 17 % 6% 2.88
Training – Implementing ABC 10 % 23 % 44 % 17 % 6% 2.87
Training – Using ABC 10 % 29 % 46 % 13 % 2% 2.69

9
 Link to JIT and Speed
12 %
Initiatives
External Consultants 19 %
Link to Performance Evaluation
40 %
& compensation
ABC Success and Financial Benefits
ABC success was measured using Likert scale of
1 (Very Unsuccessful) to 5 (Very Successful).
Table 5 reports that there was considerable
variation among the respondents in the degree to
which they believe ABC was
successful, but most of the ratings were for the
scale points between 2-4, with a mean of 2.92.
These results indicate that in total, there was
considerable diversity in the firms’ success with
ABC and, on average; firms had a “moderate”
level of success. On the other hand, when asked
whether the firms had realized a financial benefit
form ABC, 58 percent indicated that they had,
while 42 percents indicated that they had not
realized a financial benefit. The result of wide
dispersion in the degree of success firms
experience with ABC was consistent with the
results in Shields (1995).
4.5 Hypothesis Testing
Correlations with Implementation Variables
Table 6 shows a Pearson correlation matrix of the
17 implementation variables and ABC success.
Thirteen of the 17 implementation variables had
correlations with ABC success
that were very significant (at the 0.01 level): Link
to Competitive (0.63), Training – Implementing
ABC (0.59), Training – Designing ABC (0.57),
38 % 35 % 11 % 4% 2.58
40 % 21 % 12 % 8% 2.48
12 % 27 % 15 % 6% 2.35
Resource Adequacy (0.55), Link to Performance
Evaluation and Compensation (0.54), Training –
Using ABC (0.54), Non accounting Ownership
(0.52)Consensus about Objective (0.47), Top
Management Support (0.46), Clear and Concise
Objective (0.46), Link to JIT and Speed
Initiatives (0.41), Link to quality Initiative (0.38),
Accounting Ownership (0.32). Only one of the
technical variables - Resource Adequacy was
found to be significantly correlated (0.55) with
ABC success, wile the rest (External Consultants,
Canned ABC Software, Customised ABC
Software, Stand-alone ABC System) was not
significantly correlated with ABC Success. This
shows there is a lack of support for the
relationship between technical variables and ABC
success.
Regression with Implementation Variables
Step-wise and multiple regression analysis was
performed to determine the influence of the
independent variables (behavioural and
organizational, and technical) on the success of
ABC implementation. Those implementation
variables that were individually correlated with
ABC success were entered as the independent
variables in a step-wise regression analysis with
ABC success as the dependent variable.

Table 5: ABC Success

Very Unsuccessful Very Successful

1 2 3 4 5 Mean
10 % 21 % 40 % 25 % 4% 2.92

10
 Table 6: Pearson Correlation
Dependent
Independent Variables: Variable: ABC
Success
Behavioural and Organizational
Top Management Support .46**
Clear and concise objective .46**
Consensus about objective .47**
Link to Competitive Strategy .63**
Link to Quality Initiative .38**
Link to JIT and Speed Initiatives .41**
Accounting Ownership .32*
Non-accounting Ownership .52**
Link to Performance Evaluation and competition. .54**
Training – Designing ABC .57**
Training – Implementing ABC .59**
Training – Using ABC .54**
Independent Variables:
Technical
External Consultants -.102
Canned ABC Software -.154
Customised ABC Software -.098
Stand-alone ABC system -.012
Resource Adequacy .55**
**: Correlation is significant at the 0.01 level (2-tailed).
*: Correlation is significant at the 0.05 level (2-tailed)

Table 7 shows that at 5% significant level, the
F distribution shows support for the residual
model. The frequency distribution of residual
indicates that it is normally distributed, scatter
plot of residual against predicted value complies
to homoscedasticity and the normal PP plot
indicates the expected cumulative probability and
observed cumulative probability is near to the
straight line. The standard error of estimate is
0.687, is relatively small compare to the SSE
which is 22.65 indicating that the model’s fit is
generally good. Based on tolerance >0.1, variance
inflation factor (VIF) <10 and variance
proportion<0.9, it can be inferred that there is no
multicollinearity problem in this model for the
overall success of the ABC implementation.
The beta test of slope indicates that there is a
significant relationship between dependent
variable and independent variables. The
regression results show that link to competitive
strategy, training in designing ABC and also
training in implementing ABC are found to be
statistically significant. The beta coefficient
shows that link to competitive strategy, training
in designing ABC and also training in
implementing ABC have a very high impact with
beta of 0.370, 0.316 and 0.258 respectively. The
adjusted R-squared is 0.534. As such, 53.4% of
the variance in ABC implementation success can

11
be explained by the above variables. Hence, there
is a model with link to competitive strategy,
training in designing ABC and also training in
implementing ABC as the factors that is
influencing ABC implementation success
Hypothesis Testing
Table 8 reports that at 5% significant level, the F
distribution shows support for the residual model.
The frequency distribution of residual indicates
that it is normally distributed, scatter plot of
residual against predicted value comply to
homoscedasticity and the normal PP plot
indicates the expected cumulative probability and
observed cumulative probability is near to the
straight line. Durbin Watson value is between 1.5
to 2.5 indicating no auto correlation problem
though this data is cross sectional. Standard error
of estimate is 0.725, is relatively small compare
to the SSE which is 25.79 indicating that the
model’s fit is generally good. Based on tolerance
>0.1, variance inflation factor (VIF) <10 and
variance proportion<0.9, it can be inferred that
there is no multicollinearity problem in this
model for the overall success of ABC
implementation.
The beta test of slope indicates that there is a
significant relationship between dependent
variable and independent variables. The
regression results show that Behavioural and
Organization variables are found to be significant
and thus are consistent with the first hypothesis.
Technical variables are non-significant at 5%
level which is consistent with the second
Table7: Regression Analysis on ABC Success
Significant Variables β S.E.(β)
Link to competitive strategy 0.370
Training in designing ABC 0.316
Training in implementing ABC 0.258
R2 = 0.562, Adjusted R2 = 0.534, F = 20.509, p <0.01
hypothesis. The beta coefficient indicates that
Behavioural and Organizational variables have a
very high impact with beta of 0.713. However,
for Technical variables, the beta coefficient is
only 0.016. The adjusted R2 is 0.481. As such,
48.1% of the variance in ABC implementation
success can be explained by the above variables.
Hence, there is a model with Behavioural and
Organization variables as the factors influencing
ABC implementation success.
This supports the Hypotheses 1 and 2 as only the
behavioural and organizational variables explain
significant variation in ABC success while, the
technical variables do not explain significant
variation in ABC success. Table 10 shows the
beta test of slope indicates that there is a
significant relationship between dependent
variable and independent variables. The
regression results show that of the two
dimensions of behavioural and organisation
variables, organisational support and coherence is
found to be significant and thus consistent with
the hypothesis. Training is also found to be
statistically significant with a p-value of 0.054
(more than 0.10). This is consistent with the
hypothesis H. Between the two dimensions of
Technical variables, both external consultant
engagement and ABC software are non-
significant at 10% level which are consistent with
the third and fourth sub hypotheses.
t p
0.104 3.230 0.002
0.112 2.934 0.005
0.117 2.196 0.330
12
 Table 8: Multiple Regression Analysis on ABC Success

Significant Variables β S.E.(β) t p

(Constant) - 0.863 -.480 0.962
Behavioural and Organizational 0.713 0.147 6.721 0.000
Technical 0.016 0.198 .152 0.880
2 2
R = 0.501, Adjusted R = 0.481, F = 24.611, p <0.01

Table 9: Multiple Regression Analysis on ABC Success (Sub-hypotheses)

Significant Variables β S.E.(β) t p
(Constant) - 0.853 -0.99 0.921
Organisational Support
0.397 0.572 2.305 0.026
and Coherence
Training 0.344 0.372 1.974 0.054
External Consultant
0.009 0.008 0.084 0.933
Engagement
ABC Software 0.036 0.078 0.342 0.733
R2 = 0.500, Adjusted R2 = 0.457, F = 11.746, p <0.10

5. Conclusion and Recommendations

5.1 Conclusion
This study has provided empirical evidence on 52
firms’ experiences with ABC by testing three
hypotheses based on a theoretical model
developed by Shields and Young (1989) and
Shields (1995). In general, the empirical evidence
presented supported the three hypotheses
regarding firms’ variation in the degree of success
with Activity-based Costing, their
implementation strategies and how the
implementation variables were correlated with
Activity-based Costing success.
Overall, a typical firm in the study has an
average annual revenue of RM 10 Million to RM
50 Million with an average employee of 3000. A
majority of the firms in the study belong in the
Electrical and Electronics sector. This is mainly
due to the nature of Malaysian Manufacturing
firms which is largely composed of the
electronics sector. An interesting point to look at
is the ownership status of the firms in the survey,
the spread between multinational, locally owned
and joint venture is somewhat equal. This will
ensure that the results presented in this study have
taken into consideration all the three ownership
status.
In general, the respondents who took part in
this survey have more than 5 years of experience
in the industry. This is an important point as it
will ensure that the responses in the survey
accurately and effectively describe the real
situation in the firms. With 84% of the
respondents are Accounts Manager or Controller,
it shows that the ABC system ownership in
Malaysian manufacturing firm is still with the
accounting department. Though it is interesting to
note that 12% of the respondents are from the
Operations department.
Among the four current work status of ABC,
Product Costing and Activity Analysis are the
most completed work. This shows that product
costing and activity analysis are two of the main
objectives in ABC implementation. This is
supported by Shields (1995) who argues, the
main objective of the firm ABC system is to
provide product and process cost information.

13
 Generally, the implementation on ABC
system in Malaysian manufacturing firms has the
top management support, along with clear and
concise objectives for ABC implementation.
While the ABC system is strongly linked to
competitive strategy, it is a stand-alone system
that uses canned software. It is not strongly linked
to speed initiatives or to performance evaluation
and reward system. Training provided was more
concentrated on designing ABC systems rather
than in implementing or using ABC systems.
The result of the finding on Malaysian
manufacturing firms show that there is a wide
variation in the degree of success (or failure) and
financial benefit (or lack of benefit) that firms
experience with ABC. On average, they have a
moderate level of success and have received some
sort of financial benefit from ABC. The results of
several statistical test shows that 11
implementation variables independently are
significantly associated with ABC success or
receiving a financial benefit from ABC: top
management support, clear and concise objective,
consensus about objective, link to competitive
strategy, link to quality initiative, link to JIT and
speed initiative, accounting ownership, non-
accounting ownership, training in designing,
implementing and also in using ABC system.
Consistent with the first hypothesis, behavioural
and organizational variables explain significant
variation in ABC success. Thus, organizations or
firms that stresses the importance of having top
management support, clear and concise
objectives, a consensus about ABC objective,
linkage to competitive strategy, to quality
initiative, and, also to JIT and other speed
initiative, linkage of the cost management system
to performance evaluation and compensation,
sufficient internal resources (employee time),
training in designing, implementing and, using
ABC system, and lastly nonaccounting ownership
of ABC system will encourage the success of
ABC system implementation.
Overall, further testing using multiple
regression analysis revealed results that supported
the first and second hypothesis which stated that
the behavioural and organizational variables
explained a significant portion of the variation in
ABC success while the technical variables did not
explain a significant variation in ABC success.
The regression model was significant and
explained 48.1% of the variance in ABC success.
Although the model was significant, only one
factor provided statistically significant
explanations of ABC success that is, ABC
success increased with increases in organizational
support, coherence and training. These result
were consistent with that of by Shields (1995).
Overall, this study is consistent with the
theoretical models of ABC implementation
developed by Shields (1995) and Argyris and
Kaplan (1994). In addition, this study survey
method has provided results that support and
extend those found in the prior empirical
research.
5.2 Implications and Recommendation
This research provides an understanding of the
organizational and behavioural and, technical
factors that are currently influencing the success
of ABC implementations in various organizations
in Malaysian manufacturing firm. It helps to
identify the organization characteristics that are
critical for ABC implementation to be successful.
In general, attention should be focused on using
the results of this research and the research on
organizational behaviour and also sociology to
develop a more complete and precise cross-
sectional and causal models of implementing
ABC in particular and cost management
accounting systems in general.
The challenge for the organizations is to
create an atmosphere where its members can take
initiative to try out new administrative
innovations and implement innovative project,
like cost managements systems, successfully.
Attention should also be given on how external
forces such as competition, stakeholder
accountability and regulations affect the
implementation and use of cost management
systems like ABC.
14
 Future research would be useful not only to
verify, but to also extend, the evidence presented
in this paper. Future research could focus on
developing better measures of key variables, with
particular focus on multiple measures. Another
beneficial approach for empirical research would
be to use a research design that captures the
longitudinal aspects of the design,
implementation and use of cost management
systems. Since all research methods have its
strengths and weaknesses, future research could
use multiple methods between studies and within
a study.
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