ACTIVITY-BASED COSTING SYSTEM IN CHINESE BANK

Implementation of the Activity-Based Costing System in Chinese Commercial Bank

Abstract

Few authors have explored the implementation of activity-based costing (ABC) in East Asian companies. This study investigates factors that led to the failure of an ABC implementation at a major Chinese financial institution-the Commercial Bank of China. Interviews with 18 employees at one branch revealed six factors that blocked the implementation: the lack of clear business purpose, a lack of education about ABC, poor model design, a lack of participants, individual and organizational resistance to change, and the fact that few outsourcers were available. The study represents a real example of why ABC implementation might fail in an organization. This paper, based in a longitudinal case study of organisational change, explores the implementation process of an activity based costing (ABC) system in a Chinese bank. It discusses several issues raised during the implementation, linking theory and practice, in line with Morgan and Sturdy (2000) framework that enables the exploration of the effect of accounting practices on change across time from three perspectives - changing structures, changing discourses and the effect of both of these processes on power relations. Located in a wider cultural change in Chinese banking towards global (i.e. US derived) strategies and processes, but within an organizational world where older traditions remain powerful, the ABC project was not initially recognised as a strategic initiative. The lack of a clear supportive attitude, namely through the involvement of someone from top management, made the 'turf wars' between the departments involved the central issue, while other factors identified by the literature as key to a successful implementation become secondary. The research highlights that accounting becomes more visible in the organisation and so perceived, at the level of what people say and write, as important to it. ABC was perceived as a system that could provide relevant information and it has overcome the barrier of accounting being the exclusive domain of the accounting department.

Table of Contents

Chapter I: Introduction5

Commercial Bank of China10

Chapter II: Literature Review12

Activity Accounting in the Financial Services Sector12

Commercial Bank of China-Strategic Plan14

ABC vs. Traditional costing systems16

ABC in Practice18

Commercial Bank of China20

Change Initiatives24

Management Accounting Systems28

Some Misconceptions39

Activity Based Costing in Banking Sector47

Failure of Traditional Cost Accounting Methods52

Activity-Based Cost Management53

Two Views of Activity-Based Cost Management54

Chapter III: Methodology66

Research Methodology66

The Research Case: Background and Issues67

Chapter IV: Discussion70

Factors Leading To The Success Or Failure To Implement ABC70

ABC Implementation83

Why Implementation Failed84

Chapter V: Conclusions89

Conclusion89

Some Advice95

References97

Endnotes105

Implementation of the Activity-Based Costing System in Chinese Commercial Bank

Chapter I: Introduction

Continuous changes in the organisational environment have made organisational change a key research issue. In recent years, the accounting literature has focused increasingly upon the ways in which accounting practices interact with and even shape organisational change, particularly after the call for new more 'relevant' management accounting systems (MAS) made by Johnson and Kaplan (1987).

Since Kaplan and Johnson published Relevance Lost, where they discuss the new manufacturing environment and the inadequacies of traditional MAS and set out prescriptions for the future, activity-based concepts have spread rapidly, especially through ...