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Performance effects of performance measurement systems – Evidence from a transition economy
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We examine the relationship between quality-based manufacturing strategy and the use of different types of performance measures, as well as their separate and joint effects on performance. A key part of our investigation is the distinction between financial and both objective and subjective nonfinancial measures. Our results support the view that performance measurement diversity benefits performance as we find that, regardless of strategy, firms with more extensive performance measurement systems, especially those that include objective and subjective nonfinancial measures, have higher performance. But our findings also partly support the view that the strategy-measurement fit affects performance. We find that firms that emphasize quality in manufacturing use more of both objective and subjective nonfinancial measures. However, there is only a positive effect on performance from pairing a quality-based manufacturing strategy with extensive use of subjective measures, but not with objective nonfinancial measures.
This paper examines the relationship between organization size, product life cycle stage, market position, balanced scorecard (BSC) usage and organizational performance. Using financial and non-financial measures, the BSC appraises four dimensions of performance: customers, financial (or shareholders), learning and growth, and internal aspects. Based on a survey of 66 Australian manufacturing companies, the paper suggests that larger firms make more use of a BSC. Also, firms that have a higher proportion of new products have a greater tendency to make use of measures related to new products. A firm’s market position has not been found to be associated significantly with greater BSC usage. The paper also suggests that greater BSC usage is associated with improved performance, but this relationship does not depend significantly on organization size, product life cycle, or market position. The qualitative data, based on observations from post-survey interviews with a sample of respondents to the questionnaire, supplemented and corroborated the questionnaire data.
What does international competition mean for competitive strategy? While there is an ample literature on the problems of becoming a multinational, the specific strategic needs of established multinationals requires closer examination in light of the increasingly competitive international environment. We need to distinguish between multidomestic industries and global industries. If American firms are to catch up with the Japanese, they must strive to achieve global platforms rather than engage in competition on a country–by–country basis. A global strategy requires that a firm rebalance the configuration and coordination of its activities so that comparative as well as competitive advantage is achieved. The increasing globalization of international competition requires strategic responses that overcome country parochialism. © 1986, The Regents of the University of California. All rights reserved.
The relationship between decentralization and the effectiveness of strategic business units (SBUs) within multibusiness organizations is examined. Three strategic continua are considered-Gupta and Govindarajan's (1984) build-harvest, Porter's (1980) differentiation-low cost, and Miles and Snow's (1978) prospector-defender; in each case it is proposed that the degree of decentralization of decision-making authority delegated to the general manager of the SBU should be closely aligned with the SBU's strategy to optimize the effectiveness of the SBU.
This study examines relationships among strategy, distinctive competence, and organizational performance. The analysis focuses on the perceptions of top managers in four industries (plastics, semiconductors, automotives, and air transportation). Findings indicate that these managers perceive four strategy types, Defender, Prospector, Analyzer, and Reactor, to be present within their industry. Defenders, Prospectors, and Analyzers all show competence in general and financial management. Beyond these two functions, Defenders and Prospectors have identifiable but different configurations of distinctive competence, while Analyzers' special capabilities are considerably less apparent. Reactors, as expected, have no consistent pattern of distinctive competence. Finally, although the data are only suggestive, Defenders, Prospectors, and Analyzers consistently outperform Reactors in competitive industries, but not in an industry that is highly regulated.
On a regular basis, the popular management literature and business consultants try to convince organisations that they should introduce recently-developed, sophisticated management accounting techniques. Unfortunately, researchers who study the introduction of these techniques often find that success is not always guaranteed. This may imply that the appropriateness of using the resulting sophisticated accounting instruments depends on the circumstances in which these instruments are being used. This would give rise to the need to adopt a contingency theory perspective. Based on case studies in two power and gas companies, this paper identifies several contingency factors for the sophistication of accounting instruments. In addition, it makes a contribution to the development of an integrated framework that can be used to explain the sophistication of management accounting systems (MAS). The paper concentrates on a single dimension of MAS sophistication, namely scope.
Recent studies report an increasing use of nonfinancial measures such as product quality, customer satisfaction, and market share in performance measurement and compensation systems. A growing literature suggests that because current nonfinancial measures are better predictors of long‐term financial performance than current financial measures, they help refocus managers on the long‐term aspects of their actions. However, little empirical evidence is available on the relation between nonfinancial measures and financial performance, and even less is known about performance impacts of incorporating nonfinancial measures in incentive contracts. Using time‐series data for 72 months from 18 hotels managed by a hospitality firm, this study provides empirical evidence on the behavior of nonfinancial measures and their impact on firm performance. The results indicate that nonfinancial measures of customer satisfaction are significantly associated with future financial performance and contain additional information...
Explores management control and accounting systems of three
successfully competing companies to gain deeper insight and fill
knowledge gaps. Results show that management control and accounting
systems do exist which enhance successful competition. Common features
are heavy influence of marketing strategy and activities, but with
little interaction between the marketing and accounting functions and
with substantial accounting-type activity, notably activity based cost
accounting, outside the accounting function. Traditional budgetary
accounting controls are used only for operating costs; social and
behavioural controls are used for revenues. Company executives believe
these features contribute to effective competition strategy. Findings
differ from conventional wisdom but provide implications for system
design and continued research.
This study draws on both contingency and contracting theory to examine the moderating effect of perceived environmental uncertainty (PEU) on the relationship between the use of management accounting system (MAS) and managerial performance in Finnish companies. The responses of 69 managers, drawn from Finnish companies, to a questionnaire survey were analysed using a moderated regression analysis (MRA). The results found support for the hypothesis that the effects of MAS on performance were dependent on PEU. Under high levels of PEU, sophisticated MAS had a positive effect on performance, but under low levels it had a negative effect. Additional analysis showed that PEU interacts with different variations of MAS to influence performance.
This paper was motivated by the limited understanding of the role of accounting vis a vis other information in supporting the needs of management. The paper reports the findings of a study which examined differences in the design parameters of management information systems in firms adopting different strategic priorities. Based on a sample of 49 business unit general managers, the findings indicate that the effectiveness of business units is dependent on a match between the design of the information system and the firm's strategic posture. Information systems which have the characteristics of a broad scope system were found to be more effective in firms employing a strategy of continuous product/market development and innovation (Prospectors) than in firms which were protecting a comparatively narrow and stable product-market (Defenders). The results have important implications for management accountants involved in the design and implementation of management information systems, especially in firms adopting a more innovative strategic posture. In particular, the study sheds light on the role of accounting as part of the “mosaic” of information provided to managers for decision making.
Management control systems are viewed typically as management-by-exception tools for implementing intended strategies. This study provides a different perspective by focusing on the way that top managers use specific control systems to focus organizational attention on strategic uncertainties and thereby guide the development of new strategic initiatives. Analysis of field-based data from 30 businesses in the U.S. health care products industry is used to develop a model and propositions that distinguish between interactive and diagnostic control systems, and illustrate the selective use of these systems in different strategic contexts.
Despite anecdotal evidence questioning the relevance of management accounting in firms pursuing “new” manufacturing strategies, the exact nature and role of accounting information for controlling manufacturing activities has received little empirical attention. This study examines the impact of manufacturing flexibility on the design of management control systems. In particular, we examine the implications of flexibility on the use of efficiency-based performance measurement systems and the use of integrative liaison devices. We collected data, through semi-structured interviews, from general managers in manufacturing firms in Melbourne, Australia. These interview data were used to develop measures for the constructs of interest. Exploratory analysis of the data indicates that integrative liaison devices are a critical form of control in managing the implementation of flexible manufacturing strategies. However, the role of accounting or other efficiency-based performance measures declines in those firms with a commitment to manufacturing flexibility.
The aim of this study is to examine, from a resource-based perspective, the relationships between the use of management control systems (MCS) and organizational capabilities. More specifically, the study focuses on the diagnostic and interactive uses of one important aspect of MCS, namely performance measurement systems (PMS), and four capabilities leading to strategic choices (i.e., market orientation, entrepreneurship, innovativeness, and organizational learning). Three research questions are investigated in this study: (i) to what extent do the diagnostic and interactive uses of MCS contribute specifically to the creation and maintenance of capabilities leading to strategic choices? (ii) To what extent do the diagnostic and interactive uses of MCS act in combination to produce dynamic tension which contributes to the creation and maintenance of these capabilities? (iii) To what extent does the use of MCS contribute to organizational performance? The results suggest that an interactive use of PMS fosters the four capabilities by focusing organizational attention on strategic priorities and stimulating dialogue. Also, by creating constraints to ensure compliance with orders, the diagnostic use of PMS exerts negative pressure on these capabilities. Furthermore, some evidence suggests the influence of dynamic tension resulting from the balanced use of PMS in a diagnostic and interactive fashion on capabilities and performance.
The study examines how combinations of management techniques and management accounting practices enhance the performance of organizations, under particular strategic priorities. Companies were identified as emphasizing product differentiation, low price strategies or a combination of both. Management techniques included in the study were improving existing processes; quality systems; manufacturing systems innovations; integrating systems; team-based structures and human resource management policies. Management accounting practices important in assisting managers implement management techniques were traditional management accounting techniques; activity-based techniques; balanced performance measures; employee-based measures; benchmarking and strategic planning. A systems approach, using cluster analysis, was used to examine hypothesized associations between performance and a range of management techniques and management accounting practices, under various strategic orientations. This provided a method to examine the way in which the entire range of variables combined to affect performance.
Contingency-based research has a long tradition in the study of management control systems (MCS). Researchers have attempted to explain the effectiveness of MCS by examining designs that best suit the nature of the environment, technology, size, structure, strategy and national culture. In recent years, contingency-based research has maintained its popularity with studies including these variables but redefining them in contemporary terms. This paper provides a critical review of findings from contingency-based studies over the past 20 years, deriving a series of propositions relating MCS to organizational context. The paper examines issues related to the purpose of MCS, the elements of MCS, the meaning and measurement of contextual variables, and issues concerning theory development. A final section considers the possibility that contingency-based ideas could encompass insights from a variety of theories to help understand MCS within its organizational context.
This study examines the relation between measurement system satisfaction, economic performance, and two general approaches to strategic performance measurement: greater measurement diversity and improved alignment with firm strategy and value drivers. We find consistent evidence that firms making more extensive use of a broad set of financial and (particularly) non-financial measures than firms with similar strategies or value drivers have higher measurement system satisfaction and stock market returns. However, we find little support for the alignment hypothesis that more or less extensive measurement than predicted by the firm's strategy or value drivers adversely affect performance. Instead, our results indicate that greater measurement emphasis and diversity than predicted by our benchmark model is associated with higher satisfaction and stock market performance. Our results also suggest that greater measurement diversity relative to firms with similar value drivers has a stronger relationship with stock market performance than greater measurement on an absolute scale. Finally, the balanced scorecard process, economic value measurement, and causal business modeling are associated with higher measurement system satisfaction, but exhibit almost no association with economic performance.
This paper proposes a multiple contingencies model that examines the combined effect of departmental interdependencies and organization structures on management accounting system (MAS) design. The model was tested by means of empirical data collected from a questionnaire addressed to 160 production managers. The response rate was 82.5%. The findings provide some support for the notion that organizations adapt their MAS design to the control requirements of the situation. Furthermore, the study offers some empirical support for the existence of suboptimal equifinality. That is, in situations which lack of a single dominant imperative, several alternative, and functionally equivalent management control system (MCS) designs, may arise.
There has been sustained interest in explaining why firms adopt different management accounting practices (MAPs). This paper applies contingency theory to respond empirically to calls by Gerdin [2005. Management accounting system design in manufacturing departments: an empirical investigation using a multiple contingencies approach. Accounting, Organizations and Society 30, 99–126], Tillema [2005. Towards an integrated contingency framework for MAS sophistication: case studies on the scope of accounting instruments in Dutch power and gas companies. Management Accounting Research 16, 101–129] and Chenhall [2007. Theorizing contingencies in management control systems research. In: Chapman, C., Hopwood, A., Shields, M. (Eds.), Handbook of Management Accounting Research. Elsevier, Amsterdam.] to increase understanding of factors that explain management accounting (MA) sophistication.
This paper reports on a survey of manufacturing companies, and uses structural equation modeling to examine the relationships between the changing competitive environment, and a range of organizational variables as antecedents to management accounting change. The results indicate that an increasingly competitive environment has resulted in an increased focus on differentiation strategies. This, in turn, has influenced changes in organizational design, advanced manufacturing technology and advanced management accounting practices. These three changes have led to a greater reliance on non-financial accounting information which has led to improved organizational performance.
Contingency literature in the accounting control area has for a long time been criticized for being fragmentary and contradictory as a result of methodological limitations. A review of 10 articles in the strategy-MAS area adds to this picture by showing that many different forms of fit have been used, and that very few researchers fully acknowledge the difficulties of relating these forms to each other. As a result, some researchers claim that their findings are contradictory when this is not necessarily the case, while others incorrectly argue that their results are strongly supported by previous studies.
This paper reviews research that studies the relationship between management control systems (MCS) and business strategy. Empirical research studies that use contingency approaches and case study applications are examined focusing on specific aspects of MCS and their relationship with strategy. These aspects include cost control orientation, performance evaluation and reward systems, the effect of resource sharing, the role of MCS in influencing strategic change and the choice of interactive and diagnostic controls. More contemporary approaches to the relationship between performance measurement systems and strategy are also considered. It is concluded that our knowledge of the relationship between MCS and strategy is limited, providing considerable scope for further research. A series of future research questions is presented.
This paper explores the knowledge transfer between a Western head office and its subsidiaries in the former Soviet Union with a focus on accounting-related knowledge. A framework of knowledge translation (Choi and Eriksson, Business Network Learning, pp. 69–88 (Amsterdam: Pergamon, 200116.
Choi , S. and
Eriksson , K. 2001. “The internationalization process as knowledge translation in international business relationships”. In Business Network Learning, Edited by:
Håkansson , H. and
Johanson , J. 69–88. Amsterdam: Pergamon. View all references)) is applied and refined to structure the results, which show the development of the management accounting and control system in the knowledge translation process. The role of accounting as a mediator changes in the different phases of the process and accounting itself also translates due to local discretion. At the very beginning of the cooperation the role of accounting is emphasised in order to ensure satisfactory reporting, but personal cooperation within the matrix structure mainly replaces accounting in the intensive knowledge translation. Social capital is created in the translation phase, enabling later on local autonomy and head office's control at a distance based on accounting numbers. Thus the results suggest that management control through accounting information alone, without active channels for personal contacts, may not work in the former Soviet Union because of the prevailing business traditions and personal networking.
Interdependence across international operations may have important implications for the performance of the multinational corporation (MNC). While most theoretical considerations imply that interdependence benefits the corporation as a whole, its influence on subsidiary performance is not well understood. This study empirically examines interdependence at the subsidiary level and reveals new insights on how interdependence influences subsidiary performance. Data for the study are from 115 foreign subsidiaries of U.S.-based MNCs. The conclusions are: (1) interdependence is intrinsically multi-faceted and subsidiaries exhibit four distinct profiles of interdependence — lone stars, passive stars, dominant stars and constellation stars; (2) a mere high–low metric of interdependence, not accounting for the inherent differences across these interdependence profiles, is not associated with subsidiary performance; however, (3) the closer a subsidiary's interdependence “fits” with any one of the four identified profiles of interdependence, the more subsidiary performance is enhanced. This article discusses implications of these results for successfully managing MNCs.
The understanding of the antecedent conditions influencing the design of management accounting systems (MASs) is very limited. In recent years, significant research attention has been devoted to understanding how different strategic priorities influence these systems. However, the results of these studies have been, at best, equivocal and numerous calls have been made for further research to “unravel” the conflicts that have emerged in the literature. The purpose of this study is to examine not only the relation between strategy and MAS but also to develop a theoretical model to explain how and why this relation exists. The model draws on Galbraith [Galbraith, J. (1973). Designing complex organisations. Reading: Addison-Wesley] to develop a theoretical argument concerning the inter-relations among customization, interdependence and MAS. We are particularly interested in assessing whether the relation between customization and MAS is a direct one or whether the relation operates via interdependence. The results indicate that customization affects MAS via interdependence, rather than directly. The study of 170 production and sales managers further revealed little difference in MAS use between production and sales managers facing similar amounts of customization or interdependence.
Despite calls for greater management accounting involvement in the implementation and monitoring of strategic plans, prior studies suggest that few American or European firms employ formal strategic control systems. Using survey data from the automotive and computer industries in Canada, Germany, Japan, and the United States, we examine whether organizations following a quality-oriented strategy have adopted the strategic control practices discussed in the quality management literature. Our results indicate that organizations placing greater emphasis on quality in their strategic plans do tend to make greater use of quality-related strategic control practices. However, we find no evidence to support the claim that Japanese organizations link their control systems more closely to competitive strategies than organizations in the other countries. Instead, Japanese manufacturers appear to make greater use of many of the strategic control practices regardless of their organization's strategic emphasis The performance consequences of the strategic control practices vary somewhat by industry, suggesting that strategic control systems should be adapted to the organization's competitive environment. Finally, several strategic control practices are negatively associated with performance, consistent with claims that formal strategic control systems can actually hinder performance in some circumstances by focusing attention on formal and rigid action plans, targets, and information gathering when flexible and creative strategic responses may be more appropriate.