Effect of Organizational and Cultural Factors in Potential Adoption of ActivityBased Costing – The Case in Vietnam45289

Effect of Organizational and Cultural Factors in Potential Adoption of Activity-Based Costing – The Case in Vietnam Tam Nguyen To(1)*, Tuan Le Anh (1) (1) Electric Power University, Ha Noi, Vietnam * Correspondence: tamnt@epu.edu.vn Abstract: The paper aims at measuring potential adoption of activity based costing (ABC) by Vietnamese companies Through organizational and cultural factors, the paper identifies influences between these factors to ABC adoption The Theory of Reasoned Action (TRA) and Theory of Planned Behavior (TPB) are used to explain how to apply the framework of adoption The study employs survey methodology to collect primary data on factors that expect to affect the adoption of ABC The analysis was conducted with 90 useful questionnaires received from enterprises in Hanoi, Vietnam The logistic regression was used to analyse the relation between these factors and the adoption of ABC The result indicates that organizational and cultural factors are not significant to the potential adoption of ABC in Vietnam This paper explains several reasons and recommends to study further for this topic Keywords: Activity-based costing (ABC); cultural; organizational; Vietnam Introduction Vietnamese enterprises are facing increasing competition in the market both in industry and services It is necessary for them to apply new management tools to improve product quality and to optimize costs under the pressure of the variety of competitors Activity-Based Costing (ABC) is a strategic management tool which leads to appropriate decisions for management The ABC approach aims at costing and monitoring activities and identifying right activity costing to finalize outputs ABC helps enterprises that they could estimate the cost elements of entire products, activities and services, so it shapes the fully cost for outputs and supports to give right management decisions ABC assigns an enterprise's resource through activities to products and services supplied to their customers ABC is generally used as a management tool for understanding product and customer cost and profit based on activities As such, ABC supports strategic decisions for enterprises in pricing, outsourcing, identification and measurement of activities In the 1980s, the limitation of traditional costing systems had been shown These systems had been designed for long time for most enterprises with narrow range of products In which, labor costs and direct material costs include a significant proportion of the total cost Overhead costs are supposed insignificantly In previous time, information processing cost was considered with significant amount Today, a wide range of products and services are produced by many enterprises Direct labor costs account for a small part of the total cost and overhead costs are significant proportion New condition has required the basis of allocation of overhead cost for products and services The allocation based on direct labor cost has been inefficient and the cost of information processing has reduced gradually based on technology improvement However, there are more complex costs with many costs needed including in full cost of outputs ABC is the new method to deal with these matters In previous researches, academics and management accountants have indicated a great interest in applying ABC for business but ineffectiveness in practices (Gosselin 1997) Many researchers have identified factors influenced on adoption and implementation ABC (Gosselin 1997; Appah et al 2013; Maelah et al 2007; Ahmadzadeh et al 2011; Nair et al 2018; Charaf et al 2013) They reconfirmed usefulness of adoption ABC based on activity management for manufacturing enterprises or hospitality industry (Appah et al 2013) They demonstrated many factors affected to adoption ABC Some factors are individuals or group Lueg et al (2017) indicated some factors which result to the adoption and implementation of ABC by review 27 meaningful papers in total 2,770 articles related to ABC This paper has synthesized factors affected included technical, behavioral, organizational and other contextual factors It indicated some specific factors for top management support, implementation training, non - accounting ownership and business size, to be associated with a successful process of implementation and adoption ABC method So, cultural and organizational factors have showed the positive relationship with adoption ABC in entities, specially manufacturing companies (Maelah et al 2007; Lueg et al 2017) This study has two objectives The first is to indicate the influence between organizational and cultural factors to adopt ABC The other is to indicate employing the fruitful management tool for enterprises The paper is organized as follows Section reviews previous researches the factors affected to adopt ABC Section gives the research model and methodology Section analyses the empirical findings and the last section concludes the study Literature review 2.1 Activity based costing method “ABC is an approach to the costing and monitoring of activities which involve tracing resource consumption and costing final outputs Resources are assigned to activities, and activities to cost objects based on consumption estimates The latter utilise cost drivers to attach activity costs to outputs” (CIMA 2008) CIMA defines ABC to all activity and for all business sectors The concept of ABC was first defined in the late 1980s by Robert Kaplan and William Burns Initially, ABC focused on manufacturing companies where big requirements of technological developments, so and reduction of the proportion of direct labor and material costs, but increased the proportion of indirect or overhead costs Researchers have indicated benefits of ABC adoption and implementation for not only manufacturing companies and also service, commercial companies or public entities The traditional method of costing has become increasing inaccurately as the relative proportion of overhead costs has risen This distortion of costs can result in inappropriate decision-making ABC is therefore an alternative approach to the traditional method or arbitrary allocation of overheads to product, services and customers ABC method is flexible to provide specific reports so management can take decisions about the costs of designing, manufacturing, selling and delivering product or service The key characteristic is that ABC focuses on accumulating costs via activities, whereas traditional cost allocation focuses on accumulating costs within functional areas ABC is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure It is developed to provide more accurate ways of assigning the costs of indirect and support resources to activities, business processes, products, services, and customers ABC systems recognize that many organizational resources are required not for physical production of units of product but to provide a broad array of support activities that enable a variety of products and services to be produced for a diverse group of customers The goal of ABC is not to allocate common costs to products The goal is to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers (Srividhya 2015) Moreover, ABC has received a great deal of attention as a cost management innovation It is necessary to trace overhead costs to cost objects and supports process improvement and development cost- effective product designs These differences are significant for companies with large amount of overheads, multiple products and high product diversity ABC is also defined as a system that allows organizations to track the cost related with activities performed products and services (James P.C.2013) 2.2 ABC in practice ABC activities have been around for nearly 30 years and many companies in a variety of sectors that have implemented activity based thinking ABC and activity have brought about radical changes in cost management systems The principles and philosophies of activity based thinking apply equally to service companies, government agencies, process and manufacturing industries Management practices and methods have changed over the last decade and will continue to change Organizations have moved from managing vertically to manage horizontally There has also been a move from a function orientation to a process orientation However, management information systems to track and provide information about the horizontal aspects of business have lagged significantly behind managers’ needs ABC fills this information gap by providing cost and operation information that mirrors a horizontal view ABC focuses on accurate information about the true cost of products, services, processes, activities and customers Using ABC, organizations gain a thorough understanding of their business processes and cost behavior during ABC analysis Management then applies this insight to improve decision making at operating and strategic levels (CIMA 2008) 2.3 Factors affect adoption of ABC ABC has been considering as useful management tool to companies ABC has been a solution to the problem of lack of relevance in costing system (Charaf et al 2013) According to (Lueg et al 2017), factors affected the adoption ABC included technical, behavioral, organizational and other contextual factors This study indicates the review of factors of adoption and implementation on ABC Therefore, these factors have been analyzed in general factors To analyze factors, some researchers have indicated factors in detail that effect on adoption and implementation ABC and focused on organizational and cultural factors (Gosselin 1997; Appah et al 2013; Charaf et al 2013; Ahmadzadeh et al 2011) Organizational factors include top management support, business size or complexity of business unit, importance of costs for decision – making or importance of cost information and the proportion of indirect costs or cost structure Cultural factors include outcome orientation, innovation, team orientation and attention to detail 2.3.1 Organizational factors and the adoption ABC Charaf K.et al 2013 identified three variables in organization to affect the adoption ABC There are the importance of costs for decision – making, complexity of business unit and the proportion of indirect costs However, the positive hypothesis of the importance of costs for decision and adoption ABC was confirmed The result is not as predicted because small samples Appah et al (2013) and Maelah et al (2007) proved the relationship between usefulness of accounting information and ABC adoption Therefore, complexity of business unit and the proportion of indirect costs would become factors to re-examine in Vietnam context 2.3.2 Cultural factors and the adoption ABC Charaf K.et al (2013) identified three variables in cultural to affect the adoption ABC They are outcome orientation, innovation, team orientation and attention to detail In this paper, outcome orientation, innovation is indicated positive relationship Like other papers, outcome orientation or performance are the positive factors (Appah et al 2013; Maelah et al 2007) Innovation is confirmed in Gosselin (1997) Team orientation and attention to detail would become factors in this study Accepted behavioral theories 3.1 Theory of reasoned action The theory of reasoned action (TRA) is one of the three classic models of persuasion, and is also used in communication discourse as a theory of understanding The theory of reasoned action was developed by Ajzen et al (1977) and was derived from previous research that began as the theory of attitude The theory aims to explain the relationship between attitudes and behaviors within human action TRA is used to predict how individuals will behave based on their pre-existing attitudes and behavioral intentions An individual's decision to engage in a particular behavior is based on the outcomes the individual expects will come as a result of performing the behavior According TRA, behavior can largely be predicted by the individual’s attitudes towards performing the behavior in question, through the effect of behavioral intention The important attitudes in this process are those that are specific to the specific behavior being studied, it is not sufficient to consider the individual’s attitudes more generally The theory also postulates that a person’s intentions about performing a behavior, which ultimately determine whether they will so, are influenced by social pressures or subjective norms, which arise from their individual’s perceptions of what others will think about them performing the behavior in question In this theoretical model, both personal attitudes and social or normative factors exert a direct influence on behavioral intentions, which are the strongest predictor of actual behavior 3.2 Theory of Planned Behavior The Theory of Planned Behavior (TPB) started as the TRA in 1980 to predict an individual's intention to engage in a behavior at a specific time and place The theory was intended to explain all behaviors over which people have the ability to exert self-control The key component to this model is behavioral intent; behavioral intentions are influenced by the attitude about the likelihood that the behavior will have the expected outcome and the subjective evaluation of the risks and benefits of that outcome The TPB states that behavioral achievement depends on both motivation (intention) and ability (behavioral control) It distinguishes between three types of beliefs - behavioral, normative, and control The TPB is comprised of six constructs that collectively represent a person's actual control over the behavior Jimmieson et al (2008) indicated that utilizing the TPB as a framework for understanding employee intentions to support organizational change, this study examined the extent to which attitude, subjective norm, and perceived behavioral control and the interactive effect of group norm and in-group identification predicted intentions to carry out change-supportive activities It also was hypothesized that communication and participation would increase intentions, with these relationships mediated by the TPB variables The sample was 149 employees undergoing the first phase of a building relocation Attitude, subjective norm, and perceived behavioral control each predicted intentions A significant interaction emerged, with group norm predicting intentions only for employees who identified strongly with their reference group Employees who perceived sufficient information about the relocation reported stronger intentions, an effect that was partially mediated via subjective norm and perceived behavioral control Similarly, participation predicted intentions via subjective norm Implications for fostering employee readiness for change are discussed Overall, the study provided a unique contribution to our understanding organizational change processes by adopting a theoretical approach that has predictive power, thereby validating the important role of intentions in managing organizational change projects The inclusion of group norm and in-group identification contributed to the power of the model to explain intentions, suggesting that interventions designed to foster favorable group norms and strengthen social identity may be key to maximizing change receptiveness The TPB also contributed to our understanding of the relationship between two specific change management strategies (communication and participation) and intentions to behaviorally support change From an applied point of view, the TPB is a useful framework for pre-implementation assessments of readiness for change as it can provide organizations with an early indication of employee beliefs and determinants of their intentions prior to the change event (Jimmieson et al 2008) Methodology 4.1 Logistic regression All the researches of factors affecting ABC adoption used logistic regression The application of logistic regression can be viewed from a six-stage model-building perspective As with all multivariate applications, setting the objectives is the first step in the analysis Then we must address specific design issues and make sure the underlying assumptions are met The analysis proceeds with the estimation of the probability of occurrence in each of the groups by use of the logistic curve as the underlying relationship The binary measure is translated into the odds of occurrence and then a logit value that acts as the dependent measure The model form in terms of the independent variables is almost identical to multiple regressions Model fit is assessed much like discriminant analysis by first looking for statistical significance of the overall model and then determining predictive accuracy by developing a classification matrix Then, given the unique nature of the transformed dependent variable, logistic coefficients are given in their “original” scale, which is in logarithmic terms, and a transformed scale, which is interpreted more like regression coefficients Each form of the coefficient details a certain characteristic of the independent variable’s impact Finally, the logistic regression model should be validated with a holdout sample (Hair et al 2014) Logistic regression presents an alternative to discriminant analysis that may be more comfortable to many researchers due to its similarity to multiple regressions Given its robustness in the face of data conditions that can negatively affect discriminant analysis, logistic regression is also the preferred estimation technique in many applications When compared to discriminant analysis, logistic regression provides comparable predictive accuracy with a simpler variation that used the same substantive interpretation, only with one less variable The objectives of the study are identifying the factors (independent variables) that impact ABC adoption in the dependent variable The method identifies the probability of adoption ABC as dependent or binary variable and measured with values of and (for adoption or no adoption) Independent variables are factors and measured by Likert 1-5 4.2 Research Model According to the previous analyze, the research model is proposed in Figure We have nine parameters in two group factors (organizational and cultural factors) Besides dependent and independent variables, three control variables are used to additional analyze Organizational factors Capital, Year, Product Importance of costs for decision – making types H1 Complexity of business unit H2 Proportion of indirect costs H3 Organizational support H4 ABC adoption Cultural factors Outcome orientation H5 Innovation Team orientation Attention to detail H6 H7 H8 Figure Research Model In this research model, organizational factors with four parameters, cultural factors with four parameters are independent variables and measured by Likert Scale from to ABC adoption is dependent variable with binary measurement and Legal capital, number of operating year and amount of products or services supplied are control variables and measured from the original scale to nominal scales (from to 5) Based on the theoretical framework that has been stated previously, the research hypothesis can be formulated as follows: H1 Importance of costs for decision – making is positively affected to ABC adoption; H2 Complexity of business unit is positively affected to ABC adoption; H3 The proportion of indirect costs is positively affected to ABC adoption; H4 Organizational support is positively affected to ABC adoption; H5 Outcome orientation is positively affected to ABC adoption; H6 Innovation is positively affected to ABC adoption; H7 Team orientation is positively affected to ABC adoption; H8 Attention to detail of costs is positively affected to ABC adoption 4.2 Sample size With binary logistic regression, sample size requires larger than other method Hosmer et al (2000) recommend sample sizes greater than 400 According to Hair et al (2014), the recommended sample size for each variable is at least 10 observations per estimated parameter They showed the sample size is greater than multiple regressions, at least five observations In our study, samples size is required at least 80 respondents to questionnaire survey In fact, we send questionnaires through Google form and send by email, we got 52 respondents We got over 20 questionnaires from tax officials and 24 questionnaires from Hanoi planning and investment Department We cleaned data and got 90 qualified questionnaires and used to analyze through SPSS software Results 5.1 Descriptive statistic In this survey, demographics of respondents by business sector is illustrated as follows: Table Demographics of respondents by business sector Business sector N % Industrial manufacturing 15 17% Agricultural manufacturing 7% Forestry manufacturing 3% Services to business 28 31% Commercial business 38 42% Total 90 100% More than 60% respondents have registered capital that are smaller than 20 billion Vietnam Dong, approximately 1million USD In which, more than 50% companies are below 10 years operated Table indicates descriptive statistic of parameters of organizational and cultural factors Table Descriptive statistic of parameters of organizational and cultural factors Parameter Mean Max Min Importance of costs for decision – making – O2 3.8 Complexity of business unit – O3 3.6 Proportion of indirect costs – O4 3.14 Organizational support in cost accounting in business – O1 3.16 Organizational support in reliable information needed-O5 3.62 Outcome orientation – C1 3.79 Innovation in business – C2 3.76 Team orientation – C3 3.77 Parameter Mean Max Min Attention to detail of costs – C4 3.83 5.2 ABC adoption – the dependent variable ABC adoption is questioned in two parameters One status confirms adoption or non-adoption ABC in business and other considers knowledge about ABC Table ABC adoption in parameters in Vietnam ABC adoption N % Adoption ABC in business 19 21.1% Non-adoption ABC in business 71 78.9% Knowledge about ABC 61 67.8% Not consideration about ABC 29 32.2% Total 90 100% Comparison with the result of Charaf K.2013, the rate adoption of ABC in Vietnam (21.1% of the respondents) is lower than the rate of 22.6% in Moroco, 33.3% in France and 23.75% in Tunisia Depending on the survey data, business in industry, services in Vietnam have trend toward using ABC more than commerce, forestry or agriculture areas 5.3 Orgnisational and cultural factors – the dependent variable After testing reliability of questionnaires and ensuring the reasonable threshold, binary logistic regression was implemented The analyze comply with the guidelines in (Hair J.F.J.et al 2014) Model estimation fit With logistic regression model, some indicators resulted as follows The indicator of -2 Log likelihood is a basic measure of how well the maximum likelihood estimation procedure fits is the likelihood value, similar to the sums of squares values used in multiple regression Logistic regression measures model estimation fit with the value of -2 times the log of the likelihood value, referred to as -2LL or -2 log likelihood The minimum value for -2LL is 0, which corresponds to a perfect fit (likelihood = and -2LL is then 0) Thus, the lower the -2LL value, the better the fit of the model As will be discussed in the following section, the -2LL value can be used to compare equations for the change in fit or to calculate measures comparable to the R2 measure in multiple regressions If it is lower and shows better the fit of the model In this study, it is higher and shows unfit the model (107.112) The Cox and Snell R2 measure operates in the same manner, with higher values indicating greater model fit However, this measure is limited in that it cannot reach the maximum value of 1, so Nagelkerke proposed a modification that had the range of to Both of these additional measures are interpreted as reflecting the amount of variation accounted for by the logistic model, with 1.0 indicating perfect model fit In the paper, indicators of Cox & Snell R Square is 0.109 and Nagelkerke R Square is 0.149 are low That indicate this model proposed in Vietnam context unfit Interpreting the logistic coefficients Direction of relationship To assess the direction of the relationship of each variable, we can examine either the original logistic coefficients or the exponentiated coefficients In the case both variables have positive signs, indicating a positive relationship between both independent variables and predicted probability With the following result (Table 4), coefficients of almost parameters are negative and their exponentiated coefficients are reasonable When exponentiated coefficients above 1,0 reflect a positive relationship and values less than 1,0 represent negative relationships but in these results indicate non-significantly This statistic tests the eight hypotheses that the observed data are significantly different from the predicted values Table - Variables in the Equation Step 1a B S.E Wald df Sig Exp(B) O1 0.611 0.379 2.597 0.107 1.842 O2 -0.486 0.403 1.450 0.228 0.615 O3 -0.221 0.353 0.393 0.531 0.802 O4 -0.009 0.322 0.001 0.978 0.991 O5 -0.293 0.386 0.575 0.448 0.746 C1 0.026 0.433 0.004 0.951 1.027 C2 -0.055 0.410 0.018 0.892 0.946 C3 0.436 0.388 1.263 0.261 1.546 C4 -0.307 0.340 0.820 0.365 0.735 Constant 0.874 1.362 0.412 0.521 2.398 a Variable(s) entered on step 1: O1, O2, O3, O4, O5, C1, C2, C3, C4 Magnitude of the Relationships The most direct method of assessing the magnitude of the change in probability due to each independent variable is to examine the exponentiated coefficients The exponentiated coefficients minus one equals the percentage change in odds These numbers can exceed 100 percent because they are increasing the odds, not the probabilities themselves But in the result, all significance of variables are higher than 0.05, so they are not meaningful in statistic It implies all hypothesis indicated previous that are not proved The result does not re-confirm the relationship of factors to adoption ABC like Gosselin (1997) and Maelah et al (2007) but shows a negative relationship as Ahmadzadeh et al (2011) Conclusions This study examines the effect of organizational and cultural factors affecting the adoption ABC based the logistic regression of data from 90 companies in Hanoi, Vietnam Five parameters of organizational factors and four parameters of cultural factors are examined in the possibility of adoption ABC The study has indicated some control variables affect to adoption ABC in business sectors Despite, this paper indicates insignificant relationship between organizational and cultural factors and the adoption ABC Some parameters have negative coefficients and significance over 0.5 It implies if we increase sample size, positive relationship may be raised It is hoped that this paper will motivate researchers to undertake further research in the future Besides attempting to improve the methods of measurement the variables, future research should consider incorporating other important variables that have been omitted from this study which are likely to influence the adoption ABC The most notable omitted independent variables are organizational variables such as top management support, resistance to change by providers and lack of relevant employees’ skills, training, environmental factors and information technology level References Ahmadzadeh, T., Etemadi, H., Pifeh, A (2011) Exploration of factors influencing on choice the activity-based costing system in iranian organizations International Journal of Business Administration 2, 61-70 Ajzen, I., Fishbein, M.(1977) Attitude-behavior relations: A theoretical analysis and review of empirical research Psychological Bulletin, 84, 888-918 Appah, E., Binaebi, B (2013) Analysis of factors influencing activity-based costing applications in the hospitality industry in Yenagoa, Nigeria Asian Journal of Business Management, 5(3), 284-290 Charaf, K., Bescos, P (2013) The role of organizational and cultural factors in the adoption of activity-based costing: The case of moroccan firms Accouting and Management Information systems, 12, 4-21 CIMA (2008) Activity based costing - topic gateway series No1 The Chartered Institute of Management Accountants, page Gosselin, M (1997) The effect of strategy and organizational structure on the adoption and implementation of activity-based costing Accounting, Organizations and Society, 22, 105-122 Hair, J.F.J., Black, W.C., Babin, B.J., Anderson, R.E (2014) Multivariate data analysis Pearson Education Limited, 7th edition, 313-339 Hosmer, D.W., Lemeshow, S (2000) Applied logistic regression Wiley, New York), 2nd edition, 339-347 James, P.C (2013) An analysis of the factors influencing the adoption of activity based costing (abc) in the financial sector in jamaica International Journal of Business and Social Research, 3, 8-18 Jimmieson, N.L., Peach, M., White, K.M (2008) Utilizing the theory of planned behavior to inform change management: An investigation of employee intentions to support organizational change Applied Behavioral Science , 44(2), 237-262 Lueg, R, Storgaard, N (2017) The adoption and implementation of activity-based costing: A systematic literature review Investment Journal of Strategic Management, 17, 7-24 Maelah, R., Ibrahim, D.N (2007) Factors influencing activity based costing (abc) adoption in manufacturing industry Investment Management and Financial Innovations 4, 113124 Nair, S., Tan, X (2018) Factors influencing the implementation of activity-based costing: A study on malaysian smes International Business Research, Published by Canadian Center of Science and Education 11, 133-141 Srividhya, D.N (2015) Implementation of activity based costing in a small manufacturing firm – a trial approach GE- International Journal of Management Research (GEIJMR), 3, 113-124  ... Charaf, K., Bescos, P (2013) The role of organizational and cultural factors in the adoption of activity-based costing: The case of moroccan firms Accouting and Management Information systems, 12,... James, P.C (2013) An analysis of the factors influencing the adoption of activity based costing (abc) in the financial sector in jamaica International Journal of Business and Social Research, 3, 8-18... usefulness of accounting information and ABC adoption Therefore, complexity of business unit and the proportion of indirect costs would become factors to re-examine in Vietnam context 2.3.2 Cultural factors