The purpose of this paper is to investigate how management accounting practices combine with management techniques and strategic priorities to enhance performance. This research is based on an analysis of survey results from 78 Australian companies. The various sections of the paper include: 1) a discussion of the two main types of strategy and various management and management accounting techniques, 2) the research method, 3) the measurement constructs, 4) the data analysis, 5) discussion of the results, 6) review of findings, and 7) conclusion.

Strategies, Techniques and Hypotheses

This section includes a discussion of the two main types of strategy and the various management techniques and management accounting practices listed in the tables below along with the two hypotheses examined in the study. Most of the concepts and techniques discussed in the paper are summarized and discussed in a number of sections on this web site (See Topics or Search MAAW for a specific term. Also see the Strategy section).

Research Method

A survey mailed to 140 of Australia's largest companies in nine industry categories produced 78 usable responses. Questions were based on a seven point scale related to the firm's strategic priorities, and the extent of adoption and benefits obtained from various management techniques and management accounting practices. Organization performance was measured with an instrument developed from questions related to the firm's performance across ten dimensions relative to competitors¹. The respondents also ranked each dimension to reflect its important to the company. The final performance score was calculated by multiplying the performance measure by the measure of importance.

Factor analysis was used to test whether the questionnaire items measured the intended constructs. These techniques are discussed on a number of web sites. For example, see Factor analysis by R. B. Darlington. This analysis generated the various constructs and statistics listed in the table below adapted from Chenhall and Langfield-Smith's Table 3, p. 250.

The Data Analysis

The authors indicate that they used a systems approach to contingency theory by considering the internal consistency between multiple variables. The idea is that combinations of strategies, management techniques and management accounting practices are used to enhance organizational performance. To form groups of companies that were similar in terms of selecting strategy, techniques and practices, they used a technique referred to as the hierarchical agglomerative method of cluster analysis.

Discussion of the Results

This section includes some technical discussion of cluster analysis, (e.g., how the optimum number of clusters is determined) and how the companies included in their survey were grouped into six clusters indicated as C1-C6 in the table below adapted from table 4 on p. 254.

Cluster C1, C2 and C4 are consistent with an emphasis on a product differentiation strategy. The analysis of the firms in these clusters generally supports hypothesis 1 although there were some inconsistencies. For example, some of the techniques viewed as compatible with a low price strategy, such as ABC, were also beneficial to firms using the product differentiation strategy. Clusters 3 and 5 included a strong focus on a low price strategy and these results provided support for hypothesis 2. However, traditional accounting, benchmarking and strategic planning were important for companies using both types of strategy.

Review of Findings

According to the authors, the results in this study revealed that many firms gained high benefits from both traditional and contemporary accounting practices. Traditional accounting techniques ranked as providing the highest benefits (Mean = 4.72 across the total sample). Activity-based practices ranked the lowest of all management accounting practices (Mean = 2.24), and these benefits were achieved in combination with traditional accounting techniques. Balanced performance measurements were ranked second highest in terms of benefits, benchmarking was ranked 3rd, and employee based measures were ranked fourth. 

Conclusion

The authors mention some limitations of the study such as lack of strong theory and the exclusion of other environmental and organizational variables (except size and industry). The main benefit of the study, according to the authors, is that it demonstrates how the systems approach and the cluster analysis technique can be applied to management accounting research.

Appendix Material

Appendix 1 includes the survey questions and list of all items related to strategic priorities, management techniques and management accounting practices. Appendix 2 provides the factor analysis and Cronbach statistics².

_____________________________________________________

¹ According to the authors, the measurement of organization performance is discussed in the two papers below.

Govindarajan, V. 1988. A contingency approach to strategy implementation at the business-unit level: Integrating administrative mechanisms with strategy. Academy of Management Journal (31): 828-853.

Govindarajan, V. and J. Fisher. 1990. Strategy, control systems, and resource sharing: Effects on business unit performance. Academy of Management Journal (33): 259-285.

² Cronbach, L. J. 1951. Coefficient alpha and the internal structure of test. Psychometrika (September): 297-334.

	Web maaw.info