Strategic Management Accounting Practices in Croatia

Branka Ramljak, Professor and Vice Rector of the University of Split, Croatia
Andrijana Rogošić, PhD, Faculty of Economics, University of Split, Croatia

ABSTRACT
The purpose of this paper is to provide an insight into strategic management
accounting practices and their implications on relevance and timeliness of information used
managers. The research is based on a questionnaire survey of the large-sized Croatian
companies. Activity based costing and quality costing represent the most widely used
strategic management accounting techniques in the Croatian sample. The results of the
empirical research indicate that the fundamental purpose of strategic management
accounting, and that is providing broad scope of relevant and timely information, is fulfilled.
It was hypothesized that synergistic effect of the different strategic management accounting
techniques implementation has a positive impact on cost control and reduction. The empirical
results provided the support to that hypothesis. Thus, strategic management accounting
techniques are complementary and their combined effect is very useful for the cost control.

INTRODUCTION
The business environment has become intensively dynamic and increasingly
unpredictable in recent decades and, correspondingly, managing company has become more
demanding. To achieve competitiveness, companies apply different strategies and
management accounting should be used as one of the main supporting system for strategy
implementation. For this purpose strategic management accounting and strategic cost
management have been developed. Kenneth Simmonds is considered to be the founder of
strategic management accounting when he introduced the concept in 1981. Simmonds (1981:
26) defines strategic management accounting as monitoring and analysis of management
accounting information of the enterprise and its competitors in order to develop and control
strategy. Bromwich (1990: 28) believes that strategic management accounting provides
financial information about the market in which the company sells its products and the costs
and cost structure of competitors.
From its traditional emphasis on the financially oriented decision analysis and
budgetary control, management accounting has evolved to encompass a more strategic
approach that emphasizes the identification, measurement, and management of key financial
and operational drivers of shareholder value (Ittner and Larcker, 2001: 350). The importance
of strategic management accounting in measuring multidimensional aspects of performance is
rapidly increasing (Fowzia, 2011: 62) although many companies still use traditional
management and/or cost accounting techniques.
From a historical perspective, it is possible to determine that the cost accounting
developed much earlier than management accounting (Kaplan: 1984). Cost accounting
transformed into management accounting in the period 1945 to the 1960s (Langfield-Smith,
2008: 207). Given that (traditional) management accounting focuses on financial information,
the business context in which decisions are made and implemented is not included. The
inclusion of nonfinancial information and information about the business environment in
order to implement the company's strategy has transformed management accounting into the
strategic management accounting.
Strategic management accounting or strategic cost management (the term more
commonly used in USA) can be defined by the techniques employed. The most used
techniques are (in alphabetical order):
Activity based costing – a method based on the definition of the activities performed
by the company. Those activities are considered the ultimate causes of indirect costs
(Cinquini and Tenucci, 2010: 234).
Attribute costing – the costing of specific product attributes that appeal to customers.
Attributes that may be costed include: operating performance variables, reliability, warranty
arrangements, the degree of finish and trim, assurance of supply and after sales service
(Guilding et al., 2000: 131).

LITERATURE REVIEW ON STRATEGIC MANAGEMENT

ACCOUNTING PRACTICES
Much of the domain of conventional management accounting appears to be more
associated with the „tactical“ than the „strategic“. The conventional management accounting
system does not tend to adopt a long-term, future-oriented stance, nor is characterized by a
marketing or competitive focus. With respect to management accounting's time frame, the
financial year predominates (Guilding et al., 2000: 117). Strategic decisions usually involve
the longer-term, have a significant effect on the organization and, although they may have an
internal element, they also have an external element. In order to make strategic decisions and
monitor strategic programs it is necessary to use strategic management accounting methods
(techniques). Langfield-Smith (2008: 206) points out that a range of techniques have been
included under umbrella of strategic management accounting, and that some commentators
define strategic management accounting in terms of its techniques. These include target
costing, life cycle costing, strategic cost analysis, competitor cost analysis, activity based
costing, activity based management, attribute costing and strategic performance measurement
systems. Guilding, Cravens and Tayles (2000) have included 12 strategic management
accounting practices in their international study (attribute costing, brand value budgeting,
brand value monitoring, competitor cost assessment, competitive position monitoring,
competitor appraisal based on published financial statements, life cycle costing, quality
costing, strategic costing, strategic pricing, target costing and value chain costing). Shank
(1989) believes that the real novelties in strategic management accounting are the product life
cycle costing, value chain analysis and quality costing. According to him, other methods
represent the elaboration and supplement of the concepts established long ago (he particularly
commented on the activity based costing). Although the focus of activity based costing is cost
allocation (not strategic support), it can be used for strategic planning. In addition to above
mentioned the balanced scorecard is the most widely used strategic management technique
among the integrated performance measurement systems.
 The balanced scorecard, and to lesser extent activity based costing, are strategic
management accounting techniques which have a wider recognition beyond the accounting
discipline (Langfield-Smith, 2008: 212). Various empirical studies have shown that in some
countries certain methods are more employed. Competitive position monitoring is the most
used technique in UK, USA and New Zeland (Guilding et al., 2000). In Italy, higher usage
scores are registered for customer accounting, competitive position monitoring, competitor
appraisal based on published financial statements and quality costing (Cinquini and Tenucci,
2010). On te other hand, the research carried out on manufacturing organizations in
Bangladesh revealed that only activity based costing, target costing and strategic costing
techniques are significant to achieve strategic effectiveness (Fowzia, 2011). Activity based
costing and the balanced scorecard turned out to be most used techniques in Finnish
companies (Hyvönen, 2003).
Cinquini and Tenucci (2010) found out that linking strategy orientation and strategic
management accounting techniques has limited significance. Only relationship between costing
techniques of strategic management accounting (activity based costing, life cycle costing, quality
costing, target costing and value chain analysis) and strategy was empirically supported. The
evidence provided in that study suggests that “defenders” make greater use of costing techniques.
The results of the same research show that the usage rate of costing techniques is higher in “cost
leaders” than in “differentiators”.

RESEARCH HYPOTHESES
Considering the results of aforementioned studies it can be assumed that costing
techniques provide more useful information to the management for strategic decision making.
The results show that costing techniques of strategic management accounting support the
company strategy more consistently than the customer and competitor oriented techniques.
This leads to assumption that costing techniques are better employed and have wider use in
practice. Management accounting systems can partly fill the information gap (the gap
between the information currently available and the information required to make the
decision) by providing information that enables managers to better understand input/output
relations and by reducing uncertainty concerning the feasibility of achieving objectives that
are optimal for the firm (Bouwens and Abernethy, 2000: 226). The essential difference
between traditional management accounting and strategic management accounting is in the
scope of information. Narrow scope information has been linked with traditional accounting
systems and, on the other hand, broad-scope information is associated with more
sophisticated techniques. To fill the information gap, reports prepared by accountants should
be timely and with integrated and aggregated information. Bouwens and Abernethy (2000)
state that the integration dimension consists of information about the activities of other
departments within the firm as well as information as to how the decisions made in one
department may influence the performance of other departments. The aggregated dimension
provides summary information by functional area, by time period or through decisions
models. In order to be useful for decision making, the information from management
accounting reports must be relevant (broad-scope of integrated and aggregated information)
and timely. Bearing the above, it can be expected that :
The use of strategic management accounting techniques has a positive impact on
providing management with relevant and timely information.
 Strategic management techniques complement each other and the recent studies
demonstrate their coherence and valuable synergistic effect. Steen (2005) gives the
theoretical framework for the estimation of environmental costs using the life cycle costing
technique. Letmathe and Doost (2000) point out that environmental cost accounting can be
used for measuring quality costs. Jasch (2003: 670) and Epstein (1996: 12) indicate the
benefits of activity based costing in monitoring environmental costs. Some studies show that
activity based costing can be employed for measurement of the quality costs (Mrša and
Smoljan, 2001; Tsai, 1998). Kaplan and Norton (2001) believe that the balanced scorecard
and activity based costing are highly compatibile and while both can be implemented
independently, organizations will get the greatest benefit from integration of those two
techniques. In his comprenhesive research Schoute (2009) reveals that at higher levels of
usage for cost management purposes, cost system complexity positively affects cost system
intensity of use and satisfaction. This implies that when cost system design (i.e., its level of
complexity) and its purpose of use are better aligned, the cost system is more effective.
Considering all above mentioned, it is hypothesized that:
The synergistic effect of the different strategic management accounting techniques
implementation has a positive impact on cost control and reduction.

THE EMPIRICAL RESEARCH METHODOLOGY AND RESULTS

A large-scale multipurpose survey was conducted during April, May and June 2011 on the
use of cost systems and strategic management accounting practices in large-sized companies.
According to Accounting Law, large company in Croatia is considered if two of the following three
requirements are exceeded: total assets of 130.000.000 kunas, income of 260.000.000 kunas and
average number of 250 employees during the financial year. The largest 400 companies (in terms of
turnover) were selected fot the sample in this study because of the assumption that smaller firms
may not use sophisticated cost allocation systems at all. The questionnaire was mailed to the
accounting manager or the financial manager in each firm. These managers were chosen as
respondents as they should be able to provide the information required for the purposes of this
study. The survey procedure consisted of four moments of contact: contact by phone, sending a
questionnaire by mail, reminder by e-mail and replacement questionnaire by e-mail. Together with
the questionnaire, an accompanying letter (explaining the purposes of the research and
guaranteeing confidentiality) and postage-paid return envelope were sent. The response rate is
17,75% noting that respondents did not answer to all questions which left a final usable sample of 65
cases for the analyses reported in this paper. Most survey instruments are multi-item, use five-point
Likert-type scales, and are taken or adapted from earlier studies. Since there are many methods that
are considered as strategic management accounting techniques (although there are no consensus in
literature which methods are included in this category), for the purpose of this study, the most
significant (according to the results of previous researches) costing techiques were included as well
as the balanced scorecard. Mentioned costing techniques are: activity based costing, environmental
costing, life cycle costing, quality costing and target costing.
Judul : Strategy management accounting practices in Croatia
Jurnal : The Journal of International Management studies
Volume dan halaman : Volume 7 number 2, hal 93-100
Penulis : Branka Ramljak and Andrijana Rogosic

Tujuan Penelitian
Untuk memberikan wawasan praktik akuntansi manajemen strategis dan implikasinya pada
relevansi dan ketetapan waktu manajemen informasi yang digunakan.
Subjek Penelitian
400 perusahaan besar di Kroasia yang memiliki total aset 130 juta kunnas, pendapatan dari
260 juta kunnas, dan rata-rata jumlah 250 karyawan selama setahun keuangan 17,75%
responden tidak menjawab pertanyaan.

Assessment Data
Menggunakan data kuesioner dan juga melalui telepon, pos, email, yang dikirim kepada
manajer sebagai responden.

Metode Penelitian
Menggunakan instrumen survei menggunakan multi item, menggunakan 5 jenis titik skala
likert dan mengambil atau mengadaptasi dari studi sebelumnya.

Langkah Penelitian
Langkah penelitian yang digunakan adalah dilakukan perekrutan responden dari 400
perusahaan besar di Kroasia, yang dijadikan responden adalah para manajer perusahaan yang
dimintai persetujuan mengenai penelitian tersebut yang diberi paket kuesioner dikirim
melalui telepon, pos, dan email kemudian menggunakan instrumen survei multi item dan
mengambil data atau mengadaptasi dari studi sebelumnya.

Hasil Penelitian
Hasil analisa dari penelitian yang dilakukan adalah :
– Perusahaan besar di kroasia telah menerapkan satu atau dua metode yang lebih
sophisticated tentang akuntansi manajemen strategis
– 66% dari perusahaan sampel menggunakan salah satu teknik akuntansi
– 40% perusahaan menerapkan teknik penetapan biaya berdasarkan aktivitas
– 39% perusahaan menerapkan kualitas biaya

Kekuatan Penelitian
Alat yang digunakan dalam penelitian berupa puisi ini mudah digunakan oleh subjek
penelitian.

Kelemahan Penelitian
– Tingkat responnya masih rendah
– Banyaknya metode yang digunakan dalam penelitian
– Tambahnya ongkos penelitian dengan adanya pengiriman lewat pos kepada responden
Kesimpulan
Hasil penelitian dapat memberikan efek sinergis positif dari manajemen strategis
implementasi teknik akuntansi yang berbeda dan dapat memberikan wawasan bagi seorang
manajer dalam penyusunan rencana perusahaan dan dalam pengambilan keputusan dapat
dikatakan penelitian ini layak dijadikan referensi pengetahuan yang valid.