Business Strategy, Professionalism and Multiple Performance Measures: A Contingency Assessment, B Dhaifallah, SM Auzair, R Maelah, M Alkibsi

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Content: International Management Accounting Conference 7 2 ­ 3 December, 2014 Business Strategy, Professionalism and Multiple Performance Measures: A Contingency Assessment Bakil Dhaifallah, Sofiah Md. Auzair, Ruhanita Maelah & Mohammed Alkibsi Faculty of Economics & Management Universiti Kebangsaan Malaysia ABSTRACT Innovations in management accounting practices required placing more comprehensive integrated performance measures. Evidence has shown practice of multiple performance measures in Malaysia, yet little is known on its success's factors that influence its implementation which may lead to enhance performance. This paper examines the relationships between business strategy, professionalism and multiple performance measures usage with organizational performance. Business strategy was operationalized as differentiation and cost leadership strategy while professionalism was operationalized as professional community affiliation, social obligation, self- regulation, professional dedication and autonomy demand. The study suggests that firms emphasizing more on differentiation strategy and staffs' professionalism will be positively associated with multiple performance measures usage. In addition, the study suggests that the interaction between differentiation strategy, professionalism dimensions and multiple performance measures will enhance performance. Based on a survey of 110 Malaysian manufacturing companies, the findings indicate that differentiation strategy, professional community affiliation and social obligation are essential contingent factors in multiple performance measures' implementation and their interactions will lead to better organizational performance. The reasons for these findings are discussed and ideas for further research are presented. INTRODUCTION Many researchers have acknowledged that traditional performance measures and management accounting have essential limitations. This limits the capability of these measures in providing the necessary information required by businesses (Ghalayini & Noble 1996; McAdam & Bailie 2002). In order to sustain in the global business market and to survive in the rapidly changing environment, many business organizations today have turned to contemporary management techniques. These organizations are looking for management systems that would not only provide past performance report but could also provide future information which are vital in guiding decision making and assessing the likelihood for success. This study looks at the usage of multiple performance measures through the components of the balanced scorecard. Numerous prior studies highlighted on the balanced scorecard as the most popular 1
International Management Accounting Conference 7 2 ­ 3 December, 2014 multiple performance measure (Bremser & Barsky 2004; Hudson et al. 2001; Kennerley & Neely 2002). It is the most commonly applied tool which provides a balance between nonfinancial and financial measures to achieve strategic alignment. Evidence has shown practice of multiple performance measures in Malaysia, yet little is known on its success's factors that influence its implementation. By looking at the literature, some research has focus on the effect of the extent of use, manner of use and different types of balanced scorecard on organizational performance (Davis & Albright 2004; Ittner et al. 2003; Malina & Selto 2001; Yongvanich & Guthrie 2009). Another research orientation has been carried out by some researchers (such as Hoque & James, 2000; Iselin et al. 2008; Xi 2010) to examine the impact of external factors such as company size, market position, business strategy, industry, quality, structure, culture, and ownership on the implementation of the balanced scorecard which in turn affects company's performance. Prior research has emphasized more on the alignment between balanced scorecard measures and the strategic goals to achieve better performance. In contrast, Cinquini & Tenucci (2010) have provided different findings about the strategic management techniques. The study examined the influence of business strategy on the balanced scorecard measures and described the relationship as" loose coupling" which does not drive balanced scorecard measures as strategic management accounting techniques. Langfield-Smith (1997) argued that the results of the relationship between business strategy and management Control Systems techniques are not comparable due to the weaknesses in operationalizing strategy. Firstly, researchers rarely use multidimensional nature of business strategy where business strategy can be measured using several variables. Secondly, certain strategic typologies are used and have resulted in a circular research design. Kaplan & Norton (2000) emphasize that employees' understanding of organization's business strategy is critical to the success of the balanced scorecard measures. They stated that the better employees understand business strategy, the better they use balanced scorecard measures. According to Person (2008) companies still fail to use balanced scorecard in the implementation stage and this can be attributed to the large number of metrics which create a confusing model of what drives the success of business strategy. Another problem is driving performance in the wrong direction due to the use of the wrong metrics. These problems required professional internal staffs who know how to deal with the balanced scorecard (Person 2008). Despite the extensive research in the area of management control and performance Measurement Systems and particularly using the contingency approach, it is likely that this study is one of the first studies to include staff's professionalism, multiple 2
International Management Accounting Conference 7 2 ­ 3 December, 2014 performance measures and organizational performance in one model. The purpose of this study is to examine the relationship between business strategy, professionalism dimensions with multiple performance measures and to search how their interactions will influence organizational performance. LITERATURE REVIEW BUSINESS STRATEGY, MULTIPLE PERFORMANCE MEASURES WITH ORGANIZATIONAL PERFORMANCE Since its introduction in 1992, the balanced scorecard has improved gradually from a comprehensive performance measurement system into a business strategy implementation tool to control performance measurement. The development in the concept of the balanced scorecard allows users to have various interpretations and uses (Braam & Nijssen 2004). By looking at management accounting literature, a considerable research that shows the association between balanced scorecard measures and organizational performance can be noticed (Yongvanich & Guthrie 2009). Otley (1999) have stated that the balanced scorecard measures are powerful tool which leads to the desired ends as it encourages senior managers to address the fundamental issue of effectively deploying a company's strategic intent. Hoque & James (2000) have examined the relationship between financial and nonfinancial measures namely the balanced scorecard measures with organizational performance. The study investigated the impact of organization size, product life cycle and market position on the usage of balanced scorecard. Both organization size and product life cycle have been found to be positively related to the balanced scorecard usage where market position was not associated with greater use of multiple performance measures and particularly the balanced scorecard measures. Further, the results suggested that greater use of balanced scorecard is significantly associated with improved organizational performance. Banker et al. (2000) have documented that nonfinancial measures of customer satisfaction are significantly associated with future financial and nonfinancial performance and that these measures are associated more with long-term financial performance than short-term one. Malina & Selto (2001) argued that balanced scorecard measures present important opportunities to improve, communicate and implement business strategy. More significantly, the study provided evidence that implementing balanced scorecard measures improves business efficiency and profitability. The study noted that managers react favorably to these measures when their 3
International Management Accounting Conference 7 2 ­ 3 December, 2014 elements are aligned with business strategy, measured effectively and represent a comprehensive measure of performance. In a Dutch study, Braam & Nijssen (2004) have argued that using balanced scorecard measures will not automatically enhance the organization performance, but there is a need for some considerations to be taken into account. One of these considerations is that managers should be careful of the requirements for the balanced scorecard implementation and use. The study suggests that balanced scorecard measures which complement corporate strategy have a positive impact on organizational performance yet the mechanistic use without a clear link to corporate strategy will negatively affect performance and may decrease it. Moreover Braam & Nijssen (2004) provided suggestion to improve the use of the balanced scorecard through introducing a map on how the balanced scorecard is used. In the Malaysian context, Jusoh (2006) studied multiple performance measures and focused on manufacturing and manufacturing- related services. The study examined the relationship between business strategy (using Miles and Snow strategic typology) and the use of balanced scorecard measures and their alignment effects on organizational performance. The study provides empirical evidence (using the selection approach to fit) that the extent to which a firm uses appropriate balanced scorecard measures is associated with emphasizing a given business strategy. The results highlighted that companies emphasizing prospector and analyzer strategy and using learning and growth and internal business process have main impacts on organizational performance. In general, the study documented that an appropriate match between the four perspectives of the balanced scorecard measures with prospector, analyzer and defender strategies is positively associated with nonfinancial performance. In a detailed study, Iselin et al. (2008) have provided empirical evidence on the relationship between multiple performance measures and organizational performance. The study found that organizational performance significantly affected by financials (profit, cash flow), market share, product quality, customer satisfaction, innovation (products), innovation (R&D/markets), employee satisfaction, information technology, product - time to market and employee quit rate. The study also illustrated that organizational performance is not affected by financials (costs), social responsibility and waste and rework. The results emphasized on the strength of the alignment of the strategic goals and the mentioned dimensions of performance measures to improve organizational performance. A comprehensive study on the relationship between multiple performance measures usage and organizational performance was carried out by Xi (2010). The study examined the fit between balanced scorecard 4
International Management Accounting Conference 7 2 ­ 3 December, 2014 measures and firm characteristics namely business strategy, industry, size, quality, structure, culture, and ownership as contingent variables that affect organizational performance. Overall, the result of study emphasizes that firm characteristics should be considered prior to adopting the balanced scorecard. Specifically, characteristics such as business strategy, size, quality, industries, structure, culture and ownership are related to the use of the balanced scorecard in executive compensation plans. Moreover, strong evidence shows that organizational performance is an increasing function of fit between balanced scorecard measures and the contingent factors. Review of the literature on multiple performance measures and particularly balanced scorecard suggests a consensus among researchers on the positive influence of balanced scorecard measures on organizational performance which is based on some contingent factors that lead to this positive association. In addition, business strategy has received a greater interest from researchers and this concern is based on the emphasis from Kaplan and Norton on the alignment of strategic goals with multiple performance measures to improve companies' performance. Despite this remarkable research that emphasize on alignment of the strategic goals and performance measurements, recent research have shown different results in this issue. Cinquini & Tenucci (2010) have provided different findings about business strategy and strategic management accounting techniques including the balanced scorecard measures on the Italian companies. Using the three strategy typologies, the study examined the influence of business strategy on the integrated performance measurement and balanced scorecard measures. Results of study show that business strategy as a variable affecting strategic management accounting usage and implementation does not provide clear insights. The study described the relationship as" loose coupling" which indicate that business strategy does not drive performance measures and balanced scorecard as strategic management techniques, in the same manner as the literature suggests. From different view, we can notice the findings by Person (2008) which stated that an important reason for the failure of the balanced scorecard in some companies can be attributed to the complexity in implementing the balanced scorecard, which requires professional training for managers who carry out the work. Yongvanich & Guthrie (2009) conducted a study on the Thai companies and suggested that the success of balanced scorecard measures lies on good management skills, which make great use of data. The authors of the balanced 5
International Management Accounting Conference 7 2 ­ 3 December, 2014 scorecard Kaplan & Norton (1996) stated that the balanced scorecard implementation represents a challenge for organizations, so they turn to experts to assist in implementing it. HALL'S PROFESSIONALISM SCALE Professionalism is defined as the attributes that the profession set and "how these attributes and characteristics are delivered by the professional to the client" (Kinsinger 2005). According to Shafer et al. (2002), occupational or institutional focus has been adopted for the majority of professionalism studies to illustrate the individual's attributes, and management accounting studies have no exception. The measurement of professionalism has been considered as a critical issue. A scale of professionalism is defined by the essential attributes of professional behavior "a way of measuring the extent to which it is present in different forms of occupational performance" (Barber 1963). In different fields of study, many researchers have attempted to operationalize professionalism in order to establish it in a form of measurable scale (Hammer et al. 2000; Haywood-Farmer & Stuart 1990). Among these studies, the conceptualization of professionalism by Hall (1968) is considered as the classic treatment and the modern concept of professionalism (Morrow & Goetz 1988; Norris & Niebuhr 1984). This scale, with the history of four decades, has been widely adopted in various prior research and still popular until present (Swailes 2003). Chan (2005) stated that Hall operationalized the `traits' of professionals into measureable attitudinal dimensions by developing professionalism scale. As one of the first sociologist, Hall (1968) conceptualized professionalism in a multidimensional approach. He argued that the combination of characteristics of structure of occupation and attitudinal aspects work as the basis for a professional model. The structural aspect includes thing such as formal educational and entrance requirement. While the attitudinal aspect refers to the manner in which the practitioners view their work and profession. Hall (1968) contended that attitudinal dimension of professionalism influences professional's behavior and performance at work. Chan (2005) concluded that certain attitudes adopted by a practitioner may affect the nature of his performance or the way he works. Accordingly, this study selected Hall's professionalism scale for measuring employee professionalism since it is still the best tool available in professionalism filed research (Chan 2005). Hall (1968) provided a professionalism scale that attempts to measure individuals behavior and professional attributes. As stated by Shafer et al. (2002), Hall's professionalism scale has been used in various fields of research such as physics, engineering and business. 6
International Management Accounting Conference 7 2 ­ 3 December, 2014 This scale includes five dimensions, which combined several characteristics of professional individuals' attributes and these dimensions are applicable for management Accounting Profession Shafer et al. (2002). The scale includes five dimensions which are professional community affiliation, social obligation, self- regulation, professional dedication and autonomy demand. PROFESSIONALISM AND MULTIPLE PERFORMANCE MEASURES In management accounting literature, there is a lack of studies on the relationship between professionalism and performance measures. In this section, the study will seek to show how some professionals' attributes affect the usage of performance measures. Generally, professional managers have been found to be better qualified for making strategic decisions about the company's future (Kirkland 1996). Schein (1968) argued that some reasons lead professional managers to be more efficient in performing their tasks. These reasons are such as (1) there are a set of general principles which professionals' actions are driven by, (2) they are considered to be as experts in management field and to understand what is "appropriate" for the companies, (3) their relations with clients are considered objective. Berman & Wang (2000) argued that capacity of performance measurement can be improved by professionalism. According to Carmeli & Tishler (2006), managerial skills possessed by Top Management Team (TMT) of an organization have a strong influence on performance measurements. The study examined nine managerial skills, which are persuasiveness, administrative ability, fluency in speaking, knowledge about group tasks, diplomacy and tact, social skills, creativity, conceptual skills, and cleverness and found it strongly affect seven performance measures namely, " annual revenues' growth, return on sales, return on equity, liquidity soundness, market share change, customer satisfaction and quality of products and services." Empirical evidence was provided by Folz et al. (2009) through a mail survey in US, which shows a different percentage of performance measurement usage by professional "administrative" managers and nonprofessionals. The study shows about 70 percent of those professional chief executives or administrative officer use performance measures while just 50 percent of nonprofessionals used the measures. THEORETICAL FRAMEWORK The contingency theory has provided a convenient theoretical framework for numerous studies of organizational structure and behavior (Chenhall 2003). According to Otley (1980), 7
International Management Accounting Conference 7 2 ­ 3 December, 2014 the literature of organizational theory is the base of the contingency theory. The focus on the contingency theory started in the 1960s and 1970s to look on the situational factors which act as potential opportunities or constraints for organizations. The contingency theory is an approach based on the assumption that there is no one appropriate management control system which can be applied to all organizations on all circumstances (Otley 1980; Fisher 1995). By contending that both design and use of performance measures depend upon several contextual organizational and environmental factors, the contingency theory sought to provide a universal system for strategies implementation to achieve desired objectives (Otley & Berry 1980). Based on the contingency theory, it is hypothesized that an appropriate "match" between organizational and environmental contextual factors and multiple performance measures such as balanced scorecard measures will result in improved organizational performance and vice versa (Fisher 1995; Hoque & James 2000). This implies that poor fit between balanced scorecard measures with contextual factors may reduce performance. An organization is considered as existing in an environment where it is interdependent and transact as an open system. Subsequently, organizations adjust their structures over time to move from misfit into fit with the contingent factors, and this represents the essence of the contingency theory (Donaldson 1995). In a positive way the contingency theory views management as the controller who coordinates the adaptation of organizations to their environmental factors through adopting better-fitting systems. However, this illustrates how and why different balanced scorecard measures widely diffused in different contexts (Xi 2010). Several studies have identified different external and internal contingent factors that influence performance measurement systems. Fisher (1998) spotted five contingent factors which are the task and environmental uncertainty, firm variables such as industry, company size, diversification and structure, technology and interdependence, competitive business strategy and mission and behavior. Fifteen contingent factors were identified by Hansen et al. (2004) which include seven environmental and eight organizational factors. For the environmental factors, the study identifies (technology, economy, competition, social values, culture, regulation and legislation, and politics) where the organizational factors are (size, structure, business strategy, resources, systems, staff skills, organizational norms and management philosophy). Taking a contingency theory perspective and multiple performance measures, most studies have focused on business strategy as the most important contingent factor (see, Braam & Nijssen 2004; Hoque & James 2000; Iselin et al. 2008; Jusoh et al. 2008; 8
International Management Accounting Conference 7 2 ­ 3 December, 2014 Malina & Selto 2001; Xi 2010). The concern of researchers on the alignment of business strategy with multiple performance measures is based on the emphasis by Kaplan and Norton (1992, 1996) as a main condition for the success of these measures. But at the same time, the same authors emphasize on the availability of trained and professional employees who are able to implement the multiple performance measures in an effective manner. This factor has been neglected in the contingency-based research that has been conducted on determining the factors affecting the success of the balanced scorecard measures. The proposed model of this study includes the independent variables which are "variables that their effects are being studied" and dependent variables which are "variables that are observed and measured to determine the effect of the independent variable" (Saunders et al. 2011). The relationships between the variables studied are highlighted in figure 1, where the model can be divided into three stages. Stage one explores how the contingent variables "business strategy" and "professionalism" associate with the use of the multiple performance measures. Stage two examines the relationship between multiple performance measures with performance. The effect of the interaction between multiple performance measures and these contingent factors on the organizational performance is examined in stage three.
Business Strategy
a) Differentiation b) Cost leadership Professionalism
Multiple Performance Measures Usage
Organizational Performance
a) Professional Community Affiliation b) Social Obligation c) Belief in Self-Regulation d) Professional Dedication e) Autonomy Demand FIGURE 1: Theoretical Model
9
International Management Accounting Conference 7 2 ­ 3 December, 2014 HYPOTHESES DEVELOPMENT BUSINESS STRATEGY AND MULTIPLE PERFORMANCE MEASURES USAGE The relationship between business strategy and performance measurement systems has been investigated by many researchers. The majority emphasize on aligning performance measures with the business strategy plan and goals (Braam & Nijssen 2004; Iselin et al. 2008; Jusoh 2006; Malina & Selto 2001; Xi 2010). Drazin & Van de Ven (1985) defined the fit (match) as the significant correlation between organizational variables (business strategy and performance measures in this study). Miles & Snow (1978), Gupta & Govindarajan (1984) and Porter (1980, 1985) and have provided the most dominant classifications of strategies, which can be reasonably followed by different companies (Cinquini & Tenucci 2010). These classifications are prospector - defender, build - harvest and differentiation - cost leadership. A consistent fit among business strategy typology exists through the literature which can provide additional reason for choosing Porter's typology. Porter's (1980, 1985) classification was found to consistent with Gupta & Govindarajan (1984) typology. Govindarajan & Shank (1992) noted that companies following a differentiation strategy and that following build strategy faced the same circumstances and the same considerations regarding cost leadership and hold mission implementers. Moreover, Langfield-Smith (1997) and Chenhall (2003) found that differentiation is associated with both prospector and build strategy in terms of required information. In this study, Porter's typology will be utilized for further investigation. Based on Porter's (1980, 1985) business strategy typology, a company must derive its competitive advantage in one of two strategies: Differentiation strategy which is based on some factors such as product design, superior quality and product flexibility and delivery; or cost leadership which allows company to provide its services or products to customers with a low prices compared to the competitors (Chenhall & Langfield-Smith 1998). By looking at the literature, studies in management accounting recognized that strategic measurement systems are designed to achieve company's competitive advantage through supporting business strategy (Kaplan & Norton 1992; Hoque 2004). In terms of performance measurement systems, Porter (1980), Perera et al. (1997) and Bisbe & Otley (2004) have argued that nonfinancial measures are more relevant for strategies of differentiation. Moreover, Perera et al. (1997) and Chenhall & Langfield-Smith (1998) have documented that differentiation strategy which focuses on developing products with unique features required using financial and nonfinancial measures. The need to support innovation and cross- 10
International Management Accounting Conference 7 2 ­ 3 December, 2014 functional co-operation and the absence of standarization process have required performance measurement systems to shift from financial focused into measures that capture the critical success factors of product and service differentiation (Abernethy & Lillis 1995). This requires performance measures which are nonfinancial focused and include measures such as customer service satisfaction, product innovation and delivery performance measures (Spencer et al. 2009). Innovation and creativity are expected to be encouraged within the use of nonfinancial performance measures while financial measures block innovation excesses (Bisbe & Otley, 2004). In case of companies pursuing a differentiation strategy, financial performance measures can provide a clear guidance to effective performance if appropriate boundaries around innovation process are placed (Spencer et al. 2009). Conversely, companies pursuing cost leadership strategy emphasize on achieving the lowest costs for their products and services compared to competitors. Cinquini & Tenucci (2010) have found that cost leadership strategy is more willing to use cost-based strategic management techniques. These techniques addressing cost information such as accounting based costing, target costing, quality costing and life cycle costing. Based on this argument, companies pursuing a differentiation strategy are more likely to use multiple performance measures than those pursuing a cost leadership strategy. Hypothesis 1: The extent to which firms pursuing a particular business strategy is associated with multiple performance measures usage. PROFESSIONALISM DIMENSIONS AND PERFORMANCE MEASURES Ong et al. (2010) found that large companies are more likely to be away from using traditional performance measurements as they focused on contemporary measures" balanced". This is due to the availability of both knowledgeable and experts employees. This argument supports the contingency theory that the design and use of performance measurement depend upon some contingency variables. Person (2008) stated that an important reason for the failure of the balanced scorecard measures in some companies can be attributed to the complexity in implementing these measures, which require professional training for managers who carry out the work. According to Hall (1968), individuals' professionalism includes five dimensions, which are professional community affiliation, social obligation, belief in self-regulation, professional dedication and autonomy demand. Shafer et.al (2002) stated that all the five dimensions can be applicable to the management accounting profession. 11
International Management Accounting Conference 7 2 ­ 3 December, 2014 Professional community affiliation represents the extent of involvement in profession activities by individuals (Hall 1968). It was argued that individuals who are more affiliated to the profession through its activities such as attending conferences and reading journals will be more informed in the profession improvements and more influenced by it is standards (Snizek 1972). According to Cohen (2005), knowledgeable employees are likely to do better than unknowledgeable ones. Consequently, Hamid (2008) stated that companies encourage their employees to find knowledge sources that make them more knowledgeable to increase their productivity, output of skills and intellectual capability. While Davila & Foster (2005) argue that knowledgeable manager can accelerate and ease the adoption of management accounting systems. From here, it can be argued that chief financial officer who is more professional community affiliated is expected to be more knowledgeable and then have a better ability to adopt management accounting systems and particularly multiple performance measures. Social obligation as a second dimension of professionalism means that individuals are obligated to be far from using accounting practices that mislead or have potential harmful results on both investors and creditors (Shafer et al. 2002). Performance measures can be gamed by managers to have a substantial impact on the investors or creditors (Ingersoll et al. 2007). The literature is rich with research that mentions managers' motivations and incentives to manipulate performance measurements (such as Dechow 1994; Gaver et al. 1995; Holthausen et al 1995 Gibbs et al. 2004; Murphy 2000). Although of the motivations and incentives to manipulate performance measurements by managers, Barrett et al. (2004) found in an empirical study that individuals have a greater tendency to comply with request to help others for reasons of social obligation that they believe in. If the chief financial has more concerns on the social obligation, this may cause him to comply more in using management systems such as balanced scorecard measured to be in line with investors and creditors interests. Based on that, it can be argued that high level of social obligation may lead to better use of multiple performance measures. For self-regulation dimension, professionals are required to accept a commitment to provide high-quality services, which can be regulated by profession (Shafer et al. 2002). Professionals' performance must be judged by members of the profession as nonprofessional individuals are not qualified to make a fair judgment is the belief behind the self-regulation dimension (hall 1968). It is important for people to know who they will be judged by. The individuals' accuracy will be improved if the judgment on their work comes from those who 12
International Management Accounting Conference 7 2 ­ 3 December, 2014 have the same context information (Kenny & DePaulo 1993). Based on that, it can be proposed that employees who believe in self- regulation will seek to improve their accuracy in implementing management accounting systems since their work will be assessed by other professionals in the same area. Professional dedication is the fourth dimension which refers to the willingness of individuals to do their work even if only few rewards are available (Hall 1968). Shafer et al. (2002) argued that professional dedication may be lower in commercial oriented fields compared to other fields but the affiliation to accounting profession may increase the dedication dimension. Risher (2003) stated that dedicated employees work hard because they believe in the goals of the organization. Consequently, dedicated employees are willing to put discretionary energy behind something without being monitored or supervised. As argued by Kennerley & Neely (2002), an important factor that influences evolution of performance measurement systems is the dedicated employee who can identify gaps and the need to improve performance measures. From here, it can be proposed that employees with high level of professional dedication will provide better use of performance measures. The last dimension is the autonomy demand which indicates the desire of professionals to be free from any external pressures during making their work decisions (Snizek 1972). Accountability represents the relationship between a forum who has the right to account the actor who in turn has the responsibility to perform and may face the consequences for his actions (Bovens 2007). Consequently, individuals who have a high level of autonomy in their work should become more accountable for their decisions and actions. Kloot (1999) stated that performance measurements are tools for accountability. It argued by Smith et al. 2000 that employees should have freedom and authority to make decisions and do their jobs so they can be more creative. This will lead individual to introduce better use of performance measurements to avoid any probable accountability. Based on the argument above, the second hypothesis is proposed: Hypothesis 2: Firms emphasizing staff professionalism namely, professional community affiliation, social obligation, self- regulation, professional dedication and autonomy demand will be positively associated with multiple performance measure usage 13
International Management Accounting Conference 7 2 ­ 3 December, 2014 MULTIPLE PERFORMANCE MEASURES AND ORGANIZATIONAL PERFORMANCE As it is assumed by Kaplan & Norton (1996), the causal relationships between the four perspectives of performance measures drive all measures "learning and growth, internal business, customer and financial perspectives". They emphasized that a good multiple performance measure system should have a mix of outcome measures (lag indicators) and performance drivers (lead indicators). These causal relationships should be linked to financial objectives to allow measurement in nonfinancial aspects to be used to predict future financial performance. Nonfinancial measures may increase the efficiency in contracting, given managerial knowledge on measures' informativeness (Ittner et al. 1997). Consistent with that, Feltham & Xie (1994) argued that financial measures cannot provide the most efficient means to motivate managers to act in the manner desired by the firm's owners. Moreover, future financial performance was found to be significantly associated with nonfinancial measures of customer satisfaction since it contains additional information not reflected in the past financial measures (Banker et al. 2000). It is broadly noted that the overall usage of multiple performance measures is significantly correlated with organizational performance (e.g. Hoque & James ,2000 ; Jusoh et al. 2008) This view is supported by Chenhall (2005), who emphasized that the strategic competitiveness of firms dimensions can be enhanced by integrative strategic Performance management system. These results are consistent with arguments that performance measurement can be a strategic management tool. Based on that, the third hypothesis can be proposed as: Hypothesis 3: The usage of multiple performance measures is positively associated with organizational performance. BUSINESS STRATEGY AND MULTIPLE PERFORMANCE MEASURES USAGE ON ORGANIZATIONAL PERFORMANCE Regarding multi-perspective strategic goal and performance measures, the theory is best developed in relation to the balanced scorecard. Kaplan & Norton (1996) have argued that the balanced scorecard measures should align performance measures with the strategic goals. Then performance measures would act as a control and motivating system since it control system for achieving strategic goals and motivate employees in that direction. As a result, this process is expected to have positive effects on organizational performance. Kaplan & Norton (2001) established five principles to strengthen the alignment between balanced scorecard 14
International Management Accounting Conference 7 2 ­ 3 December, 2014 measures and business strategy, which are Translating business strategy into operational terms, aligning the organization to the business strategy, make business strategy everyone's everyday job, making business strategy a continual process and mobilizing change through executive leadership. Based on control and motivation theory, performance measurements are needed as a management tool to clarify strategic goals and to document the contribution towards these goals (Lichiello & Turnock 1999). This job of performance measurement makes it perform as a management control tool on achieving strategic goals. At the same time, performance measurements motivate employees as they provide them with the feedback of their achievement (Olusey & Ayo 2009). In their case studies, Kaplan & Norton (1996) have found that several organizations do not align their performance measures with strategic goals. In these situations the organizational performance would suffer since the positive effect of the alignment on organizational performance may not be achieved. Subsequently, performance measurement system which is aligned with strategic goals will improve organizational performance through controlling goals' achievement and motivating employees. This argument leads to the fourth hypothesis of the study as follows: Hypothesis 4: The effect of interaction between business strategy and multiple performance measures usage enhance organizational performance. PROFESSIONALISM DIMENSIONS AND MULTIPLE PERFORMANCE MEASURES USAGE ON ORGANIZATIONAL PERFORMANCE The impact of individual level factor on the organizational level outcome has been illustrated by some authors. For instance, Brewer & Selden (2000) and Kim (2005) verified that the individual-level's factors such as structure of task/work, task motivation, job satisfaction and affective commitment are important predictors of organizational performance. This study supposes that organizational performance represents a joint function for both multiple performance measures usage and professionalism dimensions. The theoretical view was illustrated by Said et al. (2003) who explain that adoption and use of performance measures is an endogenous choice, with the potential net benefit depending on contextual factors. Based on sociology literature, Shafer et al. (2002) have stated that knowledge and skills possessed by professionals results on high standard quality performance. Hoque & James (2000) argued that the greater use of the balanced scorecard measures improves organizational performance. Moreover, professional managers were found to rely more on performance measurements 15
International Management Accounting Conference 7 2 ­ 3 December, 2014 compared to nonprofessional managers, and that professional managers add value to using performance measurements (Floz et al. 2009). Moreover, professionalism affects innovation positively because it increases boundary- spanning activity and self-confidence (Pierce & Delbecq 1977). Bartol (1983), found that professionalism influences job satisfaction and professional reward criteria directly and also influences both satisfaction and organizational commitment. Based on this argument professional managers will provide great extent of multiple performance measures usage and this in turn will improve organizational performance. The fifth hypothesis of study can be proposed as follows: Hypothesis 5: The effect of multiple performance measures usage on organizational performance would be more positive with staff's professionalism. METHOD SAMPLE The data were collected via mail questionnaires. The questionnaires were distributed to the chief financial controllers of Malaysian manufacturing companies during March 2012. During April, May and June, a total of 115 questionnaires were returned and only five questionnaires were omitted after data cleaning. Thus, the remaining 110 responses were used in the data analysis of this study, making a usable response rate of 11 percent. The low response rate for a mail-survey is quite common in the case of the Malaysian environment (Jusoh et al. 2008). This may be due to the sensitive and confidential nature of the information. Based on studies by Auzair (2011), Hoque & James (2000) and Shafer et al. (2002), the questionnaire of this study has been developed and modified to measure the variables of this study. To enhance the reliability of the questionnaire, a pre-test has been carried out through obtaining a feedback on the questionnaire. The questionnaire survey has been distributed to both academicians in the accounting department in Universiti Kebangsaan Malaysia and five company managers to test the questionnaire. Answers of those participants assisted the researcher in clarifying and simplifying the questions. The final questionnaire includes six pages and one cover letter that introduced purposes of study and encouraged to response from the respondents. 16
International Management Accounting Conference 7 2 ­ 3 December, 2014 MEASURES Business Strategy The instrument of measuring business strategy which consists of eleven questions was adopted from Auzair (2011) to fit the Malaysian context. For measuring differentiation strategy, chief financial officers were asked to indicate on a 5-point scale their degree of emphasis on items representing differentiation strategy. These items include questions on introducing new and distinct products, improving delivery time and quality of products .To measure cost leadership strategy, respondents were asked to indicate on a 5-point scale the degree of emphasis on some activities including achieving lower cost of product than competitor and making products more cost efficient. Professionalism Dimensions The second section was designed to measure the level of professionalism among organization's staffs. Actually, the questions in this section tried to measure the professional attitudes and behaviors. Professionalism is considered as a multilevel variable. According to Beam (1990), the professionalism can be conceptualized at different levels. Moreover, Beam (1990), argued that the average of professional orientation of staff members constitutes an acceptable measure of an organizational level phenomenon. In this study, Hall's (1968) professionalism scale modified by Snizek (1972) was applied to capture five dimensions of professionals. These dimensions are professional community affiliation, social obligation, belief in self-regulation, professional dedication and autonomy demand. Respondents were asked to evaluate each statement based on options ranged from 1 to 5, with 1 indicating very poorly and 5 indicating very well. Some items with negative wordings were reverse coded in order to preserve the measure of dimension. Multiple Performance Measures Usage Questions to measure companies' multiple performance measures usage comprised items that incorporate Kaplan & Norton's (1992) four dimensions of the balanced scorecard. The instrument was adopted from Hoque & James (2000), that asks the respondents to rate the extent to which each item is used to assess the organizations performance based on 5-point Likert scale (1= not at all and 5 = to a great extent). The questions reflected the four perspectives of performance which are financial, customers, internal business process and learning and growth. 17
International Management Accounting Conference 7 2 ­ 3 December, 2014
Organizational Performance The questions to measure organizational performance include five dimensions of performance which are return on investment, margin on sale, capacity utilization, customer satisfaction and product and service quality. According to Hoque and James (2000), these measures are consistent with Kaplan & Norton's (1992) balanced scorecard theorizing. Using 5-point scale (1= below average and 2= above average), the chief financial officer were asked to indicate their organization's position compared to competitors based on the five dimensions.
FINDINGS PROFILE RESPONDENT & NORMALITY TEST Table 1 presents profile of respondents regarding the level of education, duration of experience of the respondents and distribution of the final sample according to the industry and company's size. Majority of the respondents possess Bachelor's degree (43.6 percent) followed by Master's degree (24.5 percent) and Professional qualification (21.8 percent). These results indicate a better level of respondents' professionalism since formal education is considered as a part of the structural aspect of professionalism (Hall 1968). Moreover, majority (81 percent) of the respondents had an experience of more than 5 years.
TABLE 1 Respondent Distribution according to Education and Experience (N=110)
Dimension
Category
Number %
Education level
Secondary school
2
1.8
Diploma certificate
9
8.2
Bachelor's degree
48
43.6
Master's degree or higher
27
24.5
Professional qualification
24
21.8
Duration of work experience
Below 5 years 5 -10 11-15 16 ­ 20 More than 20
3
2.7
24
21.9
33
30.0
31
28.1
19
17.2
In terms of industry, the highest response was received from Iron, steel and metal industry (13.6 percent) followed by Chemicals and chemical industry (10 percent). The lowest response rate was from Furniture and wood products industry (2.7 percent). Table 2 shows that larger companies were more responsive since those with 400 employees or more have 18
International Management Accounting Conference 7 2 ­ 3 December, 2014 provided a response rate of (36.4 percent) and companies which have above RM100 million annual sales turnovers (43.6 percent).
TABLE 2 Respondent Distribution according to Industry and Company's Size (N=110)
Dimension
Category
Number
%
Industry
Chemicals and chemical
11
10.0
Electrical and electronic
7
6.4
Food and beverage
10
9.1
Furniture and wood related
3
2.7
Iron, steel and metal
15
13.6
Machinery and equipment
10
9.1
Paper, printing, packaging and labeling Pharmaceutical, medical equipment Rubber and plastic
9
8.2
2
1.8
8
7.3
Textile, clothing, footwear and leather Other manufacturing
4
3.6
31
28.2
Number of employees Below 100
25
22.7
Annual sales turnover Total gross assets
100-199 200- 299 300- 399 400 employees or more Less than RM10 million RM10-RM20 million RM21-RM50 million RM51-RM100 million Above RM100 million Less than RM50 million RM50-RM70 million RM71-RM100 million RM101-RM150 million Above RM150 million
25
22.7
13
11.8
7
6.4
40
36.4
13
11.8
12
10.9
21
19.1
16
14.5
48
43.6
44
40.0
17
15.5
8
7.3
10
9.1
31
28.2
All variables in this study were checked for normality by examining the univariate distribution histograms using skewness and kurtosis statistical tests. Table 3 shows that the results for both skewness and kurtosis ranging from 0.270 and -0.965 which revealed a normal distribution for all variables (Huck 2008). 19
International Management Accounting Conference 7 2 ­ 3 December, 2014
TABLE 3 Normality Test
Variables
Skewness Std.Erorr Kurtosis
Differentiation
-.297
.230
.270
Cost leadership
.013
.230
-.965
Professional Community affiliation -.854
.230
-.749
Social Obligation
-.847
.230
.878
Dedication to profession
-.237
.230
-.154
MPMs Usage
-.225
.230
-.714
Organizational performance
-.300
.230
-.001
Std.Erorr .457 .457 .457 .457 .457 .457 .457
factor analysis Factor analysis was carried out on the multidimensional variables which are business strategy and professionalism dimensions to show how the items can be loaded into the dimensions. Multiple performance measures and organizational performance were not included in the factor analysis due to using the average scores of multiple performance measures and using organizational performance as one variable. The instrument to measure business strategy attributes was derived from11 items following Auzair (2011). Based on the factor analysis and reliability test, items of differentiation strategy were reduced into 4 items instead of 7. Only items with factor loading more than 0.5 are considered. Table 4 shows two factors with Eigen-value greater than one and total variance percentage of 51.91 percent. These items loaded into two factors, consistent with theory, which are cost leadership and differentiation strategies.
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International Management Accounting Conference 7 2 ­ 3 December, 2014
TABLE 4 Factor Analysis for Strategy Typologies
Business Strategy
Components
DIFF
Customizing products to customers' needs.
.678
Providing products that are distinct from that of
.567
competitors
Providing high quality products
.564
Introducing new types of products quickly
.552
Making products more cost efficient.
Improving the cost needed to coordinate various
operations.
Achieving lower cost of products than
competitors.
Improving the utilization of available equipment,
services and facilities.
COST .879 .870 .758 .711
KMO Value Bartlett's Test Eigen-values % of Variance
.721 .000 2.750 1.403 34.371 17.538
Based on the theoretical literature, professionalism dimensions were grouped the as one variable via the SPSS program (Shafer et al. 2002). For validity purpose, factor analysis has been carried out for the five dimensions of professionalism. The results of factor analysis reveals that the professionalism items were loaded onto three components with Eigen-values greater than one and total variance percentage 53.18 (Table 5). This procedure reduced the 20 items of professionalism into 11 items. From the theoretical point, the 11 items can be loaded into three dimensions which are professional community affiliation, social obligation and dedication to the profession. According to Blake & Gutierrez (2011), professionalism can be measured using an established conceptual model based on the data presented from study. Moreover, it has been argued that professionalism can be measured using different measurements, and that is because the concept can be so difficult to define (Cushing 2012). In this study and based on the factor analysis results, we believe that these three dimensions will represent staff's professionalism. For further analysis, only these three dimensions will be used.
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International Management Accounting Conference 7 2 ­ 3 December, 2014
TABLE 5 Factor Analysis for Professionalism Dimensions
Professionalism
Component
AFFI
SOCI DEDI
Subscribe and systematically read, journals and
.746
other professional publications of multiple
performance measures.
Attend and participate in meetings regarding
.894
management control systems.
Engage in the interchange of ideas with peers
.789
from other organizations.
It is difficult to be enthusiastic about the kind
.674
of work that they do.
Believe that management accounting systems
.610
are essential to the welfare of society.
Believe that the importance of performance
.496
measures is sometimes overstated.
Believe that not enough people realize how
.711
vital multiple performance measures are in
organization.
Believe that any weakening of the role of
.739
performance measures would be harmful to the
public
They are gratified (thankful) when they see the
.730
dedication of their fellow peers.
Believe that it is encouraging to see a
.662
management accountant who is idealistic about
his or her work.
They would stay in management accounting
.502
even they had to take slight pay cut in order to
do so.
KMO Value
.731
Bartlett's Test
.000
Eigen-values
3.163 1.553
1.134
% of Variance
28.756 14.117 10.313
DESCRIPTIVE STATISTICS AND CORRELATION MATRIX Table 6 presents descriptive statistics for all the variables. This includes the means and medians as central tendency's measures, the standard deviation as a measure of dispersion and the Cronbach's Alpha for reliability estimates. The results show that reliability for all variables were above the lower limits of acceptability for exploratory research, generally recognized to be around 0.50 to 0.60 (Nunnally, 1994).
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TABLE 6 Descriptive Statistics for Study's Variables
Variables
Mean Median S.D.
Business Strategy
Differentiation
3.322
3.250
.475
Cost leadership
4.765
4.750
.757
Professionalism
Professional Community Affiliation 3.663
3.750
.374
Social Obligation
3.550
3.625
.524
Dedication to Profession
3.439
3.333
.506
MPMs Usage
3.882
3.925
.620
Organizational performance
3.881
4.000
.607
Alpha .641 .543 .921 .825
Table 7 shows the correlations of all variables. Correlations matrix indicates that all correlations among the contingent variables are lower than 0.70. Therefore, multicollinearity is unlikely to be a problem (Tabacchnick & Fidell, 2001). The Table also displays correlations among contingent variables, multiple performance measures usage and organizational performance. Examination of the correlation matrix indicates that most contingent variables were significantly correlated to both multiple performance measures usage and organizational performance. This ranged from no correlation with cost leadership to highly significant correlations with differentiation strategy and all professionalism dimensions. The correlation between multiple performance measures and the contingent variables reveals four significant associations namely with differentiation strategy (r=0.287), professional community affiliation (r=0.258), social obligation (r=0.265), dedication to profession (r=0.217). Organizational performance only reveals no significant correlation with two dimensions which are cost leadership (r=-0.083) and dedication to the profession (r=0.086).
TABLE 7 Pearson Correlations
VARIABLES
1
2
3
4
1. DIFF
2. COST
.134
3. AFFI 4. SOCI 5. DEDI 6. MPMU 7. PERF
.131 .533** .058 .287** .338**
-.138 .007 -.026 .089 -.083
.254** .275** .258** .337**
.214* .265** .381**
*Correlation is significant at level 0.05 (1-tailed), p 0.05
** Correlation is significant at level 0.01 (1-tailed), p 0.05
5 .217* .086
6 .477**
23
International Management Accounting Conference 7 2 ­ 3 December, 2014 HYPOTHESES TESTING Data was analyzed using SPSS 19. Multiple regression analysis was performed to test hypotheses 1 and 2 to identify the relationship between several independent variables and a dependent variable (Hair et al. 1998; Choi et al. 2005). Moderated regression was performed to test hypotheses 3, 4 and 5 to examine the interaction between contingent variables and multiple performance measures usage with organizational performance. In this study, data analysis aims to assess the importance of each contingent variable on multiple performance measures usage based on the prediction of the relationships. It also indicates the relationship of interaction between contingent variables and multiple performance measures usage with organizational performance. HYPOTHESIS 1 AND 2 H1 proposed that the extent to which firms pursuing a particular business strategy is associated with multiple performance measures usage. The correlation matrix (as shown in Table 7) indicates that there is a positive and significant association between multiple performance measures usage and differentiation strategy and no significant association with cost leadership strategy. Table 8 contains the regression analysis results for H1. The standardized coefficient for differentiation strategy was positive and significant at p .01, whereas standardized coefficient for cost leadership strategy was positive but not significant. This suggests that the data supports the proposition that differentiation strategy leads to a greater use of multiple performance measures. Based on this result, H1 is supported. The F statistics for the model is highly statistically significant, with probability level of .00. The result of H2 which predicted that the usage of multiple performance measures is positively associated with professionalism dimensions namely professional community affiliation, social obligation and dedication to profession. Pearson correlation (see Table 7) shows that there is a positive and significant association between multiple performance measures and all professionalism dimensions. Using the regression analysis, the standardized coefficient of professional community affiliation and social obligation were positive and significant at p .05 and .01 respectively. The standardized coefficient of dedication to profession was positive but not significant. Thus, H2 is only partially supported. Overall, the regression model explained 12.4 percent (Adjusted R2) of the variance of professionalism dimensions. 24
Variables DIFF COST AFFI SOCI DEDI F Adj R2 *p .05. **p .01
International Management Accounting Conference 7 2 ­ 3 December, 2014
TABLE 8 Results for Hypothesis 1and 2
Standardized
t value
Collinearity statistics
Coef.
(Tolerance/ VIF)
.265**
3.154
.696 / 1.437
.091
.991
.955 / 1.047
.195*
1.622
.866 / 1.155
.238**
2.938
.661 / 1.512
.139
1.470
.897 / 1.114
4.098**
.124
HYPOTHESIS 3,4 AND 5
To test hypotheses 3,4 and 5, moderated regression was performed. H3 proposed a positive association between multiple performance measures and organizational performance. The hypothesis is supported since the standardized coefficient is positive and significant with = 0.473 at p .01 (Table 9). Regarding H4, it is predicted that the effect of interaction between business strategy and multiple performance measures usage enhance organizational performance.. As shown in table 9, there is a significant interaction between differentiation strategy and multiple performance measures usage in predicting organizational performance with a positive = 0.192 at p .05. This explains that firm performance is a function of the match between differentiation strategy and multiple performance measures. On the other hand, the standardized coefficient of the cost leadership interaction with multiple performance measures usage was not significant. Thus, H4 was partially supported. In H5, it is proposed that the effect of multiple performance measures usage on organizational performance would be positive with staff's professionalism dimensions. Table 9 summarizes the regression analysis results. There was a significant interaction between social obligation and multiple performance usage in predicting organizational performance. This could explain that firm performance is a function of the match between social obligation and multiple performance measures. From another side, the result shows that there is no significant association for the interactions between professional community affiliation and professional dedication and multiple performance measures on organizational performance. Thus, H5 was partially supported. 25
International Management Accounting Conference 7 2 ­ 3 December, 2014
TABLE 9 Results for Hypothesis 3,4 and 5
Step 1
Step 1:Main-effect terms DIFF COST AFFIL SOCI DEDI MPMS Step 2: Interaction terms DIFF ЧMPMS COSTЧMPMS AFFI Ч MPMS SOCI ЧMPMS DEDI ЧMPMS Adj R2 F
.322** -.054 .295* .375** .097 .473** .319 9.516
standardized regression coefficient for each variable. *p .05, **p .01
Step 2
.334** .067 .311* .385** .197 .484** .192* -.072 .033 .185* .012 .318 5.613
CONCLUSIONS AND FUTURE RESEARCH Previous research argues that the design and use of performance measurement system depend upon organizational and environmental contexts (Chenhall 2003; Otley 1980). To support contingency theory propositions, this study provides empirical evidence on the relationships between business strategy typology and professionalism dimensions and the use of multiple performance measures. Moreover, the study examines the impact of the interactions between these factors and organizational performance. Hypothesis 1 suggests that firms pursuing differentiation strategy will emphasize more on multiple performance measures usage compared to firms pursuing cost leadership strategy. Pursuing differentiation strategy indicates to the concerns of firm to be unique among its competitors based on the innovation and the distinctive manner to increase customers' willingness to pay a high price, compared with it is competitors (Portales 2001). To support the innovation and cross-functional cooperation and the absence of standarization process, these firms are expected to use more 26
International Management Accounting Conference 7 2 ­ 3 December, 2014 performance measures to measure several areas such as customer service satisfaction, product innovation and delivery performance measures (Spencer et al. 2009). The findings supports the hypothesis when it was found that there is a positive and significant correlation between differentiation strategy and multiple performance measures usage (r= 0. .287, p= 0.000, b= 0.265 and t= 3.154). The correlation between cost leadership strategy and multiple performance measures usage is also positive, but not significant (r= .089, p= 0.000, b= 0.091and t= 0.991). The model presents the values for Adj R2 and F as (12.4 percent) and 4.098 respectively which mean that the relationships are not strong enough and could only be explained by only 12 percent. However, the findings regarding differentiation and cost leadership strategy with multiple performance measures usage supports findings from previous research. For instance, Chenhall (2003), Jermias&Gani (2005) and Langfield-Smith (1997) found that firms pursuing an innovation-oriented strategy, which is comparable to differentiation strategy, put more emphasize on multiple performance measures. Consistent with that, the findings of this hypothesis achieve the first research objective as they explained the relationship between business strategy and multiple performance measures usage. The results confirmed that firms adopting differentiation strategy will use more performance measures. This is can be attributed to the features of the differentiation strategy which required more focus on financial and nonfinancial aspects such as customer's satisfactions and products quality and cost. On the other hand cost leadership strategy put more emphasis only on the cost of products. Findings from hypothesis 2 report a positive and significant association between multiple performance measures usage and professionalism dimensions namely professional community affiliation, social obligation and dedication to profession. Although, the correlations between the three professionalism dimensions with multiple performance measures usage are positive and significant, the standardized coefficients from the regression analysis, report different results. Both social obligation and professional community affiliation dimensions are found to be positive and significant (b= 0.238 and 0.195 respectively), while dedication to profession was not significant with values of (b= 0.139 and t= 1.470). The findings on social obligation and professional community affiliation confirmed previous research. Barrett et al. (2004) argued that more social obligated employees comply more in using management systems such as multiple performance measures, as they want to be in line with investors and creditors interests. Moreover individuals who are more affiliated to the profession through it is activities such as attending conferences and reading journals will be 27
International Management Accounting Conference 7 2 ­ 3 December, 2014 more informed in the profession improvements and more influenced by it is standards (Snizek 1972). According to Cohen (2005), knowledgeable employees are likely to do better than unknowledgeable ones. However, in terms of dedication to profession, it should be noted that the interpretation for the unexpected results can be derived for the notion that employees with high level of professionalism will have more confidence (Mowday et al. 1979). This will lead to lower commitment by professionals. According to Newstrom and Davis (2002) staff's commitment reflects the employee's belief in the mission and goals of the firm. From here, it's expected that company's staff with lower commitment will not have a strong belief in the company's business strategy which may not result in a greater reliance on multiple performance measures. An implication of this result is that employees with high level of social obligation and professional community affiliation will provide greater use of multiple performance measures but the emphasis on multiple performance measures use is not necessarily related to professional dedication. The association between multiple performance measures usage and organizational performance is proposed in hypothesis 3 which predicted a positive and significant relationship. These results are shown by the values of r= 0.477, p= 0.000, b= 0.473. The model presents high Adj R2= 32% and F= 9.516 which explained a strong relationship. This conclusion is supported by Hoque & James (2000) and Davis & Albright (2004) who found companies that used balanced scorecard measures outperformed those who did not use them. Therefore, the third hypothesis is supported which means that greater use of multiple performance measures will lead to better organizational performance. This is due to the ability of multiple performance measures in providing the most efficient means to motivate managers to act in the manner desired by the firm's owners. Hypothesis 4 suggested that the relationship between multiple performance measures use and organizational performance would be more positive in differentiator firms compared to cost leaders. The results show a positive and significant association for effects of the interaction between multiple performance measures usage and differentiation strategy on performance. The value of b was 0.192 and p= 0.05. On the other hand, the interaction between cost leadership strategy and multiple performance measures usage was not significant in predicting organizational performance with b= -0.072. The findings here extend previous research regarding differentiation strategy by suggesting that firm performance is an increasing function of the level of match of multiple performance measures with differentiation strategy (Chenhall & Langfield-Smith 1998; Fisher 1998; Hussain & Hoque 2002 and Sila 2007). On the other side, the nature of the relationship between cost leadership 28
International Management Accounting Conference 7 2 ­ 3 December, 2014 strategy and multiple performance measures usage leads to the negative results. This result was supported by previous studies which found that strategy of cost leadership is inversely related to information processing, interaction and assertiveness in decision making (Miller 1989). Therefore, the impact on the organizational performance was not significant. Based on that, this hypothesis is partially supported since the value of b for cost leadership strategy was negative. Hypothesis 5 proposed that the effect of multiple performance measures usage on organizational performance would be more positive with staff's professionalism. Only, social obligation and multiple performance measures interaction was significant at level of 0.05. The findings show that the interactions between professionalism dimensions, namely professional community affiliation and professional dedication and multiple performance measures usage are not significant in predicting organizational performance. This unexpected result could have been affected by the weak association between these dimensions and multiple performance measures. Moreover, it can be related to the instrument used or by other factors such as sample selection. An implication of this result is that the interaction between social obligation and multiple performance measures usage results in high organizational performance but the other two professionalism dimensions did not interact with multiple performance measures usage to enhance performance. In addition, the low response rate in this study may affect the results. Thus, hypothesis 5 partially supported. The generalizability of the findings of this study is limited by a number of factors. Applying the results of this study must be done in light of these limitations. This study is limited by its singular focus on multiple performance measures as one variable and organizational performance as the dependent variable. Multiple performance measures are probably more complex than one variable as, ideally, it represents four perspectives, financial, customer, internal business process and learning and growth. As this study looks at multiple performance measures as moderator variable, Hoque & James (2000) manner was used to capture the overall multiple performance measures. In future research, investigating multiple performance measures based on its perspectives can be done to look on their impact individually. Moreover, organizational performance can be examined as multidimensional variables. Another limitation of this study is the distribution of companies in the sample. The sample was only selected from the manufacturing sector. Moreover, the distribution of companies in each industry was not equal. For example, the machinery and equipment industry contained 15 companies where chemicals and chemical industry had 11 companies and pharmaceutical and medical equipment industry was the smallest with 2 companies. For 29
International Management Accounting Conference 7 2 ­ 3 December, 2014 better generalizability, all sectors can be included in the sample to have a better comparison between them. Finally, this study suffers from a low response rate for its questionnaire survey which could expose the study to the risk of response bias. While care was taken by having non response bias test, having larger sample would definitely enhance the findings of this stud. To avoid this, reminder calls and letters may encourage companies to give more responses on the questionnaires. As result, better findings of data analysis can be produced. The overall conclusion to be drawn from this empirical evidence is that differentiation strategy is critical in implementing multiple performance measures and enhancing organizational performance. It can also be concluded that social obligation has an important role in improving performance through the greater use of multiple performance measures. In contrast, both professional community affiliation and professional dedication exhibit a limited influence on the use of multiple performance measures in the Malaysian context and setting. REFERENCES Abernethy, M.A. & Lillis, A.M. 1995. The Impact of Manufacturing Flexibility on Management Control System Design. Accounting, Organizations and Society 20 (4): 241­258. Amaratunga, D., Baldry, D., Sarshar, M. & Newton, R. 2002. Quantitative and qualitative research in the Built Environment: Application of "mixed" Research Approach. International Journal of Productivity and Performance Management 51 (1): 17­31. Auzair, S. 2011. The effect of business strategy and external environment on management control systems: A study of Malaysian hotels. International Journal of Business and Social Science 2(13): 236-244. Banker, R.D., Potter, G. & Srinivasan, D. 2000. An Empirical Investigation of an Incentive Plan That Includes Nonfinancial Performance Measures. Accounting Review 75(1): 65-92. Barber, B. 1963. Some Problems in the Sociology of the Professions. Daedalus 92 (4): 669­688. Barrett, D.W., Wosinska, W., Butner, J., Petrova, P., Gornik-Durose, M. & R.B. Cialdini. 2004. Individual Differences in the Motivation to Comply Across Cultures: The Impact of Social Obligation. Personality and Individual Differences 37 (1): 19­31. Bartol, K. M. 1983. Turnover Among DP Personnel: A casual Analysis. Communications of the ACM 26 (10): 807-811. Beam, R. A. 1990. Journalism professionalism as An organizational-level Concept. Columbia: Association for Education in Journalism and Mass Communication. Berman, E. & Wang, X.H. 2000. Performance Measurement in US Counties: Capacity for Reform. Public Administration Review 60 (5): 409­420. Bisbe, J. & Otley, D. 2004. The Effects of the Interactive Use of Management Control Systems on Product Innovation. Accounting, Organizations and Society 29 (8): 709­737. Blake, R. & Gutierrez, O. 2011. A semantic analysis approach for assessing professionalism using free-form text entered online. Computers in Human Behavior 27(6): 2249-2262. Bovens, M. 2007. Analyzing and Assessing Accountability: a Conceptual Framework. European Law Journal 13 (4): 447-468. Braam, G.J.M. & Nijssen, E.J. 2004. Performance Effects of Using the Balanced Scorecard: a Note on the Dutch Experience. Long Range Planning 37 (4): 335­349. Bremser, W. & Barsky, N. 2004. Utilizing the Balanced Scorecard for R&D Performance Measurement. R&D Management 34 (3): 229­238. 30
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