PhD Proposal. The Sophistication and Quality of Computer-Based Accounting System among Small and Medium Manufacturing Firms in Malaysia

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1 PhD Proposal The Sophistication and Quality of Computer-Based Accounting System among Small and Medium Manufacturing Firms in Malaysia INTRODUCTION Malaysia is rapidly shifting its orientation into an information technology (IT) based environment, which emphasizes on the use of technology in providing information. This is evident by the Malaysian Government establishment of the Multimedia Super Corridor (or MSC) in The MSC, therefore, manifests the Government commitment in leading the informationbased technology, be it in the world or in the region. The MSC will help to spearhead the country into a borderless and paperless environment where the creation of sophisticated and advanced IT products will change the way people do businesses in the future. It is envisaged that when IT is fully adopted by the Government, the E-Government status will be realized. As the Government moves towards an E-government, the private sector is also predicted to move in tandem with the Government's aspiration, particularly the accounting systems. The private sectors not only need to be consistent with the government, but also with the development and sophistication in business dealings. An adoption of computer-based accounting systems (CBAS) becomes vital and may well be the determining factor for the survival/success of an organization, especially small and medium businesses. Small and medium businesses, particularly the small and medium scale industries need to play a very crucial role in achieving Malaysia's aspiration to become a fully developed nation by year The manufacturing sector is expected to spearhead the drive to fulfill this vision. In view of that, the Malaysian government is constantly trying to promote and upgrade small-scale businesses to provide a strong and competitive industry for the success of large businesses. Enhancement of the technical capabilities through a greater and more diffusion of sophisticated technology among small businesses are often an effective way to improve their productivity and competitiveness (Foong, 1999). The importance of IT to businesses is illustrated in the Second Industrial Master Plan ( ). One of the thrust of the second IMP, for example, is to meet the challenges of a globalize environment by encouraging the utilization of information intensive and knowledge driven processes of high value-added manufacturing related activities. A review of published literature shows that, to date, a number of studies have been conducted to identify the factors affecting the use of IT in small and medium businesses. Albert & Kinman, 1990; Chan & Kelvin, 1990; DeLone & McLean, 1992; Adam, Nelson & Todd, 1992; Wilson & Sangster, 1992; Yap, Soh & Raman, 1992; Cragg & King,1993; Sangster, 1994, 1995; Hashim, Syed Yahya, Abu Bakar, Sa'yan, & Omar, 1996;Igbaria & Zinatelli, 1997; Foong, 1999; Thong, 1999). Most of the studies, however, focus on the use and implementation of information systems in general. Not many studies attempt to identify the use of IT in accounting by small and medium businesses. An exception is the study by Duschinsky and Dunn (1988) and Chen and Williams (1993). However, findings from these studies are mostly

2 descriptive, and thus do not revealed the relationships among the indicators of the sophistication of IT use in accounting and the factors that affect the usage. Therefore, this study seeks to fill the void in research determinants of CBAS adoption in small and medium businesses. Second, it seeks to understand the determinants of CBAS adoption in companies categorized as small and medium businesses in the specific context of Malaysia. Small and medium scale industries are the focus of this study as they will be one of the primary foundations for Malaysian future industrial thrust (Mahathir, 1991). Small and medium scale industries are seen as potential vehicle for Malaysia to achieve the status of industrialized nation by the year Therefore, small and medium scale industries must also play their role to help the nation to attain the objective of Vision RESEARCH QUESTIONS This study aims to seek the following research questions: 1. What is the status of CBAS adoption among small and medium businesses in Malaysia? 2. What variables determine the decision of small and medium businesses to adopt CBAS? 3. If the decision is to adopt CBAS, what variables determine the sophistication of CBAS adoption? 4. Is there any relationship between the indicators of the sophistication of CB AS? 5. If the decision is to adopt CBAS, what variables determine the quality of CBAS adoption? 6. Is there any relationship between the indicators of the quality of CBAS? OBJECTIVES AND MOTIVATION OF STUDY This study attempts to achieve the following objectives: 1. To identify and examine the characteristics of CBAS among small and medium businesses 2. To identify the factors influencing the adoption of CBAS among small and medium businesses 3. To identify the factors influencing the sophistication of CBAS among small and medium businesses 4. To identify the relationship among the indicators of the sophistication of CBAS among small and medium businesses 5. To identify the factors influencing the quality of CBAS among small and medium businesses

3 6. To identify the relationship among the indicators of the quality of CBAS among small and medium businesses RESEARCH MODEL Dependent Variable The dependent variable is adoption of CBAS. Davis and Olson (1985) defined information system adoption as using computer.hardware and software applications to support operations, management, and decision making in the business. In this study, CBAS is defined as using accounting applications to support accounting operations. A dichotomous measure will be used to measure the likelihood of CBAS adoption, whether the business is or is not use CBAS. The accounting system of a business is defined as computerized if it uses at least one module of accounting applications. The number of modules of accounting applications in use, and the level of integration among the modules will be used to measure the second measure of CBAS adoption, the sophistication of CBAS adopted (Powell & Xiao, 1996). Finally, user satisfaction (Montazemi, 1988; Soh et ai., 1992; Yap et ai., 1992; Thong et ai, 1993; Powell & Xiao,1996) will be used to measure the quality of CBAS. Independent Variables Various independent variables will be considered in this study, among others: a. CEO Innovativeness In a small and medium business, the CEO is usually the owner-manager (Thong, 1999). Since the CEO is the main decision maker, the characteristics of the CEO are crucial in determining the innovation attitude of the small and medium business (Rizzoni, 1991 quoted in Thong, 1999). Kirton (1976) quoted in Thong (1999), contends that everyone is located on a continuum ranging from an ability to do things better to an ability to do things differently. He calls the two extreme ends of the continuum as adaptors and innovators, respectively. The adaptor CEO would seeks solutions that have already been tried and understood. On the other hand, the innovator CEO would prefer solutions that have not been tried out and are therefore risky (Kirton, 1984 quoted in Thong, 1999). Unless the CEO has the will to innovate, there is little that other members of the business can do to expedite information system adoption or increase the extent of information system adoption (Thong, 1999). b. CEO's Information System Knowledge CEOs with more knowledge of the technological innovation are found to be significantly more likely to implement an aggressive technology adoption policy (Ettlie, 1990). Gableand Raman (1992) quoted in Thong (1999), however, found that CEOs in small and medium businesses tend to lack of basic knowledge and awareness of information systems. Many of them are less concern or have no idea of the potential benefits offered by information system due to

4 unfamiliarity of IT. This seems to imply that, if these CEOs could be educated about the benefits of CBAS, they would be willing to adopt such technology. c. CEO's Accounting Knowledge Small and medium businesses generally prefer to outsource their accounting work to public accounting firm. As a result, there is a lower level of awareness of the importance and the use of accounting information, and hence the benefits of using IT to facilitate accounting works (Lees, 1987; DeLone, 1988; Neidleman, 1979 quoted in Thong, 1999). These knowledge deficiencies, in turn, raise barriers to the CBAS adoption. This seems to imply that, if CEOs could be educated about the importance of accounting information and the benefits of using CBAS, they would be willing to adopt such technology. d. Perception of CBAS Attributes Research on innovation has identified characteristics of the innovation as perceived by the adopting business influence the adoption of innovations (Rogers, 1983 quoted in Thong, 1999). According to Rogers's innovation theory, 'an individual firms an attitude toward the innovation, leading to a decision to adopt or reject and, if the decision is to adopt, to implementation of the innovation'. Hence, the perception of the potential adopter toward the IT is the primary determinant of CBAS adoption. e. Accounting Firm Small and medium businesses constitute the vast majority of the client base for most accounting firms, so accounting firms already have close relationships with small and medium business owners. Moreover, small and medium businesses rely heavily on accounting firms as their most trusted business advisors (Davis, 1997). Accounting firms are knowledgeable about their clients and their clients' business. They know what their objectives are, and can suggest approaches to help reach those objectives. Hence, accounting firms can significantly influence CBAS adoption among small and medium businesses. Their involvement may also contribute to the success of CBAS implementation as suggested by Yap et al. (1992). f. Business Size The technological innovation literature has found that larger businesses have more resources and infrastructure to facilitate innovation adoption (Dewar and Dutton, 1983; Moch and Morse, 1977 quoted in Thong, 1999). Small and medium businesses, however, face substantially more barriers, among others, limited financial resources and a lack of in-house information system expertise, and are less likely to adopt information systems than large businesses (Ein-Dor and Segev, 1978). Alpar and Reeves (1990) quoted in Thong (1999) argue that, even among small

5 businesses, the larger the business, the more able it is to hire people with specialized skills, such as knowledge of information systems. g. Information Intensity Businesses in different sectors have different information-processing needs, and those in more information-intensive sectors are more likely to adopt IT than those in less information-intensive sectors (Yap, 1990 quoted in Thong, 1999). Further, greater information intensity will lead to greater uses of IT in businesses (Porter and Millar, 1985). Greater information intensity will lead the CEO of small business to perceive IT as a major competitive tool and therefore increase the likelihood and sophistication of CBAS adoption. h. Competition Competition is generally believed to increase the likelihood of innovation adoption (Ives& Learmonth, 1984; Link & Bozeman, 1991 quoted in Thong, 1999). Competition leads to environmental uncertainty and increases both the need for and the rate of innovation adoption (Ettlie, 1983; Ettlie & Bridges, 1982 quoted in Thong, 1999). Porter and Millar (1985) suggest that, by adopting IT, businesses will be able to compete in three ways. IT can change the industry structure and, in doing so, alter the rules of competition. IT can also create competitive advantage by lowering costs or enhancing differentiation. Finally, IT spawns new businesses by creating derived demands from new products, often within existing operations of the business. Measurement of the Variables Basically, the study will adopt the information systems adoption model for small business developed by Thong (1999) with some modifications. Hence, standard instruments will be used as much as possible. Data Collection Data collection will be conducted in two phases: a pilot study phase and a questionnaire survey phase. A pilot study will be used to pretest the questionnaire and will be followed up by interviews. Next, a structured mailed questionnaire will be sent to the CEO of small and medium business. CEO is chosen to be the respondent of this study since the CEO is typically the owner-manager in a small and medium business and it is reasonable to assume that the current CEO is the same CEO who decided on CBAS adoption (Thong, 1999). The Sample

6 There is no generally accepted definition of a small and medium business. The most commonly used criteria for defining a small and medium business were number of employees and annual sales (Hashim et al., 1995, 1996). For the purpose of this study, the criteria for defining small and medium business will be adopted from the SMIDEC. A small and medium company is defined as a company with full-time employees not exceeding 150 and annual sales turnover of not exceeding RM25 million. However, no cut off point is given to classify small scale and medium scale companies. Montazemi (1988) suggested private companies often reluctant to disclose their annual revenues. Thus most researchers chose number of employees as a cut-off point to differentiate between small and medium businesses and larger companies. Hence, to differentiate between small scale and medium scale companies, small-scale company will be defined as a company with full-time employees not exceeding 50. Companies will be randomly selected from the directory of FMM. REFERENCES Adam, D.A., Nelson, R.R., & Todd, P.A. (1992). Perceived usefulness, ease of use, and usage of Information Technology: a replication, MIS Quarterly, June, p Albert, K, & Kinman, L. (1990). Information system usage within small business firms, Entrepreneurships: Theory and Practice, Vol. 14, Issue 3, p Alpar, P., & Reeves, S. (1990). Predictors of MS/OR application in small businesses, Interfaces, 20(2), p quoted in Thong, James YL. (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Chan, K.F. & Kelvin, A. (1990). Computer application by small and medium scale industry in Hong Kong, International Conferences on Small and Medium Scale Enterprises, Universiti Utara Malaysia, 1, (1) 255. Chen, J.C. & William, RC. (1993). The Impact of microcomputer systems on small business, Journal of Small Business Management, 31(3), p Cragg, P.B. & King, M. (1993). Small-firm computing: motivators and inhibitor, MIS Quarterly, March, p Davis, M. (1997). Transforming your firm: tools for successful technology consulting, The Practical Accountant, Boston, Vo!. 30, Iss. 8, p. S-3. Davis, G.B., & Olson, M.H. (1985). Mana ement Information Systems: Conceptual Foundations, Structure, and Development, 2 nd Ed., Singapore: McGraw-Hall quoted in Thong, James YL. (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Dewar, R.D., & Dutton, J.E. (1986). The adoption of radical and incremental innovations: an empirical analysis, Management Science, 32(11), p quoted in Thong, James YL.

7 (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Duschinsky, P. & Dunn, P. (1998). Competitive advantage from IT, Chartech News, The Institute of Chartered Accountants, April, p. 7. Ein-Dor, P. & E. Segev (1978). Organizational context and the success of management information systems, Management Science, 24(10), p Foong, S.Y (1999). Effect of end-user personal and systems attributes on computerbased information system success in Malaysian SMEs, Journal of Small Business Management, July, p Gable, G.G., & Raman, K.S. (1992). Government initiatives for IT adoption in small business: experiences of the Singapore Small Enterprise Computerization Programme, International Information Systems, 1 (1), p quoted in Thong, James YL. (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Hashim, S., Leng, Ac., Yusop, N.l., Abdul Razak, R., Md. Dahalin, Z., & Suradi, Z. (1995). Information system success factors in the small-medium enterprises in the Northern Region of Peninsular Malaysia, IRP A Project, Sekolah Teknologi Maklumat, Universiti Utara Malaysia, Sintok. Hashim, S., Syed Yahya, S.S., A. Bakar, E.N., Sa'yan, K., Ahmad, S., & Omar, Z. (1996). IT adoption among the small and medium enterprises in the Northern Region of Peninsular Malaysia, IRP A Project, Sekolah Teknologi Maklumat, Universiti Utara Malaysia, Sintok. Igabria, M., & Zinatelli, N. (1997). Personal computing acceptance factors in small firms: a structural equation model, MIS Quarterly, September, 21(3), p Kirton, M.J. (1984). Adaptors and innovators-'yhy new initiatives get blocked, Long Range Planning, 17(2), p quoted in Thong, lames Y.L. (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Lees, J.D. (1987). Successful development of small business information systems, Journal of Systems Management, 25(3), p Mahathir Mohamad (1991). Malaysia: The way forward, Kuala Lumpur: National Printing Department. Montazemi, Ali R. (1988). Factors affecting information satisfaction in the context of the small business environment, MIS Quarterly, 12(2) p

8 Neidleman, L. D. (1979). Computer usage by small and medium sized European firms: an empirical study, Information & Management, 2(2), p quoted in Thong, lames Y.L (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Porter, M. and Millar, V.E. (1985). How information gives you competitive advantage, Harvard Business Review, Vo. 63, Issue 4, p Powell, P., & Xiao, Z.Z. (1996). The extent, mode and quality of IT use in accounting, Journal of Applied Management Studies, December, 5(2), p Rizzoni, A. (1991). Technological innovation and small firms: a taxanomy, International Small Business Journal, 9(3), p quoted in Thong, lames Y.L (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Rogers, E.M. (1983). Diffusion of Innovations, 3rd Ed., New York: Free Press quoted in Thong, lames Y.L (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Thong, James Y.L (1999). An integrated model of information systems adoption in small business, Journal of Management Information Systems, 15(4), p Wilson & Sangster (1992). The automation of accounting practice, Journal of Information Technology, 7, p Yap, C.S., Soh, C.P., & Raman, K.S. (1992). Information systems success factors in small business, OMEGA International Journal of Management Science, 20(5/6), p