Unveiling Proliferation of Time-Driven Activity-Based Costing in Healthcare Sector: Evidence from South Korea

Time-driven activity-based costing (TDABC) has proliferated more in the healthcare sector than it has in other sectors since it emerged in 2004. The purpose of this study is to unveil the underlying reasons for this phenomenon through multiple case studies in South Korea. Our findings suggest that, first the healthcare sector has a distinct community with relatively homogenous processes and well-defined activities. Thus TDABC suppliers (consultants and software providers) can pioneer a tailor-made TDABC package. Second, unlike many manufacturing industries where ERP substitutes such as SAP exist, hospitals have no alternative systems other than TDABC. This contributes to greater demand on TDABC as the sole provider of information. Lastly, the level at which performance is evaluated is another contributing factor. In the manufacturing industries performance evaluation is conducted at department level. Whilst TDABC information provides more transparency to top management so as to monitor front-line operation, departmental managers being the subject of evaluation may not find such information of great use. However in hospitals that performance evaluation is on a per-doctor basis, the use of time as a measure of medical activities provides a relatively fairer standard, which is of great interests to doctors. Such interest seems to drive the mass adoption of TDABC in South Korean hospitals. This study sheds the first insight into the phenomena of TDABC proliferation in the healthcare sector. Unveiling Proliferation of Time-Driven Activity-Based Costing in Healthcare Sector: Evidence from South Korea Short running title: Unveiling Proliferation of Time-Driven Activity-Based Costing in Healthcare Dr. Yoonki Rhee Department of Information Systems Hanyang University Republic of Korea Dr. Lana Yan Jun Liu* Newcastle University Business School Newcastle University United Kingdom NE1 4SE *Corresponding author: [email protected]

Time-driven activity-based costing (TDABC) has proliferated more in the healthcare sector than it has in other sectors since it emerged in 2004. The purpose of this study is to unveil the underlying reasons for this phenomenon through multiple case studies in South Korea. Our findings suggest that, first the healthcare sector has a distinct community with relatively homogenous processes and well-defined activities. Thus TDABC suppliers (consultants and software providers) can pioneer a tailor-made TDABC package. Second, unlike many manufacturing industries where ERP substitutes such as SAP exist, hospitals have no alternative systems other than TDABC. This contributes to greater demand on TDABC as the sole provider of information. Lastly, the level at which performance is evaluated is another contributing factor. In the manufacturing industries performance evaluation is conducted at department level. Whilst TDABC information provides more transparency to top management so as to monitor front-line operation, departmental managers being the subject of evaluation may not find such information of great use. However in hospitals that performance evaluation is on a per-doctor basis, the use of time as a measure of medical activities provides a relatively fairer standard, which is of great interests to doctors. Such interest seems to drive the mass adoption of TDABC in South Korean hospitals. This study sheds the first insight into the phenomena of TDABC proliferation in the healthcare sector. Highlights: • TDABC diffusion is higher in hospitals than in manufacturing in South Korea. • Hospitals adopted TDABC for external funding and doctor performance evaluation. • Diffusion spread via networks, success stories, and tailored systems. • Industry norms shaped different TDABC adoption paths by sector.

Activity-based Costing, Time-driven ABC, Diffusion

Time-driven activity-based costing (TDABC) was introduced by Kaplan and Anderson in 2004 as an improved version of activity-based costing (ABC), in an attempt to alleviate some of the inherent shortcomings in ABC (Kaplan and Anderson, 2004). The main feature of TDABC is the use of time as the sole driver to allocate from resources to activities, products and services and provides crucial information to improve efficiency. This feature seems to gain particular tractions in healthcare sectors (Nabelsi and Plouffe, 2019; da Silva Etges et al. (2022). Since its emergence, there has been a resurgence of interests in TDABC, as evident in volume of publications (e.g. Rhee, McLaren, Jang, Liu, 2024). Some believed that the resurgence of TDABC may help ignite interests to extend diffusion studies from ABC to TDABC to gain deeper understanding. Majority of TDABC publications are from a consulting or practitioner perspective and often prescriptive in nature. However, there is a lack of empirical analysis on TDABC to suggest whether or not TDABC is able to solve the ABC paradox, a phenomena observed in ABC as low diffusion of ABC in practices despite the efforts and interests from academics and consultants (Gosselin, 1997; Innes, Mitchell and Sinclair, 2000; Hoozée, 2013; Al-Sayed and Dugdale, 2016). Further in light of the proliferation of TDABC publications in healthcare sector, it would be of great interests to both academic and practitioners to gain insights. South Korea is chosen due to the following reasons. First, the timing and spreading patterns of ABC and TDABC in South Korea are similar to the global patterns (Rhee, et. al. 2024). ABC was introduced initially in South Korea in the 1990s but exemplified ABC paradox to the global patterns, as many South Korean companies subsequently abandoned ABC (Lee, 2003). TDABC has been applied in South Korea since the late 2000s (Yoo, 2013). Second, given that South Korean organisational culture is somewhat different from that in Western organisations, it is yet known whether or not diffusion factors of ABC and TDABC in South Korea are similar to those evident in existing ABC diffusion studies, which are predominantly based in Western organisations. Lastly, globally relatively few studies have identified any TDABC diffusion factors. For these reasons, a study of diffusion factors of TDABC in South Korea may help shed some interesting lights. The objective of this study is thus to examine the underlying reasons of TDABC diffusion in the context of South Korea. This study makes several contributions. First, this study helps shed new lights to the proliferation of TDABC publications in healthcare sectors. It identifies the disparity between hospitals and manufacturing in terms of TDABC diffusion patterns. Second, findings of this study add new knowledge to the existing ABC/TDABC diffusion literature with the first-hand empirical evidence on such disparity. In particular, this study reveals that TDABC popularity in Korean hospitals is not only due to some common diffusion factors, but also to the unique characteristics of the business environment such as incentives related to doctors’ performance evaluation, and the existing of community pertinent to the hospitals in South Korea. Literature Review Al-Sayed and Dugdale (2016) posit that ABC and TDABC can be grouped together into one category, activity-based innovation (ABI), as they consider ABI to be ‘any management accounting practice that uses the concept of “activities” as its hard core’ (p. 2). It is noted that most management accounting diffusion studies have traditionally focused on organisations’ demands for innovations thus emphasised the role of potential followers of innovations (e.g. Al-sayed, 2010; Nassar, Al‐Khadash, and Sangster, 2011). However, diffusion is defined by the dynamics between and interactions of multiple players, including both suppliers and demanders of innovations (Ax and Bjørnenak, 2007). Existing literature has stressed the importance of supply side studies and advocated the use of both the demand and supply perspectives in explaining innovation diffusion (e.g., Ax and Bjørnenak, 2005). Adding supply perspective is important because it provides an alternative inscription of the implementation of ABI (e.g. Clarke, Hill and Stevens,1999; Ax and Bjørnenak, 2005). There are relatively limited studies that focus on the supply side of ABC or one that considers both supply and demand relationships. According to Bjørnenak (1997), the majority of adopters of ABC received assistance from entities on the supply side, such as consultants, indicating that they played an essential role in these diffusion processes. This section reviews diffusion literature with a focus on both supply and demand sides to establish a theoretical framework for this study. 2.1 ABC and TDABC Diffusion as Management Fashion According to Abrahamson (1996, p. 257) management fashion is ‘a relatively transitory collective belief, disseminated by management fashion setters, that a management technique leads to rational management progress’. ABC has been viewed as a management fashion in existing diffusion studies (e.g., Malmi, 1999; Bjørnenak and Mitchell, 2002; Nassar et al., 2011). According to Nassar et al. (2011, p. 194), many companies implemented ABC because it was fashionable to do so: ‘ABC at that time was style (fashion), so everybody, every managers and each company in our industry jump quickly to look it or even use it’. Many authors have argued that those who participate in management fashion trends are acting in an arena (e.g. Kieser, 1997; Faust, 2002; Green, 2004; Parush, 2008). These actors are consultants, management scholars, editors of management magazines, seminar organisers and managers (Abrahamson, 1996). All of these actors, except managers, are united for their goal to increase their profit by increasing the discourse in the arena (Jung and Kieser, 2012). The manager is the fashion follower (representing the demand side), whereas all the remaining actors are the fashion setters (representing the supply side). According to Ax and Bjørnenak (2007), management fashion setters are management gurus, consultancy firms, business schools and others who pursue purposeful and active plans for the diffusion of management fashions. Other theorists claimed that consultants, business schools and the business mass media form fashion-setting networks (Mintzberg, 1979; Kimberly, 1981; DiMaggio and Powell, 1983). Abrahamson (1986) suggested that business schools and consulting firms dominate in the selection of fashionable administrative models. Consequently, academics and consultants are crucial actors, as they constitute the fashion setters (i.e., the supply side) in the diffusion of innovation. Meanwhile, practitioners – namely, fashion followers and those on the demand side – also play an important role in diffusion, because they are the adopters of management fashions (Ax and Bjørnenak, 2007). However, practitioners can be creators of some management fashions too (Clark, 2004). For example, total quality management (TQM), benchmarking and Six Sigma were developed by practitioners rather than consultants or academics (Cole, 1999; Pande, Neumann and Cavenagh, 2000). Of course, even in these cases, the discourse seems to be fed mainly by consultants (Jung and Kieser, 2012). Also, as demanders of management fashions, practitioners can actively change management concepts with fashion setters to make the innovation more attractive to adopt (Ax and Bjørnenak, 2005). According to Jung and Kieser (2012), in the diffusion of management fashions, consultants and managers are seen as key actors: Consultants generate fashions because fashions create demand for their services. With fashions, they simultaneously create certainty and uncertainty with clients. Uncertain clients often feel dependent on consultants. Here, a basic motivation of managers to follow fashions is that they can initiate innovations without having to take the risks that are usually connected to innovations. (p. 334) 2.2 Fashion Supplier Perspectives of ABC and TDABC Various academics have claimed that a variety of organisations and individuals populate management fashion–setting community: management consultants, business schools and business press organisations, as well as academic gurus, consultant gurus and hero managers (Huczynski, 2012). Abrahamson (1996) developed a four-fold management fashion–setting process model (i.e., creation, selection, processing and dissemination), as shown in Figure 1. Figure 1: Abrahamson’s (1996, p. 265) fashion-setting process Putting in the context of ABC, at the creation and selection stages, ABC was invented in the late 1980s after sensing the needs for better management accounting technique and trialing it in a manufacturing setting, before publishing it through Harvard Business Review. It was then championed initially by Kaplan and Cooper and followed by other academics and consultants at the processing and dissemination stages. Similar process was repeated after the emergence of TDABC, which created another round of fashion-setting process. The platforms that have been used effectively in ABC and TDABC include publications, books, newsletters, articles in journals, workshops, formal meetings, management magazines, advertisements and presentations at conferences (Ax and Bjørnenak, 2007). 2.3 Dynamics of Diffusion Diffusion of ABI is a dynamic process, as it involves multiple organizational players. This perspective assumes that innovations are not objects with fixed and definite contents, so changes in the process can occur. According to Benders and van Veen (2001), administrative innovations are characterised by a certain degree of ambiguity, they can opportunistically and eclectically select and interpret various elements of innovations. Ax and Bjørnenak (2007) developed a conceptual framework for a dynamic perspective of the diffusion of management accounting innovations (MAIs). They looked MAIs using a model consisting of two elements: design characteristics and rhetorical elements. ‘Design characteristics’ refer to the inflexible elements of the innovation, while ‘rhetorical elements’ refer to the flexible side. More specifically, design characteristics of ABC are cost objects, activity hierarchies and cost drivers (ibid., p. 371). Rhetorical elements describe the alleged benefits of innovations, persuading a population of managers about the advantages of innovations to their companies. In the dynamic perspective of the diffusion of MAIs, the interaction between the supply side and demand side of innovation diffusion processes plays an important role. Here, innovations are considered as flexible and unfixed solutions. In order to make the innovations more attractive and useful, both potential adopters and suppliers can change the design elements and rhetorical elements of innovations according to their own purposes. 2.4 Factors influencing Diffusion of ABC and TDABC in Organisation: Fashion Follower (Demand-side) Perspective Organizational innovation research focuses on identifying factors that determine organisations propensity to innovate (Wolfe, 1994; Fichman, 2004). Based on the nature of the factors, Al-sayed (2010) proposed four blocks are the perceived attributes of the innovation, the characteristics of adopters, the characteristics of the environment and the pressures and needs (see Table 1). This study examines whether the below diffusion factors of ABC also affect TDABC diffusion. By examining factors related to the characteristics of innovation, the characteristics of adopters, the characteristics of the external environment and the pressures and needs together, various aspects of the diffusion factors surrounding TDABC can be identified. In addition, it helps in identifying whether any new factors are influencing the spread of TDABC other than the existing diffusion factors. Table 1: The four blocks of diffusion factors | 1. Perceived Attributes of Innovation | 2 . Characteristics of Adopters | | Relative advantage | Size | | Compatibility | Top management support | | Complexity (ease of use) | Champion support | | Trialability | Culture (competitive / tight control) | | Observability | 4. Pressures and Needs | | Cost | Coercive pressure (forced selection perspective) | | 3. Characteristics of the Environment | Mimetic pressure (fad perspective) | | Competition | Normative pressure | | Environmental uncertainty | Importance of cost information | 2.5 Research Framework Based on the aforementioned literature this study posits the following framework to guide a multidimensional analysis of players that have influenced the spread of ABI, specifically the flow of diffusion can be viewed from the perspective of ABI’s demanders and suppliers together in Figure 2. Figure 2 Theoretical Framework of this study Methodology This study employs a multiple case study approach to explore the TDABC diffusion in both manufacturing and healthcare sectors in South Korea. Case study method helps investigate a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident (Yin, 2017). It can reveal understandings and insights of a kind that may escape broader surveys (Creswell, 2017). The use of multiple cases allows comparison between case studies so as to allow the researcher to gain important insights by analysing contrasts and similarities between them, as well as through experiences of various actors. 3.1 Data Collection Methods The data for this study were collected through semi-structured interviews, documentation and archival records. Interview protocols were developed on the basis of insights from an initial pilot study using unstructured interviews with early TDABC adopters and consultants during September to October 2018. The final interview questions focused on three key themes: (1) supply-side dynamics including consultants’ and academics’ roles, (2) demand-side diffusion factors such as organizational motivation and perceived attributes, and (3) dynamics between suppliers and demanders. The interviews with personnels outlined in Table 3 were conducted in Spring of 2019. Before conducting the interviews, documents of case companies used for this study, which are considered a valuable data source, were collected via two channels. Public documents including vision and mission statements and reports to shareholders were collected through companies’ websites and the ‘Data Analysis, Retrieval and Transfer System (DART)’ website of the Korean Financial Supervisory System. The researcher also collected internal documents, such as organisational charts for each case company and the internal data on TDABC systems, so as to build an understanding of the organisational background, current situation and history. These sources of data are useful for the interpretation of the interview data. 3.2 Selection of Research Sites Purposive sampling was used to select interviews and research objects in this study. According to Gummesson (2000), the aim of purposive sampling is not to establish a representative sample but rather to identify key informants whose context-specific knowledge and expertise regarding the issues relevant to the research are significant and information rich. This study focuses on three types of players involving in the TDABC diffusion process, i.e. consultants, academics and practitioners. The distribution of the personnel in the interviews is summarised in Table 2. Table 2: Details of the main interviews | Pilot Study | Main Study | Durations(Hrs.) | ||| | Manufacturer/Service Consultants | A consulting | CEO | 1 | 1:15 | | | Managing Director | 1 | 1 | 1:00 | || | B consulting | Managing Director | 1 | 0:50 | || | C consulting | Director | 1 | 0:40 | || | Hospital Consultants | D consulting | CEO | 1 | 1 | 1:45 | | Managing Director | 1 | |||| | E consulting | CEO | 1 | 1:30 | || | Academics | A university | Business School Professor | 1 | 1 | 0:55 | | B university | Business School Professor | 1 | 1 | 0:50 | | | C university | Business School Professor | 1 | 0:30 | || | Manufacturer Practitioner | A company | IT Team Director | 1 | 1 | 0:45 | | IT Team Manager | 1 | |||| | Finance Team Depute Manager | 1 | 1:00 | ||| | Finance Team Manager | 1 | |||| | B company | Finance Team Head | 1 | 1:05 | || | Finance Team Manager | 1 | |||| | Hospital Practitioner | A hospital | Manager of Costing Part | 1 | 1:15 | | | B hospital | Head of Management Innovation Team | 1 | 1:25 | || | Leader of Costing Part | 1 | |||| | Manager of Costing Part | 1 | |||| | Doctor, Head of Planning & Coordination | 1 | 0:25 | ||| | C hospital | Head of Management Innovation Team / Chairman of Korean Hospital Cost Association | 1 | 0:50 | || | D hospital | Head of Costing and Planning Team | 1 | 1 | 1:40 | | | Leader of Costing Part | 1 | |||| | Doctor, Vice Chair of Hospital | 1 | 0:30 | ||| | E hospital | Leader of Costing Part | 1 | 2:50 | || | Total Number and Interview Hours | 6 | 26 | 21:00 | Findings This section presents a comparative analysis of the spread of TDABC in manufacturing and hospital sectors in South Korea, following the theoretical framework presented in Figure 2. 4.1 Diffusion from the Supplier Side 4.1.1 The Limited Role of Academics in TDABC Diffusion In both the manufacturing and hospital sectors, academic actors in South Korea played a limited role in TDABC diffusion. Unlike ABC, which is widely covered in university curricula and accounting textbooks, TDABC remains marginal, typically appearing as a brief subsection within a few cost accounting materials. It is rarely included in undergraduate teaching and only occasionally introduced in postgraduate education through thesis topics or seminars. In postgraduate courses, since 2007, it has been taught to the extent of introducing the concept of TDABC with a thesis. (Academic A)It is not actively dealt with in the university’s cost curriculum. Neither do I mention TDABC specifically in the cost accounting class. (Academic C) This minimal engagement is largely attributed to the perception among academics that TDABC is a simplified extension of ABC, lacking significant theoretical novelty. As such, TDABC has not been a focus of academic research or consulting activities. TDABC is applied on top of the existing ABC package, there are no new projects professors can get involved in. (Academic B) Another main reason for the limited role of academics on TDABC diffusion was that most manufacturing companies use SAP (Kim and Oh, 2002; Kim, Kang and Lee, 2016), diminishing the need for alternative systems such as TDABC. In the case of hospitals, it was consultants who led the development of the healthcare-specific TDABC system function, further reducing academic involvement. Hospitals use customised ABC packages provided by consulting firms, not SAP. (Academic B) In summary, academics were less enthusiastic about TDABC, because they were not required to supply new knowledge as TDABC was perceived as a sub-genre of ABC. In practices, manufacturing companies use SAP, their needs for TDABC were not strong. In hospitals, the TDABC function was added to the existing ABC system. As such, academics played a marginal role in TDABC diffusion. 4.1.2 Diffusion Process of Consultants 4.1.2.1 In the Manufacturing Industry In the South Korean manufacturing sector, consultants were the principal agents driving the diffusion of TDABC. Academics observed that their own role was peripheral and theoretical, with consultants leading all practical implementation. The domestic TDABC diffusion was 100% led by consultants. (Academic C) Two main areas where consultants selected TDABC—and the advantage of TDABC that has been rhetorically emphasised— are transaction-level profitability analysis and costing analysis (albeit a simpler and faster alternative to ABC). Profitability analysis by customer and transaction is the biggest advantage of TDABC. … it has a great influence on corporate decision making, which stimulated the interest of companies at the time. (CEO of Consulting Firm A) However, diffusion was constrained when sharing implementation experiences due to the structural characteristics of the manufacturing industry. Information sharing was restricted, as South Korean firms prioritized confidentiality and viewed competitors with caution. This lack of a peer learning community made horizontal diffusion difficult, forcing consultants to rely heavily on existing clients and personal networks. Because there is no community, TDABC was introduced only to existing customers or companies introduced through them.”— Managing Director, Consulting Firm AMost consulting firms work again with existing customers or with referrals. Sales through a personal community are more effective. (Managing Director of Consulting Firm B and Director of Consulting Firm C) Furthermore, TDABC packages offered to manufacturers were not tailored to specific sub-sectors but were generalized solutions. The lack of customization reduced relevance and adoption among firms with diverse production characteristics. The TDABC package was imported from the company founded by Anderson (one of the TDABC co-author) and applied. There were no special modifications to suit the manufacturing industry. (Managing Director of Consulting Firm A) 4.1.2.2 In the Hospitals In contrast, consultants targeting the hospital sector developed and promoted TDABC systems specifically designed to fit the fee-for-service (FFS) reimbursement model, which is the national healthcare medical billing system in South Korea. The FFS model is the government system to reimburse hospitals’ medical expenses, by setting a certain value for every medical treatment/activity. Thus hospitals require highly granular cost data at the level of individual medical procedures and practitioners. Such needs are met by TDABC. In the FFS system, thousands of (about 9,000) medical practices are established, and cost calculations are required for each activity. Accurate costing is difficult with ABC alone. In order to upgrade the cost system, we introduced the concept of TDABC. (CEO of Hospital Consulting Firm D) Consultants stressed the accuracy and traceability of TDABC information for performance evaluations on each medical doctor. While manufacturers use TDABC to conduct performance evaluations by sector and department, in hospitals, TDABC assists the tracing the time and cost of medical treatments performed by doctors. Such TDABC information was then used to conduct profitability and performance evaluations of individual doctors: The reason why hospitals are interested in TDABC and accept it easily is to calculate the cost corresponding to the FFS model in terms of management, and for doctors to evaluate their fair and accurate performance. (CEO of Hospital Consulting Firm D)When spreading TDABC, we emphasised that TDABC enables accurate costing for fair performance evaluation, and that the costing process is easy to verify. (CEO of Hospital Consulting Firm E) Unlike the manufacturing industry, the hospital sector possessed an active inter-organizational learning community. Hospitals collaborated regularly via professional associations, seminars, and conferences. Consultants leveraged this infrastructure to share knowledge, receive feedback, and improve the applicability of TDABC systems. Hospitals, unlike manufacturing, actively interact with competitive hospitals in management. …. and human exchange is also active. So, if consultants gain some trust in the industry …, they can steadily work in the hospital community…. (CEO of Hospital Consulting Firm)In the hospital industry, … the human network through the hospital community is very effective. (Chairman of Korean Hospital Cost Association and Head of Planning Team of Hospital C) Consultants developed hospital-specific TDABC packages, tailored to integrate seamlessly with prevalent hospital systems such as Electronic Medical Records (EMR) and Order Communication Systems (OCS). This technical compatibility made the system particularly well-suited for hospitals’ managerial and clinical environments. I thought that the only cost system suitable for the hospital environment was TDABC. … I set up a hospital-only TDABC consulting company. (CEO of Hospital Consulting Firm E) 4.1.3 Comparison of the Diffusion Process on the Supplier Side in Both Industries The supplier-side diffusion of TDABC reveals some distinct patterns between the manufacturing and hospital sectors, shaped largely by the nature of supplier involvement and industry-specific conditions. First, academics have relatively limited input into TDABC diffusion in both industries, mainly due to knowhow already accumulated from ABC. Some academics regarded TDABC as a derivative model offering limited theoretical innovation. Consequently, professors showed little interest in engaging in TDABC-related research or consulting, reinforcing the perception that TDABC holds marginal academic value. Second, consultants had different strategies. In manufacturing sector, consultants largely promoted TDABC by emphasizing its inherent features—such as profitability analysis capabilities and operational simplicity—without sufficiently considering whether these features aligned with existing enterprise systems like SAP or the diverse operational structures typical of manufacturers. Moreover, TDABC packages for manufacturers were designed as general-purpose tools, lacking adaptation to sector-specific needs or firm-level customization. In contrast, consultants working with hospitals adopted a more tailored approach. Recognizing the structural centrality of the fee-for-service (FFS) reimbursement system in Korean healthcare, they developed TDABC packages purposefully for hospitals. These packages allowed for precise cost tracking at the level of individual medical procedures and practitioners, thereby meeting both internal performance evaluation requirements and external government funding criteria. This strategic alignment with institutional priorities significantly facilitated adoption. Last, another crucial factor for TDABC diffusion was the existence (or absence) of learning community. In the manufacturing sector, competitive pressures and firm heterogeneity inhibited the formation of collaborative environments. Information sharing was rare, and diffusion of innovations such as TDABC occurred primarily through isolated client relationships and personal consultant networks. Conversely, the hospital industry was characterized by a cohesive professional network in which hospitals actively engaged in information exchange through conferences, seminars, and associations. This community infrastructure not only supported shared learning but also amplified the influence of consultants, who frequently acted as intermediaries or community leaders in these settings. These contrasting dynamics are summarised in Table 3. Table 3: Summary of characteristics of the diffusion process on the supply side in both the manufacturing and hospital industries | Reasons for choosing TDABC and highlights in the selection and processing stages | Possibility of profitability analysis Lighter and faster system than ABC | System suited to FFS Accurate performance evaluation for each medical doctors | | Characteristics of industry on the spread of TDABC in dissemination stage | No community of manufacturing customers Absence of specific target industries and universal packages of TDABC | Clear community of potential customers in hospital industry Concentration on the hospital industry and hospital-only packages of TDABC | 4.2 Findings of Diffusion Factors from the Demand Side To investigate whether or not the ABC diffusion factors identified in the existing ABC literature (as summarised in Table 1) are relevant to the TDABC diffusion in the case studies, eight interviewees (consultants and practitioners from 2 manufacturing companies) and ten interviewees (from 5 hospitals) were asked to scores, mean results of which are shown in table 4 below. Table 4: Influence of factors on the diffusion of TDABC | 1. Perceived Attributes of Innovation | ||| | Relative advantage | 4.13 | 4.30 | 0.4521 | | Compatibility | 4.13 | 4.20 | 0.7337 | | Complexity (ease of use) | 4.13 | 3.80 | 0.2142 | | Trialability | 4.50 | 3.75 | 0.0423* | | Observability | 4.63 | 4.20 | 0.1615 | | Cost | 3.88 | 2.70 | 0.0230* | | 2 . Characteristics of Adopters | ||| | Size | 4.00 | 4.10 | 0.7060 | | Top management support | 4.88 | 5.00 | 0.3143 | | Champion support | 4.63 | 4.60 | 0.9581 | | Culture (competitive) | 4.13 | 4.50 | 0.2216 | | Culture (tight control) | 4.00 | 4.30 | 0.4088 | | 3. Characteristics of the Environment | ||| | Competition | 4.25 | 3.80 | 0.1824 | | Environmental uncertainty | 3.75 | 3.70 | 0.7413 | | 4. Pressures and Needs | ||| | Coercive pressure | 3.75 | 3.40 | 0.2491 | | Mimetic pressure | 3.50 | 4.60 | 0.0395* | | Normative pressure | 3.00 | 4.30 | 0.0098** | | Importance of cost information | 4.75 | 4.70 | 0.8638 | Note: ^ these are scored on a 5-point Likert scale; 1 = not applicable at all; 5 = highly applicable. α P-value was derived using Mann–Whitney–Wilcoxon test. *Significant at the 5% level. ** Significant at the 1% level. As shown in Table 4, both industries shared the same top three scored factors, including top management support, importance of cost information and champion support. In addition observability is perceived very important to manufacturing whilst hospitals are under greater mimetic pressure. According to the P-value from the Mann–Whitney–Wilcoxon test, there are a total of four TDABC diffusion factors that are characteristically different between the two industries. These were trialability, mimetic pressure and cost (all with p-value < 0.05), as well as normative pressure (p-value < 0.01). Reasons are explained below: First, trialability had a more important effect on the spread of TDABC in the manufacturing firms than it did in hospitals. This result may resonate with those characteristics revealed in Table 3, in that competitions in manufacturing companies demand more of TDABC capabilities whilst hospitals require a trusted system for doctors’ performance evaluation purpose. In addition, there was an absence of demander community in manufacturing industry as oppose to that in hospitals. The latter was able to develop a TDABC learning community, building from first adopted hospitals to others. The follower hospitals thus had less interest in trialability. In contrast, in the manufacturing industry, there was no demander community amongst different manufacturers. The applications of TDABC were based on a one-to-one relationship between consultants and potential customers (supplier diffusion). For this reason, the trial or proof-of-concept (POC) pilot test was very important, and if the company’s requirements were not met, TDABC could not be applied. There is very limited exchange of TDABC implementation experience amongst other manufacturers. Because it has already been verified by advanced hospitals, the factor of trialability was not very important. (Leader of Costing and Planning Team of Hospital D)We have used ABC in the past, and we have had a trust in consultants and the systems they provide, so trialability wasn’t very important in our adoption decisions. (Manager of Costing Part of Hospital B) Second, mimetic pressure and normative pressure had less influence on the manufacturing firms than they did on hospitals. Because there was no demand-side community in manufacturing firms, it was difficult for companies to imitate one another even if there were other manufacturing companies using TDABC. Also, as there was little exchange between manufacturing companies, normative pressure had less influence on the spread than it did among hospitals. On the other hand hospitals share cost information with each other through their community, so it is natural for smaller hospitals to follow the management methods of advanced hospitals in the community: In the case of the manufacturing cost system, competitors operating the same business rarely have exchanges, and companies operating other businesses have different characteristics and generally use systems such as SAP, so there is little normative pressure on the use of TDABC. (CEO of Consulting Firm A)Most manufacturers want to imitate what big companies like Samsung and Hyundai do. However, in the case of TDABC, no other companies have ever heard of it because there is no application among advanced companies. (Director of Consulting Firm C)In the manufacturing industry, confidentiality between competitors is fierce and there is no exchange, whereas hospitals are the concept of friends who run homogeneous businesses. While conducting business by jointly responding to regulatory groups such as the Ministry of Health and Welfare and the Review and Assessment Service, various associations have been created to speak up against regulatory groups. In other words, since the community is strong and exchanges are active, it may be difficult to settle the cost system in the beginning, but once it is settled, it quickly spreads within the hospital community. (CEO of Hospital Consulting Firm D)Basically, the hospital cost teams know each other well. For joint response to FFS, accurate cost data from each hospital is required. If the price is set low on the FFS model, it needs to be revised. Therefore, the government may request actual cost data from each hospital, and each association or conference may respond to this. In addition, as most other hospitals have adopted the TDABC package, direct comparison is impossible if our hospital does not introduce TDABC. (Manager of Costing Part in Hospital A) Third, cost also influenced the spread of TDABC more in the manufacturing industry than it did in the hospital industry. This is the difference depending on the presence or absence of a substitute. In the case of hospitals, unlike manufacturing firms, there is no ERP exclusively for hospitals. TDABC is the only system for users to obtain the necessary management information for overall hospital management to conduct management activities. Accordingly, the sensitivity to price is low. However, in the case of manufacturing, all companies considering the application of TDABC will compare prices and performance with the costing modules of SAP. Because of this, manufacturers are more sensitive to the cost required to apply and maintain TDABC: The absolute price of TDABC is not high, but companies are not willing to pay a lot of money for non-SAP systems. They hated the big cost because they think of SAP as the main system and TDABC as the subsystem. (CEO of Consulting Firm A)When we considered the introduction of TDABC, we compared it with SAP in terms of costing. (Head of Financial Team of Manufacturing Company B) The aforementioned diffusion factors in the two industries are summarised in Table 5. Table 5: Summary of the demand side of TDABC diffusion in both industries | ABC diffusion factors affecting the diffusion of TDABC | All factors | All factors except cfost | | The most influential diffusion factors | Top management support Importance of cost information Champion support | Top management support Importance of cost information Champion support | | Diffusion factors particularly influential in each industry | Trialability Cost | Mimetic pressure Normative pressure | | Newly identified TDABC diffusion factor | Success stories No success stories | Success stories Success stories exist | | Alternatives such as SAP | Presence | Absence | | Practitioners’ interest in and reasons for using TDABC | Low Performance evaluation by TDABC is conducted by departments | High Performance evaluation by TDABC is conducted by individual doctors | | Motivation for using TDABC according to industry characteristics | None in particular Application is optional | Costs per FFS payment must be collected Application is essential | 4.3 Findings Related to the Dynamics between Suppliers and Demanders According to Ax and Bjørnenak (2007), dynamics consist of two elements: technical and rhetorical modifications. During the interviews, consultants and practitioners insisted that these two modifications are similar concepts that occur simultaneously in TDABC diffusion. In the next section, the dynamics between the supply side and the demand side in the manufacturing and hospital industries are described. 4.3.1 Dynamics between Suppliers and Demanders in Manufacturing In manufacturing, dynamics were primarily about technical capability and concentrated on interfacing TDABC with existing systems. When implementing TDABC, firms opting to link TDABC with platforms such as SAP preferred minimal alteration of the TDABC core system, rather than demanding new system capabilities.There were no modifications to the TDABC system itself in the subsequent application process. (Managing Director of Consulting Firm B).it was decided to simply add a connection system that receives SAP information, calculates it and sends it back to SAP. (CEO of Consulting Firm A) When integrating TDABC with organisations’ existing systems, focuses were often on enhancing the usefulness of TDABC outputs rather than modifying the system itself. Improvements were aimed at boosting information scalability, such as upgrading inventory systems and refining user interface. …. the system has been modified to generate and provide data to upgrade the inventory management system …. Also, for the convenience of practitioners, the UI [user interface] of the TDABC system has been improved. (Managing Director of Consulting Firm A)… newly obtained information from TDABC was sent to other systems to maximise the output from the TDABC system. (IT Team Director of Company A) In manufacturing firms, there was no changes involved functional modifications to the TDABC system. Rather much of the focus was on modification, harmonisation and collaboration with the information provided from company’s existing management system. 4.3.2 Dynamics between Suppliers and Demanders in Hospitals In contrast, the dynamics in hospitals involved more active customisation for TDABC to fit with each hospital’s management system and environment. Consultants designed TDABC packages to be aligned with hospital-specific workflows and performance requirements, reducing the need for core system changes. … we developed the TDABC package so that it can be customised to suit the management environment of each hospital, and this customisation helped a lot in the diffusion of TDABC. (CEO of Hospital Consulting Firm D)It was customised in consideration of the company’s management activities and other activities and processes. (Leader of Costing and Planning Team in Hospital D, and Leader of Management Innovation Team in Hospital B) Unlike in manufacturing, hospitals placed significant emphasis to integrate TDABC with existing management systems. Such demand was communicated to consultants, who then integrated tools for budgeting, compensation, and benchmarking. This iterative development process led to broader diffusion and greater organisational value. … while responding to the VoC and the hospital business environment, we developed and applied performance compensation systems, budgetign and decision-making UIs. (CEO of Hospital Consulting Firm D)…This additional service had a positive impact on the use of TDABC, … comparison analysis was possible with similarly sized advanced hospitals. (Manager of Costing Part in Hospital A)Using the TDABC system, daily profitability analysis per patient has become possible. …. system utilisation has increased. (Director of Costing Part in Hospital E) 4.3.3 Dynamics in TDABC Diffusion Compared The dynamics in TDABC diffusion between the supply side and the demand side in the two industries is summarized in Table 6. Table 6: Summary of the characteristics of the dynamics in the two industries | The characteristics of the dynamics in the implementation stage | No modification in function Modification for connection with existing systems | No modification in function Customisation considering the existing systems and business environment | | The characteristics of the dynamics in the integration stage | Sending information from the TDABC system to other systems | Expanding the functions of the TDABC system to various fields such as costing, budgeting, performance evaluation and decision-making solutions | The reason why TDABC has spread better in hospitals than it has in manufacturing is the ongoing contact between TDABC suppliers and users. Even after the application of TDABC, consultants and practitioners in hospitals continued to exchange opinions in the community, at conferences or seminars, through training or through the VoC system. This constant contact made it possible for TDABC suppliers and demanders to modify the system together to meet their needs, and as a result, the usefulness of TDABC proliferated.

and Limitations 5.1 Conclusion This study reveals the underlying reasons for the proliferation of TDABC diffusion by highlighting institutional contexts, supplier strategies, and inter-organizational dynamics. It reveals that while foundational ABC diffusion factors remain relevant, their influence is mediated by industry-specific characteristics, substitute technologies, and community infrastructure. The comparative findings highlight the importance of institutional contexts in TDABC diffusion. The hospital sector benefits from a cohesive community structure, uniform business models (FFS), and the existence of high normative and mimetic pressures. This institutional congruence allows for concentrated consultant strategies, knowledge exchange, and rapid system refinements. In contrast, the manufacturing sector is fragmented, competitive, and lacks a unifying institutional logic for cost innovation. As such, TDABC diffusion in the manufacturing sector remains sporadic, and largely confined to isolated cases. The role of consultants in mediating between technical innovation and institutional context was also differentiated. Hospital consultants emerged not only as system implementers but as boundary-spanning agents—engaging in advocacy, user training, policy interfacing, and even standard-setting. Their success hinged on their ability to integrate TDABC into the operational and institutional fabric of hospitals. Manufacturing consultants, in contrast, assumed a narrower role, emphasizing technical features and relying heavily on bilateral trust relationships, with little access to a wider diffusion infrastructure. In particular, success stories were found to be an important factor affecting the spread of TDABC in both industries is related to the cultural characteristics of South Korea. According to Lee et al. (2013), confucianism and the collectivist culture of South Korea affect the adoption rate of ABC in relation to the interactions between early adopters and future adopters. South Korea’s valuing of conformity and imitation can elicit collective action; as a result, once the spread of an innovation began, it would spread very quickly and effectively (Chang, 2003; Choi and Geistfeld, 2004). By identifying success stories, presence or absence of community infrastructures, and co-development processes as critical enablers, this study sheds more light on the diffusion of innovation through the lens of TDABC. It calls for a more nuanced, context-aware approach to the design, promotion, and evaluation of management accounting innovations like TDABC—one that acknowledges not just the technical merits of the system, but also the institutional pathways through which they travel. 5.2 Limitations and Future Research While this study provides a rich comparative analysis, several limitations should be acknowledged. First, the focus on South Korea may limit generalizability of the findings. Differences in national healthcare systems, industrial structures, and cultural factors may influence TDABC diffusion in different country and cultural settings. Future research could replicate this study in other country contexts or explore different industries such as public administration, logistics, or education. Second, although the study includes perspectives from suppliers and demanders, the sample size remains modest. Additional case studies and survey-based quantitative research could help validate the findings and uncover new insights. Specifically, longitudinal studies tracking implementation outcomes over time could provide insights into the sustained effectiveness of TDABC and the conditions under which it delivers the greatest value. Third, the identification of “success stories” as a diffusion factor invites further theoretical development. Future studies could explore how such stories are constructed, legitimized, and disseminated within professional communities. Investigating the role of narrative framing, symbolic leadership, and trust networks may offer a deeper understanding of how peer influence operates in innovation diffusion.

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Authors Metrics & Citations Metrics Article Usage 136views 105downloads Citations Download citation Yoonki Rhee, Lana Yan Jun Liu. Unveiling Proliferation of Time-Driven Activity-Based Costing in Healthcare Sector: Evidence from South Korea. Authorea. 26 August 2025. DOI: https://doi.org/10.22541/au.175619530.00272667/v1 DOI: https://doi.org/10.22541/au.175619530.00272667/v1 If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download. For more information or tips please see 'Downloading to a citation manager' in the Help menu.