An entity’s culture also plays an important role in setting up a cost management system. Organizational culture refers to the underlying set of assumptions about the entity and the goals, processes, practices, and values that are shared by its members. To illustrate the effect of organizational culture on the cost management system, consider AT&T prior to its divestiture. It was an organization characterized by “bureaucracy, centralized control, nepotism, a welfare mentality in which workers were ‘taken care of,’ strong socialization processes, [and] little concern for efficiency. . . .”
In such a culture, the requirements of a cost management system would have been limited because few individuals needed information, decisions were made at the top of the organization, and cost control was not a consideration because costs were passed on to customers through the rate structure. After divestiture, the company’s culture changed to embrace decentralized decision making, cost efficiency, and individual responsibility and accountability. Supporting such a changed culture requires different types, quantities, and distributions of cost management information. The values-based aspects of organizational culture are also extremely important in assessing the cost management system. For example, one part of Birmingham Steel Corporation’s mission statement is “to be the lowest-cost, highest-quality manufacturer of steel products in the markets served.” Without a well designed cost management system, Birmingham Steel could not evaluate how well it is progressing toward the accomplishment of that mission. Thus, the cost management system is instrumental in providing a foundation for companies with an organizational culture that emphasizes total quality management.
