The impact of advance management accounting techniques on performance: The case of Malaysia





Abdullah Mohamed Ahmed Ayedh (1)
Chaabane Oussama Houssem Eddine (2)


(1) Universiti Sains Islam Malaysia, Department of Accounting
(2) International Islamic University Malaysia, Department of Accounting


Correspondence:
Chaabane Oussama Houssem Eddine
International Islamic University Malaysia, Department of Accounting
Malaysia
Email: Oussama.ch33@yahoo.fr

Abstract

Purpose: The paper aims to examine the adoption of several Advance Management Accounting (AMA) techniques (i.e. total quality management (TQM), activity based costing (ABC), the ISO 9000 certificate, the balanced scorecard (BSC), strategic management (SMA), value based management (VBM), and benchmarking) by the listed companies on Bursa Malaysia (i.e. the Malaysian stock exchange). In addition, the paper examines the impact of the adopted AMA techniques on a company's overall performance.

Design/methodology/approach: The paper used a questionnaire survey method to gather the required data. The questionnaires were distributed to senior managers of selected listed companies. The paper used descriptive statistic, correlation and regression techniques to analyze the data.

Findings: The paper found that benchmarking, balanced scorecard, and total quality management are among the AMA techniques widely adopted by Malaysian listed companies. In addition, the paper found that the adoption of AMA techniques significantly influenced the companies' overall performance. More specifically, the paper found that the adoption of balanced scorecard significantly influenced the companies' profitability, customer satisfaction, market position, and sales growth for existing services and products.

Research limitations/implications: This paper focused solely on seven well-known AMA techniques. In addition, the paper only used data collected by a questionnaire survey.
Practical implications - The findings of the paper provide empirical evidence on the current adoption of AMA techniques by Malaysian listed companies. These findings could be considered important and useful for advancement of companies adopting AMA techniques to improve their performance. On the other hand, the findings can potentially encourage companies yet to adopt AMA techniques to do so in order to maximize their potential in a highly competitive and global corporate environment.

Originality/value: This paper contributes to the management accounting literature in Malaysia by identifying the advantages of adopting the AMA techniques, especially balanced scorecard and benchmarking, in the Malaysian context.

Key words: Management accounting technique, Performance, Listed companies, Malaysia.

1. Introduction
As a remedy to the weakness of traditional performance measurement models, a number of AMA systems or techniques were introduced in the last fifty years (Kaplan and Norton, 1992). Examples of such techniques are total quality management (TQM), activity based costing (ABC), ISO 9000 certificate, balanced scorecard (BSC), strategic management accounting (SMA), value based management (VBM), and benchmarking (BNC). The AMA techniques can be defined as a set of theories, standards, actions and analytic frameworks that aim to control and measure an organization's performance (Rigby, 2001).

According to the International Monetary Fund (IMF) report (2006), the Malaysian economy is seeing continued high growth. The Malaysian GDP has continuously increased year by year (IMF reports, 2006; 2007). The fast growth of the Malaysian economy along with globalization have encouraged Malaysian companies to adopt AMA techniques such as TQM and BSC (Bontis et al., 2000; Naser et al., 2004; Samat et al., 2006; Wei and Nair, 2006) as a means to respond to global market competition.

AMA techniques are a selection of analytical tools to optimize the performance of a firm (i.e. TQM, ABC, ISO 9000 certificate, BSC, SMA, VBM, and benchmarking). Each technique provides nuanced performance information. The BSC was defined by Kaplan et al. (2004) as a strategic management technique that translates an organization's strategy into clear objectives, measures, targets and initiatives organized by four perspectives, while, TQM is defined as a set of management concepts and tools that aim to involve managers, employees and workers to yield continuous performance improvement (Hoque, 2004). ABC allocates overhead costs based on specific activities to generate certain products or render services (Kaplan et al., 2004). The ISO 9000 certificate was established in 1987 and is defined as an international set of five related standards for qualification of global quality assurance and quality control standards (Yahya and Goh, 2001; Naser et al., 2004). The SMA is defined as a general advanced approach to accounting for strategic positioning (Cinquini and Tenucci, 2006). The VBM focuses on better decision-making at all levels in an organization. Lastly, the BNC is a process of studying and comparing successful practices and selecting the best for improving an organization's performance (Letts et al., 1999).

The paper aims to examine the adoption of AMA techniques by Malaysian listed companies and the impact those techniques have on company performance. The findings provide information from which Malaysian listed companies can further explore, understand and improve the role of AMA techniques to improve their performance in a highly competitive business environment.
The paper is organized as follows. Section two briefly reviews the prior literature on company performance and adoption of AMA techniques. Section three explains the research methodology. Section four presents and discusses the results and findings. Section five concludes the paper.

2. Literature review
There is a considerable body of literature on issues concerning the adoption of AMA techniques and its significance to company performance. Generally, companies tend to apply AMA techniques to improve their performance (Chenhall and Smith, 1998; Rigby, 2001; Hussain et al., 2002; Abdel-Maksoud, 2004). It has been argued that the AMA techniques directly enhance performance measurement practices (Koller, 1994; Chenhall and Smith, 1998; Zairi, 1998; Letts et al., 1999; Rigby, 2001; Hussain et al., 2002; Abdel-Maksoud, 2004; Cinquini and Tenucci, 2006). For example, it has been found that companies that adopt the BSC perform better than those companies that do not (Davis and Albright, 2004; Anand et al. 2005; Neely, 2008). Furthermore, prior studies found a positive relationship between registering ISO certificates and a company's performance (Yahya and Goh, 2001; Naser et al., 2004; Ann et al. 2006). In addition, companies adopting the TQM often see improved performance (Samat et al., 2006). The same was found for benchmarking and ABC techniques (Chenhall and Smith, 1998 and Rigby, 2001).

In USA, Davis and Albright (2003) initiated a quasi-experimental study to examine whether the bank branches that implemented the BSC saw any improvement in financial performance. They found that branches that applied BSC performed better than branches that did not. Another study in the UK by Neely et al. (2005) investigated the impact of implementing the BSC by using a quasi-experimental study. The result indicated that there was a positive improvement in sales, gross profit and net profit, but when they compared the sales and gross profit with a sister organization which was using the traditional profitability method to measure the performance there was no relationship. In Taiwan, Wang (2004) examined the relationships between a set of exchange ratios (financial measures) and the BSC (integrated financial and non-financial measures) for a sample of 32 companies and acquisitions of 14 financial holding companies. The results also indicated that firms practicing BSC are performing better than firms without BSC. Anand et al. (2005) investigated the current practices of BSC (design and function) in Indian organizations. They found that the majority of the sample of Indian companies that implemented the BSC had better classification of cost reduction opportunities, which leads to improvement in the bottom line of company performance.

Samat et al. (2006) explored the practices of TQM in two aspects, namely quality service and market orientation based on a questionnaire-survey. The results indicated that employee empowerment, information and communication, customer focus, and continuous improvement significantly influenced service quality, whereas only the first two factors (i.e. empowerment and customer focus) had an important impact on market orientation.

3. Research methodology
3.1 Sample selection
This paper targeted a sample of senior managers as respondents because they are responsible for adopting and implementing new accounting techniques or systems. As such, they are ideally positioned to provide the necessary data. This paper focuses on Malaysian companies listed on Bursa Malaysia (i.e. the Malaysian stock exchange) because they are big companies and have more recourse to adopt the AMA techniques compared to non-listed companies. Although Bursa Malaysia classifies the listed companies into sectors (i.e. industries), the current paper has used the cross-sectional research method that selects companies regardless of industry or sector. At the time of the study, a total of 891 companies were listed on the Bursa Malaysia website. A random sampling method was used to select the required companies, which resulted in a sample of 234 companies.

3.2 Data collection
Data was collected through the questionnaire survey method. The questionnaire was developed from the prior research of Kald and Nilsson (2000), Speckbacher et al. (2003), Evans (2004) and Anand et al. (2005). Some modifications were made to simplify certain terminologies used in the questionnaire. In addition, the differences of location and environment of the research were considered and controlled accordingly. The questionnaire was comprised of three sections. The first section obtains the performance measurement practices in organizations. The second section obtains the managers' perceptions of the performance of the company over the past five years. The third and final section obtains the demographic information of the respondents.
A pilot test was conducted before distributing the actual questionnaires in order to enhance the reliability of the survey. The pilot questionnaires were disturbed to a group of academics and five listed companies. The questionnaire was then modified based on the feedback and suggestions received.

Prior to the regression analysis, factor analysis was conducted to summarize or reduce the data to obtain the most influential group of variables regarding performance. The factor analysis resulted in the following three groups. The first group is AMA1, which includes BNC, VBM, and ISO. The second group is AMA2, which consists of ABC, SMA. The third group is AMA3, which represents BSC. In addition, six performance components (i.e. profitability, customer satisfaction, market share, market position, growth of existing product and service and product innovation) are factored under overall performance (OP). Table 1 shows the measurements and definitions of the variables used in the paper.

Table 1: Variables measurement and definition


For satisfactory results, the paper applied a stepwise regression model to examine the influence of AMAs (i.e. independent variable) on the company's performance (i.e. dependent variable). The first stage in the stepwise regression assesses the impact of the adoption of AMAs on overall performance. The second stage focuses on the impact of the adoption of AMAs on each component of organizational performance (profitability (PF); customer satisfaction (CS); market share (MS); market position (MP); growth of existing product and services (SG); product innovation (PI). The equations of the regression models are specified in Table 2 as follows:

Table 2: Regression equations


4. Findings and discussion
4.1 Survey and respondents' background
The questionnaire was divided into two stages. In the first stage, the questionnaires were sent to all 234 companies through mail (117 companies), e-mail (84 companies) and fax (33 companies) to avoid any bias in the distribution process. In the second stage, two weeks after finishing the first stage, all companies in the sample population received a call from the researcher or his assistants to confirm receiving the mail, e-mail and fax requesting their participation. A total of 65 questionnaires were received of which 50 questionnaires were useable. A response rate of 21.4 percent was obtained which can be considered an acceptable rate for that sample size (Sekaran, 2003). In regards to the respondents' background, the majority of respondents are upper or middle management with more than 2 years' experience. Such conditions provide logical assurance of the validity of the responses.

4.2 Reliability tests
Reliability and validity tests were conducted based on the normality and multi-collinearity of variables (Sekaran, 2003). The results indicate that the variables are reliable. In addition, a non-response bias test for the late response was conducted by comparing the mean of the first and last ten on the data. The results showed that there was no such problem.

4.3 Descriptive statistics
Table III, panel A shows the descriptive statistics of the implementation of AMA techniques. Based on the mean, the most popular AMA technique is benchmarking. This finding is similar to the findings of studies in Europe and US (e.g. Hussain et al., 2002; Abdel-Maksoud, 2004; Evans, 2004). This is followed by the balanced scorecard, total quality management, ISO 9000 certificate, value based management, activity based costing and strategic management accounting techniques respectively. Comparing these findings with Sulaiman et al.'s (2004) revealed that only 28 percent of companies used ABC. In addition, Malaysian companies gradually adopted the BSC. This result indicates that Malaysian companies are increasingly implementing the AMA techniques, which, as suggested by Samat et al. (2006), is partly the result of the steady growth of the Malaysia economy and efforts to attract international companies to Malaysia that implement AMA models.

Panel B of Table 3 presents how managers perceived company performance for the past five years in terms of profitability, customer satisfaction, market share, market position and sales growth of existing services and products. The table shows that managers perceived customer satisfaction and profitability respectively as the most important indicators of company performance. However, managers did not perceive the market share as an important indicator of company performance.

Table 3: Descriptive statistics


4.4 Regression analysis
As mentioned earlier, the main objective of the regression is to examine the impact of AMA techniques on a company's performance. Prior to running the regression analysis, the paper performed normality and multi-collinearity tests to ensure the data is normally distributed and to check the requirements of running the regression analysis are met. The results of these tests show that the data was normally distributed and there were no multi-collinearity problems.

4.4.1 Overall performance
Table 4 shows the results of the first regression model that tests the relationship between the applicability of AMAs in the sampled companies and the Overall Performance (OP).

The results show that the AMA1 and AMA2 are significant. The results from Table IV revealed that the AMA1 and AMA2 significantly influence the OP with the exception of BSC. This finding is consistent with most prior studies (e.g. Yahya and Goh, 2001; Ann et al. 2006) Since only the first two groups of AMA were significant, it would be interesting to examine the impact of each AMA technique, i.e. TQM, ABC, ISO, BSC, SMA, VBM, and BNC, on OP.

Table 4: Regression analysis results of overall performance


Table 5 shows that the BSC significantly influences OP. The result suggests that when each AMA works individually to improve performance, BSC is the most effective technique. This finding is consistent with some prior studies (e.g. Davis and Albright, 2004; Anand et al. 2005; Neely, 2008).

Interestingly, BSC has no significant impact on OP when it is regressed with other AMA techniques. However, when each AMA technique is regressed with OP, only BSC and benchmarking significantly influence the OP. In addition, the study further tests the impact of the adoption of AMA techniques with each performance indicator (i.e. PF, CS, MS, MP, SG, and PI). The following section analyzes and discusses these findings.

Table 5: Regression analysis results of overall performance


4.4.2 Profitability
As a dependent variable the PF has been regressed with the AMA techniques. The results are presented in Table 6. The results show that only AMA3 (i.e. BSC) has a significant impact on PF (b=0.292, p=0.010). This shows that the importance of BSC in improving the organizational performance, especially financial indicators.

Table 6: Regression analysis results of profitability a


4.4.3 Customer satisfaction
Table 7 reports the result of the regression analysis that tests the relationship between CS and AMA techniques. The results reveal that only BSC influences CS significantly (b =0.315, p=0.033), whereas other AMAs did not. The possible reason for this could be that customer perspective is one of the BSC's indicators, and as such, it seems that adopting BSC has a significant impact on customer satisfaction.

Table 7: Results of regression analysis of customer satisfactiona


4.4.4 Market share
Table 8 presents the results of the regression analysis of the relationship between the MS and the AMA techniques. The results indicate that only AMA1 (BNC, VBM, ISO) influences MS significantly (b =0.448, p=0.002), whereas other AMAs did not. The possible explanation of this result is that AMA1 techniques are related to the competitive perspective especially BNC and ISO that are logically related to the market share performance indicator. Surprisingly, the results with respect to AMA1 (BSC) had no significant impact on MS although it is logically related.

Table 8: Regression analysis results of market shares a


4.4.5 Market position
Table 9 shows the regression analysis results of the relationship between the MP and AMA techniques. The result reveals that AMA3 (i.e. BSC) had a significant impact on MP (b =0.366, p=0.021), while there was no significant impact when applying other AMAs on MP. In other words, it can be said that implementing the BSC leads to an improved market position of the organization.

Table 9: Regression analysis results of market position a


4.4.6 Sales growth of existing services and products
Table 10 reports the result of the regression analysis of the relationship between SG and AMA techniques. The results indicates that only AMA3 (i.e. BSC) significantly impacted on SG (b =0.376, p=0.010). In other words, one advantage of the implementation of BSC is the improvement of the sales growth for existing services and products of the company. A possible explanation of this result is that BSC is financial and non-financial measure of performance. The non-financial measures such as customer stratification might impact the sales of the companies by taking customers' feedback into consideration.

Table 10: Regression analysis results of sales growth a


4.4.7 Product innovations
Table 11 shows the results of the regression analysis on the relationship between PI and AMA techniques. The results show that AMA2 has a significant influence on PI (b =0.398, p=0.006). This result shows the importance of ABC and SMA by ensuring that management is provided with the necessary environment for product innovation.

Table 11: Regression analysis results of product innovations a

In order to simplify the result of the regressions presented above, all the regression results discussed are presented into a diagram as illustrated in Figures 1 and 2 below.

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