Performance Measurement and Management Control: Innovative Concepts and Practices: Volume 20

Cover of Performance Measurement and Management Control: Innovative Concepts and Practices
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Table of contents

(22 chapters)
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Preface

Pages xiii-xiv
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In 2001, we gathered a group of researchers in Nice, France to focus discussion on performance measurement and management control. Following the success of that conference, we held subsequent conferences in 2003, 2005, 2007, and 2009. This volume contains some of the exemplary papers that were presented at the most recent conference. The conference has grown in number of participants, quality of presentations, and reputation and this year attracted leading researchers in the field from North America, South America, Europe, Asia, Australia, and Africa.

Neither management leaders nor academic researchers have developed adequate responses or explanations to the general lack of success in implementations of sustainability strategies. Consistent with the theme of this conference, we have examined innovative concepts and practices of leading companies that have successfully implemented sustainability. In sustainability, as in other areas of performance measurement and management control, new paradigms and practices and more research may be needed to improve organizational performance.

Over the last decades, the accounting and control literature has featured much studying of and debate about the role and designing of incentives. Over the last year or so, the debate over incentives and bonuses has become a much more public one, as illustrated by the current public furor over bankers' bonuses and frequent calls to limit them and/or tax them more heavily. The public nature of the debate is new, but the emotional intensity is not; an intense emotionality has often characterized discussions of these subjects in print, as recently illustrated by a controversy between supporters and opponents of goal setting published in Academy of Management Perspectives.

This chapter tries to structure the debate by defining – and clarifying the interactions between – key components of the debate. I then review some – by no means all – of the evidence available in three streams of research: goal setting, self-determination theory, and economics. A surprisingly large number of commonalities emerge from this review. I then revisit in light of this review two accountability models I had introduced at a previous conference as well a forthcoming field study of the sophisticated approach developed by a successful multinational corporation.

Management accounting and control systems play a relevant role in the creative side of the innovation process. However, the traditional paradigm of this research field focused on optimizing efficiencies in the organization if it runs into problems when confronted with creativity. To progress on our understanding of the role of these systems in creative settings, our assumptions need to be challenged. Studies have to look at new systems and also reinterpret the role of traditional tools such as budgets and incentives. The focus of the researcher will change from the design of the tools themselves to their use and the interaction of these tools with concepts such as inspiration, identity, and social trends. Successful organizations today rely to a larger extent on creativity and innovation to gain competitive advantages and also combine an environment supportive to this new competitive dimension with a relentless focus on execution. They manage this organizational duality of systems to maintain a delicate equilibrium between chaos and routine.

Purpose – This study aims to investigate the role of private equity and venture capital (PE/VC) operators in the introduction of innovative and sophisticated performance measurement and management control systems (MCSs) within their acquired companies.

Methodology/approach – Contingency theory suggests that PE/VC operators represent an important factor of change in a company's control system as they set the motivation for change and facilitate the transformation process within management systems. This study uses an explorative case study to verify this hypothesis. Data are derived from interviews with managers and public information.

Findings – Results demonstrate that PE funds promote the adoption of advanced MCSs such as the Tableau de Bord. Their aim is both to monitor and guide the acquired companies while sustaining their managers' decision-making process. However, company managers can be a critical variable in the process of change. At the same time, the case study confirms that PE/VC funding is positively correlated with the growth of acquired companies.

Research limitations/implications – Results are limited to the analysis of a single case study, representing a starting point for further research in other industries and countries.

Originality/value of paper – This study sheds light on the role of PE/VC operators in promoting the adoption of MCSs. Moreover, it suggests that despite their supposed short-term orientation these operators invest in the implementation of time-consuming and expensive MCSs.

Purpose – This paper aims to explain through a statistical model the link between innovation and performance. The data taken into consideration is from Unicredit Group survey for the period 2004–2006 on Italian manufacturing firms.

Methodology – We consider a broad concept of innovation: investments in R&D and technology, new processes, new products, innovation in terms of marketing and organization, investments in training of human resources. Performance is measured in terms of ROA without considering extraordinary items and taxes, to eliminate exceptional events and fiscal aspects.

Findings – With respect to innovation strategies, we find a weak, but significant, relationship between ROA and innovation. In addition, the influence of innovation on ROA does depend on innovation types and industry structures. Conversely, the amount of innovation expenditures does not have an influence on performance.

Limitations – The main limitations of our analysis are represented by the missing values coming from the financial reporting in short form and by the consideration of a short time period (the year 2006), with reference to the innovation expenditures and the measurement of performance.

Implications – From a managerial point of view, our model describing the relationship between innovation drivers and financial performance might represent a useful tool for managers aiming to introduce or implement innovation strategies in their organization.

Originality – Innovation is a common topic in econometric studies but not so much in managerial and accounting literature. The goal of the paper is to link macro and micro perspectives in a combined framework based on managerial and financial accounting.

Purpose – This study attempts to explore further the relation between performance information and trust as the main control levers in inter-firm transactional relationships.

Design/methodology/approach – After discussing the interaction between information and trust from different theoretical perspectives, the study examines the case of a multinational company working in the pharmaceutical industry. Material has been collected through interviews with managers and documental analyses, focusing on the relations between the company and its partner suppliers.

Findings – A theoretical systematisation is provided, distinguishing three main perspectives: (1) the transactional perspective, strictly derived from transaction cost economics assumptions, which denies any role to trust; (2) the relational perspective, which, in examining inter-firm trust, assumes similarities with inter-personal trust; (3) the institutional perspective, which, based on the sociological distinction of “trust in abstract systems” and “trust in persons”, is intended to identify institutional factors explaining management accounting changes. Case discussion shows that the institutional propositions fit the empirical evidence better, for both trust in persons and in systems are important as control levers, but their relevance differs along the value chain: while trust in persons is more relevant in the less-programmable phases, trust in systems is more developed in the more programmable one.

Research implications – The paper contributes to the literature on inter-organisational control by providing more insights into the interaction between information and trust as control levers.

Originality/value – The focus on value chain phases enables us to analyse how different control patterns or archetypes can be co-present in a given relationship.

Budgeting process has been largely criticized in the recent accounting literature. The responsiveness of budgets to fast-moving environments is now questioned. The purpose of this paper is to address this issue by suggesting that companies use rolling forecasts as an interactive and flexible tool to cope with turbulence.

We designed a web-based survey directed to Spanish companies operating in an uncertain environment. Statistical results of the survey reveal that more than 60% of the respondents consider that changes in the environment makes it very difficult to establish accurate budgets. Respondents also mentioned that with the economic down cycle the establishment of reliable financial forecasts is requiring a great effort. At the same time, qualitative interviews have been conducted with companies already using rolling forecasts to test and further develop the use of this interactive tool.

We found that the rolling forecasts are considered to be a dynamic strategic planning tool, very useful for cash management and day-to-day decision-making process, but that they cannot replace budget for evaluation and motivation purposes.

The study has its limitations as the findings rely on a small number of survey respondents and interviewed organizations. Nevertheless the results have been compared, when possible, to those of similar surveys in order to validate them.

The article supplies actualized information about budgeting practices in a turbulent environment and more specifically in the Spanish context.

Purpose – This study investigates the links between strategy, execution, and financial performance with particular attention to the underlying performance drivers that describe how a company executes strategy to create financial value.

Methodology – This study empirically investigates companies in the United States and 22 other countries over a 20-year period (11 successive 10n-year periods: 1988–2007): (1) to compare financial performance characteristics of HPC versus non-HPC; (2) to study the sustainability of performance in HPC; and (3) to identify the companies that exit or enter the HPC classification and the performance drivers and performance measures that characterized the change in HPC classification.

Findings – The 20-year longitudinal results confirm the results of prior studies as to the long-term superior performance of HPC over other companies (Objective 1). For sustaining HPC, results were consistent as to total asset management, profitability, financial risk, and liquidity (Objective 2). Declining HPC companies fail at total asset management, profitability, and operating asset management and significantly increase their financial risk. Emerging HPC companies improve liquidity through improved operating asset management and cash flows (Objective 3).

Practical implications – To become a HPC management must generate increased cash flows from income, manage receivables and inventory vigorously, and reduce its debt in relation to equity. Thereafter, management must concentrate on maintaining its asset turnover and growth in revenues while maintaining its profit margin and not increasing its debt to equity.

Value of the paper – The results provide direction for management of companies that aspire to HPC status and to maintain HPC status.

Although strategic changes and management control systems are relevant, there is the need for an evolution in the tools of performance measurement, analysis and control to understand the ability of the firms, at first, to face environmental variability and, then, to achieve objectives through the strategic change management. This study was dedicated to the issue of what measures are relevant during the strategic change process. It also proposes a multidimensional control system for strategic changes. The framework is based on: the literature review and analysis about strategic change, change management and performance measurement; a two-stage empirical research. Overall, the proposed control system can help firms in managing strategic changes.

Purpose – The purpose of this study is to investigate the process by which nonfinancial performance measures affect employee perceptions of how fair are their organizations' performance evaluation procedures. With increased interest in performance measurement systems that rely heavily on nonfinancial measures (e.g., balanced scorecard), it is important to understand the ramifications of these measures.

Methodology – Data are drawn from mail survey questionnaire responses of 121 Australian managers and analyzed by structural equation modeling.

Findings – The results provide support for the proposition that employees perceive the use of nonfinancial measures as fair. However, these effects are found to be indirect through (1) the enhancement of employee role clarity, and (2) the enhancement of the trust the employees have in their supervisors.

Research limitations and practical implications – This study does not directly address the issue of whether nonfinancial measures will ultimately lead to improved overall organizational performance. However, the results do suggest that the use of nonfinancial measures for employee performance evaluation is beneficial. Hence, there may scope for increasing their role in the workplace. This may ultimately lead to improved organizational performance.

Value of paper – The current interest in multidimensional performance systems clearly necessitates systematic empirical investigation to ascertain their effectiveness and benefits. This study contributes in this regard by focusing on nonfinancial measures, a key component of multidimensional performance measurement systems. It also adds to our understanding of the process by such systems influence employee reactions and ultimately overall organizational performance.

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on whether any perceived performance measure-related time orientation affects the time orientation of these executives. In addition, the study explores which measures impact executive time orientation, regardless of how these measures are perceived.

Methodology/approach – A survey was used to collect the perceptions of chief financial officers (CFOs) in 109 companies listed in the Nasdaq OMX, the Nordic Stock Exchange. Performance measures include: stock price, earnings, returns, cash flow, success of development programs, EVA™, sales, and balanced scorecard, and the method employed was multiple regression.

Findings – First, the CFOs perceived returns, sales, EPS, and stock price to have long time orientation. Second, the use of returns, stock price, and success of development programs as major performance measures encourage the CFOs toward long-term behavior, whereas the use of cash flow encourages short-term behavior. Third, stock price, earnings, and EPS are measures whose perceived time orientation affects the time orientation of executives. It is most likely due to this influence, that they have received major attention in public debates on the short time orientation of executives at the expense of other, more “silent” measures that also impact executive time orientation. Contextual factors strongly affect the results.

Practical implications – The study assists in designing executive performance measurement systems that encourage desired time orientation.

Originality/value – This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation.

Purpose – Since the introduction of the concept of the balanced scorecard (BSC) in the early 1990s, researchers and practitioners have been discussing its impact on managerial and organizational performance. However, there are still few empirical results available in favor of the effectiveness of the BSC to justify its high rate of diffusion among companies. The central aim of this paper is to substantiate the claim for more empirical studies on performance implications of BSC use and to derive recommendations how to conduct such research effectively.

Approach – We review existing research on costs and benefits of the BSC in order to pinpoint to the necessity to do more large-scale empirical work on this topic. Moreover, we discuss important methodological challenges researchers are confronted with when analyzing performance consequences of the system.

Findings – Empirical studies have found both, evidence in favor and against the BSC by investigating specific elements constituting the system. However, no large-scale empirical evidence exists so far that unambiguously shows that companies using a fully developed BSC outperform non-users. We argue in the paper that this might be explainable by the holistic nature of the concept and particularly the methodological difficulties associated with analyzing its effects on performance.

Contribution – The paper is supposed to motivate researchers to conduct more large-sale empirical studies in the area and offers recommendations how to effectively design such studies. It emphasizes the opportunities structural equation modeling offers to investigate possible indirect effects and moderating effects stemming from the BSC.

Purpose – The purpose of this study is to examine the importance of balanced scorecard (BSC) in Swedish emergency hospitals, that is, to describe its prevalence and its use in these hospitals.

Methodology/approach – The study is based on a questionnaire administered to financial managers in all of Sweden's emergency hospitals. The questionnaire investigates the prevalence of the BSC, the reasons for its implementation, and how BSC is used.

Findings – The study shows that 65% of Swedish emergency hospitals use the BSC. The use of the BSC was motivated by a need to make strategy clear and to obtain a more comprehensive view of organizational performance. BSC is used mainly for measurements connected to the organizations' strategy and to create goal congruence. Performance monitoring is only of secondary importance, even though emergency hospitals with more than five years' experience with the BSC tend to use it for that purpose. The BSC is almost never used in the hospitals' reward systems.

Research implications – The findings suggest that BSC in hospitals is mainly important for implementing strategy and stimulating strategy discussions that create goal congruence. Performance monitoring is only of secondary importance, but becomes increasingly important for seasoned BSC users.

Originality/value of paper – Few studies have surveyed the importance of BSC in healthcare organizations. By pointing out the importance of BSC in Swedish healthcare, this paper calls for similar studies in other healthcare contexts.

This study explores whether the implementation of Management Control Systems (MCS) by the Greek shipping companies influences the adoption of their performance measurement systems and the implication of this choice on organizational performance. The study uses data collected from semi-structured interviews and a survey instrument addressed to shipping companies located in Greece. The paper finds evidence that MCS are defined in terms of the informational purposes these MCS fulfill. Analysis of responses to the questionnaire results that the choice of MCS is contingent upon the strategy pursued by the shipping companies. In addition, evidence suggests that shipping companies with an optimal fit between their strategy and their MCS experience superior performance and higher perceived usefulness of MCS. Moreover, it is concluded that Greek shipping companies adopt subjective performance measures irrespective of the MCS they implement and that this choice leads to enhanced perceived performance.

The role of information technology (IT) in the business arena has continuously shifted over the last decades, and it has become an important part of how companies manage and control their resources. User satisfaction in IT usage is critical because this construct is often viewed as a surrogate for IT success. Decisions regarding the building of the technical IT architecture should be closely linked to the organizational design of the company itself. So, IT plays a crucial role in organization, especially regarding the accounting function.

The purpose of this paper is to contribute to the body of knowledge in the extent to which IT affects the ability to solve accounting tasks. We will measure the impact of IT on user satisfaction, on accounting information use and, finally, on accountants' tasks.

The relationship between IT and management accounting practices was investigated. On one hand, data from Portuguese manufacturing firms were collected using a survey and analyzed using statistical software. On the other hand, based on findings from 17 in-depth interviews, 6 case studies were built and analyzed.

The findings suggest that user satisfaction in IT usage and the use of accounting techniques and accounting information increases with new IT investments. We also find a tendency for change in the decentralization of management accounting tasks.

These study findings have significant implication for practice and research. Today accounting and IT are inseparable and accountant's uses of sophisticated management accounting techniques are clearly dependent of IT existence.

Purpose – To analyze the diffusion of management accounting tools in Italian manufacturing firms and the impact of contingency factors with a particular focus on internationalization.

Design/methodology/approach – This study is based on a qualitative statistical analysis and two quantitative data analyses focusing on the effects of contingency factors. In particular, 274 questionnaires were analyzed. A questionnaire-based e-mail survey was used to collect data.

Findings – The results confirm positive relationships between management accounting systems and traditional contingency factors such as company size, organizational structure, and operational complexity. In addition, a positive correlation was found between the internationalization and implementation of activity-based costing and target costing.

Research limitations/implications – In the context of internationalization, this exploratory study considers only the impact of foreign customers. Further research could include other factors such as foreign suppliers, joint ventures, and technological exchanges.

Originality/value of paper – This paper contributes to the analysis of the impact of internationalization, a contingency variable not yet fully investigated in management accounting system research.

Purpose – The purpose of this paper is to examine the extent to which potential factors affect the use of activity-based costing (ABC) in a service context.

Design/methodology/approach – An empirical survey was conducted on a sample of 112 leading hotels enterprises in Greece.

Findings – Results show that the use of ABC is positively associated with business strategy and with chief financial officer's (CFO) educational background. In addition, ABC is negatively associated with CFO age. No association was found between the use of ABC and the quality of information technology, membership of multinational chain, and CFO tenure.

Research limitations/implications – This research was limited to the Greek hotel sector. Cross-sectional studies as the work presented here can establish associations, but not causality.

Originality/value – This paper adds to the limited body of knowledge of the design of cost systems in a service context (service cost system design). Specifically, this paper adopted a contingency approach and used empirical analysis to identify the influence of specific organizational variables and CFOs characteristics on the use of ABC in service firms. The operational homogeneity of hotels enables powerful tests of the research hypotheses.

Cover of Performance Measurement and Management Control: Innovative Concepts and Practices
DOI
10.1108/S1479-3512(2010)20
Publication date
2010-04-08
Book series
Studies in Managerial and Financial Accounting
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-84950-724-0
eISBN
978-1-84950-725-7
Book series ISSN
1479-3512