Accounting Innovations and Ownership

Hassan Yazdifar (Sheffield University)

Davood Askarany (Auckland University)

Key words: Management accounting innovations, diffusion of new ideas, subsidiary

organisations, group organisations, intra-subsidiary relations, absorptive and
combinative capabilities, CIMA members

Corresponding author and address:

Dr. Davood Askarany, Business School, Accounting and Finance,
The University of Auckland, Private Bag: 92019, Auckland, New Zealand
Telephone: 64-9-9235785
Email: [email protected]
2010

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Accounting Innovations and Ownership

Abstract
Responding to increasing changes and advances in technology through the
proliferation of globalisation, a range of management accounting innovations (MAIs)
has emerged. Concerning these MAIs, researchers have put forwarded alternative
views. One school holds the view that adopters are rational and make technically
efficient independent choices. The social and organizational contexts in which such
adoptions take place are thus taken for granted. Another school explores more
dynamic consequences of MAIs including the issues of how MAIs are adopted and
implemented differently in different organisational settings. This paper contributes to
the latter. By benchmarking with independent (non-group) companies, the paper
provides evidence of the adoption of MAIs in dependent (subsidiary) companies. The
paper aims to unearth four interrelated propositions derived from the extant literature
on the diffusion of new ideas, and discusses the network view and subsidiaries
capabilities both absorptive and combinative in diffusion of MAIs in group
organisations which have not been discussed in MA literature. Data were collected
through over 300 responses by members of the Chartered Institute of Management
Accountants (CIMA) to a questionnaire and follow-up interviews with over 50
respondents of companies operating in the UK, Australia and New Zealand. The study
focuses on five popular MAIs, namely, (1) activity-based costing (ABC), (2) activitybased management (ABM), (3) balanced scorecard (BSC), (4) benchmarking, and (5)
target costing (TC). The data revealed that the diffusion of MAIs in group (subsidiary)
organisations is different from that in independent organizations and that the adoption
and implementation of MAIs is associated with (1) intra-subsidiary relations and their
interdependence, (2) subsidiary capabilities (both absorptive and combinative), (3)
geographical proximity of parent and subsidiary organizations, and (4) the ability of
managers other than accountants.
Key words: Management accounting innovations, diffusion of new ideas, subsidiary
organisations, group organisations, intra-subsidiary relations, absorptive and
combinative capabilities, CIMA members
1. Introduction
Research in management accounting innovations (MAIs) has now started to
proliferate (Askarany et al. 2009; Tillmann and Goddard, 2008; Ax and Bjrnenak,
2005; Maiga and Jacobs, 2005; Guilding et al., 2000; Chenhall and Langfield-Smith,
1998; Gosselin, 1997). Researchers tend to follow two alternative theoretical
perspectives: the rational and the interpretive. The former holds the view that adopters
are rational and make technically efficient independent choices. The social and
organisational contexts in which such adoptions take place are thus taken for granted
(e.g., Rogers,
2003, 1995). In contrast, the latter explores more dynamic
consequences of MAIs including the differences between early and late adopters, the
effects of supply and demand forces, the social and economic consequences, and the
bundling effects of innovations (Modell, 2009; Kennedy and Fiss, 2009; Ax and
Bjrnenak, 2007, 2005).

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Whist we appreciate this development, as discussed by Naranjo-Gil et al. (2009), we

still know little about why only certain organizations adopt and implement MAIs.
Apart from the studies by Yazdifar et al. (2008a, b), Yazdifar and Tsamenyi (2005),
and Jones (1985, 1992), surprisingly, there is little research examining the differences
between the adoption of MAIs in dependent companies (i.e., subsidiaries) and
independent companies (i.e., non-group companies). Despite researchers having
examined how subsidiaries strategic roles are implicated in control systems (e.g.,
Chung et al., 2000; Gupta and Govindarajan, 2000, 1991; Taggart, 1997a, b) and how
local resistance is imposed by the parent (e.g., Dossi and Lorenzo, 2008; Siti-Nabiha
and Scapens, 2005), little is known about the differences in the adoption of MAIs in
dependent and independent companies. In particular, the literature lacks studies on the
extent and sources of MAIs diffusions in group organisations, factors contributing to
the implementation of them and the role of management accountants. Providing both
quantitative and qualitative evidence , this paper aims to fill this gap by testing four
propositions discussed later in this paper. Thus, we have both empirical and
theoretical aims.
As we will show later in the paper, the data were collected through 584 responses by
the members of the Chartered Institute of Management Accountants (CIMA) to a
questionnaire and follow-up interviews with over 50 respondents of the companies
operating in the UK, Australia and New Zealand. While the questionnaires were
directed to both dependent and independent organisations, the focus was on an
illustration of MAIs diffusion in dependent organisations. Hence, the interviews were
conducted only with the respondents working in dependent organisations.
Though the definition of MAIs can be contested, the study focuses on five MAIs that
have become much more popular in the past two decades. They are (1) activity-based
costing (ABC), (2) activity-based management (ABM), (3) balanced scorecard (BSC),
(4) benchmarking, and (5) target costing (TC). The extant literature substantiates that
these MAIs have proved to be popular techniques: see Naranjo-Gil et al. (2009), for
ABC, BSC and benchmarking; for ABM see Baird et al. (2004); for TC see Ax et al.
(2008), Ansari et al. (2006), and Bjrnenak and Olson (1999). Similar views were
expressed by the CIMA members we interviewed; hence, our choice.
The remainder of the paper is structured as follows. Section 2 presents a literature
review of the diffusion of MAIs with special attention being paid to the diffusion of
innovations in group organisations. Section 3 describes the research methodology
adopted. Section 4 analyses the findings of the survey and interviews and discusses
their implications for our understanding of management accounting practices in
different settings. Section 5 offers the conclusions.

2. A Literature Review
2.1 Research on Diffusion of Management Ideas
Research on the diffusion of management ideas has progressed under competing
views ranging from rational-economic perspectives to social-organisational process
perspectives. As mentioned at the outset, the former held the view that innovations
emerge due to economic and rational reasons, so the managers must follow the
3

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prescribed methodologies to enhance economic efficiency.For example, early writers,

such as Rogers (1983), who saw diffusion as a process in which innovations are
communicated and disseminated through certain channels through time among the
members of a social system, advocated ways that diffusion must take place: first, there
must be an idea or innovation to be diffused; second, there must be a population of
potential adopters for the innovation; and last, there must be communication flows
between the innovators and adopters. Roger believed these technical steps are
functional to the anticipated efficiency aims so they should be easily adoptable.
Another stream of researchers tried to integrate economic views with the social and
organizational dynamics that underpin diffusion programmes. Tolbert and Zucker
(1983), while building on the rational actor model in which organisational adoption is
motivated by a desire for technical or efficiency gains and related boosts to economic
performance, emphasized the social embeddedness of organisations and motivations
stemming from legitimacy motives, powerful constituents, peer organisations, or
outside stakeholders. According to the model, early adopters seek technical gains
from adoptions, while late adopters are primarily interested in the social benefits of
appearing legitimate. However, this view has recently been criticized, as it is not clear
that social and economic motivations for the adoption of innovations are indeed
mutually exclusive. For example, the study by Kennedy and Fiss (2009) shows that
both early and late adopters are affected by the logics of efficiency and legitimacy
because they complement rather than conflict with each other. The findings invite
further studies to examine adoption motivation to enhance understanding of the
mechanisms behind the diffusion process.
Contesting autonomous views, a few writers promoted a process perspective. Geroski
(2000) and Bjrnenak and Olson (1999) promoted this view to argue that new
technologies or ideas are dispersed rather than undergoing an instantaneous
adjustment (see also Lapsley and Wright, 2004; Hussein, 1981). Lapsley and Wright
(2004: 356) argued that the diffusion of innovation cannot take place without a
boundary spanning process whereby internal actors develop networks external to
their organization. Ax and Bjrnenak (2007) argue that (MA) innovations are not a
fixed technical solution, but are flexible in that they might be intentionally or
unintentionally changed and become more attractive. Ax and Bjrnenak conclude that
the interaction between the networks of developers (i.e., the supply side) and adopters
(i.e., the demand side) is important for the diffusion of MAIs to be effective. As
Modell (2009) observed, establishing such interactions is not easy, as the underlying
dynamics are quite complex. For example, power relations would determine the
adoption of MAIs: Yazdifar et al. (2008 a) illustrated how parent companies force a
subsidiary to adopt certain types of MAIs. Their study apply a hybrid institutional
theory integrating both new institutional sociology and old institutional economy to
examine how an environmental institution such as parent company influence the MAP
of a subsidiary firm and how the subsidiary respond to the imposed changes by the
parent company.
Above all, Abrahamson (1991) explored the issue of why innovations are sometimes
diffused and at other times are rejected. He developed a matrix of four elements
showing why this would occur: (1) efficient choice, (2) force, (3) fashion, and (4)
fads. Efficient-choices are made assuming that there are benefits and efficiencies that
can be gained from the adoption of innovations. However, there are instances where
4

technically inefficient innovations are diffused or efficient innovations rejected. The

other three elements explain this. Forced selection can occur when powerful
organisations, such as governmental agencies (DiMaggio and Powell, 1991), a
powerful purchaser (Malmi, 1999), and headquarters and parent companies (Dossi
and Patelli, 2008) force the adopters to implement a particular technology. Thus, the
adopters have only a small role to play in the determination of what choices must be
made (Lapsley and Wright, 2004; Malmi, 1999). Similarly, the fashion perspective
leads to imitating certain technologies promoted by fashion-setting organisations or
fashion setters, such as consultants, irrespective of whether or not such technologies
are efficient (Malmi, 1999). Finally, the fad perspective explains that innovations are
adopted for legitimacy rather than rational purposes.
However, it is argued that fads and fashion views are based on the traditional
perspective of innovations diffusion which is considered as supply-driven and
consequently have been criticised for neglecting the complexities of change dynamics
associated with local adopters (Modell, 2009). It is argued that by de-emphasising the
rational choice explanations of adoption, there is a paradoxical implication that the
recipients of innovations, such as the managers of adopting organisations (e.g.,
subsidiary organisations in this study), are passive and unreflective, while the
promulgators manoeuvre rationality. Hence, the fad-fashion perspective provides
limited insight into what actually happens. The model has found that there is a
complex interplay between the suppliers and adopters of innovations in the process of
bundling new ideas.
Being embraced by these competing views, there are several empirical studies on the
diffusion of MAIs. For example, Bjrnenak (1997) examined the diffusion of ABC
across Norwegian manufacturing organisations. He found three types of diffusion
processes. The first relies upon skilled workers moving about and causing change.
The second is contagious diffusion, which occurs when information is spread in a
smooth, continuous and random way. The third is hierarchical diffusion, which
occurs when information is dispersed through a trickle-down process from large to
intermediate to small units. However, the study , did not examine hierarchical
diffusion in depth. In particular, the above and other studies in the MA literature do
not examine the diffusion process in group organisations vis--vis independent
organisations and also means of diffusions of MAIs in subsidiary organisations. The
present study will contribute to the literature by examining the extent of diffusion of
MAIs in group organizations in comparison to independent ones (see hypotheses one
and two below).
A further insight from the literature is that not all MAIs may successfully be diffused,
adopted and implemented. The success, here, can be measured in different ways
including the degree to which innovations are adopted and implemented in practice,
the number of books, journal, magazine and professional articles devoted to
innovations, and the number of people attending conferences, seminars, courses,
workshops and training courses on innovations (Ax and Bjrnenak, 2007, p.362-3).
Among the above, the degree to which MAIs are adopted and implemented (levels of
implementation) is the main measure of success (Ax and Bjrnenak, 2007). However,
most of the surveys on MAIs diffusions only examine the success of an innovation at
adoption stage but not levels of implementation or the extent to which the innovations
have been implemented i.e., fully or partial implementation . The literature also lacks
5

such a study in group organisations and MNCs. This study will examine this by
testing hypothesis three (see Section 2.2.4).
Moreover, the literature suggests that the individuals acting as financial officers (e.g.,
Chief Financial Officers or CIMA members) have a significant effect on the adoption
of MAIs (Naranjo-Gil et al., 2009; Byrne and Pierce, 2007; Jrvenp, 2007; Emsley
et al., 2006; Burns and Baldvinsdottir, 2005; Emsley, 2005; Pierce and ODea, 2003).
Emsley (2005) studied management accountants willingness to adopt and implement
MAIs and showed that some management accountants displayed a higher level of
innovativeness because of their involvement in managerial decision making. NaranjoGil et al.s (2009) study showed that some CFOs are more likely to change their
organizational accounting systems than are others and that demographic data are
predictive of CFOs innovativeness. However, there are few studies showing the role
of management accountants in group organizations in the adoption and
implementation of MAIs. The present research will contribute to this area as well.
This will be tested through the hypothesis four in this study (see Section 2.2.4).
In summary, the review of the literature suggests that MAIs may not only be adopted
due to their technical efficiency. Rather, some organisations (including subsidiaries)
may adopt MAIs due to their relationships with other organisations such as parent or
other subsidiary organisations (Yazdifar et al., 2008a,b) and/or the role played by
their accountants (Naranjo-Gil et al., 2009). The relationship between parent and
subsidiary organisations is a vertical mechanism as opposed to lateral relationship
which is between subsidiaries1. The former is also called network of organisational
units and the latter is called a network of managers (Manev, 2003). Surprisingly,
the latter dimension of the group and MNCs network has not been studied in general
(Manev, 2003) and in particular in the field of MA and MAIs diffusions, and this
research is to contribute to the extant literature by studying these dimensions from the
adopters side i.e., subsidiary organisations.
2.2. Issues in the diffusion of MAIs within Group Organisations
2.2.1 Parent-subsidiary relationship (network of organisational units) and
diffusion of MAIs
As the current paper examines and compares the diffusion of MAIs within dependent
and independent organisations, the forced perspective may provide more insights into
the diffusion process in group organisations (Yazdifar et al., 2008a, b; Yazdifar and
Tsamenyi, 2005). Researchers who use forced-selection theories assume that powerful
organisations, such as parent companies, may or may not have conflicting preferences
concerning whether they want their subsidiary organisations to use a particular
administrative technology (Covaleski and Dirsmith, 1988; Rowan, 1982; Benson,
1

Vertical integration mechanisms consist of various types of contact and communication between the
managers of subsidiaries and headquarters managers, with the goal of creating a shared understanding
between subsidiary and headquarters management regarding the interests of the overall corporation and
the role of the subsidiary (ODonnell, 2000). While vertical integrating mechanisms focus on the
relationship between headquarters and subsidiary managers, lateral integrating mechanisms refer to
activities that facilitate contact among managers of different subsidiaries. The purpose of lateral
integration mechanisms is to provide subsidiary managers with an understanding of the role of their
particular subsidiary and more important, the role of other subsidiaries, in meeting overall corporate
goals.

1975). When parent organisations interests and preferences are homogenous in

favouring an administrative technology, they will act in concert to back its diffusion,
implementation and retention. However, the parent companies have diverse interests
and preferences to those of subsidiaries: some parent companies would exert political
pressures encouraging the continuous use of an existing administrative technology;
others would try to force the rejection of the new administrative technology
(Abrahamson, 1991). The study undertaken by Yazdifar et al. (2008a) discusses how
a parent organisation used budgetary control and capital investment rules to impose
(by financially supporting) its preferred administrative innovations instead of
supporting those proposed by the subsidiary, which were not in line with the parent
organisations strategy. So, the MAI technique adopted by the parent organisation was
trickling down from the parent organisation to subsidiaries in the form of a
hierarchical diffusion process (Bjrnenak, 1997) and the parent organisation exerted
budgetary and political pressure to reject the costing system selected by its subsidiary.
In another study, Yazdifar and Tsamenyi (2005) present results of a questionnaire
survey that examined whether significant differences exist between the perceptions of
CIMA members working in dependent (subsidiaries) and independent organisations
on three main issues: (1) management accounting practices, (2) factors driving change
in management accounting practices, and (3) the roles of management accountants.
The study reports that some differences exist between the two groups in terms of the
variables tested and suggest that the differences could be explained by the institutional
theory (in particular new institutional theory - NIS) argument2. They argued that
dependent organisations are likely to adopt certain practices due to influence from the
head office. The study invites further studies, in particular case studies, to shed light
on the differences between dependent and independent organisations resulting from
the role of parent companies.
The extent of diffusion of MAIs resulting from the influence of parent companies, via
vertical mechanism, the level of implementation of the innovations and management
accountants role in group organisations will be examined in this study and compared
with lateral mechanisms of diffusion of MAIs. The analysis will assist us in better
understanding the nature of MAIs diffusions and MA change in group organisations.
2.2.2 Interrelationship: Subsidiary-subsidiary relationship (network of
managers) and diffusion of MAIs
Viewed through the lens of agency theory, many of the studies in group organisations
assume a hierarchical relationship between headquarters and subsidiaries. However,
much of management research in this field over the past decade has viewed subsidiary
companies as being a member of a set of interdependent organisational subunits as
opposed to merely acting as an agent of corporate headquarters (ODonnell, 2000).
The studies also highlight the role of the network of intra-subsidiary organisation
linkages, which can result in a high degree of interdependence among the subsidiary
2

NIS challenges conventional wisdom and prevailing research beliefs that assert that organisations are
bounded, relatively autonomous and made up of rational actors (Abernethy and Chua, 1996). NIS
views organisations as embedded within larger interorganisational networks and cultural systems. This
institutional environment not only influences the organisations input and output markets but also its
beliefs, norms and historical traditions. Through the lens of NIS, subsidiary companies are subject to
environmental pressures exerted by their constituencies, amongst them parent companies in particular.

organisations. Interdependence has been defined as the state in which the activities
and outcomes of one actor are influenced by the actions of another actor (Saavedra et
al., 1993). Extending this conceptualisation to group organisations and MNCs,
interdependence can be defined as the state in which the outcomes of a subsidiary of a
group organisation influence or are influenced by the actions of another subsidiary
within the group operating in a different region or country.
As subsidiaries become more interdependent, they increasingly rely on other
subsidiaries as providers and users of their resources, technologies or experiences
(ODonnell, 2000). Research has demonstrated that a subsidiarys power within a
group is greater when the subsidiary is highly interdependent upon other subsidiaries
(Astley and Zajac, 1990). ODonnell (2000) comments that with increased
international interdependence, the actions and decisions taken at a particular foreign
subsidiary have a greater impact on activities throughout the organisation. This is
because, as he states, subsidiary-level decisions have greater ramifications for the
organisation as a whole when international interdependence is high.
2.2.3 Lateral integration: Isomorphism between subsidiary organisations
The group organisations that are active in different international locations (MNCs) are
subjected to different and potentially contradictory pressures for conformity. On the
one hand, the institutional environments differ across countries so that subsidiaries
need to adopt the institutional practices prevalent in the host country. On the other
hand, the subsidiaries are subjected to the forces of their parent companies, an
isomorphic pull towards similarity between subsidiaries in the group (Westney, 1993).
This happens as MNCs are capable of transferring knowledge and resources across
different countries.
In the case of group organisations and MNCs, isomorphism occurs as managers
replicate key management practices and techniques (including MA practices) from
other subsidiaries within the group where they have been successful (Kostova, 1999).
Such transfers of organisational knowledge and practices and the consequent
isomorphism are facilitated by more extensive interactions and communications
across the subsidiaries, by the use of informal mechanisms of coordination and by
building good relationships between managers (Kostova, 1998; Ghoshal and Westney,
1993). This trend toward isomorphism takes place through the network ties among
managers of subsidiaries (Manev, 2003).
In MNCs, subsidiary organisations experience different economic, sociopolitical and
cultural conditions that impose upon them a high degree of uncertainty and ambiguity.
This may cause further difficulties especially in decentralized organisations where the
subsidiary organisations may be left with little instruction from headquarters (Manev,
2003). Under these conditions, subsidiary managers may cope with this uncertainty by
turning to peers with whom they have connections, and whom they know and trust,
such as the managers of other subsidiaries, for information and advice. So, it can be
argued that, under the conditions of uncertainty in decentralized group organisations
and MNCs, network ties between subsidiary managers become a conduit for the
transfer of information and new practices, such as MAIs, which facilitates the
isomorphism of organisational knowledge and practices between the subsidiaries
(Manev, 2003).
8

The lateral integration or so called managerial network is an important informal

coordination mechanism between subsidiaries in group organisations. Through their
lateral contacts with other subsidiaries at other locations, subsidiary managers not
only learn about successful management practices but, when their subsidiaries share
knowledge about the implementation of new (MA) practices and techniques, can also
coordinate their actions at the grass-roots level. Lateral communication between
subsidiary managers facilitates coordination especially when subsidiaries are rather
interdependent in decision making (Mascarenhas, 1984). Hence, the more subsidiary
managers interact with each other, the more they learn about (MA) techniques and
practices adopted and implemented in other subsidiaries within the group.
Both external (to group) and internal (parent and other subsidiaries) sources of
knowledge assimilation and adoption of MAIs for subsidiary organisations may have
certain characteristics that differently affect the subsidiary organisations in relation to
the changes in their (MA) systems. The subsidiarys management, structure and
culture also play an important role in the adoption of (MA) innovations from different
sources. The subsidiarys abilities to access and exploit external and internal group
knowledge are known as absorptive capacity (Cohen and Levinthal, 1990) or
sourcing capability (Phene and Almeida, 2008), while the ability to utilize these
resources shows the combinative capability of subsidiaries where managerial
capabilities permit the integration and recombination of knowledge from different
sources (Phene and Almeida, 2008). Both absorptive and combinative capabilities are
important in the adoption and implementation of MAIs in subsidiary organisations
and this line needs further research to enhance our knowledge of the diffusion of
MAIs in group organisations.
2.2.4 Subsidiaries capabilities in adopting MAIs
While knowledge from parent organisations, other subsidiaries and also external
environment is critical to the adoption of (MA) innovations by a subsidiary
organisation, the recognition, absorption and the utilization of this knowledge is
dependent on subsidiary capabilities and its knowledge stock (Phene and Almeida,
2008).For instance, Birkinshaw and Hood (2000) suggest that, in addition to the
important influence of the parent company and external environment in determining
subsidiary directions and roles, the influence of the subsidiary management cannot be
overlooked. In another study, they commented that changes to the subsidiary stock of
capabilities and its charter are closely tied to the subsidiarys ability to add value
(Birkinshaw and Hood, 1998). The subsidiaries ability to recognize, assimilate and
exploit new external information (or sourcing capability) is critical to the adoption
of new knowledge and innovation. However, there may be differences across
subsidiaries in how this knowledge is utilized. This is an important potential, which is
referred to in the international management literature as combinative capability
(Phene and Almeida, 2008) and which represents creativity in knowledge
management and how to fit that into an organisational context.
From the review of the literature above, organisational networks in summary can be
classified into two broad types: external and internal. External networks are formed
between a number of organisations whereas internal (including both vertical and
lateral) networks are formed between parents-subsidiaries and subsidiaries9

subsidiaries, which are separated by functions, businesses, or geographic locations. In

the present study, we are concerned with internal networks as mechanisms for
organisational decision-making and the diffusion of MAIs within group organisations.
We propose that the internal network may affect the rate of diffusion of an MAI, its
implementation stages and the role of management accountants. We suggest the
following propositions:
(1): MAIs diffusion rate in dependent organisarions (which have internal network
with parent companies and other subsidiaries) is different from those in
independent organisations.
Or
The extent of diffusion of MAIs in dependent (subsidiary) organisations is
different from those in independent organisations.
This proposition suggests that the extent and rate of diffusion of MAIs in
dependent (subsidiary) organisations may differ from that in independent
organizations rather than being autonomous and common in all organisations.
An examination of this proposition would provide some practical knowledge for
managers who due to intensifying national and international competition and
reduced organisational slack, are concerned not only with diffusion rates, but
also with the issue of whether the most technically efficient MAIs diffuse and
are retained (Abrahamson, 1991). Data were collected to test whether or not this
proposition holds true in the context of group organisations.
(2): Parent companies (via vertical mechanisms) are the main facilitators of MAIs
diffusions in subsidiary organisations.
Analysis of this hypothesis would provide theoretical knowledge on how
accounting change would occur in group organisations and the methods of
diffusion of MAIs in order to better understand the nature of accounting change
(Alcouffe et al, 2008). The analysis would also provide some practical
knowledge for managers who are concerned with the role of inter-subsidiary
relationships and communications between subsidiaries in the adoption of
innovations.
(3): MAIs diffused in subsidiary organisations by parent companies (via vertical
mechanism) are more successfully implemented than are MAIs diffused by other
sources. This could indicate whether practice implementation is related to
adoption motivation (cf. Kennedy and Fiss, 2009).
The data collected were useful for understanding the role of inter-unit
networking (through lateral relationships and team-based decision-making) on
the implementation process of MAIs. The analysis shed light on how the logics
of adoption interact with subsequent implementation activities.
(4): Management accountants in group organisations are involved in accounting
changes in their subsidiary and participate in strategic decision making
processes.

10

The analysis of this hypothesis will provide knowledge on the accountants

participation in strategic decision making processes and to what extent they are
becoming strategic management accountant to undertake SMA projects. In this
way, it is possible to see how management accountants act as catalysts in the
areas of strategic decisions rather than playing a number crunching role.
3.

Research Methods

In order to test the propositions above, the data were collected during 2007-2009 from
two sources: a survey and face-to-face and telephone interviews with CIMA qualified
management accountants. While questionnaires proved to be much economic in
collecting a large volume of primary data, they had limitations in gathering some
significant insights (Converse and Presser, 1986; Rossi et al., 1985). The interviews
not only overcame this limitation, but also provided a deeper understanding of the
nature of the diffusion of MAIs at different implementation levels and their contexts,
and acted as a way of validating quantitative data (cf. Cadez and Guilding, 2008).
This hybrid method has long been used in this type of research (Emsley, 2005).
3.1 Questionnaire Survey
A postal questionnaire survey was used to gather the data. The aim of the
questionnaire was to test the propositions mentioned above. The cooperation of three
CIMA qualified members was helpful in this regard. A pilot test was then carried out
asking some practitioners and academic colleagues the questions used in the
questionnaire. Subsequent modifications were made to improve the questionnaires
usability.
The questionnaire was mailed to 2041 (qualified) members of the Chartered Institute
of Management Accountants (CIMA) in Australia, New Zealand and the UK in 2007
(1,175 in Australia, 366 in New Zealand and 500 in the UK) who were working in the
managerial accounting sections of organisations in 2007. The head office of CIMA in
the UK provided the authors with a list of names and addresses of qualified members
in the above three countries. Following this, a general announcement about this
questionnaire survey was made on the CIMA website. Three weeks later, an online
questionnaire was also made available encouraging those who had received copies of
the questionnaire, but who had not had a chance to complete it.
There were 584 useable responses (both hard copies and online replies) from the three
countries. These included 310 completed questionnaires plus 88 not-completed or not
delivered for Australia; 142 completed questionnaires plus 10 not-completed or not
delivered for New Zealand; and 132 completed questionnaires plus 45 not-completed
or not delivered for the UK. Eventually, the survey ended up with satisfactory
response rates of 28.5%, 39.5% and 29% from Australia, New Zealand and the UK
respectively. Krumwiede (1998) agrees that the normal response rate for such surveys
must be approximately 20% though there are many published surveys with lower
response rates.
Non-response bias was examined using the aggregated data provided by CIMA (such
as the total number of CIMA members working in manufacturing and nonmanufacturing organisations, the average length of experience of CIMA members and
their average ages as qualified members), by comparing them with the same
11

information gathered by the surveys, and by comparing the early responses with the
late ones. The former showed responses to be representative, while the latter showed
that there was no perceived difference between these responses. This exercise
suggested that non-response bias would not influence the outcomes.
3.2 Interviews
As mentioned earlier, the interviews aimed at eliminating some of the uncertainties,
validating responses, examining answers to open ended questions in detail as well as
gathering additional qualitative interpretations. The respondents were the CIMA
qualified management accountants who had expressed their interest in participating in
an interview by checking a box in the questionnaire and providing the researchers
with their contact details. Consequently, 56 interviews were conducted with CIMA
members working in subsidiary organisations: 34 in Australia, 13 in New Zealand and
9 in the UK (face-to-face and over the phone). These took place between 2007 and
2009.
The initial interviews resolved some of uncertainties and validated the responses by
examining the answers to open-ended questions and by gathering additional
qualitative data. The comments received from respondents to the initial, open-ended
questions drew our attention to important, but unexplored issues in the MA literature,
i.e., the source of innovation diffusions in groups and MNCs, which resulted from an
inter-subsidiary relationship. Consequently, we adjusted our interview questions to
include such issues as well. In this way, we ensured that the essential issues were
systematically covered during the interviews. Moreover, although the semi-structured
questions were set, the interviews took a flexible form along with follow-up questions
aimed at clarifying some of the practices (c.f. ).
All but six of the interviews lasted between 1 and 2 hours. For validification purposes,
these were also followed-up by some telephone calls and emails to clarify some issues
that had emerged subsequently. Apart from three, all the interviews were tape
recorded with the permission of the interviewees, and then transcribed. Finally,
confidentiality was assured both externally and internally.
4. Findings and Discussion
The findings from the survey are presented in a series of tables. As a starting point,
Tables 1, 2 and 3 summarize the necessary characteristics of the respondents
organizations. As shown in Table 1, 27.2% of respondents of the survey were from
dependent (subsidiary) organisations and 72.8% were from independent organisations.
Compared to the UK and NZ, there is a higher number of subsidiary companies in
Australia. The Chi-Square tests indicate that there is a significant association between
the ownership types (dependent vs. independent) and the countries surveyed.
However, the number of dependent companies participating in this study was lower
than the number of independent companies in the three countries.
Insert Table 1 here
Table 2 shows the industry classification of these two types of companies: 63.7% are
in service and 36.3% are in manufacturing. The Chi-Square tests indicate a significant
association between the ownership types (dependent vs. independent) and the types of
12

industries (manufacturing and service). However, as the present study focuses on a

comparative analysis of the diffusion of MAIs in dependent and independent
organisations, the impact of industry types on the diffusion of MAIs must be left to
future studies.
Insert Table 2 here
Table 3 summarizes the participating companies in terms of their size and ownership
types. The summary shows that, in terms of number of employees, 25% of
organisations are small, and the rest are medium and large. The Chi-Square tests
indicate that there is a significant association between the ownership types (dependent
vs. independent) and the sizes of companies. The impact of size on the diffusion of
MAIs is an important factor (for such findings, see Askarany et al. 2009). However,
we examine the impact of ownership types on the diffusion of MAIs.
Insert Table 3 here
The contextual characteristics above will provide a useful background for our
analysis, to which we now turn.
4.1 The extent of diffusion between dependent and independent companies
Our first proposition was on the premise that there is a difference in the extent of
diffusion of MAIs between dependent and independent organizations.
Table 4 summarizes the responses to the adoption of MAIs in both dependent
(subsidiary) and independent organisations. The responses show that the adoption
rates and take up of all five MAIs (i.e., ABC, ABM, BSc, benchmarking and TC) in
dependent (subsidiary) organisations is higher than in independent ones. The ChiSquare tests also indicate that there is a significant association between the ownership
types (dependent vs. independent) and adoptions of BSC and benchmarking (but not
with ABC, ABM and TC). The higher take up of MAIs by dependent organisations
observed in this study is in contrast with previous survey findings conducted in the
UK in 2000 by Yazdifar and Tsamnyi (2005), which reported a lower adoption rate of
MAIs in dependent organisations than in independent ones between 1990 and 2000.
However, the present survey indicates that, eight years later, the dependent
organisations present a higher take up rate. This would raise the following question:
What factors have contributed to the higher take up of the new MA techniques in
group organisations?
Insert Table 4 here
The majority of interviewees addressed the above question. They pointed out that
changes in the market, technology, competition and customer focus were the most
influential factors for this development. In addition, they also pointed out that an
increase in the relationships between subsidiaries has become a factor. However, the
interviewees did not undermine the role of parent organisations in effecting change in
the subsidiaries MA practices, but emphasized these new factors, which came to be
determinative from the 2000s. An interviewee argued, We have gained valuable
knowledge and expertise from other subsidiaries. Another commented, We now see

13

the success in collaborative actions between us and other peer subsidiaries and also
learning from each other.
We gathered similar comments suggesting a trend of subsidiary organisations gaining
a proper understanding of the new techniques prior to any adoption and
implementation. This was the case in the adoption and implementation of MAIs so
that subsidiaries themselves were stimulated by these new techniques within the
group, but without parent organisations involvement.
The interviews with 56 accountants in subsidiary organisations revealed four types of
diffusion and adoption of the new systems in group organisations (see details in Table
5). The classification of the methods of diffusion and adoption of MAIs in group
organisations has not been presented and discussed in the extant MA literature. The
four methods will now be discussed. One type of diffusion and adoption of MAIs in
group organisations is based on the groupwide decision where the MAIs are selected
by parent organisations and subsidiaries are asked to follow the groupwide decision.
A second type is where an MAI was first adopted by another subsidiary within the
group and then was taken up by other subsidiaries. A third type is where two or more
subsidiaries jointly decide to take up an MAI, and a fourth one is where the
subsidiaries adopt an MAI that is chosen by the subsidiary for itself and without the
involvement of parent and/or other subsidiaries3.
4.2 Parent companies facilitation on the diffusion of MAIs
The interviewees in subsidiary organisations were asked to indicate whether those
MAIs adopted in their organisations were initiated by their parent organisation, learnt
from other subsidiaries, jointly adopted by other subsidiaries or, finally, adopted by
the subsidiary organisation without the involvement of the parent organisation and/or
other subsidiaries. The results are summarized in Table 5.
Insert Table 5 here
As Table 5 reveals, most of the changes in subsidiary organisations (about 54%) are
launched by parent organisations, about 24% are diffused by other subsidiaries, about
9% are jointly taken up by two or more subsidiaries and 13% of the adoptions of
MAIs in subsidiary organisations are initiated by a subsidiary without the involvement
of the parent organisation and/or other subsidiaries. The extant literature has mainly
studied the diffusions of innovation in group organisations through the first and fourth
methods listed above (e.g., Dossi and Patelli, 2008; Al Chen et al. 1997), but the
second and third ones, which are the diffusion of innovation when an innovation is
jointly adopted by two or more subsidiaries or when a subsidiary adopts an innovation
after it has been adopted by another subsidiary, have not been previously discussed.
There might be several motivations for these types of diffusion of innovations within
group organisations; we were able to examine three of them as discussed by the
interviewees. The interviewees commented that in the case of joint adoption of MAIs
or when a subsidiary follows another subsidiary in adopting an innovation, the
3

Here, it should be noted that though for ease of analysis this study has presented the four sources of
diffusion and adoptions of MAIs for subsidiary companies as separate methods, in practice, these
sources may jointly affect the adoption and implementation of innovations in a subsidiary company.

14

subsidiaries could share their knowledge about the innovations and the
implementation process. This not only would reduce costs, but would also lead to
increased knowledge about the innovation implementation, which would result in a
reduction in the uncertainty that exists in change programmes. Finally, the
interviewees also discussed how in the case of joint adoption of an innovation, the
subsidiaries were in a stronger position to challenge a possible disagreement
expressed by the parent organisation. In other words, the joint adoption was also a
tactic to challenge the institutional pressures of parent companies4.
Overall, the findings indicate that almost 87% (53.7% + 24.1% + 9.2%) of the
adoption of MAIs in subsidiary organisations has been due to the involvement of
either the parent company or other subsidiary organisations. Indeed, it seems that the
subsidiary organisations are operating in a different business and economic
environment where the take up of innovations by themselves is much lower than in
independent organisations. The take up of MAIs by subsidiary organisations without
the involvement of other subsidiaries and parent organisations forms only 13% of the
changes in their organisations in comparison to independent organisations where the
take up of an MAI does not involve a parent organisation or other subsidiaries. This
finding suggests that the subsidiary organisations may leave to parent organisations
the decision to make changes to their (MA) systems and/or to follow other
subsidiaries.
All the interviewees were also asked about their understanding of the MAIs, how they
work, their advantages, outcomes, difficulties, and limitations. In response, the
interviewees were more supportive of those changes that were initiated by themselves
and equally supportive of those MAIs jointly adopted with other subsidiaries or learnt
from them. Two interviewees in dependent organisations commented, We feel it is
easier to learn from a colleague in another subsidiary than from a boss in the parent
organisation. It gives more confidence when working with a colleague from another
subsidiary. We sometimes get partial solutions from people at headquarters, but much
more and practical comments from colleagues even in another subsidiary. So, they
had a better understanding of the new MA techniques when the subsidiary adopted
them by itself or through another subsidiary, but without the parents involvement:
There is a must with the parents decisions which obstructs smooth learning, an
interviewee affirmed. In the case of adopting an MAI without the involvement of the
parent, the subsidiaries understanding of the new techniques mostly took place before
and during the implementation process. However, this was not the case of those
adopted MAIs that had been initiated by parent organisations where the learning about
some aspects of the new systems was sometimes postponed until post implementation.
This happens as the adopted approach is hierarchical, an interviewee in a dependent
organisation affirmed. So, with this, one should expect a more successful
implementation of the MAIs initiated by subsidiary organisations than those enforced
by parent organisations. The discussion in the following section aims to analyse the
third research hypothesis:
4.3 Success of parent companies influences
4

The subsidiaries challenge parent companies institutional pressure by demonstrating the rationality of
their decision as it is decided by other subsidiaries as well. The tactic of the joint adoption of
innovation to response to institutional pressures, such as those imposed by parent companies, is one of
the strategic responses to institutional pressures discussed by Oliver (1991, p.152).

15

Although the notion of success has a far from an uncontestable definition, by

successful implementation we mean higher levels of implementation of MAIs as
indicated in the questionnaire survey and summarized in Table 6.With regard to the
implementations of MAIs (levels one to four as presented in the questionnaire and
shown in Table 6) in the two types of organisations, the analysis in Table 6 reveals
that subsidiary organisations are further advanced in the implementation of ABC and
(slightly in) BSC, while the independent organisations present a higher level of
implementation of ABM, benchmarking and TC.
Insert Table 6 here
A comparison of Table 6 with Table 5 also indicates that the higher level of
implementations of ABC and BSC in subsidiary organisations corresponds with the
higher adoption rates of these techniques by subsidiaries via other sources (i.e.,
decided by a subsidiary organisation after another subsidiary had implemented it,
jointly decided by two or more subsidiaries, and decided by a subsidiary organisation
with no previous adoption within the group) than when implementation is forced by
parent organisations. So, the findings suggest that a greater involvement by
subsidiaries in the adoption and implementation would be expected to result in greater
levels of implementation of MAIs (see also Dossi and Patellis study on the use of
performance measurement systems in subsidiary organisations, 2008). Table 6
reveals that the independent organisations show a higher level of implementation of
ABM, benchmarking and TC, and we can see from Table 5 that most of these
techniques had been decided by parent organisations for subsidiaries rather than
decided by the subsidiaries. The Chi-Square tests indicate that there is a significant
association between the ownership types (independent and dependent) and the levels
of implementation of all five MAIs tested in this study.
In addition, according to Table 7, the Chi-Square tests indicate that there is a
significant association between the sources (via parent or other three sources) of
adoption of four MAIs tested in this study, namely, ABC, ABM, benchmarking and
TC (but not BSC) and their implementation levels in subsidiary organisations. This
indicates that the higher level of implementation of the MAIs in dependent
organisations is positively associated with the method of adopting these innovations.
That means, the greater involvement of the subsidiaries in the early stages of the
adoption of MAIs (e.g., ABC and BSC adoptions shown in Table 5), the higher the
level of implementation of MAIs in subsidiary organisations (e.g., ABC and BSC
implementation levels shown in Table 6). In other words, the finding shows that the
practice implementation of MAIs in (group) organisations is related to adoption
motivation and how the logic of adoption relates to subsequent implementation
activities (Kennedy and Fiss, 2009).

Insert Table 7 here

So far, what we have seen is that there have been two sets of possible sources for the
adoption of MAIs and assimilating knowledge: the external (non-group) environment
and the internal environment, which includes both the parent company and other
subsidiaries. Of the subsidiaries we studied, 53.7% had taken up the adoption of their
MAIs from the parent company, 34.3% (24.1% + 9.2%) from or with other
16

subsidiaries and 13% directly (i.e., without the involvement of parent or other
subsidiary organisations) from the external environment.
A common theme that emerged from our interviews was that those subsidiaries that
had already given some (practical5) thought to the MAIs or had already adopted some,
were more prepared to and capable of adopting and implementing other MAIs. The
interviewees in the subsidiary organizations that had adopted one or more MAIs in the
past discussed the possibility of adopting other techniques. This comment was based
on their understanding of the views of other managers in their organizations. A similar
theme was also observed from the analysis of the survey results. For example, most of
those subsidiary organizations that had either introduced ABC on a trial basis, or had
adopted and implemented it, had also adopted one or more other MAIs in the
following percentages: 56% ABM, 66% BSC, 80% benchmarking and 44% TC. So, it
can be argued that their technical expertise and insights resulting from the earlier
thinking about and adoption of certain innovations (stock of knowledge) and their
openness to change have provided the subsidiary organisations with the capability to
recognize the knowledge and techniques available within the group and identify
potential sources of assistance, e.g., other subsidiaries within the group. Thus, the
knowledge stock of the subsidiary can be expected to act as an important factor in the
adoption and implementation of new techniques including MAIs6.
This would lead to a subsequent transfer of knowledge about MAIs between
subsidiaries and between the parent company and subsidiaries if the subsidiaries were
located near each other. The geographic proximity between the subsidiary
organisations was noticed in several of the MAIs knowledge exchanges between
subsidiaries in the interviewed organizations, and it was discussed by the
interviewees. Company visits and meetings, frequent phone calls, mails to send forms
and sample reports facilitated knowledge transfer and the knowledge-building process
between subsidiaries. Therefore, it can be argued that parents and subsidiary
organizations may need to establish intra-organisational mechanisms, processes, and
systems to link various subsidiaries across time (Hansen, 1999; Almeida et al., 1998;).
There were also four cases in the interviewed subsidiaries where the subsidiaries
faced significant difficulties in the implementations of MAIs, which the interviewees
believed partly arose due to lack of proper communication arising from the
geographical distance between the subsidiary and headquarters or other subsidiaries,
making effective assimilation difficult. Phene and Almeida (2008, p.911), regarding
the innovations in MNCs, suggest: Geographic proximity appears to be more
important than organizational context or identity, permitting more effective
knowledge assimilation for innovation, and our evidence lends weight to this.
4.4 Management Accountants Involvement
Surprisingly, those CIMA members (we interviewed) who were attached to dependent
organisations claimed that they did not play a major role in the process of adopting
5

By practical thought, we refer here to the case where the subsidiaries had considered the adoption
and implementation of an MAI in real organizational life and not at a theoretical level, which is taught
at universities or other teaching institutions (e.g., CIMA), which provides attendants with certificates.
6
Of course, the mere recognition of the availability of external knowledge (both outside and within the
group) does not necessarily permit a subsidiary firm to absorb it. The subsidiary must also develop
linkages to sources of knowledge (other subsidiaries) that act as conduits for knowledge transfer (Dyer
and Nobeoka, 2000; Gulati et al., 2000).

17

MAIs in their organisations and did not contribute to the absorptive capacity of their
organisation. They showed that top managements and managers of operating
departments rather than financial experts were more supportive in adopting new
techniques, including MAIs. The accountants claimed that the managers display a
better understanding of the application and benefits of the new (MA) techniques than
the accountants do. The accountants also discussed that other managers show more
willingness to take the risk of supporting new systems than do accountants. The
common theme in nine interviewees comments was that the accountants knowledge
gained during academic and professional education (e.g., CIMA) is mainly at a
theoretical level with less knowledge of how to implement and apply the new
techniques (Burns et al. 2004). We need more practical knowledge that gives us
confidence on how to act, an interviewee commented. Another interviewee claimed,
Everyone knows that these techniques are superior to traditional ones, but how
should ABC be implemented? How can we simplify the use of it? How to deal with
difficulties? These are not taught at universities or during other training programmes,
such as the CIMA qualifications that we posses now. The interviewees commented
that the interest of non-accountant management was the main support for the adoption
and implementation of MAIs.
The interviews also suggest that the accountants expected other organisational
members to take the first step in advocating the adoption of MAIs. An interviewee
stated, To be honest, it seems that others [non-accountant managers] know these
techniques [MAIs] better than we do. Another commented, The marketing manager
discussed ABC in a meeting and I was surprised how he could see and nicely explain
the application of the technique for our business. Another interviewee stated, We
are still talking about budgets and variances while other managers are more advanced
in knowing about the changes in the market, business, economy and what techniques
and systems we need to respond to the changes. They have a better assessment of the
situation, what we need and what the outcomes of the adoption of an MA technique
will be. The accountants kept quiet, as they were worried that they would be blamed
if things went wrong.
Overall, the accountants we interviewed in subsidiary organisations were not what
Coad (1996) called strategic management accountants. To undertake SMA projects,
Coad (1996) urges that management accountants need to work smartly and hard. He
defines smart work as the manifestation of a tendency to select clever and ingenious
approaches and techniques (such as those MAIs discussed earlier) to deal with a given
task, and then modifying those approaches intelligently and resourcefully when
needed and where necessary. Hard work is regarded as the use of effort to complete
and perform the task. Thus, and as discussed in detail by Coad, smart work and hard
work are not mutually exclusive. Coad, then, discusses both learning and performance
orientations and argues that the strategic management accountant requires a learning
orientation, as this learning motivates both smart and hard work, whereas a
performance orientation motivates only hard work, and is not sufficient to undertake
SMA projects. He hypothesises that in addition to undertaking smart work, the
effective strategic management accountant requires high levels of communication
skills and the ability to empathise with others both within and outside organisation (cf.
Langfield-Smith, 2008). However, most of the interviewees did not claim that they
were working smartly and hard, as discussed above. They discussed the importance of
the above roles, but added that they did not perform that way. The accountants in the
18

subsidiaries had established contacts with other subsidiary organisations to proceed

with the implementation of MAIs, but the original idea of adopting an MAI and how
to proceed with it had come from other departments and not from the accounting
department in all of the interviewed organisations. The accountants were following
other departments initiatives, but the accountants did not initiate any change in the
subsidiaries. This observation may bring us to agree reluctantly with Cooper's (1996)
assessment of the inability of accountants to rise to the challenge of SMA (see also
Langfield-Smith, 2008).

5. Conclusions
The purpose of this paper is to examine how MAIs are diffused in subsidiary
organisations in relation to the obscuring relationships with their parents. This study
aimed to unearth four propositions derived from a literature review on the diffusion of
MAIs: (1) the extent of the diffusion of MAIs in dependent (subsidiary) organisations
differs from that in independent organizations; (2) the parent companies, via their
vertical mechanisms, act as the main facilitators of the diffusion of MAIs in
subsidiary organizations; (3) MAIs diffused in subsidiary organisations by parent
companies (via vertical mechanism) are more successfully implemented than are
MAIs diffused by other sources; and (4) management accountants in group
organisations are involved in accounting changes in their subsidiary and participate in
strategic decision-making processes. The propositions were tested through an analysis
of both quantitative and qualitative data collected from a survey of 584 responses by
the members of the Chartered Institute of Management Accountants (CIMA) working
in dependent and independent organisations to a questionnaire and follow-up
interviews with over 50 respondents in dependent organisations. Thus, this study is a
pioneering effort in that it is the first to examine different sources of the diffusion of
MAIs in group organisations and subsidiaries.
Concerning the first proposition, the study offers a detailed picture of the diffusion of
MAIs in group organisations and suggests that the diffusion of MAIs in subsidiaries is
different from that in independent organisations. For a subsidiary organization, there
are two environments, one being external to the group and the other being the
environment formed by the group and other subsidiaries within the group. The
subsidiary can adopt MAIs from both sources, but with different orientations. The
study provides interesting results regarding the question of which sources of external
knowledge (external environment, group and other subsidiaries) are playing a role in
the diffusion of MAIs in group organisations. In particular, the study provides
evidence that there can be four sources driving innovations in subsidiaries: parent,
peer, joint and individual. Interestingly, two of these sources (i.e., peer and joint) are
related to the inter-subsidiary relationship or to the so-called lateral relationship.
According to the literature on the diffusion of MAIs, this is a novel finding.
Testing the second proposition, the study shows that, although 53.7% of the MAIs are
adopted and diffused in group organisations by parent organisations, the intersubsidiary relationship also plays an important role as it forms 33.3% (24.1% + 9.2%)
of diffusions of the MAIs in group organisations. The subsidiaries show less interest
(only 13%) in adopting MAIs without the involvement of their parent organisation or
other subsidiaries. Therefore, despite the claim that subsidiaries act as appendages
19

of parent organizations (Stopford and Wells, 1972; Bartlett and Ghoshal, 1991) or
miniature replica subsidiaries (White and Poynter, 1984), the present study claims
that the interdependence of subsidiaries has a substantive impact on the adoption and
implementation of MAIs in subsidiaries. The findings suggest that the subsidiary is
part of a network not just a dyadic relationship with a parent company. The
literature on MA change lacks data on this particular scenario. With these findings, it
is clear that the dynamic relationships between subsidiaries can produce considerable
diffusion-effects within subsidiaries. This dynamic relationship between entities of
MNCs in the diffusion of MAIs requires further studies.
Despite the influence of the parent organisations, this study also highlights the role of
subsidiaries capabilities in adopting and assimilating MAIs. Absorptive capacity or
sourcing capability (subsidiaries ability to recognize, assimilate and exploit new
techniques, such as MAIs) and combinative capability (i.e., creativity in knowledge
management and how to fit that into an organisational context) are critical to the
adoption and implementation of MAIs. The paper supports the idea that the absorptive
capacity of a subsidiary is related to its prior knowledge stock and permits the
recognition and absorption of knowledge including MAIs. The study indicates that
those subsidiaries that had already adopted any of MAIs were more prepared to and
capable of adopting and implementing other MAIs. Thus, the knowledge stock of the
subsidiary can be expected to act as an important factor in the adoption and
implementation of new techniques, including MAIs. However, this stock of
knowledge and the subsidiarys capabilities in adopting MAIs are, to some extent,
distinct from the capabilities of its parent companies and sister subsidiaries. The
particular geographical setting and history of the subsidiary are important in defining
a development path that is absolutely unique to that subsidiary, which, in turn, results
in a profile of capabilities that is unique (Teece et al., 1997, cited in Birkinshaw and
Hood, 1998, p.781). Since Cohen and Leninthal (1989) first introduced the idea of
absorptive capacity, the concept has been widely cited, but it has not been discussed
in the MA literature. We consider this paper as a starting point to discuss this and
invite further case studies in this area. In future studies, we hope to identify the actual
mechanism and processes underlying absorptive capacity and knowledge assimilation
to determine and measure their role in the diffusion of MAIs in group organisations.
Moreover, the study found that the geographical proximity of parent and subsidiary
organisations plays a role in the diffusion and implementation of MAIs; also, the
distance may contribute to a subsidiary not being able to utilize knowledge from
group and other subsidiaries. This is an area that has not been discussed in the extant
literature on the diffusion of MAIs in group organisations. With an efficient
communication structure in place in group organisations, different subsidiaries will be
more able to seek out, collect and disseminate information (Tushman, 1977). This in
turn increases the chance of adopting MAIs through interaction within the group. A
well-developed internal communication infrastructure in group organisations may
outweigh the geographical issue and facilitate the dispersion of ideas about the
adoption and implementation of MAIs and improve the visibility of the new
techniques.
With regard to the third proposition, our study revealed that the level of
implementations of MAIs adopted by subsidiary organisations may be higher if these
are initiated by the subsidiary organisations themselves rather than forced by parent
20

organisations. The study reports a higher level of implementations of ABC and BSC
in subsidiary organisations where there were higher adoption rates of these techniques
via other sources than those forced by parent organisations. However, in comparison
to independent organisations, the subsidiary organisations in this study show a lower
level of implementation of ABM, benchmarking and TC where the adoption of these
techniques had mostly been decided by parent organisations. It can be argued that the
subsidiary organisations will take ownership of the new techniques if they believe that
they are their own systems rather than the group organizations systems imposed on
the subsidiary (Dossi and Patelli, 2008). So, the practice of implementation of MAIs
in group organisations is probably related to adoption methods and motivation
(amongst other possible factors and characteristics of innovations and adopters). The
improved interaction between the group and subsidiary organisations may positively
affect motivation and remove potential barriers. Since the successful implementation
of an organizational change such as the implementation of MAIs is quite difficult, we
believe it is necessary to examine both motivation and outcomes to understand fully
the partial implementation processes in group organisations and MNCs.
Concerning the fourth proposition, the study revealed that the management
accountants in subsidiary organisations are not sufficiently strategic management
accountants to undertake SMA projects. Frequently, the accountants did not show
any interest in initiating change programmes and tended to concentrate on their
independent watchdog role, focusing on preventing things from happening
(Johnston et al., 2002, p.1331) rather than being effective strategic management
accountants ,as discussed by Coad (1996). This might be due to the type of training
provided to them during their academic and/or professional qualifications. Indeed, one
may question the reason for the minimal attempt by the qualified accountants in
subsidiary organisations to effect changes in MA systems. This leaves us with serious
questions. What knowledge and skills does an accountant need to be a strategic
management accountant? What do they need that the universities and other training
centres do not offer to them?
The findings of this study have further theoretical implications as well. On the one
hand, these findings challenge the rational perspective which holds the view that
adopters are rational and make technically efficient independent choices and that the
social and organizational contexts in which such adoptions take place are taken for
granted. In particular, the agency theory percept that the agent-principal relations
between headquarters and subsidiaries can prompt forceful adoption has reservations.
On the other hand, the findings support the view that MAIs take place in dynamic and
complex inter-organisational relationships (i.e. between adopting organisations and
enforce enforcing organisations), in intra-organisational relations between
subsidiaries, and in their enabling mechanisms including managerial knowledge and
capabilities. The effects of isomorphism, fads and fashions would be valid to these
very relationships rather than to the global arena of diffusion.
The interviews in this study were with CIMA qualified accountants working in
subsidiary organisations. It is believed that the interviews with accountants in
independent organisations would also shed light on the issues discussed above. In this
study, we have focused our investigation on a limited number of MAIs (ABC, ABM,
BSC, benchmarking and TC). While these innovations were intended to serve as
indicators of a broader construct, overlooked idiosyncrasies might render them less
21

appropriate as proxies for the adoption of MAIs in general (Naranjo-Gil et al., 2009;
Chenhall and Langfield-Smith, 1998). In addition, this study was conducted in three
countries, namely, the UK, Australia and New Zealand, in different industry sectors
and organisations with various sizes, and the analysis was based on the overall
responses to the study; therefore, the specific features of each country on the adoption
of MAIs in the studied organisations, the type of industry sectors and company size
have not been discussed or analysed. These require further study.\

Acknowledgments:
The authors are grateful to the Research Foundation of the Chartered Institute of
Management Accountants (CIMA) of the UK, the University of Sheffield and the
University of Auckland for funding and facilitating the research on which this paper is
based. We are also grateful to Professor Stuart Ogden for his constructive comments.
In addition, we acknowledge the insightful comments and suggestions of two MAR
reviewers and the guidance of the editor Bob Scapens.

22

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Table 1: The proportion of dependent and independent companies participated

in the survey
Organisation type
Independent
Dependent

UK
%
89.1
10.9
100%

NZ
%
83.5
16.5
100%

AU
%
61
39
100%

Total
%
72.8
27.2
100%

Chi-Square Tests

Organisation type
Pearson Chi-Square

Value

df

45.453

Asymp. Sig. (2-sided)

2

.000

Table 2: Industry classification and ownership type

Industry sector
Manufacturing
Service
Total

Independent
%
23.7
49.1
72.8

Dependent
%
12.6
14.6
27.2

Total
%
36.3
63.7
100%

Chi-Square Tests

Organisation size
Pearson Chi-Square

Value

df

9.010

Asymp. Sig. (2-sided)

1

.003

Table 3: Organisation size (number of employees) and ownership type

Organisation size
(no of employees)
Less than 100
100-500
More than 500

Independent

Dependent

Total

%
31.8
29.6
38.6
100%

%
24.4
39.4
36.2
100%

%
29.9
32.1
38
100%

Chi-Square Tests

Organisation size
Pearson Chi-Square

Value

df

9.530

Asymp. Sig. (2-sided)

2

0.000

Table 4: Adoption of MAIs in the surveyed organisations

MAIs

Independent

ABC
ABM

%
25.5
19.1

Dependent
(subsidiary)
%
33.1
22.5

Total
%
27.6
20
31

BSC
Benchmarking
TC

34.4
49.4
23.1

48.3
62.9
23.8

38.2
53.1
23.3

Chi-Square Tests

ABC

Value

Pearson Chi-Square

ABM

6.099

Value

Pearson Chi-Square

BSC

TC

df

Value

Asymp. Sig. (2-sided)

df

Value

0.061

11.371

Pearson Chi-Square

Asymp. Sig. (2-sided)

df

Value

0.192

9.657

Pearson Chi-Square

Asymp. Sig. (2-sided)

4

9.019

Pearson Chi-Square

Benchmarking

df

0.047

Asymp. Sig. (2-sided)

4

df

4.398

0.023

Asymp. Sig. (2-sided)

4

0.355

Table 5: Summary of sources for MAIs adopted by subsidiary companies

Methods of diffusion of innovations
in group companies
Decided by parent organisation
Decided by subsidiary organisation
after another subsidiary had
implemented it
Jointly decided by two or more
subsidiaries
Decided by subsidiary organisation
with no previous adoption within the
group
Total

ABC

ABM

BSC

TC

7
8

Benchm
arking
13
4

15
2

Total no. of
MAIs adopted
58
26

% of MAIs
adopted
53.7%
24.1%

12
10

11
2

10

9.2%

14

13%

28

18

19

21

22

108

100%

Table 6. Comparison of the levels of implementation of MAIs in independent and

dependent organisations
MAIs

All levels of implementation

ABC

- Activity analysis
- The identification of cost drivers
- Allocation of cost to cost pools
- Revised product costing based on activity not volume

ABM

- Activity analysis
- The identification of value-adding and non-value adding drivers
- The identification of separate drivers of cost, quality, response
and innovation
- Adoption of strategies to impact on performance of key drivers

BSC

- Establishment of detailed corporate objectives and critical success

areas
- Measurement of overall performance based on a linked

Independent
organisations
%
13.9
54.3
31.8
100%
19.1
22.6

Accumul
ated
results
13.9
13.9
68.2
100
19.1
41.7

21.7
36.6
100%
14.7

63.4
100

31.5

Dependent
(subsidiary)
%
8.5
43.7
47.8
100%
24.5
32.1

Accumulated
results
8.5
8.5
52.2
100
24.5
56.6
64.1
100

14.7

7.5
35.9
100%
10.5

46.2

30.5

41

10.5

32

combination of financial and non-financial indicators

- Communication and commitment to separate measures used to
evaluate finance, processes, innovation and customers
- Review of the implementation of strategies devised to impact on
specific measures in the scorecard
Benchm
arking

TC

- Identification of critical success areas and associated key

performance measures
- Comparison of own performance with that of publicly available
measures for similar companies
- Collaboration with appropriate benchmarking partners identified
to compare internal processes
- Devising of strategies which address identified performance
deficiencies
- Identification of target product cost as the difference between
expected price and required profit
- Adoption of cost cutting strategies at the production stage to
approach target
- Examination of all cost reducing strategies at the planning and
pre-production stages
- Adoption of value engineering to incorporate customer
requirements

26.1

72.3

33.7

74.7

27.7
100%

100

25.3
100%

100

15.2

15.2

17.2

17.2

24.5

39.7

31.2

48.4

24.5

64.2

19.4

67.8

35.8
100%

100

32.2
100%

100

24.8

24.8

23.7

23.7

13.2

38

20.3

44

28.1

66.1

32.3

76.3

33.9
100%

100

23.7
100%

100

Chi-Square tests for ownership types and implementation levels of MAIs

Chi-Square Tests

ABC
Pearson Chi-Square

ABM
Pearson Chi-Square

BSC
Pearson Chi-Square

Benchmarking
Pearson Chi-Square

TC
Pearson Chi-Square

Value

df

10.555

Value

df

8.911

Value

df

Value

df

.003

Asymp. Sig. (2-sided)

3

df

7.451

.033

Asymp. Sig. (2-sided)

3

7.958

.014

Asymp. Sig. (2-sided)

3

15.982

Value

Asymp. Sig. (2-sided)

.043

Asymp. Sig. (2-sided)

3

.014

Table 7. Chi-Square tests for sources of adoption of MAIs and implementation

levels in dependent organisations
Chi-Square Tests

ABC
Pearson Chi-Square

ABM
Pearson Chi-Square

BSC
Pearson Chi-Square

Benchmarking

Value

df

13.880

Value

df

20.221

Value

df

0.003

Asymp. Sig. (2-sided)

9

df

0.031

Asymp. Sig. (2-sided)

6

11.816

Value

Asymp. Sig. (2-sided)

0.224

Asymp. Sig. (2-sided)

33

Pearson Chi-Square

TC
Pearson Chi-Square

18.936

Value
13.139

df

0.026

Asymp. Sig. (2-sided)

6

0.041

34