Management accounting practices in the UK food and …€¦ · Management accounting practices in the UK ... 6.3.2 Advanced manufacturing technology ... completed by management accountants

Management accounting practicesin the UK food and drinks industry

Research Report

Magdy Abdel-KaderUniversity of Essex

Robert LutherUniversity of the West of England, Bristol

Copyright © CIMA 2006First published in 2006 by:The Chartered Instituteof Management Accountants26 Chapter Street London SW1P 4NP

Printed in Great Britain

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Management accounting practicesin the UK food and drinks industry

AcknowledgementsWe would like to express our gratitude to CIMA (the Chartered Institute ofManagement Accountants) for funding the research project on which this report isbased. We would also like to thank all the people who helped in many stages of thisresearch. Our special thanks go to the food and drink industry managersinterviewed and all those who responded to the questionnaires.

Management accounting practices2

Contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Management accounting evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The nature and structure of the study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Findings and implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.1 Stage 1. Cost determination and financial control . . . . . . . . . . . . . . . . . . . . 61.2 Stage 2. Provision of information for management planning and control 61.3 Stage 3. Reduction of resource waste in business processes . . . . . . . . . . . . 71.4 Stage 4. Creation of value through effective resources use . . . . . . . . . . . . . 71.5 Research objective and method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.6 Outline of the report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2. Industry context, related studies and research questions addressed . . . . . 9

3. Empirical research design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.1 Data collection method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.2 Sample frame and size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.3 The questionnaire design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.4 Responses to questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.5 Evaluation of non-response bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.6 Measurement of contingent variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4. Survey findings concerning the use and importance ofmanagement accounting practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.1 Costing systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.2 Budgeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.3 Performance evaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.4 Information for decision-making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.5 Strategic analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.6 Communication of management accounting information . . . . . . . . . . . . . 18

5. A taxonomy of management accounting systems and theclassification of respondent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195.1 Discussion of levels of importance, usage and emphasis . . . . . . . . . . . . . . . 225.2 Classification of firms into management accounting evolution stages . . . 23

Management accounting practices Contents 3

6. Survey findings concerning the effect of explanatory factors onmanagement accounting practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256.1 External factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

6.1.1 Perceived environmental uncertainty (PEU) . . . . . . . . . . . . . . . . . . . 256.1.2 Customers’ power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

6.2 Organisational factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.2.1 Competitive strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.2.2 Firm structure – decentralisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.2.3 Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.3 Processing factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276.3.1 Complexity of processing system . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276.3.2 Advanced manufacturing technology (AMT) . . . . . . . . . . . . . . . . . . . 276.3.3 Total quality management (TQM). . . . . . . . . . . . . . . . . . . . . . . . . . . . 286.3.4 Just in time (JIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286.3.5 Product perishability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.1 Limitations of the study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.2 Management accounting practices (MAPs) . . . . . . . . . . . . . . . . . . . . . . . . . . 297.3 The level of evolution of management accounting in

UK food and drink firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307.4 Relationships between management accounting sophistication

and contingent factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317.5 Implications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


Management accounting evolutionSince the early 1980s a number of ‘innovative’ managementaccounting techniques have been developed such asactivity-based techniques (costing, budgeting andmanagement), strategic management accounting and thebalanced scorecard. It is believed that these ‘new’ techniqueshave been introduced to overcome a claim that ‘outdated’management accounting practices had provided misleadinginformation for planning, controlling, decision making andcommunication. Changes in the business environment havealmost always been cited as the impetus for firms toimplement more advanced practices and adapt theirmanagement accounting systems. The InternationalFederation of Accountants (IFAC) (in its statement onManagement Accounting Concepts) describes thedevelopment of management accounting as an evolution infour stages:

• Stage 1 (pre-1950) – cost determination and financialcontrol.

• Stage 2 (by 1965) – provision of information formanagement planning and control.

• Stage 3 (by 1985) – reduction of resources waste inbusiness process.

• Stage 4 (by 1995) – creation of value through effective useof resources.

Each stage is characterised by adopting a number of newmanagement accounting practices (MAPs) in addition toreshaping and adaptation of the old practices to fit with thenew in addressing a new set of conditions in the businessenvironment. Much has been written about individual newMAPs throughout the 1990s and early 2000s. However, littleempirical evidence exists on the actual combination of newand old MAPs in the UK.

The nature and structure of the studyWith an annual turnover of some £70 billion, the food anddrinks industry is the largest in the UK’s ‘manufacturing’sector. Despite this, little is known about the specificmanagement accounting practices employed across theindustry.

This study aims to report the results of a large scale empiricalsurvey about the current usage of MAPs in the UK food anddrinks industry. In particular the survey aims to explore how‘sophisticated’ MAPs across the industry are. In this contextwe measure the sophistication as a move towards theimplementation of MAPs related to the latest stage ofmanagement accounting evolution. The study also reports onhow MAPs are influenced by three groups of contingentfactors. These are:

• External factors (perceived environmental uncertainty andcustomers’ power).

• Organisational factors (competitive strategy,decentralisation and firm’s size).

• Processing factors (complexity of processing system,product perishability, total quality management,just-in-time system, and advanced manufacturingtechnology).

The report comprises seven chapters. The first chapter givesbackground to the research project and its aims. Previousliterature is reviewed in the second chapter and two researchquestions are articulated. In Chapter 3 the design of theempirical study is described. Management accountingpractices employed by responding food and drinks companiesare summarised in Chapter 4 while the classification ofcompanies into the four stages of management accountingevolution is undertaken in Chapter 5. In Chapter 6 weinvestigate the relationship between the level of MAPssophistication and the three groups of contingent factors. Thelast chapter summarises the findings and considers theirimplications.

Executive summary

Findings and implicationsOur findings are based on analysis of 245 questionnairescompleted by management accountants and productionmanagers. The food and drink processing companies to whichthese respondents are attached have a range ofcharacteristics including:

• An average value of total assets of £27.5 million but widedispersion around that.

• A moderately high level of perceived environmentaluncertainty.

• Being part of a value chain in which their customers, oftensupermarkets, have considerable power.

• Tending, on the spectrum of competitive strategy, towardsproduct differentiation rather than cost leadership. This issupported by a high level of product diversity andcomplexity.

• A moderately high level of monitoring and control ofquality.

• No strong evidence of decentralisation and delegation orof the application of advanced (automated) manufacturing(processing) technologies.

• A high level of perishability of product which correspondswith moderately high engagement with JIT.

Analysis of the accounting practices suggests that themanagement accounting systems employed in many foodand drinks companies are not particularly sophisticated.When cluster analysis is applied to group respondent firmsaccording to their scores on the four stages of managementaccounting sophistication 19% of firms were found to be inStage 1 of evolution, 41% in Stage 2, 30% in Stage 3 andonly 13% in Stage 4. We conclude that managementaccounting systems in many UK food and drinks companiesare moving, but only slowly, from a simple or naive role ofcost determination and financial control towards a moresophisticated role of creation of value through effectiveresource use.

Budgeting, product profitability and financial performancemeasurement remain the central pillars – 98% of companiesuse budgeting for planning, 97% use budgeting for costcontrol, 97% do product profitability analyses, and 93%apply financial measures in performance evaluation. At theother end of the scale some of the newer managementaccounting practices are less widely used than might beassumed from a reading of the textbooks; for instance 55%of companies have never used activity-based costing, 63%have never used EVA or residual income, and 37% have neverused DCF. Taking the industry as a whole, there is littleevidence of management accounting directly connected with‘value creation’. There are however indications that increaseduse may be expected of techniques relating to cost of qualityinformation, non-financial measures relating to employees,and the analysis of competitors’ strengths and weaknesses.

We suggest that many companies might benefit frombenchmarking themselves against the MAPs in differentstages of evolution and adopting those ‘more advanced’practices that are appropriate to their particularcircumstances. Use of contingency theory shows that moresophisticated management accounting is positivelyassociated with the following characteristics: size,decentralisation, powerful customers, advanced processingtechnology, JIT and TQM. For educators, professional bodiesand society generally the implication is that the gap betweenwhat purports to be ‘best practice’ and actual practice showsthat there is considerable room for improved disseminationof concepts and techniques.

Management accounting practices Executive summary 5


During the 1980s Kaplan, in his review of The Evolution ofManagement Accounting (1984) and with Johnson in theRelevance Lost book, levelled strong criticism at themanagement accounting practices of the day. He claimedthat:

‘Virtually all of the (management accounting) practicesemployed by firms today and explicated in leading costaccounting textbooks had been developed by 1925 … therehas been little innovation in the design andimplementation of cost accounting and managementaccounting control systems.’ (Kaplan, 1984, p.390)

Furthermore, it was argued1 that the practices wereinappropriate and, more specifically, that they:

• did not meet the needs of the contemporarymanufacturing and competitive environment

• provided misleading information for decision-makingpurposes

• had become subservient to financial accountingrequirements

• focused almost entirely on internal activities with littleattention given to business’s external environments.

Since then, and perhaps in response to these criticisms, anumber of innovative management accounting techniqueshave been developed across a range of industries. The mostnotable contributions are activity-based techniques whichinclude activity-based costing, activity-based budgeting andactivity-based management, strategic managementaccounting and the balanced scorecard. These newtechniques have been designed to support moderntechnologies and new management processes, such as totalquality management and just-in-time production systems,and the search for a competitive advantage to meet thechallenge of global competition.

It has been argued2 that these ‘new’ techniques have affectedthe whole process of management accounting (planning,controlling, decision-making, and communication) and haveshifted its focus from a ‘simple’ or ‘naive’ role of costdetermination and financial control, to a ‘sophisticated’ roleof creating value through the use of resources. Beforeexploring these shifts in the context of the food and drinksindustry, we consider the development of sophistication ofmanagement accounting generally.

1 See, for example, Drury (1996).

2 See, for example, Ittner and Larcker (2001), Kaplan and Atkinson(1998), Otley, (1995), Fullerton and McWatters (2002), Hoque andMia (2001),and Haldma and Laats (2002).

In 1998 the International Federation of Accountants (IFAC)issued a statement describing the development ofmanagement accounting through the following foursequential stages:

1. Cost determination and financial control (pre-1950).2. Provision of information for management planning and

control (by 1965).3. Reduction of resources waste in business process (by 1985).4. Creation of value through effective resources use (by 1995).

1.1 Stage 1. Cost determination and financial controlIFAC describes management accounting before 1950 as atechnical activity necessary for the pursuit of organisationalobjectives. It was mainly oriented towards the determinationof product cost. Production technology was relatively simple,with products going through a series of distinct processes.Labour and material costs were easily identifiable and themanufacturing processes were mainly governed by the speedof manual operations. Hence, direct labour provided a naturalbasis for assigning overheads to individual products. The focuson product costs was supplemented by work on budgets andfinancial control of production processes. Such developmentstemmed primarily from practical innovations by managersand engineers (Ashton, Hopper and Scapens, 1995).

The strong position held by Western countries ininternational markets made their products highly regarded.They could be sold relatively easily, and competition on thebasis of either price or quality was relatively low. There waslittle innovation in products or production processes asexisting products sold well and the production processes werewell understood. Accordingly, management was concernedprimarily with internal matters, especially productioncapacity. The use of budgeting and cost accountingtechnologies was prevalent in this period. However, thedissemination of cost information tended to be slight, and itsuse for management decision-making poorly exploited(Ashton et al., 1995).

1.2 Stage 2. Provision of information for managementplanning and controlIn 1950s and 1960s the focus of management accountingwas shifted to the provision of information for planning andcontrol purposes. It is seen by IFAC as a management activity,but in a staff role. It involved staff (management) support toline management through the use of such technologies asdecision analysis and responsibility accounting. Managementcontrols were oriented towards manufacturing and internaladministration rather than strategic and environmentalconsiderations. Management accounting, as part of amanagement control system, tended to be reactive,identifying problems and actions only when deviations fromthe business plan took place (Ashton et al., 1995).

1. Introduction

Costdeterminationand financialcontrol

Information formanagementplanning andcontrol

Reduction ofwaste of resourcesin businessprocesses

Creation of valuethrough effectiveresource use

Focus�

�Stage

4

3

2

1

Focus

Transformation

Transformation

Transformation

OngoingTransformation

1.3 Stage 3. Reduction of resource waste in businessprocessesThe world recession in the 1970s, following the oil priceshock, and the increased global competition in the early1980s threatened the Western established markets and led toa decline in their protected markets. The increasedcompetition was accompanied and underpinned by a rapidtechnological development which affected many aspects ofthe industrial sector. The use, for example, of robotics andcomputer-controlled processes improved quality and, inmany cases, reduced costs. Also developments in computers,especially the emergence of personal computers, markedlychanged the nature and amount of data which can beaccessed by managers. Thus the design, maintenance andinterpretation of information systems became ofconsiderable importance in effective management (Ashton etal., 1995).

The challenge of meeting global competition was met byintroducing new management and production techniques,and at the same time controlling costs, often throughreduction of waste in resources used in business processes(IFAC, 1998). In many instances this was supported byemployee empowerment. In this environment there is a needfor management information, and decision making, to be

diffused throughout the organisation. The challenge formanagement accountants, as the primary providers of thisinformation, is to ensure through the use of process analysisand cost management technologies that appropriateinformation is available to support managers and employeesat all levels.

1.4 Stage 4. Creation of value through effective resourcesuseIn the 1990s world-wide industry continued to faceconsiderable uncertainty and unprecedented advances inmanufacturing and information-processing technologies(Ashton et al., 1995). For example the development of theworld-wide web and associated technologies led to theappearance of E-commerce. This further increased andemphasised the challenge of global competition. The focus ofmanagement accountants shifted to the generation orcreation of value through the effective use of resources,through the use of technologies which examine the drivers ofcustomer value, shareholder value, and organisationalinnovation (IFAC, 1998).

The four stages of the evolution of management accountingdescribed by the IFAC statement are illustrated in Figure 1.

Management accounting practices Introduction 7

Source: IFAC (1998)

Figure 1. Evolution of management accounting

Management accounting practices Introduction8

The UK food and drinks sector provides the context for thisresearch. It is the largest industry sector in the UK; Mann etal. (1999b) indicate that it provides employment for overthree million people from primary producers tomanufacturers and retailers, and it accounts for 9% of grossdomestic product. Despite this the sector is under-researchedin the management accounting field. It is of particularinterest because, according to Heasman and Henson (1997),the industry is ‘over-regulated’ with regulations mainlyrelated to the quality of products. On this basis we expectedto find an emphasis on total quality management and anadoption of advanced manufacturing and processingtechniques which may influence management accountingpractices.

1.6 Outline of the reportThis report consists of seven chapters. The second chapterpresents a brief industry context and the research questionsaddressed in this study. Chapter 3 describes the design of theempirical study. The survey findings related to managementaccounting practices in the UK food and drinks industry aresummarised in Chapter 4. As this study aims to investigatethe relationship between the sophistication of managementaccounting practices and some potential explanatoryvariables it was necessary to classify the respondingcompanies into groups according the sophistication level oftheir management accounting practices; this classification isillustrated in Chapter 5. Chapter 6 investigates whether ornot relationships exist between management accountingsophistication and external, organisational and processingfactors within UK food and drinks companies. The finalchapter concludes the report with a summary of the findings.

A critical difference in the shift between Stage 2 and Stages 3and 4 is the change in focus away from information provisionand towards resource management, in the form of wastereduction (Stage 3) and value creation (Stage 4). However,the focus on information provision of Stage 2 is not lost, butis refigured in Stages 3 and 4. Information becomes aresource, along with other organisational resources; there is aclearer focus on reducing waste (in both real and financialterms) and on leveraging resources for value creation.Accordingly, management accounting is seen in Stages 3 and4 as an integral part of the management process, as real timeinformation becomes available to management directly andas the distinction between staff and line managementbecomes blurred. The focusing of the use of resources(including information) to create value is an integral part ofthe management process in contemporary organisations.

1.5 Research objective and methodThe aim of this study is to investigate the current state ofmanagement accounting practices in the UK food and drinksindustry and explore its ‘sophistication level’. In this contextsophistication refers to the capability of a managementaccounting system to provide a broad spectrum ofinformation relevant for planning, controlling, anddecision-making all in the aim of creating or enhancing value.Increased sophistication is manifested by a move from thestage of cost determination and financial control to the stageof creation of value. We survey the perceived value of ‘newer’management accounting techniques and the extent to whichthey are becoming more widely used. In particular we explorewhether, and to what extent, the sophistication of amanagement accounting system is related to the followingpossible explanatory variables:

• external factors: environmental uncertainty; customers’power

• organisational factors: competitive strategy; structure; size• processing factors: system complexity; extent of

implementation of advanced manufacturing technology;implementation of total quality management techniques;implementation of just-in-time techniques and productperishability.

Previous non industry-specific studies (e.g., Chenhall (1997);Chenhall and Morris (1986); Chia (1995); Chong (1996);Chong and Chong (1997)) have found relationships betweenthe performance of strategic business units and these factors.However, they have all investigated the relationship betweenthe factors and performance. None has investigated theeffect of management accounting practices (MAPs) on theserelationships3 or looked at them in the UK context.

3 Chenhall and Langfield-Smith (1998) examined the effect ofmanagement accounting practices, management practices andstrategic priorities on SBUs’ performance in the context of Australiancompanies.

As stated earlier, the food and drinks industry is the singlelargest manufacturing sector in the UK. Its turnover in 2003was about £67.6 billion representing 15% of totalmanufacturing. The industry employs some 500,000 peopleor 13.1% of the whole UK manufacturing workforce. A totalcontribution of £20 billion GVA (Gross Value Added) is madeto the UK economy1. Despite its significance little attentionwas given to the performance of the industry until 1996when the ‘Food and Drinks Industry Benchmarking andSelf-Assessment Initiative’ was launched. This initiative wasmanaged by Leatherhead Food Research Association andsupported by the Ministry of Agriculture, Fisheries and Foodand the Department of Trade and Industry, aimed to improvethe competitiveness of the UK food and drinks industry byincreasing the awareness and use of practical businessimprovement techniques (Mann et al., 1999a).

The self-assessment programme of the initiative aims toencourage and enable companies to assess theirmanagement systems and business performance against aEuropean Business Excellence Model2 (Mann and Adebanjo,1997). The self-assessment is carried out by means of aquestionnaire comprising 85 questions.

By reference to 50 responses a major finding in 1997 wasthat only 18% of the food and drinks companies weredeveloping their management systems along the lines ofbusiness excellence. Most were applying traditional methodsof management, are not learning from the experiences ofbest-in-practice companies, and not applying a systematicapproach to achieving business improvement. This wasconsidered to be causing low financial returns right across theindustry. Data from cross-industry companies show that foodindustry performed the least well (Mann and Adebanjo, 1997,p.1).

1 Food and Drink Federation, www.fdf.org.uk/industrystats.aspx,accessed on 20 June 2004.

2 The European Business Excellence model is divided into two groups– the enablers and results. The enablers are primarily looking at howthe organisation is managed, and the results look at theachievements of the organisation. This model considers themanagement of the organisation in terms of leadership, policy andstrategy, people management, resources and processes (enablers)and then considers the results achieved in terms of customersatisfaction, people satisfaction, impact on society and businessresults (for more details see Mann and Adebanjo (1997)).

It has also been concluded that the food industry needs to bemore progressive and more willing to learn and apply newmethods. Mann et al. (1999a) concluded that, while the foodindustry is strong in resource and process management, its‘companies have less well developed management systemsthan other industries … (and) were not as good … at meetingfinancial targets using appropriate non-financial indicators,and were less likely to benchmark their results.’ (p.18). Thiswas partly attributed to a lower level of exposure tointernational competition than other industries. Likewise,Ratnatunga, Hooley and Pike (1990), on the basis of 21in-depth interviews with senior executives in the foodindustry, found that ‘almost half of the responding firms …did not involve accountants in choosing alternatives in themarketing mix, and almost a quarter used them only asinformation providers.’ (p.12) Asquer (2003), in a paper aboutthe food industry, explains that ‘many state of the arttechnologies – activity-based costing and managementsystems, for instance – use a range of tools to assessoperational efficiency and the achievement of organisationalgoals. Yet many firms are far from adopting most of theseinnovations.’ (p.28). (Mann et al. 1999a).

Mann et al followed up their 1999a survey with aninvestigation (1999b) of the ‘best practices’ employed by ninecompanies that scored well in the Business Excellence Model,and concluded that the industry needs to be moreprogressive and more willing to learn and apply newmethods. In particular, companies require leaders whodevelop policies and strategies that really address the needsof the customer (and do not just provide what they think thecustomer wants) and utilise the full potential of theiremployees. Performance against policies and strategies needsto be monitored using a performance measurement systemthat addresses all the financial and non-financial measuresthat are critical to an organisation’s success. These shouldinclude measures of customer satisfaction, employeesatisfaction and impact on society. It is only by doing thisthat long-term financial success will be achieved.

2. Industry context, related studies andresearch questions addressed

Management accounting practices 9

Management accounting practices Industry context, related studies10

A significant body of research has been published over theyears in the field of management accounting. Aside from thevery limited literature on accounting in the food sector, twostreams of research are of particular relevance to this study.The first stream reports on the use of various managementaccounting techniques and practices; for example, Chenhalland Langfield-Smith (1998), Ghosh and Chan (1997),Guilding, Lamminmaki, and Drury, (1998), Luther andLongden (2001), Wijewardena and Zoysa (1999), Yohikawa(1994) and Drury et al. (1993). This study is informed by andextends such research.

The other related stream of research has examined therelationship of characteristics of management accountinginformation with a range of underlying (or contingent)factors. This type of research is broadly based on contingencytheory, which has been applied as a means of explainingvariations in the management accounting practices adoptedby different organisations. Its premise is that there is nounique set of management accounting practices that suits allorganisations; different organisations will adopt a particularset of management accounting practices which is appropriateto their circumstances. The idea attracted many researchers3

to attempt to identify the most important contingencies andto assess their impact on the design of managementaccounting systems. Three main categories of factors can beidentified from the extant literature. These categories areshown below together with some of the most importantindividual component factors:

• external factors: environmental uncertainty• organisational factors: competitive strategies, structure

(decentralisation), firm’s size • manufacturing or processing factors: system complexity,

advanced manufacturing technology, the implementationof total quality management or of just-in-time.

3 Examples include Gordon and Narayanan (1984), Govindarajanand Gupta (1985), Chenhall and Morris (1986), Mia and Chenhall(1994), Gul and Chia (1994), Chia (1995), Chong (1996), Chong andChong (1997), Chenhall (1997), Sim and Killough (1998), Mia andClarke (1999), Anderson and Lanen (1999), and Chenhall andLangfield-Smith (1998).

Our study is distinguished from earlier contingency studies inseveral ways.

First, our emphasis is on individual management accountingpractices as outcomes, rather than on broad characteristics ofmanagement accounting information such as scope ortimeliness.

Secondly, we consider the contingency-type associations inthe context of UK companies. Previous research has notinvestigated the relationship between the explanatory factorsand management accounting practices in the UK. Ourin-depth investigation of one particular industry allows usboth to come to detailed conclusions about that specificsector as well as giving us the basis for making broadergeneralisations about UK industry. Inevitably some sector-specific issues arise but, given its size and scope, the food anddrinks sector of the economy is a good representative, havingmany similarities with other processing and manufacturingsectors.

Thirdly, previous work has only investigated a limited numberof contingent factors at a time. Our work responds toChenhall and Langfield-Smith’s (1998) call for ‘future studies(which) add to our understanding of the research problem byconsidering the role of additional relevant variables.’ (p.259).

Finally, it looks at a broad set of management accountingpractices (budgeting, performance evaluation, costing,decision-making, communication and strategic analysis).Anderson and Lanen (1999), for example, support the needfor this type of research:

‘Clearly greater understanding of both individual practicesand macroscopic relationships among practices is needed.However, we found very little of the latter in the extantliterature …’ (pp.408-9).

In summary, our aim is to address the following twoquestions:

1. How ‘sophisticated’ are management accounting systemsin the UK food and drinks industry?

2. To what extent are UK management accounting practicesinfluenced by external factors, organisational factors, and‘processing’ factors.

An empirical study was conducted to address the researchquestions stated in the previous chapter. The design of thestudy is explained in this chapter which is divided into thefollowing sections:

• Data collection method.• Sample frame and size.• The questionnaire design.• Responses to questionnaire.• Evaluation of non-response bias.• Measurement of contingent variables.

3.1 Data collection methodA postal questionnaire was used to collect empirical data.This facilitated access to a large number of respondents andthus provided sufficient data for statistical analysis, withoutundue cost. Such a large number would be difficult to achievethrough face-to-face interviews because of the constraints oftime and cost. In addition, the time and other pressures onmanagement accountants and production managers wouldhave severely restricted the number willing to be interviewed.Nevertheless, a limited number of face-to-face interviewswere carried out. First, to pilot the questionnaire beforesending it out, and secondly, to follow-up the questionnairein order to check the reliability of the survey results and toseek further explanation of some of the responses.

Five face-to-face pilot interviews (three managementaccountants and two production managers) were undertakenbefore the questionnaire was sent out in July 2001. Theseinterviews were divided into three parts; in the first partinterviewees were asked to give a brief description of theircompanies and their main responsibilities. They were thenpresented with the draft questionnaire and asked to answerthe questions and comment on their clarity and relevance.Finally, comments were sought on the general design of thequestionnaire and its content and, in particular, whetherthere were any other questions that they may have expectedto see. The interviews took between 45 and 90 minutes andwere tape recorded and transcribed. After each interview thequestionnaire was modified to reflect the comments receivedfrom the interviewees. The questionnaire was also reviewedby seven academics.

Another set of interviews was carried out in February andMarch 2002 to follow up issues arising out of the analysis ofresponses to the actual questionnaire instrument. The sixinterviewees were all key personnel responsible for runningand managing the management accounting and productionsystems in their companies. They were selected from thosewho had responded to the questionnaire and our interviewsaimed to check the reliability of the questionnaire responsesand to gain more insights into the survey results.

3.2 Sample frame and sizeOne aim of this survey was to study the relationship betweenmanagement accounting practices and specifiedmanufacturing procedures. It was therefore appropriate toinvestigate a sample of manufacturing or processingcompanies. In order to remove irrelevant distractions arisingout of variations between industries, we decided toconcentrate on the food and drinks sector which is suitablylarge, broad and therefore reasonably representative.

After reviewing a number of available databases, ‘FAME’(Financial Analysis Made Easy) was found to be the mostappropriate for choosing a sample frame. It providesextensive information about public and private Britishcompanies.

A number of criteria were used in selecting companies forinclusion in the sample:

• a 1992 SIC UK industry code of ‘15’ (manufacture of foodproducts and beverages)

• employment of at least 30 people • being active and independent companies• having a registered office address in England, Scotland or

Wales.

A total number of 658 companies satisfied these criteria1 andconstituted the sample frame for this research.

The information gathered includes data related to practicesof management accounting, data on strategic business units’(SBUs’) structure and performance and information related toproducts processed/manufactured. Difficulty was anticipatedin obtaining all this information from any one singlecompany employee. Accordingly, two versions of thequestionnaire were sent to each sampled company. The firstversion was addressed to the person leading the managementaccounting function (MA) while the second version was to becompleted by the production manager (PM).

First of all, a letter was sent to the company secretary of the658 companies in May 2001. This was an attempt to increasethe response rate by obtaining the names of the mostappropriate persons to complete the questionnaire2. Twoletters were returned by the post office stamped ‘addresseehas gone away’ and six companies asked to be removed fromour sample leaving 650 potential responses. By the end ofJune names of 148 persons responsible for heading themanagement accounting function and of 85 productionmanagers, or equivalent, were received.

1 This search was conducted on 5 April 2001.

2 A pre-paid SAE was enclosed with the letter.

3. Empirical research design


Management accounting practices Empirical research design12

Both versions of the questionnaire were sent to all 650companies. The questionnaires were addressed to the namesthat had been obtained or, in cases where they had not beenobtained, for the attention of ‘The Management Accountant’and ‘The Production Manager’.

3.3 The questionnaire designA covering letter was included as a part of the questionnaire.It explained the purpose of the study, the importance ofanswering the questions, and assured the confidentiality ofthe information provided. The respondent was also asked ifs/he was willing to participate in follow-up interviews andwhether s/he would like to be sent a copy of summarisedsurvey results. By using window envelopes and sticking theaddress label on the covering letter, it was possible to identifythe respondents. This was essential in order to makefollow-up telephone calls, and it also allowed us to obtainsecondary data from the FAME database.

As stated earlier two versions of the questionnaire wereadministered. The MA’s version was divided into threesections. The first section included questions related to themanagement accounting practices of the SBU. These weregrouped under five headings: budgeting, performanceevaluation, costing system, strategic analysis and informationfor decision-making. Under each heading, respondents wereasked to rate the extent of usage and importance of a rangeof techniques in their SBUs. A separate question was includedto rate the importance of four modes of communicatingmanagement accounting information. The second sectioncontained questions that measured the perceivedenvironmental uncertainty, degree of centralisation, strategicorientation and the respondent’s perception of their SBU’sperformance. The final section asked for demographicinformation about the respondent.

The PM’s version was also divided into four sections. The firstsection included questions related to processing factors:complexity of processing system, total quality management,just-in-time, and product perishability; also questions relatedto the extent of concentration of customer base. The secondand third sections were similar to those in the MAs’questionnaire. The final section included questions related tomeasuring the extent of the PM’s satisfaction with the firm’smanagement accounting system.

3.4 Responses to questionnaireAs stated earlier the two versions of the questionnaire weresent to 650 companies in the food and drinks industry in thefirst week of July 2001. Three weeks later a second copy ofthe questionnaire was sent to all non-respondents. By theend of first week of September, we received 194 responses(96 from MAs and 98 from PMs). Of these responses, 25completed questionnaires were received from both the MAand PM of the same company. In the last week of September,follow-up telephone calls were made to all non-respondentsof the companies from which we had received only onecompleted version. All other non-respondents were sent athird copy of the questionnaire.

By the end of October, a total of 280 questionnaires werereturned giving a response rate of 21.5% (280/1300). Ofthese 31 were blank because of company policy not allowingresponses to surveys or the company was small/ceased/in themiddle of a merger. The net response rate was thus about20% (249 completed questionnaires / 1250 potentialrespondents). A further five responses were judged invalidbecause of a large portion of the questionnaire was notcompleted. Hence 245 usable completed questionnaires wereused in the analysis giving a net usable response rate of19.6% which was considered acceptable. Of these usablecompleted questionnaires 122 were MA version and 123 PMversion. Forty eight companies completed both versions ofthe questionnaire.

3.5 Evaluation of non-response biasA potential threat to the conclusions of a postal survey isnon-response bias. In order to assess the possibility of theexistence of such bias, comparisons between the sampleframe and the responding companies using t-tests oncompany size were conducted. Company size was measuredby turnover, fixed assets, and number of employees for theyear ended 2001. There was no significant difference betweenthe two samples for each size measure. Further, the answersto the main questions in the questionnaire from respondentswho further replied without the follow-up telephone calls,were compared with the answers from respondents whoreplied only after the follow-up telephone calls. Again, therewas no significant difference between these two groups ofanswers.

From the above, it can be concluded that the two samplesare drawn from the same population and the existence ofnon-response bias is not likely to be a threat to theconclusions based on the actual sample.

3.6 Measurement of contingent variablesOur study examined a number of potentially causal (orexplanatory) variables through two different questionnairessent to each company. In this way we ensured that theinformation we sought was provided by a knowledgeableperson in the firm. Four variables were measured in bothversions. These variables are perceived environmentaluncertainty, competitive strategy, firm’s structure(decentralisation) and perceived performance. An average ofthe two responses was used in the analysis. The measures ofcustomer power, processing system complexity, AMT, TQM,JIT and product perishability were derived from thequestionnaires sent to production managers while themeasure of size was derived from published sources. Althoughreporting of values these contingent variables is not anobjective of this study, the descriptive statistics are shown inTable 3, as they will be referred to and discussed in Chapter 6.

Management accounting practices Empirical research design 13

The descriptive statistics in Table 1 above show that thecompanies surveyed have a range of characteristics including:



• Being part of a value chain in which their customers, oftensupermarkets, typically have considerable power.





In Chapter 4, which follows, we turn to the measurement anddescriptive statistics of the management accountingpractices – which are the dependent (outcome) variables ofthis study.

Table 1. Descriptive statistics of the potentially causal (contingent) variables

No. ofVariables responses Mean Std. dev. Min. Max.

Perceived environmental uncertainty 120 4.03 0.84 1.00 5.85

Customers’ power 120 4.20 1.04 1.18 7.00

Competitive strategy 93 0.18 0.52 -1.00 1.00

Firm structure – decentralisation 117 3.63 1.37 1.00 6.80

Size – total assets (in million) 114 27.5 77.67 0.50 750

Complexity of processing system 120 4.31 1.17 1.00 7.00

AMT 121 2.57 1.09 1.00 6.00

TQM 120 4.03 1.03 1.67 5.94

JIT 121 4.20 0.62 2.67 6.00

Product perishability 120 4.62 2.08 1.00 7.00


As explained in Chapter 3, questionnaires were mailed to themanagement accountant and the production manager of 650companies. In total, 245 usable completed questionnaireswere received and analysed. Of these, 122 were replies to theMA version questionnaire and 123 were of the PM version. Inthis chapter we report and comment upon summarystatistics of the responses to those questions that askedabout management accounting practices. These data are ofinterest in their own right and also provide input to Chapter 5in which we assess the sophistication of managementaccounting in the UK food and drinks industry.

In the MA version, respondents were asked to indicate thefrequency of production or use of 38 managementaccounting practices (MAPs) using a five point Likert-typescale (1 indicating never and 5 indicating very often). Theywere also asked to rate the importance of eachtechnique/practice using either ‘not important’, ‘moderatelyimportant’ or ‘important’. The 38 MAPs were classified intofive groups: costing system, budgeting, performanceevaluation, information for decision making, and strategicanalysis. In addition separate questions were askedconcerning the communication of management accountinginformation. The results of each group are reported in turn asfollows.

4.1 Costing systemsTraditional absorption costing systems have long beensubject to criticism. Two long-standing issues of debate havebeen the choice of appropriate overhead recovery rates i.e.plant-wide or more specific, and secondly the controversy1

about the need to recover (or absorb) overheads at all. Thepublic marginal costing versus absorption costing debate ‘ranout of steam’ with the adoption of SSAP 9 but we explore ourexpectation that the separation between fixed and variablecosts is ‘very much alive’ in internal reporting practice. Duringthe last two decades the problems of traditional absorptioncosting were again brought under the spotlight. The mainfocus of criticism was that these systems do not accuratelymeasure costs for decision making purposes. Activity-basedcosting (ABC) was introduced as a technique to helporganisations overcome this problem. Also, target costing2

and the ‘costing of quality’ were introduced as tools forconfronting increased competition. Costs of quality aretypically classified into four groups: prevention, appraisal,internal failure and external failure. Providing informationrelated to quality costs is important when making decisionsbetween differing quality-related alternatives.

1 See Dugdale and Jones (2002) Battles in the Costing War: UKDebates, 1950-1975

2 To set a target cost, companies need first to determine a targetprice based on competition and marketing factors. The target priceshould be set at a level that permits the company to achieve adesired market share and sales volume (Drury et al., 1993). Then adesired profit margin is deducted from the target price to determinethe target cost, which becomes the goal to achieve by generatingalternative acceptable product designs.

To find out the extent to which practitioners applied theircosting system to provide more accurate cost information fordecision making purposes, respondents were asked toindicate how often are seven techniques related to costingsystems. The responses are summarised in panel A of Table 2.The data on frequency of usage needs to be interpreted withcaution. Some MAPs are conventionally only carried outinfrequently e.g. activity-based budgeting is perhaps anannual exercise. So, for instance, it is possible that somerespondents may have answered ‘very often’ to such aquestion if, when they do prepare budgets (albeitinfrequently) they always use the activity-based approach;others may have answered the question more at face value3.Such problems of interpretation almost inevitably arise whenquestionnaires are used on a broad set of themes. This ispartly mitigated by our supplementing the question of usagewith that of importance. These data are shown on theleft-hand side of Table 2.

From the right-hand side it can be seen that 48% (29% +19%) of the companies either often or very often distinguishbetween variable/incremental costs andfixed/non-incremental costs for decision making purposes.The importance of this separation was acknowledged by 83%of respondents rating it as either moderately important orimportant. By contrast a relatively small number indicatedhigh usage of the three techniques (plant-wide, multiple-rateor ABC) for allocation of overhead to cost objects. Eventhough it can be argued that plant-wide, departmental andactivity-based techniques are mutually exclusive,nevertheless the figures indicate that overhead allocationdoes not appear to be done very frequently. The combinationof these two findings suggests that variable (or direct)costing is much more common than various forms ofabsorption costing. While absorption (including ABC) costinghas a relatively low usage rating, it nevertheless seems tohave considerable importance; 44%, 51% and 46% ofrespondents rated the three forms either moderatelyimportant or important. Respondents are aware of theimportance of overhead allocation techniques but manybelieve that it is not worth implementing them frequently.This may indicate that they are seen to be important innon-routine ‘costing studies’ carried out from time to time.Likewise the costing of quality is seen to be extremelyimportant but not very frequently calculated. Finally,advanced modelling of cost relationships and behaviour isneither seen to be important nor often used.

3 We thank one of the anonymous reviewers for drawing this to ourattention.

4. Survey findings concerning the use and importanceof management accounting practices

4.2 BudgetingThe literature of management accounting emphasises thatbudgeting is an essential technique for planning andcontrolling the activities of an organisation (Drury et al.,1993). The implementation of ABC was followed by theintroduction of activity-based budgeting (ABB). In thequestionnaire we asked respondents to rate the usage andthe importance of budgeting for planning, budgeting forcontrolling costs, activity-based budgeting, budgeting with‘what if’ analysis, flexible budgeting, zero-based budgetingand budgeting for long-term (strategic) planning. Panel B inTable 2 summarises the responses.

The survey shows that budgeting is either often or very oftenused for planning and for controlling costs by anoverwhelming 84% and 73% respectively. Taken together,budgeting for planning and control was considered eitherimportant or moderately important by more than 90% ofrespondents. It can be concluded that almost all companies

use budgeting for planning and control. Many companies(32%) use flexible budgeting but 29% clearly do not flextheir budgets at all! ‘What if’ budget analysis is clearly veryimportant but, as expected, is only applied from time to time.

ABB was considered either moderately important orimportant by the majority of respondents (63%). However,only 19% of respondents were using it often or very often.When ABC and ABB were cross-tabulated we found that allcompanies which reported high level of usage for ABC did thesame for ABB. It may be concluded that companies startimplementing ABC and then they use the activities analysisperformed during ABC implementation to prepare theirbudgets. One would not expect zero-based budgeting to beapplied very frequently but it was perhaps surprising to seethat it is also seen to be largely unimportant (58% ofrespondents). Finally, 83% rated budgeting as an importantpart of their long-term strategic planning.

Management accounting practices Survey findings 15

Table 2. Management accounting practices and techniques summary statistics shown by percentage of respondents

How important? How often used?

n NI MI I Panel A. Costing system n S1 S2 S3 S4 S5

114 17 35 48 A separation is made between variable/ 116 13 11 28 29 19incremental costs and fixed/non-incremental costs

113 56 27 17 Using a plant-wide overhead rate 115 54 11 12 14 9

112 49 35 16 Departmental or multiple plant-wide 113 48 15 24 4 9overhead rates

112 54 34 12 Activity-based costing (ABC) 114 55 21 13 6 4

112 42 37 21 Target costs 112 43 12 21 15 9

111 41 44 14 The cost of quality 111 44 24 18 10 4

110 85 12 3 Regression and/or learning curve techniques 111 83 12 4 2 0

Panel B. Budgeting

118 8 15 76 Budgeting for planning 120 2 3 13 28 56

119 8 19 73 Budgeting for controlling costs 120 3 5 19 25 48

113 37 44 19 Activity-based budgeting 116 35 25 21 8 11

117 19 47 34 Budgeting with ‘what if analysis’ 118 17 16 36 23 8

117 27 40 32 Flexible budgeting 117 29 16 23 19 13

116 58 30 12 Zero-based budgeting 117 52 19 14 9 7

114 17 33 50 Budgeting for long-term (strategic) plans 117 14 21 26 26 14

n number of respondents S1 neverNI not important = 1 S2 rarelyMI moderately important = 2 S3 sometimesI important = 3 S4 often

S5 very often

Management accounting practices Survey findings16

Table 2. Management accounting practices and techniques summary statistics shown by percentage of respondents

How important? How often used?

n NI MI I Panel C. Performance evaluation n S1 S2 S3 S4 S5

118 7 15 78 Financial measure(s) 120 7 5 13 26 50

119 13 42 45 Non-financial measure(s) related to customers 120 15 23 24 20 18

116 23 37 40 Non-financial measure(s) related to 117 21 17 26 16 20operations and innovation

116 36 53 11 Non-financial measure(s) related to employees 117 41 23 25 8 3

114 64 29 7 Economic value added or Residual income 116 63 22 8 3 4

113 43 48 9 Benchmarks 116 45 25 20 9 2

Panel D. Information for decision-making

116 14 36 50 Cost-volume-profit analysis 118 10 25 20 28 16(break-even analysis) for major products

115 3 24 72 Product profitability analysis 117 3 9 19 34 35

116 8 33 59 Customer profitability analysis 118 9 14 25 25 26

114 20 44 36 Stock control models 116 17 25 28 18 12

113 34 41 26 Evaluation of major capital investments based 115 37 21 23 9 10on discounted cash flow method(s)

116 13 44 43 Evaluation of major capital investments 118 14 14 32 17 24based on payback period and/or accountingrate of return

113 18 45 37 For the evaluation of major capital 115 17 17 33 22 11investments, non-financial aspects aredocumented and reported

113 68 27 5 Evaluating the risk of major capital 115 71 18 4 3 3investment projects by using probabilityanalysis or computer simulation

115 34 45 21 Performing sensitivity ‘what if’ analysis when 116 32 28 19 14 8evaluating major capital investment projects

114 42 40 18 Calculation and use of cost of capital in 116 44 22 16 14 3discounting cash flow for major capitalinvestment evaluation

Panel E. Strategic analysis

117 13 41 46 Long-range forecasting 117 14 16 26 26 17

111 75 19 6 Shareholder value 111 68 22 5 5 1

109 65 28 6 Industry analysis 110 67 15 6 6 5

114 20 40 39 Analysis of competitive position 114 17 18 32 25 8

112 52 28 21 Value chain analysis 113 51 16 14 9 10

113 63 28 9 Product life cycle analysis 112 60 21 15 4 1

111 48 36 16 The possibilities of integration with 112 46 16 27 8 4suppliers’ and/or customers’ value chains

115 17 50 33 Analysis of competitors’ strengths 117 16 26 36 18 3and weaknesses

n number of respondents S1 neverNI not important = 1 S2 rarelyMI moderately important = 2 S3 sometimesI important = 3 S4 often

S5 very often

4.3 Performance evaluationThe choice of measures to guide and evaluate theperformance of business units is one of the most criticalchallenges facing organisations (Ittner and Larcker, 1998).Management accounting should report all relevantinformation related to the evaluation of business units’performance. Performance measurement systems whichfocus solely on financial measures such as profits, return oninvestment, standard costs and variance analysis have beenwidely criticised (e.g. Ittner et al., 1997; Kaplan and Norton,1996; Shields, 1997). The criticisms arise because thesemeasures are distorted by external reporting conventions,they promote short-termism and accounting manipulation,and do not take into consideration the cost of capital ornon-financial (‘leading’) measures such as customersatisfaction, labour efficiency, innovation in production.

To incorporate the cost of capital into financial measures, avariety of ‘economic value’ measures have been introduced(Ittner and Larcker, 1998). Residual income was developed in1950s but more recently the ‘Economic Value Added’ or EVA‚was promoted by Stern Stewart & Co as a proprietaryadaptation of residual income (Ittner and Larcker, 1998). EVA‚can be defined as adjusted operating income minus a capitalcharge, and implies that a manager’s action only addseconomic value when the resulting profits exceed the cost ofcapital. Stern Stewart recommend about 160 adjustmentsthat firms can make to their accounting systems in order toeliminate the perceived distortions created by externalaccounting rules and to approximate the accounting profit to‘economic’ profit (Ittner and Larcker, 1998).

Kaplan and Norton (1992; 1993 and 1996) introduced theBalanced Scorecard (BSC) as a way of integrating financialand non-financial performance measures. In their modelbusiness unit performance should be evaluated from fourperspectives: financial, customer-related, internal businessprocesses, and learning and growth.

Traditional financial measures are usually compared withprevious periods’ performance to identify whether there is animprovement or deterioration. The underlying assumptionthat the previous period is an appropriate comparator canlead to the entrenchment of problems and inefficiencies. Toovercome this, the concept and practice of benchmarking wasintroduced and made popular as an organisationalimprovement tool by Xerox (Ghobadian, Gallear, Viney andLiu, 2001). Benchmarking is based on identifying a bestpractice either internally or externally and then studying howthis can be used to improve current and future performance.In the UK food industry the benchmarking of businessmanagement systems and performance has been promotedby the Leatherhead Food Research Association with the activesupport of various government departments (See Mann et al,1999a).

To ascertain the extent to which management accountingsystems provide different performance measures we askedrespondents to rate the usage and importance of five groupsof measures: financial measures; EVA (residual income);benchmarks, and non-financial measures related respectivelyto customers, to operations and innovation, and toemployees. Panel C of Table 2 shows the results.

As expected, the majority of respondents (78%) ratedfinancial measures as important and about the samepercentage reported frequent usage of these measures.Non-financial measures related to customers and tooperations and innovation are clearly very influential with87% and 77% respectively scoring them as at leastmoderately important. However, a significant minority ofcompanies (38% for both categories of measures) producesuch measures either never or rarely. The non-provision ofemployee related measures is even more marked, with 41%of respondents answering never. The results show also thatneither EVA‚ nor benchmarking have gained popularity yetamong UK food and drinks companies.

4.4 Information for decision-makingOne of the early stated objectives of managementaccounting was to provide relevant information for internaldecision making. For regular or short-term decisionsmanagement accountants can use cost-volume-profit (CVP)analysis, product profitability analysis, customer profitabilityanalysis, and stock control models. For capital investmentdecisions management accountants can produce accountingrates of return and payback periods as well as moresophisticated signals based on discounted cash flow, e.g. netpresent value and internal rate of return. Also, managementaccounting systems can provide information on non-financialfactors, such as quality of output, flexibility of processes andlead-times, that could affect capital investment projects.Finally management accountants can use risk analysistechniques such as probability analysis, computer simulationand ‘what if’ analysis.

Summaries of the responses to questions aboutdecision-making MAPs are shown in Panel D. It can be seenthat product profitability analysis and customer profitabilityanalysis are often or very often calculated in the majority ofcompanies – 69% and 51% respectively. Respondents alsorated these analyses as important – 72% and 59%respectively. CVP analyses is seen to be important ormoderately important by 86% of respondents and is alsosurprisingly frequently produced – 44% indicating that suchanalyses are used at least often. Stock control models arelargely moderately important and sometimes used.

Management accounting practices Survey findings 17

Management accounting practices Survey findings18

Regarding capital investment decisions, 41% of respondentsused traditional accounting measures such as accounting rateof return and payback period to evaluate major capitalprojects while the equivalent figure for discounted cash flowmodels, such as internal rate of return and net present value,is only 19%. This apparent scepticism of ‘advanced’investment appraisal is confirmed by the figure of 42%answering that calculating the cost of capital was notimportant! Non-financial factors relating to capital projectsare perceived to be either important or moderately importantby 82% of respondents, but only 33% of companies often orvery often report and document such factors. Finally ‘what if’analysis is the most popular technique in evaluating the riskof projects though only 22% of respondents used it often orvery often.

4.5 Strategic analysisTraditional management accounting systems have beencriticised because they focus on reporting information relatedto internal processes with little attention being given to theexternal environment and the effect of competitors’ decisionsand cost structures on current and future processes of thebusiness. The externally oriented approach has been known as‘strategic management accounting’, a term that firstappeared as the title of an article by Simmonds in 1981.However, there is no agreed conceptual framework for whatconstitutes strategic management accounting (Tomkins andCarr, 1996; Lord, 1996, Guilding, Cravens and Tayles, 2000,Roslender and Hart, 2003). In this study we explore threecharacteristics of strategic management accounting identifiedby Guilding et al., (2000). They are environmental ormarketing orientation, focus on competitors, and long-term,forward-looking orientation. Eight strategic practices weregiven to respondents who were asked to indicate how oftenthey use them as well as their importance. Panel E in Table 2shows the results.

It can be seen that only long-range forecasting was often orvery often done by most (43%) of the companies. This wasfollowed in frequency by the analysis of competitive position(33%) and the analysis of competitors’ strengths andweaknesses (21%). It may be concluded that companies are,

at present, more interested in conventional long-range(forward-looking) planning and lateral competitive analysesthan in contextual stakeholder, industry, life-cycle or valuechain analyses. The high scoring of importance, relative tofrequency of use, of analyses of competitive position (andcompetitors’ strengths and weaknesses) and of value chainssuggests that the application of these practices will becomemore widespread and frequent.

4.6 Communication of management accountinginformationA survey by Drury et. al. (1993) identified the most significantmanagement accounting problems. Three of these, related tothe timing of the information reported by managementaccounting systems, were: providing accurate and timelyinformation on-line to the shop floor, improved timeliness inreporting data, and changing the information gatheringsystem so that it becomes real-time and interfaces withother systems.

To explore this issue, management accountants were asked toassess the importance, to their business, of four levels ofaccessibility of internal reports. The results are shown in Table3. They indicate that it is important to provide detailedmanagement accounting information on a systematic,regular, short-term basis (91% of respondents). The ability toprovide detailed information immediately on request wasrated important or moderately important to 86% ofrespondents (but the ‘3 rating’ is down from 91% to 37%).Immediate updating and the provision of real-timeinformation was important to only 11%. However, this andthe prior statistic may have been biased downward by theword ‘detailed’. In any event, even if detailed real-timereporting is not widespread, it is clear that organisationalchanges have altered information dispersion channels; 48%of respondents indicated that it is important that detailedmanagement accounting information is reported direct toline manager. This confirms the anecdotal evidence that thereis now widespread ‘ownership’ of management accountingwhich is increasingly less subject to ‘filtering and analysis’ byaccounting specialists.

Table 3. Communication of management accounting information

% of respondents

n S1 S2 S3 Mean Std. dev.

Detailed management accounting information is available 119 1 8 91 2.90 0.33on a systematic, regular, short-term basis (e.g. weekly or monthly)

Detailed management accounting information is available 118 14 49 37 2.24 0.68immediately upon request

Detailed management accounting information is updated and 118 41 48 11 1.70 0.66made available on a real-time basis

Detailed management accounting information is reported 117 17 35 48 2.31 0.75direct to line managers

n number of respondents NI not important = 1 MI moderately important = 2 I important = 3

5. A taxonomy of management accounting systemsand the classification of respondent companies


This chapter addresses the first research question of thisresearch project; that is, the investigation of the‘sophistication level’ of the UK food and drinks industry.Thereafter, in Chapter 6, we focus on the relationshipbetween management accounting characteristics andpotential ‘contingent variables’.

It was stated earlier that sophistication of a managementaccounting system refers to the capability of the system toprovide a broad spectrum of information relevant forplanning, controlling, and decision-making all in the aim ofcreating or enhancing value. To measure the sophisticationlevel we adopted the four stage of management accountingevolution model introduced by IFAC (1998). Although theIFAC statement identified the broad characteristics of eachstage, it did not provide specific illustrations of management

accounting practices (MAPs) related to the various stages. Asa central part of this project we attempt to link specific MAPsto particular stages of evolution. In order to do this we havereviewed literature related to the development ofmanagement accounting (Kaplan, 1984; Allott, 2000; Ferrara,1995; Scapens, 1991; Garrison, Noreen and Seal, 2003) andidentified important characteristics of each stage. Theserelate to: the approximate periods in history with which astage is principally associated; the typical ‘organisationalpositioning’, or location, of management accounting at thatstage; the principal role of management accounting, and,finally, the main focus of management accounting’sattention. Table 4 shows our understanding of thecharacteristics of management accounting systems in eachstage of evolution.

Representativeperiod:

Where positionedin organisation:

Role:

Main focus:

Stage 1Cost determinationand financial control

(CDFC)

Prior to 1950

Similar to companysecretarial.

A necessary technicalactivity in ‘running’ anorganisation.

Cost determinationand controllingexpenditure.

Stage 2Provision ofinformation formanagementplanning and control(IMP)

1950 – 1965

A ‘staff’ managementactivity

Providing info tosupport ‘line’management’soperations.

Information formanagementplanning, control anddecision-making.Including basic modelbuilding.

Stage 3Reduction of wastein business resources

(RWR)

1965 – 1985

Stage 4Creation of valuethrough effectiveresources use

(CV)

1985 to date

Managing resources(includinginformation) to‘directly’ enhanceprofits by bearingdown on inputs.

Reduction ofwaste/loss in businessresources throughprocess analysis andcost managementtechnologies.

Directly enhanceoutputs and add valuethrough strategy of‘leveraging’ resources(especiallyinformation).

Creation of valuethrough usingresources effectivelyto drive customervalue, shareholdervalue and innovation.

Management accounting an integral part ofmanagement, ‘owned’ by all managers as thedistinction between ‘staff’ and ‘line’management becomes blurred.

Table 4. Characteristics of management accounting practices in four stages of evolution

Management accounting practices A taxonomy of management accounting systems20

Using the characteristics in Table 4 we have then used ourjudgement1 to classify each MAP into a stage of theevolution. We interpret the four stages as four levels ofsophistication of MAS with Stage 1 representing a lack ofsophistication and Stage 4 the highest level of sophistication.The internal consistency of MAPs included in each stage wasconfirmed by means of Cronback’s alpha2. It should beremembered that each stage of evolution encompasses thepractices in the previous stage in addition to the new set. Forexample Stage 2 includes all MAPs included in Stage 1 as well

1 In arriving at this classification we consulted widely with academiccolleagues and participants at conferences where early drafts of thispaper were presented.

2 The statistic is based on the extent to which individuals’ scoringsare consistent when responding to ‘linked’ questions. Values of 0.60or higher are generally considered to provide an acceptable level ofdata reliability. The results are shown in Appendix III and it can beseen that alpha for each stage is acceptable.

as those arising at Stage 2. In Table 5 the 38 MAPs first shownin Table 2 (categorised by type, e.g. costing, budgeting etc.)are now re-organised into categories representing each stageof evolution. As well as showing the descriptive statistics ofusage and importance derived from the questionnaireresponses, we present a composite statistic which we style‘emphasis’. The absolute values of emphasis are not especiallymeaningful but if high, relative to others, they do indicatethat the technique in question is both important andfrequently applied while the opposite is true for techniqueswith very low emphasis values.

Table 5. Classification and descriptive statistics of management accounting practices

Importancea Usageb Emphasisc

std. std. std.Mean dev. Mean dev. Mean dev.

Cost determination and financial control (CDFC)

Using a plant-wide overhead rate 1.61 0.76 2.12 1.42 4.34 4.54

Budgeting for controlling costs 2.66 0.62 4.12 1.05 11.25 4.28

Flexible budgeting 2.05 0.78 2.70 1.40 6.32 4.82

Performance evaluation based on financial measures 2.71 0.59 4.08 1.20 11.43 4.42

Evaluation of major capital investments based on paybackperiod and/or accounting rate of return 2.32 0.73 3.24 1.32 8.16 4.79

Provision of information for management planning and control (IPC)

A separation is made between variable/incremental costsand fixed/non-incremental costs 2.32 0.74 3.30 1.27 8.43 4.73

Using departmental overhead rates 1.67 0.74 2.12 1.30 4.36 4.03

Using regression and/or learning curve techniques 1.17 0.45 1.24 0.61 1.64 1.83

Budgeting for planning 2.68 0.63 4.33 0.91 11.88 4.05

Budgeting with ‘what if analysis’ 2.15 0.71 2.88 1.17 6.94 4.26

Budgeting for long-term (strategic) plans. 2.33 0.75 3.05 1.25 7.76 4.45

Performance evaluation based on non-financial measuresrelated to operations 2.16 0.78 2.97 1.40 7.33 4.98

Cost-volume-profit analysis for major products. 2.36 0.72 3.14 1.26 8.17 4.63

Product profitability analysis 2.69 0.54 3.90 1.07 10.91 4.04

Stock control models 2.16 0.74 2.83 1.26 6.69 4.40

Evaluation of major capital investments based ondiscounted cash flow method(s) 1.92 0.77 2.32 1.31 5.27 4.47

Long-range forecasting 2.33 0.69 3.17 1.28 8.00 4.64

a Based on 3-point scale (1 = not important, 2 = moderately important, 3 = important).b Based on 5-point scale (1 = never, 2 = rarely, 3 = sometimes, 4 = often, 5 = very often).c The means of the emphases (usage – importance) for each firm – not the product of the mean usage and the mean

importance3.

Management accounting practices A taxonomy of management accounting systems 21

3 Surprisingly, perhaps, this would give different figures.

Table 5. (continued)

Importancea Usageb Emphasisc

std. std. std.Mean dev. Mean dev. Mean dev.

Reduction of waste in business resources (RWR)

Activity-based costing 1.57 0.69 1.83 1.14 3.45 3.60

Activity-based budgeting 1.81 0.73 2.34 1.33 4.87 4.24

Cost of quality 1.73 0.70 2.05 1.16 4.18 3.70

Zero-based budgeting 1.54 0.70 1.99 1.28 3.82 4.15

Performance evaluation based on non-financial measure(s)related to employees 1.75 0.64 2.09 1.13 4.27 3.61

Evaluating the risk of major capital investment projectsby using probability analysis or computer simulation 1.37 0.59 1.48 0.93 2.50 3.06

Performing sensitivity ‘what if’ analysis when evaluatingmajor capital investment projects 1.87 0.73 2.38 1.28 5.29 4.38

Creation of value creation through effective use of resources (CV)

Target costing 1.79 0.77 2.36 1.39 5.19 4.71

Performance evaluation based on non-financial measure(s)related to customers 2.32 0.71 3.04 1.33 7.63 4.68

Performance evaluation based on residual income oreconomic value added 1.43 0.62 1.63 1.03 2.80 3.21

Benchmarking 1.65 0.64 1.97 1.08 3.81 3.26

Customer profitability analysis 2.53 0.65 3.46 1.27 9.28 4.64

For the evaluation of major capital investments,non-financial aspects are documented and reported 2.19 0.72 2.94 1.23 7.21 4.44

Calculation and use of cost of capital in discountingcash flow for major capital investment evaluation 1.75 0.74 2.10 1.21 4.44 4.00

Shareholder value analysis 1.32 0.59 1.50 0.88 2.40 2.81

Industry analysis 1.41 0.61 1.65 1.14 2.89 3.43

Analysis of competitive position 2.19 0.75 2.89 1.19 7.03 4.28

Value chain analysis 1.69 0.79 2.10 1.38 4.51 4.70

Product life cycle analysis 1.46 0.66 1.65 0.93 2.87 2.92

The possibilities of integration with suppliers’ and/orcustomers’ value chains 1.68 0.74 2.08 1.17 4.21 3.89

Analysis of competitors’ strengths and weaknesses 2.17 0.69 2.66 1.06 6.23 3.61

a Based on 3-point scale (1 = not important, 2 = moderately important, 3 = important).b Based on 5-point scale (1 = never, 2 = rarely, 3 = sometimes, 4 = often, 5 = very often).c The means of the emphases (usage – importance) for each firm – not the product of the mean usage and the mean

importance3.


5.1 Discussion of levels of importance, usage andemphasisLooking first for the extreme positions apparent from Table 5we find four management accounting practices which areindisputably widely used and important4. Two in the categoryrelating to cost determination and financial control arebudgeting for controlling costs and performance evaluationbased on financial measures. The other two relate toprovision of information for planning and control and arebudgeting for planning and product profitability analysis.

At the other end of the scale, are six well known practicesthat may be dismissed as peripheral. They are two ‘operations

research type’ practices regression and learning curvetechniques, and risk evaluation with probabilities andsimulation and four more modern techniques that areassociated with ‘strategic management accounting’ i.e. theanalysis of economic value, shareholder value, industryanalysis, and product life-cycles. This basic ‘high-low’snapshot indicates that traditional management accountingseems ‘alive and well’. The observation is supported by takingthe means, by category, of the values reported for individualpractices; these are shown in Table 6 below. It can be seenthat the mean values for practices in categories CDFC andIPC are noticeably higher than those for less traditionalcategories RWR and CV.

The next level of our analysis of the Table 5 data was tocompile two lists with all 38 practices ranked in order ofperceived importance and usage respectively. From this weidentify those practices for which the ranking of ‘importance’is three or more places different from the ranking of ‘usage’.On the assumption that, over time, the ranking of usage will,in many cases, move towards the ranking of importance, ourinterpretation is that practices ranked markedly higher interms of ‘importance’ than ‘usage’ are likely to become morewidespread and vice versa. On this basis we make thepredictions shown in Table 7.

4 Those with mean ‘emphasis’ values, across the whole sample,above 10 (out of a possible 15).

Table 6. Mean values of importance and usage of MAPs

Category/stage of evolution Importance of MAPs Usage of MAPs(scale 1-3) (scale 1-5)

Cost determination and financial control (CDFC) 2.27 3.25

Information for planning and control (IPC) 2.16 2.94

Reduction of waste of resources (RWR) 1.66 2.02

Creation of value (CV) 1.83 2.29

Table 7. Prediction of the usage of MAPs

MAPs that may be phased out MAPs that may be increasingly adopted

Plant-wide overhead rates CDFC

Separation between fixed and variable costs IPC Cost-volume-profit analysis for major products

Departmental overhead rates Investment appraisal using DCF

Non-financial measures related to operations

RWR Info concerning cost of quality

Non-financial measures related to employees

CV Analysis of competitors’ strengths and weaknesses

Before considering the specific data shown in Table 7 it isworth noting that the practices with higher ranking of usagethan importance dominate the more traditional ‘costdetermination and financial control’ (CDFC) and ‘informationfor planning and control’ (IPC) categories. By contrast thepractices showing markedly higher importance than usagedominate the ‘younger’ categories ‘reduction of waste’ (RWR)and ‘creation of value’ (CV).

The lower ordering of importance than usage for plant-wideand departmental overhead rates is not surprising and can beattributed to the costing advances related to ABC. Theincreasingly common multiple cost driver analyses related toABC perhaps also explains the predicted demise of thefixed – variable costs distinction. However, it is curious that,despite the move to cost drivers other than volume,respondents still rate CVP analysis as a practice whoseimportance exceeds its usage5.

Another interesting, contrasting ‘pairing’ concerns non-financial measures of performance. While those relating toemployees (e.g. productivity, or value added per employee)are seen to be more important than presently used, theopposite applies to non-financial measures of operationalperformance such as waste, or schedule adherence. This maybe attributed partly to the undoubted existing relevance ofnon-financial performance measures in the food industry(they rank 12th out of 38 in terms of use6) and partly to theincreased emphasis currently being placed on employeeempowerment and devolution of accountability7.

DCF investment appraisal, despite its steady infiltrationthrough the 20th century into corporate financialmanagement, is still ranked more important than widelyused. This supports various research findings that, at the finallevel of evaluation, decisions are often made on the basis ofstrategic rather than financial analysis.

5 This flexible ‘modern’ interpretation of CVP analysis, with a rangeof cost drivers, was discussed in Luther and O’Donovan (1998).

6 A confirmation of the statement by Mann et al (1999a) that ‘thefood industry is strongest at resource and process management …these areas typically need strong control to ensure that the supplychain, from raw materials to manufacture and to delivery to theconsumer is met.’ (p.13)

7 See Abdel-Maksoud et al (2005).

Finally, our results show that both the calculation andreporting of the cost of quality and the analysis ofcompetitor strengths and weaknesses are likely to becomemore widespread. These practices reflect the increasedcompetitive and regulatory pressures faced by organisations.Henchion and McIntyre (2005, p.419) state that ‘theenvironment is becoming increasingly competitive andregulated, basic pre-conditions of trade are becoming moredemanding raising costs and other resource requirements,and thereby barriers to entry, and the basis for competition ischanging’. We find clear support for our study’s central themeof the ongoing evolution of management accounting.

5.2 Classification of firms into management accountingevolution stagesThe principal aims of this study are to explore thesophistication of current MAPs and to examine whether thereare relationships between their sophistication and potentialexplanatory factors. To this end, it was necessary to classifyrespondent firms into their respective evolutionary stage andthen to analyse the characteristics of each group. Thisprepares the way for us to find out (in Chapter 6) whetherthere are relationships between each stage of evolution andthe explanatory variables.

Classification of individual firms into stages of managementaccounting evolution was based on their emphasis on MAPsusing cluster analysis8. For each firm, an average (composite)score was calculated for the set of MAPs (see Table 5) relatedto:

• cost determination and financial control (CDFC)• management planning and control (IPC)• reduction of waste in business resources (RWR)• creation of value through effective resource use (VC).

Thus each of the 113 firms had a score for each of fourcomposite predictor variables CDFC, IPC, RWR and VC, andthese were used in a statistical procedure to sort firms intofour groups A (containing 30 similar firms), B (21 firms), C (47firms) and D (15 firms)9. The mean scores of variables withineach cluster are presented in Table 8. The results show thatthe four variables played significant roles in correctlyclassifying 95.5% of the firms into their respective groups.Thus, the cluster solution was regarded valid.

8 Cluster analysis is a statistical technique which classifies a large setof objects (people, firms, etc.) into distinct subgroups based onpredictor variables. If the cluster analysis is successful it shouldproduce homogenous groups with respect to the group’s scores onthe predictor variables (Coolidge, 2000, p.267).

9 For full details on the application of cluster analysis to these datasee Abdel-Kader and Luther (2005).

Management accounting practices A taxonomy of management accounting systems 23


Having established the theoretical validity of the clusteranalysis, the next step involved labelling the clusters on thebasis of our interpretation of the shared characteristics of itscomponents. This was done by matching the clusters torelated stages of evolution (Stage 1, Stage 2 etc.). Accordingto IFAC’s theoretical model of management accountingevolution, companies in Stage 1 have more emphasis onCDFC (cost determination and financial control) practicesand less emphasis on the practices in other sets (i.e. thoserelating to IPC, RWR and CV). Companies in Stage 2 placeemphasis on practices in both CDFC (cost determination andfinancial control) and in IPC (provision of information formanagement planning and control) and less emphasis onpractices in the other two sets (RWR and CV). Companies inStage 3 have emphasis on CDFC (cost determination andfinancial control), IPC (provision of information formanagement planning and control) and RWR (reduction ofwaste in business resources) and less emphasis on the fourthset CV (Creation of value through effective resources use).Finally, companies in Stage 4 have more emphasis on all foursets of CDFC, IPC, RWR and CV.

An inspection of the mean scores of CDFC, IPC, RWR and CVin Table 8 provides bases for preliminary labelling of theempirically derived clusters. Mean scores of firms in Cluster Bare the lowest for all sets (CDFC, IPC, RWR and CV) – thissuggests that Cluster B represents Stage 1 of the evolution ofmanagement accounting. Companies in Cluster C have highermean scores for all of CDFC, IPC, RWR and CV than those ofCluster B. Thus, Cluster C can represent Stage 2 of themanagement accounting evolution.

Clusters A and Cluster D have higher mean scores for all setsof CDFC, IPC, RWR and CV than those of Clusters B and C.Also, mean scores of CV in both Clusters C and D are higherthan those of RWR. Because the mean scores of all four setsof CDFC, IPC, RWR and CV in Cluster D are higher than thosein Cluster A, we have considered that Cluster D bestrepresents Stage 4. Thus, Cluster A represents Stage 3.

It can be seen from Table 8 that of the 113 firms, 19% (21)are in Stage 1, 41% (47 firms) are in Stage 2, 27% (30) are inStage 3 and 13% (15) in Stage 4 of management accountingevolution. About 40% of firms have management accountingsystems in either Stage 3 or Stage 4 of IFAC’s evolution. Wecan conclude that management accounting systems in manyfirms of the UK food and drinks industry are moving fromsimple or naive role of cost determination and financialcontrol towards a more sophisticated role of creation of valuethrough effective resource use. However, the characteristicsof each group of firms should be further investigated. This willbe done in the next chapter.

Table 8. Classification of companies using hierarchical cluster analysis

Clusters*

A B C D(n = 30) (n = 21) (n = 47) (n = 15)

CDFC Cost determination and financial control 9.74 5.94 8.29 10.53(2.11) (3.67) (2.49) (1.88)

IPC Management planning and control 8.87 4.54 6.77 10.14(1.24) (1.96) (1.58) (1.34)

RWR Reduction of waste in business resources 5.10 2.01 2.83 6.50(1.27) (1.11) (1.15) (1.22)

CV Creation of value through effective resources use 5.98 3.06 4.36 8.89(0.99) (1.88) (1.29) (1.14)

Values in the table are mean scores of variables within clusters (standard deviation).*113 companies included in the analysis, 9 companies were not included because of missing at least 2 values.

In Chapter 5, responding companies have been classified intofour groups according to the sophistication level of theirMAPs. This chapter now addresses the second researchquestion; that is, investigation of the effect of three sets ofpossible explanatory factors – external, organisational andprocessing factors – on the level of MAP sophistication. Thepotential effects looked for are the eight principal contingentfactors in the established literature (see Chapter 2) plus twofurther possible influencing factors specific to the foodindustry (customer power, and product perishability) whichwere brought to our attention. All possible effects areexamined by testing whether or not there are differencesamong the four groups of companies in relation to eachfactor. The non-parametric Kruskal-Wallis one-way ANOVAtest was used1. The results are summarised in Table 9 anddiscussed in the following sections.

6.1 External factors

6.1.1 Perceived environmental uncertainty (PEU)Many researchers have investigated the relationship betweenthe perceived environmental uncertainty2 and characteristicsof management accounting. For example, Gordon andNaryanan (1984) argued that decision makers attempt to

find a match between the extent of information processingdemanded by the environment and the process capabilities ofthe organisation. As environment grows more uncertain, moreinformation must be processed by decision makers. Gordonand Naryanan (1984) found that external, non-financial andex ante information is considered to be increasinglyimportant when perceived environmental uncertaintyincreases. Similarly, Chenhall and Morris (1986) found apositive relationship between PEU and need for informationthat has broad scope. Gul and Chia (1994) explain that whenPEU is low, management is able to make relatively accuratepredictions about the market, while when PEU is highmanagement may require additional information to copewith complexities of the environment. Consequently, moresophisticated reports from MAS can help to reduceuncertainty and improve managerial decision making (Chong& Chong, 1997).

The results of Kruskal-Wallis one way ANOVA for PEU shownin Table 9 suggest that there is a significant difference amongcompanies in the four groups in relation to PEU. This can beexplained as companies moving from less sophisticated MAPs(Stage 1 or Stage 2) to more sophisticated MAPs (Stage 3 orStage 4) when they perceive high environmental uncertainty.

6. Survey findings concerning the effect of explanatory factorson management accounting practices


1 In the computation of the Kruskal-Wallis test, for a specificvariable, all scores of all groups are ranked in a single series. Thelowest score is replaced by rank 1, the next lowest score is replacedby rank 2 and the largest score is replaced by rank N, where N is thetotal number of independent respondents in all the groups. The sumof ranks in each group is then calculated and divided by the totalnumber of respondents within each group to obtain the averagerank. The Kruskal-Wallis test assesses the differences between theaverage ranks to determine whether they are significant or not. SPSS11 was used to analyse the survey data.

2 This factor is generally measured as the level of uncertaintysubjectively perceived by decision makers. The approach is advocatedby Gordon and Naryanan (1984) who argued that ‘the driving forcebehind decisions related to organization structure and informationcharacteristics seems to be the key individuals’ perception ofuncertainty in the environment’ (p.42, emphasis added).

Table 9. Results of Kruskal-Wallis test – the effect of explanatory factors and MAP sophistication

Stage 1 Stage 2 Stage 3 Stage 4 Chi-square df P-value

External factors

Perceived environmental uncertainty 46.79 50.56 66.58 63.53 6.968 3 .073

Customers’ power 15.33 16.55 36.32 38.44 26.098 3 .000

Organisational factors

Competitive strategy 41.10 42.72 41.75 50.37 1.435 3 .697

Decentralisation 31.45 54.86 61.53 74.20 17.943 3 .000

Size (total assets) 40.76 51.41 64.66 74.67 12.783 3 .005

Processing factors

Complexity of processing system 27.33 24.55 26.32 18.69 1.955 3 .582

AMT level 17.94 14.73 39.41 35.81 29.452 3 .020

TQM 13.44 17.17 38.05 36.63 27.402 3 .001

JIT 17.61 14.93 38.45 37.00 28.913 3 .000

Product perishability 24.11 24.83 29.00 17.94 2.986 3 .394

Management accounting practices Survey findings concerning the effect of explanatory factors26

6.1.2 Customers’ powerInterviewees advised us that customers’ power is animportant variable affecting many aspects of the operationsof companies that depend on few customers such as thelarge supermarket chains. This is confirmed by previous foodsector research – Fearne and Hughes (1999) reported thatfour retailers accounted for two thirds of UK grocery sales. Toour knowledge no previous study has investigated the effectof customers’ powers on the sophistication level of MAPs.From the discussion with interviewees we were led to believethat companies facing high levels of customer power mightuse more sophisticated MAPs to improve their decisionmaking process and control. This should help companies tokeep their demanding customers satisfied.

Customers’ power was measured based on four questionsrelated to the percentage of sales value sold under their ownbrand, how much difficulty they would have in findingalternative business if a customer changed to a differentsupplier and how much power food and drink producers hadto alter contracts with their customers. An average of the fourquestions was used in the analysis.

From Table 9, it can be seen that there are significantdifferences between the four groups of companies in relationto customers’ powers. This leads us to conclude thatcompanies move from naive stages of managementaccounting evolution (Stage 1 or Stage 2) to moresophisticated stages of 3 and 4 as their power relative totheir customers diminishes.

6.2 Organisational factors

6.2.1 Competitive strategyTwo competitive strategies are considered in this research;cost-leadership and differentiation. Companies adopting acost-leadership strategy aim to provide products with thelowest possible cost relative to their competitors. Companiesadopting a differentiation strategy focus on creatingdistinctive features, customer service, brand image orperformance.

Govindarajan (1986, p.848) argues that a successfuldifferentiator will seek approaches that lead to a pricepremium greater than the differentiating cost. Consideringthat there are numerous ways of achieving and maintaininguniqueness in the marketplace, a differentiator will require arelatively large information-processing capacity to deal withthe many available options. By contrast, a strategy of costleadership implies tight control systems. For a cost leadershipstrategy to be successful, managers must direct theirattention to the internal aspects of their SBUs, primarily tothe production and engineering functions.

The logic of the differentiation strategy requires that a firmchooses attributes on which to differentiate itself that aredifferent from its rivals. The options available to adifferentiator, with respect to what unique product feature tooffer, would normally be greater than those available in thecase of a cost leadership strategy. Thus, informationprocessing requirements will be greater in the case of SBUsfollowing a differentiation strategy than in the case of SBUsfollowing a cost leadership strategy (Govindarajan 1986,pp.848-9).

Drury and Tayles (2000, p.33) argue that companies followinga differentiation strategy need a sophisticated cost systemthat accurately measures the costs of product and volumediversity arising from following such a strategy. Without asophisticated system companies run the risk of not beingable to determine whether the higher revenue generatedfrom their products or services exceeds the extra costsassociated with differentiation. They used measures ofproduct diversity as a proxy for a differentiation strategy.They could not, however, find evidence to suggest thatcompetitive strategy influenced the sophistication of costingsystem.

In this research we used a scale developed by Govindarajanand Fisher (1990) and asked respondents to indicate thepercentage of their business unit’s total sales accounted forby products representing use of either cost-leadership ordifferentiation strategy. The weighted average of thepercentages was used as a measure for SBU’s strategy.

The Kruskal-Wallis test shows no significant differencebetween the four groups of companies (based on MAPsophistication) in relation to their competitive strategies, seeTable 9. Our result therefore confirms Drury and Tayles’(2000) conclusion.

6.2.2 Firm structure – decentralisationChenhall and Morris (1986) define decentralisation as thelevel of autonomy delegated to managers. It providesmanagers with greater responsibility over planning andcontrol activities and greater access to information notavailable to ‘the centre’. For decentralised companies tosucceed, they need to design a management accountingsystem that provides relevant information to supportmanagers in their planning, controlling and decision-making.To examine whether the sophistication level of MAPs isaffected by decentralisation, respondents were asked fivequestions to indicate the degree of delegation of authority bythe chief executives of their firms. An average of theiranswers was used in running the Kruskal-Wallis test.

The results, in Table 9, indicate that there are significantdifferences between the four groups of companies in theirrelation to decentralisation. The results suggest thatcompanies with more delegated managerial structures mayneed more sophisticated MAPs to provide managers withenhanced relevant information for the planning, controllingand decision making for which they are responsible.

6.2.3 SizeOrganisation size is an important factor that affects bothstructure and other control arrangements. It is generallyexpected that larger organisations are able to adopt moresophisticated MAPs than smaller organisations. Otley (1995)reported that evidence of the impact of size on controltechniques was found in studies of management accountingsystems following merger. Moving from naive stage of MAPsto a more sophisticated stage requires resources andspecialists only affordable by large organisations. Accordinglywe expect large companies will adopt sophisticated MAPs.

Total assets of each responding company was used as ameasure of the company’s size. It was converted to thelogarithm of nominal values to dilute the extreme variabilityin size and achieve a more normal distribution (Govindarajan,1988). The results of Kruskal-Wallis tests shown in Table 9indicate that there are indeed significant differences betweenthe four groups of companies in relation to their size. Thisresult confirms the expectation that more sophisticatedMAPs are likely to be implemented by large companies.

6.3 Processing factorsManufacturing is not a word usually applied to theproduction of food and drink. However, the actual activitiesencompassed within the term manufacturing are very broadand many of them are similar to the activities of processingand producing food and drink. This is supported by the factthat the benchmarking initiative for the food industrypromoted by the government in 19963 was based on aprogramme developed by the Society of MotorManufacturers and Traders. The differences are not so muchdifferences of activity as of underlying material – metal orchemical as opposed to organic. For this reason the debateabout management accounting and manufacturing factors isequally applicable to food and drink processing factors.

Dean and Snell (1996, p.459) reported that ‘for 30 yearsfollowing World War II, the manufacturing function wasvirtually ignored by top management, and consigned tobackwaters of day-to-day operations.’ To improve themanufacturing performance, contain costs with rising labourrates, and to gain competitive advantage an enormouschange has been witnessed in western manufacturing.Advanced manufacturing technology (AMT), total qualitymanagement (TQM) and just-in-time (JIT) are the mostnotable changes in manufacturing during the last fewdecades. Such innovations emphasise a need for continuousimprovement activities; the need to constantly enhanceoperating processes from the levels achieved in prior years(Kaplan and Atkinson, 1998).

3 See Mann et al (1999a).

Kaplan and Atkinson (1998) argue that these newmanufacturing technologies are different from the stableenvironment of mass production of standardised products forthe first seven decades of the twentieth century. The changesrequire management accounting systems to be designed tosupport, not inhibit, the drive for excellence. In the newenvironment, many companies found that their traditionalcost accounting measures were inhibiting the introduction ofinnovative processes and technologies. For example, measuresof profitability and of individual worker efficiency andmachine utilisation encouraged the production of items inadvance of when they are needed. This however conflictedwith goals of improved quality and responsiveness tocustomers, of increased throughput and reductions in defects,waste and working capital. Measurement systems had toevolve to support efforts to increase quality and productivity,to move to just-in-time and computer-integrated productionsystems, and to help justify investment in new technologies.

6.3.1 Complexity of processing systemComplexity can be measured by the diversity of product lines,processes and volume. Krumwiede (1998) found evidencethat complexity is positively correlated with the decision toimplement ABC. Since activity-based costing represents oneelement of a sophisticated management accounting systemswe would expect complexity to be associated with stages ofMAP sophistication. However, a Kruskal-Wallis one wayANOVA on our data (Table 9) does not support this; we findno significant difference of complexity among the four MAPsophistication levels.

6.3.2 Advanced manufacturing technology (AMT)One of earliest contingent variables to be associated with thedesign of management accounting systems was the type ofmanufacturing technology. For example, a positiveassociation was found between the degree of automation inthe manufacturing process and the formality of budgetsystems use (Otley, 1995). Hoque, Mia and Alam (2001)argue that traditional performance measures are narrow infocus, historical in nature and in many cases incomplete.Organisations that adopt AMT need a multidimensionalperformance (financial and non-financial) measurementsystem that should provide managers with continuous signalsas to what is most important in their day-to-day activitiesand where efforts must be directed.

We measured AMT using a scale developed by Dean and Snell(1996). Respondents were asked to respond, on seven-pointscales, to 14 questions thereby indicating the level ofapplication of AMT in their companies. The questions relatedto technologies such as MRP II, computer-aided design,computer numerical control, flexible manufacturing systems,robotics, automated materials handling, computer-aidedinspection and planning. An average of a respondent’s scoresacross all the 14 questions was used as a measure for theAMT level. The low end of the measure indicates a low levelof AMT and vice-versa.

Management accounting practices Survey findings concerning the effect of explanatory factors 27

Management accounting practices Survey findings concerning the effect of explanatory factors28

To examine whether there is a relationship betweenautomation and the sophistication level of MAPs aKruskal-Wallis test was carried out. The results of this test,shown in Table 9, indicate that there are significantdifferences between the four groups of companies in relationto their AMT level. This result suggests that sophisticatedMAPs are more likely to be implemented by companies withAMT.

6.3.3 Total quality management (TQM)TQM was measured using an instrument developed by Snelland Dean (1992) and modified by Sim and Killough (1998).Respondents were asked to rate the extent of usage ofseveral aspects of total quality management.

Six of the questions were administered by a seven-point scaleand the seventh question asked about the proportion of theplant’s employees for whom quality is a major responsibility.The percentage reported was divided by 14.3 in order toconvert the percent to a scale of 1-7. Each respondent’sscores were averaged across the seven questions for ameasure for their company’s TQM level. The low end of themeasure indicates a low level of TQM and vice-versa.

The results of Kruskal-Wallis test in Table 9 are consistentwith those relating to AMT, i.e. a significant difference wasfound between companies with different level of MAPsophistication.

6.3.4 Just in time (JIT)JIT was also measured using an instrument developed bySnell and Dean (1992) and modified by Sim and Killough(1998). Respondents were asked nine questions to rate, on aseven-point scale, the level of JIT adoption. An average of arespondent’s scores across all the nine questions was used asa measure for the JIT adoption level. The low end of themeasure indicates a low level of JIT adoption and vice-versa.

The results, shown in Table 9, are similar to those concerningAMT and TQM. There are significant differences betweencompanies with different level of MAP sophistication.

6.3.5 Product perishabilityThis is the second question added to the questionnaire as aresponse to comments by production managers in the pilotinterviews. Product perishability was measured by askingrespondents to indicate the extent to which thischaracteristic dictated the way they run their business. Theexpectation was that sophisticated MAPs would beimplemented in companies with a perception that productperishability dictates the way business is run. However, theresults of the Kruskal-Wallis test do not support thisexpectation; there were no significant differences among thefour groups of companies in this regard.

7. Summary and conclusions


In the early part of this report we have described the natureand objectives of our large scale empirical study ofmanagement accounting practices in the UK food and drinksindustry. Our findings are based on analysis of 245questionnaires completed by management accountants andproduction managers. The processing companies to whichthese respondents are attached have a range ofcharacteristics including:



• Being part of a value chain in which their customers, oftensupermarkets, have considerable power.





We believe that these characteristics are reasonablyrepresentative of the UK food and drinks industry generally.

7.1 Limitations of the studyThe considerable diversity within the food and drink sectorbecame apparent through the course of the project. Theoperations and management accounting of, for instance,those companies that process products for sale to the retailtrade differ markedly from those of that deal with the public;likewise, there are problems in comparing firms with totalassets of £5m against those of £500m. There is an inevitabletrade-off between the benefits of the relevance that comewith wide scope and the greater accuracy that can come witha narrower focus. We recognise this limitation but maintainthat most of our analyses and prescriptions have relevanceacross many organisations in the sector, and some of thefindings are appropriate even more broadly in other industrysectors.

A second potential limitation arises out of the nature of apostal questionnaire research approach. Findings canpotentially be distorted by careless or superficialquestionnaire completion, by respondents misunderstandingthe questions or by an unconscious bias related to goodintentions rather that actual state of affairs.

1 See for instance Fearne and Hughes (1999), Wright and Lund(2003), Grunert et al (2005), Henchion and McIntyre (2005), andRudder et al (2001, p.659) who report that ‘only 13% of newproduct development projects lead to a successfully launchedproduct’.

Thirdly, there are avenues that, with the benefit of hindsight,could usefully have been pursued. These include the extent towhich there is monitoring of the effectiveness of variousforms of marketing expenditure, consideration ofcasualisation of labour and outsourcing, supply chainmanagement, and matters relating to new productdevelopment – all very relevant issues in this sector1.

Finally, we have attempted, in reporting on this CIMA-fundedproject, to severely restrict the coverage of the prior researchwhich informed this study, and also the technicalexplanations of our research approach and statistical analysis.Our intention has been to provide a summary which givessufficient detail to allow an understanding of what was doneand provide assurance of appropriate academic rigour,without preventing the report from being readily accessibleto practitioners.

7.2 Management accounting practices (MAPs)We have provided, in Chapter 4, summary statistics of theimportance of various practices or techniques together withthe frequency with which they were used. Some notablefindings derived from responses from managementaccountants in food and drink companies are identifiedbelow.

• The separation of costs into variable and fixed componentswas acknowledged to be at least moderately important by83% of respondents and in almost half the companies thedistinction is often or very often applied. This contrastedwith lower levels of importance and usage of ABC andother full costing techniques. 19% of respondentsindicated that they very often separate costs intoincremental and non-incremental costs while theequivalent combined frequency for use of departmentaland plant-wide overhead rates is only 18%.

• Budgeting for planning and control is either important ormoderately important for more than 90% of companies. Itwas interesting that a high proportion (29%) do not flex oramend their budgets for changes in volumes or otherfactors, but work only with fixed budgets. This is mitigatedby the result that ‘What if’ budget analyses are applied atleast ‘sometimes’ by 67% of respondents. Activity-basedbudgeting, in common with activity-based costing, hashigher ratings of importance than actual usage2.

2 Based upon a comparison of important or moderately importantas against very often, often and sometimes.

Management accounting practices Summary and conclusions30

• Over three quarters of companies consider financialmeasures of performance to be fully important.Non-financial performance measures are also highlyimportant, especially in connection with customersatisfaction. However, despite this importance, some 40%of companies reported that they never or rarely actuallyused non-financial measures of performance in connectionwith customers, operations, innovation or employees. Weget here an impression that the balanced scorecard is moretalked about than applied, and that performancemeasurement is still very much dominated by financialfigures.

• CVP analysis is considered to be at least moderatelyimportant by a high proportion of respondents – a findingwhich ties in with the prominence, mentioned above, thatis given to splitting costs into fixed and variable. Asexpected, the majority of companies apply productprofitability analysis frequently. What is perhaps moreinteresting is that 51% indicated that customerprofitability analyses are conducted either often or veryoften. This lends support to the conclusion of Fearne andHughes (1999, p.12) that ‘As retailers become increasinglydependent on fewer larger players, so supply chainefficiencies will become increasingly driven by the supplierswho are best placed to identify the costs of operatingparallel systems.’

• We found scepticism about DCF investment appraisal ascompared with earnings-based or payback methods. Thisfinding was corroborated by the fact that 42% ofrespondents indicated that calculation of cost of capitalwas not important in their companies. Non-financialfactors relating to capital projects are perceived to beeither important or moderately important by 82% ofrespondents, but only 33% of companies often or veryoften report and document such factors – a finding whichmay be biased by the fact that major capital investmentsare rare.

• Strategic analysis techniques ‘come across’ as moderatelyimportant but are mostly not very frequently applied. Thehigh ranking of importance, relative to the ranking offrequency of use, of analyses of competitive position (andcompetitors’ strengths and weaknesses) and of valuechains suggests that the application of these practices maybecome even more common.

An extra dimension of analysis is to divide practices intothose that are used, regardless of indicated frequency3, andthose that are never used. This shows that 98% usebudgeting for planning, 97% use budgeting for cost control,97% do product profitability analyses, 93% apply financialmeasures in performance evaluation, and 91% carry outanalyses of customer profitability.

3 To allow for the possibility of ‘noise’ that might have arisen out ofrespondents’ differing interpretation of questions about frequency.We are grateful to one of the anonymous reviewers for suggestingthis extra analysis.

We derived a composite statistic of MAP ‘emphasis’ bymultiplying scores of importance and usage. As an absolutemeasure emphasis is not especially meaningful. However itdoes provide a useful guide – for any practice to score highlyon emphasis it must be both considered important and alsooften used. These composite emphasis statistics werepresented in Table 5. The following practices are shown tohave pre-eminent emphasis: Budgeting for planning and forcontrolling costs, Product profitability analysis, andPerformance evaluation based on financial measures. Weconclude that traditional management accounting is still verymuch alive and well in UK food and drinks companies.

In Table 7 we have tentatively suggested various MAPs whichwill become increasingly used and those that will graduallybe phased out. We have done this by identifying practiceswhere the ranking of importance is significantly higher (orlower) than the present ranking of usage. The data suggeststhat, of the more sophisticated techniques, increased usemay be expected of the following:

• information concerning the cost of quality• non-financial measures relating to employees• analysis of competitors’ strengths and weaknesses.

7.3 The level of evolution of management accounting inUK food and drink firmsThe International Federation of Accountants has describedthe evolution of management accounting and identified fourstages of development or sophistication; Stage 1 is principallyconcerned with ‘cost determination and financial control’,Stage 2 with ‘provision of information for managementplanning and control’, Stage 3 with ‘reduction of waste ofbusiness resources’ and Stage 4 with ‘creation of valuethrough effective resource use’. In Chapter Five we have‘fleshed out’ the IFAC model by classifying each individualMAP into one of the developmental stages.

We applied cluster analysis to group our 113 respondentfirms according to their scores on the four stages ofmanagement accounting sophistication. About 19% of firmswere found to be in Stage 1 of evolution, 41% in Stage 2,30% in Stage 3 but only 13% in Stage 4. We conclude thatmanagement accounting systems in many UK food anddrinks companies are moving, but only slowly, from a simpleor naive role of cost determination and financial controltowards a more sophisticated role of creation of valuethrough effective resource use.

7.4 Relationships between management accountingsophistication and contingent factorsThe classification of sample companies into levels ofmanagement accounting sophistication allowed us to theninvestigate the relationship between managementaccounting practices and potential explanatory variables.

Results reported in Chapter 6 show significant differencesbetween the degree of environmental uncertainty perceivedby respondents and the level of sophistication of theircompanies’ management accounting. This confirms earlier,non industry-specific, studies. In addition, we foundmanagement accounting to be more highly evolved incompanies facing powerful customers. Customer power isparticularly relevant to food and drinks processors because ofthe concentration of the food and drink retail sector.Producers dominated by their supermarket chain customersappear to find it necessary to invest in more advancedmanagement accounting.

We also tested for the influence of organisational factors onmanagement accounting. Our survey had indicated that UKfood and drinks processors tend towards a productdifferentiation, rather than cost leadership, strategy. Variousauthors have argued persuasively that differentiators requiremore sophisticated management accounting. However, incommon with Drury and Tayles (2000) we found no evidencethat competitive strategy has any influence. A second

potentially influential organisational factor that wasinvestigated was the extent of firms’ decentralisation anddelegation. We believed that more delegated managerialstructures may need more sophisticated MAPs to providemanagers with enhanced relevant information for theplanning, controlling and decision making for which they areresponsible. This expectation was upheld by the statistics.Management accounting practices are subject to economiesof scale, and investment in sophisticated systems can morereadily be justified in large businesses. Again, this expectationwas upheld in the food and drinks companies.

The final set of contingent factors relate to companies’processing technologies. Prior broadly-based research hasshown that relationships generally exist between theapplication of new manufacturing technologies and thesophistication of management accounting practices. Fromtests reported in Chapter 6 we conclude that sophisticatedMAPs exist in companies which have made significantinvestment in processing automation, in TQM and in JIT. Wedid not however find that either processing complexity or theextent to which product perishability dictated the way abusiness was run, had any association with managementaccounting evolution.

A summary of our exploration of relationships betweenmanagement accounting sophistication and possibleexplanatory variables is given in the table below.

Management accounting practices Summary and conclusions 31

Table 10. Effects of contingent factors on food and drinks industry management accounting sophistication

Highly Notsignificant Significant significant

External factors

Perceived environmental uncertainty ●

Customers’ power ●

Organisational factors

Competitive strategy ●

Decentralisation ●

Size (total assets) ●

Processing factors

Complexity of processing system ●

AMT ●

TQM ●

JIT ●

Product perishability ●

‘Highly significant’ indicates a statistical confidence of 95% and ‘significant’ indicates 90% confidence.

Management accounting practices Summary and conclusions32

7.5 ImplicationsThe aim of this study has been to investigate the currentstate of management accounting practices in the very largebut under-researched UK food and drinks industry andexplore its ‘sophistication level’. Increased sophistication ismanifested by a move across the spectrum from costdetermination and financial control towards the creation ofvalue. The results of our in-depth investigation coveringbudgeting, performance evaluation, costing, decision-making,communication and strategic analysis lead us to concludethat the typical food and drink firm is positioned at a matureStage 2 or early Stage 3 of IFAC’s four stage classification.Budgeting, product profitability and financial performancemeasurement remain the central pillars, while some of the‘newer’ management accounting techniques are less widelyused than might be assumed from the reading of textbooks.

It is sometimes argued that rationality and ‘economicDarwinism’ mean that the accounting practices that are incurrent use are those that are best suited to currentcircumstances. If that is so then no ready prescriptions comeout of this study except that what is written in textbooks,taught in higher education and examined by professionalinstitutes should simply concentrate on propagating morefaithfully what is practised.

A more balanced position is to recognise that evolution(encompassing both adaptation to changing environmentsand also real progress or improvements) is a gradual process.If this is the case then it is appropriate to recommend thatpractitioners identify and follow the example of thoseorganisations in the vanguard of change which represent newand better practices. As stated by Mann et al (1999b, p.238)‘For the food industry to move forward … more companiesshould consider using self-assessment as a method foridentifying improvement opportunities and assessing theirprogress towards business excellence.’ This may beincreasingly imperative for the UK food sector if tradeliberalisation continues to lead to greater internationalcompetition4. Given that there is some validity in thisapproach, we recommend that companies benchmarkthemselves against the MAPs in different stages of evolutionand consider adopting ‘more advanced’ practices (such as thevalue creation ones). Our recommendation comes with thecaution that Stage 4 is clearly not appropriate for allcompanies. For educators, professional bodies and societygenerally the implication is that the gap between whatpurports to be ‘best practice’ and actual practice suggeststhat there is considerable room for improved disseminationof concepts and techniques.

4 ‘The food industry has not been exposed to the same degree ofinternational competition as some other industries’ (Mann et al1999a, p.19)

One way for practitioners to focus on which managementaccounting practices might be particularly useful in theircompanies is by reference to our contingency results. It canbe seen from the summary Table 10 that our findings haveparticular implications for companies that display some or allof the following characteristics: large, decentralised, havingpowerful customers, or applying advanced technology orTQM or JIT ‘philosophies’.

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