The evolution of management accounting innovations and the level of satisfaction with traditional accounting techniques

The evolution of management accounting innovations and the level of satisfaction with traditional accounting techniques Davood Askarany 1 September 2004 University of South Australia Abstract Traditional cost and management accounting practices have been under substantial criticism for their failure to initiate change and their inability to promote management accounting innovations in coping with the requirements of a changing environment during the past two decades (Askarany, 2004; Baines & Langfield-Smith, 2003; Beng, Schoch, & Yap, 1994; Bork & Morgan, 1993; Cavalluzzo & Ittner, 2003; Gosselin, 1997; Hartnett & Lowry, 1994; Maiga & Jacobs, 2003; Lefebvre & Lefebvre, 1993; Spicer, 1992). The academic literature has been critical of traditional management accounting systems in particular for their lack of efficiency and capability to provide detailed and up-to-date information and to satisfy decision makers and potential users of such information. Shedding light on this debate, current study first reviews the evolution of cost and management accounting innovations over the past century to explore whether there has been a lack of management accounting innovation in the literature. Then it examines the level of association between the diffusion of activity-based costing (ABC) -as an example of management accounting innovations- and both the level of satisfaction with current implemented accounting systems and the diffusion of technological changes in manufacturing practices to clarify whether (or not) the diffusion of ABC links to the level of satisfaction/ dissatisfaction with traditional accounting systems and to the diffusion of technological changes in manufacturing practices. Key words: Satisfaction, management accounting changes; diffusion; innovation, technological changes and activity-based costing. 1 Corresponding Address: Dr. Davood Askarany, 53 Press Road Brooklyn Park, SA. 5032 Telephone: 61-8-82346816 Email: draskarany@hotmail.com 1

1. Introduction According to the systems approach theory, all parts of a system are related to each other and any change in one part of a system may require the consideration of appropriate change(s) in other parts of the organisation, otherwise, the system may not work properly and this could dissatisfy the users of the implemented system. Give the above, the evolution of cost and management accounting innovations and their diffusion could be considered to fit such a model. So, it might be suggested that the level of the speed of recent technological innovations, such as innovations in manufacturing processes, internet, communication and information systems require the consideration of the subsequent innovations necessary in administration systems, particularly in cost and management accounting techniques and practices (Kellett & Sweeting, 1991). Having accepted this theory, it raises the question regarding the adequacy of change in cost and management accounting techniques or sufficiency of diffusion speed of recently developed cost and management accounting innovations. To contribute to this debate, this paper conducts a historical literature review on the introduction of cost and management accounting techniques to identify recently developed cost and management practices. Having identified recent cost and management accounting innovations, it would be possible to compare the number of cost and management accounting innovations developed during the last two decades with those of the preceding decades to identify whether there is a shortage of innovation in the field of cost and management accounting. The paper also launches an investigation into the introduction of cost and management accounting innovations to practitioners in Australia. The purpose of such an investigation is to examine whether most of the cost and management accounting innovations have been introduced to practitioners in Australia. Having provided such a picture, this paper is able to suggest whether the diffusion of cost and management accounting innovations is linked to the shortage of such innovations. 2

Undertaking a two-stage longitudinal (1985-2001) survey in Australia, this study further examines the level of association between the diffusion of ABC (as one management accounting innovation) and both the level of satisfaction with current implemented accounting systems and the diffusion of technological changes in manufacturing practices. 2. Background Traditional cost and management accounting practices have been under substantial criticism for their lack of efficiency and capability in coping with the requirements of a changing environment during the last two decades (Askarany, 2004; Askarany & Smith, 2003a; Beng et al., 1994; Bork & Morgan, 1993; Chenhall, 2003; Gosselin, 1997; Hartnett & Lowry, 1994; Lefebvre & Lefebvre, 1993; Spicer, 1992). Such criticism relate to the failure of traditional cost and management accounting practices to provide detailed information on activities important for organisations. Lawrence & Ratcliffe (1990) support this argument by providing survey evidence of levels of dissatisfaction among both management accountants and managers with the cost and management accounting techniques then being used in industry. Bork & Morgan (1993) echo this observation, suggesting that traditional cost and management accounting systems have failed to keep up with the increasing demands imposed on them by technological change in manufacturing environments. They also suggest that research has shown that both the preparers and users of cost accounting information are dissatisfied with their product cost and management accounting techniques. Unsurprisingly, therefore, the management accounting literature has witnessed a growing interest into the study of the diffusion of cost and management accounting innovations (Anderson & Young, 1999; Askarany, 2003; Askarany & Smith, 2001; Askarany & Smith, 2003b; Booth & Giacobbe, 1998; Chenhall & Langfield-Smith, 1998; Cooper & Kaplan, 1991; Gosselin, 1997; Hartnett & Lowry, 1994; Maiga & Jacobs, 2003; Malmi, 1999). Shedding light on the above argument, following hypotheses are proposed in this study: 3

H 1 The diffusion of management accounting innovations is positively associated with the level of adoption of technological change in manufacturing practices. H 2 The diffusion of management accounting innovations is negatively the level of satisfaction with traditional costing systems. Given the above, a historical review of evolution of cost and management accounting innovation provides further evidence to suggest whether there has been adequate management accounting innovations in the past two decades. It also helps to examine whether the diffusion of such innovations links to the level of satisfaction with implemented traditional management accounting techniques. 3. Historical overview of introduction of cost and management accounting innovations 3.1. Introduction of cost and management accounting techniques before 1950s According to Chandler (1977), management accounting systems (MAS) first appeared in the United States during the nineteenth century. These MAS employed both simple and sophisticated accounting methods. For example, the early management accounting measures were simple but seemed to satisfy the needs of business owners and managers. Simple managerial accounting procedures created during the nineteenth century were used to monitor and evaluate the output of internally directed processes. Cost accounts were used to ascertain the direct labour and overhead costs of converting raw materials into goods. The use of sophisticated accounting procedures also dates back to the nineteenth century. According to Porter (1980), some companies in the USA used sophisticated sets of cost accounts as early as the first quarter of the nineteenth century. During this period, new accounting systems were devised to control and record the disbursements of cash which provided management with timely and accurate reports on expenditures. A voucher system of bookkeeping which is used for controlling and recording disbursements was also created during the nineteenth century (Wood, 1895). In comparison, before the industrial revolution, 4

accounting was mainly used as a record of the external relations between business units. Information for decision-making and control was usually acquired from market prices (Graner, 1954). According to Johnson and Kaplan (1987), during the nineteenth century cost accounting became more than just a tool for evaluating internal conversion processes. It was also used as a means to assess the performance of subordinate managers. Moreover, internal accounting systems for evaluating costs, throughput, and working capital were developed during the nineteenth century. New cost measurement techniques for analysing productivity and linking profits to products were developed during the late nineteenth and early twentieth century. These techniques had a substantial impact on twentieth century accounting practices. Some of these techniques provided the basis for the development of standards to monitor labour and material efficiencies and costs. This was the time of the development of scientific management that concentrated on gathering accurate information regarding the efficiency of workers engaged in specified tasks. Furthermore, the use of variance analysis of actual costs and standard costs for the purpose of controlling operations was also developed. During the nineteenth century scientific management experts also developed new cost accounting procedures to evaluate and control physical and financial efficiency of tasks and processes in complex machine-making firms and to assess the overall profitability of the enterprise (Johnson & Kaplan, 1987). Around the 1900s managers started paying attention to the productivity and performance of capital. The design of Du Pont management accounting procedures during that period facilitated the evaluation of the performance of capital; these gave significant attention to the application of return on investment. Such information helped managers in the allocation of new investments among competing economic activities and the financing of new capital requirements (Chandler & Salsbury, 1971). According to Johnson and Kaplan (1987), before World War I, the Du Pont Company was using almost all of the 5

management accounting procedures for planning and controlling purposes, known until the 1980s. As Johnson and Kaplan (ibid) reported, most of cost and management accounting procedures were developed during the nineteenth and first quarter of the twentieth century. They further stated that before World War I some organisations were trying to develop and use accurate cost accounting systems to trace costs accurately to diverse lines of products. This evidence confirms that even the idea and logic behind activity based costing for designing an accurate costing method is not new. The application of non-accounting information (financial and non-financial) in management accounting, which has attracted considerable attention in the last two decades is not new either. According to Johnson (1992), as far back as the first half of nineteen century, businesses owners and managers were using non-financial information to control organisational operations. The idea of paying more attention to the working people and customers of organisations as a long-term source of profit also dates back to before the 1950s. It might be argued that the logic behind most of management accounting techniques dates back to the first half of nineteenth century, however, the demand for management accounting information for the purpose of planning and control decisions is a much more recent phenomenon (Cooper & Kleinchmidt, 1990; Johnson, 1992; Johnson & Kaplan, 1987; and Kaplan, 1984). Also, a comparison between today s management accounting procedures and those used before the 1950s would show a considerable number of innovations in this field. 3.2 Introduction of cost and management accounting techniques after 1950s Since the 1950s more than 30 popular cost and management accounting techniques have been introduced. The majority of these innovations have been introduced during the last two decades. According to Hagerty (1997) and Smith (1999), the major developments in management accounting since 1950s can be explained as follows: 6

Cost and management accounting innovations in 1950s can be identified as: Discount cash flows, Total quality management, Cusum charts and Optimum transfer pricing. Cost and management accounting innovations in 1960s can be identified as: Computer technology, Opportunity cost budgeting, Zero-base budgeting, Decision tree, Critical path scheduling, and Management by objectives. Cost and management accounting innovations in 1970s can be identified as: Information economics and agency theory, Just-in-time scheduling, Strategic business units, Experience curves, portfolio management, Materials resource planing, Diversification, Matrix organisation and Product repositioning. Cost and management accounting innovations in 1980s can be identified as: Activitybased costing, Target costing, Value-added management, Theory of constraints, Vertical integration, Private labels and Benchmarking. Cost and management accounting innovations in 1990s can be identified as: Business process reengineering, Quality functional deployment, Outsourcing, Gainsharing, Core competencies, Time-based competition and Learning organisation. Reviewing cost and management accounting innovations of the last two decades, Björnenak & Olson, (1999, p.327) identify the major recently developed cost and management accounting techniques in the literature as follows: activity based costing (ABC); activity management (AM) and activity based management (ABM); local information system (LS); balanced scorecard (BS); life cycle costing (LCC) and target costing (TC); strategic management accounting (SMA). As the above historical review shows, the number of cost and management accounting innovations during the last two decades is higher than those of two preceding decades (1960s and 1970s). This review supports the suggestion that the lack of cost and management accounting innovations during the last two decades does not appear to be an issue. This suggestion can be confirmed by a comparison between the number of cost and management 7

accounting innovations of the last two decades and those of two preceding decades. Supporting this view, Kaplan (1994) emphasises that the 1980s and 1990s have seen a revolution in regard to the innovation in management accounting theory and procedures. Björnenak & Olson (1999, p.325) also echo this observation by suggesting that over the last two decades there has been a rich supply of management accounting innovations in the literature. Johnson and Kaplan (1987, p.163) go further and argue that until the 1980s, the adoption of the discounted cash flow approach for evaluating capital investment projects has been the main innovation in management accounting practice during the past sixty years. They emphasise that in the period between the 1920s and 1980s no new ideas or thoughts have affected the design and the use of cost management systems. Given the number of recently developed cost and management accounting innovations during the last two decades, at this stage the current paper suggests that the cost and management accounting lag should not be considered a consequence of a shortage of cost and management accounting innovations. 3.3. Introduction of cost and management accounting innovations in Australia The above historical review indicates the introduction of a considerable number of cost and management accounting innovations in the literature during the last two decades. However, to gain a better picture regarding current cost and management accounting lag it would be useful to examine whether these recently developed cost and management accounting techniques have been introduced to potential practitioners and users of those techniques. To accomplish the above, widely available technical, professional, and practitioner Australian journals in the field of management accounting have been reviewed. These journals included Business Review Weekly (BRW), CPA (the journal of Australian) and Charter (the journal of ICCA). Furthermore, Charter s and CPA s conference, workshops, and professional developments programs in South Australia during the last three years have been investigated. These are among the main sources of transferring information on cost and management 8

accounting innovations and issues to potential users in Australia. The purpose of such a study was to get a clear picture of the different, recently developed, cost and management accounting techniques introduced in Australia. Table 1 establishes the frequency of the most relevant topics regarding recently developed cost and management accounting techniques discussed in the above-mentioned professional journals, conferences, workshops, and professional development programs over the period 1996 to 1998 in Australia. Consistent with (Barbera, Baxter, & Birkett, 1999; Björnenak & Olson, 1999; Chenhall & Langfield-Smith, 1998; Lukka & Shields, 1999), an extensive literature review and a threeyear survey of professional and practitioner journals, conferences and workshops revealed the most popular recently developed cost and management accounting innovations in Australia to be: performance measurement and balanced scorecard techniques, activity based costing, valued added concepts, total quality management, strategic management, risk management, benchmarking, re-engineering, economic value added and target costing. As Table 1 shows, most of the recently developed cost and management accounting practices addressed in the literature have been introduced among Australian practitioners through professional journals, workshops and conferences too. Please insert table 1 here: However, despite witnessing frequent seminars, workshops, conferences and articles for introducing recently developed cost and management accounting techniques in Australia, the take-up of these management accounting innovations is dismally low and the level of adoption of most of these new techniques lags relatively behind those of traditional ones. For example, the ranking in terms of adoption of some of these new techniques in Australian firms are: activity based costing ranked (24), activity based management (21), product life cycle analysis (20), target costing (27) (ibid). Chenhall and Langfield-Smith compare this ranking with some of traditional cost and management accounting techniques such as analysis 9

for budgeting for planning financial position (1), capital budgeting (2), performance evaluation using return on investment (3). In a comparative analysis they conclude that the rates of adoption of recently-developed techniques in other countries such as U.S.A., U.K. and mainland Europe are even lower than those applied in Australia. Supporting this view, Askarany and Smith (2003a) find that only 19 percent of organisations registered with CPA in Australia have implemented and accepted ABC by the end of year 2002. Prior to this study Chenhall and Langfield-Smith (1998) found that adoption rate for ABC was generally below 14%. Other studies on the adoption of ABC also indicate that the take-up of ABC is following same pattern overseas. For instance, Innes and Mitchell (1995) in the UK find that the adoption rate for ABC is generally below 14%. Further, Ness and Cucuzza (1995), in the US, suggest that as few as 10% of ABC-adopters continue to support the innovation. Given the earlier literature review regarding the dissatisfaction of users of cost and management accounting techniques and the low level of the diffusion of ABC (as an example of management accounting innovations) and consistent with systems approach theory, the proposed hypotheses in this study are restated as follows: H 1 The diffusion of activity-based costing is positively associated with the level of adoption of technological change in manufacturing practices. H 2 The diffusion of activity-based costing is negatively the level of satisfaction with traditional costing systems. 4. Research Method A two stage longitudinal (1985-2001) survey was designed to gather information for this study. In both stages (first stage in 1997 and the second stage in 2001), the survey was administered to all 200 manufacturing firms registered with the Australian plastics industry (PACIA). The selection of the plastics industry for this investigation was due to the fact that 10

organisations in this industry are known to have undergone considerable innovation and change to their manufacturing procedures during the last two decades. Two different questionnaires were designed in two separate stages of this longitudinal study to capture the necessary information on the diffusion of technological changes and cost and management accounting innovations. The first stage of the survey (relating to the period 1985 to 1996) aimed to investigate the level of the diffusion of both technological and management accounting innovations. It also aimed to examine the relationship between the level of satisfaction with implemented management accounting techniques and the diffusion of activity based costing. The second stage of the survey intended to follow up the relationship between the level of satisfaction with implemented management accounting techniques and the diffusion of activity based costing after four years period and clarify whether (or not) the diffusion of ABC leads to higher satisfaction with implemented accounting techniques. PACIA agreed to distribute the questionnaires to the firms registered with them in both stages, but did not divulge the name of the firms concerned to the researcher. This restriction resulted in lack of opportunities both for follow-up enquiries and for interview. 5. Survey Findings Responses to the survey were provided by 51 firms in the first stage and 31 firms in the second stage, representing disappointing response rates of 25% and 15% respectively. Nonresponse bias was examined in both stages using the aggregate details provided by PACIA including: number of employees, year of establishment, and the activities of the firms. A comparison between the early responses and late responses (in both stages) showed there was no perceived difference between these responses, suggesting that non-response bias would not influence the outcomes. 5.1 The diffusion of technological innovations Technological changes in manufacturing practices addressed in the current study have included the following techniques: 11

computer aided design (CAD) computer aided engineering (CAE) computer aided machining computer aided manufacturing (CAM) computer aided process planning (CAPP) computer-integrated manufacturing (CIM) direct numerical control (DNC) flexible manufacturing system (FMS) just in time (JIT) numerical control (NC) robot testing machine As Table 2 shows, advanced manufacturing techniques have been widely used by the Australian plastics industry. According to the information provided by respondents, more than 92 per cent of respondents have experienced one or more types of advanced manufacturing technique up to the time of the investigation. Also, the proportion of establishments, which have used more than one type of advanced technology, was more than 76 percent. In other words, although the benefits associated with use of each technique might not be considered as very high, the percentage of the establishments which have used any one kind of advanced technology is high. Please insert table 2 here: Even though the prevalence of use of each individual technique is not particularly high, the percentage of establishments, which have used any kind of advanced technology, is high. The 12

findings show that more than 93 per cent of establishments have used at least one type of advanced manufacturing technology. According to Table 3, more than 35 percent of the respondents specified that they commenced implementation of their first advanced manufacturing technique more than ten years ago (before 1985). Less than 6 percent of the establishments did not specify the commencement year of employing their advanced manufacturing techniques. The majority of the respondents (between 70 and 76.5 percent) commenced the implementation of such techniques in the 1980s or before. In other words, the majority of the population have more than a decade of experience in observing technological change in their manufacturing practices. It can therefore be concluded that the Australian plastics industry has been an appropriate population for the study of technological change in manufacturing processes. Please insert table 3 here: The percentage of establishments, which have used more than one type of advanced technology, is more than 76 percent, and only 15.7 percent of establishments have used a single type of technology. Please insert table 4 here: 5.2 The diffusion of activity-based costing Of greater concern to us in this study is the link between the level of technological innovation and the level of administrative innovation, illustrated by the introduction of new management accounting innovations. The adoption of Activity Based Costing (ABC) method is used at this stage of the study to measure the firm s commitment to accounting innovation. For testing purposes the adoption of activity based costing is used as an example of the diffusion of a new management accounting technique. 13

Activity based costing is an approach to costing that focuses on activities as the fundamental cost objects. It uses the cost of these activities as the basis for assigning costs to other cost objects such as products, services, or customers. One of the expectations of the application of technological innovations in manufacturing processes is to increase the demand for the adoption of activity based costing by changing the cost structure of products through increasing overhead costs, but decreasing labour costs. The first stage survey results of the plastics industry do not show a noticeable change in cost structure for the products of firms within this industry for the investigated period of ten years (1986-1996). The average proportions of direct material costs, labour costs and overhead cost of products in the plastic industry have not changed by more than two percent in ten years. The average proportion of direct material costs have remained at 50 to 51 per cent, direct labour costs at 25 to 26 percent and manufacturing overhead costs at 22 to 23 per cent of total costs of products during the period of investigation. Allocation of costs based on each activity was less prevalent than the other overhead allocation methods in the establishments under investigation. Indeed, allocation of overhead costs based on each activity had the lowest prevalence among the establishments. According to the findings of first stage survey, about 75 percent of the establishments have not used such a method, and only 14 percent of establishments were allocating overhead costs based on each activity up to the time of the survey. Another 11 per cent of establishments identified that they would like to use ABC in the near future. The findings of the second stage survey show a further 7 percent of establishments were using ABC at the time of the investigations. 5.3 Technological innovation and activity based costing A comparison between the scope and the speed of changes in manufacturing processes and cost and management accounting techniques suggests that diffusion of cost and management accounting changes lag behind not only traditional accounting techniques but also those of 14

manufacturing techniques. This implies that the facilitation of cost and management accounting changes need more attention. The findings indicate that only 14 per cent of establishments had implemented ABC by the time of first stage investigation and 22 per cent by the time of second stage investigation. However, as the following tables show, 92 per cent of establishments have experienced one or more types of advanced manufacturing technique up to the time of the first investigation. We test our first proposed hypothesis based on the information gathered in the first stage survey as we sought information on the level of adoption of technological changes only in that stage. Please insert table 5 here: Table 6 details the correspondence of ABC adoption with the level of commitment to AMT innovation. Please insert table 6 here: Considering the nature of data and the number of responses received in both the first and the second stages survey and as a result of discussion with statistical professionals, Kendall s taub is thought to be the most appropriate statistical test to examine the relationship between the variables in this study. Table 7 summarises the number of implemented AMT into two groups for the purpose of statistical tests. Kendall s tau-b has a value of -0.412 (standard error 0.099), which is statistically significant at the 0.003 level. We can, therefore, accept our first proposed hypothesis and conclude that the diffusion of ABC is associated with the implementation of technological changes in manufacturing practices within the targeted sample. According to 15

the findings, statistically significant positive relationships are observed between administrative and technological innovations. Please insert table 7 here: 5. 4 The diffusion of ABC and the level of satisfaction with traditional costing techniques Although the findings show that the diffusion of cost and management innovations has been slow among the establishments and they have not had a major change in their current cost and management accounting systems, it does not imply that current cost and management accounting techniques meet users expectations. The establishments were asked directly (in both stages of the survey) to clarify how well they were satisfied with their employed cost and management accounting techniques based on the following scale: very satisfied, moderately satisfied, needs improvement, dissatisfied, and very dissatisfied. The findings of first stage survey show that only 8 percent of the establishments were very satisfied and 38 percent were moderately satisfied with their current cost and management accounting techniques. However, the majority of the establishments (54 percent) stated that the cost and management accounting techniques they employed needed improvement and 2 percent were very dissatisfied with their current cost and management accounting systems. Kendall s tau-b has a value of 0.162 (standard error 0.154), which is statistically significant only at the 0.365 level. We can, therefore, reject our second stated hypothesis and conclude that our findings do not show a significant association between the level of dissatisfaction with current implemented traditional accounting systems and the diffusion of ABC. A comparison between second stage findings and the findings of the first stage of study indicates no significant change in the level of satisfaction of respondents with their implemented cost and management accounting systems. The findings of the second stage of the survey indicate that a total of 45.1 percent of respondents were satisfied with their 16

implemented cost and management accounting techniques by the end of 2001. However, a majority of 54.9 percent of respondents were either dissatisfied or believed their implemented cost and management accounting techniques need improvement. Although the findings of the second stage survey indicate a moderate increase in satisfaction with current implemented accounting systems, the statistical tests show no significant differences between the level of satisfaction of adopters and non-adopters of ABC. This might imply that as with traditional costing techniques, recently developed cost and management accounting practices are not perfect. The findings of the second stage survey further confirm the lack of significant association between the level of dissatisfaction with traditional accounting techniques and the diffusion of management accounting innovations. 6. Discussion The results of current study are largely confirmatory of those of other studies, with innovations largely confined to the technological changes in manufacturing practices, rather than in the introduction of new management accounting techniques. Despite the innovative stance apparent in other aspects of the industry under consideration, and awareness of accounting innovations, cost and management accounting systems were apparently not perceived as priority areas for innovative activity. Findings indicate that the extent of changes in cost and management accounting techniques during a fourteen-year period of investigations have been slow. Both the dissatisfaction of users of current cost and management accounting innovations and low level of development of accounting changes indicate that diffusion of cost and management accounting innovation is an important issue. Indeed, this raises the question that despite dissatisfaction of the users of traditional cost and management accounting techniques, why have new management accounting technique such as ABC not been highly diffused and adopted by potential users? One possible answer is that as with traditional costing techniques, recently developed cost and management accounting practices are not perfect. 17

Another possible answer is that despite the considerable shortcomings of traditional management accounting practices, and consistent with Chenhall and Langfield-Smith (1998), the benefits obtained from traditional management accounting techniques might be higher than those of newer techniques. This situation raises the question of exaggeration in the criticism of traditional management accounting practices for their low benefits and shortcomings. Chenhall and Langfield-Smith conclude that their investigation does not support the lack of relevance of traditional management accounting techniques, apparent from literature during the last two decades (e.g., Johnson and Kaplan, 1987; Bromwich and Bhimani, 1994). Both the current findings and the findings of Chenhall and Langfield-Smith s survey also raise questions regarding the shortcomings of recently developed management accounting techniques which might make them less acceptable than traditional ones. Evidence from those firms which had begun to implement ABC before stopping the implementation process after a short period (Innes and Mitchell, 1991; Madison and Power, 1993; Ness and Cucuzza, 1995) might also refer to such shortcomings. 7. Conclusions and Reflections The results of the longitudinal investigation of the plastics industry revealed that cost and management accounting changes lag behind technological changes in manufacturing practices. The findings show a significant relationship between technological and administrative innovations but no significant association between the diffusion of ABC and the level of dissatisfaction with traditional costing techniques. In other words, there was no perceived difference between the responses of firms employing cost and management accounting innovations and those which do not, suggesting that like users of traditional cost and management accounting techniques the adopters of cost and management accounting innovations are not very satisfied with their current applied techniques. These results might be consistent with the fact that some firms which had started to implement recently developed 18

cost and management accounting techniques decided to stop the implementation of these innovations after a short period (Innes & Mitchell, 1991; Madison & Power, 1993). Although the results of the presented historical review of recently developed cost and management accounting techniques in this paper does not support the shortage of cost and management accounting innovations, the dissatisfaction of user of current techniques along with the evidence of failure implementation of management accounting innovations imply an important indication. This indication suggests that similar to traditional cost and management accounting techniques, recently developed cost and management accounting techniques might have some shortcomings which could be barriers to their diffusion. This suggestion can be supported by findings of Chenhall and Langfield-Smith (1998, p.1) who concluded that the benefits obtained from traditional management accounting techniques were higher than those of newer techniques and accordingly, the adoption rate of traditional techniques were higher than the newer ones. This paper suggests that the reality behind slow diffusion of cost and management accounting innovation might link to the shortcomings of new techniques and recommends further investigation into the influence of shortcomings of cost and management accounting innovations on their diffusion. 19

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Table 1: The frequency of discussion of recently developed cost and management accounting innovations in Australian professional journals, workshops and seminars (1996-8) Techniques Total Percentage BRW Charter CPA Conferences no of discussion Performance measurement and balanced scorecard 32 60 19.6 ABC 28 53 17.2 Value chain analysis 18 32 10.4 TQM 7 30 9.7 Strategic measurement 12 27 8.8 Risk measurement 18 22 7.1 Change in measurement 4 18 5.8 Benchmarking 6 17 5.5 Re-engineering 5 15 4.9 Economic value added (EVA, SVA and VBM) 5 10 3.2 Target costing 3 7 2.3 Life cycle costing 4 5 1.6 Learning organisation 3 5 1.6 Outsourcing 4 4 1.3 Just-in-time 3 1 Table 2: The frequency of application of advanced manufacturing techniques by Australian Plastics industry Manufacturing technique Percentage of Percentage use of Percentage use in 1995-6 before 1985 change Automation 26 2 24 Computer-aided design 49 4 45 Computer-aided engineering 32 4 28 Computer-aided manufacturing 39 4 35 Computer-integrated manufacturing 22 2 20 Computer-driven requirements plan 31 4 27 Direct numerically controlled machines 22 6 16 Expert-based systems 10 2 8 Flexible manufacturing systems 24 8 16 Just in time technique 32 6 24 Numerically controlled machines 37 10 27 Robotics 23 2 21 Testing and inspection machines 57 22 35 of 24

Table 3: Commencing year of first using advanced manufacturing techniques Commencing year of use AMT Valid percent Cumulative percent First started before 1985 35.3 35.3 First started in 1985-86 21.6 56.9 First started in 1987-88 5.9 62.8 First started in 1989-90 13.7 76.5 First started in 1991-92 2.0 78.5 First started in 1993-94 7.8 86.3 First started in 1995-96 5.9 92.2 First started in 1995-96 5.9 92.2 Not used 7.8 100.0 Table 4: Quantity of employed advanced technologies Number of employed AMT Valid percent Cumulative percent Twelve techniques and more 2.0 2.0 Eleven techniques 2.0 4.0 Ten techniques 2.0 6.0 Nine techniques 2.0 8.0 Eight techniques 3.9 11.9 Seven techniques 7.8 19.7 Six techniques 11.7 31.4 Five techniques 7.8 39.2 Four techniques 15.7 54.9 Three techniques 11.8 66.7 Two techniques 9.8 76.5 One technique 15.7 92.2 No technique 7.8 100.0 Table 5: The frequency of firms using advanced manufacturing techniques and ABC Using activity based costing Using advanced manufacturing Total techniques Yes No Yes 7 0 7 No 40 4 44 Total 47 4 51 Table 6: ABC Adoption and AMT innovation ABC Adoption Number of AMT innovations Total 0 1 2 3 4 5 6 7 8 9 10 11 12 No 4 8 4 6 8 4 6 3 1 0 0 0 0 44 Yes 0 0 1 0 0 0 0 1 1 1 1 1 1 7 Total 4 8 5 6 8 4 6 4 2 1 1 1 1 51 25

Table 7: Contingency Table for ABC/AMT innovations ABC Adoption AMT Innovation Total Low 0-5 High 6-12 No 34 10 44 Yes 1 6 7 Total 35 16 51 26