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Effects of ITEnabled Management Accounting Systems on Interorganizational Performance

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Trends in IOR use. Anderson & Sedatole (2003): US firms 1985-2000 ... and carried out in a non-conflicting fashion in order to ensure success in an I-O relationship. ... – PowerPoint PPT presentation

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Title: Effects of ITEnabled Management Accounting Systems on Interorganizational Performance


1
Effects of IT-Enabled Management Accounting
Systems onInterorganizational Performance
  • Andreas Nicolaou
  • Bowling Green State University
  • anicol_at_bgsu.edu

2
Inter-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.

3
Trends in IOR use
  • Anderson Sedatole (2003) US firms 1985-2000

4
Sector distributions
Anderson Sedatole (2003)
5
Since 2000. (Anderson Sedatole, 06)
6
Introduction - 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.

7
Introduction - 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.

8
Introduction - 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.

9
Complementarity 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.

10
Complementarity 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).

11
Complementarity 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.

12
Objectives
  • 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.

13
Research 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).

14
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15
ERPS 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).

16
Research 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.

17
Complementarity 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).

18
H2
  • 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

19
Effects 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.

20
I-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.

21
H3
  • 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

22
Performance (H4)
  • I-O Performance
  • Exchange partner performance (Zaheer et al. 1998)
  • Alliance performance financial, strategic,
    overall performance (Parkhe 1993 Simonin 1997).

23
H4
  • 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.

24
Mediation 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.

25
Mediation 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.

26
Sample 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.

27
Firm 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.).

28
Measurement
  • 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.

29
PLS 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.

30
PLS
  • 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).

31
Item 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.

32
Measurement 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).

33
Correlations, Validity Stats
? vAVE
34
Path Model Results
35
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36
Discussion
  • 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?).

37
Conclusions
  • 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.

38
Contributions
  • 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.
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