The Effect Of Contingency Variables On Management Accounting System Characteristics And Managerial Performance
M u slic h a h
Abstract
A major strand of management accounting research has been the application of contingency theory to the analysis and design
of m a n a g e m e n t a c c o u n t i n g s y s t e m s . In p a r t i c u l a r , t h e s e s t u d i e s h a v e focused on the relationship between aspects of contingency
variables on MAS characteristics and performance.
This study examines (1) the role of decentralization on the relationship
(information technology, strategy, environmental uncertainty, organizational interdependence)
accounting system characteristics
and
management
(2) the role of management accounting system characteristics on the relationship between contingency variables (information
uncertainty, organizational
decentralization) and managerial
interdependence
and
accounting system characteristics was defined on the extent to which managers use broad
performance.
Management
integration MAS information for managerial decision making.
scope, timeliness,
aggregation
and
Hypotheses were generated for both direct and indirect effects of contingency variables.
drawn from m a n u f a c t u r i n g c o m p a n i e s in E a s t J a v a , w e r e a n a l y z e d b y u s i n g a structural equation modeling (SEM).
The responses
The results indicate that ( 1 ) d e c e n t r a l i z a t i o n a c t s a s a m e d i a t o r in the relationship between information technology, organizational interdependence
accounting system characteristics . However, the results also indicate that
a n d e n v i r o n m e n t a l u n c e r t a i n t y d o n o t a c t a s a m e d i a t o r in t h e relationship. (2) management accounting system characteristics act
a s a m e d i a t o r in t h e r e l a t i o n s h i p b e t w e e n i n f o r m a t i o n t e c h n o l o g y , environmental
uncertainty, organizational interdependence and
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48 The E ffect O f C ontingency Variables
managerial performance. But, the results suggest that strategy does n o t a c t a s a m e d i a t o r in t h e r e l a t i o n s h i p .
environmental uncertainty,
Keywords: information
accounting system characteristics, scope, timeliness, aggregation,
integration, managerial performance
1. Introduction
The use of contingency theory to the analysis and design of management accounting systems (MAS) has generated a considerable amount of interest. The
c o n t i n g e n c y a p p r o a c h is b a s e d o n t h e p r e m i s e t h a t t h e r e is n o u n i v e r s a l l y appropriate MAS which applies equally to all organisations to all circumstances (Otley, 1980). In MAS research, contingency approach is needed to evaluate conditional factors that caused MAS become more effective.
T h e M A S in a a n o r g a n i s a t i o n h a s b e e n t r a d i t i o n a l l y v i e w e d a s h a v i n g a n a r r o w s c o p e in t h e s e n s e t h a t t h e s y s t e m h a s b e e n e x p e c t e d t o p r o v i d e
i n f o r m a t i o n w h i c h is g e n e r a l l y f i n a n c i a l , d e a l i n g w i t h m a t t e r s i n t e r n a l t o t h e organisation, and ex-post or historical (i.e., focusing on what has already happened). Support for this view can be drawn from the numerous text books on
cost and management accounting. However, this traditional view has been
c h a n g i n g . R e c e n t l i t e r a t u r e i n d i c a t e s t h a t M A S in a n o r g a n i s a t i o n s h o u l d a l s o provide information which has been traditionally considered to be outside the domain of system. Chong and Chong (1997), and Bouwens and Abernethy (2000)
a r e e x a m p l e s o f r e c e n t s t u d i e s w h i c h s u g g e s t t h a t M A S in a n o r g a n i s a t i o n n o w incorporates both financial and non-financial information focusing on matters that are internal and external to the organisation and information having historical (ex post) as well as future (ex ante) orientation.
Chenhall and Morris (1986) identify and measure four information characteristics: broad scope, integration, timeliness and aggregation. Broad scope r e f e r s t o i n f o r m a t i o n t h a t is e x t e r n a l , n o n - f i n a n c i a l a n d f u t u r e o r i e n t e d ( e . g . p r o b a b i l i s t i c ) in n a t u r e . T i m e l i n e s s r e f e r s t o t h e f r e q u e n c y a n d s p e e d o f r e p o r t i n g . For example, a small business manager within a volatile environment would benefit from timely feed back on decision outcomes. Aggregation involves the use
of analytical or decision models (e.g. discounted cash flow and inventory models) and combination of data over time periods and/or functional areas. Appropriate aggregation of data for input into decision models may be able to optimise
decision making. Integration refers to the information that needs to be generated to r e f l e c t t h e i m p a c t o f t h e i n t e r a c t i n g e f f e c t s o f t h e v a r i o u s f u n c t i o n s in t h e organisation and the formulation of targets.
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A number of studies have recently examined contingency relationships between contingency variables and MAS design on Performance. Gordon and Miller (1976) was among the first to encourage this line of contingency based inquiry
with environmental, ?iganisational and decision making style factors. Subsequent researchers have
when it posited
;.n estigated others contingency variables, such as strategy ( Abernethy and Guthrie, 1996; Chong and Chong. 1997), Interdependence (Chenhall and Morris,
1996; Bouwens and Abernethy. 2000), organisation size (Elmore, 1990). This paper reports the results of study which investigated the effect of contingency variables
environmental uncertainty, interdependence
accounting system
characteristics and managerial performance. This research integrate and extend ot previous research. The important things that differentiate this research with previous research are as follows:
The indirect effect of IT on MAS scope through decentralization has been
investigated (Laksmana and Muslichah, 2002b). This study extended their research by studying the indirect effect of IT on MAS timeliness, aggregation,
integration through decentralization
2. The direct and indirect effects interdependence on MAS characteristics have been examined (Chenhall dan Morris, 1986; Bouwens dan Abeinethy, 2000). Laksmana and Muslichah (2002a) have extended those research by relating the two variables (interdependence and MAS scope) to managerial performance. This
MAS integration as intervening variable
study extended
their research
by
including
3. A study that examined the impact ot decentralization on MAS chaiacteristics and performance has been done by Chia (1995). but the study has included decentralization as moderating variables.
I his research investigated the
relationship of the three variables where MAS act as intervening variables.
4. The indirect effect of strategy on managerial performance through MAS scope has been investigated by Chong and Chong (1997). This study examined The indirect effect of strategy on managerial performance through not only MAS scope but also MAS timeliness. Besides,
The indirect effect of strategy on MAS scope through decentralization has been investigated by Laksmana and Muslichah (2002b). This study extended their research by study ing the indirect effect of strategy on MAS timeliness through decentralization
2. T heoretical D evelopm ent and H ypotheses Form ulation
2.1 L inkages betw een IT, M AS C haracteristics and M anagerial P erform ance
IT constitute one ot the technology which has a tremendous impact on jiganisation information systems, because with a computerised based information
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50 The E ffect O f C ontingency Variables
systems, information can be provided on time and accurate As stated Hansen and Mowen (1997) that with the use of computer technology, most of nlurniation can be collected and reported to a managers, so that they can make dtciiion making quickly.
Christianse and Mouritsen (1995) note that IT is a c h a l l e n g e f o r m a n a g e m e n t a c c o u n t a n t s f o r a n u m b e r o f r e a s o n s . F i r s t , c o m p u t e r t e c h n o l o g y is
i n v o l v e d in m e c h a n i s i n g p a r t s o f t h e a c c o u n t i n g d e p a r t m e n t ’ s t a s k s , s u c h a s r e p o r t i n g , i n v o i c i n g a n d d a t a c o l l e c t i o n . I T in m a n y d i f f e r e n t f o r m s is i n t e g r a t e d
i n t o p r o d u c t i o n e q u i p m e n t , a n d d a t a m a y b e p r o d u c e d a n d s t o r e d a u t o m a t i c a l l y in the production
increases the productivity of the accounting department by speeding up the production of reports. Second, computer technology makes available more complex financial
process.
This
d a t a b a s e s t h a n b e f o r e . T h e e x t e n s i o n o f t h e n u m b e r o f ‘d i m e n s i o n s ’ t o a c c o u n t i n g r e c o r d s is p o s s i b l e . S o t h a t a c c o u n t a n t s c a n p r o v i d e i n f o r m a t i o n a n d p o s s i b l e analyses previously only dreamt about.
Third, computer technology facilitates the contingency plans. Simulations and what if scenarios enable a more thorough analysis possible consequences of decisions.
The flexibility
of modern
computer technology to support the
d e v e l o p m e n t s m o d e l s in s p r e a d s h e e t a p p l i c a t i o n s u n d e r s c o r e s t h i s . M a n a g e m e n t accountant are able, through this technology, to make their own models quickly - modify them - without having consult computer specialists.
It c a n b e c o n c l u d e d t h a t c o m p u t e r t e c h n o l o g y w i t h a v a r i e t y o f s o f t w a r e and hardware, enable MAS to provide broad scope, timely, aggregated and integrated information, so that managerial performance can be improved.
H y p o t h e s i s 1: T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n I T and managerial performance, acting through MAS characteristics of (a) scope, (b) timeliness, (c) aggregation, (d) integration
2.2 Linkages betw een Inform ation T echnology, D ecentralization
and M AS
C haracteristics
Perrow (1967) argued that control and coordination methods should vary with technology type. Perrow classify production technology into two broad categories, these are routine and non-routine. Routine technologies characterized with higher bureaucracy,
need higher structural flexibility. Grimes et al. (1973) support Perrow's findings that routine technologies
ae associated with a centralized structure, whereas the nonroutine technologies, which would rely more heavily on the knowledge of the specialist, would be characterized by delegated decision authority
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Recently, some reseaches have considered information technology as p r i m a r y o r g a n i z a t i o n d e t e r m i n a n t s t h a t i n f l u e n c e o r g a n i z a t i o n d e s i g n in t h e s a m e way with organization size, production technology and environment (George and King, 1991). The studies that examined the impact of information technology to decentralization found inconsistent result. Nevertheless, most previous research findings support decentralization argument (Louis et al.,1995; Hit and Brynjolfson,
1997, Lee and Groover, 2000; Davis and Albright, 2000). Centralization s u p p o r t e r s s t a t e t h a t i n f o r m a t i o n t e c h n o l o g y r e s u l t s in a u t h o r i t y c e n t r a l i z a t i o n because information technology enables top management to get information. On the other hand, decentralization supporters state that computer system only takes o v e r d e c i s i o n m a k i n g a t l o w e r a n d m i d d l e l e v e l m a n a g e m e n t , s o t h a t it i n c r e a s e s management capacity at this level to conduct less routine decision, as a result delegation authority needs to be increased. Davis and Albright (2000) argue that the application of computerized information systems cause the decrement routine task done by accountant. Accountant tasks have been shifted
from traditional recording function
to analyst position, for examples: creating report, explaining changes, predicting future performance. Their studies also have found that the application of computerized systems have caused accounting managers get
i n v o l v e d in d e c i s i o n m a k i n g a t c o r p o r a t e l e v e l . O'Brien (1999) notes that an expert system enables everybody do a job of an expert. The availability of personal computer (PC) supported by a variety s o f t w a r e w h i c h is e a s y t o u s e e n a b l e s m a n a g e r s t o d o m o r e a n a l y s i s a n d r e d u c e
interdependent to an expert or information system department. If a PC act as a terminal and connected to organization database, manager can access information quickly and provide more reports. This condition causes bigger delegation authority to
Prud'homme (1991) argues that information technology make manager easier to operate from any location. These conditions cause activity decentralization and decision making. With higher autonomy level,
managers.
Remy
managers need a broad scope, timely, aggregated and integrated information, so that managers can make better decision making
H y p o t h e s i s 2 : T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n i n f o r m a t i o n t e c h n o l o g y and MAS characteristics of (a) scope (b) timeliness (c) aggregation (d) integration, acting through decentralization.
2.3 L inkages betw een Strategy,
M AS C haracteristics and M anagerial
P erform ance.
Miles and Snow (1978) classify strategy into four types: defenders, prospectors, analyzers, and reactors. We choose two strategy types which represent the opposite ends of the product change continuum: prospectors and defenders.
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52 The Effect O f C ontingency Variables
Prior research has indicated that defenders and prospectors require very different internal structures and administrative processes (Abernethy and Guthrie, 1994).
A f i r m f o l l o w i n g a p r o s p e c t o r s t r a t e g y f r e q u e n t l y a d d s t o a n d c h a n g e s its p r o d u c t s a n d s e r v i c e s , c o n s i s t e n t l y a t t e m p t i n g t o b e f i r s t in t h e m a r k e t , s u c h a f i r m t e n d s t o s t r e s s i n n o v a t i o n a n d f l e x i b i l i t y in o r d e r t o b e a b l e t o r e s p o n d q u i c k l y t o changing market conditions. As a result, external, non financial and future oriented
information would be appropriate for managers. Accordingly, broad scope MAS information would be perceived to be useful for a decision making.
Conversely. Defender strategy seek stability by producing only a limited set of products directed at a narrow segment of the total potential market, within this limited domain, defenders strive aggresively to prevent competitors from entering
their domain. Defenders tend to ignore developments and trends outside their
d o m a i n s . T h e r e is l i t t l e o r n o s c a n n i n g o f t h e e n v i r o n m e n t t o f i n d n e w a r e a s o f o p p o r t u n i t y , b u t t h e r e is i n t e n s i v e p l a n n i n g o r i e n t e d t o w a r d c o s t a n d o t h e r
e f f i c i e n c y i s s u e s . T h e s t a b i l i t y o f t h e i r m a r k e t is c o n g r u o u s w i t h a r e l i a n c e o n historical
information. Their narrow product domain reduces the need for extensive monitoring of the external environment conditions. Accordingly, narrow scope MAS information would be appropriate for managers of defender strategy.
H y p o t h e s i s 3: T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n s t r a t e g y a n d m a n a g e r i a l performance, acting through MAS characteristics of (a) scope, (b) timeliness.
2.4 Linkages between Strategy, D ecentralization and M AS C haracteristics
A number of scientists argue that a strategic choice determines structure ( R o b b i n s . 1 9 9 0 ) . T h e g e n e r a l c o n c e p t is t h a t c h a n g i n g in m a r k e t o r p r o d u c t s t r a t e g y o f f e r e d w i l l r e q u i r e m o d i f i c a t i o n o f o r g a n i z a t i o n s t r u c t u r e in o r d e r t o accommodate new operation requirement.
Furthermore,
Robbins states that
i n n o v a t i o n s t r a t e g y w h i c h e m p h a s i z i n g in t h e i n t r o d u c t i o n o f p r o d u c t a n d s e r v i c e s will be appropriate with organic structures
which characterized with low specialization,
decentralization. The application
d e c e n t r a l i z e d s t r u c t u r e e n c o u r a g e s d e c i s i o n m a k i n g a u t h o r i t y t o l o w e r l e v e l in order to increase subordinate involvement. Cost
cost control, avoid unnecessary
mechanistic structure which characterized with work specialization, high centralization and high formalization. Centralized structure with concentrated decision making ease coordination effort to achieve maximum cost control. The determination formal rules and procedures to handle routine activity can minimize risk and cost. Thus, principally, prospector type strategy, as innovation strategy,
innovation
will
be suitable
for
will be appropriate for decentralized
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I hv Internationa/ Journal o f A ccounting a n d B usiness Society 53
structure, while defender type strategy.
a s c o s t m i m m a t i o n s t r a t e g y , is s u i t a b l e for centralized structure
A decentralized structure also causes managers having a bigger role in making and implementing decision, more responsible to their work unit activity. Moreover, decentralization of authority makes managers require more and more complex information, and more relevant to support decision quality. As a
c o n s e q u e n c e , t h e y n e e d b r o a d s c o p e a n d t i m e l y i n f o r m a t i o n in o r d e r t o s u p p o r t t h e achievement of their goal.
H y p o t h e s i s 4 : T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n s t r a t e g y and MAS characteristics of (a) scope (b) timeliness, acting through decentralization.
2.5 Linkages between
Perceived
E nvironm ental
U ncertainty,
MAS
C h aracteristics and M anagerial Perform ance
Perceived environmental uncertainty (PEU) refers to managers' perceptions of the factors that are external to their firms. These factors which include, for example, competitors, technology, consumers, suppliers and government have been identified as important variables that can affect the extent to which managers would require MAS information (Chenhall and Morris, 1986; Gul. 1991). When
P E U is h i g h , m a n a g e r s w o u l d r e q u i r e s o p h i s t i c a t e d M A S i n f o r m a t i o n t o c o p e w i t h the uncertainty and make decisions that are more appropriate (Galbraith, 1973; Tushman and Nadler. 1978). On the other hand, under low levels of PEU. t r a d i t i o n a l o r l e s s s o p h i s t i c a t e d i n f o r m a t i o n w o u l d b e m o r e a p p r o p r i a t e . In f a c t , t h e
use of sophisticated MAS under conditions of low PEU and the information o v e r l o a d m a y e v e n b e d y s f u n c t i o n a l in t e r m s o f o r g a n i z a t i o n a l p e r f o r m a n c e .
PEU affect managerial performance through MAS characteristics of (a) scope (b) timeliness (c) aggregation, for a number of reasons: (1) MAS information
facilitate evaluation of m a n a g e r i a l p e r f o r m a n c e in c o m p l e x w o r k e n v i r o n m e n t , f u r t h e r m o r e , s u c h M A S
i n f o r m a t i o n w o u l d a i d c o n t r o l in u n c e r t a i n s i t u a t i o n s by f o c u s i n g i n f o r m a t i o n o n the sources of uncertainty (Hayes. 1977; Chenhall and Morris. 1986) (2) Managers facing uncertain situations require to respond quickly to unpredictable events or
c h a n g e s in e n v i r o n m e n t . A m e v ( 1 9 7 9 ) notes that MAS information should be p r o v i d e d o n t i m e s o t h a t m a n a g e r s c a n e f f e c t i v e l y d e a l w i t h u n c e r t a i n t y in t h e i r work environment. (3) Findings of the previous researchs showed that MAS information aggregated by period of time, responsibility centres, areas of interest,
may be useful to managers who deal with an uncertain environment. These findings are consistent with Chenhall and Morris (1986) studies that the higher the l e v e l o f P E U t h e m o r e u s e f u l is a g g r e g a t e d M A S i n f o r m a t i o n .
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54 The E ff ect O f C ontingency Variables
H y p o t h e s i s 5: T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n P E U and managerial performance, acting through MAS characteristics of (a) scope (b) timeliness (c) aggregation.
2.6 Linkages betw een E nvironm ental U ncertainty, D ecentralization and M AS
C haracteristics
Burn and Stalker
Slocum (1977) state that organisation
e n v i r o n m e n t s t a b i l i t y is i m p o r t a n t in d e t e r m i n i n g o r g a n i z a t i o n s t r u c t u r e . T h e evidence demonstrates that a dynamic environment has more influence on structure rather than on static environment does (Robbins.
1990). A Static environment will push an organization toward a mechanistic form characterized b\
environment will create minimum requirement to give quick response, and enable organization economize costs b\ standardizing activity.
higher centralization
On the other hand, dynamic environment will push a company to organic form characterized by low formalization and centralization. This condition can be u n d e r s t o o d b e c a u s e h i g h P E U r e q u i r e q u i c k r e s p o n s e , s o t h a t it w i l l n o t e n a b l e a
company standardize activity. Beside this, under high PEU, management will face difficulties
Also, management information processing capacity becomes overload so that the decision need to be delegated.
to understand
Decentralization of authority causes managers have a bigger role in making and implementing decision, also more responsible to
their work unit activity. Decentralization also cause manager require qualified and relevant information to support decision. As a consequence, they need reliable SAM
characteristics to provide timely and relevant information for policy making and achieve stated goal. (Emmanuel et al., 1990: Gul and Chia, 1994). Thus, the difference
difference in information requirement. Galbraith (1973) notes that information constitute decentralization complement. Beside this, decentralization will influence how information to be collected, processed and communicated
in a n o r g a n i z a t i o n ( G e r l o f f , 1985).
F u r t h e r m o r e . W a t e r h o u s e a n d T i e s s e n ( 1 9 7 8 ) s t a t e t h a t d e c e n t r a l i z a t i o n is a appropriate response for dynamic environment dan broad scope, timely and
a g g r e g a t e d i n f o r m a t i o n r e q u i r e d in t h a t c o n d i t i o n .
H y p o t h e s i s 6: T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n P E U and MAS characteristics of (a)
scope (b) timeliness (c) aggregation, acting through decentralization.
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The International Journal o f A ccou nting a n d B usiness S ociety 55
2.7 L inkages betw een Interdependence, M A S C haracteristics and M anagerial
P erform ance
I n t e r d e p e n d e n c e a p p e a r s t o b e t h e s o u r c e o f c o m p l e x i t y in t h e m a n a g e r ' s job. Galbraith (1977). for example, argues that interdependence lead to task
c o m p l e x i t y . T h i s a r g u m e n t is b a s e d o n t h e r a t i o n a l e t h a t d e c i s i o n s / a c t i o n s b y a u n i t having a high task interdependence are more likely to affect operations of m a n a g e r s in o t h e r r e l a t e d u n i t s o f t h e o r g a n i z a t i o n . M o r e o v e r , i n t e r d e p e n d e n c e may also complicate the manager’s task of coordination and control of his unit activities which are interrelated with those of the other units concerned. The
e f f e c t i v e n e s s o f c o o r d i n a t i o n a n d c o n t r o l o f s u c h a c t i v i t i e s in o n e u n i t m a y b e dependent on the effectiveness of coordination and control of those other related u n i t in t h e o r g a n i z a t i o n .
Previous research indicate that the greater the level of job complexity, the greater the usefulness of information for decision making (Galbraith, 1977). Broad scope information provides managers with a wider range of solutions to consider. This enables them to better understand the input/output relation
(Chenhall and M o r r i s , 1 9 8 6 ; A b e r n e t h y a n d G u t h r i e . 1 9 9 4 ) . It a l s o i n c r e a s e s t h e p r o b a b i l i t y t h a t
one of the alternatives considered will be consistent with the objectives of other interdependent departements.
When interdependent increase, the integrated dimension of MAS will also
i m p o r t a n t in p r o v i d i n g i n f o r m a t i o n f o r c o o r d i n a t i o n a m o n g interdependent units (Gordon and Miller. 1976;
be increasingly
Galbraith. 1973). Integrated information reduces uncertainty relating to cause and effect relations within
d e p a r t m e n t s a s it e n c o u r a g e s l e a r n i n g a n d t h e g e n e r a t i o n o f i d e a s . It e n a b l e s departmental managers to learn how to adjust products and production methods to
be compatible with other departments. It a l s o e n a b l e s m a n a g e r s t o b e t t e r understand the different objectives that exist within separate decision units ( A t k i n s o n e t a l . , 1 9 7 7 ) . T h u s , In a n o r g a n i z a t i o n f a c e h i g h l e v e l i n t e r d e p e n d e n c e ,
b r o a d s c o p e a n d i n t e g r a t e d M A S i n f o r m a t i o n w i l l r e s u l t in h i g h m a n a g e r i a l performance.
H y p o t h e s i s 7; T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n i n t e r d e p e n d e n c e a n d managerial performance, acting through MAS characteristics of (a) scope, (b) integration.
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56 The Effect O f C ontingency Variables
2.8 L inkages between
Interdependence,
D ecentralization and
MAS
C haracteristics
In a n o r g a n i z a t i o n w h e r e t h e t a s k c o m p l e t i o n o f a n o r g a n i z a t i o n u n i t d e p e n d on task completion of the other unit, interdependence among organization units w i l l b e c r e a t e d . W h e n i n t e r d e p e n d e n c e h a s b e e n c r e a t e d , c o o r d i n a t i o n is r e q u i r e d to see whether tasks which have been given to that units fit with the organization goal.
M i t z b e r g ( 1 9 7 9 ) n o t e s t h a t a w a y t o c o o r d i n a t e t a s k in a n o r g a n i z a t i o n w a s done by grouping and giving enough authority to interdependence units. Scott (1992) argues that the more units interdependent to each other, the more they need information, because information required by the units relates not only with their o w n u n i t b u t a l s o t h e o t h e r u n i t . T h u s , in o r d e r t o f u l f i l l t h e l a c k o f i n f o r m a t i o n , t h e d e l e g a t i o n o f a u t h o r i t y is r e q u i r e d . M o r e o v e r , E n s i g n ( 1 9 9 8 ) s t a t e s t h a t interdependence requires cooperation and coordination among units. People
i n v o l v e d d i r e c t l y in e x c h a n g i n g a c t i v i t i e s s h o u l d g e t i n v o l v e d in p l a n n i n g p r o c e s s
a n d b e g i v e n e n o u g h a u t h o r i t y in d e c i s i o n m a k i n g , s o t h a t c o o r d i n a t i o n c a n w o r k effectively. Thus, by increasing the increase of authority, manager require broad scope, and integrated information, so that decision making could be improved.
H y p o t h e s i s 8: T h e r e is a p o s i t i v e i n d i r e c t r e l a t i o n b e t w e e n i n t e r d e p e n d e n c e a n d MAS characteristics of (a) scope, (b) integration, acting through decentralization.
The effect of the contingency factors (information technology, strategy, PEU, and interdependence) on MAS characteristics and managerial performance can be seen in f i g u r e 1.
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The International Journal o f A ccounting an d Business Society 57
Figure I The Research Framework
3. R esearch M ethod
3.1 Sam ple
S a m p l e s o f t h i s s t u d y is m a r k e t i n g a n d p r o d u c t i o n m a n a g e r w o r k i n g in a big manufacturing industry that produce consumer products with more than 100
e m p l o y e e s in E a s t J a v a . S i z e w a s u s e d a s a n i n d i c a t o r o f t h e l i k e l i h o o d t h a t t h e firms would
accounting systems. These m a n a g e r s m u s t h a v e w o r k e d in t h a t p o s i t i o n a t l e a s t f o r o n e y e a r , t h i s c r i t e r i a is
i m p o r t a n t in o r d e r t o m a k e s u r e t h a t t h e y u n d e r s t a n d c o m p a n y ' s M A S a n d s t r a t e g y applied. A total 412 questionnaires were sent, and 118 were returned, making a response rate of
34,92 %. From the total questionnaires received eight were excluded from the study for incomplete responses. T his left the study with 110 usable questionnaires for data analysis. Most The respondents (80,9 %) have held their current position for
1- 5 y e a r s a n d m o s t o f t h e m ( 4 9 . 1 % ) h a v e 1 1 - 5 0
e m p l o y e e s in t h e i r a r e a s o f r e s p o n s i b i l i t y .
3.2 V ariable M easurem ent
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58 The Effect O f C ontingency Variables
Inform ation T echnology. Information Technology was measured by series of eight questions about the degree to which computers could help manage., to capture, manipulate, communicate, provide and
use data. The use of the measure yielded a Cronbach alpha of 0.9031, which indicated very high internal reliability for the scale.
D ecentralization. The instrument for measuring decentralization, was
adapted from Gordon and Narayanan (1984). Five questions were used to measure the degree of decentralization of decision-making, namely, the development of new products or services, the hiring and firing of managerial personnel, selection of large investments, budget allocations and pricing decisions. For this study, the
instrument achieved a Cronbach Alpha statistic of 0,8318
Strategy. Strategy was measured based on Miles and Snow's (1978) strategy tipology. Managers were asked to select three questions about strategy which most closely matched their business units. The use of the measure yielded a Cronbach alpha of 0,6322 indicating that the items are a reasonable measure of the construct.
performance was measures in terms of 9 item self rating scale which required managers to evaluate their performance on five point scale from 1 (very satissfying) to 5 (very disatissfying) for eight managerial activities: planning, investigating, coordinating, evaluating, supervising, staffing, negotiating and representing and one overalll performance rating (Mahoney et al.. 1963). The Cronbach alpha statistic for this scale was 0,894
M anagerial p erform an ce. Managerial
In terdependence. Interdependence was measured using the instrument developed by
Van de Ven. Delbecq and Koenig (1976). Three questions representing each type of interdepence were provided and respondents were asked to indicate the amount of work that fitted into each category of interdepence, r a n g i n g f r o m " a l m o s t n o n e " t o " a l m o s t a l l ' ’. T h e u s e o f t h e m e a s u r e r e s u l t e d a Cronbach alpha of 0.661 5
M anagem ent A ccounting system s (M AS). MAS was measured using an adapted version of the Chenhall and Morris (1986) instrument. This instrument was designed to capture the importance of the dimensions of scope, integration, aggregation and timeliness for operational decision making.
The Cronbach alpha of each dimension are 0, 7620 (scope), 0,8306 (timeliness), 0,8501 (aggregation), 0,6782 (integration).
instrument for m e a s u r i n g P E U is m o d i f i e d v e r s i o n o f M i l e s a n d S n o w ( 1 9 7 8 ) . T h e m e a s u r e m e n t contruct
P erceived E nvironm ental U ncertainty (PEU). The
consumer, economic condition, politic condition, technology, supplier, government and labour union action. The Cronbach alpha statistic for this scale was 0.8298
comprises the
4. Results
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A structural equation modeling (SEM) was used to test the hypothesised relationships. This technique allows examination of the direct and indirect effects. Tables 1 and 2 provide the results of indirect effect of contingency variables on
MAS characteristics and performance.
R esults o f Indirect Effect H ypotheses 1, 3, 5 and 7
Table 1 Path coefficient and t values of the indirect effect Information technology (IT), strategy. Perceived Environmental Uncertainty. Interdependence, and Decentralization on Managerial Performance Through MAS Characteristics
Dependent Independent Variables Variables
PEU
Interde- Desentra
pendenc
e lization
coefficient
(through Scope)
t values
coefficient
t values
coefficient
t values
coefficient
values
Sign * is significant at a = 5 % Sign ** is significant at a = 10 %
As seen from table 1 that the indirectly influential variables on managerial performance are as follows (1)
through scope are information technology, environmental uncertainty, interdependence and decentralization, (2) through timeliness
environmental uncertainty and decentralization,
are information
technology,
integration are information technology and decentralization.
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60 The E ffect O f C ontingency Variables
I n o t h e r w o r d s , t h e r e s u l t s p r e s e n t e d in t a b l e 1 r e v e a l a p o s i t i v e a n d significant indirect relationships between information technology and managerial performance through MAS characteristics (scope, timeliness, aggregation and integration),
thereby support HI (a, b, c, d). However, the indirect relationship between strategy and managerial performance through the four types of MAS
i n f o r m a t i o n is n o t s i g n i f i c a n t . T h u s H 3 ( a , b ) c o u l d n o t b e s u p p o r t e d . T h e r e s u l t s p r e s e n t e d in t a b l e 1 a l s o r e v e a l t h a t t h e i n d i r e c t r e l a t i o n s h i p between PEU and and broad scope and timely MAS information are positive and significant Beside this, the results show that
the indirect relationship between interdependence and broad scope MAS information was positive and significant. Therefore H5 (a,b) and H7 (a) are supported. However, the indirect relationship
between (1) PEU and managerial performance throu'gh aggregated of MAS information (2) interdependence and managerial performance through integrated
o f M A S i n f o r m a t i o n is n o t s i g n i f i c a n t . T h u s , t h e r e s u l t s c o u l d n o t p r o v i d e s u p p o r t for hypotheses H5c and H7b
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R esults o f Indirect Effect H ypotheses 2, 4, 6 and 8
Table 2
Path coefficient and t values of the indirect effect Information technology (IT), strategy. Perceived Environmental Uncertainty, Interdependence on MAS Characteristics Through Decentralization
Dependent Indepencent Variables Variables
Description
IT
Strategy
PEU Interdepende nee
t values
t values
t values
I------------- - ------ — 4 ... - - - - - - -
t values
t f>383 = L645
K282
S i g n * is s i g n i f i c a n t a t a ^ 5 % S i g n * * is s i g n i f i c a n t a t a = 1 0 %
1. v a r i a b l e s t h a t i n f l u e n c e i n d i r e c t l } to MAS characteristics
A s r e p o r t e d in t a b l e
integration) through decentralization are information tecnology and interdependence (t values > t table). T h e s e m e a n t h e r e s u l t s p r e s e n t e d in t h e t a b l e r e v e a l a p o s i t i v e a n d significant indirect relationship between information tecnology, interdependence
a n d b r o a d in s c o p e , t i m e l y a v a i l a b l e , a g g r e g a t e d , a n d i n t e g r a t e d M A S i n f o r m a t i o n , providing support for hypotheses 2 (a, b. c, d) and 8 (a,b). However, hypotheses 4 (a,b) and 6 (a.b.c) are not supported by the results.
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62 The E ff ect O f C ontingency Variables
5. D iscussion, L im itations, and C onclusions
The results of this study reveal the presence of a contingent relationship between (1) information technology. PEU. interdependence and managerial performance
information technology,
interdependence and MAS characteristics through decentralization. These mean that
they provide support for the multivariate conceptualization of contingency theory .
H o w e v e r , t h e r e s u l t s f o u n d t h a t s t r a t e g y is n o t i m p o r t a n t w h e n d e s i g n i n g
MAS. This mean that they could not support previous research (Abernethy and Guthrie, 1994; Chong and Chong. 1997). Two reasons were offered as possible explanations for failure to provide
a significant positive results. Firstly, the managers use the analysis may not have been aware about strategy applied by the
c o m p a n y , b e c a u s e t h e y a r e n o t i n v o l v e d in t h e s t r a t e g y f o r m u l a t i o n . E m p i r i c a l
f i n d i n g s s h o w t h a t t h e i n v o l v e m e n t m a n a g e r s in s t r a t e g y f o r m u l a t i o n w i l l i n c r e a s e t h e i r u n d e r s t a n d i n g in s t r a t e g y u s e d b y a c o m p a n y a n d m a k e s t r a t e g y e a s i e r t o b e accepted as their own strategy (lire/, and Earley, 1987; Wooldridge and Floyd.
1990; Bruce, 1997). Secondly , Strategy formulated as not the same as strategy
c o n d u c t e d . E m p i r i c a l s t u d i e s s h o w t h a t 9 0 % s t r a t e g y is n o t w o r k i n g a s p l a n n e d (Mitzberd et al., 1995) The results also indicate that the relationship between PEU and MAS characteristics through decentralization was not significant. Robbins (1990) argue t h a t n o t a l l u n c e r t a i n t y in t h e e n v i r o n m e n t m a y h a v e c o n s e q u e n c e s f o r t h e o r g a n i z a t i o n . 1 ' h i s n o t i o n is c o n s i s t e n t w i t h a r g u m e n t o f P f e f f e r ( 1 9 7 8 ) t h a t “ m e r e
c h a n g e , o r r a t e o f c h a n g e , is n o t g u a r a n t e e t h a t t h e s i t u a t i o n is u n c e r t a i n . C h a n g e , v a r i a t i o n , a n d a d y n a m i c e n v i r o n m e n t m a y a l l b e c a p a b l e o f b e i n g p r e d i c t e d , in w h i c h c a s e , t h e r e is n o u n c e r t a i n t y ’’.
Furthermore Downey and Slocum (1975) state that uncertainty relates not to the physical environment itself, but to the individual's knowledge and perceptions of the environment. To illustrate this distinction, consider for example
a c h a n g i n g e n v i r o m e n t . It is o f t e n s u g g e s t e d t h a t a c h a n g i n g e n v i r o m e n t is uncertain; however, change and uncertainty are not always synoymos. If the future s t a t e o f t h e e n v i r o m e n t c h a n g e is c o m p l e t e l y p r e d i c t a b l e , t h e e n v i r o m e n t i t s e l f is