Table of contents(16 chapters)
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Marc J. Epstein
This volume of Advances in Management Accounting (AIMA) begins with a paper by Ashton on various models of value creation that have been proposed for supporting value-based management. Balanced Scorecard, the Baldridge Quality Award Criteria, the Service-Profit Chain, and the Skandia Intellectual Capital Model are among them. Similarities and differences among value-creation models are noted, their potential for guiding the identification of value drivers and performance measures for value-based management is assessed, and critical management issues that must be addressed if such models are to contribute to long-run value creation are explored. The substantial body of research evidence linking intangible value drivers to financial outcomes is reviewed, and some directions for further research are offered. This will become a valuable source for management accounting researchers, including doctoral students, in their research in this area.
Models of value creation that have been proposed for supporting value-based management are described and analyzed, including the Balanced Scorecard, the Baldrige Quality Award Criteria, the Deming Management Method, the Service-Profit Chain, and the Skandia Intellectual Capital Model. These models are compared, their potential for guiding the identification of value drivers and performance measures for value-based management is assessed, and management issues that must be addressed if such models are to contribute to long-run value creation are explored. These issues include causally linking value drivers to each other and to financial outcomes, the extent to which the models take a dynamic, or whole-system, view of value creation, and whether multiple value drivers should be explicitly weighted and combined to form a “value index.” Finally, the substantial body of research evidence linking intangible value drivers to financial outcomes is reviewed, and some directions for further research are offered.
Innovation is the key to competitive advantage, and attaining innovation often requires taking on higher-than-usual levels of risk. Yet, while managers commonly profess support for efforts in innovation, they often emphasize safe, short-term results over more risky, long-term outcomes. As a result, a major challenge to firms is increasing employees’ willingness to adopt risky yet more profitable alternatives.
This study uses an experiment to test how the level of performance standard, per se, affect employees’ propensity to take on (more) risky projects. Using participants from the U.S. and Taiwan to represent higher versus lower individualism national cultures, it also examines the effects of national culture on employee actions. The findings are consistent with expectations from combining goal and prospect theories that a specific high standard motivates greater risk taking than a low standard. We find only limited difference between the U.S. and Taiwanese samples’ individualism/collectivism scores, which may help to explain the lack of significant differences between their reactions to the performance standard treatment.
Like conflict in general, budgetary conflict is perceived by conflicting parties as a zero-sum game or distributive: one party's gain is the other party's loss. We identify an organizational culture that promotes this view as “traditional.” We propose that changing certain elements of organizational culture is sufficient to produce more integrative, nonzero-sum outcomes. We call this changed organizational culture “empowering.” We propose and test the effects of an empowering organizational culture (EOC) in contrast to the traditional organizational culture (TOC). We hypothesize that an EOC would produce more integrative conflict resolution than the typical TOC. Based on our review of the literature, we identify two elements of the EOC that are essential in producing more integrative solutions to budgetary conflict. The two elements that we simultaneously manipulate are the superior's empowering style (or lack thereof) as reflected in encouragement to freely negotiate, and the superior's intervention process in failed negotiations (a process that encourages the search for integrative solutions and avoids imposed compromises that dampen the desire to negotiate). Using a laboratory experiment, 84 subjects forming 42 dyads negotiated the allocation of discretionary budgets face-to-face. The results of the experiment confirm our hypotheses that the EOC produces more integrative budget negotiation outcomes, greater convergence, and greater satisfaction with the outcome than TOC.
The objective of this study was to extend prior research by examining subordinate–superior information asymmetry as an intervening variable linking budgetary participation and slack. The results indicate two offsetting effects of participation on slack. A significant negative indirect relation between participation and slack was found to act through information asymmetry. Thus, managers reveal private information during the budget process, reducing information asymmetry which subsequently reduces budget slack. These results provide evidence about the inability of past research to confirm a consistent direct relation between budget participation and budget slack.
Research on budget-based performance evaluation traditionally predicts that the use of accounting performance measures (APM) in complex, dynamic, and uncertain situations results in dysfunctional managerial attitudes and behaviors. Although this suggests that such situations require the use of subjective performance measures (SPM), empirical evidence is inconclusive, as APM, rather than SPM, have been found to also have a negative effect on managerial ambiguity. This suggests that APM may be more, rather than less, appropriate than SPM in situations of high uncertainty. This paper explores whether acknowledgement of different types of uncertainty may explain these apparently conflicting research findings. It develops hypotheses that predict differential interactions between the environmental uncertainty and task uncertainty and APM and SPM on managerial ambiguity. These hypotheses are tested using survey data from 250 managers in 11 organizations. Tests using moderated regression analysis provide support for the existence of different interactions between uncertainty and the use of performance measures, and provide reconciliation for the opposing findings in the extant literature.
The few management accounting pricing methods in the management accounting literature are ineffective in helping small firms use their idle capacity during lingering economic recessions, and some of these methods may even worsen this problem.
Extending the traditional break-even-cost-volume-profit model, we derive a more effective pricing method, the break-even-full-capacity-utilization (BEFCU) model, to handle this problem. Seeking full capacity utilization, the BEFCU model has two characteristics: (a) highlighting the importance of the exigent fixed cost category for utilizing idle capacity and (b) using a functional cost structure that focuses on a hierarchy of value drivers in the firm's value creation process. Accordingly, under the BEFCU model, management has an instrumental pricing continuum extending from the minimum acceptable BEFCU sale price to the regular sale price.
To demonstrate its practicality, the authors apply the BEFCU model to an actual job shop. This model integrates certain strategies based on built-in flexibility in commitments with suppliers and customers and maintaining a mode of conservatism in accounting for plant assets. The model can also help small tooling companies currently seeking entrance into China; it may take a while for these companies to gain a foothold in this new market because copyrights and other legalities are rarely enforced (Bunkley, 2004).
In this article, we provide evidence that even when Murphy's Law is objectively untrue, because of sampling bias, people perceive the law as true, and this perceptual bias has far-reaching implications in management accounting research. A corollary to Murphy's Law is: “The other lane always moves faster than my lane.” A manager who is aware of this perceptual bias will try to structure her budget cutbacks and all other “negative compensations” in such a way that her employees perceive that the cutback applies to everyone, not just to themselves.
The findings of our study support the wisdom that, whenever managers must implement managerial plans that will be perceived as “negative,” the plans should be implemented all at once. Spreading the implementation over a period of time produces more discontent on the part of the personnel affected. The findings lend credence to a generalization that peoples’ discontent is minimized when the number of observations (and thus the number of chances for forming a negative perception) of undesirable events is minimized.
This study uses structural equation modeling to investigate the impact of ABC implementation factors (management support, clarity and consensus of ABC objectives, non-accounting ownership, and training) on quality, cost, and cycle time improvements, the relations among quality, cost, and cycle time improvements and, the influence of quality, cost, and cycle time improvement on financial performance at the business unit level. Overall, the results of the structural analyses support the theoretical model indicating that ABC implementation factors influence quality, cost, and cycle time, and partial support for the relations among quality, cost, and cycle time improvement and their effect on financial performance. When these relationships are further analyzed within the context of ABC implementation stage, adoption of advanced manufacturing practices, industry characteristics and plant size to determine if these contextual factors impact the model constructs and the relationships between the variables in the theoretical model, the results show that these contextual factors do not affect the model constructs, however, they affect the model relations.
A current highly competitive and rapidly changing business environment requires companies to continually innovate to survive. An increasing number of companies are using teams to leverage the knowledge and experience of their employees in order to improve quality, reduce costs and ‘delight’ the customer. The growing prevalence of teams signals the need to examine the adequacy of management accounting information and its use in performance measurement and control systems.
Some research has examined the impact of team empowerment on creativity and innovation, while other research discusses the sometimes-hampering role of performance measures in team environments. This paper contributes to this research, with two major goals. First, it discusses innovation and empowerment and examines how performance measurement can both encourage and hinder team performance. The second purpose is to propose a team performance measurement system using ratios based on activity-based management that seeks to encourage innovation and empowerment while maintaining a system of control.
Reports citing excessive CEO compensation continue to make the news with evidence of peer relationships between the CEO and the compensation committee often the center of debate. The compensation committee of the board of directors determines CEO pay and is often comprises CEOs from other companies as well as non-CEOs such as academic, exgovernment, and professional individuals. This study examines the influence of the psychological factor of social comparison over accounting performance measures in a compensation experiment with 176 subjects. The results of this study are consistent with social comparison theory in that CEO director-subjects award greater pay and shield the compensation of the CEO when firm accounting performance is below average. Additionally, we find shielding is mitigated when subjects are informed that the decision of the amount of compensation awarded will be revealed to the public.
Recent changes in professional examinations have generated much debate concerning various issues. One specific debate relates to the consistency of readability levels before and after the changes. While no significant differences in examination readability were found with respect to consistency across the entire time horizon of the study, comparisons with respect to the readability of other professional materials generate questions on whether the exam is testing at an appropriate level and whether other materials such as those produced for continuing education are written at a level commensurate to practice.