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Ojra et al. Future Business Journal (2021) 7:64 Future Business Journal
https://doi.org/10.1186/s43093-021-00109-1
REVIEW Open Access
Strategic management accounting
and performance implications: a literature
review and research agenda
1 2,3* 4
Jafar Ojra , Abdullah Promise Opute and Mohammad Mobarak Alsolmi
Abstract
The important role that management accounting plays in driving organisational performance has been reiterated
in the literature. In line with that importance, the call for more effort to enhance knowledge on strategic manage-
ment accounting has increased over the years. Responding to that call, this study utilised a qualitative approach
that involved a systematic review to synthesise existing literature towards understanding the strategic management
accounting foundation, contingency factors, and organisational performance impact. Based on the evidence in
reviewed literature, we flag key directions for advancing this theoretical premise towards providing further insights
that would enable practitioners strategically align their strategic management accounting practices for optimal
organisational performance. The limitations of this study have been acknowledged.
Keywords: Strategic management accounting, Competition intensity, Market turbulence, Formalisation,
Decentralisation, Organisational strategy, Organisational performance
Introduction strategic decision-making and organisational performance
Successful managerial decisions enable organisational (e.g. [4, 8, 9, 17, 23, 53, 58, 86, 90, 48], amongst others). As
profitability and accounting aids effective managerial rightly noted by Turner et al. [86], organisations that aim
decisions [75]. Aimed at optimising the decision-enabling to enhance their competitiveness and performance, must
substance of accounting, management was criticised not only develop but also “implement internal policies and
in 1980s as being too focused on internal operational procedures such as strategic management accounting that
issues that offer little to management from the point of are consistent with their business strategies and account for
strategy formulation and sustaining competitive advan changing competitive demands” (p. 33). Doing that will ena-
1 -
tage (CIMA Report ). Recognising the importance for a ble the strategic management accounting tool to be effec-
broader impact of accounting on managerial decision- tively used to drive corporate success. This is the underlying
making, Simmonds [82, p. 26] introduced and defined argument in this study.
strategic management accounting (SMA) as “the provi- The task of profitably satisfying customers is becoming
sion and analysis of management accounting data about more challenging [61, 65, 67]. Meeting that challenge requires
that organisations recognise the importance for effective deci
a business and its competitors, for use in developing and -
monitoring business strategy”. sion-making. Accountants play a significant role in enabling
Subsequently there has been increasing efforts that effective decision-making in organisations (e.g. [21, 23, 27]).
stress the importance for organisations to embrace stra Accounting information enables the organisation determine
-
tegic management accounting theory towards boosting
1 Management Accounting in support of the strategic management process.
*Correspondence: abdullah-promise.opute@gpromsolutions.org https:// www. cimag lobal. com/ Docum ents/ Thoug ht_ leade rship_ docs/ Manag
2 GPROM Academic and Management Solutions, Paderborn, Germany ement% 20and% 20fin ancial% 20acc ounti ng/ Acade mic- Resea rch- Report- Strat
Full list of author information is available at the end of the article egic- Manag ement- Proce ss. pdf.
© The Author(s) 2021. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which
permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the
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Ojra et al. Future Business Journal (2021) 7:64 Page 2 of 17
the going concern [6, 36]. Accounting provides the manage- organisational performance. In line with the aim of this
study, relevant literature is reviewed to explain the the
ment with relevant information for ensuring and sustaining -
growth and profitability. The strategic management account
- oretical premise of this study. The literature review is
organised along three core themes in strategic manage
ing foundation emphasises that in order to fully fulfil its man- -
agement decision-making enabling function, accounting ment accounting discourse, namely, strategic manage-
practices must not only focus on the internal but also on the ment accounting techniques, contingency factors of
external components relating to the organisation’s operations. strategic management accounting usage, and the impact
In other words, accounting should embrace a much broader of strategic management accounting on organisational
and market-oriented approach and focus on costing (e.g. [8, performance.
17, 58, 78]); planning, control and performance measurement
(e.g. [17, 58]), strategic decision-making (e.g. [8, 58]), customer Strategic management accounting: definition
accounting (e.g. [58, 86]) and competitor accounting (e.g. [17, and techniques
58, 86]). Management accounting is noted to involve the “gen-
Given the importance of strategic management account
- eration, communication, and use of financial and non-
ing to effective management decision-making and corporate financial information for managerial decision-making
success, there remains a growing interest in understanding and control activities” ([28] p. 3). One major criticism of
the topic. Little wonder therefore that the advocacy for more accounting in the 1980s relates to the fact that account
research towards a better understanding of what strategic -
management accounting practices organisations adopt and ants have hardly taken a proactive role in the strategic
what motivates their preference for one technique over the management process [7, 8]. According to Nixon and
other (e.g. [4, 53, 58, 86, 90]) remains current. While embrac Burns [55, p. 229], although strategic management has
- been variously defined, there is “broad consensus that
ing strategic management accounting is a critical path for the key activities are (1) development of a grand strategy,
enabling effective managerial decision-making and boost
- purpose or sense of direction, (2) formulation of strate
ing organisational performance (e.g. [3, 9, 58]), the enable- -
ment outcome of strategic management accounting practice gic goals and plans to achieve them, (3) implementation
would hinge on the effectiveness of the organisation in tai of plans, and (4) monitoring, evaluation and corrective
- action”. The role of management accounting is to ena
loring its strategic management accounting practices to its -
strategy and environment [9, 11, 58]. ble effective decision-making, and it involves typically
Following that contingency logic, this research is a information gathering and analysis, identifying options,
response to the aforementioned call and the aim in this implementation, monitoring and evaluation [16]. Thus,
study is to contribute to strategic management account the focus in strategic management accounting, rephrased
- also as accounting for strategic positioning [73, 74], is to
ing discourse by critically analysing the body of knowledge embrace a broader approach that incorporates a strategic
towards enhancing the understanding of how knowledge management focus into its dynamics towards effectively
has evolved in this theoretical domain and also to contribute enabling management decision-making and organisa
to knowledge by flagging directions for further knowledge -
development. To achieve the aim of this study, the theoreti tional performance [8, 80]).
- Since the first attempt by Simmonds [82, p. 26] who
cal focus in this study is premised along three questions: defined strategic management accounting as “the provi
-
1. What strategic management accounting techniques sion and analysis of management accounting data about
can organisations use towards driving organisational a business and its competitors, for use in developing and
monitoring business strategy”, there have been numer
performance? -
2. What factors would influence strategic management ous attempts to enhance that definition and identify
accounting techniques usage and performance asso core techniques of strategic management accounting.
- For example, CIMA [16] describes strategic manage
ciation? and -
3. What future research gaps exist based on the ment accounting as a management accounting form that
explored literature? emphasises focusing on information relating to external
factor of the entity and also on non-financial informa
-
tion as well as information that is generated internally. In
Literature review a much earlier contribution, Bromwich [7, p. 28] offers
Introduction a description of strategic management accounting as
involving “the provision and analysis of financial infor
This study follows the theoretical foundation that stra- -
tegic management accounting would aid effective mation on the organisation’s product markets and com-
management decision-making, and ultimately boost petitors’ costs and cost structures and the monitoring of
the organisation’s strategies and those of its competitors
Ojra et al. Future Business Journal (2021) 7:64
Page 3 of 17
in the market over a number of periods” (Cited in [56, p. include strategic costing (e.g. [58]), strategic pricing (e.g.
14]). [11, 58]) and brand valuation (e.g. [11, 58]).
In their 2008 study, Cadez and Guilding asked the The importance of addressing strategic costing as a key
question “what is strategic management accounting?” strategic decision-making element has been emphasised
(p. 838). In that same study, they conclude, based on evi- in the literature (e.g. [58, 78, 79]). In this discourse, it is
dence from reviewed literature, that there are two per- underlined that effectively driving competitive advantage
spectives of strategic management accounting. While one requires cost analysis that explicitly considers strategic
perspective focuses on strategically oriented accounting issues. In line with that viewpoint, Cadez and Guilding
techniques, the other focuses on the actual involvement [8] note that strategic costing involves “the use of cost
of accountants in the strategic decision-making process. data based on strategic and marketing information to
Following the former perspective (e.g. [8, 9, 17, 58]), develop and identify superior strategies that will produce
existing literature distils sixteen (16) strategic manage a sustainable competitive advantage” (p. 27).
-
ment accounting techniques that are categorised under In the literature too, strategic pricing is underlined
five SMA themes (e.g. [9, 11, 58]): as another core element the strategic decision-making
typology of strategic management accounting (e.g. [8,
58], Simmonds 1982). According to scholars, under
1. Strategic costing; -
2. Strategic planning, control and performance meas- standing market competition level, which as noted by
Guilding et al. [29, p. 120] entails the appraisal of the fol
urement; -
3. Strategic decision-making; lowing factors: “competitor price reaction, price elastic-
4. Competitor accounting; and ity; projected market growth; and economies of scale and
5. Customer accounting. experience”, is important (e.g. [8, 11, 58]).
Within the strategic management accounting litera
-
ture, brand valuation is the third element of the strategic
decision-making technique. The brand valuation compo
Strategic costing -
According to literature (e.g. [8, 11, 23]), strategic and nent “involves combining projected brand earnings (an
marketing information-based cost data can be leveraged accounting-orientated measure) with a multiple derived
by organisations to ensure effective strategies for achiev- from the brand’s strength on strategic factors such as the
ing sustainable competitive advantage. Thus, organisa- nature of the brand’s market, its position in that market
tions must recognise the importance of integrating cost and its level of marketing support” [29, p. 118]. In the
view of Cescon et al. [11], brand valuation enables organ
strategies and undertake multiple strategic cost analyses. -
Literature distils five key costing techniques: attribute isations to understand market reputation trends over
costing (e.g. Roslender and Hart 2003), life-cycle costing time and potential implications for marketing executives
(e.g. [8, 17]), quality costing (e.g. [17]), target costing (e.g. and strategic accounting. Cescon et al. [11] contend that
[8, 17]) and value chain costing (e.g. [8]). organisations would achieve a variable brand valuation
that would provide a potential measure of marketing
achievement when perceived quality and branded prod-
Strategic planning, control and performance measurement ucts are considered, while Guilding et al. [29] remind
Literature has also underlined the need for organisa- that achievable impact of brand valuation would hinge,
tions to give due attention to planning, control and amongst others, on the valuation method used.
performance measurement features of the strategic
management accounting, as doing that is important in Competitor accounting
the pro-active market orientation approach for compet
- According to Porter [72], strategy involves develop-
ing effectively in the marketplace (e.g. [8, 58], Chenhall ing appropriate tools that enable a firm to analyse and
2005). Core components under the strategic planning, determine its position in a competitive market. Thus, a
control and performance measurement tool includes firm selects suitable strategies that enables it compete
benchmarking (e.g. [8, 17]) and integrated performance more effectively over its rivals. To effectively do that, a
management (Balanced Scorecard) (e.g. [8, 17]). firm needs to collect competitor accounting informa
-
tion. The importance of giving due attention to com-
Strategic decision‑making petitor accounting has been underlined in the literature
As a strategic management accounting tool, strategic (e.g. [11, 17, 58]). Three forms of competitor accounting
decision-making is a critical tool for supporting strate- tools are described in the literature, namely, competitor
gic choice [11]. Core strategic decision-making options cost assessment (e.g. [11, 17, 58]), competitor position
Ojra et al. Future Business Journal (2021) 7:64 Page 4 of 17
monitoring (e.g. [11, 58]) and competitor performance [41]). No one accounting control system can be seen as
appraisal (e.g. [11, 17, 58]). “best” for all situations; rather, the appropriateness of any
control system would depend on the organisation’s ability
Customer accounting to adapt effectively to the environment surrounding its
The fifth cluster of strategic management accounting operations [41, 58, 86].
techniques described in the literature relates to customer From reviewed literature, numerous researchers have
accounting (e.g. [49, 58]). Customer accounting concerns flagged key contingency factors that should be consid
-
practices aimed at appraising profit, sales or costs related ered in relation to strategic management accounting
to customers or customer segments [58]. Core customer practice. Four factors were identified as critical contin-
accounting techniques include customer profitability gency factors in the strategic management accounting
analysis (e.g. [30, 58]), lifetime customer profitability systems design in Cadez and Guilding’s [8] study, namely:
analysis (e.g. [58]) and valuation of customers as assets business strategy, strategy formulation pattern, market
(e.g. [30, 58]). orientation and firm size. On their part, Islam and Hu
[41] identify core organisational effectiveness factors
The contingency factors of strategic management to include technology, environmental volatility, organi-
accounting sational structure, information system and size of the
Introduction organisation.
According to management accounting discourse, when Analysed together, the conceptualisation in the afore-
organisations carefully embrace appropriate strategic mentioned studies [8, 41] reflect perspectives that have
management accounting practices, they would ensure been recognised in the 1980s. For example, Merchant
successful managerial decisions that would ultimately [50] describe contingency factors to include firm size,
lead to optimising organisational performance (e.g. [48, product diversity, extent of decentralisation and budget
-
53, 56, 58]). Thus, the extent of improved performance ary information use. In their study of accounting infor-
that an organisation would achieve would depend on its mation systems, Gordon and Narayanan [26] classify
careful utilisation of appropriate strategic management three core contingency factors to include perceived
techniques. As noted by Roslender and Hart (2003), p. 4 environmental uncertainty, information characteris-
and further supported by subsequent literature (e.g. [34, tics and organisational structure. Based on a study that
58]), “the adoption of strategically oriented management examined the extent to which accountants were involved
accounting techniques and accountants’ participation in 2
in the strategic management process, CIMA reports
strategic management processes”, is a core research prem three key contingency factors: “organisational influences,
-
ise. In line with the carefulness notion mentioned above, accountant led influences and practicalities” (p. 12).
the contingency perspective has been widely utilised in Exploring strategic management accounting practices in
the effort to understand strategic management account the Palestinian context, Ojra [58] conceptualised a com
- -
ing practices and performance impact (e.g. [8, 12, 30, prehensive contingency perspective that considered (1)
34, 58]). The underlying foundation in the contingency organisational structure (involving formalisation and
perspective is based on the notion “that an organisation decentralisation), (2) organisational size, (3) technology
maximises its efficiency by matching between structure and (4) organisational strategy. In more recent literature,
and environment” [22, p. 49]. According to Otley [68]: Pavlatos [70] suggests seven factors that affect strategic
The contingency approach to management is based management accounting usage in the hospitality indus-
on the premise that there is no universally appro try (hotels) in Greece, namely, “perceived environmental
- uncertainty, structure, quality of information systems,
priate accounting system that applies equally to organisational life cycle stage, historical performance,
all organisations in all circumstances. Rather, it is strategy and size” (p. 756).
suggested that particular features of an appropri- The contingency framing in this study draws from the
ate accounting system will depend on the specific theoretical guideline which suggests that both the inter
circumstances in which an organisation finds itself. -
Thus, a contingency theory must identify specific nal and external environments of organisations should
be considered in the effort to advance strategic manage
aspects of an accounting system which are associ -
- ment accounting literature (e.g. [58, 70]). The conceptual
ated with certain defined circumstances and dem-
onstrate an appropriate matching (p. 413).
Thus, the central foundation in the contingency per 2
- Management Accounting in support of the strategic management process.
spective is that no one single accounting system is uni- https:// www. cimag lobal. com/ Docum ents/ Thoug ht_ leade rship_ docs/ Manag
versally fit for all organisation in all circumstances (e.g. ement% 20and% 20fin ancial% 20acc ounti ng/ Acade mic- Resea rch- Report- Strat
egic- Manag ement- Proce ss. pdf.
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