Title: Effects of ITEnabled Management Accounting Systems on Interorganizational Performance
1Effects of IT-Enabled Management Accounting
Systems onInterorganizational Performance
- Andreas Nicolaou
- Bowling Green State University
- anicol_at_bgsu.edu
2Inter-Organizational Relationships (IORs)
- I-O relationships (IORs), involve a variety of
strategic agreements, including - joint ventures,
- alliances minority equity exchange agreements
and/or non-equity (formal or informal)
agreements. - Interfirm cooperative agreements aimed at
pursuing mutual strategic objectives, referred to
as strategic alliances, hereafter.
3Trends in IOR use
- Anderson Sedatole (2003) US firms 1985-2000
4Sector distributions
Anderson Sedatole (2003)
5Since 2000. (Anderson Sedatole, 06)
6Introduction - IORs
- Success of IORs depends on information
availability to decrease risk of opportunism
(e.g., Bakos and Brynjolfsson 1993) and enhance
coordination/cooperation (e.g., Gulati Garguilo
1999). - Need for integrated information systems to
support such capabilities.
7Introduction - ERPS
- ERPS are integrated systems which may support I-O
collaborative capabilities and enable exercise of
I-O information sharing and control activities. - I-O decision management (DM) and control
activities (DC) are critical for monitoring
stability in IORs and assessing relational
partner performance.
8Introduction - MAS
- Management Accounting Systems (MAS) designed in
response to organizational problem of controlling
and partitioning decision rights (Jensen
Meckling 1992). - Decision Management (DM) initiate and implement
decisions - Decision Control (DC) ratify decisions and
monitor outcomes.
9Complementarity in DM and DC activities
- Modern environment dictates complementarities in
activities of DM and DC. - IT-enabled collaborative capabilities facilitate
such complementarities. - ERPS define logic by which DM and DC are
performed (Dechow and Mouritsen 2005). - Given importance of DM and DC activities in I-O
environment, this study examines
complementarities in these IT-enabled activities.
10Complementarity Theory
- Economic theory of complementarity
- emphasizes importance of interactions between
different elements of organizational design
(Athey and Stern 1998). - provides a basis for understanding how various
elements of organizational strategy and
management process relate to one another (Milgrom
and Roberts 1990, 1995).
11Complementarity Theory
- Explains why firms adopt clusters of activities
and develop capabilities that are critical in a
cooperative I-O environment. - Suggests that seemingly conflicting choices in
I-O DM and DC may be complements and could thus
be clustered into a consistent set of activities
that can be effectively managed. - Major research issue is whether IT-enabled
decision management and decision control
activities are complementary and carried out in a
non-conflicting fashion in order to ensure
success in an I-O relationship.
12Objectives
- To examine the role of IT-enabled MAS and the
degree of complementarity between DM and DC
activities in a collaborative, I-O business
environment. - Why? Identified complementarities help balance
the need for control over an exchange partner and
the desire to share information and rely on the
other partner not to act in an opportunistic
manner (Bromiley and Cummings 1995 Coletti et
al. 2005 Cummings and Bromiley 1996). - Thus, need to also examine whether the constructs
of I-O trust and I-O risk sharing mediate any
effects of IT-enabled MAS Design on I-O
relational performance.
13Research Motivation
- to offer insights about complementarities in DM
and DC activities useful in management accounting
and control system design. - to extend research that examines the effects of
I-O network ties on accounting controls (Chua and
Mahama 2007) and on the subsequent effects of
accounting control on cooperative behavior and
perceptions of trust in an exchange partner
(Coletti et al. 2005). - to address call for research on the extended
enterprise that is linked to traditional
management accounting research but which
challenges traditional boundaries using
literatures that have begun to explore the
contours of the new organizational landscape
(Anderson and Sedatole, 2003).
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15ERPS Use and IT-Enabled MAS Design
- ERPS integrate business functions and activities
both internally and externally. - Information infrastructure is built on critical
capabilities offered by process and data
integration in ERPS. - Greatest usefulness of ERPS implemented in the
late 1990s has been on facilitating coordination
and control at the operational level of a
business (Nicolaou 2004). - need to expand benefits to also encompass
support for an organizations strategic planning
and managerial control vision (cf. Anthony 1988). - IT is complementary with organizational
characteristics and processes, and investment in
IT cannot succeed if done in isolation (Barua et
al 1995).
16Research Hypothesis H1
- Organizational strategy literature also
emphasizes importance of developing strategies
that allow the formation of organizational
competencies over time (Swamidass and Newell
1987). - Research suggests specific content of an
organizations adopted strategy is distinct but
closely related to organizational coordination
and control capabilities that allow for its
successful implementation (e.g., Nicolaou 2002,
2003). - Thus, ERPS is expected to have significant
influence on MAS design and on the development of
complementary capabilities that may enhance a
firms performance. - ? H1 link in the model.
17Complementarity in Choices in I-O MAS Design
- Effective coordination of plans and execution of
control relate to capabilities that are enabled
by the use of integrated ERPS such choices may
not be independent of each other. - Complementary choices if level of one varies
according to the level of the other (MR). - Sets of DM and DC practices are thus complements
as they are endogenously determined by this
complementary relationship. - Distinct, but interdependent choices each has
externalities on the other (Athey and Stern
1998).
18H2
- Complementary relationships in MAS design are
based on capabilities developed by the
organization through the adoption of ERPS. - control strategy cannot be set independent of its
I-O coordination strategy which sets the
boundaries for trusted information sharing. - major issue is to identify those boundaries and
ensure that a certain degree of fit is achieved
in making I-O DC and DM choices. - ? H2
19Effects of Complementary MAS Capabilities on I-O
Partner Trust and Risk Sharing
- I-O Governance Structure set of mechanisms that
create incentives to interact and safeguards that
protect each party against risk of opportunistic
behavior (Cooper and Slagmulder 2004 Williamson
1979). - Effective gov. str. optimally corresponds to
types of interactions in I-O exchange (Williamson
1991). - Choice of DM and DC in MAS design defines an
organizations I-O governance structure in
interacting with its trading partners. - The degree to which these choices are
complementary, they may enable capabilities that
allow for the dual objective of controlling
opportunistic behavior while also motivating
cooperation among partners.
20I-O Trust and I-O Risk Sharing
- I-O Trust the belief that an organization makes
good-faith efforts to maintain commitments, is
honest in negotiations, and does not take unfair
advantage of another reliability,
predictability, fairness (Zaheer et al. 1998). - I-O Risk Sharing the availability and sharing of
relevant monitoring information among exchange
partners in an I-O relationship, will act to
decrease the level of risk that is perceived by
each partner in the exchange and will
symmetrically disperse knowledge about necessary
control actions and attainability of outcomes.
21H3
- The complementary elements of an organizations
MAS design will influence I-O partner trust
perceptions as well as the willingness of
partners to share risks in order to avoid
undesirable outcomes in an exchange. - ? H3a H3b
22Performance (H4)
- I-O Performance
- Exchange partner performance (Zaheer et al. 1998)
- Alliance performance financial, strategic,
overall performance (Parkhe 1993 Simonin 1997).
23H4
- Cooperative design and information sharing
provide basis for stability and sustaining I-O
relationship (Amigoni et al. 2003). - In the face of uncertainty, firms are found to
interact more and share risks than vertically
integrate (Lorenzoni and Lipparini 1999). - I-O Trust improves exchange partner performance
(Zaheer et al. 1998). - H4 (a b) I-O Trust and Risk sharing will have
positive influence on I-O performance.
24Mediation of Complementary IT-enabled MAS
Capabilities by I-O Partner Trust and Risk Sharing
- I-O exchange systems, with shared control
information, enhance perceptions of information
quality, but performance effects were strongly
mediated by trust building and risk reduction
mechanisms (Nicolaou and McKnight 2006). - The combined effects of I-O partner trust (a
central mental construct) and risk sharing (which
dampens relational uncertainty) could mediate the
direct effect of complementary MAS capabilities
on I-O performance.
25Mediation Effects
- Mediation effect through influence on dynamics
that are created in an I-O relationship (Das and
Teng 2000). - Partner trust reduces costs of coordination,
negotiation and conflict (Zaheer and Venkatraman
2004) while info. sharing reduces risk of
opportunistic behavior (Bakos and Brynjolfsson
1993). - Exchange partners motivated to share information
and reduce I-O uncertainty, thus influencing the
dominant forces in the process of balancing I-O
tensions of cooperation and competition (Das and
Teng 2000) that maintain stability in the
relationship.
26Sample Selection
- Combined archival and field study.
- Extracted firms with alliance/JV activity from
Mergent database (text search and manual
analysis of disclosures). - A total of 893 firms (US listed -- public
corporations) with 1,896 alliances between the
years of 1982 and 2005. - Mail/web-based survey N116 response rate
equal to 17.13 (over effective sample of 677
firms). - Tests for non-response bias satisfactory.
27Firm and Alliance Characteristics
- Industry membership n53 Manufacturing n63
Service. - Active Alliances n98 active alliances n18
dissolved (7 planned dissolutions). - ERPS USE n81 had ERP for over 3 years
(indicator of ERPS maturity). - TRUST BUILDERS
- Prior Alliance n31had prior alliances with same
partner. - Location n93 alliances operate in US.
- Avg. Number of Partners in alliance 2.73 (s
2.26) - Stability Measure
- Other Alliances at same time n36 maintain other
relationships (licensing, JVs, supply contracts,
etc.).
28Measurement
- New Items for
- MAS Characteristics availability of IT
capability. - DC and DM Capability factors that contribute to
acquisition of unique capabilities in alliance
(enabling role of ERPS). - Risk Sharing importance of risk/info sharing
factors in alliance - I-O Performance perceived alliance performance
(strategic, financial, overall) exchange partner
performance. - Quantitative indicators of stability and firm
performance. - I-O Trusting Beliefs McKnights (2002) validated
6-item short scale. - Controls Cooperation (Das and Teng 2000) I-O
Trust Builders (Gulati and Singh 1998)
Behavioral Control (Muthusamy White 2005). - Good preliminary construct/discriminant validity
results.
29PLS Path Analysis
- Simultaneous assessment of measurement (outer)
and structural (inner) models. - Component-based strategy
- Blocks of LVs estimated and path coefficients
(normal OLS) computed till algorithm converges
(max. variance explained for each construct and
min. deviations in predictive paths). - Partial works with subsets of parameters at a
time, while others remain fixed.
30PLS
- Reduced demands on sample size (minimum 10
observations times greatest number of paths to an
inner construct). - No distributional constraints on data.
- Testing new theory.
- Non-parametric inferential procedures must be
used to test significance of path coefficients
(jackknifing or bootstrap resampling
techniques). - Used version 3.0 of PLS-Graph (Chin 1998).
31Item Quality Checks
- Eliminated one risk sharing item and two
coordination items due to low item reliability. - Eliminated one I-O performance item, one DC
capability, one DM capability item, and the
exchange partner performance item due to
violation of discriminant validity
(cross-loadings). - Did not affect theoretical significance of
respective constructs.
32Measurement Model
- Convergent Validity
- Individual Item Reliability
- Item loadings gt .5
- Composite reliability internal reliability
coefficient (ICRgt.7). - Proportion of average variance extracted
(AVEgt.5). - Discriminant Validity
- Higher loadings on indicators on its own block
than on indicators in other blocks (loadings and
cross-loadings). - Inter-construct correlations lt sqrt(AVE).
33Correlations, Validity Stats
? vAVE
34Path Model Results
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36Discussion
- Both Trust and Risk Sharing serve as Mediating
Mechanisms in the relationship between DC/DM
Capability and I-O Performance (explain how/why
effects are observed). - Effects of IT Enabled MAS Attributes on DC/DM
consistent with complementarity argument. - DM Capability Complements DC capability in
influencing performance (requisite control?).
37Conclusions
- An organizations I-O control strategy cannot be
set independent of its I-O coordination strategy.
- The design of complementary decision control and
management capabilities in IT-enabled MAS helps
set the boundaries for trusted information
sharing in an environment that would otherwise be
characterized by uncertainty in a partners
behavior. - Major contribution identify boundaries in MAS
design which ensure that a certain degree of fit
is achieved in making I-O DC and DM choices.
38Contributions
- Extends research on I-O relations and provides
insights that help focus future research in the
design of effective I-O MAS. - Groundwork to support use of an organizational
capabilities framework for the study of
complementary DM and DC phenomena in I-O
relationships. - IT-enabled MAS choices for DM and DC reflect
strategic choice elements for the success of I-O
relationships.