Literature on the application of strategic management accounting tools in Banking

University of Lahore

Impact of Implementation and Application of Strategic Management Accounting Tools in Banking Sector

Emraan Khan

6/17/2014

Literature Review

Alkhadash & Feridun (2006), examined the relation between the practice of Activity Based Costing as a strategic initiatives and the improvement in financial performance of 56 industrial companies in Jordan and they found also, that some of these companies use at least one of the strategic initiatives and the awareness level of the importance of using the strategic initiatives is to be significantly high among financial managers. Implementing Strategic Management Accounting (SMA) helps management to overcome the hard competition. SMA and Management Accounting (MA) offer similar functions at an operational level. However SMA tries to develop the ideas of MA and refines them. It uses financial and non-financial information. They also found in their study that linking strategy orientation and SMA tools has a limited significance, but there was an empirically support of the relationship between costing techniques of SMA (activity based costing, life cycle costing, quality costing, target costing and value chain analysis) and the strategy, the evidence which is stated in the study suggests that “defenders” make greater use of costing techniques.

Sucu (2010), tested the applications of Strategic Management Tools (SMT) in 55 medium sized Turkish enterprises; he found that SMT is not known by medium sized enterprises. The most common tools which are used; benefit-cost analysis, risk analysis, total quality management and portfolio analysis. He tested the levels of using SMT and satisfaction with them in 53 five-star hotels in Turkey. They found that the levels of using SMT were high, but satisfactions with them were low. The tool which is highly used is the customer relationship management. The tool which has the highest satisfaction scores is the SWOT analysis. They also found that there is no significant difference between satisfaction levels of Strategic Management Tools and demographic variables. He also found in his study that SMT implementation has a positive impact on cost control and cost reduction, depending on a questionnaire survey of the large-sized Croatian companies.

Ahmad and Roghayeh (2010), found in their study that managers of the listed companies in Tehran stock exchange used the traditional Management Tools. They found the main reasons for the non widespread of applying SMA is because of there is no agreement between writers about SMA definition, unclear methods and the. Inefficient managers to apply it or its tools. Also found in his study that many of the companies in his study use quantitative techniques (spread sheet), almost more of them use operation budgeted and direct labor to allocate over head costs, and some use target costing.

Abdel-Kader and Luther (2006), studied Management Accounting practices in the food and beverage industry in the UK understand the level of complexity and Management Accounting practices, the factors that affect the performance of cards in this industry. The research method was a 650 industry leaders in this study questionnaire. A total of 245 questionnaires were received and evaluated usable. We asked the participants to the frequency of use of 38 Management Accounting practices. They were also asked to the class as “not important, somewhat important or important rated. In contrast to studies of past Krisen theorieist this study, the relationship between the development of practical Management Accounting and explanatory factors (such as external factors, organizational and treatment). Studied variables were examined the use and importance of controlling practice ; Accounting systems , budgeting, performance evaluation, information for decision making , strategic analysis and reporting of management accounting . Companies that responded were classified in Management Accounting stages of evolution to explore the refinement of current practice and determine whether relationships between sophistication and potential explanatory factors. This was done on the basis of their concentration on specific practices and reported that management accounting practice in increments of management accounting change. Finally, the study is trying to understand the effect. Explanatory factors (e.g. external , organization, and treatment) on the accounting management practices The study found that companies moved to an uncertain environment has the level of complexity of management accounting practices increased.

Tenucci (2007), collected data using an internet questionnaire survey. The initial sample comprised 328 companies obtained from “Business International” database 3 and it comprises the largest Italian manufacturing firms (measured by sales higher than 25 million euro) from different industrial sectors. A prior phone contact directed to “chief accountant”, “chief financial officer” or “controller” was made to present the research and to ensure the participation related to a single business unit (if the company had more than one). Then an e -mail was sent containing the cover letter, the access codes (username and password) and the web link to the questionnaire only to those who agreed to participate. Then fifteen days after the second reminder the web site of the questionnaire was disabled. From the first phone contact 113 companies declared they would not participate, so they were classified as “non participants” and removed from the sample. Five of them were included in the category because they were business units of a corporate which had already been included; other four companies did not participate because they were ceasing activity. The reasons for not participating were divided in a “too busy at the moment” or “not enough time” (51), “not interested in the research because the management accounting techniques considered in the questionnaire are irrelevant for my organization” (17), “the company policy does not permit us to compile research questionnaire” (19) and “we outsource the accounting activities” (17). The final sample size was made up of 215 companies. Ninety-three responses were received. Only one was unable to be used. It means that 92 responses were received. Seven SMA techniques (Attribute Costing, Strategic Costing, Quality Costing, Customer Accounting, Strategic Pricing, Competitive position monitoring, Competitor performance appraisal based on published financial statements) present the mean score over 3. The addressed techniques are indeed strongly oriented towards the provision of information for decision making involving the two main external factors influencing the strategic success for the firm, i.e. customers and competitors. It is noteworthy that the two activity -costing oriented techniques (Value Chain Costing, ABC/M) have high “non adoption” rate; the ABC high adoption rate resulting from the research is consistent with the results of other recent surveys in Italy and confirm the difficulty of Italian companies in implementing this technique.

Hart & Roselender (2003), conducted a field study of company practices at the interface between management accounting and marketing management. Four of the 10 companies included in the field study are engaged in manufacturing. Company A1 was the largest independent UK public company engaged in printed circuit board manufacture, with a turnover in excess of £40 million for the year ending August 1997. Company B is a strategic business unit of a multinational corporation based in Switzerland, and has for many years been a major provider of floor coverings for both the domestic and institutional markets. Company F is a confectionery manufacturer, part of a group whose global turnover for the year to January 1999 exceeded £2 billion, of which almost half was in the UK. The fourth company, Company H is a subsidiary of a multinational healthcare products manufacturer. It specializes in single-patient use surgical instruments for minimally-invasive techniques as well as more traditional surgical instruments. The analysis of the interview materials collected within the 10 companies in our sample reveals that a broad range of practices is presently being pursued at the interface between the management accounting and marketing management functions. It is possible to understand these practices as forming a continuum of relationships between the two functions, relationships that manifest themselves as patterns of cooperation. We identify three relationships: those of a traditional nature, a transitional nature and a synergistic nature.

Karanja, Mwangi & Nyaanga (2000), conducted a survey to observe Management Accounting Tools in SMEs in Kenya. The population of interest was the SMEs stratified in the six pillars of Kenya’s economic blue print Vision 2030. A sample of 120 respondents was purposively sampled, consisting of entrepreneurs and managers in SMEs. Purposive sampling was adopted to achieve high response rates and to enhance sample representation of the population. A multifaceted data collection approaches consisting of structured questionnaires, ethnographic methods and interview guides were used. The quantitative data was analyzed using Statistical Package for Social Scientists (SPSS). The findings showed that SMEs in Kenya have intuitively adopted varying management accounting techniques. From the sample, majority of the SMEs are faced with constraints of capital management. On human capital, a significant value sampled SMEs relies on contract accounts technicians and they rarely subscribe the services of qualified management accountants due to lack of knowledge, perceived difficulties and low compliance levels. There were no recorded attempts to manage intellectual properties though various novel and innovative processes and products were noted. This was attributed to tedious legal requirement and unclear knowledge management practices. Drivers for success and business sustenance were the key internal factor that influences the adoption of management accounting practice. The advent of mobile commerce especially the payment solutions such as MPESA, Airtel Money etc which results to competition and an innovation driven market was attributed as the key external factor for the adoption of prudent management accounting techniques.

Afonina (2012), collected data through questionnaire from the Czech organizations. This research was prepared in order to grasp the current level of managerial awareness, the level of utilization and satisfaction of strategic management tools and techniques. The research helps to get knowledge about SMTT in Czech Republic to make a general outline. The research took place in 2010–2011. The questionnaire was deliberately sent to the participants of MBA program, organized by the Faculty of Business and Management with cooperation with Nottingham Business School. Respondents were asked about utilization of different strategic management tools and techniques. The group of respondents is relatively homogenous – there are managers with clear focus on the strategic management problems/ challenges. Completed questionnaire were received from 74 organizations seated in Czech Republic. The findings reflect the group of power tools, namely SWOT analysis, customer satisfaction analysis, price analysis, analysis of customers complaints, cost- benefit analysis, Porter’s 5 forces, analysis of customers opinions and attitudes, market share analysis, customer profitability analysis, market segmentation based on customer needs and wishes, level of service analysis, PEST analysis, and analysis of views and employee attitudes. However it does not mean that it is required to use these tools. These results only show us that these SMTT come to be highly helpful for managers in achieving variety of strategic activities. The tools and techniques in this group related to an organization, by estimating the external and internal environment, and also it should be mention that six of the tools are focused on the study of consumer.

Pasanen (2011) conducts a research to determine the usage and satisfaction levels of strategic management tools in 143 small and medium sized enterprises in Finland. 15 strategic management tools and techniques are tested in 101 service managements and 42 production managements. As a result, the usage and satisfaction levels of strategic management tools in small and medium sized enterprises make a difference when compared to large managements. Besides, a significant resolution is observed between the usage and satisfaction levels of strategic management tools in small and medium sized enterprises in production and service sectors and strategic management tools.

Fowzia (2010), conducted a study on determining the usage levels of strategic management accounting techniques in production managements in Bangladesh. As a result, it is emphasized that the acceptance levels of strategic management accounting techniques are not satisfactory in production managements and several tools come into the prominence during performance development process.

Jack (2009), conducts a field research on the usage of strategic management accounting tools in agriculture and agricultural industry. Such evaluations on the usage of tools as benchmarking, balanced scorecard, supply chain management, Porter’s competition analysis and target cost management, are involved in the research, conducted in England, United States, Australia and New Zealand. As a result, it is seen that the most common and most-valued strategic management tool by the managers is determined as customer relationship management, the least common as gordon technique and the less valued as search conference. In this study, it was determined that the higher the level of knowledge for strategic management tools, the more importance the managers give these tools

Pavlatos and Paggios (2009), conducted a survey covering 146 leading Greek hotel enterprises, according to their sales revenues as well as their net profit, selected from the ICAP’s Directory. Pilot tests were undertaken with a group of managers and management accountants to refine the design and focus of the survey. More specifically, interviews were conducted with six chief accountants who had long experience in cost and management accounting practices, in order to make sure that the questionnaires content was easy to understand. Three of the accountants have had long experience in a hospitality accounting environment. Through this testing, we managed to account for omissions or vagueness in the expressions used to formulate the questions. In the survey, respondents were asked to indicate whether their business has adopted each management accounting practice and then for those having adopted them, to list the benefits gained over the past three years. Respondents were also asked to rank the degree of emphasis that their business would give to each practice over the next three years. The questionnaires were answered by 72 per cent by executives in the financial departments (financial managers) that have firm knowledge of the cost and management accounting information provided and used within their companies. Thus, we believe that the answers are reliable. The central aim of this study was to report on the relative adoption and benefits obtained from both traditional and more recently developed management accounting practices in large hotel enterprises in Greece. The analysis of the survey data from 85 leading Greek hotel enterprises indicates that the adoption rates for many recently developed practices are very satisfactory, while overall traditional management accounting techniques were found to be more widely adopted than recently developed tools. Almost all Greek hotels use traditional budgets for planning annual operations, for controlling cost and for coordinating activities of the various parts of the hotels. Half of the companies that participated in the survey use zero based budgets. These findings are in line with the results of similar surveys.