Information Technology Integration, Extent of ABC Use, Business Strategy, and Performance

IntroductionInformation technology (hereafter IT) can provide a rich source of appropriate information for management accounting systems (Burns and Vaivio, 2001). Thus, it has been widely suggested that there are important links between information technology and management accounting systems (Chapman and Chua, 2000; Ittner and Larcker, 2001; Chenhall, 2003; Moscove et al., 1999). While it is widely acknowledged that IT can play an increasingly important role in the field of accounting, organizations are faced with the challenge of properly integrating information technology into accounting practices (Olsen and Cooney, 2000). Despite suggestions of potentially important synergies between IT and accounting, their relationship has been studied relatively little.The IT literature reveals mixed results with respect to organizational performance achieved from IT integration (Chapman and Kihn, 2009; Hunton et al., 2003; Poston and Grabski, 2001). Barua and Mukhopadhyay (2000) and Sambamurthy et al. (2003) suggest that many studies have overlooked important intermediate organizational capabilities that mediate the relationship between IT and organizational performance.Chan et al. (1997) and Henderson and Venkatraman (1999) argue that the inability to realize value from IT investments is, in part, due to the lack of alignment between IT and business strategy. Mahmood and Mann (1993), Kaplan and Norton (1996), Palvia, (1997), Kathuria et al. (1999), and Li and Ye (1999) also argue that the relationship between IT and performance should be studied within a strategic management framework. From this richer vantage point, IT integration serves as an enabler of existing organization-specific management approaches. More specifically, IT with integrated databases enables users to identify, access, and interpret data (Goodhue, 1995). Furthermore, efficiencies in the production of performance measurement information may be demonstrated through the use of integrated information technology (DeSeve et al., 1997). Similarly, a review of the literature on the link between activity-based costing (hereafter ABC) and business performance has been inconclusive (Rafiq and Garg, 2002; Bromwich and Bhimani, 1989; Gordon and Silvester, 1999; Innes and Mitchell, 1995; Ittner et al., 2002). However, most of the prior research has typically focused on the direct impact of ABC while ignoring its indirect impact in supporting other organizational capabilities. Chenhall and LangfieldSmith, (1998) suggest the potential for intervening effects of organizational variables and call for further research.In light of the above discussion, the study argues that a more rigorous approach is needed to assess the relation among IT integration, extent of ABC use, plant strategy (product differentiation strategy and low-cost strategy) and plant performance (market performance and profitability). The research question are (1) whether IT integration has a significant effect on extent of ABC use, and (2) whether plant strategy moderates the impact of both IT integration and extent of ABC use on plant performance (market performance and profitability). No prior study has investigated the simultaneous relationships among the variables used in this study.Results indicate that (1) the relation between the extent of IT integration and extent of ABC use is significant, (2) the effect of both IT integration and extent of ABC use on plant strategy is significant, (3) plant strategy is significantly related to market performance, (4) and both plant strategy and market performance significantly influence financial performance.Results also indicate that neither IT integration nor extent of ABC use has a significant direct impact on plant performance measures (market performance and profitability). Instead, the effects of IT integration (extent of ABC use) on market performance (profitability) are mediated through the development of plant strategy (product differentiation and low-cost strategy). …