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During the past decade, many organizations have embraced innovative philosophies such as total quality management (TQM), just-in-time, and lean production. During the same period, many information technology (IT) innovations have been used to improve decision making and support reengineering activities. But organizations often find crossfunctional barriers to implementing IT innovations. These barriers reflect technical, organizational, political, and behavioral factors that can prevent organizations from obtaining all of the innovation's potential benefits.
One recent IT innovation that has encountered many of these barriers is activity-based costing (ABC). Using ABC implementation as an example, this article looks at how organizational issues can affect the various stages of an IT implementation and how these issues can be addressed. After ABC is defined, an ABC project that did not work is used to illustrate the stages of IT implementations. Barriers that may be encountered in each stage are addressed, and possible solutions are provided. The paper concludes with a discussion of what top managers can do to help ensure the successful implementation and infusion of ABC as well as other IT innovations.
Activity-Based Costing
Activity-based costing is an accounting system that focuses on measuring the cost and performance of activities, products, customers, and other cost objects.' ABC systems generally provide more accurate product cost data than traditional volume-based cost systems when manufacturing processes are complex or products are manufactured in varying lot sizes. The costs are more accurate because ABC systems trace indirect costs such as utilities, supplies, and maintenance to the products that consume the resources. Traditional volume-based cost systems simply allocate all indirect manufacturing costs to products using a volume-related measure, such as direct-labor hours. In addition, traditional cost systems allocate only manufacturing costs to products, but ABC systems trace other costs, such as marketing, to cost objects.
Traditional cost allocation methods that assign indirect costs using a volume-based measure, e.g., direct-labor hours, were adequate when products had higher direct labor content and competition was less severe. However, in today's world of automation and intense competition, more accurate allocations are needed. Although ABC was developed in the manufacturing sector, it is quickly spreading to nonmanufacturing companies, such as hospitals and banks.
ABC focuses on activities or processes rather than products or departments. Instead of classifying overhead costs...