A challenge for organisations facing competitive environments is to improve their products, services and processes continuously. The design of management accounting control systems (MACS) is an important factor affecting the form and success of employee involvement in continuous improvement (CI) programs. One of the ways in which MACS can facilitate the creative process is through the information that they convey. Activity-based cost (ABC) information has been advanced as a particularly powerful means of empowering employees to generate ideas for improvements that are more likely to be effective because they are informed by cost implications. MACS can also be important in influencing cognitive processes. Indeed, surveys indicate that strict formalised control systems stifle creativity and thereby employee contributions to CI programs. On the other hand, this study demonstrates that, when individuals are provided with ABC information, results-based controls focus and motivate individuals to generate and then discriminate between their ideas. In this way managerial involvement in CI can be more effectively leveraged. When less informative cost information is available, however, individuals can be encouraged to express their intuitions but then managerial involvement becomes necessary to identify those ideas with the potential to achieve significant cost reductions. The results of the experiment reported in this paper demonstrate the benefits of providing employees with activity cost information and emphasise the importance of appropriately focussed MACS to leverage the level of cost information that is available.
4th Conference on New Directions in Management Accounting: Innovations in Practice and Research, Brussels, Belgium 9-11 December 2004