Diffusion of Activity Based Costing (ABC) in Australian universities : an exploration of drivers and barriers of ABC adoption

This study examined the implementation of Activity Based Costing (ABC) as a cost allocation tools within the public universities in Australia. Universities play a vital role in Australian society. They are important to the prosperity of Australia through their contribution to human and social capital. The traditional methods of cost allocation both globally and in Australia have been used extensively in management accounting for over a century. Accounting researchers however acknowledge the limitation of the traditional methods. It is widely accepted that traditional methods do not provide management with accurate cost allocation information, particularly in organizations that offer multiple products and/or services. ABC has emerged as one of the most important contemporary innovations in accounting. It has the merit to assist organisations in managing competitive complexity by gaining a greater understanding of their costs. It supports quality information for good management in all aspects of organisational operations and functions. Although cumulative ABC research is expanding, there is limited evidence to indicate the extent of ABC use in Australian universities. The role of ABC in Australian Universities has remained unanswered. As a result, this study aimed to explore three questions in the context of public universities in Australia: ABC diffusion, motives and barriers of adoption. The study employed a sequential exploratory mixed methods research design to answer these questions. All public universities were invited to participate in this study. With an effective response rate of more than 60 percent, the study generated valuable insight into the research questions. The result from the quantitative and qualitative data analysis identified the key motives and barriers to ABC adoption. The study highlighted the critical role of senior management in driving ABC adoption as a cost allocation tool. The findings indicate that a large proportion of Australian Universities have positively accepted ABC as a costing tool. This is particularly noticeable for the larger universities. The study found out that there is not much difference in terms of institutional characteristics such as location. Fifteen (15) of thirty-nine (39) university presently use ABC and a few others are committed to retry ABC in the future. In terms of institutional size however, ABC implementers are dominated by larger universities measured by number of employees and annual turnover. The implementing institutions are members of either IRU or G8 categories. The non-users (rejecters) of ABC are smaller universities both in terms of their financial turnover and number of employees. ABC related research in the higher education sector is rather new. Cropper and Cook (2000) for example investigated ABC in British universities and reported high level of dissatisfaction. By the turn of this century, more studies in ABC related to universities were published (Henderson & Brown 2001; Kinsella 2002; Mensah & Werner 2003; Lewis & Styles 2004; Reich & Abraham 2006). However, the research topics covered were limited in scope. Given the context of limited ABC research in the higher education sector of Australia, this research makes a significant contribution to our understanding by exploring some of the fundamental issues of ABC diffusion, the key drivers and the barriers perceived by the users and non-users in Australia.