Academic journal article Issues in Accounting Education

Global Electronics, Inc.: ABC Implementation and the Change Management Process

Academic journal article Issues in Accounting Education

Global Electronics, Inc.: ABC Implementation and the Change Management Process

Article excerpt


Descriptions of activity-based-costing (ABC) systems have become a standard part of managerial accounting texts. While ABC implementation issues are the focus of a number of articles, these issues are often not addressed in a typical textbook. This case is designed to familiarize you with the behavioral and technical variables that can aid or impede successful ABC implementation. Anderson's (1995) factor-stage model provides a template to organize the discussion of ABC success factors. In this case, you will be cast in the role of a business consultant. You are asked to synthesize the case study's key "change management" insights into a report that could be shared with co-workers in an intranet-based knowledge management system. In addition, you may be expected to prepare a formal presentation of the report for your peers.

Implementing change in an organization is about ninety percent cultural and ten percent technical. This is because the organization dynamics, politics, and search for a champion that go on are the real issues that make or break the project. One of the reasons we were able to implement ABC successfully was because the right people became champions.

Chris Richards, Director of MIS, Global Electronics, Inc.


Global Electronics, Inc. (GEI), headquartered in Sarasota, Florida, designs, manufactures, and markets discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal-processing and power-control applications. Its products are used in such applications as antilock braking systems, air-bag systems, computer keyboards, modems, disk drives, and cellular telephones. The company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia.

GEI's manufacturing process consists of two primary phases. The fabrication phase is comprised of four main processing procedures: photolithography, etch, diffusion, and circuit probe. The assembly and test phase consists of six main processing procedures: wafer saw, die attach, wire bond, mold, solder dip, and final inspection. The entire manufacturing process had become more technologically diverse and intense with each passing year; accordingly, by 1999 direct labor represented less than 10 percent of total manufacturing cost. The company produces a variety of electronic goods ranging from power and logic commodity products to analog and digital specialty products, and the company's customer base exhibits a high level of purchase volume diversity within any given product line.

In 1999, GEI's profitability spiraled downward with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company's standard cost system. There was a feeling that the standard cost system could not truly identify which of the company's products were profitable and which were not. The lack of an understanding of product profitability, a flawed product mix, and poor marketing and pricing decisions could have contributed to GEI's financial problems. A combination of internal problems and external threats in an industry characterized by increasing global competition, decreasing product life cycles, product proliferation, and exploding technological capability led to a shake-up of the company's top management in February 2000. As part of the shake-up, GEI installed a new president, Mike Alberts, and a new controller, Steve Shannon, for the express purpose of strengthening the company's position in the market and improving its financial p erformance.


GEI's standard cost system assigned manufacturing overhead costs to products based on direct labor dollars. From 1994-1999, the predetermined manufacturing overhead rate had spiraled upward from 300 percent to more than 600 percent of direct labor. …

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