Strategic Applications of Cost Accounting in Global Business Operations
Lius, Ida-Maria (2024-10-30)
Strategic Applications of Cost Accounting in Global Business Operations
(30.10.2024)
Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty.
avoin
Julkaisun pysyvä osoite on:
https://urn.fi/URN:NBN:fi-fe2024110589284
https://urn.fi/URN:NBN:fi-fe2024110589284
Tiivistelmä
In today’s global marketplace, businesses face intense competition, requiring constant adaptation to sustain growth and profitability. In this context, every company function must align with the overall strategy. A key question arises: How does cost accounting, as a functional area, contribute to the realisation of strategy and the enhancement of competitiveness?
Strategy is examined through Michael Porter’s (1985) theory of Sustainable Competitive Advantage. According to this framework, a company can compete effectively either as a cost leader or through differentiation to achieve a sustainable competitive advantage. Therefore, I am exploring potential links between specific strategic focuses and the adoption of both traditional and strategic costing tools.
Since qualitative research allows for direct, in-depth discussions with interviewees, I am also using this opportunity to explore the finance practitioners’ perspectives, interpretations, and experiences regarding how current costing systems have evolved, why specific costing tools are selected, how the provided data is utilised strategically, and how costing systems could – and should– be improved under different strategic emphases.
Methodologically, the research data consists of five cases used as instruments to explore phenomena and develop theoretical propositions. The data is constructed by using a combination of preplanned systematic coding (for closed questions) and the detection of emerging patterns or themes (for open questions). The following analysis involves cross-case analysis, both across cases and in contrast to theory, as well as content analysis, with the inductive approach relying heavily on detailed observations, such as quotations.
The final results indicate that all companies consider traditional costing tools (Marginal Costing and Full Costing) to be the most highly valued and utilised tools from a strategic perspective. Overall, companies have incorporated a variety of both traditional and strategic tools into their cost accounting systems, which are generally very sophisticated. The most notable distinction in tool adoption is related to Activity-Based Costing (ABC) and Activity-Based Management (ABM). All cost leader companies (3) had adopted these Activity-Based Costing tools and used this data in their strategic decision-making and in realising their strategies. In contrast, none of the differentiators (2) had fully applied these tools, even at the operational level. Since Activity-Based Costing provides costing data in its most refined form, cost leaders utilise more detailed costing data in strategic decision-making and strategy realisation compared to companies following a differentiation strategy. Given that the choice to adopt specific tools was need-based, this suggests that strategic emphasis could have a direct influence on costing system design.
Secondly, the in-depth interviews reveal that value is interpreted slightly differently between the two groups, which can also explain the mechanisms behind their selection of costing tools. In this data sample, cost leaders see value through performance in activities, and it is defined internally, primarily by the company. Differentiators, instead, interpret value through the uniqueness of activities and definitions provided by the buyer. Of the strategic costing tools, differentiators had adopted Target Costing and Value Chain Analysis, which were not common among cost leaders. It can be inferred that whereas Activity-Based Costing tools support the realisation of a cost leadership strategy by enhancing performance in activities and optimising processes, Target Costing and Value Chain Analysis support a differentiation strategy by fostering unique activities and attributes in the value chain, ensuring that the value of their operations in product development aligns with buyers’ evaluations.
The findings support the view that companies should adopt a set of costing tools aligned with the requirements of their chosen competitive strategy in order to achieve sustainable competitive advantage. Further qualitative research is needed, and generalising the results would require a larger sample, along with methods to isolate this specific contingency factor (i.e., strategic emphasis). A longitudinal research method could be applied to achieve this and such research would offer valuable, practical insights for company decision-makers, providing clarity and greater consensus within the academic community on this topic in the field of management accounting.
Strategy is examined through Michael Porter’s (1985) theory of Sustainable Competitive Advantage. According to this framework, a company can compete effectively either as a cost leader or through differentiation to achieve a sustainable competitive advantage. Therefore, I am exploring potential links between specific strategic focuses and the adoption of both traditional and strategic costing tools.
Since qualitative research allows for direct, in-depth discussions with interviewees, I am also using this opportunity to explore the finance practitioners’ perspectives, interpretations, and experiences regarding how current costing systems have evolved, why specific costing tools are selected, how the provided data is utilised strategically, and how costing systems could – and should– be improved under different strategic emphases.
Methodologically, the research data consists of five cases used as instruments to explore phenomena and develop theoretical propositions. The data is constructed by using a combination of preplanned systematic coding (for closed questions) and the detection of emerging patterns or themes (for open questions). The following analysis involves cross-case analysis, both across cases and in contrast to theory, as well as content analysis, with the inductive approach relying heavily on detailed observations, such as quotations.
The final results indicate that all companies consider traditional costing tools (Marginal Costing and Full Costing) to be the most highly valued and utilised tools from a strategic perspective. Overall, companies have incorporated a variety of both traditional and strategic tools into their cost accounting systems, which are generally very sophisticated. The most notable distinction in tool adoption is related to Activity-Based Costing (ABC) and Activity-Based Management (ABM). All cost leader companies (3) had adopted these Activity-Based Costing tools and used this data in their strategic decision-making and in realising their strategies. In contrast, none of the differentiators (2) had fully applied these tools, even at the operational level. Since Activity-Based Costing provides costing data in its most refined form, cost leaders utilise more detailed costing data in strategic decision-making and strategy realisation compared to companies following a differentiation strategy. Given that the choice to adopt specific tools was need-based, this suggests that strategic emphasis could have a direct influence on costing system design.
Secondly, the in-depth interviews reveal that value is interpreted slightly differently between the two groups, which can also explain the mechanisms behind their selection of costing tools. In this data sample, cost leaders see value through performance in activities, and it is defined internally, primarily by the company. Differentiators, instead, interpret value through the uniqueness of activities and definitions provided by the buyer. Of the strategic costing tools, differentiators had adopted Target Costing and Value Chain Analysis, which were not common among cost leaders. It can be inferred that whereas Activity-Based Costing tools support the realisation of a cost leadership strategy by enhancing performance in activities and optimising processes, Target Costing and Value Chain Analysis support a differentiation strategy by fostering unique activities and attributes in the value chain, ensuring that the value of their operations in product development aligns with buyers’ evaluations.
The findings support the view that companies should adopt a set of costing tools aligned with the requirements of their chosen competitive strategy in order to achieve sustainable competitive advantage. Further qualitative research is needed, and generalising the results would require a larger sample, along with methods to isolate this specific contingency factor (i.e., strategic emphasis). A longitudinal research method could be applied to achieve this and such research would offer valuable, practical insights for company decision-makers, providing clarity and greater consensus within the academic community on this topic in the field of management accounting.