Diﬀusion of Management Accounting Practices in Gulf ...library.imtdubai.ac.ae/Faculty...

Diffusion of Management Accounting Practicesin Gulf Cooperation Council Countries*

PREM LAL JOSHI, University of Bahrain

WAYNE G. BREMSER, Villanova University

ASHUTOSH DESHMUKH, Pennsylvania State University–Erie

RAJESH KUMAR, Institute of Management Technology, Dubai

ABSTRACTThis study examines how management accounting practices (MAPs) have beenadopted and diffused by publicly listed firms in the Gulf Cooperation Council(GCC) countries. The results of our survey show that the adoption rates for MAPsin the area of cost management and strategy are low while those in the area of per-formance measurement are moderate. Overall, the respondents favorably perceivedtheir success in implementing MAPs. Power and politics, not economic (orcost–benefit) reasons, were considered to be the most influential reasons fornonadoption of MAPs. The results provide partial support to the view that there isa global convergence of management accounting system designs and ideas and alsoindicate that the role of cultural differences is diminishing over time.

Keywords Management accounting practices; Balanced scorecard; Activity-basedcosting; Nonfinancial performance measures

DIFFUSION DES PRATIQUES DE COMPTABILITÉ DE MANAGEMENTDANS LES ÉTATS MEMBRES DU CONSEIL DE COOPÉRATION DU GOLFE

RÉSUMÉLes auteurs examinent comment les pratiques de comptabilite de management(PrCM) ont ete adoptees et diffusees par les societes cotees dans les Etats arabesmembres du Conseil de cooperation du Golfe (CCG). Les resultats de leur sondagemontrent que les coefficients d’adoption des PrCM dans le domaine de la gestionstrategique des couts sont faibles, alors qu’ils sont moderes dans le domaine de lamesure de la performance. Dans l’ensemble, les repondants ont une perceptionpositive de leur succes dans la mise en œuvre des PrCM. Les motifs de non-adoption des PrCM juges les plus determinants se rapportent au pouvoir et a lapolitique et ne sont pas d’ordre economique (ou lies au rapport couts-avantages).Les resultats appuient partiellement le point de vue selon lequel il y auraitconvergence a l’echelle mondiale dans la conception des systemes de comptabilitede management et dans les idees qui s’y rattachent ; ils revelent egalement que lerole des differences culturelles s’attenue avec le temps.

* The authors would like to thank the two anonymous reviewers for their helpful comments.

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Mots clés : comptabilite par activites, indicateurs de performance non financiers,pratiques de comptabilite de management, tableau de bord equilibre

Traditional management accounting models have evolved with innovations such asActivity Based Costing (ABC), Activity Based Management (ABM), and StrategicManagement Accounting (SMA). Researchers have pointed out that these innova-tions have altered the processes of planning, controlling, and decision making inbusiness organizations.

In the 1970s, management accounting research focused on economics-basedmathematical models. A variety of theories and methodological approaches tostudy management accounting practices (MAPs) were developed in the 1980s and1990s by extending the theoretical domain from economics to organizational andsocial theory. The current research streams exhibit a wide range of theoretical diver-sity. Researchers have drawn on disparate disciplines such as economics, organiza-tion theory, sociology, social theory, politics, and social anthropology to analyzeand synthesize managerial accounting issues (Bjornenak and Olson, 1999; Water-house and Tiessen, 1978; Yi and Tayles, 2009; Scapens and Bromwich, 2010; Askar-any, Smith, and Yazdifar, 2007).

In the developed countries, there is evidence of changes in MAPs. Libby andWaterhouse (1996) find that on average 31 percent of the management accountingsystems in the sample organizations changed during the period 1991–1993. Thecomponents of management accounting and control systems that support decision–making and control changed more frequently than components that support plan-ning, directing, or product costing. Burns (2000) also notes that considerablechanges have taken place in accounting systems and practices. However, the authorstates that these changes are in the uses of management accounting rather thanchanges in management accounting systems and techniques. Scapens (2006) pro-vides a perspective on the evolution of MAPs.

In a developing country study, Joshi (2001) examined accounting practices of60 large- and medium-sized manufacturing companies in India and found that theadoption rate of MAPs had been rather slow. Anderson and Lanen (1999) studiedMAPs in 14 Indian firms using a contingency-theory framework. They found thatchanges in MAPs were associated with shifts in the external environment. Lutherand Longden (2001) showed significant changes in the perceived benefits derivedfrom MAPs in South Africa.

The purpose of this exploratory study is to extend the literature on diffusion ofMAPs and management accounting changes by studying a cultural environmentthat is different from those studied in prior research. Using survey methodology, wereport on the adoption of MAPs and perceived or self-reported success rates ofsuch adoption in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait,Saudi Arabia, Oman, Qatar, and the United Arab Emirates). This study providesinsights into MAPs used in the GCC countries, and the study findings are of

24 ACCOUNTING PERSPECTIVES / PERSPECTIVES COMPTABLES

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interest to firms operating in similar cultures and other developing countries. Oursurvey also investigates the reasons for nonadoption of the contemporary MAPs.Our results are somewhat similar to prior research studies. We also find some sup-port for the view that there is a global tendency for convergence of managementaccounting system designs and ideas and that the role of cultural differences isdiminishing.

The remainder of the paper is organized as follows: The next section providesthe literature review for the research objectives and the MAPs used in our study. Inthe third section, we explain the research objectives and methodology. The fourthsection presents and discusses the findings. Finally, we discuss conclusions of thestudy and implications for future research.

LITERATURE REVIEW

The faults in traditional management accounting techniques have been documentedin the literature, for example, Cooper (1987), Kaplan (1984, 1986), and Johnsonand Kaplan (1987). Consequently, new MAPs have emerged such as ABC, ABM,Balanced Scorecard (BSC), Life Cycle Costing (LCC), Economic Value Added(EVA), and Strategic Costing (SC). The literature on MAPs is extensive. The MAPswere developed in advanced economies of the West, especially in the United Statesand Europe.

Management Accounting Innovations

The growing realization of the limitations of traditional management accountingsystems has led to the examination of multidimensional performance measurementpractices. One of the major developments in the area of performance measurementsystems during this period was BSC, which concentrates not only on financial per-formance measures but also on non-financial performance measures (NFPM) (Kap-lan and Norton, 1992). The scope of management accounting has moved towardeffectiveness, control, market analysis, quality assessment, customer satisfaction,and competitive status management.

Bjornenak and Olson (1999) reviewed MAP diffusion, identifying the manage-ment accounting innovations of the 1980s and 1990s as follows: ABC, ActivityManagement (AM) and ABM, Local Information System (LS), BSC; LCC, TargetCosting (TC); and SMA. Chenhall and Langfield-Smith (1998) summarized themost popular and mature MAPs in Australia as follows: Performance Measurementand BSC, ABC, Valued Added Concepts, Total Quality Management (TQM), Stra-tegic Management, Risk Management, Benchmarking, EVA, and TC.

The study by Guilding, Cravens, and Tayles (2000) examined the SMA practicesof New Zealand, the United Kingdom, and the United States. The results suggestfairly similar levels of SMA usage across these countries. Fullerton and McWatters(2004) focused on Just in Time (JIT), TQM, and Six Sigma and their relationship

DIFFUSION OF ACCOUNTING MANAGEMENT PRACTICES 25

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to both traditional and non-traditional cost accounting practices. Cinquini andTenucci (2006) reported a 34 percent adoption rate for TC by Italian companies.Other studies have reported adoption rates for MAPs in varying institutional andcountry-specific settings, for example, Lukka and Granlund (1996), Abdel-Kaderand Luther (2006), Nielsen, Melander, and Jacobsen (2008).

Firm Characteristics

Kellett and Sweeting (1991) suggested that the escalating speed of technological inno-vations requires study of subsequent innovations in administration systems, particu-larly in cost and management accounting techniques and practices. Drury and Tayles(1994) reported that adoption rates for MAPs are much higher in larger firms, partic-ularly for ABC. Innes and Mitchell (1995) concluded that high adopters of recentlydeveloped MAPs such as TC, ABC, and BSC have relatively greater resources.

Hoque and James (2000) reported that the adoption of BSC depended on thesize of the company. Joshi (2001) discussed reasons for differences in the utilizationof accounting practices between India and Australia. He observed that the adoptionof BSC was related to company size, because large companies tend to have accessto knowledge and resources to implement newer practices. Also, Askarany et al.(2007) examined the association between technological changes in manufacturingpractices and the diffusion of ABC. They found a significant relationship. Ehab andHussain (2010) investigated the impact of the nature and characteristics of organi-zations on MAPs, in particular on NFPM practices in the banking sector. Thestudy revealed that the nature and characteristics of an organization have a greatimpact on performance measurement practices in different banks, but the size doesnot have an impact.

Lawson (2009a) reported that the role of the finance and accounting functionsin Chinese companies was evolving. Lawson (2009b) observed that the philosophyof the power of masses is a significant characteristic of Chinese business manage-ment, and this concept is being adopted in the West. Some Chinese companies areusing MAPs, for example, benchmarking, ABC, LC, and value chain costing. Themanagement accounting techniques used by Chinese companies are either borrowedfrom Western countries or are homegrown methodologies or a combination ofboth. Lawson (2009c) described the adoption of new Chinese accounting standardsas a motivator for companies in China for convergence of the financial ⁄managerialreporting standards with the rest of the world, but still several unique differencesremain. A study by Wu and Boateng (2010) provided insight into the factors thatinfluence change in Chinese MAPs. The results indicate that the size of the firm,foreign partner, and level of knowledge of senior managers and employees all havea positive bearing on the changes in MAPs of the foreign-partnered joint ventures.

Based on the literature cited, it can be said that firm size is the most importantvariable in the adoption of MAPs. The current study extends this literature by ana-lyzing the characteristics of the adopters and non-adopters.


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Adoption Success and Trends

The adoption rates for MAPs may provide insights into successes and related bene-fits of MAPs. We can argue that firms would not continue to use MAPs if they didnot provide adequate benefits. Chenhall and Langfield-Smith (1998) studied adop-tion and benefits of MAPs in Australia. The authors reported that a majority of thecompanies intended to adopt newer techniques in future, especially activity-basedtechniques and benchmarking. Large size and the business environment of Austra-lian companies could be the reasons for such intentions. Abdel-Kader and Luther(2006) observed a trend indicating increased use of cost of quality, nonfinancialmeasures, and the analysis of the strengths and weaknesses of competitors in theMAPs.

Studies of ABC in Norway (Bjornenak, 1997) and in Finland (Malmi, 1999)explored economic and ‘‘fashion or fad’’ motives as influencing diffusion. Surveystudies report cost reductions associated with the design, implementation, and useof new MAPs (Chenhall and Langfield-Smith, 1998; Sulaiman and Mitchell, 2005).Dick-Forde, Burnett, and Devonish (2007) explored the perceived importance ofMAPs. They reported that there is a preference for conventional and traditionalMAPs by the companies. Ilias, Razak, and Yasoa (2010) studied MAPs in smallbusinesses in Malaysia, finding that the most preferable MAPs were standard cost-ing, annual budgets, process costing, and fixed ⁄variable cost analysis.

Wu and Drury (2007) gathered data, using a questionnaire survey, from 64 jointventures (JVs) and 115 State Owned Enterprises (SOEs) in China. They found thatthe MAPs, such as budgeting for controlling costs, profit and sales budgeting, andtarget costing are perceived to be more beneficial for SOEs compared to JVs. Rezaee,Szendi, Shum, and Elmor (1995) studied trends in the adoption of managementaccounting techniques and practices by Asian Pacific manufacturing firms. Respon-dents reported increasingly important roles in their organizations for activity-basedcosting, evaluation of value-added activities, quality control, and production andinventory control systems, while retaining some of the traditional techniques appro-priate for their more labor-oriented manufacturing environment. The survey findingsindicated that integration of accounting controls with strategic measures and non-financial performance measures will become more important in the future.

Management Accounting Change

Management accounting should help organizations recognize the need for initiatingchange and suggest appropriate responses to such change. Burns and Scapens(2000) provided an institutional framework for studying the role of managementaccounting in managing change. Granlund and Lukka (1998) opined that firmsprobably tend to use management accounting systems to improve their operationalbut not strategic effectiveness.

Goldratt (1990) objected strongly to how management accounting was imple-mented. He suggested that the accounting variance approach to management has


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been both dysfunctional and debilitating. Studies by Noreen, Smith, and Mackey(1995), Otley, Broadbent, and Berry (1995), and Eisenhardt (1985) explored the roleof management accounting in supporting information interface between adaptiveorganization and its environment. Merchant (1987) observed that the controllabilityprinciple may reduce innovation in organizations because managers do not attemptto innovate where the perceived cost–benefit is not acceptable.

Accounting systems can also inhibit change. Studies (Greenwood and Hinings,1996; Van der Ven and Poole, 1995) suggest that accounting systems can slowdown change because accounting routines lend stability to an organization. Inparticular, decision makers develop routines from past experiences, and these rou-tines develop into inflexible decision rules and systems. This stability is valuableas it increases the firm’s ability to respond to external circumstances but reducesthe adaptability. The common use of MAPs to develop managerial performancemeasures also has a powerful effect in creating organizational inertia. Whenactions taken in response to new information result in lower performancemeasures, managers become slow to identify and respond to new information(Atkinson, Waterhouse, and Wells, 1997).

The literature on management accounting change is extensive. Granlund andLukka (1998) argued that there is a global tendency for convergence of manage-ment accounting system designs and general ideas. Their framework includes eco-nomic and institutional perspectives. In their view, the tendency to converge islinked to economic, coercive, normative, and mimetic drivers of convergence domi-nating those of divergence. In the current study, we compare the GCC companyadoption rates with prior international studies to provide insight into the globaltendency for convergence.

MAPs in GCC Countries

There is not much research about MAPs in Arab countries, despite the increasedcontribution of these countries to the world economy, and the increasingly openpolicies toward international trade and markets. The GCC comprises six PersianGulf Arab states. The GCC countries have very similar socioeconomic features.Their economies are oil-based, void of corporate taxes, dependent on a highpercentage of expatriate labor, heavily dependent on imports of both raw materialsand finished goods, and consisting mostly of family-owned companies. Bahrain andDubai have become international financial hubs and their public accounting profes-sions have grown in size and expanded their scope of competencies. GCC compa-nies appear to have been adopting cost management practices to keep the costs oftheir products and services competitive.

Religion has a significant influence on the economies, business practices, andpolitics of the Middle East. Religious values affect consumer behavior, consumervalues, preferences, and allocation of resources. Hofstede’s (1980) cultural scoresfor the Arab World, which included Egypt, Iraq, Kuwait, Lebanon, Libya, Saudi


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Arabia, and the United Arab Emirates, suggest that faith plays a significant role inthe people’s lives. Business issues like working hours, interest on funds, relationshipbetween debtor and creditor, and ethics are affected by religious practices.

The culture of GCC countries is different from the Western countries. GCCcountries are collectivist countries. Arabian culture is characterized by wide powerdistance, strong uncertainty avoidance, and low individualism. At the businessorganizational level, autocratic decision making is a characteristic of managers inGCC organizations. As such, GCC managers are generally risk averse. Hofstede(1980) reported a high power distance index of 80 and uncertainty avoidance indexof 68 as predominant characteristics for the Arab countries. Also, a high uncer-tainty avoidance index of 68 indicated the Arab society’s low level of tolerance foruncertainty. In an effort to minimize or reduce this level of uncertainty, strict rules,laws, policies, and regulations are adopted and implemented. GCC institutions,especially private institutions, hire foreign experts and rely on their knowledge andexperience to deal with uncertainties.

Studies, for example Harris and Moran (1999), have provided evidence thatexposure to Western education and multinational management has resulted inreducing the power distance index in the GCC countries. There is a growing aware-ness among GCC companies of the importance of social needs, customers’ prefer-ences, competitor practices, and new management techniques. Therefore, theadoption of innovative MAPs by companies in GCC is a relevant research prob-lem.

Company ownership patterns are also changing in the GCC countries as family-owned companies are being listed on stock exchanges. The increasing level ofcompetition, opening up of economies, new joint ventures, foreign direct invest-ment, technological change, and customer focus are forcing companies to adoptinnovative management techniques.

GCC countries are generally ruled by royal families. Consequently, these coun-tries are politically centralized, which encourages the presence of a power distancecondition. At the same time, all GCC countries have established Al-Shura Councils(consultative assemblies) to discuss important decisions (Parker, 1993).

The Arab cultural similarities were among the bases for creating the GCC(Shaker, 1986a, 1986b). By the 1990s, some social changes in the GCC countrieshad occurred because of the wealth that had accumulated since the 1970s. Thiswealth was the reason for the formation of joint ventures and other businessdealings that resulted in a greater exposure to other nations, especially from theWest.

RESEARCH OBJECTIVES AND METHODOLOGY

This study surveyed the MAPs used by the corporate sector companies in GCC.The study was designed to extend the literature on diffusion of MAPs and


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management accounting change by studying a different cultural environment. Thespecific objectives were:

1. to investigate adoption rates, which indicate the extent to which corporatelisted companies in GCC countries have been using the MAPs;

2. to analyze the characteristics of the adopters and nonadopters;

3. to gain insight into the degree of success achieved in adopting MAPs andplans to use MAPs in the future;

4. to analyze the possible reasons for not using the MAPs; and

5. to compare GCC company adoption rates with those in prior internationalstudies to investigate the global trend for convergence of managementaccounting system designs.

We used a questionnaire survey because it was a cost-effective method forgathering information on the adoption of MAPs.

Due to globalization and increased international business competition, GCCcompanies appear to have been adopting cost-management practices to keep thecosts of their products and services competitive. Many manufacturing facilities areundergoing a gradual modernization process. El-Ebaishi, Yusuf, and Naser (2003)and Joshi, Al-Modhahki, and Bremser (2003) provide some evidence regardingmodernization of traditional MAPs in Saudi Arabian manufacturing companiesand in corporate budgeting and performance measurement for Bahrain, respec-tively. Thus, a priori, we expect that the management accounting profession inGCC countries would be using newer MAPs.

The sample of companies selected for this study came from the companies listedon the GCC stock exchanges. A total of 534 companies were listed in these sixcountries in 2006. We relied on a judgmental sampling method to select half of thelisted companies and mailed out 244 questionnaires during the fourth quarter of2006. Research budget constraints and incomplete addresses contributed to survey-ing only half the population of listed companies.

The survey included sixteen MAPs. The appendix summarizes the names anddefinitions of the MAPs. We selected these based on the most prevalent MAPsincluded in the prior studies cited earlier. Pilot tests were conducted with threecompanies in Bahrain, Oman, and Kuwait. Based on the feedback, the question-naire was revised. In the first phase of the study, a seven-page questionnaire witha cover letter and self-addressed envelope was mailed to each company’s Manag-ing Director ⁄Director of Finance ⁄Finance Controller ⁄Chief Accountant inthe first week of October 2006. The respondents were given six weeks to returnthe questionnaire. Reminders were sent three weeks after the initial mailing. Thequestionnaire comprised of two parts. Part A consisted of demographic questionssuch as type of industry, position, experience, number of employees, sales, foreignoperations, number of divisions, and composition of board, among other things.


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Part B consisted of questions relating to the use of, benefits derived from, futureplans to use, and reasons for not using the MAPs. A four-point Likert-type ratingscale was used. The definition of each MAP was explained in the questionnaire.

The response rate for the 244 questionnaires was 23.4 percent. There were57 usable questionnaires. Information about the respondents is presented in Table 1.One of the most common problems cited with a survey methodology is ofnonresponse bias. We followed Oppenheim (1992) and Wallace and Mellor (1988)methodology by using a t-test to find significant differences between the first andlast fifteen questionnaires. There were no significant differences indicating theabsence of nonresponse bias in the sample.

Table 1 provides information regarding response rates from various countries.The response rate was considerably higher for Bahraini firms as compared to thefive other GCC countries. The range was 7.7 percent to 76.9 percent. One possiblereason is that the questionnaires were mailed from Bahrain. The possible implica-tions are discussed later.

Table 2 presents information on the respondents’ demographic characteristics.The largest (35.1 percent) group of respondents was from Bahrain, followed byUAE (17.6 percent) and then Qatar (14.0 percent). The educational background,professional qualifications, experience, and current positions indicate that respon-dents are knowledgeable about issues relating to the adopting of MAPs in theirrespective organizations.

RESULTS AND DISCUSSION

Table 3 presents descriptive statistics on the adoption of MAPs by the corporatesector companies in GCC countries. The Cronbach’s alpha coefficient for the

TABLE 1Sample profile

GCC countries

Listed companies

in 2006

Number of

questionnaires sent

Total

responses

Usable

responses

Bahrain 49 26 21 20 76.9%

Oman 119 50 8 6 12.0%

Qatar 36 20 8 8 40.0%

Kuwait 186 78 8 6 7.7%

Saudi Arabia 80 36 9 7 19.4%

United Arab Emirates

(Abu Dhabi)*

64 34 12 10 29.4%

Total 534 244 66 57 23.4%

Notes:

* Dubai has a Financial Market separate from Abu Dhabi. Only the Abu Dhabi Stock Market

was included.


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TABLE 2Respondents’ demographic characteristics

Characteristics of respondents N Percentages

Respondents : by country Total = 57 100

1) Bahrain 20 35.1

2) Kuwait 6 10.5

3) Oman 6 10.5

4) Qatar 8 14

5) Saudi Arabia 7 12.3

6) United Arab Emirates (UAE) 10 17.6

B) Respondents: Type of industry Total = 57 100

1) Industrial 29 50.9

2) Nonindustrial 28 49.1

C) Respondents by Position: Total = 57 100

1) Accountants 29 50.9

2) Finance Managers and Financial Controllers 25 43.8

3) Others 3 5.3

Respondents by experience in present position Total = 55 100

1) Less than 7 years 20 36.4

2) 7 to 14 years 16 29.1

3) 14 and more 19 34.5

E) Respondents: Academic degree Total = 55 100

1) Master 34 61.8

2) Graduate 21 38.2

3) Others 0 0

Respondents: Professional qualifications Total = 36 100

1) CA 10 27.8

2) CPA 20 55.6

3) CMA 1 2.8

4) Others 5 13.9

Respondents by Number of employees Total = 55 100

1) Less than 100 14 25.5

2) 100 to 200 24 43.6

3) 200 to 400 14 25.5

4) 400 to 800 2 3.6

5) 800 and more 1 1.8

Respondents have a separate Management

Accounting ⁄Costing Department

Total = 55 100

1) Yes 42 73.7

2) No 15 26.3

Members on the Board of Directors Total = 55 100

1) Less than 5 0 0

2) 5 to 10 28 49.1

3) 10 and over 29 50.9

(The table is continued on the next page.)


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sixteen MAPs (adoption rate) is 0.746, suggesting that the items have relatively highinternal consistency. A high value of alpha is often used as evidence that theitems measure an underlying (or latent) construct, thereby reflecting reliability orconsistency.

In Table 3, we grouped the sixteen MAPs into three categories based on theMAP’s primary purpose. We classified ten MAPs under Cost Management (alphacoefficient 0.685), four under Performance Management (alpha coefficient 0.480),and two under Strategic Valuation and Analysis (alpha coefficient 0.478). The adop-tion rate was measured by asking respondents to rate the ‘‘extent of implementation’’for their firm on a Likert-type rating scale: (4) to a very large extent, (3) to a largeextent, (2) to some extent to (1) not adopted. Table 3 documents the highest meanand percentage of firms that the respondents reported as adopting (at least to someextent). Under the Cost Management category, the higher numbers are for TQM,ABM, ABC, and Kaizen Costing (KC). TC was noticeably the lowest at 6 percent.

In the Performance Measurement category, Table 3 shows the highest adop-tion rate for shareholder value (SHV). The survey questionnaire defined SHV asrepresenting ‘‘the portion of the company owned by the shareholders and normallydefined as the market value of the shares and other hybrid instruments that couldbe converted to shares.’’ This definition allows for a broad interpretation of theSHV model. The majority of respondents reported that their firms had adoptedNFPM (63.2 percent) and BSC (50.9 percent). The lowest adoption rates are shownin the Strategic Valuation and Analysis category. Value Reporting (VR) and theIntellectual Capital Statement (ICS) are found to be in the developmental stages ascompared to the other MAPs.

TABLE 2 (Continued)

Characteristics of respondents N Percentages

Number of divisions Total = 55 100

1) Less than 2 8 14.5

2) 2 to 4 24 43.6

3) 4 and more 22 40

4) none 1 1.8

M) Foreign operations Total = 55 100

1) Yes 37 67.3

2) No 18 32.7

N) Total sales (BD)* Total = 57 100

1) Less than 5 million 2 3.5

2) 5 million to 10 million 9 15.8

3) 10 million to 20 million 26 45.6

4) 20 million and more 20 35.1

Notes:

* 1 BD = USD 2.64


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TAB

LE3

Ad

opti

onof

man

agem

ent

acco

unti

ngm

odel

sb

yco

rpor

ate

sect

orco

mp

anie

sb

yp

rimar

yem

pha

sis

and

stat

isti

cal

diff

eren

ces

by

cate

gor

y

MAPs

VLE

LE

SE

NU

Mean

Ivs.NI

Modeofoperations

Size(number

ofem

ployees)

I

Mean

NI

Mean

Z

MW

F

Mean

D

Mean

Z

MW

<100

Mean

>100

Mean

Z

MW

A)Cost

Managem

ent:

1.TQM

10(17.9)17(30.4)

4(7.1)

25(44.6)

2.21

2.07(29)2.37(27)1.00

2.19(36)2.28(18)0.22

2.23(13)2.21(43)0.16

2.ABM

9(16.1)13(23.2)

1(1.8)

33(58.9)

1.96

1.76(29)2.19(27)1.25

2.16(37)1.53(17)1.79***

2.57(14)1.76(42)2.12*

3.ABC

10(18.2)11(20.0)

1(1.8)

33(60.0)

1.96

1.78(27)2.19(28)1.12

2.08(36)1.76(17)0.85

2.54(13)1.78(42)1.87***

4.KC

6(10.7)11(19.6)

6(10.7)33(58.9)

1.82

1.82(28)1.82(28)0.10

1.94(36)1.50(18)1.56

1.78(18)1.83(42)0.27

5.BEM

3(5.6)

14(25.9)

1(1.9)

36(66.7)

1.70

1.63(27)1.78(27)0.74

1.88(35)1.23(17)2.22*

1.86(14)1.65(40)0.72

6.QC

2(3.8)

10(18.9)

3(5.7)

38(71.7)

1.55

1.61(28)1.48(25)0.59

1.73(34)1.23(17)1.89***

1.50(14)1.56(39)0.09

7.TC

1(2.0)

2(4.0)

—47(94.0)

1.14

1.00(27)1.30(23)1.92***

1.22(31)1.00(17)1.31

1.38(13)1.05(37)1.67***

8.LCC

2(3.8)

8(15.1)

1(1.9)

42(79.2)

1.43

1.64(28)1.20(25)1.61

1.38(34)1.59(17)0.88

1.00(14)1.59(39)2.20*

9.CE

1(1.9)

5(9.4)

2(3.8)

45(84.9)

1.28

1.36(28)1.20(25)0.66

1.35(34)1.17(17)1.23

1.21(14)1.31(39)0.84

10.SC

2(3.8)

3(5.8)

2(3.8)

45(86.5)

1.22

1.22(27)1.32(25)1.16

1.27(33)1.12(17)0.93

1.21(14)1.29(38)0.02

B)Perform

ance

Measurement:

11.SHV

18(31.6)19(33.3)

–20(35.1)

2.61

2.55(29)2.68(28)0.62

2.67(37)2.39(18)1.02

2.50(14)2.65(43)0.55

12.NFPM

6(10.5)24(42.1)

6(5.7)

21(36.8)

2.26

1.90(29)2.64(28)2.64**

2.38(37)2.17(18)0.65

2.35(14)2.23(43)0.38

13.BSC

5(8.8)

12(21.1)12(21.1)28(49.0)

1.90

1.97(29)1.82(28)0.23

2.08(37)1.50(18)2.16*

1.93(14)1.88(43)0.11

14.EVA

3(5.3)

14(24.6)

4(7.0)

36(63.2)

1.72

1.55(29)1.89(28)1.58

1.86(37)1.50(18)1.20

1.57(14)1.77(43)0.68

C)Strategic

ValuationandAnalysis:

15.VR

2(3.9)

3(5.9)

2(2.9)

44(86.3)

1.28

1.11(27)1.46(24)2.10*

1.37(32)1.12(17)1.21

1.46(13)1.21(38)1.86***

16.IC

S—

3(5.6)

4(7.4)

47(87.0)

1.19

1.04(28)1.35(26)2.15*

1.21(34)1.17(18)0.34

1.28(14)1.15(40)1.05

(Thetable

iscontinued

onthenextpage.)


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE3

(Con

tinu

ed)

Notes:

1.Figuresin

parentheses

show

percentages.Meansare

computedonafourpointscale.

2.MW

=Mann-W

hitney

U-test(2-tailed)

*significantat0.05level

**

significantat0.01level

***


DefinitionsofMAPvariablesused:

TQM–TotalQuality

Managem

ent;ABM–ActivityBasedManagem

ent;ABC–ActivityBasedCosting;KC–Kaizen

Costing;BEM–BusinessExcel-

lence

Model;QC–Quality

Costing;TC–Target

Costing;LCC–LifeCycleCosting;CE–Cost

ofEngineering;SC–Strategic

Costing;SHV–

Shareholder

Value;

NFPM–Non-FinancialPerform

ance

Measures;

BSC–Balanced

Scorecard;EVA–Economic

ValueAdded;VR–Value

Reporting;IC

S–IntellectualCapitalStatement.

Abbreviationsexplained:

VLE:Toaverylargeextent;LE:Toalargeextent;SE:Tosomeextent;NU:NotUsing;Ivs.NI:ByIndustrialvs.Non-Industrial;F:ByForeign

Operations;D:ByDomestic;

<100:Employeesless

than100;>100Employees100andmore.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

Based on the mean values and percentages, the adoption rate of MAPs in GCCcountries appears to be lower in the Cost Management and the Strategic Valuationand Analysis category. Based on our review of prior studies, we define low as lessthan 33 percent and moderate as 33 percent to 67 percent. Thus, only TQM, ABM,ABC, and KC are in the moderate range, that is, four out of ten Cost ManagementMAPs. All MAPs in the Performance Measurement category are in the moderateadoption range. Apparently, companies in the GCC region are putting most empha-sis on Performance Measurement techniques, which suggests that they are becomingconscious about monitoring and enhancing their performance. Our discussion ofinternational comparatives studies later will provide additional perspective.

In Table 4, we present statistical differences in the adoption of MAPs. Becausethis is an exploratory study, we indicate significance levels of .01, .05, and .10. Weused the Mann-Whitney U-test for the two-independent-samples, which does notneed normality assumption.

Management accounting change may be motivated by economic factors and‘‘fashion or fad’’ motives (Bjornenak, 1997; Malmi, 1999; Abrahamson, 1991).Chenhall and Langfield-Smith (1998) studied the benefits of MAPs (realized andexpected) in Australian companies, and they reported that the benefits appear to berelated to the adoption rates. Thus, industrial firms may tend to adopt similar prac-tices such as ABC or TQM because they are effective and efficient or they are mim-icking competitors. Similarly, firms with foreign operations may tend to use thesame practices as their foreign counterparts.

For industrial versus nonindustrial companies, there were four significant differ-ences, mostly for the least adopted MAPs, except for NFPM. The adoption ratemeans tended to be lower for the industrial firms. There were four significant differ-ences for the foreign operations variable, and the four means indicate higher adop-tion rates for firms with foreign operations. Overall, firms with foreign operationstended to report higher adoption rates.

Guilding et al. (2000) reported firm size as measured by sales to be a confound-ing variable for a majority of the MAPs studied in an international comparativestudy of New Zealand, the United Kingdom, and the United States. In Table 3,where company size is measured by number of employees, we see five significant dif-ferences. The mean adoption rate was higher for smaller firms in four of the fivevariables, which is contrary to Guilding et al. (2000). It is also contrary to priorcontingency studies (Otley et al., 1995; Haldma and Laats, 2002; Abdel-Kader andLuther, 2008). However, the four significantly higher means constitute 25 percent ofthe sixteen MAPs, and therefore may have limited informational value.

We expected that the respondent’s country is an important variable. Guilding etal. (2000) reported some indications of the country effects. As noted earlier, theresponse rate was considerably higher for respondents from Bahraini firms as com-pared to the five other GCC countries. Therefore, we analyzed the adoption ratesby country, but we did not find significant country differences for any of the MAPs.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE4

Succ

ess

rate

inim

ple

men

tin

gm

anag

emen

tac

coun

ting

mod

els

and

stat

isti

cald

iffer

ence

s

MAPs

VLE

LE

SE

NU

Mean

Ivs.NI

Byexperience

Size(number

ofem

ployees)

I

Mean

NI

Mean

Z

MW

Lessthan

7years

More

than

7years

Z

MW

<100

Mean

>100

Mean

Z

MW

A)Cost

Managem

ent:

1.TQM

2(11.1)12(66.7)

4(22.2)

—2.89

3.20(5)

2.77(13)1.30

2.71(7)

3.00(11)

0.98

2.80(5)

2.92(13)0.36

2.ABM

1(4.5)

14(63.4)

7(31.8)

—2.73

2.67(9)

2.77(13)0.36

2.92(13)

2.44(9)

2.02*

3.00(9)2.54(13)2.14*

3.ABC

3(15.0)16(80.0)

1(5.0)

—3.10

3.12(8)

3.08(12)0.28

3.27(11)

2.89(9)

1.91

3.14(7)

3.07(13)0.28

4.KC

1(6.7)

8(53.3)

6(40.0)

—2.67

2.50(6)

2.78(9)

0.80

2.20(5)

2.90(10)

2.14*

2.75(4)

2.63(11)0.44

5.BEM

1(7.7)

5(38.5)

6(46.2)1(7.7)

2.46

2.67(6)

2.28(7)

0.70

2.20(10)

3.33(3)

2.20*

2.50(6)

2.43(7)

0.54

6.Q

C4(30.8)

4(30.8)

4(30.8)1(7.6)

2.85

3.28(7)

2.33(6)

1.72***

2.78(9)

3.00(4)

0.32

2.50(4)

3.00(9)

0.73

7.TC

—1(33.3)

2(66.7)

—2.33

—2.33(3)

—2.33(3)

——

2.50(2)

2.00(1)

0.71

8.LCC

—6(85.7)

1(14.3)

—2.86

3.00(5)

2.50(2)

1.58

2.50(2)

3.00(5)

1.58

2.86(7)

—

9.CE

—2(66.7)

1(1.8)

—2.67

2.67(3)

——

2.50(2)

3.00(1)

0.71

2.67(3)

—

10.SC

—2(50.0)

2(50.0)

—2.50

3.00(1)

2.33(3)

1.00

2.50(2)

2.50(2)

0.00

2.50(2)

2.50(2)

0.00

B)Perform

ance

Measurement:

11.SHV

7(23.3)17(56.7)

6(20.0)

—3.03

2.71(14)3.31(16)2.47*

2.55(9)

3.24(21)

2.56*

2.85(7)3.09(23)0.82

12.NFPM

—18(62.1)11(37.9)

—2.62

2.78(9)

2.55(20)1.15

2.78(14)

2.47(15)

1.74

2.50(6)

2.65(23)0.67

13.BSC

1(4.3)

4(17.4)16(69.6)2(8.7)

2.17

2.50(10)1.92(13)2.10*

2.17(12)

2.17(11)

0.15

2.40(5)

2.11(18)1.15

14.EVA

—5(27.8)12(66.7)1(5.6)

2.22

2.14(7)

2.27(11)0.60

2.00(8)

2.40(10)

1.50

2.20(5)

2.23(13)0.18

C)Strategic


15.VR

—1(20.)

1(20)

3(60)

1.60

—1.60(5)

—1.75(4)

1.00(1)

0.79

1.33(3)

2.00(2)

0.52

16.IC

S1(14.3)

3(42.9)

3(42.9)

—2.71

—2.71(7)

—2.75(4)

2.67(3)

0.38

2.67(3)

2.75(4)

0.00

Notes:

Figuresin

parentheses

show


computedonafourpointscale.


**


***



AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

Success Rate

Perceived success of management accounting changes reported in previous adoptionsurveys varies considerably, for example, Innes and Mitchell, 1995; Foster andSwenson, 1997; McGowan and Kalmmer, 1997; Chenhall and Langfield-Smith,1998; Innes, Mitchell, and Sinclair, 2000; Sulaiman and Mitchell, 2005. The successrate in our study was measured by asking respondents to rate ‘‘degree of successachieved’’ on a Likert-type scale ranging from (4) very successful to (1) unsuccess-ful. Table 5 shows the respondents’ success ratings. A few respondents did not pro-vide ratings. The response frequencies for eleven of the sixteen MAPs were thehighest in the ‘‘to a large extent’’ column. Looking at the mean column, we see thatthe median and mode is 2.67. Thus, the overall self-reported success rate appears tobe favorable.

The three lowest means provide additional insight. VR is the lowest mean (1.6) inTable 4, which is not surprising because it is one of the newest models; and conse-quently the adoption rate is very low. In contrast, the next lowest are BSC (2.17) andEVA (2.22), which are models that were introduced in the early 1990s. The BSC andEVA models have been extensively used in practice. We view VR as being in a devel-opmental stage, and conceptually not mature. In contrast, the BSC and EVA are rel-atively mature MAPs. Thus, the low adoption rates for BSC and EVA are surprising.

Table 4 presents statistical differences in the success of MAPs. Looking at typeof operations, we see significant differences for BSC, QC, and SHV, with the meanfor industrial firms being higher than for nonindustrial firms for the BSC and QC,but not for SHV. The means were higher for eleven of the sixteen MAPs for indus-trial firms, indicating higher reported success rates in the industrial firms. The anal-ysis by respondents’ experience shows significant differences for ABM, KC, andSHV. For firm size measured by number of employees, there is a significant differ-ence for ABM, the mean being higher for smaller firms. The means are higher foreight of the larger firms as compared to six small firms, suggesting higher reportedsuccess rates in larger firms, but the differences are not significant.

Planned Implementation

In the questionnaire, we also asked firms whether they were planning to implementany of the MAPs in the next three years. The responses in Table 5 show the highestreported expected planned adoptions for VR (33.3 percent), BSC (29.8 percent),QC (28.1 percent), and NFPM (26.3 percent). Because the current adoption ratesfor VR and QC were reported as being relatively low (13.7 percent and 28.3 per-cent, respectively), the relatively high percentages of planned implementation isinteresting. In contrast, the current adoption rates for NFPM (63.2 percent) andBSC (50.9 percent) are relatively high, indicating a trend toward very high adoptionrates for these measures.

Table 5 shows projected usage ⁄adoption rates of MAPs, which was calculatedby adding the reported percent using from Table 3 to the respondents’ expected


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE5

Num

ber

ofco

mp

anie

sp

lann

ing

toim

ple

men

tm

anag

emen

tac

coun

ting

mod

els

inne

xtth

ree

year

s

MAPs

Number

of

companies

N=

57

Projected

adoptions

next3years

N=

119

Currentadoption

rate

reported

N=

93

Totalprojected

adoptionrate

(usage)

N=

122

t-test

A)Cost

Managem

ent:

1.TotalQuality

Managem

ent(TQM)

10

17.5%

55.3%

72.8%

)3.20*

2.ActivityBasedManagem

ent(A

BM)

712.3%

41.1%

53.4%

)2.30**

3.ActivityBasedCosting(A

BC)

13

22.8%

40.0%

62.8%

)3.37*

4.Kaizen

Costing(K

C)

712.3%

41.1%

53.4%

)2.30**

5.BusinessExcellence

Model

(BEM)

712.3%

27.8%

40.1%

)1.97

6.Quality

Costing(Q

C)

16

28.1%

28.3%

56.4%

)3.63*

7.Target

Costing(TC)

35.3%

6.0%

11.3%

)0.70

8.Life-CycleCosting(LCC)

10

17.5%

20.8%

38.3%

)2.34**

9.Cost

ofEngineering(C

E)

11.8%

15.1%

16.9%

)0.56

10.Strategic

Costing(SC)

23.5%

13.5%

17.0%

)0.70

B)Perform

ance

Measurement:

11.Shareholder

Value(SHV)

11

19.3%

64.9%

84.2%

)3.62*

12.Non-FinancialPerform

ance

Measures(N

FPM)

15

26.3%

63.2%

89.5%

)4.31*

13.BalancedScorecard

(BSC)

17

29.8%

50.9%

80.7%

)4.37*

14.Economic

ValueAdded

(EVA)

11

19.3%

36.8%

56.1%

)2.92*

C)Strategic


15.ValueReporting(V

R)

19

33.3%

13.7%

47.0%

)3.81*

16.IntellectualCapitalStatement(ICS)

13

22.8%

13.0%

35.8%

)2.70**

Notes:


**



AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

planned adoptions. The highest projected percentages are indicated for NFPM,SHV, and BSC; all three are in the Performance Measurement category. Thus, wesee the greatest interest in the Performance Measurement category. Because BSC isa major development in management accounting (Ittner and Larcker, 2001), this isnot surprising.

We also tested if there is a difference between current adoption rate and totalprojected adoption rate. On an overall basis, the results (t = )3.679; df = 30;p < 0.01) indicate that there is a significant difference between current adoptionrate and total projected adoption rate. t-tests for the differences in each techniqueare presented in Table 5.

Reasons for Nonadoption

The respondents indicated possible reasons for not applying some or all of theMAPs in their organizations. The reasons were measured on a Likert-type ratingscale of (4) to a very large extent to (1) not at all. Table 6 shows that the highest-ranked reasons were related to costs and benefits:

1. Fully satisfied with the existing models

2. Most of the models in our company are not easy to change

3. Costs of implementing MAPs are high

4. Perceived benefits of MAPs do not justify the cost of implementing

Power and politics are important organizational factors in management-accounting change, and resistance can be expected (Burns, 2000; Burns and Vaivio,2001). The first and second reasons could be viewed as reflecting the importance oforganizational power and politics. The third and fourth reasons reflect economicmotivation (cost–benefit) as being reasons for not adopting MAPs. The perceivedreasons ranked from five through eight below can be viewed as organizational fac-tors.

It seems that some organizations are not fully aware of the most recent MAPs,and they are not considering initiating steps toward acquiring sufficient knowledgeto adopt such models. It also seems that most companies still prefer to maintaintraditional systems rather than replacing them with newer ones.

Table 6 shows five significant differences for firm size as measured by numberof employees. For four of the five significant differences, the means for small firmswere lowest. In contrast, the mean for small firms was highest for the variable‘‘MAPs are not appropriate for the type of business we are in.’’

In order to avoid limiting the responses to the reasons listed in Table 6, therespondents were asked to comment on some of the major benefits and problemsfaced when using MAPs. Some examples of respondents’ comments on the majorbenefits included improvement in the quality and speed of information and


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE6

Reas

ons

for

not

app

lyin

gal

lor

som

eof

the

MA

Ps

Reasons

Toavery

largeextent

Toalarge

extent

Tosome

extent

Not

atall

NMean

Rank

SD

Bysize

(number

ofem

ployees)

Large

>200Mean

Medium

100–200Mean

Small

<100Mean

Ftest

⁄Chi-square

(df)

TheMAPsare

notappropriate

forthetypeof

businessweare

in.

7(14.0)

12(24.0)

25(50.0)6(12.0)51

2.41

12

0.88

2.13(15)

2.17(23)

3.15(13)

F=

8.04**

(df=

2;50)

Consultants

on

MAPsmodelsare

notavailable.

—9(20.0)

32(71.1)4(8.9)

45

2.09

14

0.55

2.07(14)

2.13(22)

2.00(9)

Chi=

0.417

(df=

2)

Nobodyhasinitiated

considerationof

MAPsin

my

company.

7(15.6)

16(35.6)

18(40.0)4(8.9)

46

2.50

90.89

2.80(15)

2.43(21)

2.20(10)

F=

1.53

(df2,43)

Fullysatisfied

with

theexistingmodels.

16(34.0)

18(38.3)

12(25.5)1(2.1)

48

3.02

10.86

3.07(15)

3.13(22)

2.73(11)

Chi=

0.96

(df=

2)

Most

ofthemodels

inourcompany

are

noteasy

tochange

15(32.6)

15(32.6)

14(30.4)2(4.3)

45

2.91

20.90

3.00(14)

3.14(21)

2.30(10)

F=

3.41*

(df=

2,42)

MAPsare

not

currentpriorities

ofour

managem

ent.

9(17.0)

21(39.6)

20(37.7)3(5.7)

54

2.69

80.91

2.56(16)

2.92(25)

2.31(13)

Chi=

5.77***

(df=

2)

(Thetable

iscontinued

onthenextpage.)


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE6

(Con

tinu

ed)

Reasons

Toavery

largeextent

Toalarge

extent

Tosome

extent

Not

atall

NMean

Rank

SD

Bysize

(number

ofem

ployees)

Large

>200Mean

Medium

100–200Mean

Small

<100Mean

Ftest

⁄Chi-square

(df)

Lack

of

supportingdata.

4(8.7)

10(21.7)

25(54.3)7(15.2)46

2.33

13

0.89

2.33(15)

2.52(21)

1.90(10)

Chi2.99

(df=

2)

Other

companiesin

ourindustry

are

notim

plementing

MAPs.

1(2.2)

19(42.2)

24(53.2)1(2.2)

46

2.41

11

0.58

2.26(15)

2.50(20)

2.45(11)

Chi=

1.08

(df=

2)

Corporate

culture

limitsthe

implementation

ofMAPs.

12(24.0)

17(34.0)

15(30.0)6(12.0)51

2.71

60.94

3.00(15)

2.63(22)

2.50(14)

Chi=

2.44

(df=

2)

Costsofim

plementing

MAPsare

high.

10(21.7)

22(47.8)

13(28.3)1(2.2)

48

2.90

20.90

3.06(15)

2.86(22)

2.54(11)

Chi=

2.39

(df=

2)

Perceived

benefits

ofMAPsdonot

justifythecost

ofim

plementing

them

.

8(17.0)

26(55.3)

13(27.7)

—47

2.85

40.72

2.80\(15)

2.95(22)

2.70(10)

Chi=

1.22

(df=

2)

Lack

ofrelevant

skillsin

designing

andim

plementing

MAPs.

10(19.6)

20(39.2)

20(39.2)1(2.0)

53

2.74

50.84

2.81(16)

2.88(26)

2.27(11)

Chi=

3.71

(df=

2)

Insufficient

support

from

topmanagem

ent.

5(10.6)

12(25.5)

29(61.7)1(2.1)

49

2.43

10

0.74

2.86(15)

2.30(23)

2.09(11)

Chi=

7.12*

(df=

2)

(Thetable

iscontinued

onthenextpage.)


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE6

(Con

tinu

ed)

Reasons

Toavery

largeextent

Toalarge

extent

Tosome

extent

Not

atall

NMean

Rank

SD

Bysize

(number

ofem

ployees)

Large

>200Mean

Medium

100–200Mean

Small

<100Mean

Ftest

⁄Chi-square

(df)

Wehavenot

heard

about

thesemodels.

—7(14.9)

30(63.8)

10(21.3)

47

1.96

15

0.62

2.06(15)

1.95(22)

1.80(10)

Chi=

1.08

(df=

2)

Managem

ent

resistance

tochange.

12(24.0)

21(42.0)

12(24.0)

5(10.0)

50

2.70

70.93

3.13(15)

2.71(24)

2.09(11)

Chi8.66*

(df=

2)

Notes:

Figuresin

parentheses

show


computedonafour-pointscale.

TheFratioisalsousedbecause

thedata

wasfoundto

beparametricforthose

statements.

(M-W

)=

Mann-W

hitney

U-test(2-tailed)


**


***



AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

decision-making, improvement in monitoring and controlling of performance, andbetter measures of the profitability levels within business ⁄products. The problemsencountered included time to implementation, implementing change, and the needfor specialized staff.

We argue that power is the capacity to influence decisions while politics is theactual process of exerting this influence. The organizational change literature stres-ses the importance of power and politics in organizational life. MAPs are a part ofthe information system in an organization and constitute a power resource. There-fore any changes in MAPs are partly political. In the context of the influence ofpower and politics on organizational change in GCC, the decision makers of com-panies have to consider the influence of political atmosphere when considering thediffusion of MAPs.

The Arab states that comprise GCC exhibit a combination of social attributesand political conditions that make them a unique political system. As global busi-ness and economic expansion continues, albeit unevenly, Middle Eastern countrieshave been witnessing a gradual move from state-owned and family-owned enter-prises to international venture participation and ownership from small businessfirms to large-scale multinational manufacturing companies and more competitivemarkets. This creates a demand for more relevant timely, comprehensive, andsophisticated management accounting systems for both multinational corporationsand local partners.

International Comparisons

One of our research objectives was to compare the GCC company adoption rateswith those of other countries to ascertain whether there is a global tendency forconvergence of management accounting system designs. We present an interna-tional comparison in Table 7, providing insights into the diffusion of managementaccounting models. For the cost-management MAPs, the reported percentages ofGCC companies’ adoption are similar to recent prior studies for ABC and CE. Wereport higher adoption rates for TQM, KC, and BEM. We also report a higheradoption rate for ABM, except for the 1998 study of Australia. There are notice-ably lower adoption rates for QC, TC, LCC, and SC for GCC countries. In the caseof Performance Measurement models, the NFPM percentage for GCC countries isthe median across the different countries reported. For SHV, EVA, and BSC, thepercentages for the GCC countries are almost the lowest. For strategic valuationand analysis, there is a paucity of prior study data.

Our international comparisons provide some support for Granlund andLukka’s (1998) argument that there is a global tendency for convergence of man-agement accounting system designs and ideas. While the percentages are relativelylow for performance measurement models, the planned adoptions reported inTable 7 suggest a trend toward convergence. Our data also provide support fortheir view that the role of cultural differences is diminishing.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE7

Inte

rnat

iona

lco

mp

aris

ons

wit

hp

rior

stud

ies:

Ad

opti

onof

man

agem

ent

acco

unti

ngm

odel

s:Re

por

ted

per

cent

age

ofco

mp

anie

sad

opti

ng

Adoptionrate

(inpercentages)

GCC

Countries

Presentstudy

N=

57

Denmark

Nielsen

etal.,2008

N=

119

Italy

Cinquini

and

Tenucci,

2006

N=

93

UK

Abdel-K

ader

and

Luther,2006

N=

122

India

Joshi,

2001

N=

60

New

Zealand

Guilding

etal.,2000

N=

109

UK

Guilding

etal.,2000

N=

54

USA

Guilding

etal.,2000

N=

116

Australia

Chenhall

and

Langfield-Smith,

1998

N=

78

Finland

Lukka

and

Granlund,

1996

N=

134

A)Cost

Managem

ent:

%%

%%

%%

%%

%%

1.Totalquality

managem

ent(TQM)

44.4

33

16

2.ActivityBased

Managem

ent(A

BM)

40.7

12

13

68

8

3.ActivityBased

Costing(A

BC)

38.9

31

28**

44

20

56

30*

4.Kaizen

Costing(K

C)

27.8

6

5.Business

Excellence

Model

(BEM)

30.9

11

6.Quality

Costing(Q

C)

21.6

17

38

56

49

44

44

7.Target

Costing(TC)

6.3

13

34

57

35

45

41

46

38

7*

8.Life-Cycle

Costing(LCC)

13.7

823

41

45

35

37

39

70

3*

9.Cost

of

Engineering(C

E)

11.8

10

10.Strategic

Costing(SC)

10

541

49

53

43

B)Perform

ance

Measurement:

11.Shareholder

Value(SHV)

30.9

35

33

20

64

(Thetable

iscontinued

onthenextpage.)


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

TAB

LE7

(Con

tinu

ed)

Adoptionrate

(inpercentages)

GCC

Countries

Presentstudy

N=

57

Denmark

Nielsen

etal.,2008

N=

119

Italy

Cinquini

and

Tenucci,

2006

N=

93

UK

Abdel-K

ader

and

Luther,2006

N=

122

India

Joshi,

2001

N=

60

New

Zealand

Guilding

etal.,2000

N=

109

UK

Guilding

etal.,2000

N=

54

USA

Guilding

etal.,2000

N=

116

Australia

Chenhall

and

Langfield-Smith,

1998

N=

78

Finland

Lukka

and

Granlund,

1996

N=

134

12.Non-Financial

Perform

ance

Measures(N

FPM)

54.5

41

74

53

92

–

13.Balanced

Scorecard

(BSC)

30.8

40

28***

40

88

14.Economic

Value

Added

(EVA)

29.1

25

56

C)Strategic

Valuation

andAnalysis:

15.Value

Reporting(V

R)

10.2

16.Intellectual

Capital

Statement(ICS)

5.8

15

Notes:

*Includes

both

implementedandconsidered.

**

Includes

ABC

⁄ABM

***

Otherscalled

it‘‘IntegratedPerform

ance

Managem

ent.’’

A:Percentages

wereestimatedusingreported

Likertscale

scores.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

CONCLUSIONS, LIMITATIONS, AND DIRECTIONS FOR FUTURE RESEARCH

This study of public corporations in GCC countries examined the current usage ofcontemporary MAPs. The reported adoption rates of MAPs in GCC countries aregenerally low in the Cost Management and Strategic Valuation Analysis categories.We report the highest adoption rates in Cost Management for TQM, ABM, ABC,and KC. In contrast, we found moderate adoption for all MAPs in the PerformanceMeasurement category. We compared our results with prior international studiesand found that the adoption percentages for GCC countries are approximately atthe median level in the Performance Measurement category. The findings to a largeextent support prior research that corporate sector companies are slow adopters ofthese practices.

Prior literature shows that management accounting change may be motivatedby economic factors and ⁄or ‘‘fashion or fad’’ motives. The respondents fromfirms with foreign operations tended to report higher adoption rates. We foundsignificant differences for firm size for five of the MAPs, but, contrary to prior stud-ies the means were significantly higher for smaller firms in four of the sixteen vari-ables. The size effect is not as pronounced in the GCC countries. Using therespondents’ views on their firms’ planned adoptions over the next three years, weprojected the percentages of firms that will be using MAPs. The highest projectedusage by firms is for MAPs in the Performance Measurement category, specificallyNFPM, SHV, and BSC. The respondents’ expectations could be influenced by per-ceived economic factors or ‘‘fashion or fad.’’ From an economic perspective, how-ever, we can infer that companies in this region are becoming conscious aboutmonitoring and enhancing their performance.

We report that the respondents view the success rates in adopting MAPs in theirfirms as varying but generally being favorable. Our survey information also pro-vides insight into the reasons for not adopting the contemporary MAPs. Power andpolitics are important organizational factors in management accounting change;and they appear to be most influential with regard to the primary reasons cited bythe respondents for nonadoption of MAPs as compared to economic motivation(cost–benefit) reasons.

The primary contribution of this study is to extend the literature on diffusion ofmanagement accounting models and management accounting change by studying adifferent cultural environment. Our survey results provide some support for theview that there is a global tendency for convergence of management accounting sys-tem designs and ideas and that the role of cultural differences is diminishing.

One of the limitations of the study is that judgmental sampling was used for thesample survey in order to select companies that had complete postal address fromthe list of all companies. Another limitation could be the misunderstanding ofMAPs terms used in the mailed questionnaire survey. The sampling design of thisstudy also restricts generalization. The exploratory survey findings are based on asmall sample of respondents.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

There exists a need for more studies on MAPs in the United States, Europe,and Asia, as well as in other emerging economies. Another research issue thatneeds to be explored is whether MAPs provide insight into the quality of a firm’smanagement. Specifically, slow adoption and nonadoption of MAPs may be anindication that the firm’s management does not encourage or value innovativepractices. The MAPs in our survey are based on the MAPs included in priorstudies. Future research could investigate adoption of other models such as leanaccounting and Six Sigma. Further research may be undertaken about the suc-cessful implementation by companies in individual GCC countries and otherssuch as Egypt, Jordan, Algeria, Libya, and Sudan. Since there is a large numberof non-industrial companies operating in GCC countries, MAPs of those compa-nies which have received Sovereign Wealth Funds may be another area for futureresearch.

APPENDIX

Definition of Each Model

Activity Based Costing (ABC): A refinement of the traditional costing system whichaims at finding out a more accurate cost of a product. It identifies activities, deter-mines the cost for each activity, determines cost drivers, collects activity data, andcalculates product cost. There are multiple direct cost categories and multiple indi-rect cost pools.

Activity Based Management (ABM): Used to describe the cost managementapplications of ABC. Mainly focuses on value and non-value-added activities.

Balanced Scorecard (BSC): A set of measures that gives top managers a fastbut comprehensive view of the business; the set includes financial and nonfinancialmeasurements.

Business Excellence Model (BEM): Used to improve business performance byassessing organizations to improve their performance and profitability within aframework of self-assessment.

Cost Engineering (CE): Costs that have an explicit physical relationship withoutput. The relationship between input (cost) and output can be accurately deter-mined from the technical specifications of the product or from an analysis of histor-ical cost. CE can be changed by daily operating decision of management.

Economic Value Added (EVA): A measure of the value added or depleted fromshareholder value in one period. EVA = (return on invested capital – weightedaverage cost of capital) · average invested capital.

Intellectual Capital Statement (ICS): This statement is an instrument in assess-ing and managing the knowledge resources and intellectual capital of the company.It also helps to make the best investment decisions in intangible assets, and managethe return on investment in information technology.


AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011)

Kaizen Costing (KC): Continuous improvements in all aspects of performance,at every level within the organization. Kaizen means ‘‘improvement’’. Kaizen strat-egy calls for neverending efforts for improvement involving everyone in the organi-zation, managers and workers alike.

Life Cycle Costing (LCC): Full sequence of value-chain business functionsfrom R&D through customer support for a product.

Nonfinancial Performance Measures (NFPM): Measure of performance basedon non-financial information, which may originate in and be used by operatingdepartments to monitor and control their activities without any accounting input.

Quality Costing (QC): To prevent or rectify production of low-quality prod-ucts. This cost focuses on conformance quality and is incurred in all areas of thevalue chain.

Strategic costing (SC): A tool for competitive advantage used for accurate costmeasurement, reducing costs in all areas of the value chain, and determining costdrives. It helps to make better strategic and operational decisions and align costmanagement behavior with strategic objectives.

Shareholder Value (SHV): Represents the portion of the company owned bythe shareholders and is normally defined as the market value of the shares andother hybrid instruments that could be converted to shares.

Target Costing & Pricing (TC): A product pricing variant of the cost-basedmodel. It is market-based pricing in which the target price per unit is determinedfirst and then profit per unit is deducted and the remaining figure becomes TargetCost. It is achieved by using design for manufacturing assembly, value analysis, andvalue engineering methods.

Total Quality Management (TQM): An integrated and comprehensive systemof planning and controlling all business functions so that products and services areproduced which meet or exceed customer expectations. It is a philosophy of busi-ness behavior, and includes Just in Time (JIT).

Value Reporting (VR): Performance measurement and corporate reportingdesigned to meet investors’ needs for more and better information. It supplementstraditional financial reporting by helping companies provide a more detailed, trans-parent picture of their performance—market opportunities, strategy, risks, intangi-ble assets, and other important reports.

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