92 A.I. Nicolaou International Journal of Accounting Information Systems 1 2000 91–105
straints on AIS design have been identified through a review of prior accounting studies. In addition, this
study introduces constraints due to interorganiza- tional interactions that have not been examined be-
fore in the accounting systems literature.
The approach in this study is consistent with the in- formation-processing paradigm of organizational de-
sign Daft and Lengel, 1986; Galbraith, 1973; Tush- man and Nadler, 1978, which would suggest that AIS
design represents a response to the requirements for organizational coordination and control OCC. AIS
integration refers to a particular design state where the system in its implemented form can provide output in-
formation that may be effectively used to address OCC problems and requirements. Contingent vari-
ables, such as a the degree of formalization in the structure of an organization Hage and Aiken, 1969;
Simons, 1987, b interdependencies in information requirements between functional areas within an orga-
nization Govindarajan and Fisher, 1990; Thompson, 1967, and c dependencies due to interorganizational
information sharing and electronic data interchange EDI links Bakos, 1991; Srinivasan et al., 1994; Za-
heer and Venkatraman, 1994, influence the extent to which organizations experience different levels of co-
ordination and control problems. AIS integration can resolve difficulties in coordination and control that
are created by these contingent variables.
The purpose of this study is to empirically exam- ine the relationship between AIS integration and per-
ceptions of system effectiveness. Specifically, it is hy- pothesized that to the extent that AIS design provides
for system integration, as necessitated by the three con- tingent variables mentioned above, the system would
be perceived as effective. This hypothesis is tested with data collected from firms in the United States using the
survey research method. Results partially confirm the hypothesis that the degree of fit between AIS integra-
tion and the contingent variables predicts AIS effec- tiveness. There is stronger support for the hypothesis
when AIS effectiveness is defined by decision-makers’ satisfaction with the accuracy and monitoring effec-
tiveness of output information than by the more tradi- tional definition of satisfaction with quality of informa-
tion content in system outputs.
The remainder of the article is organized as fol- lows: In the next section, research that relates to indi-
vidual components of the research model is reviewed. The theoretical framework is developed and the re-
search hypothesis for the study is advanced. The re- search method for the study is presented next, fol-
lowed by a presentation of the empirical findings. The article concludes with a discussion of the find-
ings and with suggestions for future research.
2. Theoretical framework
The research model for the study is presented in Fig. 1. The model posits that perceptions of system
effectiveness will depend on the fit between AIS In- tegration and the contingent factors of organizational
formalization, information interdependence among functional areas within the organization, as well as
interdependence with other organizations. These con- tingencies are likely to create requirements for inte-
grated information that are necessary for the satisfac- tion of coordination and control needs within an
organization. The contingency formulation that is as- sumed in this article is that the design of an AIS will
be adapted to respond to contingencies in expectation that the system will meet the information require-
ments of its users and thus be perceived as effective. The model discussion is organized around its major
components, starting with a general discussion of the use of a contingency framework for AIS design.
2.1. Contingency framework for AIS design and effectiveness
The research issues that are central to the organi- zational literature relate to the design of internally
consistent organizational mechanisms that will en- sure managerial and economic effectiveness Gal-
braith, 1995; Zimmerman, 1995. Accounting informa- tion systems are considered important organizational
mechanisms that are critical for effective decision management and control in organizations Jensen,
1983; Zimmerman, 1995. Differences in require- ments for organizational coordination and control
across organizations, therefore, as indicated by such contingencies as organizational context and structure,
are likely to result in differences in accounting sys- tems Jensen, 1983, 325. As Otley states, “Account-
ing systems are an important part of the fabric of or- ganisational life and need to be evaluated in their
wider managerial, organisational and environmental context” 1980, 422. The contingency theory of or-
ganizational design Daft and Lengel, 1986; Gal- braith, 1973; Tushman and Nadler, 1978 can there-
fore suggest relevant models for the effective design of AISs.
This study attempts to extend prior models and address criticisms of specific applications. First, it
expands the scope in defining organizational context to also include effects due to interorganizational in-
teractions. The examination of multiple contingen- cies that may have a joint influence on system design
and performance can improve the explanatory ability of a research model Gresov, 1989. Second, this
study addresses, in part, criticisms of specific appli-
A.I. Nicolaou International Journal of Accounting Information Systems 1 2000 91–105 93
cations of contingency theory models. Past applica- tions had overlooked the link between system design
and performance and were criticized for the lack of attention to such a relationship Otley, 1980;
Schoonhoven, 1981. This study partially addresses this criticism by examining the critical path between
system design and perceived effectiveness; however, it only defines AIS effectiveness in terms of percep-
tions about system characteristics, and does not ex- amine specific performance outcomes. The relation-
ship between AIS integration and effectiveness, however, still represents an important specific appli-
cation of a contingency theory model for AIS design.
2.2. Contingent variables The problem of defining the informational struc-
ture of the firm has been dealt with in the early ac- counting literature. Prakash and Rappaport 1975
have defined the elements of the firm in terms of the following five interacting processes: planning process,
decision-making process, implementation through ob- servation process, data structuring process, and perfor-
mance evaluation process. The role of accounting in- formation is to tie those elements in a common
informational structure. The need to minimize redun- dancies, promote increased consistency among data
elements used in different functional areas within the organization, enhance data organization, and pro-
mote a cross-functional view within the organization Cook and Eining, 1993, can create coordination re-
quirements for the sharing of scarce resources Govindarajan and Fisher, 1990 as well as control
requirements for the centralized monitoring of deci- sions and actions Simons, 1987. AIS design should
therefore be adapted to meet such requirements. The need to deal with inefficiencies, reduce fragmenta-
tion in services, and increase control in interorganiza- tional resource-sharing Rogers and Whetten, 1982
can also have a significant effect on the degree of op- erating complexity of an AIS and necessitate impor-
tant changes in AIS design.
The following contingent factors, therefore, moti- vate AIS integration: a interdependencies in informa-
tion requirements between functional areas within an organization Govindarajan and Fisher, 1990; Thomp-
son, 1967, b the degree of formalization in the structure of an organization Hage and Aiken, 1969;
Simons, 1987, and c dependencies due to interor- ganizational information sharing and electronic data
interchange EDI links Bakos, 1991; Srinivasan et al., 1994; Zaheer and Venkatraman, 1994.
Interdependence denotes the extent to which dif- ferent organizational segments within a subunit de-
pend on one another to carry out their tasks Thomp- son, 1967. Interdependence can occur at any level,
including the individual, departmental, or functional subunit, or organizational level Fry, 1982. Prior re-
search in management accounting has examined this variable as an aspect of task technology both within
business subunits Chenhall and Morris, 1986; Kim, 1988 and among subunits Govindarajan and Fisher,
1990; Hayes, 1977; Macintosh and Daft, 1987. Task interdependence within subunits was also reported to
have a significant association with system integra- tion, that is, the provision of information that inte-
grated the effects of decisions from different func- tional areas Chenhall and Morris, 1986.
Following Prakash and Rappaport’s 1975 con- ceptualization of an information structure as a set of
Fig. 1. Research model for the study.
94 A.I. Nicolaou International Journal of Accounting Information Systems 1 2000 91–105
interacting activities that share information for the execution of organizational tasks, interdependence is
defined in this study as the “required information sharing” that takes place among different organiza-
tional functions in carrying out their tasks. This defi- nition is consistent with Gresov’s 1989 definition
of work-unit dependence as the extent to which infor- mation or resources from outside sources are re-
quired as necessary inputs for a work process. It is also consistent with the concept of resource sharing
that was developed by Gupta and Govindarajan 1988 and Govindarajan and Fisher 1990.
Organizational formalization refers to the extent to which an organization uses rules and procedures to
prescribe behavior Fredrickson, 1986; Hage and Aiken, 1969. A more formalized organization, or
one where many rules exist, will tend to be associated with tight control where rules and control procedures
are embedded within organizational routines and sys- tems, and there is an increased need for the monitoring
of organizational actions on an ongoing basis. In such situations, the AIS becomes a tool for control and must
provide integrated information at the organizational level in order to support control requirements.
The introduction of information sharing systems that cross-organizational boundaries Bakos, 1991
can also significantly increase the degree of com- plexity in the operating environment of an AIS and
necessitate important changes in AIS design in order to integrate interorganizational information Barrett
and Konsynski, 1982. Interorganizational systems IOS facilitate communication between two or more
organizations by providing a highly efficient and er- ror-free electronic information link Bakos, 1991.
These benefits of electronic integration may, how- ever, create dependencies between two different or-
ganizations that rely on each other for the procure- ment of resources.
Resource dependencies emerge from asymmetries in the control of critical resources Pfeffer and Salan-
cik, 1978. Pfeffer and Salancik’s model of resource dependence posits that the following factors are criti-
cal in determining the dependence of one organiza- tion on another: a the importance of the resource, or
the extent to which the organization requires it for continued operation and survival, and b the extent
to which the organization has discretion over the re- source allocation and use Pfeffer and Salancik,
1978, 45. In cases where resource dependence is present and significant, the integration of interorgani-
zational information, processed through EDI systems, with internal accounting systems can provide signifi-
cant benefits to the organization in terms of improved coordination and control of internal activities.
2.3. AIS Effectiveness Past research in information systems has defined
system effectiveness in terms of “user information satisfaction” or perceptions of system users about the
extent to which the information system available to them meets their information requirements Ives et al.,
1983, 785. Given the lack of objective, systematic indicators of information systems effectiveness that
might suggest the potential impact of a system on or- ganizational performance, user information satisfac-
tion has been generally accepted as a surrogate for utility in decision-making.
A semantically similar concept of “information usefulness” has also been extensively examined in
the accounting literature Chenhall and Morris, 1986; Chong, 1996; Fisher, 1996;Gordon and Narayanan,
1984; Gul and Chia, 1994; Kim, 1988; Larcker, 1981; Mia and Chenhall, 1994. Accounting informa-
tion, in general, has been categorized into two pri- mary types: a decision-influencing information that
is mainly used for organizational control and b de- cision-facilitating information that is mainly used for
organizational coordination Demski and Feltham, 1976; Kren, 1992. The whole set of “information
usefulness” studies in accounting draws on a com- mon base of information concepts that were origi-
nally developed to capture report users’ reactions to qualitative characteristics of accounting information.
AIS effectiveness, therefore, is defined in this study in terms of the perceptions of decision-makers
that the output information available to them through transaction processing, management reporting, and
budgeting systems meets their requirements for orga- nizational coordination and control.
2.4. The relationship between AIS integration and AIS effectiveness
AIS integration has been defined above as a sys- tem design state that influences the ability of the sys-
tem to provide output information that can be effec- tively used to respond to OCC requirements. At the
conceptual level, therefore, AIS integration is related to AIS effectiveness.
Increased system integration has been suggested to improve communications both within Huber,
1990 and across organizations Malone et al., 1987. Huber 1990 argues that improved coordination due
to system integration can improve the quality of deci- sion-making. The relationship between the use of in-
tegrated systems and user evaluations of “task-tech- nology fit,” that is, the degree to which a technology
assists an individual in performing his or her portfo- lio of tasks, has been empirically demonstrated by
A.I. Nicolaou International Journal of Accounting Information Systems 1 2000 91–105 95
Goodhue 1995. Electronic integration among inter- organizational EDI systems and internal informa-
tion systems has also been reported to have a signifi- cant association with a perceptual measure of user
information satisfaction Premkumar et al., 1994, and an objective measure of shipment discrepancy re-
duction in the automotive industry Srinivasan et al., 1994. In conclusion, system integration is shown to
be an important construct in past research. Accounting systems are primarily influenced by contextual factors
that affect accounting processes for transaction pro- cessing, reporting, process monitoring, and perfor-
mance evaluation. As a result, this study examines the effect of contextual influences on AIS integration and
on its relationship with system effectiveness.
The congruence of AIS integration with the contin- gent variables implies that an interaction exists between
the two sets of concepts Drazin and Van de Ven, 1985. An interaction hypothesis is advanced that
predicts the effect of system-context fit on AIS effec- tiveness. Following Venkatraman’s 1989 argument,
“fit” in this study is conceptualized in terms of how strongly the relationship between AIS integration and
AIS effectiveness is affected by the presence or ab- sence of the contingent variables. The three contingent
variables, therefore, jointly influence the relationship between AIS integration and AIS effectiveness. The
following research hypothesis is advanced:
H1: The fit of AIS integration with organiza- tional coordination and control requirements, as
defined by the joint effect of information inter- dependence among functional areas, organiza-
tional formalization, and interorganizational de- pendence, will have a positive association with
perceptions of AIS effectiveness.
3. Research method
