Factors Influencing The Alignment of Accounting Information Systems in Small and Medium Sized Malaysian Manufacturing Firms

See discussions, stats, and author profiles for this publication at: https://www.researchgate.
net/publication/228629532
Factors inﬂuencing the alignment of accounting information systems in small

and medium sized Malaysian manufacturing ﬁrms
Article · July 2007
CITATIONS READS
189 2,141
2 authors, including:
Noor Azizi Ismail

University of Malaysia, Kelantan
97 PUBLICATIONS 1,286 CITATIONS
SEE PROFILE
Some of the authors of this publication are also working on these related projects:
Factors Influencing Franchisees' Outlet Performance, Overall Satisfaction and Intention to Remain View project
Chapters in book/ Assessing Electronic Government Systems in Support of Sustainable Development View project
All content following this page was uploaded by Noor Azizi Ismail on 30 May 2014.
The user has requested enhancement of the downloaded file.

Journal of Information Systems and Small Business Ismail & King
2007, vol. 1, no. 1-2, pp. 1-20 AIS alignment in Malaysian SMEs
Factors influencing the alignment of accounting information

systems in small and medium sized Malaysian manufacturing
firms
Noor Azizi Ismail*
Faculty of Accountancy, Universiti Utara Malaysia
Sintok 06010 UUM, Kedah, Malaysia
Email: [email protected]
Malcolm King
Business School, Loughborough University
Leicestershire LE11 3TU, United Kingdom
Email: [email protected]
* Corresponding author
Received 5 June 2007; Revised 16 July 2007; Re-revised 23 September 2007; Accepted 30 September 2007; Online 25 October 2007
Abstract
The concept of alignment or fit between information technology (IT) and business strategy has been discussed
for many years, and strategic alignment is deemed crucial in increasing firm performance. Yet few attempts have
been made to investigate the factors that influence alignment, especially in the context of small and medium
sized firms (SMEs). This issue is important because results from previous studies suggest that many firms
struggle to achieve alignment. Therefore, this study sought to identify different levels of alignment and then
investigated the factors that influence alignment. In particular, it focused on the alignment between the
requirements for accounting information (AIS requirements) and the capacity of accounting systems (AIS
capacity) to generate the information, in the specific context of manufacturing SMEs in Malaysia. Using a mail
questionnaire, data from 214 firms was collected on nineteen accounting information characteristics for both
requirements and capacity. The fit between these two sets was explored using the moderation approach and
evidence was gained that AIS alignment in some firms was high. Cluster analysis was used to find two sets of
groups which could be considered more aligned and less aligned. The study then investigated some factors that
might be associated with a small firm’s level of AIS alignment. Findings from the study suggest that AIS
alignment was related to the firm’s: level of IT maturity; level of owner/manager’s accounting and IT
knowledge; use of expertise from government agencies and accounting firms; and existence of internal IT staff.
Keywords
Accounting information system; management accounting system; alignment; fit; organisational information
processing theory; developing countries.
Earlier version
There are no earlier versions of this paper published elsewhere.
1 Introduction
Many studies have emphasised the need to develop a fit between business strategy and information technology
(IT) strategy. Yet many firms struggle to achieve alignment and, to date, there has been relatively few studies of
alignment and in particular the factors that influence the alignment in small and medium sized firms (SMEs).
Reviews of accounting and information systems literature show that many studies have examined the alignment
between contingency factors and accounting information systems (AIS) design (Chong & Chong 1997; Chenhall
& Langfield-Smith 1998; Mia & Clarke 1999) or the alignment between contingency factors and IT
sophistication (Weill & Olson 1989; Henderson & Venkatraman 1993; Bergeron et al. 2001) particularly among
large firms. Chang and Jevons Lee (1992) argued that effects from these factors can be measured by the degree
of a firm’s information requirements, which according to Bolon (1998) would be made available by firms
investing in a more sophisticated information processing system. However, with the exceptions of El Louadi
(1998) and Rhee (2001), studies that focus on the alignment between information requirements and information
processing capacity are very rare, especially in the context of SMEs.
Copyright © 2007 Deakin University 1

This study attempted to fill this gap by examining factors that influence AIS alignment in the specific context of
Malaysian manufacturing SMEs. This objective was achieved by firstly clustering the SMEs according to
whether or not there was alignment between accounting information requirements (represented by AIS
requirements) and accounting information system processing capacity (represented by AIS capacity). The
alignment groups were then tested against potential influence factors to determine their relationships with AIS
alignment. This study focused on AIS alignment because AIS (which covers both the financial and managerial
aspects of accounting information) is an important component of modern information systems within SMEs
(Mitchell et al. 2000). This exploratory study also aimed to identify fruitful areas of future research in the areas
of accounting and information systems.
The status of AIS alignment among manufacturing SMEs in Malaysia is worthy of study for several reasons.
First, Malaysia is seeking rapid developments of its IT environment. The establishment of the Multimedia Super
Corridor (MSC) and the National IT Agenda (NITA) in 1996 placed a priority on Malaysia to create a new
generation of knowledge workers. These efforts are consistent with the increasing globalisation of demand and
the utilisation of IT as a competitive weapon. Second, SMEs represent about 91% of the total manufacturing
establishments, thus having a significant role in the country’s industrialisation program (Ismail & King 2005).
Despite this, the extent, mode, and quality of IT adoption among Malaysian SMEs is still an issue of great
concern. The usage of accounting information and the utilisation of IT for business decisions were still lagging
behind those of developed countries (Ismail et al. 2003). Thus, a study investigating the factors influencing AIS
alignment may deepen current understanding of the effectiveness of information systems implementation among
firms. It may also highlight the effectiveness of the policies and directions set by the Malaysian government.
While this is deemed crucial for Malaysia, it is also important for other developing countries of similar interest
and environment.
The next section reviews existing literature on AIS and information system development in SMEs. It shows that
there are rather contradictory findings about AIS design in SMEs and there are ambiguous findings about the
strategic use of IT in SMEs, which justifies further investigation into the fit of AIS requirements with AIS
capacity. The next section will explain the development of the research model, involving six hypotheses about
six variables which are identified as likely to be associated with alignment, and explains the chosen method for
measuring alignment. In the next section, details of the sample used are provided. Then cluster analysis is used to
identify two alignment groups: those with AIS alignment and those which are not-aligned. These two groups are
used to test the research hypotheses. In the next section the results are discussed, the theoretical and practical
implications are described and the limitations of the study are identified.
2 Literature review
The concept of alignment applied in this study was developed around Galbraith’s (1973) information processing
(IP) theory. IP theory, which is one of several that can be classified as contingency theory (Bolon 1998),
postulates that the IP capacity of an organisation must match its information requirements, if IP capacity is to
have a significant impact on performance (Galbraith 1973). The theory assumes that an organisation is “… a
complex system whose primary problem of relating to its environment is the acquisition and utilisation of
information” (Bolon 1998, p.212) – the greater the uncertainty, the greater the amount of information that needs
to be processed to achieve a given level of performance. Organisations would thus respond to the increasing
information demand by increasing or reducing their IP capacity (Galbraith 1973). While IP theory was originally
developed in the context of large and complex organisations, several studies have successfully applied this
concept of fit in the context of smaller firms (see, for example, El Luoadi 1998; Ismail & King 2005; Khazanchi
2005). This study applies IP theory to examine the fit or alignment between AIS requirements and AIS capacity,
and to identify factors that might be associated with an SME’s level of AIS alignment. This approach is also
consistent with Van de Ven & Drazin’s (1985) suggestion that an organisational outcome is the consequence of
fit between two or more factors. The following paragraphs discuss extant literature relating to AIS and
information system development in SMEs.
Mitchell et al. (2000) argued that accounting information could help SMEs manage short-term problems in areas
such as costing, expenditure and cash flow by providing information to support monitoring and control.
However, the existing literature provides little evidence of AIS development within SMEs. Many studies suggest
that SMEs have little management information and poor control, and that decision-making is mostly ad hoc
(Marriot & Marriot 2000). McMahon (2001), for example, suggested that financial accounting has remained the
principle source of information for internal management in SMEs. Marriot & Marriot (2000) also suggested that
financial awareness among managers of SMEs varies considerably and that the use of computers for the
preparation of management accounting information is not at its full potential.

Perren & Grant (2000), by contrast, argued that decision-making processes in SMEs are more sophisticated than
anticipated. They explained that studies focused on formal accounting techniques would often suggest that SMEs
lacked effective accounting information and control systems to support their decisions. However, they state that
studies adopting a more subjective approach suggested that SMEs actually relied on sufficient accounting
information, including managerial accounting, which was often acquired via informal means, to make their
business decisions. Therefore, Perren & Grant (2000) concluded that the contradictory findings actually stemmed
largely from the researchers’ paradigm rather than any real contradiction. Their argument is supported by the
International Federation of Accountants (2006), which reported that despite the variations of use of accounting
information among small businesses, there is evidence to suggest that small firms are aware of the importance of
accounting information and used it for a variety of purposes. Thus, there is a need to investigate further the levels
of AIS requirements in SMEs.
Many studies have also been conducted to understand how IT has been used to support information requirements
in SMEs (see, for example, El Louadi 1998; Temtime et al. 2003; Ismail & King 2005). In general, results from
past studies indicate that IT adoption has grown tremendously within SMEs. Yet there is considerable evidence
to suggest that very few of the resulting systems have had any significant impact on the way management makes
decisions (Temtime et al. 2003). Fuller (1996) argued that the key problem of the lack of strategic IT usage in
SMEs relates to the relatively poor fit between what the software tools are offering and what is needed, with
neither the users nor the suppliers being in a strong position to communicate with each other. The situation is
even more crucial within SMEs because they lack experienced internal accounting and IT expertise and support
(Mitchell et al. 2000). The consequent lack of expertise limits information understanding, IT specifications and
selection policies, and it inevitably leads SMEs to implement or purchase an information system that is
inadequate to the firms’ needs (Ravarini et al. 2002).
Despite many limitations, IT use in SMEs has become more sophisticated. There is evidence that IT has helped
SMEs develop and implement business strategy. For example, Lesjak (2001) and Levy et al. (2001) concluded
that SMEs use IT strategically when it was perceived as being integral to the firms’ strategy. Cragg et al. (2002)
and Ismail & King (2005) revealed that a significant proportion of SMEs had achieved high levels of strategic
alignment. Several studies have also found that firms with high levels of strategic alignment performed better
than those with low levels of strategic alignment (Cragg et al. 2002; Bergeron et al. 2004). However, apart from
Bergeron et al. (2001), Hussin et al. (2002) and Adekoya et al. (2005), very few attempts have been made to
examine factors that influence IT alignment in SMEs. Among the factors identified include IT sophistication,
management commitment and business environment. Despite this, many researchers have studied the factors that
influence IT success in SMEs (see, for example, Thong & Yap 1995; Thong et al. 1996; Igbaria et al. 1997;
Thong 2001; Shiels et al. 2003; Raymond & St-Pierre 2005; de Guinea et al. 2005). Although their results are far
from conclusive, several factors have received much support: IT sophistication, the role of owners/managers of
SMEs, external expertise, and firm size. Hence these factors may well influence SMEs’ information system
processing capacity and hence AIS alignment.
In summary, IT success has been examined and discussed in the SME context and some recent studies indicate
that IT alignment is important for SMEs. However, there are very few studies which have focused on issues
surrounding the alignment of information requirements and information system processing capacity in SMEs,
including factors that could influence this alignment. Thus, this study aimed to provide further evidence about
this issue, with emphasis on accounting information, and the factors associated with an SME’s level of AIS
alignment.
3 Research model and hypothesis development

Figure 1 depicts the research model, where six variables are seen to be associated with AIS Alignment: IT
sophistication, owner/manager knowledge, owner/manager commitment, external expertise, internal expertise,
and firm size. The dependent variable is AIS alignment which is viewed as the fit between AIS requirements and
AIS capacity. The hypotheses of this model and a justification of the measurement of each variable are presented
in the following discussion.
According to Huber (1990, p.65), “… use of advanced IT leads to more available and more quickly retrieved
information, including external information, internal information, and previously encountered information, and
thus leads to increased information accessibility”. Firms with extensive resources may gain a competitive edge
by deploying IT in support of or to strengthen their business (King et al. 1989). Chan et al. (1997) and Hussin et
al. (2002) found that an appropriate level of IT sophistication was associated with the capability to align IT
strategy and business strategy. Hence, it is expected that firms with more sophisticated IT will have a higher
degree of AIS alignment (Hypothesis 1).

IT Sophistication
Owner/Manager Knowledge
Owner/Manager Commitment
AIS Alignment
External Expertise
Internal Expertise
Firm Size
Figure 1: The research model
H1: Firms that have more sophisticated IT will have a higher degree of AIS alignment than those firms with
less sophisticated IT.
In the context of SMEs, an owner/manager’s IT knowledge can determine the success or failure of
computerisation projects because they play a dominant role in an SME’s business decisions (Seyal et al. 2000;
Thong 1999; 2001; Hussin et al. 2002). Most often, the owner/manager of the firm is the only person who fully
understands the objectives and directions of the firm (Thong 1999). Therefore, owners/managers who are aware
of existing and new technologies would be able to choose the right software for their firms (Hussin et al. 2002).
In the context of AIS, owners/managers with both IT and accounting knowledge are in a better position than
those without this knowledge, because they can understand the firm’s AIS requirements and then use their IT
knowledge to determine the IT deployment that matches the firm’s information needs. Therefore, it is expected
that in organisations wherein the owner/manager possesses sufficient IT and accounting knowledge, there will be
a higher degree of AIS alignment (Hypothesis 2).
H2: Firms with owner/managers having high levels of IT and accounting knowledge will have a higher
degree of AIS alignment than those firms that with owner/managers having low levels of IT and
accounting knowledge.
In addition to knowledge, an owner/manager’s commitment also plays a critical role in the effectiveness of
information system implementation in SMEs (Thong & Yap 1995; Igbaria et al. 1997; Lertwongsatien &
Wongpinunwatana 2003; Seyal & Abdul Rahman 2003). Due to their dominant roles, an owners/managers’
commitment can bring IT into alignment with the firm’s objectives and strategies (Jarvenpaa & Ives 1991).
Owner/manager commitment in the form of participation in computerisation projects would also encourage users
to develop positive attitudes towards the IT project, and thus is more likely to result in the SME achieving
alignment. More importantly, the owner/manager has the authority to ensure sufficient allocation of resources for
the IT project (de Guinea et al. 2005). Therefore, it is expected that in organisations where owner/manager
commitment is prevalent, there will be a higher degree of AIS alignment (Hypothesis 3).
H3: Firms with owner/managers having high levels of commitment will have a higher degree of AIS
alignment than those firms with owner/managers having low levels of commitment.
Many researchers have highlighted the importance of vendors and consultants to computerisation projects in
SMEs (Igbaria et al. 1997; Thong 1999; 2001; de Guinea et al. 2005). In addition, government assistance has
also played a major role in accelerating the adoption of IT among SMEs, particularly in developing economies
(Yap & Thong 1997). Accounting firms have also been seen as a potential source of advice for SMEs on the use
of accounting and information systems (Davis 1997). These findings were confirmed by Breen and Sciulli
(2002) and Hartcher (2003), who found that accountants, the accounting profession, industry associations and IT
training professionals have played important roles in encouraging SMEs to computerise their record keeping

processes. The assistance offered by these experts enables SMEs to gain a broader perspective of both their
information needs and information processing capacity, so that it is expected that SMEs engaging these external
experts will achieve higher degrees of AIS alignment (Hypothesis 4).
H4: Firms that engage external expertise will have a higher degree of AIS alignment than those firms that do
not engage external expertise.
SMEs also have a lack of experienced internal accounting and IT experts (see, for example, Gable & Raman
1992; Mitchell et al. 2000; Ravarini et al. 2002). This often results in a lower level of awareness and
understanding of the importance of accounting information and also the capability of IT to generate the
information. This in turn inhibits SMEs from adopting strategic accounting information and technologies. Hence,
the research model also includes internal expertise as a factor that might influence AIS alignment in SMEs. The
existence of accounting staff may help SME owners/managers to understand the importance of accounting
information in monitoring their financial performance, whilst IT staff may assist them in identifying the right
technology to generate the required information.
H5: Firms that employ internal expertise will have a higher degree of AIS alignment than those firms that do
not employ internal expertise.
Firm size has long been recognised as one of the factors that influence IT sophistication. Generally, larger firms
are more likely to adopt or make extensive use of IT (Winston & Dologite 1999). Computerisation projects are
also less likely to succeed in smaller firms, when compared to larger ones, because of their limited resources and
lack of formalisation of information systems structure (Thong 2001). Most small firms do not have funds readily
available to invest in IT and do not have the support to help them choose the right technology. Therefore, it is
expected that larger firms are more likely to achieve higher degrees of AIS alignment than smaller firms
(Hypothesis 6).
H6: Larger firms will have a higher degree of AIS alignment than smaller firms.
The following sections will explain how each of the variables in the research model were measured.
3.1 AIS alignment
The concept of alignment or fit has been debated in the literature and a number of approaches have been
developed to operationalise the concept. Venkatraman (1989) provided six different perspectives from which fit
could be defined and studied. Different approaches require different mathematical models and have different
theoretical implications (Bergeron et al. 2001). The moderation and matching approaches have been used by a
number of researchers in both the accounting and information system literatures. Other approaches are still in
their exploratory stages and thus require further development (Cragg et al. 2002). This study modelled fit using
the moderation approach because of the weight of evidence in favour of this approach (see, for example, Chan et
al. 1997; Cragg et al., 2002; Hussin et al. 2002). The moderation perspective assumes that alignment reflects
synergy. Therefore, alignment is calculated as the interaction between two measures which, in this case, are AIS
requirements and AIS capacity. For example, AIS capacity has a different impact on a high value for the AIS
requirements compared with a low value. The greater the value of AIS capacity, the higher the effect of AIS
requirements on performance (Ismail & King 2005).
In terms of measurement, both AIS requirements and AIS capacity were measured using questions that drew
heavily on the instrument developed by Chenhall & Morris (1986). While other instruments are available, their
focus is more on the practice of formal accounting techniques. Since many SMEs acquire information via
informal means (Perren & Grant 2000), asking objective questions seemed to be irrelevant in the context of
SMEs. Other instruments are also restricted to the characteristics of financial accounting information, which is
not the only focus of this study.
Chenhall & Morris’ (1986) instrument is considered appropriate for use in SMEs because it adopted a more
subjective orientation to identify the characteristics of both financial and managerial accounting information.
Despite its age, the instrument is the most popular and widely adopted by accounting researchers (see, for example,
Mia 1993; Abernethy & Guthrie 1994; Gul & Chia 1994; Chong & Chong 1997). While it was originally developed
for use in large organisations, it has been modified and tested in the specific context of SMEs by Gul (1991) and
more recently by Ismail & King (2005).
AIS requirement and AIS capacity variables were measured in relation to nineteen accounting information
characteristics using two separate five-point scales. First, respondents were asked to indicate their perception of
the importance to their business of each of the nineteen information characteristics (1 = not important; 5 = very
important). Then they were asked to indicate the extent to which their computer-based systems support each of
the nineteen information characteristics (1 = not available; 5 = extensively available).

3.2 IT sophistication
In the SME context, IT sophistication is recognised as a multi-dimensional variable, where different researchers
measure the item differently. Raymond & Pare (1992) developed the most comprehensive measure of IT
sophistication, which includes all aspects related to technological, informational, functional, and managerial
sophistication. They defined IT sophistication as “… a construct which refers to the nature, complexity and
interdependence of IT usage and management in an organisation” (Raymond & Pare 1992, p.7). Technological
sophistication reflects the number or diversity of IT used, while informational sophistication is characterised by
the nature of its application portfolio. Functional sophistication relates to the structural aspects of the information
systems function and the implementation process, while managerial sophistication refers to the mechanisms
employed to plan, control and evaluate present and future applications. This study adopted only two dimensions
of IT sophistication (technological and informational sophistication) to represent IT sophistication. Functional
and managerial sophistication are considered less relevant because most SMEs do not have separate IT functions
and thus lack IT planning and control (Thong 2001). In addition, Hussin et al. (2002) examined the impact of
three dimensions of IT sophistication on IT alignment. The study found a significant relationship between IT
alignment and technological sophistication but not with functional and managerial sophistication.
3.3 Owner/manager IT and accounting knowledge
This study measured owner/manager IT knowledge using a list of seven applications commonly found in SMEs.
Using a five-point scale (1 = no knowledge; 5 = extensive knowledge), the respondents were asked to indicate
the extent to which they were familiar with word processing, spreadsheet, database, accounting, e-mail, Internet
and computer-assisted production management applications. Using the same scale, respondents were then asked
to indicate their knowledge level relating to financial and managerial accounting techniques.
3.4 Owner/manager commitment
Owners/manager commitment was measured based on the degree of their participation in IT projects. This study
adopted a similar instrument used by Hussin et al. (2002) to measure owner/manager participation in information
system implementation. The instrument which was originally developed by Jarvenpaa & Ives (1991) was tested
and validated by Hussin et al. (2002) in the specific context of SMEs. Using a five-point scale (1 = no
participation; 5 = high participation), respondents were asked to indicate their level of participation in the
following five areas: definition of needs (information requirements), selection of hardware and software,
implementation of systems, systems maintenance and problem solving, and planning for future IT deployment.
3.5 Sources of advice (external and internal expertise)
Four main sources of external expertise identified from the literature were included in the questionnaire:
consultants, vendors, government agencies, and accounting firms. The questionnaire asked the respondents to
identify the sources of advice used by their firms. In addition to external expertise, the questionnaire also asked
respondents to indicate whether they employed full-time accounting and IT staff.
4 Research method
The focus of this study was on AIS alignment in SMEs. This was further restricted to manufacturing firms
because the manufacturing sector can provide a range of levels of IT sophistication (Cragg et al. 2002). The
Malaysian Small and Medium Industries Development Corporation (SMIDEC) defines SMEs in manufacturing,
manufacturing-related services and agro-based industries as enterprises with full-time employees not exceeding
150 or with annual sales turnover not exceeding RM25 million. However, SMEs in this study were defined as
any unit with 20 and 150 employees. The number of employees is the most commonly used international
definition in the literature, since in some cultures small firms are reluctant to disclose precise financial details.
Very small firms (with less than 20 employees) were also excluded to increase the probability of sampling
computerised firms and firms that to some degree adopted strategic accounting information.
To achieve this, a mail questionnaire survey carried out from August to October 2005 was used to gather data.
The Federation of Malaysian Manufacturers database provides a total of 771 addresses of SMEs as defined in
this study. Fifty addresses were used for the pre-test and pilot test, and the remaining 721 were used for the main
survey. Following Dillman’s (1978) suggestion, the questionnaire was refined in three stages: pre-testing with
academics and research students, pre-testing with firm managers, and pilot testing with firm managers. The pre-
test aimed to clarify the wording of both the questionnaire instructions and questions, whilst the pilot test
attempted to examine patterns of respondents’ answers and thus their understanding of the questionnaire.
The questionnaires were addressed to the Managing Directors (MD) of the firms. MDs were chosen to be the
respondents of this study because they were more likely to have valid perceptions of the AIS design and IT

approach adopted by the firms. This is because the MD commonly makes most key decisions and is perhaps the
only person who can harness IT to achieve the firm’s objectives and strategy (Jarvenpaa & Ives 1991). In
addition, the MD is typically the owner/manager, and thus it is reasonable to assume the current MD is the same
MD who decided on the design of AIS and the IT approach of their firm (Thong 1999).
A total of 230 firms eventually responded to the survey after a period of ten weeks and two follow-up reminders,
which were sent a week and three weeks after the initial letter. However, only 214 firms answered both the AIS
requirements and AIS capacity items and were thus usable for subsequent analyses, resulting in about a 29%
response rate. Non-response was examined using time trend extrapolation (Lindner et al. 2001). The first 30
respondents and last 30 were compared on nineteen AIS requirement and nineteen AIS capacity items. Only one
variable proved significantly different. This suggests that non-response was not a significant factor that could
bias or affect the conclusions about the variables being studied.
5 Results
The main objective of this paper is to examine the factors that influence AIS alignment. To achieve this, in the
next section the alignment between AIS requirements and AIS capacity will be determined using the moderation
approach. Then, using cluster analysis, firms will be grouped according to their degree of AIS alignment.
Finally, six influence factors will be examined in the context of the different alignment groups in order to test the
hypotheses presented in section 3.
5.1 AIS alignment
The moderation approach to measuring fit was initially explored to measure the alignment between AIS
requirements and AIS capacity. For each firm and each information characteristic, the AIS alignment was
measured by multiplying the rating of an AIS requirement item with the rating of the corresponding AIS capacity
item. In this case, a high rating for an AIS requirement item and a high rating for the corresponding AIS capacity
item would result in a high alignment score. On the other hand, a low rating for an AIS requirement item and a
low rating for the corresponding AIS capacity item would give a low alignment score. Since each item was
measured using a five-point scale, the individual result of the multiplications would range over all the possible
scores from 1 to 25 (see Chan et al. 1997 for a detailed explanation of the moderation approach). The AIS
alignment mean for each information characteristic for the total sample is reported in Table 1, in descending
order. The results show that the information characteristics with high alignment scores were: frequency of
reporting; summary reports-organisation; summary reports-sections; sectional reports; speed of reporting; and
temporal reports. The information characteristics with low alignment scores were: external information; what-if
analysis; non-economic information; and sub-unit interaction.
Information characteristics AIS alignment SD
Frequency of reporting 14.44 5.41
Summary reports-organisation 13.64 5.73
Summary reports-sections 13.53 5.64
Sectional reports 13.51 5.79
Speed of reporting 13.39 5.90
Temporal reports 13.30 5.46
Future events 12.51 5.89
Immediate reporting 11.77 5.66
Non-financial (production) 11.29 5.71
Automatic receipt 11.16 6.16
Decisional models 11.14 5.57
Organisational effect 10.38 5.64
Precise targets 9.97 5.55
Non-financial (market) 9.81 5.42
Effects of events on functions 9.18 5.23
Sub-unit interaction 8.83 4.92
Non-economic information 8.57 5.12
What-if analysis 8.52 5.04
External information 8.07 5.08
Table 1: Mean rating for AIS alignment items

5.2 Cluster analysis

In order to test our hypotheses it was necessary to determine if there were groups of firms with clear differences
in their degree of alignment. The cluster analysis technique is often used to produce clusters or groups of highly
similar entities based on some specified variables. In this case, cluster analysis was used to identify similar
groups based on the nineteen measures of AIS alignment using the moderation approach. This technique has the
advantage of identifying similarity without imposing a specific model. In particular, because this technique splits
the population into groups, it was relatively easy to compare and contrast the effect of the moderation approach.
Measurement issues also encouraged analysis by types of firms rather than using correlation and regression
analysis (Hussin et al. 2002). Importantly, several measures were dichotomous or categorical. Furthermore, it
seemed possible that some ratio variables could have non-linear relationships with alignment. Therefore, there
was more chance of some relationships being identified using cluster analysis.
Information characteristics Cluster 1 (98) Cluster 2 (116)
Frequency of reporting 16.55 12.62
Summary reports-organisation 15.99 11.52
Summary reports-sections 16.34 10.97
Sectional reports 16.09 11.25
Speed of reporting 16.54 10.79
Temporal reports 15.42 11.38
Future events 16.32 9.19
Immediate reporting 14.96 8.97
Non-financial (production) 13.85 9.13
Automatic receipt 13.94 8.66
Decisional models 14.36 8.28
Organisational effect 13.70 7.36
Precise targets 13.42 7.14
Non-financial (market) 13.59 6.67
Effects of events on functions 12.77 6.29
Sub-unit interaction 11.93 6.26
Non-economic information 11.82 5.78
What-if analysis 11.95 5.59
External information 10.97 5.71
Table 2: Mean alignment scores for the two-cluster solution
This study used the cluster analysis routine in SPSS for Windows (release 11). Ward’s hierarchical clustering
routine was used initially and the distance between objects was measured using squared Euclidean distance. The
dendrogram and the change in the Ward’s coefficient suggested that a two-cluster solution was appropriate. The
stability of the cluster solution was tested by splitting the data into halves. Each half was then analysed
separately and 81.1% of the cases were classified consistently, indicating consistency with the full data set. The
K-means approach to clustering was adopted to test for replicability of the cluster solution (Green et al. 1988)
and 85.3% of the cases were consistent with the Ward’s method. This suggested that a stable and valid solution
had been found. The results are shown in Table 2.
The data in Table 2 indicated that firms in Cluster 1 had higher AIS alignment on each item than firms in Cluster
2. The patterns of the mean scores in the two clusters are consistent for all nineteen items. For this reason,
Cluster 1 was labelled the ‘aligned’ group and Cluster 2 the ‘not-aligned’ group. The very clear and significant
separation into two groups was a surprise because more groups were anticipated, but the fact that no other groups
emerged with combinations of low and high alignment on different items considerably simplified the subsequent
analysis. There was no ambiguity in labelling these groups ‘aligned’ and ‘not-aligned’ and so these two groups
could be used to test the hypotheses. Hence, one possible assessment of alignment is by associating firms into
one of these two groups.
5.3 Hypothesis testing of variables influencing AIS alignment
Having clearly identified two groups of firms with different levels of AIS alignment, it was then possible to test
the variables that were posited in section 3 to be associated with AIS alignment: IT sophistication;
owner/manager knowledge; owner/manager commitment; external expertise; internal expertise; and firm size. To
test the hypotheses, the aligned and not-aligned groups of firms were compared for each variable.

5.3.1 IT sophistication and AIS alignment

As explained in section 3.2 this study adopted technological sophistication and informational sophistication from
Raymond & Pare’s (1992) four-dimensions of IT sophistication to measure the sample firms’ degree of
sophistication with IT. Each dimension is discussed separately below.
Table 3 summarises the technological sophistication of the aligned and not-aligned groups by showing the
percentage of each group that reported using each of the nine specific technologies. The number of technologies
used in each firm were totalled, and then averaged over each group so that an independent-sample t-test could be
performed on the difference of means. This was found to be not significant, as shown in the final column. The
results imply that the two alignment groups do not differ in terms of the number of technologies adopted. The
specific technologies were then each tested using a simple Chi-square test on the frequencies of use reported for
that specific technology. Only one technology, external network, differs significantly at the 95% level. The
results show that the firms in the aligned group have more access (63%) to external networks than firms in the
not-aligned group (51%). The result suggests that use of the Internet may help the firms gathered more external
information and thus contribute to the AIS alignment process.
Technological sophistication Aligned (125) Not-aligned (149) Sig.
Technology (% of group indicating use):
Office support system 83 82 .515
Decision support system 67 71 .352
Database system 54 64 .097
Accounting application 98 92 .054
Computer-assisted production management 43 38 .277
Computer-aided design 27 33 .305
Computer-aided manufacturing 16 14 .371
Local area network 65 71 .243
External network 63 51 .046*
Number of technologies used (average over group) 5.18 5.15 .889
* Significance level 0.05
Table 3: Alignment groups and technological sophistication
In terms of technological sophistication the results in Table 3 show that more than 80% of the firms in both
groups adopted office support systems such as word-processing and presentation software, while over two-thirds
of the firms adopted a decision support system such as a spreadsheet. These findings are not surprising since
these two technologies often come in one standard package such as Microsoft Office and Lotus Notes. Local
area networks were also adopted by two-thirds of the firms in both groups. This suggests that, for firms in this
sample, this technology is becoming more essential for internal communications. However, more sophisticated
and expensive software, such as computer-aided design, computer-aided manufacturing and computer-assisted
production management, are not widely used by either group of firms.
Table 4 summarises the informational sophistication of the aligned and not-aligned groups. The number of
applications used in each firm were totalled, and then averaged over each group so that an independent-sample t-
test could be performed on the difference of means. This was found to be highly significant at the 95% level. The
result implies that the two alignment groups are well separated based on the number of applications used, where
firms in the aligned group use (on average) more applications than firms in the not-aligned group.
The specific applications were then each tested using a simple Chi-square test on the frequencies of use reported
for that specific application. Five applications (which can be categorised as analytical-based applications)
differed significantly at the 95% level: financial analysis; project management; budget variances; modelling; and
personnel management. This implies that the two groups of firms are well separated based on these five
applications. Despite the low percentage of firms in both groups using these applications, the results in Table 4
indicate that the percentage of firms in the aligned group adopting these applications is higher than those in the
not-aligned group. Other insignificant applications are mostly transactional-based such as general ledger,
accounts receivable and payable, billing and order entry, and purchasing and inventory. The results suggest that
the adoption of analytical-based applications is important for SMEs to achieve better alignment for the sample
firms.

Informational sophistication Aligned (98) Not-aligned (116) Sig.

Applications (% of group indicating use):
General ledger 94 86 .051
Accounts receivable 96 90 .068
Accounts payable 94 92 .424
Billing 79 69 .076
Order entry 62 61 .495
Purchasing 58 58 .532
Inventory 74 64 .085
Production planning 25 21 .308
Payroll 80 76 .314
Cost accounting 41 34 .208
Financial accounting 59 59 .538
Financial analysis 45 26 .003*
Budgeting 36 25 .060
Project management 18 7 .009*
Production variances 16 10 .138
Budget variances 24 10 .005*
Modeling 8 0 .002*
Personnel management 38 23 .016*
Number of applications used (average over group) 9.45 8.11 .006*
Table 4: Alignment groups and informational sophistication
5.3.2 Owner/manager knowledge and AIS alignment

It is interesting to note from the results in Table 5 that owners/managers in the sample SMEs believe they
possess a good knowledge of e-mail and Internet. In fact, their knowledge of email and the Internet is relatively
higher than other IT applications. An independent-samples t-test was then used to examine the relationship
between alignment groups and knowledge variables. The results show that only the owner/manager’s knowledge
of more sophisticated software such as accounting-based and computer-assisted production management
contributes to AIS alignment. Other applications did not differ between the two alignment groups. One possible
reason is that most businesses, including SMEs, are expected to have knowledge in common applications such as
word processing and spreadsheets. The use of e-mail and the Internet is also becoming more of a business
necessity for all types and sizes of firms including SMEs.
Owner/Manager knowledge Aligned (125) Not-aligned (149) Sig.
IT knowledge (average over group):
Word processing 2.90 2.77 .142
Spreadsheet 2.84 2.74 .302
Database 2.45 2.26 .051
Accounting applications 2.80 2.54 .011*
Computer-assisted production management 2.24 1.77 .000*
E-mail 3.06 3.04 .808
Internet 3.08 2.98 .207
Accounting Knowledge (average over group):

Financial accounting 2.84 2.54 .001*
Management accounting 2.74 2.49 .006*
Table 5: Alignment groups and owner/manager knowledge
It can be seen in Table 5 that the two alignment groups differ significantly in terms of owner/manager
accounting knowledge. The difference is significant at the 95% level. The results suggest an association between
the degree of AIS alignment and owner/manager knowledge of financial and managerial accounting techniques.
A closer examination of the results also reveals some very interesting patterns. It is observed that the group
means of owners/managers that are knowledgeable in IT and accounting for the aligned group is higher than that
of the not-aligned group.

5.3.3 Owner/manager commitment and AIS alignment

The results in Table 6 show that the level of owners/managers’ participation in information system
implementation is relatively high in both alignment groups. However, the results of an independent-samples t-
test show very little support for the association between AIS alignment and owner/manager participation. The
two alignment groups only differ significantly on one of five stages, which is the ‘solving problems’ stage.
While the results do not support findings from previous studies (Thong & Yap 1995; Thong et al. 1996), the
relatively high participation level of owners/managers in both groups suggests IT maturity among the firms.
Owner/manager commitment Aligned (125) Not-aligned (149) Sig.
Type of participation (average over group):
Information requirements 3.12 3.34 .211
Choice of hardware and software 2.97 3.16 .261
System implementation 3.19 3.09 .533
Solving problems 3.37 2.97 .004*
Future plans 3.39 3.27 .387
Table 6: Alignment groups and owner/manager commitment
5.3.4 External expertise and AIS alignment

For external expertise, each respondent was asked whether their firm seeks advice from specific external experts
such as consultants, vendors, government agencies and accounting firms. A simple Chi-square test was then
performed on the frequencies of Yes and No answers to these questions. The results in Table 7 show that the two
alignment groups only differ significantly in their usage of the expertise offered by government agencies and
accounting firms. The percentage of firms in the aligned group that seek advice from relevant government
agencies and accounting firms was found to be higher than those in the not-aligned group. While the finding
deviates from common belief and those of previous studies (Thong et al. 1996; Igbaria et al. 1997; Thong 2001;
de Guinea 2005), it again indicates IT maturity among the owners/managers of SMEs by choosing the less
expensive, convenient and possibly more trusted advisors for their IT projects.
Sources of advice Aligned (125) Not-aligned (149) Sig.
External expertise (% of group indicating use):
Consultants 62 56 .218
Vendors/dealers 81 82 .473
Government agencies 39 22 .007*
Accounting firms 58 36 .001*
Table 7: Alignment groups and external expertise
5.3.5 Internal expertise and AIS alignment

For internal expertise, each respondent was asked whether their firm employed full-time accounting staff or full-
time information systems personnel. The results in Table 8 show that the percentage of firms that employed
accounting staff is much higher than the percentage of firms that employed IT staff. A simple Chi-square test
was then performed on the frequencies of Yes and No answers to these two questions to test the difference
between the two groups of firms. The results show that the two alignment groups only differ significantly in
terms of the availability of IT staff. The percentage of firms reported using IT staff is higher for the aligned
group (31%) compared to the not-aligned group (18%). The finding suggests that firms that are hiring IT staff
are more aligned than firms that do not have such internal expertise.
Sources of advice Aligned (125) Not-aligned (149) Sig.
Internal expertise:
Accounting staff employed (% reporting Yes) 96 92 .203
Information system staff employed (% of Yes) 31 18 .024*
Table 8: Alignment groups and internal expertise

5.3.6 Firm size and AIS alignment

Following the common definition used to define SMEs, this study used the number of employees as a surrogate
measure for firm size. An independent sample t-test was carried out to examine the effect of firm size on AIS
alignment. Surprisingly, whilst the result indicates a significant difference (F = 7.195; df = 212; p = 0.05)
between the mean of employees of these two groups, the average number of employees for the aligned group
(64) is lower than the average number of employees for the not-aligned group (79). However, this unexpected
finding is consistent with Morikawa (2004) who found that the relationship between IT and firm performance is
positively significant only for small firms but not medium sized firms.
6 Discussion
This paper explored the alignment between AIS requirements and AIS capacity and the factors that influence the
alignment. Results of the moderation approach to measure fit indicated varying degrees of alignment across the
nineteen accounting information characteristics. Using cluster analysis, two significantly different AIS alignment
groups were identified which were labelled as aligned and not-aligned. The results of this study suggest that
some Malaysian SME manufacturers had achieved alignment between AIS requirements and AIS capacity, while
others had not. Finally, the two alignment groups were tested against six potential influence factors: IT
sophistication; owner/manager knowledge; owner/manager commitment; external expertise; internal expertise;
and firm size.
This study found some support for Hypothesis 1, which proposed an association between AIS alignment and
aspects of both technological sophistication and informational sophistication. The results showed support for the
association between informational sophistication and AIS alignment but not between technological
sophistication and AIS alignment. The evidence suggests that informational sophistication (which relates to the
number and types of applications portfolio adopted) is more important than technological sophistication (which
relates to the number and diversity of technologies used) for SMEs to achieve AIS alignment. The significant
differences between the two alignment groups relating to the adoption of external network and analytical-based
applications (such as financial analysis, project management, production variances, modelling and personnel
management) also provided evidence that the aligned firms have greater IT maturity. Importantly, this maturity
supports Fuller’s (1996) argument that SMEs undergo organisational learning related to the utilisation of IT.
The results also provided some support for Hypothesis 2, which proposed a relationship between owner/manager
IT and accounting knowledge with AIS alignment. Owner/manager knowledge of accounting was found to be
significantly greater in the aligned firms than less aligned firms. The evidence suggests that knowledge of both
financial and managerial accounting could be important for AIS alignment. However, the support for hypothesis
2 was limited since the knowledge of only two of seven applications was significantly higher in the aligned
firms. Since the two applications (accounting-based and computer-assisted production management) are more
sophisticated than the other applications explored, this evidence suggests that owner/manager knowledge of
sophisticated applications could be very important for SMEs to achieve AIS alignment.
There was, however, very little support for Hypothesis 3, which proposed a relationship between owner/manager
commitment and AIS alignment. Commitment was measured based on the level of the owner/manager’s
participation in IT projects. Only participation in the problem solving stage was found to be significantly greater
in the aligned firms than the not-aligned group. This rather unexpected result could be explained by Jarvenpaa &
Ives’ (1991, p.206) who found ‘executive involvement’ (or the degree of importance placed on IT by the
managers) was more important than ‘executive participation’ (or managers substantive interventions). Therefore,
as argued by Hussin et al. (2002), possessing good knowledge of accounting and IT could fit into this concept of
‘involvement’ because this knowledge would help an owner/manager (probably with the help of external
experts) to decide on the right software to support information needs and thus make alignment more likely.
This study also found some support for Hypothesis 4, which postulated a relationship between external expertise
and AIS alignment. While the percentage of firms in the aligned group that seek advice from government
agencies and accounting firms is significantly greater than for those in the not-aligned group, the two alignment
groups did not differ significantly when it comes to consultant and vendor expertise. The evidence suggests that
gaining expert advice and assistance from relevant government agencies and accounting firms can help SMEs
achieve better alignment. This rather unexpected finding could be a reflection of the aligned firms having greater
IT maturity and thus seeking less expensive and more convenient advice. The element of trust could also be very
important in the context of SMEs. Davis (1997), for example, argued that SMEs rely on accounting firms as their
most trusted business advisors. The possible explanation is that accounting firms are more knowledgeable about
their clients and their clients’ businesses and thus can help them achieve better AIS alignment.

This study also found some support for Hypothesis 5, which proposed a relationship between internal expertise
and AIS alignment. While almost all firms in both the aligned and not-aligned groups employed accounting staff,
firms that employed IS staff achieved better alignment than firms that did not. The evidence suggests that, in
addition to seeking advice from external experts, employing internal IS staff is also important for SMEs to
achieve AIS alignment. While accounting staff are becoming more of a necessity for SMEs to help with routine
accounting work, the results of this study suggest that owner/manager accounting knowledge, with the help of IS
staff, plays a crucial role for SMEs to achieve better AIS alignment.
Finally, results of this study did not find support for hypothesis 6, which postulated that larger firms would
achieve better alignment than smaller firms. Interestingly, the study revealed that aligned firms, measured by the
number of employees, were smaller when compared to the not-aligned firms. This finding contradicts the
common belief that firm size would contribute to AIS alignment. One possible explanation for this finding is that
the simple structure of smaller firms may facilitate the tasks of identifying and tailoring the systems to the firm’s
strategy and information needs (Zarowin 1998). The argument put forward by Thong (1999) is also noteworthy.
He argued that despite the financial constraint faced by smaller firms, the less complicated structure of their
business, the continuous declining cost of IT, and the availability of more powerful and user-friendly packages,
provides an extra advantage to these firms from computerisation compared to their larger counterparts. Thinking
in the context of small firms, these advantages may increase their understanding of accounting information and
accessibility to sophisticated IT and eventually leads to better AIS alignment.
6.1 Implications for theory
There has been much debate about the best way to measure alignment and, in particular, the alignment or fit of
business strategy with IT strategy. Since Venkatraman (1989) discussed the concept of fit, part of the debate has
focussed on which approach is best suited to particular types of alignment or fit. Bergeron et al. (2001) stressed
that the appropriate measure of fit depends on the particular circumstances under consideration. Chan et al.
(1997) and Cragg et al. (2002) considered both the matching and moderation approaches, but favoured the
moderation approach. Hussin et al. (2002) and Ismail & King (2005) considered only the moderation approach
and found it very useful. Following these studies, this study also used the moderation approach to measure the
alignment between AIS requirement and AIS capacity, and found it useful for identifying aligned and not-
aligned. Other studies will be needed to explore whether the moderation approach works well in similar
situations and whether it might also be effective for other areas of study where fit or alignment is considered.
6.2 Implications for practice
This study suggests that AIS alignment varies considerably, that it can be achieved by SMEs and that alignment
is related to IT maturity, owner/manager knowledge, and sources of advice. The study indicates that some SMEs
have built their technical capability over the years to meet their firm’s needs. More importantly, the study
suggests that there is no easy route to alignment. Merely engaging external IT expertise such as consultants and
vendors does not guarantee success. Other sources of external expertise such as government agencies and
accounting firms coupled with internal IT expertise seem to be more important than delegating all IT decisions to
an external expert. Therefore, it is important for SMEs to learn from their use of IT so that opportunities can be
recognised and priority given to initiatives that help IT support their information needs. This study found that
owner/manager knowledge of accounting and sophisticated IT was associated with the ability to align AIS
requirements with AIS capacity. This suggests that the owners/managers of SMEs need to be familiar with both
financial and managerial accounting techniques to understand their accounting information requirements, while
at the same time being aware of existing, new and advanced technologies to generate the required information.
6.3 Limitations and future research opportunities
It is important to note that this study was exploratory in nature and thus subject to a number of limitations which
can be addressed in future research.
The first limitation relates to the sample bias that might affect the generalisation of the findings. The sample was
selected from a list of Malaysian manufacturing SMEs, and thus can not be generalised to all SMEs. There are
potential differences in the levels of IT sophistication and accounting information practices and thus AIS
alignment among manufacturing SMEs and non-manufacturing SMEs, and between manufacturing SMEs in
developing economies like Malaysia and manufacturing SMEs in developed economies. For example,
manufacturing SMEs in developed countries may have greater access to accounting and information systems
benefits and services offered by relevant agencies when compared to those in developing countries.
The second limitation of this study relates to the definition of the SME itself. While it is generally accepted that
the number of employees could be used as a surrogate measure for firm size, expanding the definition to include
the sales or revenue of the firms may produce different results.

The third limitation of this study relates to the possible limitation of the time trend extrapolation method. While
the response rate of 29% is considered excellent in the context of SMEs and the results of time trend
extrapolation also suggest that the respondents’ characteristics are similar across the time that they choose to
respond, this method also assumes that this trend carries forward to the non-respondents.
Fourthly, this study focused on the content aspect of AIS alignment. In other words, AIS alignment was
considered by measuring how closely the AIS requirements content matched with AIS capacity. Although some
influences on alignment were studied, the process of aligning AIS requirements with AIS capacity was not
explored. Future research could investigate planning processes that link AIS capacity to AIS requirements.
Fifthly, this study examined the relationships between six independent variables and AIS alignment separately.
Therefore, it is impossible to determine the weight or superiority of a factor compared to others that influence
AIS alignment. Future research could employ sophisticated techniques such as structural equation modelling and
include external variables such as external business and technological environment and trading partner support.
Finally, the study was based on a survey. This approach has shortcomings because it captures a situation or an
event at a specific point in time. Future research could employ qualitative approaches such as case studies or a
longitudinal study to further understand the AIS alignment process.
7 Conclusions
This paper examined six hypotheses concerning the achievement of AIS alignment in the specific context of
manufacturing SMEs in Malaysia. It has made an important contribution by providing an increased
understanding of AIS alignment in SMEs, which has received little attention in the literature. Using a cluster
analysis based on the moderation approach, it was possible to identify two groups of SMEs. One group of firms
had achieved some success in aligning their AIS capacity with their AIS requirements as measured by the
moderation approach, while AIS alignment was lower in the other group. It would appear that the moderation
approach adopted was effective in distinguishing two groups with different AIS alignment characteristics. By
systematically testing the six hypotheses against these two groups of firms, some associations between the six
variables and AIS alignment were confirmed. The evidence suggests that the major factors that influenced AIS
alignment among the sample firms were informational sophistication, owner/manager accounting knowledge,
advice from relevant government agencies and accounting firms, and the existence of internal IT staff. Firm size
measured by the number of employees, however, seemed to have the inverse relationship with AIS alignment,
where aligned firms were smaller when compared to the not-aligned firms. This finding is rather surprising and
indicates the need for further research into the processes associated with AIS alignment in SMEs.
8 References
Abernethy, M.A. and Guthrie, C.H. (1994) ‘An empirical assessment of the “fit” between strategy and
management information system design’, Accounting and Finance, vol. 34, pp. 49-66.
Adekoya, A.A., Eyob, E., Ikem, F.M., Omojokun, E.O., Quaye, A.M. and Bada, A.O. (2005) ‘Dynamics of
information technology (IT) successful implementation in development countries: A Nigerian case study’, The
Journal of Computer Information Systems, vol. 45, no. 3, pp. 107-112.
Bergeron, F., Raymond, L. and Rivard, S. (2001) ‘Fit in strategic information technology management research:
An empirical comparison of perspectives’, OMEGA The International Journal of Management Science, vol. 29,
pp. 125-142.
Bergeron, F., Raymond, L. and Rivard, S. (2004) 'Ideal patterns of strategic alignment and business
performance', Information & Management, vol. 41, no. 8, pp. 1003-20.
Bolon, D. S. (1998) ‘Information processing theory: Implications for health care organizations’, International
Journal of Technology Management, vol. 15, pp. 211-221.
Breen, J. and Sciulli, N. (2002) Use of Computerized Record Keeping in Small Business, Small Business
Research Unit, Victoria University.
Chan, Y.E., Huff, S.L., Barclay, D.W. and Copeland, D.G. (1997) ‘Business strategic orientation, information
systems strategic orientation, and strategic alignment’, Information Systems Research, vol. 8, no. 2, pp. 125-150.
Chang, C.H. and Jevons Lee, C.W. (1992) ‘Information acquisition as business strategy’, Southern
Economic Journal, vol. 58, no. 3, pp. 750-761.
Chenhall, R.H. and Langfield-Smith, K. (1998) ‘Adoption and benefits of management accounting practices: an
Australian study’, Management Accounting Research, vol. 9, pp. 1-19.

Chenhall, R.H. and Morris, D. (1986) ‘The impact of structure, environment, and interdependence on the
perceived usefulness of management accounting systems’, The Accounting Review, vol. LXI, no. 1, pp. 16-35.
Chong, V.K. and Chong, K.M. (1997) ‘Strategic choices, environmental uncertainty and SBU performance: a
note on the intervening role of management accounting systems’, Accounting and Business Research, vol. 27,
no. 4, pp. 268-276.
Cragg, P.B., King, M. and Hussin, H. (2002) ‘IT alignment and firm performance in small manufacturing firms’,
Journal of Strategic Information Systems, vol. 11, no. 2, pp. 109-132.
de Guinea, A.O., Kelley, H. and Hunter, M.G. (2005) ‘Information systems effectiveness in small businesses:
Extending a Singaporean model in Canada’, Journal of Global Information Management, vol. 13, no. 3, pp. 55-
79.
Davis, M. (1997) ‘Transforming your firm: Tools for successful technology consulting’, The Practical
Accountant, vol. 30, no. 8, pp. S-3.
Dillman, D.A. (1978) Mail and Telephone Surveys: The Total Design Method, John Wiley & Sons, New York.
El Louadi, M. (1998) ‘The relationship among organization structure, information technology and information
processing in small Canadian firms’, Canadian Journal of Administrative Sciences, vol. 15, no. 2, pp. 180-199.
Fuller, T. (1996) ‘Fulfilling IT needs in small businesses: A recursive learning model’, International Small
Business Journal, vol. 14, no. 4, pp. 25-44.
Gable, G.G. and Raman, K.S. (1992) ‘Government initiatives for IT adoption in small business: experiences of
the Singapore small enterprise computerization program’, International Information Systems, vol. 1, no. 1, pp.
68-93.
Galbraith, J.R. (1973) Designing Complex Organizations, Addison-Wesley, Reading, Mass.
Green, P.E., Tull, D.S. and Albaum, G. (1988) Research for Marketing Decisions, 5th Ed., New Jersey: Prentice
Hall
Gul, F.A. (1991) ‘The effects of management accounting systems and environmental uncertainty on small
business managers’ performance’, Accounting and Business Research, vol. 22, no. 5, pp. 57-61.
Gul, F.A. and Chia, Y.M. (1994) ‘The effects of management accounting systems, perceived environmental
uncertainty and decentralization on managerial performance: a test of three-way interaction’, Accounting,
Organizations and Society, vol. 19, no. 4/5, pp. 413-426.
Hartcher, J. (2003) Small Business Survey Program: Financial Management, Insolvency and Fraud, CPA
Australia.
Henderson, J.C. and Venkatraman, N. (1993) ‘Strategic alignment: Leveraging information technology for
transforming organizations’, IBM Systems Journal, vol. 32, no. 1, pp. 4-16.
Huber, G.P. (1990) ‘A theory of the effects of advanced information technologies on organizational design,
intelligence, and decision making’, Academy of Management Review, vol. 15, no. 1, pp. 47-71.
Hussin, H., King, M. and Cragg, P.B. (2002) ‘IT alignment in small firms’, European Journal of Information
Systems, vol. 11, pp. 108-127.
Igbaria, M., Zinatelli, N., Cragg, P.B. and Cavaye, A.L.M. (1997) ‘Personal computing acceptance factors in
small firms: A structural equation model’, MIS Quarterly, vol. 21, no. 3, pp. 279-305.
International Federation of Accountants (2006) Micro-Entity Financial Reporting: Perspectives of Preparers and
Users, Small and Medium Practices Committee, International Federation of Accountants, New York.
Ismail, N.A., Tayib, M. and Abdullah, S.N. (2003) ‘Computer-based accounting systems: The case of
manufacturing-based small and medium enterprise in the northern region of peninsular Malaysia’, Jurnal
Teknologi, vol. 39, pp. 19-36.
Ismail, N.A. and King, M. (2005) ‘Firm performance and AIS alignment in Malaysian SMEs’, International
Journal of Accounting Information Systems, vol. 6, no. 4, pp. 241-259.
Jarvenpaa, S.L. and Ives, B. (1991) ‘Executive involvement and participation in the management of information
technology’, MIS Quarterly, vol. 15, no. 2, pp. 205-227.

Khazanchi, D. (2005) ‘Information technology (IT) appropriateness: The contingency theory of “fit” and IT
implementation in small and medium enterprises’, The Journal of Computer Information Systems, vol. 45, no. 3,
pp. 88-95.
King, W.R., Grover, V. and Hufnagel, E. (1989) ‘Using information and information technology for sustainable
competitive advantage: some empirical evidence’, Information and Management, vol. 17, pp. 87-93.
Lertwongsatien, C. and Wongpinunwatana, N. (2003) ‘E-commerce adoption in Thailand: An empirical study of
small and medium enterprises’, Journal of Global Information Technology Management, vol. 6, no. 3, pp. 67-83.
Lesjak, D. (2001) ‘Are Slovene small firms using information technology strategically?’ Journal of Computer
Information Systems, vol. 41, no. 3, pp. 74-81.
Levy, M., Powell, P. and Yetton, P. (2001) ‘SMEs: Aligning IS and the strategic context’, Journal of
Information Technology, vol. 16, pp. 133-144.
Lindner, J.R., Murphy, T.H. and Briers, G.E. (2001) ‘Handling nonresponse in social science research’, Journal
of Agricultural Education, vol. 42, no. 4, pp. 43-53.
Marriot, N. and Marriot, P. (2000) ‘Professional accountants and the development of a management accounting
service for the small firm: Barriers and possibilities’, Management Accounting Research, vol. 11, pp. 475-492.
McMahon, R.G.P. (2001) ‘Business growth and performance and financial reporting practices of Australian
manufacturing SMEs’, Journal of Small Business Management, vol. 39, no. 2, pp. 152-164.
Mia, L. (1993) ‘The role of MAS information in organisations: an empirical study’, British Accounting Review,
vol. 25, pp. 269-285.
Mia, L. and Clarke, B. (1999) ‘Market competition, management accounting systems and business unit
performance’, Management Accounting Research, vol. 10, pp. 137-158.
Mitchell, F., Reid, G. and Smith, J. (2000) Information system development in the small firm: The use of
management accounting, CIMA Publishing, United Kingdom.
Morikawa, M. (2004) ‘Information technology and the performance of Japanese SMEs’, Small Business
Economics, vol. 23, no. 3, pp. 171-177.
Perren, L. and Grant, P. (2000) ‘The evolution of management accounting routines in small businesses: A social
constructive perspective’, Management Accounting Research, vol. 11, pp. 391-411.
Ravarini, A., Tagliavini, M. and Buonanno, G. (2002) Information system check-up as a leverage for SME
development, in: Managing IT in Small Business, (Ed. S. Burgess), pp. 63–82 (Idea Group).
Raymond, L. and Pare, G. (1992) ‘Measurement of information technology sophistication in small
manufacturing businesses’, Information Resources Management Journal, vol. 5, no. 2, pp. 4-16.
Raymond, L. and St-Pierre, J. (2005) ‘Antecedents and performance outcomes of advanced manufacturing
systems sophistication in SMEs’, International Journal of Operations & Production Management, vol. 25, no.
5/6, pp. 514-533.
Rhee, J.H. (2001) ‘Does digitization enhance firm competitiveness? E-business strategies based on information
processing theory’, Journal of E-Business, vol. 1, no. 1, pp. 1-11.
Seyal, A., Rahim, M.N. and Rahim, N. (2000) ‘An empirical investigation of the use of information technology
among small and medium business organizations: a Bruneian scenario’, The Electronic Journal of Information
Systems in Developing Countries, vol. 2, no. 7, pp.1–17.
Seyal, A.H. and Abd Rahman, M.N. (2003) ‘A preliminary investigation of e-commerce adoption in small and
medium enterprises in Brunei’, Journal of Global Information Technology Management, vol. 6, no. 2, pp. 6-26.
Shiels, H., McIvor, R. and O’Reilly, D. (2003) ‘Understanding the implications of ICT adoption: Insights from
SMEs’, Logistics Information Management, vol. 16, no. 5, pp. 312-326.
Temtime, Z.T., Chinyoka, S.V. and Shunda, J.P.W. (2003) ‘Toward strategic use of IT in SMEs: a developing
country perspective’, Information Management and Computer Security, vol. 11, no. 5, pp. 230-237.
Thong, J.Y.L. and Yap, C.S. (1995) ‘CEO characteristics, organizational characteristics and information
technology adoption in small businesses’, OMEGA International Journal of Management Science, vol. 23, no. 4,
pp. 429-442.

Thong, J.Y.L., Yap, C.S. and Raman, K.S. (1996) ‘Top management support, external expertise and information
systems implementation in small businesses’, Information Systems Research, vol. 7, no. 2, pp. 248-267.
Thong, J.Y.L. (1999) ‘An integrated model of information systems adoption in small business’, Journal of
Management Information Systems, vol. 15, no. 4, pp. 187-214.
Thong, J.Y.L. (2001) ‘Resource constraints and information systems implementation in Singaporean small
business’, OMEGA International Journal of Management Science, vol. 29, pp. 143-156.
Van de Ven, A.H. and Drazin, R. (1985) ‘The concept of fit in contingency theory’, Research in Organizational
Behavior, vol. 7, pp. 333-365.
Venkatraman, N. (1989) ‘The concept of fit in strategy research: toward verbal and statistical correspondence’,
Academy of Management Review, vol. 14, no. 3, pp. 423-444.
Weill, P. and Olson, M.H. (1989) ‘An assessment of the contingency theory of management information
systems’, Journal of Management Information Systems, vol. 6, no. 1, pp. 59-85.
Winston, E.R. and Dologite, D.G. (1999) ‘Achieving IT infusion: A conceptual model for small business’,
Information Resources Management Journal, vol. 12, no. 1, pp. 26-38.
Yap, C.S. and Thong, J.Y.L. (1997) ‘Programme evaluation of a government information technology programme
for small businesses’, Journal of Information Technology, vol. 12, pp. 107-120.
Zarowin, S. (1998) ‘Accounting software: The road ahead’, Journal of Accountancy, January, pp. 67-69.
9 Acknowledgements
The authors wish to thank the editors and two anonymous reviewers for their helpful comments and suggestions.
10 Appendix: questionnaire
AIS Requirements and AIS Capacity
The following statements help us understand the importance and availability of information in your firm. Scales
on the left-hand side attempt to measure your perceptions toward the importance of each characteristic of
information identified. Scales on the right-hand side attempt to measure the extent to which your computer-based
systems provide each of the characteristics of information identified. (Please circle an appropriate number on
each side of the statement)
Not Very Information Characteristics Not Extensively
important important available available
1 2 3 4 5 Information that relates to possible future events such as future 1 2 3 4 5
trends in sales, profits, expenses, cash flow etc.
1 2 3 4 5 Non-economic information such as customer preferences, 1 2 3 4 5
employee attitudes, attitudes of government and consumer
bodies, competitive threats etc.
1 2 3 4 5 Information on broad factors external to your firm such as 1 2 3 4 5
economic conditions, population growth, technological changes
etc.
1 2 3 4 5 Non-financial information that relates to production information 1 2 3 4 5
such as output rates, scrap levels, machine efficiency, employee
absenteeism etc.
1 2 3 4 5 Non-financial information that relates to market information 1 2 3 4 5
such as market size, growth share etc.
1 2 3 4 5 Sectional reports, information provided on the different sections 1 2 3 4 5
or functional areas in your firm such as marketing and
production, or sales, cost or profit centres.
1 2 3 4 5 Temporal reports, information on the effect of events on 1 2 3 4 5
particular time periods such as monthly/quarterly/annual
summaries, trends, comparisons etc.
1 2 3 4 5 Effects of events on functions, information that has been 1 2 3 4 5
processed to show the influence of events on different functions,
such as marketing or production associated with particular
activities or tasks.

1 2 3 4 5 Decisional models, information in formats suitable for input into 1 2 3 4 5

decision models such as discounted cash flow analysis,
incremental or marginal analysis, inventory analysis, credit policy
analysis etc.
1 2 3 4 5 Information in forms that enable you to conduct “what-if” 1 2 3 4 5
analysis.
1 2 3 4 5 Summary reports-sections, information on the effect of different 1 2 3 4 5
sections’ activities on summary reports such as profit, cost,
revenue reports for other sections.
1 2 3 4 5 Summary reports-organization, information on the effect of 1 2 3 4 5
different sections’ activities on summary reports such as profit,
cost, revenue reports for the overall firm.
1 2 3 4 5 Sub-unit interaction, information on the impact that a decision 1 2 3 4 5
will have throughout the firm, and the influence of other
individuals’ decisions on other area of responsibility.
1 2 3 4 5 Precise targets for the activities of all sections within the firm. 1 2 3 4 5
1 2 3 4 5 Organizational effect, information that relates to the impact that 1 2 3 4 5
decisions have on the overall performance of the firm.
1 2 3 4 5 Speed of reporting, i.e. requested information to arrive 1 2 3 4 5
immediately upon request.
1 2 3 4 5 Automatic receipt, i.e. information supplied automatically upon 1 2 3 4 5
its receipt into information systems or as soon as processing is
completed.
1 2 3 4 5 Frequency of reporting, i.e. reports are provided frequently on a 1 2 3 4 5
systematic, regular basis such as daily reports, weekly reports etc.
1 2 3 4 5 Immediate reporting, i.e. there is no delay between an event 1 2 3 4 5
occurring and relevant information being reported.
Technological Sophistication
Included below is a list of information technologies which can be found in manufacturing sector. Please tick the
technologies presently used by your firm. (You may tick one or more boxes if appropriate)
Office Support Systems
(These applications include wordprocessing, graphics, and presentation packages)
Decision Support Systems
(These applications include spreadsheets and similar)
Database Systems
(These applications include personnel and other non-accounting systems)
Accounting-Based Applications
(These applications include payroll, receivables, payables, general ledger, order entry and billing)
Computer-Assisted Production Management
(These applications are related to inventory management, raw materials purchasing, production planning
and control)
Computer-Aided Design
(This system facilitate the creation and manipulation of industrial drawings)
Computer-Aided Manufacturing
(This system automates production by computer operation of numerically controlled machine tools)
Local Area Network (LAN)
(Communication system which interconnects computers within an organization such as local e-mail,
application and data sharing)
External Network
(Communication system that interconnects computers at geographically dispersed location such as
Internet, Electronic Data Interchange and external data sources)

Informational Sophistication
Among the following computer applications, please tick the applications presently implemented in your firm.
(You may tick one or more boxes if appropriate)
General ledger Cost accounting
Accounts receivable Financial accounting
Accounts payable Financial analysis
Billing Budgeting
Order entry Project management
Purchasing Production variances
Inventory Budget variances
Production planning and control Modeling
Payroll Personnel management
Owner/Manager Knowledge
Please indicate the level of your knowledge of the following accounting techniques and IT applications, using a
five-point scale from 1 = no knowledge to 5 = extensive knowledge.
Financial accounting techniques …………………. 1 2 3 4 5
Management accounting techniques ……….......... 1 2 3 4 5
Word-processing package ………………….......... 1 2 3 4 5
Spreadsheet package ……………………….......... 1 2 3 4 5
Database package ………………………………… 1 2 3 4 5
Accounting-based applications ………………….. 1 2 3 4 5
Computer-assisted production management …....... 1 2 3 4 5
E-mail …………………………………………….. 1 2 3 4 5
Internet searching ………………………………… 1 2 3 4 5
Owner/Manager Commitment
Please indicate the level of your participation in the following stages of information systems development, using
a five-point scale from 1 = no participation to 5 = high participation.
Definition of needs (information requirements)….. 1 2 3 4 5
Selection of hardware and software ……………… 1 2 3 4 5
Implementation of major systems ………………... 1 2 3 4 5
System maintenance and problem solving ………. 1 2 3 4 5
Planning of future IT deployment ……………….. 1 2 3 4 5
External Expertise
Please indicate the following external expertise that you normally seek on matters regarding computerization of
your firm.
Consultant………………………………………… No Yes
Vendor/Dealer…………………………………… No Yes
Government agency………………………………. No Yes
Accounting firm………………………………… No Yes
Internal Expertise
Please indicate whether your firm employs the following staff.
Accounting staff………………………………….. No Yes
Information system staff………………………….. No Yes

11 Biographies
Noor Azizi Ismail is an Associate Professor and Head of Audit and Information System Department, Faculty of
Accountancy, Universiti Utara Malaysia. His research interests include the impact of IT on all areas of
accounting including IT governance, management accounting systems, and accounting education. Recently, his
work has concentrated on the alignment of accounting and information systems within small firms He has been
involved in several accounting and information systems related consultancy projects. He has published articles in
both local and international journals in the domains of accounting, management and information systems.
Malcolm King is Professor of Management Sciences in the Business School at Loughborough University. As
well as mathematical modeling, his research interests include the impact of IT on all areas of management and
the organizational and political aspects of systems development. He has also written on IT acceptance and is
particularly interested in IT developments within small and medium sized enterprises. Recently, his work has
concentrated on the alignment of IT within small firms and issues surrounding ecommerce. Several PhDs have
been supervised in this area.
View publication stats

Factors Influencing The Alignment of Accounting Information Systems in Small and Medium Sized Malaysian Manufacturing Firms

Uploaded by

Copyright:

Available Formats

Factors Influencing The Alignment of Accounting Information Systems in Small and Medium Sized Malaysian Manufacturing Firms

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Factors Influencing The Alignment of Accounting Information Systems in Small and Medium Sized Malaysian Manufacturing Firms

Uploaded by

Copyright:

Available Formats

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

Factors inﬂuencing the alignment of accounting information systems in small

Article · July 2007

Noor Azizi Ismail

The user has requested enhancement of the downloaded file.

Factors influencing the alignment of accounting information

Copyright © 2007 Deakin University 1

Copyright © 2007 Deakin University 2

3 Research model and hypothesis development

Copyright © 2007 Deakin University 3

Figure 1: The research model

Copyright © 2007 Deakin University 4

Copyright © 2007 Deakin University 5

Copyright © 2007 Deakin University 6

Copyright © 2007 Deakin University 7

5.2 Cluster analysis

Copyright © 2007 Deakin University 8

5.3.1 IT sophistication and AIS alignment

Copyright © 2007 Deakin University 9

Informational sophistication Aligned (98) Not-aligned (116) Sig.

5.3.2 Owner/manager knowledge and AIS alignment

Accounting Knowledge (average over group):

Copyright © 2007 Deakin University 10

5.3.3 Owner/manager commitment and AIS alignment

5.3.4 External expertise and AIS alignment

5.3.5 Internal expertise and AIS alignment

Copyright © 2007 Deakin University 11

5.3.6 Firm size and AIS alignment

Copyright © 2007 Deakin University 12

Copyright © 2007 Deakin University 13

Copyright © 2007 Deakin University 14

Copyright © 2007 Deakin University 15

Copyright © 2007 Deakin University 16

Copyright © 2007 Deakin University 17

1 2 3 4 5 Decisional models, information in formats suitable for input into 1 2 3 4 5

Copyright © 2007 Deakin University 18

Government agency……………………………….  No  Yes

Accounting firm…………………………………  No  Yes

Information system staff…………………………..  No  Yes

Copyright © 2007 Deakin University 19

Copyright © 2007 Deakin University 20

View publication stats

You might also like

Government agency………………………………. No Yes

Accounting firm………………………………… No Yes

Information system staff………………………….. No Yes