An exploratory investigation of an integrated contingency model of strategic management

Description
This study examines the effect of strategic choices, market orientation, and company size on two distinct dimensions of
strategic management accounting (SMA) and, in turn, the mediating effect of SMA on company performance. A model is
advanced and tested using structural equation modelling and data collected from a sample of 193 large Slovenian companies.
The validity of the quantitative data findings has been appraised using qualitative data collected in ten exploratory
interviews

An exploratory investigation of an integrated
contingency model of strategic management accounting
Simon Cadez
a
, Chris Guilding
b,
*
a
Department of Accounting and Auditing, Faculty of Economics, University of Ljubljana, Kardeljeva ploscad 17, 1000 Ljubljana, Slovenia
b
Centre for Tourism, Sport and Service Innovation, Gri?th University, Gold Coast Campus,
PMB 50 Gold Coast Mail Centre, Queensland 9726, Australia
Abstract
This study examines the e?ect of strategic choices, market orientation, and company size on two distinct dimensions of
strategic management accounting (SMA) and, in turn, the mediating e?ect of SMAon company performance. Amodel is
advanced and tested using structural equation modelling and data collected froma sample of 193 large Slovenian compa-
nies. The validity of the quantitative data ?ndings has been appraised using qualitative data collected in ten exploratory
interviews. The study’s ?ndings support contingency theory’s tenet of nouniversally appropriate SMAsystem, withfactors
such as company size and strategy having a signi?cant bearing on the successful application of SMA.
Ó 2008 Elsevier Ltd. All rights reserved.
Introduction
A surge of interest in strategic management
accounting (SMA) appears to have been provoked
by widely published criticisms of conventional
management accounting practice (Ashton, Hop-
per, & Scapens, 1991; Bhimani & Bromwich,
1992; Drury, 1992; Johnson & Kaplan, 1987; Kap-
lan, 1984). These criticisms triggered a degree of
soul-searching with respect to the potential for a
more strategic role for management accounting
together with normative commentaries concerning
the application of an array of relatively novel
approaches in the ?elds of costing, performance
management, and strategic investment appraisal.
This distinct accounting orientation and associ-
ated techniques are often collectively referred to
as ‘‘strategic management accounting”.
The term ‘‘strategic management accounting”
was ?rst used by Simmonds (1981). Simmonds
explored the provision of an accounting perspec-
tive on competitor appraisal, which represented a
signi?cant departure from accounting’s conven-
tional internally focussed orientation. While the
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.01.003
*
Corresponding author. Fax: +61 7 5552 8507.
E-mail addresses: [email protected] (S. Cadez),
C.Guilding@gri?th.edu.au (C. Guilding).
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 836–863
www.elsevier.com/locate/aos
SMA literature has since grown substantially (Bhi-
mani & Lang?eld-Smith, 2007; Bromwich, 1988,
1990, 1992; Brouthers & Roozen, 1999; Cadez,
2002; Coad, 1996; Cravens & Guilding, 2001;
Dixon, 1998; Guilding, Cravens, & Tayles, 2000;
Hoque, 2001; Lord, 1996; Moores & Chenhall,
1993; Palmer, 1992; Rickwood, Coates, & Stacey,
1990; Roslender, 1995; Roslender & Hart, 2003;
Roslender, Hart, & Ghosh, 1998; Ryan, 1995;
Shank & Govindarajan, 1988, 1992, 1993; Sim-
monds, 1982; Smith, 1997; Szendi & Shum, 1999;
Tayles, Bramley, Adshead, & Farr, 2002; Tomkins
& Carr, 1996; Ward, 1992; Wilson, 1991), there is
still limited consensus on what is meant by ‘‘strate-
gic management accounting”. Despite this atten-
tion, it is notable that SMA su?ers from a
relative dearth of empirically based research. The
SMA empirical works conducted by Lord (1996),
Szendi and Shum (1999), Guilding et al. (2000),
Cravens and Guilding (2001), Roslender and Hart
(2003), and Bhimani and Lang?eld-Smith (2007)
stand in relative isolation. The paradox of high
SMA interest yet minimal empirical enquiry pro-
vided the broad motivation for the study reported
herein.
The study has three main objectives. The ?rst is
to further re?ne the SMA notion. This re?nement
is provided by outlining two distinct, yet comple-
mentary, perspectives of SMA. The ?rst perspec-
tive involves viewing SMA as comprising a set of
strategically oriented (in contrast to accounting’s
conventional operational orientation) manage-
ment accounting techniques. These techniques
have already been commented on in several earlier
works (Cravens & Guilding, 2001; Guilding et al.,
2000; Roslender & Hart, 2003; Szendi & Shum,
1999). The second perspective considers the poten-
tial for greater management accounting engage-
ment in the strategic management process.
Traditionally, management accounting’s jurisdic-
tion has been viewed as con?ned to the role of pro-
viding information designed to assist management
decision making and control (Kaplan & Atkinson,
1989). An evolving view holds that management
accountants should assume a more active role in
the strategic management process (Bhimani &
Keshtvarz, 1999; Nyamori, Perera, & Lawrence,
2001; Palmer, 1992; Scott & Tiessen, 1999).
The study’s second objective is to further our
appreciation of SMA systems in their organiza-
tional context by advancing a contingency-based
SMA framework. Contingency theory posits that
organizational structures and systems are a func-
tion of environmental and ?rm-speci?c factors
(Anderson & Lanen, 1999; Chenhall, 2003; Ger-
din, 2005; Gerdin & Greve, 2004; Haldma &
Laats, 2002). In this study, four factors have been
noted as potentially carrying signi?cant implica-
tions for SMA system design. These are: (1) busi-
ness strategy, (2) degree to which adopted
strategy is deliberately formulated, (3) market ori-
entation, and (4) ?rm size.
The study’s third objective is to empirically
investigate the validity of the proposed SMA con-
tingency framework. While it is often claimed that
contingency theory has become the dominant par-
adigm in management accounting research (Dent,
1990; Fisher, 1995), such a view is questionable.
The central proposition of contingency theory
asserts that organizational performance depends
on the ?t between organizational context and
structure. This is a speci?c and complex proposi-
tion, because a conditional association of two or
more independent variables with a dependant var-
iable is hypothesized (Drazin & Van de Ven, 1985).
A closer look into many ‘‘contingency studies”
reveals, however, that conditional associations
are rarely appraised. Most studies would be better
described as ‘‘congruency” theory applications (a
congruent proposition hypothesizes that a simple
unconditional association exists among variables
in the model). In this study, following Gerdin
and Greve’s (2004) hierarchical taxonomy of
forms of ?t, a cartesian-contingency-mediation
form of ?t is tested via a structural equation model
based on data collected from 193 large Slovenian
companies.
Ittner and Larcker (2001) and Chenhall (2003)
advocate that studying the role of novel manage-
ment accounting practices within contemporary
settings is necessary to ensure that management
accounting research is relevant. Motivation for
conducting this study in a Slovenian context
derives from prior evidence suggesting that suc-
cessful transition economies’ economic and politi-
cal upheavals are often associated with the
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 837
application of relatively advanced business prac-
tices (Anderson & Lanen, 1999; Bogel & Huszty,
1999; O’Connor, Chow & Wu, 2004). It should
be acknowledged, however, that these are broadly
based claims that are not speci?c to Slovenia.
Slovenia’s change to a market economy began
in 1991. At that time, commercial management
expertise was very weak in areas such as market-
ing, general management and ?nancial manage-
ment (Edwards & Lawrence, 2000). Today,
however, Slovenia represents an example of a suc-
cessful transition from a socialist to a market econ-
omy (Edwards & Lawrence, 2000; Reardon,
Miller, Vida, & Kim, 2005) and appears to have
well-developed accounting applications (Cadez &
Guilding, 2007). Slovenia was granted full mem-
bership status to the European Union (EU) and
NATO in 2004. In 2007 it was the ?rst of 10 new
EU economies to satisfy the criteria for adopting
the Euro currency.
1
Slovenia can also be viewed
as the most economically advanced of the 10 new
EU countries, having recently surpassed the per
capita GDP of Greece and Portugal. Recognition
of Slovenian progress is also apparent from the
fact that in 2008 it was the ?rst of the new EU
states to take up presidency of the EU. The World
Factbook (2006) records that in 2005, 60% of
Slovenia’s GDP comprised services, 37% came
from manufacturing and 3% came from agricul-
ture. Manufactured goods, machinery and trans-
port equipment, chemicals (including
pharmaceuticals) and food comprise the main
exports and total exports represent more than
50% of Slovenia’s total GDP.
The remainder of the paper is organized as fol-
lows. In the next section, the SMA concept is fur-
ther explored. Following this, the contingency
model of SMA is developed, together with a set
of testable hypotheses. In subsequent sections,
the research method is described, the ?ndings are
outlined and the conclusion provides an overview
of the most salient issues arising from the study.
What is strategic management accounting?
While the recent past has seen increased interest
in SMA, the area is still under de?ned and no uni-
versally accepted SMA framework exists (Coad,
1996; Nyamori et al., 2001; Roslender & Hart,
2003; Tomkins & Carr, 1996). A review of the
literature suggests two perspectives on SMA can
be taken. Firstly, SMA can be conceived of as
comprising a set of strategically oriented account-
ing techniques. Secondly, SMA can be viewed as
concerned with the involvement of accountants
in corporate strategic decision-making processes.
These two perspectives are explored now.
Strategic management accounting techniques
Guilding et al. (2000) provided an original dis-
tillation of SMA techniques and also criteria for
viewing a particular accounting technique as ‘‘stra-
tegic”. They noted that in much of conventional
management accounting, a one year time frame
is assumed and that an inward focus tends to
predominate. These characteristics highlight a
non-strategic orientation in much conventional
management accounting, as strategy implies a
long-term future-oriented time frame and an exter-
nally focussed perspective (Andrews, 1987; Hunger
& Wheelen, 1996; Mintzberg, 1987a; Mintzberg,
Quinn, & Voyer, 1995; Porter, 1996). Guilding
et al. (2000) consequently advocated that these
characteristics might be usefully drawn upon when
determining what accounting techniques qualify as
SMA. In their view, the techniques should demon-
strate degrees of the following orientations: envi-
ronmental (outward-looking) and/or long-term
(forward-looking).
Employing these criteria, Guilding et al. (2000)
drew 12 SMA techniques from the literature. In a
subsequent work, Cravens and Guilding (2001)
added another three techniques. Drawing exten-
sively on these works, 16 SMA techniques have
been identi?ed for analysis in this study. These
techniques have been classi?ed into ?ve broad
categories. Three of the categories correspond to
underlying themes of management accounting
acknowledged in many management accounting
texts: (1) costing, (2) planning, control and
1
The 10 new countries admitted to the EU in 2004 were:
Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia and Slovenia. Two further countries
were admitted in 2007: Bulgaria and Romania.
838 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
performance measurement, and (3) decision-mak-
ing. The remaining two categories have been
labelled ‘‘competitor accounting” and ‘‘customer
accounting”. The techniques are presented in
Table 1.
Accountant’s participation in strategic decision
making processes
Paralleling the development of strategically ori-
ented management accounting techniques, several
recent commentaries suggest that accountants are
assuming a greater role in the strategic manage-
ment process (Bhimani & Keshtvarz, 1999; Fern
& Tipgos, 1988; Palmer, 1992). Chenhall (2008)
feels SMA practices have moved management
accounting from an emphasis on operational
issues to a more strategic orientation through an
integration of customers, processes, HR and ?nan-
cials. Some see the signi?cance of this to be such
that a new concept, ‘‘the strategic accountant”,
has emerged.
As a reaction to more competitive and uncer-
tain market environments, ?rms have adopted a
more pronounced customer oriented posture. This
has been manifested by the emergence of more
cross-functional team-based structures (Baines &
Lang?eld-Smith, 2003; Chenhall & Lang?eld-
Smith, 2003; Rowe, Birnberg, & Shields, 2008;
Scott & Tiessen, 1999). The term ‘horizontal orga-
nization’ has evolved to re?ect organisations that
emphasise the integration of activities across the
value chain to support a customer-focused strat-
egy, thereby ?attening conventional vertical struc-
tures (Chenhall, 2008).
Oliver (1991) and Scott & Tiessen (1999) argue
that in stark contrast to their more traditional
counterparts, strategic accountants are integral to
strategic decision-making processes. The more
mundane accounting tasks traditionally associated
with the profession are being increasingly auto-
mated, freeing accountants to become involved in
broader spheres of management activity. Strategic
accountants can be viewed as proactive in analyzing
broader business management issues rather than
those narrowly de?ned by a ?nancial orientation,
and also more customer-oriented by providing
greater counsel to clients (Chenhall & Lang?eld-
Smith, 1998a; Coad, 1996; Nyamori et al., 2001).
Roslender and Hart (2003) see SMA as intimately
associated with marketing management.
Table 1
Management accounting techniques exhibiting strategic
orientation
SMA technique
categories
SMA techniques
a
Costing 1. Attribute costing (Bromwich, 1990;
Roslender & Hart, 2003)
2. Life-cycle costing (Czyzewski & Hull,
1991; Dunk, 2004; Shields & Young,
1991)
3. Quality costing (Belohlav, 1993; Heagy,
1991)
4. Target costing (Cooper & Slagmulder,
1999; Monden & Hamada, 1991)
5. Value-chain costing (Dekker, 2003;
Hergert & Morris, 1989; Shank &
Govindarajan, 1992)
Planning, control
and performance
measurement
1. Benchmarking (Elnathan et al; 1996;
Brownlie, 1999)
2. Integrated performance measurement
(Chenhall, 2005; Ittner et al., 2003;
Kaplan & Norton, 1992; Kaplan &
Norton, 1996; Libby, Salterio, & Webb,
2004)
Strategic decision-
making
1. Strategic costing (strategic cost
management) (Shank, 1996; Shank &
Govindarajan, 1988, 1993)
2. Strategic pricing (Rickwood et al.,
1990; Simmonds, 1982)
3. Brand valuation (Cravens & Guilding,
1999; Guilding, 1992)
Competitor
accounting
1. Competitor cost assessment
(Bromwich, 1990; Jones, 1988;
Simmonds, 1981; Ward, 1992)
2. Competitive position monitoring
(Rangone, 1997; Simmonds, 1986)
3. Competitor performance appraisal
(Moon & Bates, 1993)
Customer
accounting
1. Customer pro?tability analysis (Bellis-
Jones, 1989; Ward, 1992; Zeithaml, 2000)
2. Lifetime customer pro?tability analysis
(Foster & Gupta, 1994; Jacob, 1994)
3. Valuation of customers as assets
(Foster, Gupta, & Sjoblom, 1996; Slater
& Narver, 1994; Zeithaml, 2000)
a
Brief descriptions of these techniques are provided in the
Appendix, while more extensive descriptions of most of these
techniques are provided in Guilding et al. (2000) and Guilding
and McManus (2002).
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 839
This concept of strategic accounting builds on
close relationships with non-accounting personnel,
where accountants assume a liaison role across
functional boundaries and between levels of man-
agement (Coad, 1996; Parker & Kyj, 2006; Rowe
et al., 2008). In the literature, several terms have
emerged in connection with this liaison role: busi-
ness partnership (Oliver, 1991), coordination (Pal-
mer, 1992), inter-departmental teams (Scott &
Tiessen, 1999), teamwork (Bromwich, 2000), inter-
functional cooperation (Roslender & Hart, 2003),
team-based structures (Baines & Lang?eld-Smith,
2003), cross-functional teams (Rowe et al., 2008),
and horizontal accounting (Chenhall, 2008).
In the past, there appears to have been a tendency
for parochial, functionally based, claims to data
ownership which have impeded centralised infor-
mation gathering. This appears to be becoming
less prevalent in contemporary settings (Rowe
et al., 2008). Brouthers and Roozen (1999) propose
that the process of information management be
centralized in the accounting department, since
accountants are already trained in data
management.
These changes signify a dramatic shift in the
underlying accounting paradigm. Strategic man-
agement accountants are no longer seen as just
information providers, they are seen more as
active players in the strategic management process,
with power to achieve their own ends (Chenhall,
2003). Roslender et al. (1998) note, however, that
if accountants cannot cope with the challenges pre-
sented by this evolving role, then another function
will move to provide information management ser-
vices. Hoque (2001) feels accountants have histor-
ically exhibited an adeptness when reacting to new
management contexts and sees no reason why the
emergence of the strategic accountant should not
be consolidated.
Towards a contingency framework of strategic
management accounting
Chenhall (2003) has provided an overview of
contingency-based studies of management
accounting. These studies have a long tradition
dating back to the works of Gordon and Miller
(1976), Waterhouse and Tiessen (1978), Ginzberg
(1980), and Otley (1980) and the contingency
approach quickly became the dominant paradigm
in empirical management accounting research
(Dent, 1990; Fisher, 1995).
Chenhall and Lang?eld-Smith (1998b) and
Chenhall (2003) contend that contingency-based
management accounting research should employ
organizational performance as the dependant var-
iable, a view suggesting that many studies that
have been described as ‘‘contingency-based” stud-
ies (e.g., Bruggeman & Van der Stede, 1993; Carr
& Tomkins, 1996; Chenhall & Morris, 1986;
Chow, Shields, & Wu, 1999; Fisher, 1996; Gerdin,
2005; Gordon & Narayanan, 1984; Guilding,
1999; Guilding & McManus, 2002; Haldma &
Laats, 2002; Libby & Waterhouse, 1996; Moores
& Yuen, 2001; O’Connor, Deng, & Luo, 2006;
Reid & Smith, 2000; Sharma, 2002), might be
better described as applications of a ‘‘congruency
paradigm”.
Another issue relating to contingency-based
studies concerns the operationalisation of contin-
gency ?t. Drazin and Van de Ven (1985) see the
emergence of three di?erent approaches to
appraising ?t: selection, interaction and systems.
The studies identi?ed in the preceding paragraph
fall within the selection approach, signifying they
do not examine whether the context-structure rela-
tionship a?ects performance. The interaction
approach has also been used relatively widely
(e.g., Abernethy & Brownell, 1999; Abernethy &
Guthrie, 1994; Chenhall, 1997; Davila, 2000;
Govindarajan & Gupta, 1985; Gul & Chia, 1994;
Ittner & Larcker, 1997; Mia & Chenhall, 1994),
despite the ambiguities that render this approach
methodologically problematical (see Gerdin &
Greve, 2004; Hartmann & Moers, 1999, 2003). A
systems approach, addressing multiple contingen-
cies simultaneously, has been much less extensively
applied (e.g., Chenhall & Lang?eld-Smith, 1998b;
Selto, Renner, & Young, 1995). Chenhall (2003)
provides an extension to Drazin and Van de Ven’s
(1985) classi?cation by referring to a fourth struc-
tural relationship category that concerns interven-
ing variables.
While these issues have no doubt contributed to
the fair degree of inconsistent ?ndings emanating
840 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
from this body of management accounting work,
certain themes and consistencies that provide a
basis for further model development can be identi-
?ed (Chenhall, 2003; Fisher, 1995; Gerdin &
Greve, 2004; Ittner & Larcker, 2001; Lang?eld-
Smith, 1997). We have little in the way of prior
empirical observations upon which to build a con-
tingency theory of SMA, however. This problem is
exacerbated by the inconsistent interpretations of
what constitutes SMA. For the purpose of this
study, it was therefore important that SMA be
identi?ed with su?cient clarity to enable it to be
viewed as comprising a coherent subset of manage-
ment accounting practices. As already noted, Guil-
ding et al.’s (2000) view of SMA as comprising
techniques that are environmental (outward-look-
ing) and/or long-term (forward-looking) has been
drawn on in this study. This operationalisation
carries a subtle, yet signi?cant, unifying aspect.
As noted by Guilding et al., the orientation of most
conventional management accounting practices
appears to be relatively distinct from SMA’s orien-
tations, due to their tendency to exhibit an inward
looking, short-term and historically focused nat-
ure. This signi?es that the SMA practices exam-
ined in this study focus on an information set
that is fairly distinct from the information set cap-
tured by conventional management accounting
practices.
Drawing on Fisher’s (1995) view that the ulti-
mate goal of contingent accounting research
should be to develop and test a comprehensive
model that includes multiple elements of account-
ing systems and multiple contingent variables,
Fig. 1 presents a model concerned with the contin-
gency context of SMA. The model includes four
contingency factors, the two perspectives of
SMA noted above and organizational perfor-
mance as a dependent variable.
At the heart of the model are SMA usage (this
refers to the usage of SMA techniques) and
accountant participation in strategic decision mak-
ing processes. Consistent with prior related contin-
gency-based studies (e.g., Anderson & Lanen,
1999; Chenhall & Lang?eld-Smith, 1998b; Cravens
& Guilding, 2001; Gerdin, 2005; Guilding, 1999;
Guilding & McManus, 2002; Hoque & James,
2000; O’Connor et al., 2006), both these general
level (holistic) dimensions of SMA are modeled
as endogenous constructs in the model.
The contingency factors identi?ed as potentially
implicated in the design of e?ective SMA (exoge-
nous constructs in the model) derive from conven-
tional theories of organizational structure, referred
to as the strategy-structure-performance paradigm
by Anderson and Lanen (1999). Hambrick (1980)
sees strategy as a concept particularly worthy of
empirical investigation due to its potential associa-
tion with many other organizational facets. In this
study the focus is on business level strategy which
has been operationalized using Miles and Snow’s
(1978) prospector/defender typology, due to its
applicability across a range of industrial settings
(Smith, Guthrie, & Chen, 1989).
Most early descriptions of strategy imply that it
arises from a deliberate stream of decisions
(Andrews, 1987; Miles & Snow, 1978), however
it appears many organizations’ strategy can be
characterised better as emergent rather than prede-
termined (Mintzberg, 1987a, 1987b; Mintzberg
et al., 1995). Mintzberg (1987b) sees strategy as a
craft and stresses the ambiguous and messy nature
of strategic decisions. Most empirical management
accounting research concerned with strategy pre-
sumes deliberate strategy formulation (Lang?eld-
Smith, 1997). Where strategy formulation has less
of a predetermined and deliberate orientation, for-
mal management accounting systems imposing
constraints and discipline may be counter-produc-
tive (Ittner & Larcker, 1997). The relatively under-
explored nature of this dimension of strategy moti-
vated its inclusion in the SMA examination
reported herein.
2
The inclusion of market orientation for exami-
nation in the study was also partially motivated
by a lack of recognition given to the construct by
accounting researchers. This is somewhat surpris-
ing, given the importance a?orded to this variable
2
This aspect of strategy is especially pertinent in transition
economies, such as Slovenia, because it is often argued that
management in these countries only became immersed in
serious strategic planning following the conversion to a
market-based economy (Bogel & Huszty, 1999). This might
well signify high variability with respect to the degree that
strategy formulation is conducted in a deliberate manner in
transition economies.
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 841
by marketing academics. Narver and Slater (1990)
view market orientation as central to modern man-
agement and strategy. It appears particularly
appropriate for inclusion as a contingent factor
in this study as it appears to bear a close associa-
tion with the distinctive characteristics of SMA
(Roslender & Hart, 2003). The inclusion of com-
pany size in the model was motivated by its
reported contingent signi?cance in several prior
accounting studies (Guilding, 1999; Libby &
Waterhouse, 1996; Merchant, 1981).
The dependant variable in the model is com-
pany performance. The fundamental tenet of con-
tingency theory holds that company performance
is a product of an appropriate ?t between the
structure (SMA system) and context (contingency
factors). Consequently, it is assumed that both
high and low performing companies exist as a
result of more or less compatible combinations
of context and structure (Gerdin & Greve, 2004;
Ittner & Larcker, 2001). Stated alternatively, good
?t implies enhanced performance, while poor ?t
implies diminished performance (Chenhall, 2003).
In this study, following Gerdin and Greve’s
(2004) taxonomy of forms of contingency ?t, a
cartesian-contingency-mediation form is tested. At
the top level, the Cartesian and con?guration
forms represent con?icting paradigms. Advocates
of a Cartesian approach argue that ?t between
context and structure falls within a continuum.
This is contrary to analysts advocating a con?gura-
tion approach which sees only a few states of ?t. In
the contingency approach, ?t is understood as sig-
nifying a positive impact on performance due to
certain combinations of context and structure.
This can be distinguished from the congruent
approach which assumes that structure depends
on context, without any examination made of
whether this relationship a?ects performance.
Hypotheses relating SMA to performance
SMA usage – performance
The major function of an information system
is to support managerial decision-making and
control (Abernethy & Bouwens, 2005; Gelinas,
Sutton, & Oram, 1998). Gupta (1987) argues that
unless an organization’s strategic information-
processing capacity adequately meets its needs,
the decisions that emerge will be ?awed or late,
thereby resulting in suboptimal performance.
These expectations derive from economic models
of decision making which assert that in uncertain
conditions, the provision of better information
results in improved resource allocation (Baines
& Lang?eld-Smith, 2003; Christensen & Demski,
2003) and an enhanced positive outcome likeli-
hood (Christensen & Feltham, 2003). A condi-
tional association is thus assumed that better
information facilitates more e?ective managerial
Strategy type
prospector/defender
Deliberate strategy
formulation
Market
orientation
Company
size
Accountants'
participation in
strategic decision
making processes
SMA
usage
Performance
H1a+
H1b+
H0+
H2d+
H2a+
H2c+
H2b+
H2e+
H3b+
H3a+
H3c+
Fig. 1. Contingency model of strategic management accounting (main e?ects model).
842 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
decisions, which in turn enhance organizational
performance (Baines & Lang?eld-Smith, 2003;
Chenhall, 2003). While this relationship might
be intuitively appealing, Chenhall (2003) warns
against poorly conceived leaps of logic. The exact
nature of the relationship is ambiguous (Baines &
Lang?eld-Smith, 2003) as the e?cacy of MAS is
dependent on organisational contextual factors
(Chenhall, 2007) and its compatibility with
managers’ mental models (De Haas & Algera,
2002).
The relationship between management
accounting usage and performance has been sub-
jected to extensive empirical investigation. This
accumulated work provides a somewhat equivo-
cal picture (Chenhall & Moers, 2007). While most
studies provide some support for the view that
greater management accounting (broad scope
information) usage is positively associated with
performance (e.g., Abernethy & Guthrie, 1994;
Baines & Lang?eld-Smith, 2003; Chong &
Chong, 1997; Cravens & Guilding, 2001; Gul &
Chia, 1994; Hoque & James, 2000; Ittner, Larc-
ker, & Randall, 2003; Mahama, 2006; Mia &
Chenhall, 1994; Mia & Clarke, 1999; Scott &
Tiessen, 1999; Vandenbosch, 1999), in many of
these studies the relationship is inconclusive and
context dependent. For example, the use of broad
scope information has been found to have a more
positive e?ect on performance in prospector than
in defender ?rms (Abernethy & Guthrie, 1994), in
the presence of high environmental uncertainty
(Agbejule, 2005; Gul & Chia, 1994), and for mar-
keting managers relative to production managers
(Mia & Chenhall, 1994). Further, team perfor-
mance has been observed to be higher when a
comprehensive measurement system is combined
with greater participation in performance target
setting (Scott & Tiessen, 1999). Ittner et al.
(2003) report that broad set information usage
is positively associated with stock returns, how-
ever it is not associated with ROA and sales
growth. Abernethy and Bouwens (2005) claim
an important intervening role for user satisfaction
in the relationship between acceptance of
accounting innovations and performance. Some
studies have documented no, or even a negative,
association between accounting information and
performance. Ittner and Larcker (1997) observed
several strategic control practices to be negatively
associated with performance. Perrera, Harrison,
and Poole (1997) found no association between
use of non-?nancial performance measures and
performance. Agbejule (2005) reports that under
low levels of perceived environmental uncertainty,
sophisticated MAS has a negative e?ect on
performance.
While acknowledging these studies’ mixed out-
comes, there appears to be a preponderance of
?ndings pointing to a positive association between
accounting information usage and performance.
In the context of this study, it is also important
to recognise SMA’s quality of providing incremen-
tal information not garnered by a conventional
accounting system. These factors have motivated
the following hypothesis.
H3a: Greater SMA usage is positively associated
with performance.
Strategic decision making participation –
performance
In increasingly competitive and uncertain mar-
ket contexts, the creation of inter-departmental
teams can improve the speed and quality of an
organization’s reaction to environmental develop-
ments, thus improving performance (Baines &
Lang?eld-Smith, 2003; Rowe et al., 2008; Scott
& Tiessen, 1999). Heterogeneous senior manage-
ment teams are better equipped to recognize stra-
tegic opportunities, and the representation of a
greater breadth of functional perspectives
enhances more informed strategy identi?cation
(Naranjo-Gil & Hartmann, 2007). Again, a condi-
tional association is assumed that increased partic-
ipation facilitates more e?ective managerial
decisions, which in turn enhances organizational
performance (Wooldridge & Floyd, 1990; De Haas
& Kleingeld, 1999). Relative to their more tradi-
tional counterparts, strategic accountants can be
seen to provide a distinct perspective when acting
as an integral part of key organizational deci-
sion-making processes (Oliver, 1991; Scott & Ties-
sen, 1999). By being customer-oriented, proactive
in analyzing business issues, liaising across func-
tional boundaries and levels of management
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 843
(Coad, 1996; Parker & Kyj, 2006; Rowe et al.,
2008), and by centralizing information manage-
ment in modern intelligence centres, the relevance,
accuracy and timeliness of information is increased
(Brouthers & Roozen, 1999). Further, by nurtur-
ing a partner relationship with all the functions
in the business they can add value to the deci-
sion-making process (Nyamori et al., 2001; Rowe
et al., 2008; Wooldridge & Floyd, 1990), thereby
facilitating improved performance.
The relationship between participation and
performance has been the subject of extensive
management accounting empirical investigation,
however the vast majority of studies have focused
on budgetary participation and job performance
(e.g., Chong & Johnson, 2007; Clinton & Hun-
ton, 2001; Lau & Lim, 2002; Mia, 1989; Nouri
& Parker, 1998; Parker & Kyj, 2006; Shields,
Deng, & Kato, 2000). Prior works investigating
participation in strategic decision-making and
organizational performance are few. Wooldridge
and Floyd (1990) provide evidence that middle
management involvement in strategy is associated
with improved performance. Scott & Tiessen
(1999) ?nd that inter-departmental involvement
has an indirect positive e?ect on team perfor-
mance via the application of more diverse perfor-
mance measures. Contrary to these ?ndings,
Chenhall and Lang?eld-Smith (2003) document
a case study analysis where team-based initiatives
did not appear to enhance performance. As the
prior empirical literature concerning a relation-
ship between inter-departmental participation
and performance is relatively sparse, the follow-
ing hypothesis has been primarily informed by
what appears to be the conventional normative
view.
H3b: Greater accountant participation in strate-
gic decision making is positively associated with
performance.
Strategic decision making participation – SMA
usage
Greater involvement of accountants in strat-
egy formulation and implementation will incul-
cate accountants with a more profound
appreciation of the nature of the information
needs posed by strategic management. In turn,
this can be expected to result in accountants
instigating accounting innovations (Abernethy
& Bouwens, 2005), such as novel SMA tech-
niques, that are more market and future focused
(Coad, 1996; Nyamori et al., 2001; Otley, 1999).
Further, accountants’ involvement in strategic
decision making will instill a greater appreciation
of the justi?ability of expending resources devel-
oping SMA systems and also incurring on-going
costs associated with running and maintaining
the systems (Christensen & Demski, 2003; Chris-
tensen & Feltham, 2003). A positive association
between participation in strategic decision mak-
ing and SMA usage therefore appears likely, as
greater participation can be seen as providing
both a motive and a pressure for accountants
to add value to the strategic decision-making
process (Oliver, 1991).
There is some empirical evidence supportive of
such an expectation. Abernethy and Bouwens
(2005) found that decision-rights’ decentralisation
is a factor that contributes to the e?ective imple-
mentation of accounting innovations. Baines and
Lang?eld-Smith (2003) report that greater use of
team-based structures results in greater reliance
on non-?nancial management accounting infor-
mation. This is also consistent with Gerdin’s
(2005) ?nding that organizations tailor the design
of management accounting systems (MAS) to
organisationally contingent control factors. On
the other hand, Naranjo-Gil and Hartmann
(2007) found no relationship between top manage-
ment team heterogeneity and broad scope design
of MAS in Spanish public hospitals. Further,
Chenhall and Lang?eld-Smith (1998a) suggest a
reciprocal relationship signifying accountants’
participation in organizational change is depen-
dent on senior management’s support for account-
ing innovations. Again, in light of the limited prior
empirical ?ndings, the following hypothesis has
been motivated primarily by a priori reasoning
and what appears to be a consensus view in the
normative literature.
H2e: Greater accountant participation in strate-
gic decision making is positively associated with
SMA usage.
844 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
Hypotheses relating contingency factors, SMA
system, and performance
Business strategy
Miles and Snow (1978) identi?ed three preferred
organizational strategies (prospectors, analyzers,
and defenders), and noted a fourth type (reactor)
that they viewed as unsustainable. Miles and Snow
see analyzers as adopting a hybrid form of strategy
that manifests both defender and prospector attri-
butes and considerable evidence suggests that
defenders and prospectors de?ne a continuous
spectrum with analyzers represented around the
mid-point of the continuum (Anderson & Lanen,
1999; Doty, Glick, & Huber, 1993; Shortell &
Zajac, 1990; Smith et al., 1989). Prospectors are
seen as continually searching for product and mar-
ket opportunities and as being the creators of inno-
vation in a market. Defenders on the other hand
are less dynamic, the key to their success is a focus
on e?ciency. Since environmental and future ori-
entation are prominent factors in both a prospector
type strategy and SMA, we expect SMA techniques
to be more widely applied in prospector than defen-
der organizations. This is consistent with Guil-
ding’s (1999) reported positive relationship
between the application of a prospector strategy
and competitor focused accounting.
H2a: SMA usage is greater in prospector type
companies than in defender type companies.
Adopted business strategy can be expected to
in?uence the degree of accountants’ participation
in the strategic decision making process. Prospec-
tors are continually searching for opportunities
in the environment, while defenders focus on e?-
ciency. In the language of Porter (1996), prospec-
tors are more concerned with strategic
positioning, while defenders are more concerned
with operational e?ectiveness. Since strategy mak-
ing requires broad inter-functional discussion
(Bromwich, 2000; Nyamori et al., 2001; Palmer,
1992), while operational e?ciencies tend to be
sought with an intra-departmental philosophy,
we expect accountants’ participation in strategic
decision making processes to be greater in organi-
zation’s applying a prospector-type strategy.
H1a: Accountants’ participation in strategic
decision making is greater in prospector type
companies than in defender type companies.
Deliberate strategy formulation
This strategic dimension focuses on the extent
to which a company adopts a deliberate approach
in its strategy formulation. Mintzberg (1987a)
proposes that strategy is a pattern in a stream
of actions, regardless of whether the pattern is
intended. This suggests ?rms can di?er with
respect to whether they exhibit a deliberate and
predetermined strategy formulation orientation
or a more emergent strategy formulation orienta-
tion where patterns develop in the absence of
intentions, or in spite of them. In practice, pure
deliberate and pure emergent strategies are
uncommon (Mintzberg, 1987b; Mintzberg et al.,
1995). A deliberate strategy is a consciously
intended course of action implying constant dis-
cussion about strategic actions, whereas an emer-
gent strategy highlights the ambiguous nature of
strategic decisions implying considerable ?exibil-
ity (Bhimani & Lang?eld-Smith, 2007; Lang-
?eld-Smith, 1997). The more active management
of strategy in those organizations practising a
deliberate strategic management philosophy
suggests a greater call for strategically oriented
information such as that provided by an SMA
system. This rationale motivated the following
hypothesis:
H2b: SMA usage is greater in companies that
take a deliberate approach to strategy
formulation.
A deliberate strategy, represented as a con-
sciously intended course of action, implies fre-
quent discussions about strategy where for its
e?ectiveness the involvement of all functional
areas, including (strategic) accountants, is
required (Bromwich, 2000). It signi?es greater
intra-organizational debate and deliberation con-
cerning what strategy is to be pursued. Hence,
we posit that a more deliberate strategy formula-
tion orientation results in greater accounting
participation in strategic decision making
processes.
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 845
H1b: Participation of accountants in strategic
decision making is greater in companies that take
a deliberate approach to strategy formulation.
Fisher (1995) claims that relationships between
contingent factors are poorly documented. As a
result, he promotes exploration of these relation-
ships, although he warns that this can lead to a
problem of con?icting contingencies. Following
Fisher’s encouragement, it appears reasonable to
expect a relationship between the two dimensions
of strategy under analysis. As companies applying
a prospector strategy have to make strategic deci-
sions with respect to what type of product/market
innovations should be pursued and also the timing
of product/market launches, it appears reasonable
to expect prospectors to take a relatively deliberate
approach to strategy formulation. In e?ect, pros-
pecting decisions will have to be deliberated (Dav-
ila, 2000). This does not appear to be as much the
case in defenders as the thrust of their strategy is at
an operational, e?ciency seeking level (Porter,
1996). Consistent with this reasoning, and sup-
ported by evidence from Simons (1987), it is
expected that strategic management processes are
more structured (deliberate) in prospector than in
defender organizations.
H0: Deliberate strategy formulation is more
developed in prospector than defender
organizations.
Market orientation
A market orientation philosophy holds that
planning and coordination of all company activi-
ties is focused on the primary goal of satisfying
customer needs (Jaworski & Kohli, 1993; Walker,
Boyd, & Larreche, 1998). Market orientation can
thus be de?ned as a business culture that e?ectively
and e?ciently creates superior value for customers
(Narver & Slater, 1990). Narver and Slater see the
concept as comprising three behavioral compo-
nents and two decision criteria: customer orienta-
tion, competitor orientation, interfunctional
coordination, a long-term focus, and a pro?t
objective. As many of these facets are closely
aligned to SMA, a positive relationship between
market orientation and SMA usage is anticipated.
Further, Guilding and McManus (2002) note a
positive association between market orientation
and the application of customer accounting.
H2c: SMA usage is greater in market-oriented
companies.
Marketing academics and managers have con-
tinuously claimed that increased levels of market
orientation are consistent with higher levels of
market performance (Narver & Slater, 1990;
Walker et al., 1998). As there is ample evidence
supporting this proposition (Jaworski & Kohli,
1993; Narver & Slater, 1990; Slater & Narver,
1994), the following hypothesis has been
developed.
H3c: Market orientation is positively associated
with performance.
Company size
It is an enduring ?nding that company size is
positively related to accounting sophistication
(Guilding, 1999; Libby & Waterhouse, 1996; Mer-
chant, 1981). Company growth poses increased
communication and control problems, therefore
accounting and control processes become more
specialized and sophisticated (Hoque & James,
2000). Further, increased company size results in
lower relative costs (i.e. per sale) of information
processing (Guilding, 1999; Johnson & Kaplan,
1987). Consistent with this rationale, the following
hypothesis has been posited.
H2d: SMA usage is greater in larger companies.
Research method
Sampling procedure
Data were collected using a mailed question-
naire survey. An initial sample was drawn from
the Slovenian Chamber of Commerce and Trade
disclosure of the 500 largest Slovenian companies
(in terms of total revenue). This listing includes
all industrial sectors except for ?nancial intermedi-
aries. To include ?nancial intermediaries in the
846 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
raw sample, two further databases were drawn
upon: the Slovenian Banking Association database
and the Slovenian Insurance Association database.
This resulted in a raw sample of 520 companies. A
second size ?lter was imposed to screen out com-
panies with less than 100 employees. The sample
was further reduced due to incorrect or incomplete
mailing addresses for some cases. The ?nal sample
comprised 388 companies.
As part of a strategy to develop an accurate
mailing list and secure a high response rate, a
phone call was lodged with each company and
the name of the most suitable person to complete
the survey was identi?ed. These were typically
the Chief Accountant, Chief Controller, or Chief
Financial O?cer. In most cases, the particular
manager was spoken to and the purpose of the
research explained. The mailed survey package
included a covering letter explaining the purpose
of the research, a copy of the survey with a glos-
sary of terms used and a postage-paid reply enve-
lope. The ?rst mailing resulted in 124 usable
responses. A reminder letter was posted one month
following the initial mail-out. This yielded an addi-
tional 69 responses. Thus the overall usable
response rate was 49.7%.
The industrial sectors represented in the sam-
ple analysed are presented in Table 2. Companies
comprising the sample had an average annual
sales level of €92.7 million. The smallest com-
pany’s annual sales level was €13.5 million and
the largest company’s annual sales level was
€1.2 billion. In terms of employees, the compa-
nies analysed had an average number of 747
employees, with the smallest company employing
104 and the largest company employing 8765
sta?.
To investigate for possible non-response bias,
Kolmogorov–Smirno? tests of di?erences in the
responses provided by early and late respondents
(the ?rst and last 25% of questionnaires returned)
were conducted. No signi?cant di?erences
(p < 0.05) in the data provided by these sub-groups
were noted for any questions posed. While this
suggests little concern for non-response bias, it
should be acknowledged that accountants in ?rms
with relatively sophisticated accounting systems
may have been more inclined to respond than
those in ?rms with under-developed accounting
systems.
In addition to the quantitative data collected,
qualitative data has been collected by interviewing
senior accountants in ten of the surveyed organiza-
tions in order to secure a deeper understanding of
the nature of SMA and its context and also to
review the validity of the quantitative data ?nd-
ings. The companies represented by the intervie-
wees ranged in size and were drawn from a wide
range of industrial sectors (see Table 3). All inter-
views were conducted at the subject companies’
premises, were tape recorded, and had an average
duration of around 45 min. All interviews were
transcribed and translated into English by a bilin-
gual native Slovenian.
Variable measurement
SMA usage
The degree of SMA technique usage was
measured using the same approach as Cravens
and Guilding (2001) and Guilding and McManus
(2002). Following the question ‘‘To what extent
does your organization use the following
techniques?”, the 16 SMA techniques were listed
together with a Likert-type scale ranging from
‘‘1” (not at all), to ‘‘7” (to a great extent). A
glossary containing de?nitions of the SMA tech-
niques was provided to aid interpretation (see
Appendix).
Table 2
Industry classi?cation of the sampled companies
Industry Number
of ?rms
Percentage
of sample
Agriculture 1 0.5
Mining 2 1.0
Manufacturing 108 56.0
Public services and utilities 10 5.2
Construction 9 4.7
Wholesale and retail 30 15.5
Accommodation and food services 6 3.1
Transportation and logistics services 13 6.7
Financial intermediation services 8 4.1
Real estate and other commercial
services
6 3.1
Total 193 100.0
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 847
Accountant participation in strategic decision
making
The measure used draws on Wooldridge and
Floyd’s (1990) instrument designed to assess mid-
dle management involvement in strategic decision
making. Respondents were asked to record their
participation with respect to ?ve aspects of strate-
gic management: (1) identifying problems and pro-
posing objectives, (2) generating options, (3)
evaluating options, (4) developing details about
options, and (5) taking the necessary actions to
put changes into place. The scale anchors ranged
from ‘‘1” (not at all involved) to ‘‘7” (fully
involved).
Prospector/defender business strategy
The measure developed by Shortell and Zajac
(1990) was used. This instrument assesses an orga-
nization’s overall strategic orientation on a seven-
point scale, anchored at one end by a description
of a defender-type organization, and at the other
end by a prospector-type organization.
Deliberate strategy formulation orientation
Because this dimension of strategy has not been
operationalized in any known previous work, an
original measurement instrument had to be devel-
oped. In order to assess an organization’s extent of
deliberate strategy formulation orientation, three
statements were provided to respondents. Drawing
on Mintzberg’s (1987a) terminology, these state-
ments were: (1) ‘‘In our company, the strategic
decision-makers usually think through everything
in advance of strategic action” (2) ‘‘In our com-
pany, strategic intentions are seldom realized with
little or no deviation”, and (3) ‘‘In our company,
strategic action usually develops in the absence
of strategic intention”. Next to each statement, a
seven-point scale was provided, ranging from ‘‘1”
(strongly disagree) to ‘‘7” (strongly agree).
Market orientation
Market orientation was measured using the
same instrument applied by Guilding and McM-
anus (2002). Using a seven-point scale ranging
from ‘‘1” (not at all) to ‘‘7” (to a large extent)
respondents were asked to indicate to what extent
they agree with the following statements: ‘‘(1) My
company has a strong understanding of our cus-
tomers, (2) the functions in my company work clo-
sely together to create superior value for our
customers, (3) management in my organization
thinks in terms of serving the needs and wants of
well-de?ned markets chosen for their long-term
growth and pro?t potential for the company, and
(4) my company has a strong market orientation”.
Company size
Total revenues were used as the measure of
company size. Due to the non-normality of the
raw data collected, logarithmic transformation
was undertaken prior to the analysis.
Performance
Performance was measured using a slightly
modi?ed version of the Hoque and James (2000)
instrument. Two additional dimensions have been
added to Hoque and James’ ?ve dimensions of
performance. The original dimensions comprise:
(1) return on investment, (2) margin on sales, (3)
capacity utilization, (4) customer satisfaction,
and (5) product quality. The two additional
dimensions are (6) development of new products,
and (7) market share. For each of these seven
dimensions, respondents were asked to indicate
Table 3
Schedule of companies represented in interviews
Interviewee Nature of company
A A government owned railway operator that has
been accumulating losses for many years. The
company is subject to powerful trade union
in?uence
B A telecommunications company that is owned
by an Austrian based multinational
C A hotel operator that leases about 2% of the
Slovenian coastline
D A regional freight delivery company
E An electrical equipment manufacturer with
manufacturing facilities on all continents
F A manufacturer of electrical home appliances
with international brand recognition
G A manufacturer of basic construction materials
with a large mining operation
H A large mutual insurance company
I Manufacturer of sports equipment with an
internationally recognisable brand name
J Employee owned furniture manufacturer
848 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
their company’s performance relative to their com-
petitors on a scale ranging from ‘‘1” (below aver-
age) to ‘‘7” (above average).
Data analysis
In order to test the proposed contingency
model, the LISREL structural equation modelling
procedure was applied. This statistical technique
allows for the simultaneous estimation of multiple
and interrelated dependence relationships, has the
ability to represent unobservable concepts, and
accounts for the measurement error in the estima-
tion process (Ferligoj, Omladic, & Coenders, 2003;
Hair, Anderson, Tatham, & Black, 1998; O’Con-
nor et al., 2006). Smith and Lang?eld-Smith
(2004) advocate that SEM is particularly appropri-
ate for modelling relations between environment,
strategy, and organizational structure, because
theory in this area is relatively established and a
considerable body of knowledge exists.
Following the recommended two-step approach
(Anderson & Gerbing, 1988; Ferligoj et al., 2003;
Hair et al., 1998; Joreskog & Sorbom, 1993; Schu-
macker & Lomax, 1996), ?rstly the measurement
model was tested, then the structural model. The
measurement model is concerned with the mea-
surement properties (validities and reliabilities) of
the measurement instruments, while the structural
model is concerned with causal relationships
among the constructs and their relative explana-
tory power (Joreskog & Sorbom, 1993).
In the model speci?cation process, particular
attention was given to the potential for multi-
dimensionality in two of the constructs: SMA
usage and performance. Prior to testing the overall
contingency model, on theoretical grounds and
also in light of factor analytic observations, the
dimensionality of these two constructs was given
due consideration (Gerbing & Hamilton, 1996).
The comparison of alternative factor structure
models (Byrne, 1998; Joreskog & Sorbom, 1993)
revealed that best model ?t is achieved when
SMA usage is speci?ed as a ?ve-factor structure
and when performance is speci?ed as a two-factor
structure. It is notable that others have viewed
performance as a two-dimensional construct
comprising ?nancial and non-?nancial perfor-
mance (Kaplan & Norton, 1992, 1996; Chenhall,
2005).
Because the primary goal was to estimate rela-
tionships between constructs while increasing the
estimation model parsimony, a partial aggregation
approach (Bagozzi & Edwards, 1998) was taken to
represent multi-dimensional constructs.
3
This
means that each dimension was represented in
the model with a variable that was calculated as
an average of the retained original indicators.
For example, for the costing dimension of the
SMA usage construct, one composite item was cal-
culated as the mean of ?ve original items.
Findings
Structural equation model
A priori reasoning suggested that SMA usage is
a ?ve-dimensional construct (see Table 1) and per-
formance is a two-dimensional construct. Based
on the premise that exploratory factor analysis
can contribute to a useful heuristic strategy for
model speci?cation prior to cross-validation with
con?rmatory factor analysis (Gerbing & Hamil-
ton, 1996), both exploratory and con?rmatory fac-
tor analyses (?rst and second-order) were
conducted. The results con?rmed that best model
?t results when SMA usage is speci?ed as compris-
ing ?ve factors and performance is speci?ed as two
factors. Consistent with Table 1, the ?ve dimen-
sions of SMA usage have been labelled: (1) cost-
ing, (2) planning, control, and performance
measurement, (3) strategic-decision making, (4)
competitor accounting, and (5) customer account-
ing. The two dimensions of performance have been
labelled: (1) ?nancial performance, and (2) non-
?nancial performance.
3
The SMA techniques and performance dimensions were
consolidated into underlying factors to increase the model’s
parsimony. As an investigation of the reliability of the reported
model, an analysis of a second-order factor model incorporat-
ing all of the individual SMA technique adoption measures was
conducted. This yielded parameters identical to those in the
reported model, however the second-order factor model should
be viewed as potentially unstable, as the ratio of observations
per estimated parameter is below 3.
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 849
Using the partial aggregation approach for the
two multi-dimensional constructs, the total num-
ber of indicators entering the measurement model
is 21. The number of indicators per construct is:
SMA usage: 5 (i.e., the 16 techniques were col-
lapsed into 5 SMA dimensions by calculating com-
posite items); accountant’s participation in
strategic decision making: 5; business strategy: 1;
strategy deliberation: 3; market orientation: 4;
company size: 1; and performance: 2 (seven ques-
tionnaire items were collapsed into two main
dimensions). Constructs measured with only 1
indicator are problematic, because it is impossible
to empirically estimate their reliability. For these
constructs, one can either assume there is no mea-
surement error, or a reliability value for a single
measure must be speci?ed (Anderson & Gerbing,
1988; Hair et al., 1998; Schumacker & Lomax,
1996). Total revenues as an indicator of company
size is an objective measure obtained from a cred-
ible source, thus minimal measurement error can
be assumed. The measure of business strategy is,
however, not objective and it is unreasonable to
assume no error variance (Joreskog & Sorbom,
1993). Because of this, in light of arguments that
an arbitrary value of 0.8 is a better assumption
than an equally arbitrary value of 1 (Joreskog &
Sorbom, 1993; Schumacker & Lomax, 1996), it
has been assumed that the reliability of business
strategy is 0.8.
To estimate the measurement model, the maxi-
mum likelihood estimation method was used.
Input data was provided in the form of a vari-
ance-covariance matrix, supplemented with the
asymptotic covariance matrix (Schumacker &
Lomax, 1996). An initial estimate revealed a prob-
lem requiring a respeci?cation of the model. The
problem was a very high correlation (0.9) between
two of the participation in strategic decision mak-
ing items (evaluating options and developing details
about options) and this was resolved by dropping
the latter from the model. The respeci?ed model
?tted the data quite well with all major indices
(NFI = 0.938, NNFI = 0.970, CFI = 0.976;
SRMR = 0.054, RMSEA = 0.042) falling within
acceptable levels (Hair et al., 1998; Lance & Van-
denberg, 2002; Schumacker & Lomax, 1996) and
with standardized residuals symmetrically clus-
tered around the zero point (Byrne, 1998; Joreskog
& Sorbom, 1993). All of the factor loadings
exceeded 0.5 and were statistically signi?cant at
p < 0.01 level. Taking these factors into account,
it was determined that the measurement model
holds and the analysis progressed to testing the
structural model.
Prior to reporting the structural model testing
results, the correlation levels between constructs
in the measurement model are presented in
Table 4. Of the 21 relationships reported on in
this table, 18 are positively statistically signi?cant
(p < 0.05). Given the con?rmatory nature of the
study, of greatest interest is the 11 hypothesized
relationships (these correlations are highlighted
in bold in Table 4). All 11 correlations are statis-
tically signi?cant and consistent with what was
hypothesized. A very high correlation is evident
between the application of a prospector strategy
and performance. This relationship was not
hypothesized in the theoretical model. The ?nding
is surprising as it contradicts Miles and Snow’s
Table 4
Correlation coe?cients among constructs in the measurement model
Str-PD Str-DE Mo Size Part SMAu Perf
Business strategy (Str-PD) 1
Strategy deliberation (Str-DE) 0.39
**
1
Market orientation (Mo) 0.58
**
0.61
**
1
Company size (Size) 0.17
*
0.05 0.12 1
Participation (Part) 0.29
**
0.28
**
0.33
**
À0.07 1
SMA usage (SMAu) 0.63
**
0.53
**
0.62
**
0.20
*
0.51
**
1
Performance (Perf) 0.72
**
0.41
**
0.83
**
0.17
*
0.29
**
0.59
**
1
*
Coe?cient is statistically signi?cant at p < 0.05 level (two-tail).
**
Coe?cient is statistically signi?cant at p < 0.01 level (two-tail).
850 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
(1978) premise that both the prospector and
defender archetypes are ideal organizational
strategies.
The results of the structural model are pre-
sented in Fig. 2. In this ?gure, only ‘‘structural”
parameters (regression coe?cients and R
2
values)
are presented. These ?ndings signify support for
9 of the 11 hypothesized relationships. Accoun-
tants’ participation in strategic decision making
is positively associated with prospector strategy
and deliberate strategy (however these contingent
factors only explain 13% of the participation vari-
ance). SMA usage is positively associated with
three of the four contingent factors (prospector
strategy, deliberate strategy, and company size),
and also accountants’ participation in strategy
(explaining 62% of the variation in SMA usage).
With respect to the relationship between SMA
and performance, SMA usage exhibits a statisti-
cally signi?cant positive relationship, while strate-
gic decision making participation is not
signi?cantly related to performance. Performance
is also directly in?uenced by the contingent factor
market orientation. In combination, the variables
appraised explain 71% of the variation of
performance.
The hypothesised relationships that have not
been supported by the model also appear worthy
of comment. The structural model indicates that
SMA usage is not associated with market orienta-
tion, although in the measurement model there is a
relatively strong correlation between the two con-
structs. This can be explained by the very strong
direct relationship between market orientation
and performance which undermines the indirect
e?ect via SMA usage. It is also interesting that
strategic decision making participation does not
directly in?uence performance, however an indi-
rect e?ect exists between participation and perfor-
mance via SMA usage.
From a holistic perspective, the model is domi-
nated by a very strong direct e?ect of market
orientation on performance. This dominant rela-
tionship may have contributed to the mediating
(intervening) e?ect of SMA system being some-
what lower than anticipated. Despite this, a signif-
icant mediating e?ect of SMA system on
performance is evident. SMA usage is positively
a?ected by the adoption of a prospector strategy
and a deliberate approach to strategy formulation
(both directly and indirectly via participation), and
company size, while SMA usage, in turn, positively
*: Coefficent is statistically significant at p < 0.05 level (one-tail).
**: Coefficient is statistically significant at p < 0.05 level (two-tail).
Goodness of fit criteria:
2
= 221,96; d.f. = 156; sig.level = 0.001; NFI = 0.932; NNFI =
0.965; CFI = 0.971; SRMR = 0.060; RMSEA = 0.047; GFI = 0.885.
Strategy type
prospector/defender
Deliberate strategy
formulation
Market
orientation
Company
size
Accountants'
participation in
strategic decision
making processes
SMA usage
Performance
0.21**
0.22**
0.38**
0.13**
0.36**
0.17
0.19*
0.31**
-0.04
0.19**
0.73**
R
2
=0.71
R
2
=0.13
R
2
=0.62
?
Fig. 2. Structural model parameter estimates (standardized solution).
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 851
a?ects performance. The results therefore largely
support the central proposition of contingency
theory asserting that organizational performance
depends on ?t between organizational context
and structure. The relatively large proportion of
explained variance for SMA usage and perfor-
mance also indicates that the identi?ed contingent
factors are indeed relevant to the model, although
participation in strategic decision making is appar-
ently a?ected by factors not captured in this study.
As is evident from the discussion provided
above, structural modelling necessitates the exer-
cise of a degree of subjectivity. The correlation
analysis conducted (Table 4) revealed an unhypo-
thesised highly positive relationship between per-
formance and the prospector strategic archetype,
despite Miles and Snow’s view that prospectors
as well as defenders represent ideal strategic types
(see also Smith et al., 1989). Following this obser-
vation, and in spite of the position taken by Miles
and Snow, an investigation of the robustness of
the model depicted in Fig. 2 was conducted by
incorporating a direct path between ‘‘strategy
type” and ‘‘performance”. This revised model
revealed a signi?cant association between ‘‘strat-
egy type” and ‘‘performance” (coe?cient 0.34,
p < 0.01). The probability level of all other statisti-
cal relationships recorded in Fig. 2 were unaltered
with the exception that the path linking market
orientation and SMA usage became marginally
signi?cant (p < 0.05: two tail) and the path linking
SMA usage and performance became marginally
insigni?cant. While these two paths have moved
in opposite ways across the threshold of signi?-
cance, the absolute size of the coe?cient change
for both is relatively minor. This investigation
therefore suggests a reasonable degree of robust-
ness for the model depicted in Fig. 2.
Interviews
The interviews comprisedtwophases. During the
?rst phase, interviewees were asked to express their
opinions on what factors might a?ect SMA adop-
tion in Slovenian companies and also which indus-
tries are likely to have a higher incidence of SMA
adoption. In phase two, the interviewees were pre-
sented with the structural equation model ?ndings
and asked to comment on the validity of the ?ndings
with respect to factors a?ecting SMA usage.
The most widely noted organizational factor
a?ecting SMA adoption was corporate or business
strategy (cited by eight of the ten interviewees).
The second most widely cited factor was the inten-
sity of competition (referred to by ?ve intervie-
wees), suggesting greater SMA usage may be
associated with heightened competition. Manage-
ment accounting capability was referred to by ?ve
interviewees (three of whom referred to the capa-
bility of accountants and two of whom referred
to information system capabilities). It was notable
that only one of the interviewees referred to com-
pany size as a factor a?ecting SMA adoption.
The comments provided by interviewees G, A,
and F were especially insightful:
‘‘I think that the most important factor is
corporate strategy. Our company has tradi-
tionally been a producer of basic construc-
tion materials (e.g., cement) with relatively
low value added. Eventually, some time ago
we decided to change our strategic focus by
moving up the value chain to o?er construc-
tion products with greater value added (e.g.,
concrete). This strategy proved to be a suc-
cess. . . During this process, we have used
some techniques that you also list here. . .
But the techniques we ?nd more valuable
today are di?erent than the techniques we
found valuable in the past. . .”.
‘‘Strategy is an important factor a?ecting the
use of these techniques. However things are
not so straightforward in a company such
as ours where the pro?t motive is not preva-
lent. These techniques are about improving
e?ciency. Yet in our company, due to great
power of trade unions, rationalizations, espe-
cially if they result in redundancy, are often
unwelcome. In our company, the spirit of
socialism is still present. . .”.
‘‘We need to provide information that the
management requires. An important factor
a?ecting their requirements is strategy. Based
on these requirements, we adopt appropriate
methods in order to provide the information
in a format most apt for the users”.
852 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
All of the interviewees expressed the view that
the applicability of SMA is industry speci?c.
Despite this, limited consensus was apparent with
respect to what particular industrial sector charac-
teristics are conducive to SMA application.
Amongst the industry factors noted as conducive
to SMA application were: high degrees of compe-
tition, manufacturing, high degrees of regulation
and resource scarcity.
The face validity of the statistically signi?cant
association between the four contingent factors
and SMA adoption noted in Fig. 2 was then com-
mented on by the interviewees. With respect to the
positive association between prospector strategy
and greater SMA usage, the interviewees agreed
unanimously that this association carries high
intuitive appeal. Some felt that prospectors’ quest
for new business opportunities predisposed them
towards innovating in all areas of business, includ-
ing the adoption of novel accounting techniques.
Some also saw the application of externally ori-
ented SMA techniques as providing important
decision making information for the successful
application of an externally focused prospector
strategy. For example, Interviewee C commented:
‘‘A prospector company is always a step
ahead in a quest for new market opportuni-
ties and this business culture is adaptable to
all areas of making business. Employees in
prospector type ?rms in general have a wider
horizon and are more prone to accept inno-
vative approaches, including novel account-
ing techniques”.
Fig. 2’s documented positive association between
deliberate strategy and greater SMA usage was
also seen to represent a highly rational observation
by all of the interviewees. They saw accounting
techniques with a strategic orientation as provid-
ing important support to strategy formulation in
?rms applying formalised approaches to strategy
determination and implementation. For instance,
Interviewee I commented:
‘‘Deliberate strategy is about planning. In
our company pro?tability is a key objective.
In order to achieve planned pro?tability,
knowledge about the market is essential.
We need to know as much as possible about
our competitors and our customers in order
to plan e?ectively”.
The interviewees also exhibited strong support for
the positive association between company size and
greater SMA usage (with the exception of intervie-
wee J who saw no particular reason for any
relationship between size and SMA usage). Several
claimed that increased company size signi?es
increased complexity and a greater call for sophis-
ticated accounting procedures to manage the
complexity. Some also commented that increased
company size is associated with greater resources
(human, ?nancial, and technical), while others
noted that the cost of information processing
per unit of output declines as company size
increases.
The interviewees’ perspectives on whether mar-
ket orientation carries an implication for SMA
usage were somewhat mixed. Five interviewees
expressed surprise at the failure to identify a posi-
tive relationship between the two variables. For
example, Interviewee E commented:
‘‘I am surprised by this ?nding. Even if the
company is completely market orientated,
i.e., it would do everything to satisfy the cus-
tomer, it still needs information about how
far it can go. If I do everything for my cus-
tomer for free then I haven’t done anything
for myself”.
The other ?ve interviewees did not see a strong
rationale for a positive relationship between mar-
ket orientation and SMA usage. The following
commentaries were provided by interviewees C,
G, and J:
‘‘If the customer is fully satis?ed, he is also
prepared to pay a high price. In this case,
there is no need for detailed analyses”.
‘‘The SMA techniques do not represent tools
that search for new customers. Sales is much
like prostitution. We need to deliver what-
ever our customers want and our customers
mainly want low price. So that’s what we
deliver”.
‘‘In the past socialist times, all companies
including ours were production oriented.
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 853
First we manufactured, then we worried
about selling what we have manufactured.
It is only recently that we have started
emphasizing market orientation. Now we
?rst turn to customer needs and then we
adjust our o?erings accordingly in order to
secure pro?tability. This is a sign of company
maturity”.
As a ?nal interview step, interviewees were asked
to rank the relative importance of a list of six con-
tingent factors (drawn from the literature) that
may in?uence SMA usage. This list comprised:
company size, environmental uncertainty, inten-
sity of competition, organizational culture, stage
of the product life cycle, and strategy. In a manner
strongly aligning with what has already been re-
ported in this section, strategy ranked most highly
(four interviewees ranked it as 1 and four ranked it
as 2), followed closely by intensity of competition
(four interviewees ranked it as 1 and one ranked
it as 2).
Conclusion
This study provides several contributions.
Firstly, it provides a conceptual representation of
strategic management accounting’s context that
extends prior SMA commentaries. Secondly, it
draws on quantitative and qualitative empirical
data to examine contingency theory based hypoth-
eses concerning SMA. The ?ndings provide sup-
port for contingency theory’s central proposition
that organizational performance depends on the
?t between organizational context and structure.
More than a decade has passed since Tomkins
and Carr (1996) noted that no generally accepted
SMA framework exists. This view may no longer
be quite so tenable. In this study two distinct
dimensions of SMA have been noted. The ?rst
draws on prior studies (Cravens & Guilding,
2001; Guilding et al., 2000; Roslender & Hart,
2003) by viewing SMA as a set of strategically ori-
ented management accounting techniques. The
second SMA perspective represents a relatively
novel slant on the accountant’s role in strategy.
It draws on recent commentaries suggesting that
strategic management accountants are no longer
just information providers, rather they can partic-
ipate as an integral in?uence in the strategic deci-
sion-making team (Bhimani & Keshtvarz, 1999;
Nyamori et al., 2001; Palmer, 1992; Scott & Ties-
sen, 1999).
This study’s focus on the organizational context
of SMA can be seen as consistent with calls to
maintain research relevancy through the examina-
tion of novel management practices within con-
temporary settings (Chenhall, 2003; Ittner &
Larcker, 2001). By drawing on the premises of
contingency theory, four factors were identi?ed
as potentially exhibiting a contingency relationship
with SMA. These are (1) business strategy, (2)
deliberate strategy formulation orientation, (3)
market orientation and (4) ?rm size.
The ?ndings emanating from the structural
model provide support for most of the hypothes-
ised relationships. Accountants’ strategic decision
making participation is positively associated with
the application of a prospector strategy and also
deliberate strategy formulation. SMA usage is pos-
itively associated with adopting a prospector strat-
egy, deliberate strategy formulation, company size,
and accountants’ strategic decision making partic-
ipation. SMA usage, in turn, also positively a?ects
performance. Given that in a structural equation
model ?t is depicted as a statistically signi?cant
indirect e?ect (Gerdin & Greve, 2004), these results
provide support for the contingency theory pre-
mise. In addition, the relatively large proportion
of explained variance for SMA usage and perfor-
mance indicates that the identi?ed contingent fac-
tors are pertinent to the SMA organizational
framework.
The qualitative interview data ?ndings lend
considerable validity to the conclusions drawn
from the quantitative analysis and also yielded
some additional insights. With respect to the iden-
ti?cation of signi?cant contingency factors, there
was nigh on unanimous interviewee concurrence
that strategy is the most important factor a?ecting
SMA usage. In addition, another potentially
important factor was uncovered, namely the inten-
sity of competition (a factor that was not incorpo-
rated in the quantitatively examined model). While
the interviewees saw considerable face validity in
854 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
the statistically signi?cant ?ndings emanating
from the study’s survey phase, equivocality is evi-
dent with respect to the hypothesized relationship
between market orientation and SMA usage.
While no quantitative support was found for this
hypothesis, the mixed reactions of the interviewees
suggest it might be premature to abandon market
orientation from any subsequent research into fac-
tors relating to SMA adoption.
Considered holistically, the ?ndings provide
support for the application of contingency theory
in accounting system design. They signify that
the application of SMA systems are not necessarily
related to superior performance, but that superior
performance is a product of an appropriate match
between contingent factors and SMA application.
There is, however, universal support provided for
the view that higher performance is found in large
Slovenian companies with a high market orienta-
tion. This supports the claim by Slater and Narver
(1994, p. 54), that ‘‘being market oriented can
never be a negative”.
As contingent management accounting research
is often criticized for the piecemental way in which
it is conducted (Chenhall & Lang?eld-Smith,
1998b; Fisher, 1995), this study clearly contributes
to our limited appreciation of the way in which
strategic and marketing choices and SMA prac-
tices combine to enhance performance. If the ulti-
mate goal of contingency-based management
accounting research is to test a comprehensive
model that includes multiple accounting systems,
multiple contingent variables, and multiple out-
come variables (Fisher, 1995), this study would
appear to constitute a step in the desired direction.
Given the still nascent nature of SMA, it is to be
expected that further conceptions of what it consti-
tutes may be forthcoming. In fact the challenge of
distilling a tight operationalisation of the term
‘strategic management accounting’ is likely to be
an enduring facet of research associated with the
term. This is because not only is there limited con-
sensus in the literature with respect to the meaning
of the word ‘strategy’, there is also limited consen-
sus with respect to what management techniques
constitute management accounting (Bromwich,
1988). Despite this, there does appear to be broad
consensus that strategy concerns an organizational
posture that is long term, forward looking and
externally focused.
It is notable that the SMA practices examined in
this study all represent relatively recently conceived
accounting techniques. None of themfeature innor-
mative management accounting discourse under-
taken prior to the 1980s. It appears as no
coincidence that the burgeoning interest in these rel-
atively strategically oriented accounting techniques
occurred around the time that the term ‘strategic
management accounting’ was ?rst coined by Sim-
monds (1981). The somewhat contemporaneous
nature of these developments signify that the tech-
niques are likely to be viewed in many organizations
as relatively marginal, suggesting that accountants
are likely to exercise a high degree of discretion
when determining whether they be adopted. This
marginality is believed to have been a facilitating
factor in this study, as degree of adoption of the
techniques represents a useful barometer, with
scope for variability, in measuring a ?rm’s relative
propensity to adopt strategically oriented manage-
ment accounting practices. Despite this, it should
be acknowledged that some conventional manage-
ment accounting practices may be interpreted as
having strategically oriented qualities, and in fur-
ther research that conceives of SMA in a manner
similar to that adopted in this study, consideration
could be given to their inclusion in the strategic
management accounting rubric.
The study can be considered noteworthy in
terms of methodology employed. Following the
call by Ittner and Larcker (2001) to deploy multi-
ple data sources or research models to develop a
consistent body of evidence, this study has applied
two distinct approaches to data collection: the
acquisition of quantitative data by way of a survey
and qualitative data collected by way of interviews.
The deployment of intervening models based on
structural equation modelling in contingency-
based research has not been extensively applied
(e.g., Baines & Lang?eld-Smith, 2003; Chenhall,
2005; Chong & Chong, 1997; Scott & Tiessen,
1999; Shields et al., 2000), however, when this
approach is coupled to the collection of qualitative
data, the novelty of the methodology applied in
this study becomes particularly apparent. It should
be noted, however, that the application of the
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 855
interview method in a way that calls for intervie-
wees to pass comment on the face validity of prior
survey ?ndings is likely to be compromised by the
halo e?ect. While careful consideration needs to be
given to this shortcoming, the conduct of ‘‘post
survey” interviews in this study has proven to be
a useful approach that has yielded greater insight
into the phenomenon under examination.
The study can also be seen as constituting an
overdue enquiry into the validity of viewing ‘‘stra-
tegic management accounting” as a coherent
empirical construct. By placing strategic manage-
ment accounting techniques in a contingency
model and conducting an empirically based exam-
ination of the model, an advancement has been
made in our appreciation of the extent to which
strategic management accounting constitutes a
construct that is su?ciently robust to enable
empirical analysis. Despite the considerable dis-
course on strategic management accounting occur-
ring since the early 1980s (e.g., Bromwich, 1990;
Guilding et al., 2000; Roslender & Hart, 2003)
very little has been achieved in terms of empirical
enquiry designed to further our appreciation of
the nature and context of SMA application. The
extent to which the hypotheses formulated in this
study have received empirical support provides
a?rmation that SMA can be investigated as a
cohesive construct in a meaningful way.
In interpreting the study’s ?ndings, its limita-
tions should be borne in mind. Firstly, while the
proposed model is relatively complex in terms of
the number of contingency factors under consider-
ation, it is nevertheless incomplete as there are
doubtlessly other signi?cant contingency factors
that have not been captured in the model tested.
Some factors that have been examined in relation
to ?rm-level management accounting practices
include intensity of competition, environmental
uncertainty, technology, structure, and organiza-
tional culture (Anderson & Lanen, 1999; Chenhall,
2003). These factors would appear to be prime
candidates for inclusion in any study designed to
extend the ?ndings reported here, particularly
‘‘competition intensity”, given commentaries pro-
vided by this study’s interviewees. Secondly, a
shortcoming of the study stems from the use of a
single item measure of business strategy. The use
of single item measures precludes any investigation
of construct reliability. Given the con?rmatory
orientation of the study, it is also noteworthy that
two expected relationships were not con?rmed.
This might be due to con?icting contingencies
(Gerdin, 2005), and also the attempt to explain
strategic management accounting in the context
of strategy and marketing, even though strategy
is itself often characterized by an ambiguous and
contradictory nature (Mintzberg, 1987a, 1987b).
In addition to these study speci?c limitations,
there are other issues associated with contin-
gency-based research in general. One particular
issue revolves around the endogeneity problem
arising when a researcher seeks to appraise
whether a particular management accounting
practice or action is associated with performance
(Chenhall, 2003; Chenhall & Moers, 2007; Ittner
& Larcker, 2001). The model speci?ed in this study
assumes that disequilibrium conditions exist, signi-
fying an assumption that the optimal level of SMA
adoption will vary across organizations. Further,
while many di?erent forms of ?t have been used
in the past, very few researchers acknowledge the
problems of relating them to one another (Gerdin
& Greve, 2004). For example, Drazin and Van de
Ven (1985) and Selto et al. (1995) contend that the
selection, interaction, and systems approaches
provide complementary information and in their
studies deploy all three approaches on the same
data set. Countering this view, Gerdin and Greve
(2004) argue that the approaches are paradigmati-
cally di?erent. At the top level of the hierarchical
structure that they propose, they see the Cartesian
(reductionist) and con?guration (holistic)
approaches as constituting two con?icting para-
digms and feel it inappropriate to relate results
emanating from Cartesian modelling to results
yielded by con?guration modelling. As a result,
some researchers claim that their ?ndings are con-
?icting, when this is not necessarily the case, while
others inappropriately claim that their observa-
tions are supported by previous studies.
These factors need to be born in mind when
attempting to build on the ?ndings reported herein.
This is an important consideration, for while this
study is believed to constitute one of the most exten-
sive SMAcontingency models formulated to date, it
856 S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863
is doubtlessly incomplete. Further research that
develops and tests hypotheses concerning factors
relating to SMA adoption is to be encouraged as
we are little beyond a preliminary stage in the pro-
cess of developing a robust theory of the context
and impact of SMA. Following the rationale pre-
sented by Ittner and Larcker (2001) and Chenhall
(2003), further attempts to advance this theory
would likely bene?t from operationalising perfor-
mance in terms of espoused strategy.
Acknowledgement
The authors would like to acknowledge the
helpful comments provided by two anonymous
referees.
Appendix. Glossary of terms, provided to
respondents
Attribute costing
The costing of speci?c product attributes that
appeal to customers. Attributes that may be costed
include: operating performance variables; reliability,
warrantyarrangements; the degree of ?nishandtrim;
assurance of supply; and after sales service.
Benchmarking
The comparison of internal processes to an
ideal standard.
Brand valuation
The ?nancial valuation of a brand through the
assessment of brand strength factors such as: leader-
ship, stability, market, internationality, trend, sup-
port, and protection combined with historical
brand pro?ts.
Competitor cost assessment
The provision of regularly scheduled updated
estimates of a competitor’s unit cost.
Competitive position monitoring
The analysis of competitor positions within the
industry by assessing and monitoring trends in
competitor sales, market share, volume, unit costs,
and return on sales. This information can provide
a basis for the assessment of a competitor’s market
strategy.
Competitor performance appraisal
The numerical analysis of a competitor’s
published statements as a part of an assessment
of a competitor’s key sources of competitive
advantage.
Customer pro?tability analysis
This involves calculating pro?t earned from
a speci?c customer. The pro?t calculation is
based on costs and sales that can be traced
to a particular customer. This technique is
sometimes referred to as ‘‘customer account
pro?tability”.
Integrated performance measurement
A measurement system which focuses typically
on acquiring performance knowledge based on
customer requirements and may encompass non-
?nancial measures. This measure involves depart-
ments monitoring those factors which are critical
to securing customer satisfaction.
Life cycle costing
The appraisal of costs based on the length of
stages of a product or service’s life. These stages
may include design, introduction, growth, matu-
rity, decline and eventually abandonment.
Lifetime customer pro?tability analysis
This involves extending the time horizon for
customer pro?tability analysis to include future
years. The practice focuses on all anticipated
future revenue streams and costs involved in ser-
vicing a particular customer.
S. Cadez, C. Guilding / Accounting, Organizations and Society 33 (2008) 836–863 857
Quality costing
Quality costs are those costs associated with
the creation, identi?cation, repair and preven-
tion of defects. These can be classi?ed into
three categories: prevention, appraisal, and
internal and external failure costs. Cost of qual-
ity reports are produced for the purpose of
directing management attention to prioritize
quality problems.
Strategic costing (strategic cost management)
The use of cost data based on strategic and
marketing information to develop and identify
superior strategies that will produce a sustainable
competitive advantage.
Strategic pricing
The analysis of strategic factors in the pricing
decision process. These factors may include: com-
petitor price reaction, elasticity, market growth,
economies of scale, and experience.
Target costing
A method used during product and process
design that involves estimating a cost calculated
by subtracting a desired pro?t margin from an esti-
mated (or market-based) price to arrive at a desired
production, engineering, or marketing cost. The
product is then designed to meet that cost.
Valuation of customers as assets
The technique refers to the calculation of the
value of customers to the company. For example,
this could be undertaken by computing the present
value of all future pro?t streams attributable to a
particular customer.
Value chain costing
An activity-based approach where costs are
allocated to activities required to design, procure,
produce, market, distribute, and service a product
or service.
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