WIDYATAMA INTERNATIONAL SEMINAR (WIS)
2014
PERCEIVED ENVIRONMENTAL UNCERTAINTY,
STRUCTURAL ORGANIZATIONAL, AND THE PERCEIVED USEFULNESS OF
MANAGEMENT ACCOUNTING SYSTEM
Intan Oviantari
Widyatama University/Accounting Program, Bandung-West Java, Indonesia
Email: intan.oviantari@widyatama.ac.id
ABSTRACT
This paper examines the effect of perceived
environmental uncertainty, and organizational structure on
Management Accounting System (MAS) design. MAS
design was defined in therms of the perceived usefulness of
several information characteristics which may be
associated with an MAS. These characteristics were scope,
timelines, level of aggregation, and information which
assists integration (Chenhall & Morris, 1986).This study
uses self-reported survey data from 30 West Java
manufacturing business units.
Results
indicate
perceived
environmental
uncertainty is related to Management Accounting System
(MAS). The results also indicate that organizational
structure is a significant positive relation of Management
Accounting System (MAS) .
Keywords: perceived
environmental
uncertainty,
organizational
structure,
Management
Accounting System (MAS), broadscope,
timelines, aggregation and integration.
I. INTRODUCTION
Restructuring Asian economies are leading the
economic recovery after the 1997 economic crisis resulted
in rapid progress in industrialized countries such as Korea,
Taiwan, Singapore and China primarily resulting trade
liberalization throughout Asia. This leads to the business
world in Asia to be very competitive. Changes in the
business environment in Asia resulting in the highly
competitive manufacturing company in Indonesia are faced
with the daunting challenge of maintaining market share
(Wiliamson (2005); Soemantri, 2009).
From 1990 to 1996, Indonesia's manufacturing
sector growth reached 12 percent per year. Impressive
growth performance accelerating the transformation of
Indonesia from an agrarian economy into a semiindustrialized. However, after the financial crisis, the
economy and politics in the late 1990s, manufacturing
activity declined. The decline in the performance of the
manufacturing sector Indonesia after the Asian crisis in
stark contrast to the manufacturing sector in other countries
in the region. The manufacturing sector in other countries
in the region experienced a more rapid recovery from the
Asian crisis (World Bank, 2012; Bank Indonesia, 2012). It
shows the internal and foreign environment for
manufacturing activities increasingly competitive and
demanding the ability to innovate and operate more
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efficiently (World Bank, 2012). Manufacturing industry
faces the challenges of environmental uncertainties and
risks that must be faced by Indonesia in the face of global
competition and regional (Bank Indonesia, 2012;
McKinsey Global Institute, 2012).
Constraints on the manufacturing industry have not
been integrated information system between upstream to
downstream (Ministry of Industry, 2012). Managerial
weaknesses be contributed to the weakness of the national
industrial structure (Indonesian Chamber of Commerce,
2013).
Several studies have recently examined contingency
relationships
between
contextual
variables
and
management accounting systems (MAS) (Gordon and
Narayanan, 1984; Chenhall and Morris, 1986; Gul, 1991).
Gordon and Narayanan (1984) examined the effects on
MAS design of perceived environmental uncertainty and
organizational structure acting singly and in combination.
Chenhall & Morris (1986) findings indicated that: 1)
Decentralization was associated with a preference for
aggregated and integrated information; perceived
environmental uncertainty with broadscope and timely
information;
organizational
interdependence
with
broadscope, aggregated, and integrated information. 2) The
effect of perceived environmental uncertainty and
organizational interdependence were, in part, indirect
through their association with decentralization.
Management accounting produces information for
managers within an organization. It is the process of
identifying,
measuring,
accumulating,
analyzing,
preparing, interpreting, and communicating information
that helps managers fulfill organizational objectives
(Horngren, 2011). Management accounting information
can contribute to the following management areas: policy
formulation, planning and controlling the activities of the
firm, decision taking on alternative courses of action and so
on (Hoque, 2005).
This paper The framework for the research is
presented in Figure 1. The study has three main purposes.
First, it considers MAS design in terms of several broad
information characteristics including 1) scope, 2)
timeliness, 3) level of aggregation, and 4) information on
how
activities are integrated. Second, the study
investigates the relationship between managers’ perception
of the usefulness of these MAS information characteristics
and 1) managers’ perceptions of the uncertainty in their
operating environment; 2) organizational structure, defined
as the level of decentralized decision autonomy. Third, the
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WIDYATAMA INTERNATIONAL SEMINAR (WIS)
research represents a partial replication of previous study
(Gordon and Narayanan (1984) and Chenhall and Morris,
1986).
The paper is organised as follows. First, the
definitions of the study variables and literature review are
discussed and hypotheses are developed. This is followed
by a discussion of the research methods. After the
empirical results are reported, a summary and discussion
are presented.
2014
been identified as an important contextual variable because
it makes managerial planning and control more difficult.
Planning becomes problematic in uncertain opearting
situations because of the unpredictability of future events
(Chenhall & Morris, 1986). Robbins & Coulter describe
environmental uncertainty matrix. It can be shown at
Figure 3.
II. DEFINITION, LITERATURE REVIEW, AND
HYPOTHESES DEVELOPMENT
The objective of this research is to examine the
relationship between managers’ perception of the
usefulness of these MAS information characteristics and 1)
managers’ perceptions of the uncertainty in their operating
environment; 2) organizational structure.
This is followed by identification of hypotheses to
be tested. The overall theoritical framework is illustrated in
Figure 1.
FIGURE 1
Theoretical Framework
Perceived
environmental
uncertainty
(X)
Figure 2. A Simple Linear Framework for Accunting
Information System Design
Source; Otley (1980)
Management
Accounting System
Organizational
structure (Y)
2.1 Definition of Variables
2.1.1 The Independent Variables
A contingency theory of management accounting
has a great deal of appeal. Contingent variable such as
technology and environment hypothesised to affect the
organizational design; for each type of organization in their
accounting information system which are associated (or are
assumed to be associated) with effective performance
(Otley, 1980). It can be shown in Figure 2.
The variables of perceived environmental
uncertainty, and organizational structure were identified as
an important dimensions of contex in the study of MAS
design.
Perceived environmental uncertainty was define: 1)
The lack of information regarding the environmental
factors associated with a given decision making situation;
2) Not knowing the out-come of a specific decision in
terms of how much the organization would lose if the
decision were incorrect, and; 3) Inability to assign
probabilities with any degree of confidence with regard to
how environmental factors are going to affect the success
or failure of the decision unit in performing its function
(Duncan, 1972). Perceived environmental uncertainty has
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The variables of perceived environmental
uncertainty, and organizational structure were identified as
an important dimensions of contex in the study of MAS
design.
Perceived environmental uncertainty was define: 1)
The lack of information regarding the environmental
factors associated with a given decision making situation;
2) Not knowing the out-come of a specific decision in
terms of how much the organization would lose if the
decision were incorrect, and; 3) Inability to assign
probabilities with any degree of confidence with regard to
how environmental factors are going to affect the success
or failure of the decision unit in performing its function
(Duncan, 1972). Perceived environmental uncertainty has
been identified as an important contextual variable because
it makes managerial planning and control more difficult.
Planning becomes problematic in uncertain opearting
situations because of the unpredictability of future events
(Chenhall & Morris, 1986). Robbins & Coulter describe
environmental uncertainty matrix. It can be shown at
Figure 3.
Organizational structure is the formal framework by
which job tasks are divided, grouped and coordinated
When managers develop or change an organizational
structure (Robbins & Coulter, 2005). If relatively little
authority is delegated to middle and lower managerial
levels, the organizational structure is described as
centralized conversely, if considerable authority is
delegated, the organizational structure is decentralized
(Wilkinson, 2005). Decentralization refers to the level of
autonomy delegated to managers. Decentralization
provides managers with greater responsibility over
planning and control activities and greater access to
information not available to the corporate body. The
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WIDYATAMA INTERNATIONAL SEMINAR (WIS)
importance of decentralization as an elemen of context in
designening MAS (Chenhall & Morris, 1986). The factors
that influence the amount of centralization and
decentralization is shown by Figure 4.


Figure 3 Environmental Uncertainty Matrix
Degree of Change
Stable
Dynamic
D
e
g
r
e
e
o
f
C
o
m
p
l
e
x
i
t
y

S
i
m
p
l
e



C
o
m
p
l
e
x




Cell 1
Stable and
predictable
environment
Few components in
environment
Components are
somewhat similar
and remain basically
the same
Minimal need for
sophisticated
knowledge of
components
Cell 3
Stable and
predictable
environment
Many components in
environment
Components are not
similar to one
another and remain
basically the same
High need for
sophisticated
knowledge of
components








Cell 2
Dynamicand
unpredictable
environment
Few components in
environment
Components are
somewhat similar
but are in continual
process of change
Minimal need for
sophisticated
knowledge of
components
Cell 4
Dynamic and
unpredictable
environment
Many components in
environment
Components are not
similar to one
another and are in
continual process of
change
High need for
sophisticated
knowledge of
components
Source: Robbins dan Coulter (2005)
Organizational structure is the formal framework by
which job tasks are devided, grouped and coordinated
When managers develop or change an organizational
structure (Robbins & Coulter, 2005). If relatively little
authority is delegated to middle and lower managerial
levels, the organizational structure is described as
centralized conversely, if considerable authority is
delegated, the organizational structure is decentralized
(Wilkinson, 2005). Decentralization refers to the level of
autonomy delegated to managers. Decentralization
provides managers with greater responsibility over
planning and control activities and greater access to
information not available to the corporate body. The
importance of decentralization as an elemen of context in
designening MAS (Chenhall & Morris, 1986). The factors
that influence the amount of centralization and
decentralization is shown by Figure 4.
Figure 4
Factors That Influence the Amount of
Centralization and Decentralization
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




More Centralization
Environmental is stable
Lower-level managers
are not as capable or
experienced at making
decisions as upper-level
Lower-level managers
do not want to have a
say in decision
Decisions are significant
Organization is facing a
crisis or the risk of
company failure.
Company is large
Effective
implementation of
company strategies
depends on managers
retaining say over what
happens.
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More Decentralization
 Environmental is
complex, uncertain
 Lower-level managers
are capable and
experienced at making.
 Lower-level managers
want a voice in
decision
 Decisions are relative
minor
 Corporate culture is
open to allowing
managers to have a say
in what happens
 Company is
geographically
dispersed
 Effective
implementation of
company strategies
depends on managers
having involvement
and flexibility to make
decisions.
Source: Robins and Coulter (2005)
2.1.2 Dependent Variables – Information Characteristics
Four Dimensions of information were selected
because of the theoritical links between
perceived
environmental uncertainty, organizational structure, and
the perceived usefulness of these information dimensions.
The dimensions are scope, timelines, aggregation, and
integration.
Broad Scope
A management accounting system with an
information characteristic of broad scope provides
information that is both internal and external to the
organization. The scope of the information covers a diverse
range of areas such as economic (total market
sales,organization's share of that market, GNP) and noneconomic (e.g.,technological advances, sociological
changes, demographic developments) aspects of the
environment. Estimates of the likelihood of future events
occurring are also covered in the broad scope as well. To
the sub-unit managers operating in a decentralized
organization, the broad scope of the management
accounting system caters for their diversity of
informational needs in their decision-making (Chia, 1995).
The scope of an information system refers to the
dimensions of focus, quantification, and time horizon
(Gordon & Narayanan, 1984).
Timelines
Information is timely if it is provided in time for
decision makers to make decisions (Romney dan Steinbert,
2006). A manager’s ability to respond qualiky to events
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WIDYATAMA INTERNATIONAL SEMINAR (WIS)
likely to be influenced by the timeliness of the
management accounting system. Timeliness is usually
specified in terms of the provision of information on
request and the frequency of reporting systematically
collected information. Timely information enhances the
facility of management accounting system to report upon
the most recent events and to provide rapid feedback on
decisions (Chenhall & Morris, 1986).
Aggregation
Management
accounting
system
provide
information in various forms of aggregation ranging from
provision of basic raw, unprocessed data to a variety of
aggregations around periods of time or areas of interest
such as responsibility centers, or functional areas. An
additional type of aggregation refers to summation in
formats consistent with formal decision models such as
discounted cash flow analysis for capital budgeting,
simulation and linear programming in budgetary
applications, cost-volume-profit analysis, and inventory
control models. In the current study, aggregated
information is a composite of temporal and functional
summation (e.g., sales area, cost center, marketing and
production departments) and information produced
specifically for formal decision models (Chenhall and
Morris, 1986).
Integration
An important aspect of organizational control is
coordination of the various segments within a sub uni.
Managemen accounting system characteristic which may
assist coordination would include the specification of
targets which account for the effects of interacting
segments and information on the impact that decisions in
one area have on operations throughout the sub-unit
(Chenhall and Morris, 1986).
PEU, refers to managers' perceptions of the factors
that are external to their firms. These factors, which
include, for example, competitors' actions, manufacturing
technology and market demand, have been identified as
important variables that can affect the extent to which
managers would require MAS information. When PEU is
high, managers would require sophisticated MAS
information to cope with the uncertainty and make
decisions that are more appropriate (Chenhall and Morris,
1986; Gul, 1991).
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2014
The hypothesis presented below considers this
issue:
H1: Perceived environmental uncertainty (PEU) positively
related to the managers’ perceptions of the information
characteristics of Management Accounting Systems
(MAS).
H2: Structural Organization (SO) positively related to the
managers’ perceptions of the information characteristics of
Management Accounting Systems (MAS).
III. RESEARCH METHOD
3.1 Sample and Procedure
We used a survey to collect data from a crosssection of manufacturing plants (located at West JavaIndonesia) to address our hypotheses. The targeted
population was plant or quality managers. A total of 265
manufacturing units were selected and the names of
managers were gathered. Of the 260 questionnaires sent, 43
were received. However, 13 were excluded from the study
for incomplete responses. This resulted in 30 usable
responses.
3.2 Measures
The MAS variables were measured using
questionnaire items borrowed from previous studies
(e.g.,Duncan, 1972; Gordon & Narayanan, 1984; Chenhall
& Morris, 1986). The managers’ perceptions of the
information characteristics of MAS was measured using an
instrument developed by Chenhall & Morris (1986). The
five point scale ranged from “not at all useful” to “most
useful”.
Perceived
environmental
uncertainty
was
measured using an instrument developed by Duncan
(1972). The instrument measures perceived uncertainty by
focusing on lack of information factors, inability to assign
probabilities with confidence as to how the environment
will affect success or failure, and not knowing the outcome
of a decision in terms of how much the organization would
lose if the decision were incorrect. The instument measures
using a five-point scale ranging from never to always.
Structural organization was measured using an
instrument developed by Gordon and Narayanan (1984).
The instument measures using a five-point scale ranging
from never to always.
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WIDYATAMA INTERNATIONAL SEMINAR (WIS)
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Table 1 Operational Variable
Variable
Perceived environmental uncertainty
Structural Organization
The managers’ perceptions of the
information characteristics of Management
Accounting Systems
Indicator
1.
2.
3.
4.
5.
6.
7.
8.
9.
Market demands
Product attributes design
Competitor’s actions
Market demands
Raw material available
Raw material prices
Government regulation
Labor union actions
Manufacturing technology
1. Development of new products or service
2. The hiring and firing of managerial personel
3. Selection of large investments
4. Budget allocations
5. Pricing decisions
Broad scope
1. Information which relates to possible future events
2. Quantifications of the likelihood of future events occurring
3. Non economic information
4. Information on broad factors external to your organization.
5. Nonfinancial information that relates to the following areas:
production information, market information.
Timeliness
6. Requested information to arrive immediately upon request
7. Information supplied to you automatically upon its receipt into
information systems or as soon as processing is completed.
8. Reports are provided frequently on a systematic, reguler basis (dailoy,
weekly).
9. There is no delay between an event occurring and relevant
information being reported to you.
Aggregation
10. Information provided on the different sections or functional areas in
your organization, such as marketing, production, sales, cost, profit
center.
11. Information on the effect of events on particular time period
(monthly, quarterly, annual, tend,comparison)
12. Information which has been processed to show the influence of
events on different functions, such as marketing or production
associated with particular activities or tasks.
13. Information on the effect of different sections’ activities on
summary reports such as profit, cost, revenue reports.
14. Information in forms which enable you to conduct “what if”
analysis.
15. Information in formats suitable for input into decision models.
16. Costs separated into fixed and variable components
Integration
17. Information on the impact that your decision will have throughout
your department, and the influence of other individuals’s decisions
on your area of responsibility.
18. Precise targets for the activities of all sections within your
department
19. Information that relates to the impact that your decisions have on the
performance of your department.
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WIDYATAMA INTERNATIONAL SEMINAR (WIS)
The following regression models were employed to
test the hypotheses:
Y =  0 + 1 X1 + 2 X2 + 
Where:
Y = The managers’ perceptions of the information
characteristics of Management Accounting Systems
X1 = Perceived environmental uncertainty
X2 = Structural Organization
0 = constanta

= error term
IV. RESULTS
Result ini Table One, show that Perceived
environmental uncertainty (X1) is significantly related to
The managers’ perceptions of the information
characteristics of Management Accounting Systems (Y).
The result also indicate that Structural Organization (X2) is
a significant positive function to The managers’
perceptions of the information characteristics of
Management Accounting Systems (Y).
Table 2 Result of Regression
a
Coefficients
Unstandardized Standardized
Coefficients
Coefficients
Model
B
Std. Error
Beta
1
(Constant) .463
.441
X1
.658
.130
.637
X2
.306
.099
.388
t
1.051
5.059
3.083
Sig.
.303
.000
.005
a. Dependent Variable: Y
Model Summaryb
Model
1
R
.756a
R Square
.572
Adjusted
R Square
.540
Std. Error of
the Estimate
.35229
a. Predictors: (Constant), X2, X1
b. Dependent Variable: Y
Overall, the findings provide evidence that
perceived environmental uncertainty and Structural
Organization related to the managers’ perceptions of the
information characteristics of Management Accounting
Systems. Therefore, the result are consistent with previous
study framework (Chenhall and Morris, 1986; Gul, 1991)
and resource best theory that claim PEU and SO as
contingent variable for MAS design (Otley, 1980).
V. CONCLUSIONS AND DISCUSSION
1. The highest score of perceived environmental
uncertainty is manufacturing technology and the lowest
score is government regulation. It showed that the
managers’ perception government regulation is the
uncertainty condition.
2. The lowest respondents’ score of structural
organization is pricing decision. It showed that the
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2014
middle managers has the limited delegation of pricing
decision, but they more involve of Development of
new products or service.
3. Results indicate perceived environmental uncertainty is
related to Management Accounting System (MAS). The
results also indicate that organizational structure is a
significant positive relation of
Management
Accounting System (MAS) .
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2014
lecture at Widyatama University. Her research interests
include cost accounting, taxes,
and management
accounting.
Intan Oviantari
She was born at Sukabumi (Indonesia), 5 March 1978. She
received her BA degree from the Widyatama University
(Bandung, Indonesia) and M.S.Ak
degrees from
University of Indonesia (Jakarta, Indonesia). She is a
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