The impact of the liberalisation of the Portuguese telecommunications industry upon Marconi's management accounting system: activity-based costing and new institutional theory

Journal of Accounting & Organizational Change

ISSN: 1832-5912

Article publication date: 21 March 2008



Major, M. (2008), "The impact of the liberalisation of the Portuguese telecommunications industry upon Marconi's management accounting system: activity-based costing and new institutional theory", Journal of Accounting & Organizational Change, Vol. 4 No. 1.



Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited

The impact of the liberalisation of the Portuguese telecommunications industry upon Marconi's management accounting system: activity-based costing and new institutional theory

Article Type: Doctoral research abstracts From: Journal of Accounting & Organizational Change, Volume 4, Issue 1.

The impact of the liberalisation of the Portuguese telecommunications industry upon Marconi's management accounting system: activity-based costing and new institutional theory

Purpose - This study aims to answer the calls made for further research into ABC using social accounting theories. It is the particular aim to enhance comprehension of why organisations are motivated to implement ABC, and how ABC systems are being used in practice. The researcher is particularly interested in finding out whether firms are implementing ABC for merely technical reasons, or if other motives explain this decision.

Design/methodology/approach - This thesis is the result of an intensive, in-depth case study in a Portuguese telecommunications firm (Marconi), which, with the liberalisation of the national and European telecommunications industries, was pressured to change its MAS. Both institutional and economic forces lay behind the profound changes that occurred in Marconi's MAS. An interpretive theoretical framework - new institutional sociology (NIS) theory - was adopted to inform this investigation.

Findings - This investigation showed that ABC was adopted by Marconi for a threefold reason: as a means for Marconi to enhance its efficiency in the highly competitive Portuguese and European telecommunications markets; to gain social legitimacy regarding the way costs are calculated and interconnection prices are established, in the eyes of public opinion, the regulator and capital market; and to prove to its constituencies that it is a "modern" and efficient operator. In this respect it has been said that the adoption of organisational practices that are socially accepted as rational and reliable will enhance organisations' chances of survival and success in their institutional environments. ABC was implemented by consultants according to a full installation model from July 1997 to March 1998. However, after its implementation, the engineers of the Telecommunications and Infrastructure Department, the main feeders of the system, were critical of the effective value of Marconi's new MAS. According to them, ABC is primarily aimed at providing relevant data to the commercial departments rather than the production department. They expressed their discontent with the new system by resisting using it and deliberately imputing data late. Besides, the engineers' resistance, there are other difficulties affecting the operation of Marconi's MAS. These difficulties relate to the employees' fear and difficulty in allocating their time to the activities identified by consultants, and the existence of a high level of common costs in Marconi. Despite all the criticisms and difficulties Marconi's ABC system is confronted with, the system nonetheless does seem to be instrumentally used by the two commercial departments of the firm to support pricing strategies and investment decisions. The commercial managers use ABC data, together with information obtained from the market and their own knowledge of Marconi's products/services costs, to make pricing and investment decisions.

Research limitations/implications - This research is based on the intensive and holistic study of a single company in the telecommunications industry. Comparison with other firms operating in the telecommunications industry or in other industries was not undertaken. This was because the researcher could not carry out further in-depth, holistic research in other organisations within the limited time framework of PhD research and of the length established for a PhD thesis. Consequently, the results presented here provide little basis for generalisation. They need to be replicated in other telecommunications organisations, and also in firms operating in other industries exposed to high institutional and competitive demands that are adopting ABC techniques. A first possible avenue for further research concerns the continuation over time of the study of the impact of liberalisation on Marconi's MAS, and particularly of the analysis of how ABC is used in Marconi in the context of its institutional and economic environments. It therefore seems very relevant to conduct in-depth, intensive case studies in other national and European telecommunications companies that have adopted ABC techniques in order to analyse how ABC has been used, and to investigate the eventual problems and difficulties associated with both its implementation and operation in practice, and furthermore to examine how institutional and economic environments have pressured these organisations. Another suggestion for further research concerns the investigation of other industries that, like the telecommunications industry, are coercively pressured by regulatory entities to adopt "reliable, accurate and legitimate" management accounting systems that can socially legitimise the establishment of prices. It would be interesting to compare the pressures these other industries are subject to with the impositions placed on the telecommunications industry.

Practical implications - Hopefully, this research may enhance comprehension of the reasons why organisations adopt ABC. The research presented here suggests that organisations may adopt ABC, not merely for technical reasons, but also to enhance legitimacy in their constituencies. As discussed above, Marconi adopted ABC to aid managers in decision-making, but also to signal to public opinion, the regulator and the capital markets that it is an efficient and modern operator. Equally, ABC was adopted to assure the NYSE and ICP that accurate and reliable costing information was used both to prepare annual reports and to establish interconnection rates. Also the EU is recommending the adoption of ABC systems (combined with LRIC) to telecommunications operators to deflect society's criticisms of how dominant operators establish telecommunication interconnection prices. Thus, they can assure public opinion that "true" competition is being practised. A second contribution of this thesis to the ABC approach concerns the relevance of ABC implementation strategies based on user involvement. Literature on ABC implementation claims that the success of ABC is dependent on involving the whole organisation in its implementation, and getting support from top managers. However, the Marconi case study has shown that despite the care of top managers, and the active involvement of the whole organisation (including the engineers and managers from the production department) in implementing ABC, this system is far from being effectively used and accepted by all divisions of Marconi.

Originality/value - The researcher hopes that the case study presented in this thesis may contribute to overcoming some of the limitations of NIS, and the extension of this approach theoretically. The specific areas in which the researcher considers that this investigation might be particularly useful are twofold: firstly, regarding the relationship between economic and institutional forces in explaining organisational isomorphism; and secondly concerning the analytical power of NIS to explain organisational change. Another contribution of this research concerns the investigation of the internal dynamics of change in Marconi. This case study has shown that it is important to conduct more studies focused on the interface of macro and micro levels. Hopefully, the Marconi case study may provoke some insights into how internal participants interact with external pressures. This investigation has shown that organisational actors have an active role in organisations' responses to institutional environments. Few researchers have so far investigated this area.

Research type - Case studyDiscipline area - Management accountingAwarded Institution - The University of Manchester, UKSupervisor - Professor Trevor HopperDOI - 10.1108/18325910810855806

Maria MajorISCTE - Business School, Lisboa, Portugal

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