Summary by Antoinette L. Lynch
Ph.D. Program in Accounting
University of South Florida, Spring 2002
Motivation and Purpose
Manufacturing firms striving for continuous improvement often use TQM (Total Quality Management) and/or JIT (Just-In-Time) manufacturing techniques. While some firms excel because of their emphasis on TQM and/or JIT, other firms that have implemented these techniques do not appear to have improved their performance. There is, however, little empirical evidence that provides reasons for these mixed results. This study is an extension of Ittner and Larcker (1995) and investigates whether manufacturing plants using TQM or JIT practices achieve higher performance when they accompany these practices with particular management accounting systems.
This study differs from Ittner and Larcker (1995) in several ways. First, Ittner and Larcker focus on TQM practices, while this study also examines JIT practices. Second, Ittner and Larcker examine management accounting systems in a more comprehensive organizational context while this study focuses on a smaller subset. Finally, Ittner and Larcker examine financial and quality performance, while this study focuses on customer and quality performance.
Theory and Hypotheses Development
The ability of an organization to achieve goals (i.e. customer satisfaction, quality, speed, and process improvement) may be hampered if they are not formally included in the management accounting system used for performance measurement and rewards. If an organization wants employees to achieve particular goals, then prior research indicates that the mere presence of a goal will motivate employees to accomplish it.
Ittner and Larcker (1995) show a significant interaction between TQM practices and management accounting systems on performance.
This study argues that although provision of goals may be effective independently of TQM or JIT, synergy between the production system and the presence of performance goals produces even higher manufacturing performance.
H1a: Customer performance is a positive disordinal interactive function of the production systems (TQM, JIT) and provision of customer-related goals to workers.
H1b: Quality performance is a positive disordinal interactive function of the production systems (TQM, JIT) and provision of quality-related goals to workers.
More frequent reporting of manufacturing performance measures to workers helps them develop effective task strategies quicker that can improve performance (Locke and Latham 1990, 267). This study argues that synergy in the joint implementation of production systems and the frequent reporting of performance measures produces even higher manufacturing performance.
H2a: Customer performance is a positive disordinal interactive function of the production systems (TQM, JIT) and the frequency of reporting customer performance measures to workers.
H2b: Quality performance is a positive disordinal interactive function of the production systems (TQM, JIT) and the frequency of reporting quality performance measures to workers.
Compensation systems should be designed to match the needs of TQM and/or JIT practices. Evidence suggests that many organizations have begun to implement outcome-based contingent pay for workers to encourage them to achieve performance-related goals. Young, et al. (1988) results suggest that incentives provide stronger motivation for workers to improve the quality of their performance. This study argues that the implementation of TQM or JIT when combined with performance-contingent rewards should lead to higher manufacturing performance than would be achieved by TQM and/or JIT alone.
H3a: Customer performance is a positive disordinal interactive function of the production systems (TQM, JIT) and the use of performance-contingent rewards.
H3b: Quality performance is a positive disordinal interactive function of the production systems (TQM, JIT) and the use of performance-contingent rewards.
Plant-wide Performance, which is operationalized as two constructs: customer performance and quality performance.
Independent Variable Measures
Industry (controlled to a three-digit SIC code)
Organizational performance or practices for the year 1992.
Perft = f(Industry, Perft-2, TQMt, JITt, Goalt, Perf Measurest, Incentivest, Interactiont)
Expected signs are positive for all variables, however, the direction of Industry is questionable.
Interactive Effects of Performance Goals and Production Systems (H1a and H1b): The evidence provided support for H1a and H1b that customer or quality performance is a disordinal interactive functional of customer- or quality-related performance goals and the production system.
Interactive Effects of Performance Measure and Production Systems (H2a and H2b): The only significant effect was prior performance. Thus H2a and H2b were rejected.
Interactive Effects of Performance Contingent Reward Systems and Production Systems (H3a and H3b)
Hypothesis 3 predicted that when TQM or JIT was high, performance was higher if plants had incentive pay, but when TQM or JIT was low, performance was higher with fixed pay. Overall, the evidence provided support for H3a and H3b that customer or quality performance is a disordinal interactive function of performance-contingent rewards and the production system.
The theoretical and empirical evidence indicates that management accounting systems should be designed contingent on characteristics of production systems, or that characteristics of the production and management accounting systems should be simultaneously designed. Implications of this study include the possibility that an important reason some firms have not experienced performance gains from implementing TQM or JIT is reliance on inappropriate management accounting systems.
The disordinal interactions suggest that there is no one best management accounting system. Instead, they imply that the best configurations of management accounting systems are contingent upon the type of production system.
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