170 ACCOUNTING FOR MANAGERS
well as cost centres, and to identify cost drivers and measure the extent to which
individual products/services consume resources.
Survey research by Drury and Tayles (2000) suggested that 27% of companies
reported using ABC, although this was affected by business size and sector, being
especially evident in larger organizations and the financial and service sectors.
However, the extent to which organizations use ABC for decision-making rather
than stock valuation has not been fully explored.
Why, then, do different organizations adopt different methods of management
accounting? One explanation is provided by contingency theory.
Contingency theory.....................................
The central argument of contingency theory is that there is no control system
(which, as described in Chapter 4, includes accounting systems) that is appropriate
to all organizations. Fisher (1995) contrasts contingency with situation-specific
and universalist models. The situation-specific approach argues that each control
system is developed as a result of the unique characteristics of each organization.
The universalist approach is that there is an optimal control system design that
applies at least to some extent across different circumstances and organizations.
The contingency approach is situated between these two extremes, in which the
appropriateness of the control system depends on the particular circumstances
faced by the business. However, generalizations in control systems design can be
made for different classes of business circumstances.
Fisher (1995) reviewed various contingency studies and found that the fol-
lowing variables have been considered in research studies as affecting control
systems design:
žExternal environment: whether uncertain or certain; static or dynamic; simple
or complex.
žCompetitive strategy: whether low cost or differentiated (e.g. Porter, see Chap-
ter 8) and the stage of the product lifecycle (see Chapter 9).
žTechnology: the type of production technology (see Chapter 9).
žIndustry and business variables: size, diversification and structure (see Chap-
ter 13).
žKnowledge and observability of outcomes and behaviour: the transformation process
between inputs and outputs (see Chapter 4).
Otley (1980) argued that a simple linear explanation was inadequate. The linear
explanation assumed that contingent variables affected organizational design,
which in turn determined the type of accounting/control system in use and
led to organizational effectiveness. Otley emphasized the importance of other
controls outside accounting, how many factors other than control system design
influenced organizational performance and that organizational effectiveness is
itself difficult to measure. He argued that the contingent variables were outside
the control of the organization, and those that could be influenced were part of
apackageof organizational controls including personnel selection, promotion and