International Journal of Academic Research in Accounting, Finance and Management Sciences

Vol. 8, No.2, April 2018, pp. 48–64

E-ISSN: 2225-8329, P-ISSN: 2308-0337
© 2018 HRMARS
[Link]

To cite this article: Alamri, A.M. (2018). Strategic Management Accounting and the Dimensions of Competitive
Advantage: Testing the Associations in Saudi Industrial Sector, International Journal of Academic Research in
Accounting, Finance and Management Sciences 8 (2): 48-64.
[Link] (DOI: 10.6007/IJARAFMS/v8-i2/4137)

Strategic Management Accounting and the Dimensions of Competitive

Advantage: Testing the Associations in Saudi Industrial Sector
Ahmad Mohammed ALAMRI
King Saud University-Saudi Arabia, E-mail: ahamri@[Link]

Abstract
In the last decade, many dramatic changes in the organizations’ environment have led to fundamental
transformations in the framework of management accounting practices; specifically the shift toward practicing
its functions and tasks from a strategic approach. This exploratory study examines the impact of strategic
management accounting on the dimensions of competitive advantage. Using data from 289 management
accountants and 289 senior managers working at Saudi industrial companies located in Riyadh industrial cities,
the present study finds that practicing management accounting from a strategic perspective significantly
affects the dimensions of competitive advantage (i.e. cost, quality, flexibility and delivery). In the context of its
proposed model, the present study supports that Saudi industrial companies can enhance their ability to
achieve competitive advantage through practicing of strategic management accounting in terms of the
adoption and use of strategic management accounting techniques and the involvement of management
accountants in strategic management processes.
Key words
Strategic Management Accounting, Competitive Advantage, Industrial Sector, Saudi Arabia

Received: 14 Apr 2018 © The Authors 2018

Revised: 30 Apr 2018 Published by Human Resource Management Academic Research Society ([Link])
Accepted: 15 May 2018 This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may
reproduce, distribute, translate and create derivative works of this article (for both commercial and non-
Published Online: 31 May 2018 commercial purposes), subject to full attribution to the original publication and authors. The full terms of
this license may be seen at: [Link]

1. Introduction
Over the past two decades, the business environment has undergone successive changes as a result
of the tremendous reliance on information systems and modern communications, in addition to the
openness in the global market. These changes have resulted in increasing pressures on companies to be
more competitive, and shifting their attentions to maximize efficiency in exploiting resources in order to
control markets or maintain their competitive positions. Therefore, traditional management practices are
no longer sufficient for organizational growth and survive. Moreover, contemporary companies need
accurate and reliable information to make appropriate decisions regarding the environmental factors
surrounding them.
In the current millennium, management accounting has become one of the vital nerves for the
decision-making process in contemporary companies; because of its strategic role in providing useful and
significant information to the top management in order to cope with the dynamic environment, and to run
the company in effective, efficient, and economic manners. Therefore, practicing management accounting
from a strategic approach (labeled as Strategic Management Accounting) (Mia and Clarke, 1999; Noordin et
al., 2015) is mainly an effective way for providing contemporary companies with the information required
for strategic decision making process (Roslender and Hart, 2002; Ah Lay and Jusoh, 2011), gaining
competitive advantages, and improving future-oriented performance (Johnson and Kaplan, 1987; Ahid and

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Augustine, 2012). However, shifting toward the strategic approach in management accounting practices is
partially based on the ground that this approach can show the reflection and correlation between strategic
management methods and the information that the accountants seek to provide (Bromwich, 1990; Johnson
and Kaplan, 1987).
The focus of strategic management accounting is on the external and market- oriented information
rather than historical and internal information (Cadez and Guilding, 2012). Accordingly, strategic
management accounting is directed toward major elements of the company’s external environment such as
market positioning, product, competitors, suppliers and customers (Kırlı and Gümüş, 2011). Additionally, in
the light of strategic management accounting, company strategy represents a contextual factor that shapes
the nature of management accounting practices, and therefore, enhancing the company capabilities in
gaining competitive advantage (Roslender and Hart, 2002). Moreover, strategic management accounting
can help in creating strategic value through effective and efficient use of resources (Chenhall and Langfield-
Smith, 1998), directing and controlling the operational activities, measuring the performance at all
organizational levels, and estimating the company’s competitive position (Hilton, 2008).
In the light of the relationship between strategic management accounting and competitive
advantage, the empirical studies that support this relationship have been still scant despite the
conceptualized positive relationship between these two constructs. To date, the field of strategic
accounting management suffers from a lack of empirical investigation (Nixon and Bums, 2012). Past
empirical work has focused in investigating the relationship between strategic management accounting and
financial performance, nonfinancial performance, decision-making process and business strategy (e.g. Al-
Khadash and Feridun, 2006; Ah Lay and Jusoh, 2011; Chenhall and Langfield-Smith, 1998; Cadez and
Guilding, 2012; Hammad et al., 2010). In business Arab environment, particularly in Saudi Arabia, it is
noticeable that there is no one piece of empirical research dealing with strategic management accounting.
To sum up, there is a gap in our current understanding of the influence of strategic management
accounting on gaining competitive advantages. The lack of empirical evidence regarding this influence can
make contemporary companies in developed and developing countries less aware about the role of
strategic management accounting on enhancing their companies’ outcomes such as gaining competitive
advantages. To help in addressing this gap, the objective of the current study is primarily to examine the
impact of strategic management accounting on the main dimensions of competitive advantage. Therefore,
the current study contributes to the research scope in the fields of strategic management accounting and
competitive advantages in order to further expansion of our current understanding of the role of strategic
management accounting in gaining competitive advantages in companies.
The industrial sector in the Kingdom of Saudi Arabia has witnessed a steady development which has
achieved many remarkable achievements. This is due to the interest and support from the Saudi
government, in view of the role this sector plays in achieving the strategic and economic objectives of the
Kingdom. The support from Saudi government includes several main aspects such as the provision of
necessary infrastructure, the establishment of industrial cities in different regions of the Kingdom, the
establishment of the Saudi Industrial Development Fund, and the provision of a number of other industrial
incentives. The industrial base in the Kingdom has witnessed a significant expansion over the last four
decades. The number of industrial companies jumped from (206) in 1974 to (7,741) in 2016. In parallel, the
invested capital increased from SR 4.3 billions in 1974 to SR 1.1 trillion in 2016. The number of workers also
increased from about (10) thousand workers in 1974 to more than one million workers in 2016. Industrial
production in the Kingdom has grown significantly over the past period. GDP at constant prices of
manufacturing industries rose from SR 32 billion in 1974 to SR 310 billion at the end of 2016. In addition,
the growth rate of the industrial sector continued to rise throughout this period. The average annual
growth of the real GDP of manufacturing industries during this period was about 5.6%, one of the highest
growth rates among the other economic sectors and the most sustainable (Saudi Industrial Development
Fund, 2018).
As this industrial sector is one of the largest sectors in the Kingdom and most companies of this
sector need to adapt and implement a strategic approach of management accounting to enhance their role,
this sector has been selected for conducting this study. In particular, this study addresses the following
question: “Does strategic management accounting significantly influence the dimensions of competitive

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advantage in Saudi industrial sector?” The present study is an attempt to bridge the gap in addressing the
role of strategic management accounting in gaining competitive advantages. Hopefully, this may contribute
in drawing managers’ attention in industrial companies about the importance of this vital issue, and
implementing it on scientific and applied principles as a means for achieving competitive advantages.

2. Literature Review and Theoretical Framework

2.1. Strategic Management Accounting
Simmonds (1981) was the first author who introduced the concept of strategic management
accounting in management accounting literature. He defined strategic management accounting as “the
provision and analysis of management accounting data about a business and its competitors used for
developing and monitoring business strategy”. In the same vein, Bromwich (1990) defined this concept as
“the provision and analysis of financial information on the firm’s product markets and competitors’ costs
and costs structures and the monitoring of the enterprise’s strategies and those of its competitors in these
markets over a number of periods”. These two early definitions of strategic management accounting
indicate explicitly for the potential role of strategic management accounting in sustaining competitive
advantages by providing decision makers with financial information needed to identify the competitive
position of the organization. Several definitions that followed Simmonds (1981) and Bromwich (1990) try to
orient strategic management accounting with strategic management and marketing function. For example,
Roslender and Hart (2003) define strategic management accounting “as a generic approach to accounting
for strategic positioning, defined by an attempt to integrate insights from management accounting and
marketing management within a strategic management framework”. In addition, some authors (e.g.
Agasisti et al. 2008; Langfield-Smith, 2008; Ma and Tayles, 2009; Tillmann and Goddard, 2008; Roslender
and Hart, 2010) have considered strategic management accounting as a new stream that orients
management accounting system with the strategic direction of organization. In this view, strategic
management accounting is oriented toward the facets of strategic management, which encompass
formulation, implementation, and controlling. For example, a recent study has found that strategic
management accounting is an important antecedent in the context of strategic planning (Cuganesan et al.,
2012).
However, there is no consensus between researchers and authors regarding the definition of
strategic management accounting. Instead, they almost agree that the definition of strategic management
accounting must not limit its role to the provision of specific type of information (e.g. competitors) instead
of having multifaceted information (e.g. competitors, customers, market, products, general environment,
etc.) (Carlsson-Wall et al., 2015; McManus, 2013). In fact, this multifaceted information can make a
considerable contribution in term of bridging the strategic management literature and management
accounting into a unified strategic management framework. Some researchers and authors try to express
this way of bridging into their definition of strategic management accounting. For example, Hoque (2001)
defined strategic management accounting as "a process of identifying, gathering, choosing and analyzing
accounting data for helping the management team to make strategic decisions and to assess organizational
effectiveness". Furthermore, The Chartered Institute of Management Accountants’ official terminology
defines strategic management accounting as “a form of management accounting in which emphasis is
placed on information which relates to factors external to the entity, as well as non-financial information
and internally generated information” (Jack, 2009). Therefore, strategic management accounting is a
contemporary approach of accounting organized around the strategic orientation of organization as an
attempt to develop and monitor of organization strategy and for control activities purposes. According to
Soltani et al. (2014), researchers in the field of competitive advantages indicate that organizations need
strategic management accounting in order to improve their performance since they face changing
competitive conditions by providing the managers with the needed information.
However, the main question in this context is how to integrate the strategic management accounting
with the strategic management in organization? In order to answer this question, Cadez and Guilding
(2008) have conceptualized and operationalized strategic management accounting as a two major
dimensions. These are (1) the adoption and use of strategic management accounting techniques and (2)
management accountant’s involvement in strategic management processes. Later, most empirical work

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have used these two dimensions as indicators for practicing strategic management accounting in
organization (Ah Lay and Jusoh, 2011; Aksoylu and Aykan, 2013; Dunk, 2011; Oboh and Aljibolade, 2017;
Tillmann and Godddard, 2008).
In the light of the first dimension of strategic management accounting that is the adoption of
strategic management accounting techniques, these techniques were categorized into main five practices
as follow:
(1) Costing: six techniques were comprised into this practice to determine, analyze, and manage
costs in a strategic manner. These techniques are: activity-based costing, attribute costing, life cycle
costing, quality costing, target costing, and value chain costing. They represent an important element in an
external and forward-looking orientation, and the development of strategies (Cuganesan et al., 2012; Ewert
and Ernst, 1999; Roslender and Hart, 2010).
(2) Planning, control, and performance measurement: benchmarking and integrated performance
measurements (e.g. balanced scorecard) are the main techniques that related to this category. In
implementing benchmarking with its external and forward-looking orientation, company is searching for
best practices of competitors as a means for enhancing its performance and strategic positioning (Cadez
and Guilding, 2008; Cinquini and Tenucci, 2010). However, in implementing integrated performance
measurements with their internal and external perspectives, companies can use both financial and non-
financial performance measures. For example, balanced scorecard assumes an internal and external
orientation paralleled with forward-looking orientation (Kaplan and Norton, 2001). Accordingly, these
techniques can lend a helping hand for managers in developing, implementing, and controlling of strategies
and identifying and managing of the intellectual capital (Tayles et al., 2007).
(3) Strategic decision-making: this practice comprises three effective techniques about the strategic
orientation of the company. These techniques are strategic costing, strategic pricing and brand valuation.
All of these techniques confer external and forward-looking orientations (competitors, market, products,
etc) and allow creating and achieving competitive advantages (Roslender and Hart, 2010).
(4) Competitor accounting: this practice includes: competitor cost assessment, competitor appraisal
performance and competitive position monitoring (Shah et al., 2011). Their external orientations make
these techniques useful in the strategic decision-making process including strategy formulation and
strategy monitoring (Cinquini and Tenucci, 2010).
(5) Customer accounting: this practice focuses on customers and comprises customer
profitability/cost analysis, lifetime customer profitability analysis and valuation of customers as assets. As
other previous practices, these three techniques confer an external and forward-looking orientation. In
sum, these techniques allow assessing the profitable relationships with customers, improving the
formulation of strategies related with the 4Ps of marketing (product, pricing, promotion and place), and
supporting the utilization of resources related to customers. Accordingly, these techniques can enhance the
integration or fit among the strategic management, management accounting and marketing (Andon and
Baxter, 2011).
As noted from the above-mentioned practices, the main criterion for considering the management
accounting technique as a strategic one is the external orientation of the technique and its ability to
provide future information (forward-looking orientation). According to Carlsson-Wall et al. (2015) and
McManus (2013), the information provided by these techniques is essential in the formulation and
monitoring of strategy and for sustainable value creation.
The second dimension of conceptualizing and operationalizing strategic management accounting is
the management accountant’s involvement in strategic management processes. The importance of this
involvement or participation is identified in term of management accountant’s role in developing of
strategic management accounting system and in enhancing several organizational functions (Cadez and
Guilding, 2008; Chiucchi, 2013; Tillmann and Goddard, 2008). Cadez and Guilding (2008) and Siegel and
Sorensen (1999) suggest that management accountants should enhance their proactive role in the strategic
management process by developing their financial and managerial accounting knowledge, analytical, verbal
and written skills, and working within a team. Furthermore, management accountants should also work in
an integrated manner with other organizational units to achieve a high degree of synergy (Oboh and
Aljibolade, 2017). This can be done by formulating effective cross-functional team from various

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departments of the organization (Aver and Cadez, 2009) that is equipped with necessary information
literacy skills for identifying, utilizing, evaluating and interpreting information (Mishra and Mishra, 2010).
According to Fauré and Rouleau (2011), management accountants have the key skills that are essential to
promote changes needed in the light of dynamic environment. Accordingly, those accountants can support
the company to take the best decisions for its strategic alternatives in a transparent and objective way
(Tillmann and Goddard, 2008). With regard to management accountants’ role, Nixon and Burns (2012)
stated that:
“A further advantage that accountants enjoy is that their financial assessments of marketing,
operations, or new product design and development decisions are likely to be perceived by senior
management as relatively more objective than those of discipline managers directly concerned.”
The active role of management accountant was also identified in Simmonds (1982) suggestions. He
claimed that the anticipation of competitors’ actions and reactions heavily depends on the involvement of
management accountant in external information provision. In addition, Bromwich and Bhimani (1994)
stated that:
“Strategic management accounting requires that accountants embrace new skills extending beyond
their usual areas and cooperate much more with general management, corporate strategists, marketing
and product development”
According to Brouthers’s and Roozen (1999) study, the gap between traditional management
accounting and strategic management can be filled by the management accountant involvement in
strategic decision making process which in turn helps senior managers to make informed, timely decisions.
Moreover, this role of management accountant is recently extended to be a strategic partner to support
the strategic orientation of organization (Ahid and Augustine, 2012). Therefore, the role of management
accountant should change dramatically from being a source of information to a business strategic partner
and advisor. This requires that a management accountant must have good interdisciplinary knowledge and
analytic, financial, and decision-making skills (Tillmann and Goddard, 2008). In addition to their financial
orientation, management accountants must adopt more non-financial orientation. This means that
information about the external and internal contexts, customers, competitors, products, and markets must
be the core emphasis of their work (McManus and Guilding, 2008). Several recent studies have shown that
the role of management accountants has changed to be a strategic role rather than a bean-counter
(Chiucchi, 2013; Fauré and Rouleau, 2011; Hiller et al., 2014; Lambert and Pezet, 2011).

2.2. Dimensions of Competitive Advantage

In general, the concept of competitive advantage refers to the ability of the company to formulate
and implement strategies that make it in a better position than competitors through better utilization of
the technical, physical, financial and organizational capabilities and resources that enable it to design and
implement its competitive strategies. However, the achievement of competitive advantage is linked to two
main dimensions: the perceived value of the customer and the ability of the company to achieve excellence
(Weinstein, 2012).
The importance of the competitive advantage lies in the fact that it gives companies the ability to
defend their market position and maintain their competitive position among their competitors, in addition
to enhancing the company's capabilities and production and marketing skills, and strengthening customer
relations and improving decisions (Sigalas et al., 2013). Kotler (1997) defined competitive advantage as “an
organizational capability to perform in one or many ways that competitors find difficult to reproduce now
and in the future”. Anik et al. (2010) considers competitive advantage as the ability of company to meet the
needs of customers and satisfy them, as well as to meet the needs of employees in the company, and to
achieve a higher return on investment for growth, in addition to developing and reaching its goals and
objectives. It is also a group of factors that have a direct and indirect relationship to the stability of the
company in the market (Baroto et al., 2012). Nyalika and Namusonge (2015) believe that competitive
advantage is the most appropriate tool for discovering new, creative and innovative ways to produce and
deliver goods and services more effectively than competitors in the market. In addition, Ranjith (2016)
believes that competitive advantage is a strategy that develops the company's business model, accelerates
its growth and development, and provides the company with the opportunity to produce and deliver

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services, goods and benefits to its customers that outperform its competitors and improving its reputation
in the market. From the above discussion and definitions, competitive advantage can be viewed as a set of
factors or dimensions that enable company to outperform its competitors by meeting the requirements
and needs of its external and internal customers, which in turn affects its market stability, market share,
profitability, reputation etc.
In the past decades, Porter (1985) identified two common dimensions of competitive advantage.
These are cost advantages (e.g. operating with lower cost compared to competitors) and differentiation
advantages (e.g. differentiating by providing superior services, innovative methods, strong brand etc.).
Later, this framework has expanded to include additional dimensions to conceptualize competitive
advantage. In reviewing the related literatures in this area of concern, the researcher of the present study
finds that there is a general agreement between authors and researchers regarding the basic dimensions of
competitive advantage (see Brem et al., 2016; Diab, 2014). These dimensions are cost, quality, flexibility,
delivery and innovation.
(1) Cost dimension: Baroto et al. (2012) emphasizes that any company must focus on cost to make
the production and marketing costs of its products lower than those of its competitors. This lower cost
enables company to acquire a higher market share as the basis for its success and superiority. According to
Ranjith (2016), the lowest cost is the main operational objective of companies that compete through cost
and even companies that compete through other non-cost competitive advantages. From economic and
financial perspective, reducing the price of products contributes to create and increase demand as well as
reduce the profit margin if the company does not produce its products at low costs (Sachitra et al., 2016).
In addition, reducing costs can be achieved through the efficient use of its production capacity as well as
continuous improvement of product quality and innovation in product design and process technology
(Baroto et al., 2012). This is an important foundation for cost reduction as well as helping managers to
support the strategy of the company to be a leader in the field of cost.
(2) Quality dimension: Wang et al. (2011) confirm that the company's expected value, which is
commensurate with its mission, requires company to identify customers' expectations and desires for
quality and work towards achieving them. According to Ware (2014), quality is an important competitive
advantage, which refers to the performance of things correctly to provide products that fit the needs of
customers. Thus, companies that do not provide quality products that meet the needs and desires of
customers and their expectations cannot survive and succeed or eventually stay in competition. Daru
(2016) agrees that the quality dimension of competitive advantage means the company’s ability to deliver
products that match the needs and desires of customers. Chen et al. (2013) assert that high quality
products contribute to improving the company's reputation and customer satisfaction, and the company
can impose higher prices if delivering high quality products to meet customer requirements.
(3) Flexibility dimension: Wang et al. (2011) describes flexibility as a rapid responding to changes that
may occur in product design to suit customers' needs, whereas Combe (2012) describes it as the ability to
quickly produce a wide range of products, introduce new products, modify existing products as a response
to customer needs. Flexibility is also described as the ability of the company to change processes to other
methods (e.g. changing the performance of operations and the way and time of performance of
operations) (Eryesil et al., 2015). This change in processes includes four types of flexibility (Eryesil et al.,
2015): (1) Product flexibility: means the ability of processes to deliver new or modified products; (2)
Product-Mix flexibility: means the ability of processes to produce a mix of products; (3) Size Flexibility:
refers to means the ability of processes to change the level of output or the level of production activity to
provide different sizes of products; and (4) Delivery flexibility: refers to the ability of processes to change
delivery times of products.
(4) Delivery dimension: Daniel et al. (2011) argue that delivery represents the base of competitive
advantage dimensions. This dimension makes companies in the markets focus on reducing deadlines and
shortening the time required to design new products and deliver them to customers. However, there are
three aspects for delivery dimension related to time. These are (Krajewsky and Ritzman, 2005):
(1) Speed of delivery: this aspect is measured by the time it takes between receiving the customer's
order and meeting it, which is called “waiting time”. It is possible to increase the time spent in this aspect
of delivery by reducing the waiting time.

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(2) Timely delivery: This means on-time delivery of customers' orders by the company.
(3) Speed of development: this aspect is measured by the time between developing new product’s
ideas and introducing product to the market.
There are many sources for achieving competitive advantage; three of them in most related
literatures were identified as main sources. These sources were: innovation, knowledge and information,
and time (Sachitra et al., 2016). They can enable company to create new ideas, generating creative
practices, keeping abreast with the demands of modern technology, adapts and implements modern
methods, having a speed in meeting the requirements and needs of customers and adapting to changing
environment trends (Baroto et al., 2012).

2.3. Strategic Management Accounting and Dimensions of Competitive Advantage

Many authors from different research areas have highlighted the need for considering cross-level
models when researchers analyze competitive advantage (see Daru, 2016). This way of analysis gives rich
and valid explanation of the association between variables under study. Moreover, accounting functional
level analysis is rarely used in analyzing the dimensions of competitive advantage. This limits our
understanding how choices taken on this level influence a company’s competitive position. In addition, the
strategic issues of this functional level are also not addressed by previous work. As a result, no deeper
understanding can be achieved about the impact of strategic management accounting on the dimensions of
competitive advantage. Therefore the current study is an attempt to include this level of analysis in the
research scope.
Theoretically, many authors have proposed a positive impact of strategic management accounting on
the dimensions of competitive advantage ([Link] and Langfield-Smith, 1998; Chiucchi, 2013; Cinquini
and Tenucci, 2010; Hiller et al., 2014; Hilton, 2008; Kaplan and Norton, 1996; McManus, 2013; Nixon and
Burns, 2012; Roslender and Hart, 2002). They claimed that strategic management accounting represent as a
critical source of strategically orientated information for planning, decision making and control purposes
that in turn influence the level of gaining competitive advantage. For example, Hilton (2008) claimed that
strategic management accounting can help organization in achieving an appropriate and consistent
alignment between management accounting and organization for strategic purposes in the first place, and
bringing high possibilities to achieve the desired competitive advantages. He added that strategic
management accounting represents as an essential practice that plays a significant role in identifying and
evaluating the strategic competitive policies that result in achieving higher performance and competitive
advantages. According to McManus (2013), in addition to have historical, financial, and internal
information, achieving and sustaining competitive advantages requires external, non-financial, and future
information. In the light of this argument, traditional management accounting (e.g. budgeting, costing and
profitability analysis) is no longer an appropriate solution for achieving competitive advantages.
As mentioned earlier, strategic management accounting can play a significant role in providing
information about markets, products, suppliers, competitors, and customers. This external orientation
information represents a main source for analyzing competitive position of companies. Moreover, strategic
management accounting also represents the key information provider of forward-looking information for
strategic planning (Nixon and Burns, 2012). In addition, strategic management accounting can also provide
internal orientation information regarding organizational resources and capabilities in order to support
external competitive bases (Tayles et al., 2007). According to Agu et al. (2016), practicing management
accounting from a strategic approach is essential in achieving sustainability of company in a competitive
environment and having an efficient role in markets that in turn help in gaining a sustainable competitive
advantage.
There are two complementary and mutually exclusive models for competitive advantage
conceptualization. These models are the market-based model and the resource-based model (Ejrami et al.,
2016). The market-based model includes cost variables, differentiation, efficiency, competitor evaluation,
threats and risks analysis, etc. On the other hand, resource-based model is based on resources including all
the resources owned by the company, whether physical or financial or human, to be moved and developed
from within the company (Korankye, 2013). Accordingly, the two conceptualizations of competitive
advantage have both external and internal orientation like strategic management accounting. Therefore,

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the present study proposes that strategic management accounting is likely associate with competitive
advantage. That is, the information provided by strategic management accounting may play a significant
role in achieving the dimensions of competitive advantages (i.e. cost, quality, flexibility and delivery). These
four dimensions are seen to depend heavily on internal, external, financial, non-financial, historical, and
prospective information (Ejrami et al., 2016; McManus, 2013) provided by strategic management
accounting. On these grounds, the following study hypothesis is proposed:
H1: strategic management accounting is positively associated with the dimensions of competitive
advantage.
This hypothesis is divided into the following sub-hypotheses:
H1-1: strategic management accounting is positively associated with the cost as a dimension of
competitive advantage.
H1-2: strategic management accounting is positively associated with the quality as a dimension of
competitive advantage.
H1-3: strategic management accounting is positively associated with the flexibility as a dimension of
competitive advantage.
H1-4: strategic management accounting is positively associated with the delivery as a dimension of
competitive advantage.
In assuming a contingency approach, the two dimensions of strategic management accounting will
be deployed in a causal model as antecedents of competitive advantage’s dimensions. The conceptual
model of this study (see Figure 1) demonstrates that the four dimensions of competitive advantage are
enhanced by the existence of the two dimensions of strategic management accounting.
Strategic management accounting Dimensions of competitive
advantage
The adoption of strategic management Cost
accounting techniques
Quality

Management accountant’s involvement Flexibility

in strategic management processes
Delivery
Figure 1. Conceptual model of the study

3. Methodology of research
3.1. Sampling and Data Collection
The study population consists of all industrial Saudi companies which are working at industrial cities
in the capital of the Kingdom, Riyadh by the end of 2017. Three industrial cities are established in Riyadh
and include 682 companies. However, the following companies will be excluded:
1. Companies which are encountered the case of shut down, liquidation, merge or acquisition.
2. Companies which have been conducted their operations less than five years ago.
3. Companies which do not have a specialized accounting department.
4. Companies which do not practice some strategic initiatives such as strategic management
accounting techniques.
The researcher with the help of five academic staff contacted all companies identified as the study
population by phone calls to identify those companies which meet the criteria set out in the study, and asks
for their participation. Out of the total 308 companies from the first industrial city meet the selected
criteria and 5 of them did not cooperate, so at the end (303) companies were investigated. No companies
from the second and third industrial cities meet our criteria. For those who agreed to participate, the name
and email of the management accountant and senior managers as two units of analysis were identified. As
the selected companies are located in same location, the two surveys used were personally handed to all

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respondents (N=303). This was followed up with a phone call to get an appropriate response rate. After two
months later, the researcher and his team made the final visit to collect the surveys. The response rate for
the present study was actually striking; the researcher and his team enabled to collect 289 responses out of
303. Thus the response rate was 95.4%. The study sample of management accountant consists of 68% male
and 32% respondents with an average age of about 39.5 years. 88% are holding a bachelor degree or
above, and have an average total experience in the accounting positions of about 13 years. On the other
hand, the study sample of senior managers consists of 100% male respondents with an average age of
about 45 years. 67% are holding a bachelor degree or above, and have an average total experience in their
positions of about 18 years. In the light of Saudi industrial cities classification, 55% of participated
companies represent as large companies (employ more than 500 employees), and the rest of complies are
classified as medium-sized companies with less than 500 employees. The average age of all companies
participated in survey is about 27 years.

3.2. Measures
3.2.1. Independent variables
As mentioned before, prior work used two main dimensions to conceptualize and operationalize
strategic management accounting (SMA). These are: (1) the adoption and use of strategic management
accounting techniques (SMA1) and (2) management accountant’s involvement in strategic management
processes (SMA2). Accordingly, the adoption and use of strategic management accounting techniques was
measured by using the five practices of strategic management accounting that are (1) Costing (e.g. activity-
based costing, attribute costing, life cycle costing, quality costing, target costing, and value chain costing),
(2) Planning, control, and performance measurement (e.g. benchmarking and balanced scorecard), (3)
Strategic decision making (e.g. strategic costing, strategic pricing and brand valuation), (4) Competitor
accounting (e.g. competitor cost assessment, competitor appraisal performance and competitive position
monitoring), (5) Customer accounting (e.g. customer profitability/cost analysis, lifetime customer
profitability analysis and valuation of customers as assets). Following the question “To what extent does
your company use the following strategic management practices?”, management accountants in the study
sample responded on this question by identifying the level of practicing the 17 techniques of strategic
management accounting on a five-point scale ranging from “1” (not at all), to “5” (to a great extent). The
second dimension of strategic management accounting (SMA2) was measured using a reliable and
validated instrument developed by Wooldridge and Floyd’s (1990). This instrument includes five questions
measuring the level of participation and involvement in the strategic management process. However,
management accountants in the study sample responded to this instrument by evaluating their
involvements into the strategic management process on a 5-point scale ranged from “1” (not at all
involved) to “5” (fully involved). In sum, to measure the SMA variable, the researcher calculated the
average response on the two dimensions of SMA that are SMA1 and SMA2.

3.2.2. Dependent variables

To measure the dimensions of competitive advantage, the researcher of the present study developed
a measurement scale. This scale includes the four dimensions of competitive advantage identified
previously in the literature review section in this study. These dimensions are: (1) Cost dimension (CA1) (2
items) (e.g. the ability of the company to compete against the major competitors based on low price), (2)
Quality dimension (CA2) (2 items) (e.g. the ability of the company to deliver products that match the needs
and desires of customers), (3) Flexibility dimension (CA3) (4 items) (e.g. the ability of the company to
quickly produce a wide range of products as a response to customer needs), and (4) Delivery dimension
(CA4) (3 items) (e.g. the ability of the company to make on-time delivery of customers’ orders). Each
dimension was measured by a set of items asking senior managers in the study sample to evaluate their
companies in the light of these dimensions locally over the past five years. Likert scales ranging from 1,
"very low" to 5, “very high." was used to identify senior managers’ response. To evaluate the level of
competitive advantage, the researcher the researcher was averaging the five dimensions of competitive
advantage within one variable (CA).

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3.2.3. Control variables

To capture some variables that may have an impact on the independent variable and dependent
variable and therefore influence the results of the regression analysis, the present study selected some
related control variables mentioned on previous studies (e.g. Ah Lay and Jusoh, 2011; Cadez and Guilding,
2012; Hammad et al., 2010). These variables are: company age and company size (log of total
employment).

4. Results
Table 1 provides the results of descriptive statistics, correlations, reliability and factor analyses for
the study scales. In addition, Table 1 also provides the testing of sampling adequacy and the problem of
multicollinearity by using Kaiser-Meyer-Olkin (KMO) and the variance inflation factor (VIF) tests
respectively.
Table 1. Descriptive Statistics, Correlations, Reliability and Factor Analyses
Factor Loadings Communalities Item-total Correlations
Item Cronbach’s Alpha Mean SD
SMA CA
SMA1 0.883 0.766 0.752 0.94 3.06 1.362
SMA2 0.892 0.689 0.624 3.12 1.226
CA1 0.802 0.669 0.666 0.91 3.11 1.111
CA2 0.821 0.709 0.603 3.25 1.089
CA3 0.883 0.711 0.548 3.09 1.208
CA4 0.812 0.728 0.429 3.01 1.302
VIF 2.16 1.85
KMO 0.926

SMA= strategic management accounting; SMA1 = the level of adaption and use of strategic
management accounting techniques; SMA2= the level of management accountant’s involvement in
strategic decision process; CA= dimensions of competitive advantage; CA1= cost dimension; CA2= quality
dimension; CA3= flexibility dimension; CA4= delivery dimension.
Table 1 show that the mean of practicing strategic management accounting techniques is 3.06 with a
standard deviation of 1.362. This indicates that the level of adaption and use of strategic management
accounting techniques by sample companies was at moderate level with a great variance in the level of
adaption and use. In addition, the level of management accountant’s involvement in strategic management
processes was also at moderate level with a mean of 3.12 with a standard deviation of 1.226 indicating
great variance between sample companies in the level of involvement. Dimension of competitive
advantage scale shows mean values of 3.11 for cost dimension, 3.25 for quality dimension, 3.09 for
flexibility dimension, and 3.01 for delivery dimension. These values indicate that sample companies achieve
moderate level in each dimension of competitive advantage with quality dimension in the first rank and
delivery dimension in the last rank. However, the high values of standard deviations for such dimensions
indicate great variance in the level of achievement between sample companies.
From Table 1, the results of reliability test indicate that that the two scales of the present study have
an acceptable level of internal reliability and consistency. The Cronbach’s alpha for the strategic
management accounting scale and the dimensions of competitive advantage are 0.94 and 0.91
respectively. In addition, all items have item-total correlation values greater than 0.5, the acceptable limit
by Nunnally (1978), therefore, no item has been dropped from the data. Furthermore, all factor loadings
and communalities are above the acceptable limit of 0.50 suggested by Hair et al. (2009). As the value of
KMO is 0.926 which is greater than 0.7, the minimum limit suggested by Hair et al. (2009), sampling
adequacy is achieved. In addition, the values of variance inflation factor were less than 5 for both the study
independent and dependent variables which in turn indicate an acceptable level (see Rogerson, 2001) and
the absence of multicollinearity problem in the present study data. In sum, the above results indicate that
the two scales used in the present study satisfy the reliability, internal consistency and construct validity.

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For the purpose of testing the main hypothesis (H1), the current study used multiple regression
analysis to test the association between the strategic management accounting and the dimensions of
competitive advantage. Strategic management accounting is measured by averaging its two measurable
dimensions that are SMA1 and SMA2, whereas, competitive advantage is measured by averaging its four
measurable dimensions that are CA1, CA2, CA3, and CA4. Consequently, testing of hypothesis H1 is
achieved through estimation of the following multiple regression model:
CA= β0+ β1SMA+ β2CSZ+ β3CAG+ε1 (model 1)
Where:
CA represents the ability of company to achieve competitive advantages;
SMA represents the level of practicing strategic management accounting;
CSZ represents the company size (log of total employment);
CAG represents the company age (in years);
ε1 represents the unexplained error of the regression model.
Table 2. Regression Analysis Results-Model 1
Dependent Independent Coefficient t- Durbin
P-value R2 adjR2 F P-value
Variable Variable β1 statistics Watson
CA SMA 0.532 14.63 0.002**
CSZ 0.203 1.36 0.625 0.362 0.317 128.69 0.003** 2.36
CAG 0.169 3.26 0.403
Constant β0=5.23*
**significant at α ≤ 0.01

It is shown from Table 2 that practicing of strategic management accounting in terms of its two
dimension (SMA1 and SMA2) has a significant and positive impact on the ability of the sample companies
to achieve competitive advantage (β = 0.532, P < 0.012). The F value (F=128.69, < 0.003) is significant and
indicates that the model 1 fits the data. In addition, Durbin Watson statistic value (2.36) indicates that
there is no autocorrelation in the sample. The results also indicate that the size and the age of company as
control variables have no significant impacts on the dimensions of competitive advantage. Furthermore,
practicing of strategic management accounting accounts for 31.7% of the variation in the ability of
company to achieve competitive advantages (adjR2 = 0.317). Thus, the main study hypothesis (H1) that
proposes a positive association between strategic management accounting and the dimensions of
competitive advantage is statistically supported. This finding is consistent with the theoretical proposition
identified by some authors in the field of strategic management accounting (e.g. Roslender and Hart, 2002;
Cinquini and Tenucci, 2010; Chiucchi, 2013; Hiller et al., 2014; Chenhall and Langfield-Smith, 1998; Nixon
and Burns, 2012; McManus, 2013; Hilton, 2008).
In order to test the study sub-hypotheses, regression analysis is also used to identify the association
between strategic management accounting and the four dimensions of competitive advantage. Testing of
these sub-hypotheses is achieved through estimation of the following regression models:
CA1= a0+ β4SMA+ β5CSZ+ β6CAG+ ε2 (model 2)
CA2= b0+ β7SMA+β8CSZ+ β9CAG + ε3 (model 3)
CA3= c0+ β10SMA+ β11CSZ+ β12CAG+ ε4 (model 4)
CA4= d0+β13SMA+ β14CSZ+ β15CAG + ε5 (model 5)
Where:
CA1 represents the ability of company to achieve cost dimension;
CA2 represents the ability of company to achieve quality dimension;
CA3 represents the ability of company to achieve flexibility dimension;
CA4 represents the ability of company to achieve delivery dimension;
SMA represents the level of practicing strategic management accounting;
ε represents the unexplained error of the regression model.
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Table 3. Regression Analysis Results-Model 2 to 4

Dependent Independent Coefficient t- Durbin
P-value R2 adjR2 F P-value
Variable Variable1 βi statistics Watson
CA1 SMA 0.405 8.88 0.011* 0.621 0.612 28.41 0.001** 2.36
CA2 SMA 0.369 7.16 0.021* 0.607 0.533 20.22 0.019** 1.98
CA3 SMA 0.301 8.12 0.016* 0.449 0.426 26.45 0.005** 2.03
CA4 SMA 0.236 7.05 0.026* 0.167 0.111 16.12 0.034* 2.11
Constant a0=1.02* b0=0.89 c0=1.12* d0=1.09*
1 control variables are not included in table since they have no significant impact in the model.
**significant at α ≤ 0.01
*significant at α ≤ 0.05

The results in Table 3 show that practicing of strategic management accounting in terms of its two
dimension (SMA1 and SMA2) has a significant and positive impact on the ability of the sample companies
to achieve all dimensions of competitive advantage (i.e. cost, quality, flexibility, and delivery). All β
coefficients are significant and positive with the highest value for cost dimension (β = 0.405, P < 0.011) and
lowest value for delivery dimension (β = 0.236, P < 0.026). The F values presented in Table 3 are significant
and indicate that the four models (2, 3, 4, 5) in the study fit the data, and the values of Durbin Watson
statistic are in normal ranges. Moreover, practicing of strategic management accounting accounts for
61.2% of the variation in the ability of company to achieve cost dimension (adjR2 = 0.612), and accounts for
53.3%, 42.6%, and 11.1% for the variation in the ability of company to achieve quality, flexibility and
delivery dimension respectively. In general, the findings in Table 3 suggest that strategic management
accounting is positively associated with the four dimensions of competitive advantage, thus supporting the
four study sub-hypotheses H1-1, H1-2, H1-3, and H1-4.

5. Discussions and Conclusions

This study provides empirical evidence regarding the association between strategic management
accounting and the dimensions of competitive advantage in Saudi industrial sector. Previous literature
proposed that strategic management accounting may have an influential impact on competitive advantage
(e.g. Roslender and Hart, 2002; Cinquini and Tenucci, 2010; Chiucchi, 2013; Hiller et al., 2014; Chenhall and
Langfield-Smith, 1998; Kaplan and Norton, 1996; Nixon and Burns, 2012; McManus, 2013; Hilton, 2008),
but empirical evidence is still scant. Therefore, the current study can be seen to break new ground in
examining the association between strategic management accounting and competitive advantage. The
results indicate that the strategic management accounting is significantly and positively related to the
dimensions of competitive advantage collectively and individually. This positive impact on dimensions of
competitive advantage is in line with the theoretical proposition identified in previous literature as
mentioned above. Therefore, practicing management accounting from a strategic approach (the adoption
and use of strategic management accounting techniques and involving management accountant in strategic
management processes) enhances the company’s ability in gaining competitive advantage. Typically, we
can conclude that strategic management accounting is an antecedent of achieving competitive advantage.
Accordingly, in order to achieve competitive advantage (s), industrial companies should try to adopt and
use strategic management accounting techniques and involve their management accountants in the
strategic management processes.
This positive association between strategic management accounting and the dimensions of
competitive advantage is may be due to the nature of strategic management accounting. Strategic
management accounting can provide decision maker in companies with strategically orientated information
for planning, decision making and control that in turn influences the level of achieving competitive
advantage (McManus, 2013), in addition strategic management accounting can help in identifying and
evaluating the strategic competitive policies (Hilton, 2008). Furthermore, strategic management accounting
information has external and forward-looking orientations. These orientations provide the strategic
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practice of management accounting an ability to provide crucial information about markets, products,
suppliers, competitors, and customers with accurate information for anticipating future (Nixon and Burns,
2012). This information represents a core stone for enhancing company’s ability to achieve competitive
advantage. Moreover, strategic management accounting also represents the key information provider of
internal information regarding the organizational resources and capabilities which in turn supports the
external competitive base of companies (Tayles et al., 2007).
Furthermore, the positive association between strategic management accounting and competitive
advantage can be explained by making a comparison between the nature of competitive advantage and the
nature of strategic management. Competitive advantage has two complementary and mutually exclusive
models: the market-based model and the resource-based model (Ejrami et al., 2016). The market-based
model is oriented toward the external variables or factors in the surrounding environment (e.g. cost
variables, differentiation, efficiency, competitor evaluation, threats and risks analysis etc.), where the
resource-based model is oriented toward the internal resources and capabilities of the company (Korankye,
2013). Accordingly, competitive advantage has both external and internal orientation similar to strategic
management accounting. Both competitive advantage models need adequate and relevant information as
a means to achieve them, and the most relevant source for this information is likely to be strategic
management accounting. This trend in practicing accounting management (i.e. strategic management
accounting) has the ability to provide decision makers in company with the needed internal, external and
future-oriented information for meaningful strategic decision making, consequently, managers will be able
to make decisions that are more responsive to the rapid changes and uncertainties in business
environment, and thus competitive advantage achievement will be improved (Alleyne and Weekes-
Marshall, 2011).
Surprisingly, the results of this study indicate that the impact of strategic management accounting is
not limited to one dimension of competitive advantage but this impact covers all dimensions of competitive
advantage. Cost, quality, flexibility, and delivery are influenced significantly and positively with practicing
strategic management accounting in companies under consideration. According to Ejrami et al. (2016) and
McManus (2013), these four dimensions of competitive advantage depend heavily on internal, external,
financial, non-financial, historical, and prospective information. Again, strategic management accounting
can provide these types of information which are needed to build such dimensions of competitive
advantage.
As the present study provides new evidence to understand the effect of strategic management
accounting on competitive advantage dimensions, drawing on data from Saudi industrial companies, it is
important for industrial companies to adopt the strategic approach of management accounting to achieve
competitive advantages, especially in terms of cost and quality. These two dimensions of competitive
advantage are greatly influenced by strategic management accounting. In addition, it is found that the level
of practicing management accounting from a strategic perspective is at moderate level in sample
companies. As the results of the present study indicate that there is a positive association between
strategic management and the dimensions of competitive advantage, those Saudi companies need to work
hard to adopt the strategic approach of management accounting to enhance their competitive advantage.
This importance of adoption increases if we know that Saudi industrial sector faces a set of challenges such
as the need to improve the competitiveness of national products and keeping pace with developments in
world markets (Saudi Industrial Development Fund, 2018). To adopt this approach, companies need to
build an appropriate ground for practicing strategic management accounting by effective adoption and use
of strategic management accounting techniques and involving management accountants in strategic
decision making process. However, the later one requires that management accountants need to be
“capable of interdisciplinary thinking and communication and able to understand the complex linkages and
interrelationships inside the company”(Tillmann and Goddard, 2008).
The present study has some limitations and open areas for future research. Firstly, the present study
limits itself to Saudi industrial companies listed in the industrial cities located in Riyadh. Caution is needed
in case of generalizing the findings of this study especially outside Saudi Arabia because the general
differences in internal or external environment between companies. In the same time, this offer an
opportunity for future research to be carried out to generalize these findings or at least enabling for

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comparisons. Second, the present study evaluated competitive advantage that products hold locally, and it
did not collect data on competitive advantage relative to imported products. Future research is needed to
cover this limitation by measuring competitive advantage in relative to foreign products.
Finally, the present study has not investigated how some contingent factors such as environmental
uncertainty, organizational strategies, competition intensity, and other factors influence the level of
practicing strategic management accounting and achieving competitive advantage or affect the positive
association between them. Future research may be carried out by taking into consideration these factors as
controlling or moderating variables.

Acknowledgement: This project was supported by King Saud University, Deanship of Scientific
Research, Community College Research Unit.

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