The relationship between activity-based costing and the balanced scorecard and their combined effect on organisational performance under alternative competitive strategies

The relationship between activity-based costing and the balanced scorecard and their combined effect on organisational performance under alternative competitive strategies

This thesis reports on a study that examines the relationship between costing systems and performance management systems and their combined effect on performance under alternative competitive strategies across a number of industry sectors in Australia. The thesis also examines the relationship between performance and the interaction of strategy, ABC and the BSC. The broad aims of this study are to understand and explain the relationship between costing and performance management systems.

A contingency theoretical framework of management accounting was developed to address the research questions and to inform the relationship of management accounting innovations such as ABC and BSC and their combined effect on performance under alternative competitive strategies in the Australian business environment. A triangulation approach to data gathering is utilised. This includes a structured questionnaire accompanied by structured and semi-structured interviews. Additionally, examination was undertaken to review interviewed firm’s websites and publicly available archival documentation. The industry sectors across Australia include retail; services; manufacturing; finance, insurance and real estate; agriculture, forestry and fishing; wholesale; transportation; communication; electric, gas and sanitary services; mining and construction.

The findings reported reveal that cost leader firms that use a combination of ABC and the BSC have greater organisational performance, customer performance and innovation performance compared with differentiator firms. In addition, cost leader firms that use a combination of ABC and the BSC have improved their innovation and financial performance more than those who use ABC without BSC, or those who use BSC without ABC. Furthermore, differentiator firms that use BSC without ABC have improved customer performance when compared with those that use a combination of ABC and BSC. The study also revealed that the use of ABC and the BSC is contingent on strategy, type of business activity and the competitive environment. It was also found that the design of the BSC may also be contingent on the strategy a firm pursues, that is, dependent on strategy is the weighting applied to different perspectives.

Overall, the thesis suggests that contingent factors such as strategy, business activity and increased competitive environment do affect the choice of costing systems such as ABC or Traditional Costing System (TCS) and performance management systems such as BSC or Traditional Performance Measurement (TPM).