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Fullerton, R. R. and C. S. McWatters. 2002. The role of performance measures and incentive systems in relation to the degree of JIT implementation. Accounting, Organizations and Society 27(8): 711-735.

Summary by Eileen Z. Taylor
Ph.D. Program in Accounting
University of South Florida, Spring 2004

JIT Main Page | Performance Measurements Main Page

This paper examines the fit between the successful implementation of JIT (just-in-time) practices and the performance measures and incentive systems chosen by an organization. Organizations must recognize that to have a successful implementation of an innovative system, such as JIT, it is also necessary to adjust the management accounting system. This study looks specifically at the type of performance measures (financial or non-financial) and incentive structures (long or short-term) that are associated with organizations who adopt JIT practices. Using an empirical approach, the authors analyze survey data and find that organizations who adopt JIT are more likely to use non-traditional performance measures, as well as implement incentive systems that reward quality production.

Contributions include the extension of research on the combination of specific strategies and management accounting system choices, a method for determining the degree of JIT implementation, and a clear operationalization of the ten practices associated with JIT implementation.

Theory Development and Research Hypotheses

JIT practices were first implemented in Japanese manufacturing firms. They call for a focus on continual quality improvement and the goal of zero defects. Such practices are also known as ‘lean production and total enterprise manufacturing.’

Past research has classified firms as JIT adopters based on one or two criteria. This paper establishes ten criteria which can be considered concomitantly to arrive at a degree of implementation. Although the authors make no statements as to the relative weight of each factor, they agree that all factors are relevant in determining the degree of implementation.

It has been observed in practice, that JIT has not been quickly, nor completely adopted. Some reasons given are resistance to change, weak understanding of JIT, and a “tendency to implement only its easiest and least costly elements…” p.713. However, the authors suggest that JIT implementation is impeded by an incompatible performance measurement and incentive system. Traditional MAS use short-term, financial measures to reward and manage employees. These measures are not necessarily compatible with the ideals of JIT. Therefore, the strategy of the firm has changed to JIT, but the motivation to adopt JIT has not been put in place. On the contrary, firms may be continuing to reward employees based on an outdated strategy. This ‘mismatch’ between strategy and rewards becomes the focus of the study.

The following hypotheses are taken directly from the article.

Hypothesis 1A: Firms implementing a higher degree of JIT elements such as lean manufacturing practices, quality improvements, and kanban systems are more likely to use more non-traditional performance measures of quality results, bottom-up data, benchmarking, waste, and vendor quality.

The reasoning behind this hypothesis is that JIT practices rely on a bottom-up approach; one where lower level employees are informed and can take action based on non-financial, non-aggregated data.

Hypothesis 1B: Firms implementing a higher degree of JIT elements such as lean manufacturing practices, quality improvements, and kanban systems are more likely to tie compensation rewards to non-financial measures.

The reasoning behind this hypothesis is that since non-financial measures are more appropriate in a JIT situation, they should be used not only to gauge performance, but to reward performance.

Hypothesis 1C: Firms implementing a higher degree of JIT elements such as lean manufacturing practices, quality improvements, and kanban systems are more likely to have increased empowerment in decision making and a clearer understanding of company strategy.

The reasoning behind this hypothesis is that JIT is an overall corporate strategy. As such, employees whose work is measured and who are rewarded based on JIT goals should also be familiar with the JIT corporate strategy. Furthermore, they should also be more empowered to make decisions that will support quality improvements.

Research Method

The authors used a survey methodology to gather empirical data. They sampled US manufacturing firms with SIC codes between 20 and 39, sales of between $2 million and $2 billion, limited to those included on the Compustat database. Their response rate was a strong 56.8%. Analysis was done to assure that there was no evidence of a response bias. Interestingly, 80% of respondents requested copies of the research results, indicating a high interest in the topic.

The degree of JIT implementation was operationalized based on criteria used in prior research. Ten items were measured on a six-point Likert scale which asked executives to comment on the extent to which each element was implemented. The ten items included:

Component Practice
Manufacturing   Focused factory
  Group technology
  Reduced set-up times
  Productive maintenance
  Multi-function employees
  Uniform workload
Quality   Product quality improvement
  Process quality improvement
Unique JIT   Kanban system
  JIT purchasing

The above items were factor-analyzed and grouped into the noted components. Firms were also asked whether or not they considered themselves as adopting JIT. Significant differences on the above components were found between adopters and non-adopters.

Independent variables

Nine constructs were used to test the three hypotheses. They were derived through a principal components factor analysis of the 39 questions given in the survey. Four covariates were also included in the analysis. They were firm size, firm innovation, industry, and organizational structure.


Research results strongly supported hypothesis1A. Firms with a high degree of JIT implementation were more likely to use non-financial performance measures than were firms with a low level of JIT implementation.

Hypothesis 1B was also supported. Firms who implement JIT are more likely to tie compensation rewards to non-traditional performance measures. Additionally, there was no significant relationship found between the degree of JIT practices and rewards for compliance with budgets or variances.

Hypothesis 1C was only partially supported. Although employee empowerment and understanding of strategy were significantly higher for two JIT measures; they were negatively associated with the JIT quality component. The authors posit that upper management may not feel that lower level employees need to understand the strategy; if they are properly motivated and measurements are appropriate to a JIT strategy, then results will follow regardless whether the employees have a clear strategic vision. (Note: I would also question the reliability of the measurement. Do the executives really know how well the lower level employees understand the corporate strategy? This measure might lack validity, resulting in the observed contrary results.)


This study provides clear support for the necessity of matching the management accounting system components to the organizational strategy. Future studies might examine these same firms longitudinally, to provide additional evidence that a successful JIT implementation depends on an appropriate strategy. Furthermore, the authors note that the link between successful JIT implementation and long-term organizational profitability has yet to be empirically demonstrated. They suggest that a complete change in the MAS to fit JIT practice might depend on convincing managers that such a link exists.


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