Advances in Management Accounting

Chris Akroyd, Laurie L. Burney, Chris Akroyd, Laurie L. Burney

• Publisher: Emerald Publishing Limited
• Year: 2021
• Print ISBN: 9781800436275
• eBook ISBN: 9781800436282
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

Advances in Management Accounting (AIMA) is a publication of quality applied research in management accounting. The journal's purpose is to publish thought-provoking articles that advance knowledge in the management accounting discipline and are of interest to both academics and practitioners. As one of the premier management accounting research journals, AIMA is well poised to meet the needs of management accounting scholars.

Featured in Volume 33 are chapters on: Continuous improvement; Lean manufacturing; TQM; Capacity management; Management control systems, Performance measurement; Financial value; Value stream costing; Collaborative relationships; Strategic performance measurement systems; Competitiveness; Strategy; Budgets; Entrepreneurship; CEO characteristics; Start-ups; Financial performance; Participative budgeting; Engagement; Distributive justice; Procedural justice; Budget satisfaction; Motivation; Organizational goals; Sustainability; Management accounting; Environmental activity management; Environmental sustainability strategy; Social sustainability strategy; Triple bottom line; Performance; Incentive compensation; Financial measures; Non-financial measures; Weights; Employment time horizon

THE ASSOCIATION BETWEEN MANAGEMENT ACCOUNTING PRACTICES, ORGANIZATIONAL CHARACTERISTICS, AND FACILITY PERFORMANCE

Lawrence P. Grasso and Thomas Tyson

ABSTRACT

This study investigates the relationship between lean manufacturing practices, management accounting and performance measurement (MAC & PM) practices, organizational strategy, structure, and culture, and facility performance. We extended past research by examining the relationships between lean manufacturing, MAC & PM practices and performance in a broader organizational context. Our study was performed using survey data provided by managers and executives at 368 facilities that had contacted the Shingo Institute for information or that had entered a Shingo Prize competition. Consistent with past research we found a significant positive association between lean manufacturing practices and lean MAC & PM practices. We found that greater employee empowerment, use of process performance measures, and use of lean accounting practices were driven primarily by lean strategy and secondarily by the extent of lean manufacturing practices. We also found that changes in organization structure to support lean are driven primarily by lean strategy and secondarily by lean manufacturing practices. Change toward lean culture, on the other hand, is driven by the extent of lean manufacturing practices. Further, we found that emphasizing process performance measures does not reduce emphasis on results performance measures and emphasizing results performance measures leads to improved financial performance. Process and results measures are being used in tandem and value stream costing has not replaced traditional accounting. The results of our study provide important insights for managers of companies engaged in lean transformation and for academics who teach or research lean accounting.

Keywords: Lean manufacturing; management accounting; performance measurement; organizational strategy; structure; culture

INTRODUCTION AND BACKGROUND

Although the topic of lean accounting and its relationship with lean manufacturing may have lost some of its prominence in the academic literature since the early 2000s, it is still a topic of great importance to lean practitioners and researchers. Lean remains widely studied, and it is a widely used approach to process and operating improvement in manufacturing (Found & Bicheno, 2016). Lean production techniques have been extensively adopted in manufacturing firms (Doolen & Hacker, 2005; Maskell & Kennedy, 2007; Shah & Ward, 2007) and lean techniques have been adopted in many merchandising (supply chain) companies, service companies (e.g., health care, insurance, and finance), and government agencies (Hadid & Mansouri, 2014). Lean accounting is not a theoretical construct. As Fliedner (2018) noted, lean accounting emerged from practice as a response to dissatisfaction with existing cost accounting practices and performance measurement systems. The interaction between lean manufacturing (and more broadly, lean management and lean production) practices and MAC & PM practices are important to a large and growing segment of economic activity. Davis, Schleifer, Shackell, and Widener (2020) suggested that adopting lean accounting and aligning performance measurement to support lean manufacturing can lead to financial performance improvement significantly greater than that achieved from lean manufacturing practices alone. Accounting practitioners who understand how to support lean manufacturing and how to apply lean principles to accounting have the opportunity to add greater value to companies adopting lean production.

John Krafcik (1988) coined the term lean production to describe automotive plants that followed the Toyota Production System. Lean management and production differ dramatically from conventional management and production by prioritizing continuous improvement and eliminating waste from the perspective of the customer. Lean management and production focus on the entire production process as a dependent system and work to achieve continuous flow. Workers are empowered to be problem-solvers who need timely information to identify the root cause of problems and develop counter measures (Emiliani, 2007; Emiliani, Stec, Grasso, & Stodder, 2007; Liker, 2004). In contrast, conventional management and production usually have a more discrete product focus. The conventional production process is more hierarchical and is broken into functional departments managed by specialists, each trying to optimize their departments. Conventional management typically focuses on financial outcomes and meeting cost and production standards. Workers execute orders and are monitored for efficiency and effectiveness (Dennis, 2015). Thus, conventional management and lean management have far different organizational structures and information needs (Adler & Borys, 1996).

Many proponents of lean manufacturing have contended that traditional accounting systems are ill suited to support lean management and lean production and have called for new performance measures and measurement systems (Åhlström & Karlsson, 1996; Cunningham & Fiume, 2003; Johnson, 1992; Johnson & Bröms, 2000; Kaplan & Cooper, 1998; Maskell, Baggaley, & Grasso, 2012; Solomon & Fullerton, 2007; van der Steen & Tillema, 2018). For example, the enterprise transformation roadmap developed by MIT’s Lean Aerospace Initiative includes aligning new metrics and incentives in its planning cycle and monitoring and measuring outcomes in the execution cycle (Nightingale, 2009). Maskell et al. (2012) presented a lean accounting maturity path to align lean accounting with lean manufacturing practices. Emiliani et al. (2007) described the performance measures introduced to align with lean during the lean transformation at The Wiremold Company.

Kennedy and Widener (2008) developed a theoretical framework showing that the successful adoption of lean manufacturing would require changes in organizational structure, management accounting practices, and the management control system. Kristensen and Israelsen (2014) found support for the Kennedy and Widener framework in their longitudinal study of a Scandinavian electronics firm. Notwithstanding, most companies, even those engaged in lean transformations, continue to rely on traditional cost systems and conventional measures such as standard costs and variance analysis even though these systems and measures do not specifically capture the effects of lean improvements, and as some have argued, may even provide incentives for anti-lean behavior (Bargerstock & Shi, 2016; Cunningham & Fiume, 2003; Johnson & Bröms, 2000; Maskell et al., 2012; Solomon & Fullerton, 2007).

Lean accounting provides performance measures that support the continuous improvement efforts of employees, encourage lean behavior, and discourage anti-lean behavior. Lean accounting also applies lean management and production principles to accounting processes (Maskell & Baggaley, 2006). Awareness of lean accounting systems and value stream costing (VSC) has grown, due in part to lean seminars, webcasts, and presentations at academic and professional conferences. Those promoting the benefits of major accounting system changes are primarily a handful of early adopters (e.g., Cunningham & Fiume, 2003; Solomon & Fullerton, 2007) and lean accounting consultants (e.g., Maskell et al., 2012), the majority of whom support their claims with anecdotal data drawn largely from their own business or consulting experiences. Even though the volume of practitioner reading material related to lean accounting has increased, robust and unbiased empirical research studies conducted by academics remain sparse. The academic community continues to promote conventional accounting systems and measures, and the professional community is hesitant to make costly and extensive changes to entrenched traditional accounting systems despite their purported shortcomings.

Seeking to advance the debate, van der Merwe and Thomson (2007) called for empirical research to investigate the relationship between the advocated lean accounting processes and lean operations. In response, Fullerton, Kennedy, and Widener (2013) used survey data from 244 US Companies with an interest in lean manufacturing to examine the associations between the extent of lean manufacturing implementation and lean accounting practices. They found a positive relationship between the extent of lean manufacturing implementation and lean management accounting processes. They also found a direct negative relationship between the extent of lean manufacturing implementation and inventory tracking, a conventional management accounting practice, although the inventory tracking relationship was moderated by the extent of top management support for lean. Splitting their sample into low and high support, the authors found that reduced emphasis on inventory tracking was significant only when top management support for lean was high. However, Fullerton et al. (2013) did not test the association between the extent of lean manufacturing, use of lean accounting practices, and organizational performance.

Using data from the same survey Fullerton, Kennedy, and Widener (2014) examined the association between the extent of lean manufacturing, lean management accounting practices and performance. Using a structured equation model, they found that the extent of lean manufacturing practices directly affects firm operating performance. More importantly, lean manufacturing had an added positi...

Table of contents

• Cover
• Title
• Accounting Control, Operational Control, and the Value of Continuous Improvement: A Capacity Change Perspective
• The Association between Management Accounting Practices, Organizational Characteristics, and Facility Performance
• Collaboration, Strategic Performance Measurement Systems, and Competitiveness
• Budgeting in Start-up Companies: European Survey-based Evidence
• Managers’ Perceptions of Justice in Participative Budgeting
• Influence of Budgetary Support and Teamwork on Organizational Commitment and Performance: Evidence from Malaysia and the United States
• The Impact of Environmental Activity Management and Sustainability Strategy on Triple Bottom Line Performance
• Incentive Instruments and the Weighting of Performance Measures