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MANAGEMENT ACCOUNTING AND

INFORMATION SYSTEMS: ERP
VERSUS BOB
a
Timo Hyvönen
a
University of Tampere Finland
Published online: 06 Aug 2010.

To cite this article: Timo Hyvönen (2003) MANAGEMENT ACCOUNTING AND INFORMATION
SYSTEMS: ERP VERSUS BOB, European Accounting Review, 12:1, 155-173, DOI:
10.1080/0963818031000087862

To link to this article: http://dx.doi.org/10.1080/0963818031000087862

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 European Accounting Review 2003, 12:1, 155–173

Management accounting and information

systems: ERP versus BoB
Timo Hyvönen
University of Tampere, Finland
Manuscript first received: April 2001. Manuscript accepted: June 2002

ABSTRACT
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The purpose of this study is to compare the use of enterprise resource planning (ERP)
and best of breed (BoB) standalone systems in practice. The data for the study were
collected through a postal questionnaire in 300 large and middle-sized industrial units
in Finland. The questionnaire addressed questions concerning IS implementation (why,
how and by whom the IS project was introduced), management accounting function,
and the use of advanced management accounting techniques. The results obtained
indicate that financial departments have been more interested in traditional BoB
systems, while other departments have concentrated more on ERP solutions. Further,
as the articulated motives behind the IS project were strategic, and moreover technical
in nature, the solution in most cases was ERP, while in the cases where motives were
either strategic or technical, the choice was BoB. Otherwise, there were no statistically
significant differences between the groups of BoB or ERP adopters, and the problems
perceived in management accounting or the adoption of advanced management
accounting techniques (e.g. ABC, ABM and BSC).

1. INTRODUCTION
When computers first started to be widely used in a business setting, in the early
1960s, they were used to automate simple, routine business tasks, such as payroll.
The next areas to be automated were the financial applications. Around the 1970s,
some companies started to create software packages that were licensed and
implemented by the organizations, usually after they had been modified to meet
the unique needs of the organization (Moriarty, 1999: 52; Shields, 2001: 3;
Davenport, 2000: 9–12). Because of these historical roots, many of the IS
departments in organizations have reported to the controller or vice president
of finance (Shields, 2001: 3).

Address for correspondence

Timo Hyvönen, University of Tampere, School of Business Administration, FIN-
33014 University of Tampere, Finland. E-mail: timo.hyvonen@uta.fi

Copyright # 2003 European Accounting Association

ISSN 0963-8180 print=1468-4497 online DOI: 10.1080=0963818031000087862
Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA
 156 European Accounting Review

By the late 1980s, vendors started to offer fully integrated suites of applications
that supported many, or most, of a company’s functions. During the 1990s,
companies started to replace their homegrown legacy systems with ERP packages
to thereby solve integration problems. Throughout the 1990s, the demand for
these packages was driven by the high cost of maintaining legacy systems, the
desire for new functionality, the need to handle Y2K issues, and the push of
globalization and competition (Davenport, 2000; Moriarty, 1999; Shields, 2001:
6-7; Scapens et al., 1998: 46). On the other hand, the idea of completely
integrated information systems in which each item of source data is entered
only once, is not a new one. McCarthy (1982), for example, in the early 1980s
presented a generalized framework for accounting information systems in a
shared data environment. However, the idea of completely integrated information
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systems did not become fully accepted at that time, as Anthony (1988: 123)
emphasized in his textbook Management Control Function:
Except in organizations with simple activities (which are not necessarily small
organizations), this ideal is not now achievable. The problem of making the pieces fit
together, and especially, being able to revise the system as the need changes, is beyond
the capability of humans.

Be this as it may, today single vendor-based enterprise resource planning

(ERP) software is the dominant strategic platform for supporting company-wide
business processes. However, despite a strong and durable advocacy (Cooper and
Kaplan, 1999), several reservations have been expressed concerning the flexi-
bility and ability to meet specific organization and industry requirements (Booth
et al., 2000; Davenport, 2000; Light et al., 2001; Moriarty, 1999; Scapens et al.,
1998). Thus, companies without an ERP system still integrate their systems using
conventional best of breed (BoB) or standalone system components of standard
package and=or custom software (Davenport, 2000: 9).
Despite the apparent popularity of ERP systems, there is only limited systematic
research-based evidence of ERP system applications (Sutton, 1999: 5). The main
purpose of this study is to compare the adoption and the use of ERP and BoB
systems in practice, dealing especially with the management accounting function.

2. VARIABLES AND RESEARCH QUESTIONS

Background questions
Against the background mentioned above, the study focuses on one grouping
variable, the type of present information system (IS). The grouping variable
(background question 1a, BQ1a) initially comprises two groups of responding
units: units that are using ERP systems (1), or units that are using only BoB
systems (2). This comparison is relevant because companies and units which do
not have an ERP system still have a variety of standalone (BoB) systems
(Davenport, 2000: 9). In this study, information systems known as enterprise
 Management accounting and information systems: ERP versus BoB 157

resource planning systems are defined as follows: ‘ERP systems are pack-
ages of computer applications that support many, even most aspects of a
company’s . . . information needs’ (Davenport, 2000: 2), and these packages are
single-vendor based (Light et al., 2001).
As it is obvious that the adoption of ERP is a continuum, not a question of
‘yes’ or ‘no’, such a definition is inadequate. The boundary between convention-
ally integrated BoB and ERP is blurring. Many companies may implement the
ERP system as a basic platform, but continue to use some previous standalone
components, or ERP modules from different vendors in different functions (cf.
Themistocleous et al., 2001). Granlund and Malmi (2002) also raised the
question in their field study as to whether such cases where only the accounting
module of ERPs has been implemented, can be regarded as true ERP adopters.
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They decided to accept them, too. Otherwise, there would probably not be a
single company that has abandoned all its previous sub-systems. Thus, in this
study units with at least some degree of ERP system, are counted in the group of
ERP adopters. Moreover, we can justify such a selection by the fact that the
co-ordination of ERP, even in partial implementation, is usually undertaken
centrally (Scapens et al., 1998) and so ERP may lead to more changes in
management accounting than locally co-ordinated BoB. In the interests of
clarification, background question 1b (BQ1b) addresses the issue by asking in
what way the financial and production control systems relate to each other (cf.
Scapens et al., 1998: 46). The variable consists of four categories: (1) units that
have updated both their systems, (2) units in which only the production control
system has been updated, (3) units in which only the financial system has been
updated, (4) systems which were not updated in the 1990s. If the answer was (4),
the cases were excluded from the data.
The last background question 1c (BQ1c) addresses the possibility that the
company has implemented another commercially available cost accounting
(standalone) solution and interfaced it to the ERP system (Granlund and
Malmi, 2000, 2002; Scapens et al., 1998).

Research questions
Research question (RQ) 1 is concerned with the factors of the IS implementation
and consists of three sub-questions (who, why and how). RQ1a deals with the
initiator of the new IS. The term ERP originally reflects the manufacturing origin
of these systems, such as MRP (material requirement planning) and MRPII
(manufacturing resource planning) (Davenport, 2000; Shields, 2001; Wortmann,
1998), while the background of BoB can be linked with financial applications
(Moriarty, 1999). Therefore, IS departments have traditionally been under the
control of the financial department (Shields, 2001). The theoretical assumption in
this study is that the financial department is more often used to implement BoB
systems, while manufacturing departments are more often used to implement
 158 European Accounting Review

ERP systems. The issue was measured with a multiple choice question consisting
of different functions of organizations. In order to facilitate statistical analysis the
variable will therefore be compressed into three groups. In group A only the
financial department has been operating as an initiator, in group B the initiators
have been the financial department and some other departments together, and in
group C the suggestion for new IS has come from some other function than the
financial department.
As recent business turbulence and technological development imply potential
organizational change, companies must therefore react to external pressures that
threaten survival in the business (Hope and Hope, 1997; Johnson and Kaplan,
1987; Shields, 2001). Furthermore, new technology may also offer new oppor-
tunities for conducting business (Scott Morton, 1991: 3–5). RQ1b addresses the
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reasons for new IS implementation. The question is based on the fact that new
information systems can be installed for technical reasons or to enhance strategy
and competitiveness (Davenport, 2000). A technologically focused implementa-
tion is only intended to provide an organization with core information systems
functionality while occasioning as little business change as possible. As several
studies (e.g. Booth et al., 2000; Davenport, 2000) have revealed, the boom in
ERPs in the 1990s was driven particularly by the inability of legacy systems to
deal with the Y2K problem, the euro currency and similar technical accounting
problems. A strategic implementation attempts to maximize positive business
change and business value (Davenport, 2000: 14–15). RQ1b was measured with a
multiple choice question:

Which of the following events (or issues) influenced the initiation of the information
system: (1) changes in production technology, (2) changes in competitive environment,
(3) changes in organizational structure, (4) changes in key personnel of the unit, (5)
changes in the ownership structure, (6) need to reduce the number of different
systems, (7) development of business processes, (8) Y2K problem, (9) lack of
accuracy or slowness of the previous system, (10) euro currency, or (11) other reasons
(what?).

Issues 1 to 7 were classified as strategic reasons and issues 8 to 10 as technical

reasons. Issue 11, other reasons, was classified either as strategic or technical
reasons depending on what was specified in the response. In order to facilitate
statistical analysis the variable will therefore be compressed into three groups. In
group A the reason for implementation is only strategic, in group B only
technical, and in group C both strategic and technical.
Technological development may also become a threat itself (Salo, 2000: 7).
RQ1c is concerned with the modification of systems and business process
re-engineering (BPR). According to Hammer (1990) re-engineering of business
processes is ‘ . . . fundamental rethinking and radical redesign of business processes
to achieve dramatic improvements in critical, contemporary measures of
performance, such as cost, quality, service and speed’. RQ1c is based on the
fact that the successful implementation of an ERP system requires BPR
 Management accounting and information systems: ERP versus BoB 159

(Davenport, 2000: 14–15; Scapens et al., 1998: 47). Thus, there exists the threat that
the implementation of ERP can change an organization and its processes more than
was originally intended (cf. Granlund and Malmi, 2002). On the other hand, by
customizing the ERP system the company or unit will lose many essential
advantages of buying a standard software package (Scapens et al., 1998: 47).
Thus, a major question which must be addressed is whether the generic ERP
package can be configured to meet business needs by redesigning business
processes, or whether some customizing of software is necessary. The alternatives
in RQ1c are: (1) the new system has to be customized to meet the business needs, (2)
business process re-engineering has to be done in order to make the implementation
easier, or (3) both BPR and software customization are needed.
According to Sutton (1999: 5) ERP systems have radical effects on the way
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accounting and business information exists within organizations, and Chapman

and Chua (2000: 204) claim that ERP-type technology dramatically reduces the
need of management accountants to collect data and prepare reports. Thus, as
there seems to be a link between ERP systems and management accounting (e.g.
Cooper and Kaplan, 1998; Granlund and Malmi, 2002), research question 2
addresses the possible changes in the management accounting function after the
IS implementation. According to the textbook by Horngren et al. (2002: 6),
‘Management accounting measures and reports financial information as well as
other types of information that are intended primarily to assist managers in
fulfilling the goals of the organisation’.
The findings of previous studies indicate that ERPs are effective with regard to
transaction processing, and less effective with regard to reporting and decision-
making (Booth et al., 2000; Fahy and Lynch, 1999), while Quattrone and Hopper
(2001) report on dramatic changes in conventional reporting procedures after the
ERP implementation. In addition, the study by Maccarrone (2000) indicates that
some companies have had more problems not only with modern cost accounting
practices, but also with traditional practices. Lack of flexibility can be a risk, as
the system provides a centralized and structured approach to the business process
and functions that may not be suitable for all organizations (Light et al., 2001;
Scapens et al., 1998: 47–8). Besides that, the underpinnings of the study by
Scapens et al. (1998) indicated that as the co-ordination of ERP is usually
undertaken centrally, the centralization can lead to a loss of control at the local
level. On the other hand, Granlund and Malmi (2002) perceived in their study that
so far ERPs have led to relatively small and moderate changes in management
accounting.
The purpose of RQ2 is only to describe the possible changes in management
accounting practices, not to test any theoretical idea. Despite that, the research
question is relevant as we so far have very little empirical evidence on the actual
impacts of ERPs on management accounting, and these results are even more or
less contradictory. The measurement instrument for RQ2 was adopted and
developed from earlier descriptive surveys of cost and management accounting
practices (cf. Ask and Ax, 1992; Lukka and Granlund, 1996; Malmi, 1997;
 160 European Accounting Review

Ekholm and Wallin, 2000) and consists of sixteen issues. The issues can be
loosely grouped into three different aspects of management accounting
problems, namely (A) problems in measurement and collection of data: detail
of information (A1), selection of relevant cost items to various calculations
(A2), and issues relating to data collection (A3) (Ax and Ask, 1992; Lukka and
Granlund, 1996); problems in cost allocation (B): allocation of product over-
heads to products (B1) (Ax and Ask, 1992; Lukka and Granlund, 1996),
problems dealing with depreciations (B2), allocation of sales and marketing
costs to products (B3) (Ax and Ask, 1992; Lukka and Granlund, 1996) and
customers (B4), allocation of administration overheads to products (B5) and
responsibility centres (B6) (Ax and Ask, 1992; Lukka and Granlund, 1996),
and problems dealing with R&D costs (B6) (Ax and Ask, 1992; Lukka and
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Granlund, 1996); and (C) problems in common usability of management

accounting system, namely slowness (C1), accuracy (C2), reliability (C3) and
flexibility (C4) of the reporting system, problems with budgeting (C5)
(Ekholm and Wallin, 2000) and common cost consciousness (C6) (Malmi,
1997). The measurement device was a five-item Likert scale (1 ¼ considerably
more problems, 2 ¼ more problems; 3 ¼ no change, 4 ¼ fewer problems,
5 ¼ considerably fewer problems).
The importance of management accounting has increased during the 1990s as a
consequence of the changes in the competitive and production environment of the
company (Hope and Hope, 1997). As a result of this, advanced management
accounting techniques (e.g. Activity-based Costing, Target Costing, Life-cycle
Costing, Activity-based Management and Balanced Scorecard) have been intro-
duced. Research question 3 (RQ3) focuses on the potential relationship between
the adoption of advanced management accounting techniques and the use of BoB
or ERP systems. Booth et al. (2000) observed in their study that many ERP
systems are considered to be an important data source for most of the new
accounting practices, but not an incentive for their adoption. Despite this, the
results of the study by Granlund and Malmi (2000, 2002) indicate that in most
cases advanced management accounting techniques were operated in separate
BoB systems. RQ3 is based on the idea that as a result of diffusion of innovation
in management accounting (Bjørnenak, 1997; Gosselin, 1997; Malmi, 1999)
there may be some connection between the adoption of ERPs and advanced
strategic management accounting techniques. According to institutional theory,
diffusion studies suggest that the explanation for changes in management
accounting function may vary from economic reasoning to the pursuit of fads
and fashions (DiMaggio and Powell, 1983; Granlund and Lukka, 1998). On the
other hand, ERPs are considered to be a dominant strategic platform for
supporting company-wide business processes (Light et al., 2001) while advanced
strategic management accounting techniques (e.g. ABM and BSC) are used as
approaches of strategic management control (e.g. Kaplan and Norton, 2001).
Thus, both ERPs and advanced management accounting techniques are devel-
oped into strategic purposes.
 Management accounting and information systems: ERP versus BoB 161

3. DATA COLLECTION
The empirical data were gathered through a postal questionnaire. All the
recipient firms were industrial units, and the firms in the survey were selected
in a controlled manner from the list of the 500 biggest companies in Finland so
that all industries were covered. Finland, as a small but technologically
advanced industrial country (cf. Castells and Himanen, 2001; Malmi, 1999)
provides a good empirical setting for the study. The present study focuses on
large and medium-sized units with over 50 employees, because it can be
assumed that a systematic management accounting system is little used by
smaller units (cf. Lukka and Granlund, 1996). The sample size was 300
business units. Business units, not companies, were selected as the target
group of this study, since more than one IS may be in use in a large company.
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The questionnaire was addressed to the chief financial officer of the unit in
November 1999 and a reminder was sent out in December 1999. By mid-
January 2000, 99 usable responses were received. The response rate was 33%,
which may be considered satisfactory for a postal survey. After removing from
the data the units which had not updated their IS during the 1990s, the final
number of usable answers was 86.
Most of the respondents (80%) were working in the accounting function. The
head of the industrial unit responded in 10% of the cases, and the remaining 10%
worked either in production, logistics or data management. The division of
respondents by industry is as follows: metal engineering (20% of the units),
electrical engineering (15%), basic metal and metal products (13%), paper and
pulp (12%), chemicals (12%) and foodstuffs (8%). The rest of the respondents
(21%) consisted of units operating in seven different industries. Overall, the data
seem to offer a representative sample of Finnish manufacturing lines of business
(cf. Lukka and Granlund, 1996), including units of some world-class multi-
national companies such as Nokia (mobile telephones), Stora Enso (paper and
pulp) and Sandvik Tamrock (drilling products for mining).
The questionnaire used in this study has partly (A1, A2, A3, B1, B3, B4, B5,
B6 and C6) been tested in previous studies concerning cost accounting practices
(Ask and Ax, 1992; Lukka and Granlund, 1996; Malmi, 1997). As the target
group consisted of manufacturing units, not firms, possible response biases could
not be analysed, as the corresponding population data were not obtainable. The
same kind of approach was used in the study by Lukka and Granlund (1996). The
usual limitations of survey-based research are acknowledged by the author. One is
the researchers’ lack of direct contact with either the phenomenon being
researched or indeed the respondents. The validity of data obtained is therefore
ultimately dependent on the reliability of the responses given by the individuals
concerned; cf. the very definition of ERP in this study. The second limitation is
that surveys are not particularly suited to rich description, explanation of practical
dynamics or contextual influence (e.g. Dugdale and Jones, 1997; Innes and
Mitchell, 1997).
 162 European Accounting Review

4. FINDINGS

Background of the IS implementation

Grouping variable (BQ1a) indicates that 47% of the respondents are using
traditional BoB standalone systems, and 53% have been implementing an ERP
system as their platform (n ¼ 86). The variable (BQ1b) consists of three cate-
gories: units which reported that (1) both (financial and production control) of the
systems are updated or modern (67%), (2) only the production control system was
updated (14%), or that (3) only the financial system was updated (19%).
Table 1 indicates that 63% of the units that have updated both their main
systems, production and financial control, have selected the ERP system as their
solution, while only 37% have done so using BoB. When the unit has updated its
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production control system only then are there no differences between the groups.
Seventy-five per cent of the units who have updated their financial system
only, have done it with BoB, and only 25% with ERP. The number of missing
cases is 1.
BQ1c addresses the issue if the unit has implemented another commercially
available management accounting standard solution and integrated it into ERP
(Granlund and Malmi, 2000, 2002; Scapens et al., 1998). The results indicate that
only 5% of the respondents have done so. This issue therefore seems to have no
relevance for this study. The number of missing cases is 2.

Who, why and how?

Research question (RQ) 1 deals with the background factors of the IS imple-
mentation and consists of three sub-questions. RQ1a is concerned with the

Table 1 Frequency of respondents who reported being BoB or ERP

adopters, and the modernity of their information systems (BQ1b)

BoB ERP Total

Only financial system has 75% 25% 100%
been updated
Only production control 50% 50% 100%
system has been updated
Both systems have been updated 37% 63% 100%
Total 46% 54% 100%
N 39 46 85

Notes:
Pearson chi-square ¼ 7.42.a d.f. ¼ 2.
Asymp. sig. (2-sided) ¼ 0.024 indicates significance at the 0.05 level.
a
0 cells (0.0%) have expected count less than 5. The minimum expected
count is 5.51.
 Management accounting and information systems: ERP versus BoB 163

Figure 1 Initiators of the new information system (RQ1a).

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initiator of the new IS. The results are shown in Figure 1. The results presented in
Figure 1 indicate that the financial department has been involved in IS projects in
46% of the cases. As the purpose of this question was to analyse the difference
between BoB and ERP adopters, the variable has been compressed into three
groups. In group A the initiator was the financial department alone, in group B
the initiators were the financial department and some other department together,
and in group C the initiators were other than the financial department. The results
are shown in Table 2.
Table 2 indicates that in 83% of the cases in group A the solution is BoB. In
group B and group C the solution was more often ERP, 57% and 61%
respectively. Thus the results obtained confirm the assumption that because of
the historical background of BoBs (Moriarty, 1999; Shields, 2001) and the
evolution of ERPs (Davenport, 2000; Wortmann, 1998) the members of financial
departments are used to developing ISs more with BoBs than with ERPs.

Table 2 Initiators of new IS and the technical solution (RQ1b)

BoB ERP Total

Financial department alone 83% 17% 100%
Financial department with 43% 57% 100%
some other department
Other(s) than financial 39% 61% 100%
department
Total 47% 53% 100%
N 40 46 86

Notes:
Pearson chi-square ¼ 7.7.a d.f. ¼ 2.
Asymp. sig. (2-sided) ¼ 0.0213 indicates significance at the 0.05 level.
a
0 cells (0.0%) have expected count less than 5.
 164 European Accounting Review
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Figure 2 Motives behind IS investment.

RQ1b studied the articulated motives behind the IS investment. The motives
are presented in Figure 2. As the data for this study were collected in autumn
1999, the most common reason was the Y2K problem (63%). After the Y2K
problem, the most important motive (51%) was ‘the development of business
processes’, which is a very strategic one and usually requires BPR in some extent.
The technical motives were ‘lack of accuracy or slowness of the previous system’
(42%), ‘preparing for the euro currency’ (42%) and ‘some other technical reason’
(7%). The rest of the motives were classified as strategic. In order to facilitate
statistical analysis between BoB and ERP adopters, the variables were therefore
compressed into three groups. In group A the reason for implementation is only
strategic, in group B only technical, and in group C both strategic and technical.
The results are shown in Table 3.

Table 3 Motives behind BoB and ERP implementation

BoB ERP Total

Only technological motives 69% 31% 100%
Only strategic motives 56% 44% 100%
Strategic and technological 38% 62% 100%
motives
Total 46% 54% 100%
N 39 45 84

Notes:
Pearson chi-square ¼ 4.84.a d.f. ¼ 2.
Asymp. sig. (2-sided) ¼ 0.0888 indicates significance at the 0.1 level.
a
0 cells (0.0%) have expected count less than 5.
 Management accounting and information systems: ERP versus BoB 165

The results presented in Table 3 proved that in group A and in group B, when
the motives were only either technical or strategic (Davenport, 2000), the solutions
were more often BoB, 56% and 69% respectively. However, in group C, where
the articulated motives were technical and strategic, the solution was more often
ERP (62%) than BoB (38%). The number of missing cases is 2. The results
confirm the role of ERP as an important strategic platform (Light et al., 2001).
ERP is more than a mere technological or strategic renewal of IS, it is
company-wide strategic IS. The results perceived in RQ1b also confirm the earlier
results of this study obtained in BQ1b regarding the roles of ERPs as a
company-wide (or unit-wide) platform.
As Figure 2 already indicated, the most important strategic motive behind IS
investment was the need to develop business processes. Thus, question RQ1c
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deals with the modification of systems and business process re-engineering

(Davenport, 2000; Scapens et al., 1998). The results presented in Table 4 indicate
that there are no statistically significant ( p > 0.1) differences between the groups.
The reasons for this are discussed in the last section (Discussion and Conclu-
sions). The number of missing cases is 4.
In conclusion, as 80% of the respondents in this study were working in
accounting function and 20% in other functions, the question arises if there could
be some differences between the two groups of respondents and their subjective
view of IS implementation. The results of the analyses, however, revealed no
differences between the two groups of respondents responding to research
questions 1a, 1b and 1c.

Problems perceived in management accounting and the new IS

RQ2 addresses the changes in problems of management accounting after IS
implementation. The results are presented in Figure 3. In order to improve the
readability of the figure, negative changes (values 1 and 2) are combined into
one group, and positive changes (values 4 and 5) into another. Thus, in Figure 3

Table 4 System modification and BPR

BoB ERP Total

Only IS has been customized 46% 54% 100%
Only BPR 63% 38% 100%
Customized systems and BPR 39% 61% 100%
Total 46% 54% 100%
N 38 44 82

Notes:
Pearson chi-square ¼ 2.4.a d.f. ¼ 2.
Asymp. sig. (2-sided) ¼ 0.3011 indicates no statistical significance.
a
0 cells (0.0%) have expected count less than 5.
 166 European Accounting Review
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Figure 3 Changes in basic problems of management accounting.

there are only three groups: more problems, no change and fewer problems. Some
improvement had taken place in all issues, but of all issues new IS has most
improved the question concerning problems in common usability of manage-
ment accounting systems. There was also some improvement in common
cost consciousness and issues relating to data collection. The most insignificant
changes took place in problems in cost allocation.
The next step was to compare the issues between the two groups: BoB adopters
and ERP adopters. The results are presented in Table 5. The measurement device
was a five-item Likert scale. As is evident in Table 5, the Mann–Whitney non-
parametric rank test indicates no significant differences between the two groups
of units. Except for one issue, problems with budgeting, all the p-values exceed
0.05. According to the analysis, ERP adopters have more problems with budget
planning than units using only BoB systems. As the purpose of this question was
only to describe the changes, the data do not permit any further analysis of the
issue.
Despite the fact that there exist no significant differences between the two
groups, the results, however, indicate that BoB adopters derived more benefit
from their new IS than ERP adopters. The only exceptions to this were issues with
allocation of production overheads to products, selection of relevant costs to
various calculations and details of information. Thus, the results obtained in this
study confirm the results of the study by Granlund and Malmi (2000, 2002) who
 Management accounting and information systems: ERP versus BoB 167
Table 5 Mean ranks and Mann–Whitney significance levels ( p-values) for changes in
management accounting issues

Changes in management Mean ranks Mann–

accounting issues Whitney
BoB ERP p-values
Problems in measurement and
collection of data
Detail of information 38.07 (n ¼ 38) 41.79 (n ¼ 41) 0.438
Selection of relevant costs for 35.43 (n ¼ 36) 40.37 (n ¼ 39) 0.278
various calculations
Issues relating to data collection 39.57 (n ¼ 38) 39.44 (n ¼ 40) 0.978
Problems in cost allocation
Allocation of overheads to 39.17 (n ¼ 35) 36.97 (n ¼ 40) 0.603
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responsibility centres
Allocation of production 37.39 (n ¼ 35) 39.45 (n ¼ 41) 0.649
overheads to products
Allocation of administration 37.82 (n ¼ 34) 35.32 (n ¼ 38) 0.474
overheads to products
Allocation of sales and marketing 39.06 (n ¼ 34) 33.19 (n ¼ 37) 0.084
overheads to products
Allocation of sales and marketing 38.78 (n ¼ 34) 32.40 (n ¼ 36) 0.103
overheads to customers
Dealing with R&D costs 40.13 (n ¼ 35) 35.14 (n ¼ 39) 0.107
Dealing with depreciations 37.91 (n ¼ 35) 37.40 (n ¼ 39) 0.957
Problems in common usability
of management accounting
system
Slowness of reporting system 40.50 (n ¼ 38) 38.55 (n ¼ 40) 0.683
Flexibility of reporting system 42.33 (n ¼ 38) 37.84 (n ¼ 41) 0.352
Accuracy of reporting system 42.01 (n ¼ 38) 39.13 (n ¼ 42) 0.545
Reliability of reporting system 42.21 (n ¼ 38) 38.95 (n ¼ 42) 0.492
Problems with budgeting 46.01 (n ¼ 36) 31.74 (n ¼ 40) 0.002*
Common cost consciousness 40.38 (n ¼ 36) 35.81 (n ¼ 39) 0.314

*Indicates significance at the 0.01 level.

observed only slight changes dealing with management accounting practices, but
also the results of the study by Booth et al. (2000) as many of the changes within
the group of ERP adopters were slightly negative. In any case, the results are
definitely not so critical of ERPs than the results of the study by Maccarrone
(2000).

Advanced management accounting techniques and the new IS

Research question 3 (RQ3) focuses on the adoption of modern management
accounting techniques and the relationship to ERP and BoB. First, the results
obtained indicate that, of all respondents, 27% have adopted Activity-based
 168 European Accounting Review
Table 6 Adopters of modern cost accounting and strategic cost management
applications and the type of IS

Adopters of: BoB ERP Total N % of all

respondents
Activity-based Costing 35% 65% 100% 23 27%
Target Costing 29% 71% 100% 7 8%
Life-cycle Costing 50% 50% 100% 4 5%
Activity-based Management 25% 75% 100% 8 9%
Balanced Scorecard 38% 62% 100% 21 24%

Costing, 8% Target Costing and 5% Life-cycle Costing as their cost accounting

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practice. The question dealing with the adoption of some new cost accounting
practice is, once again, not a question of ‘yes’ or ‘no’. Thus, most of the units in
this study having adopted some of the modern cost accounting practices, still
continue using some traditional cost accounting technique, e.g. job-order costing
or process costing (cf. Horngren et al., 2002). Besides that, 24% of all respon-
dents have adopted Balanced Scorecard, and 9% Activity-based Management
applications.
Second, the results presented in Table 6 indicate that exclusive of Life-cycle
Costing, modern cost accounting practices and management accounting applica-
tions are more adopted within ERP than BoB units. As the p-value of Pearson
chi-square test (not presented in the table) exceeded 0.1 in every category, the test
indicates no significant differences between the two groups. Thus, the results
confirm the earlier observations made by Booth et al. (2000) and Granlund and
Malmi (2000, 2002) that there exists no correlation between the adoption of ERP
systems and the use of modern cost accounting and modern management
accounting techniques.

5. DISCUSSION AND CONCLUSIONS

This study explores the differences between the adoption and use of enterprise
resource planning (ERP) and standalone best-of-breed (BoB) systems in practice.
The empirical data for this study were gathered through a postal questionnaire in
large and medium-sized industrial business units in Finland. The questionnaire
addresses questions dealing with the background of information system imple-
mentation (why, by whom and how the project has been accomplished), problems
perceived in management accounting function, and the adoption of modern cost
accounting and management accounting techniques.
Malmi et al. (2001) observed that 26% of all management accountants in their
survey have used and developed ERPs. Despite that, the results obtained in this
study dealing with the background of IS projects indicate that when the IS project
was introduced by the financial department, the solution was more often BoB,
 Management accounting and information systems: ERP versus BoB 169

while in those cases in which the idea originated in some other departments, ERP
systems were a more common solution. The reason for such behaviour might be a
consequence of the history of BoB (cf. Shields, 2001) and the evolution of ERP
systems (cf. Davenport, 2000; Shields, 2001; Wortmann, 1998). Traditionally IS
departments have operated under the control of the CFO, and so financial
departments are more experienced in working with BoB than ERP systems.
Second, the two most articulated motives behind IS projects were the Y2K
problem and the need to develop business processes. Thus, IS may be installed
for technical reasons or to enhance strategy and competitiveness. A technologi-
cally focused implementation is intended only to provide core information
systems functionality to an organization, with as little business change as
possible. Several studies (e.g. Booth et al., 2000; Davenport, 2000) have revealed
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that the boom in ERPs in the 1990s was particularly driven by the inability of
legacy systems to deal with the Y2K problem, the euro currency and similar
accounting problems. A strategic implementation attempts to maximize positive
business change and business value (Davenport, 2000: 14–15). When we
compare BoB and ERP adopters, the results indicate that in those cases
where motives were either strategic or technical in nature the solution was
more often BoB. As the motives were strategic as well as technical, the solution
was typically ERP. Despite that, in cases when units updated both of their main
systems or modules, financial and production control systems, the prevailing
practice was ERP. Thus, this matter stresses the importance of ERPs as a
company-wide (or unit-wide) strategic platform, not only as a technical or
strategic solution (Light et al., 2001).
Granlund and Malmi (2002) present an idea of ERPs as a change ‘agent’, by
which they mean that as ERPs are commonly difficult to modify (Davenport,
1998), it is the organizational practices that are typically changed to fit the new
technology, not vice versa. Thus, the third result dealing with the background of
an IS project was contrary to the original supposition; there was no correlation
between ERP and business process re-engineering (cf. Davenport, 2000; Scapens
et al., 1998). After the survey was completed, one controller (and project manager
of an ERP project) of a large beverage company in Finland was asked a question
on BPR within ERP adoption. The controller’s answer was that in the company a
BPR project was already introduced, but the project started already two years
before the ERP project. Thus, the ERP project was a follow-up project to the BPR
project, and they were two separate projects in a technical sense. The reason for
this is that, usually, the ERP system is implemented by implementation partners.
The partners have their own implementation methodologies, which typically also
include a BPR programme that starts with an overall business process analysis
(Granlund and Malmi, 2002).
The lack of flexibility in the management accounting function can be a risk, as
the ERP system provides a centralized and structured approach to business
process and functions which may not be suitable for all organizations (Light et al.,
2001; Scapens et al., 1998: 47–8). The results dealing with the problems
 170 European Accounting Review

perceived in management accounting confirm the matter, as in this study the

results obtained indicate that traditional BoBs managed better than ERPs dealing
with most of the problems in management accounting. In any case, the
differences between BoB and ERP adopters are very small and they are not
statistically significant. This outcome is in line with the earlier results of the
studies by Booth et al. (2000), Fahy and Lynch (1999) and Granlund and Malmi
(2000, 2002) but not so critical as the results of the study by Maccarrone (2000).
As the importance of management accounting has increased during the 1990s
in consequence of the changes in the competitive and production environment of
the company (Hope and Hope, 1997), advanced management accounting tech-
niques (e.g. Activity-based Costing, Target Costing, Life-cycle Costing, Activity-
based Management and Balanced Scorecard) have been introduced. The results
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indicated that modern cost accounting and cost management techniques are
widely adopted in Finnish industrial units, but there is no correlation between the
adoption of ERP and the use of modern management accounting techniques.
Thus, the units or companies that are early adopters of advanced cost and
management accounting techniques, are not necessarily adopters of modern
information technology, and the results confirm those of Booth et al. (2000)
and Granlund and Malmi (2000, 2002).
As a conclusion, besides the results mentioned above, we must keep in mind
the limitations of this study. The limitations concerning the nature of the sample
and the questionnaire sent to the respondents were already discussed in Section 3.
In this study, the basic problem is the very definition of ERP. Should we accept as
ERP adopters only such units who really are single-vendor ERP adopters and who
have given up using all their earlier standalone sub-systems, or should we also
accept units or companies who, at least to some extent, have implemented ERP
systems to support some of their core functions? This kind of problem is also
familiar in Activity-based Costing studies as many ABC adopters are using ABC
together with some traditional cost accounting techniques. In this study the group
of ERP adopters was taken to include all of the units who at least to some extent
have adopted an ERP system (cf. Granlund and Malmi, 2002). This kind of
solution is relevant, as hardly any unit could be found which had given up using
all of its earlier systems. Despite that, as ERPs provide a centralized and
structured approach to business processes (Light et al., 2001; Scapens et al.,
1998), they might lead to changes in the management accounting function even
as a partially installed system.
Another limitation of this study is that only one country, Finland, provides the
setting for this study. On the other hand, as Malmi (1999) underlined in his ABC
study, Finland is reasonably small in size, yet there exist institutions, including
the country’s own legislation, universities, trade unions, mass media, professional
bodies and stock markets as in most industrial nations. Second, as a member of
the EC, Finland is a fairly wealthy, industrialized nation exposed to international
competition. Nevertheless, Finland is one of the leading countries in the world
dealing with information technology (Castells and Himanen, 2001). Finally, as
 Management accounting and information systems: ERP versus BoB 171

some of the units studied in this survey are units of world-class multinational
companies, such as Nokia, Stora Enso and Sandvik Tamrock, the findings
obtained in this study should also have relevance to a wider European audience.

ACKNOWLEDGEMENTS
I am grateful for the helpful and constructive comments offered by the two
anonymous referees.

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