Pittsburg State University

Balanced Scorecard, Activity-Based Costing And Company Performance: An Empirical Analysis

Author(s): Adam S. Maiga and Fred A. Jacobs
Source: Journal of Managerial Issues, Vol. 15, No. 3 (Fall 2003), pp. 283-301
Published by: Pittsburg State University
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JOURNALOF MANAGERIALISSUES
Vol.XV Number
3 Fall 2003: 283-301

CostingAnd
Balanced Scorecard,Activity-Based
CompanyPerformance:An EmpiricalAnalysis
AdamS. Maiea
Assistant ofAccounting
Professor
of Wisconsin-Milwaukee
University

Fred A. Tacobs
ofAccounting
Professor
GeorgiaStateUniversity
Innovativetechniquessuchas bal-
anced scorecard(BSC) (Kaplanand
Norton,1992,1993,1996) and activ-
ity-basedcosting (ABC) (Kennedy
and Affleck-Graves, 2001; Krum-
wiede, 1998; Shields,1995; Shields
and Young,1994) are being imple-
mentedbymanagement in response
to the new global competitive envi-
ronment. The importance to manag-
ersofhavinga "balanced"measure-
mentsystemhas led companiesto
developa variety of corporatescore-
cardssuggesting a processapproach
to innovationsin performance meas-
urements (Epstein and Birchard,
2000; Hoque andJames,1997). The
BSC has gained prominencein ac-
countingresearchas a wayof inte-
gratingfinancialand non-financial
performance measuresintoan over-
all controlsystem(Atkinsonet al.,
1997;Hoque andJames,2000;Malina
and Selto,2001;Ruhl,1997;Shields,
1997; Simons,2000). ABC is an in-
novationaimedtowardan increasein
the accuracyof cost measuresand
also is oftenviewedas a supportive
measurementsystemfor successful
implementationof the balanced
scorecard.Advocatesof ABC cite
manybenefitsof such a system(An-
derson,1995; Bankerand Johnson,
1993;Kaplan,1992) and identifyfac-
torsassociatedwithABCsuccess(Fos-
terand Swenson,1997; Krumwiede,
1998;McGowanand Klammer,1997;
Shields,1995).
Previousresearchon ABC and BSC
has added to our knowledgeof how
ABC implementation can help sup-
portprocessimprovement (Turney,
1991) and develop cost-effective
productdesign(Cooperand Turney,
1989), and how BSC can provide
managerswithan integrative frame-
workto manageorganizational activ-
ities.This studyattemptsto contrib-
ute to thebodyof knowledgein this
areabyinvestigatingthecomplemen-

JOURNAL OF MANAGERIALISSUES Vol. XV Number 3 Fall 2003

(283)

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284 Maiga and Jacobs

tarityeffectof BSC and ABC on or- allowingmanagersto communicate

ganizationalperformance. Our focus thefirm'sstrategythroughout theor-
is the manufacturing unit because ganizationand forcesmanagerstofo-
manufacturing performance is con- cus on thehandfulof measuresthat
trolledbythebusinesspracticesand are most critical.This communica-
tools in place at the businessunit tion ensuresthatemployeesunder-
level1,and competitive advantageis standthe long-term the re-
strategy,
ultimatelywonorlostprimarily at the lationsamong the variousstrategic
businessunit level ratherthan the objectives,and the associationbe-
corporatelevel(Porter,1980). Meas- tweentheemployees'actionsand the
urements forthisstudyare question- chosenstrategic goals.The balanced
naireresponsesfroma randomsam- scorecardis also expected to help
ple pofmanufacturing businessunits firmsallocateresourcesand set pri-
locatedin theUnitedStates. con-
oritiesbased on the initiatives'
The articleis organizedas follows. tributiontolong-term objec-
strategic
theliterature
First, reviewisdiscussed tives, and to provide strategic
and propositionsare developed. feedback and promote learning
Next,a discussionof the research throughthe monitoringof short-
methodsis conducted.Aftertheem- termstrategicresults(Kaplan and
piricalresultsare reported,a conclu- Norton,1996).
sion,discussionand suggestions for However,empiricalsupport for
futureresearchare presented. theseclaimsis limitedand not con-
clusive.Forexample,a 1996survey of
LITERATURE REVIEW balancedscorecardimplementations
bytheconsulting firmTowersPerrin
Balanced Scorecard (BSC) foundthatalthough64 percentofthe
Manyfirms are implementing BSC respondents reportedthatthe satis-
thatsupplementtraditional factionor value receivedfromtheir
systems
financialaccountingmeasureswith balanced scorecard systems was
non-financial measuresfocusedon at higheror significantly higherthan
least threeotherperspectives - cus- that receivedfromother perform-
tomers,internalbusinessprocesses, ance measurement approaches,only
andlearningandgrowth (Kaplanand 37 percentfeltthatemployees'un-
Norton,1992,1996). Proponentsof derstandingof performancemeas-
BSC (e.g.,Chow,1997;Cravens, 2000; uresand goalswashigherunderthe
Kaplan, 1992) contend that thisap- scorecard than under other ap-
proachprovides a powerful meansfor proaches,and 18 percentthoughtit
translatinga firm'svisionand strategy was lower.Similarly,Ittner,Larcker,
intoa toolthateffectively communi- and Rajan's (1997) studyof a bal-
cates strategicintentand motivates anced scorecardcompensationsys-
performance againstestablishedstra- temin retailbranchbanksfoundno
tegicgoals. evidence thatthescorecardapproach
The valueof theBSC is thatit as- enhancedbranchmanagers'under-
siststhedevelopment of a consensus standingof businessgoals,plansfor
aroundthefirm's visionand strategy, meetingthesegoals,or connections

1The termbusiness sub-unit

isusedtorefertoa self-contained ofa largercorporation.
(e.g.,division)

ISSUES Vol.XV Number3 Fall2003

JOURNALOF MANAGERIAL

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 Balanced Scorecard,Activity-Based
Costing
betweenthemanagers' job and busi-
ness objectives.Moreover,the per-
ceived adequacy of information
about progressagainstthe multiple
lower.
businessgoalswasstatistically
Costing (ABC)
Activity-Based
TheABCsystem iswidely
suggested
as a keytoolforimproving thebehav-
ioral,businessand accountingprac-
tices in organizations(Anderson,
1995;Cooperand Zmud,1990;Foster
and Swenson,1997; McGowanand
Klammer, 1997;Shields,1995).Many
organizationshavefoundthepursuit
ofperformance can bestbe achieved
by implementingABC systems
(Compton,1996).
ABC focuseson costs associated
with activities,but also evaluates
whetherthose activitiesadd value,
thus providinga means of under-
re-
standinghow to mosteffectively
duce costs.In additionto costreduc-
tion benefits,applyingABC gives
managersa soundmeansofmonitor-
ing ongoing performance(Player,
1998).The centralthemeofABC sys-
temsis thattheiruse leads to im-
costmanage-
provedproductcosting,
ment, decision making and
competitiveadvantage (Brimson,
1991; Raffishand Turney,1991).
However,severalreservations have
beenexpressedregarding theefficacy
of ABC (Innes et al, 2000; Malmi,
1997; Morrowand Connolly,1994).
In some cases firmshave failed to
completetheirABC projectsand in
otherstheyhavefailedto gainbene-
fitsexpectedfromthe ABC systems
theyhaveinstalled(Lyneand Fried-
man,1996).
BSC and ABC Interaction
The literaturesuggeststhat the
im-
BSC and ABC can independently
JOURNAL OF MANAGERIALISSUES
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285
provetheperformance of firms who
the
implement processes well. How-
ever,thereis evidencethatimple-
mentationof both of theseinnova-
tionshave not been as successful as
hoped or as suggested in the litera-
ture.Some studiesclaim thatwhile
performance-enhancing programs
can be individually effective, they
havebeen implemented in waysthat
lack balance withcompetingpriori-
in a reductionor
ties,thusresulting
no increasein performance (Shields,
1995). For example,researchon the
economicsof modernmanagement
findsthatinvestments in information
and productiontechnologies cannot
stimulateproductivity and growth
withouta numberof complementar-
itydevelopments (Topkis,1995).Mil-
gromand Roberts'(1995) framework
suggeststhatcomplementarity factors
ofa system ofmutually enhancingel-
ementsoperatein sucha waythatdo-
ing moreof anyof thesefactorsin-
creases the attractiveness of doing
moreof theotherfactorsin thesys-
tem.Theyfurther suggestthatsuc-
cessfulimplementation of newman-
ufacturing techniques requires
complementarymanagement ac-
countingsystems.
The evolutionof theBSC concept
(Kaplan and Norton,1992), and its
subsequentrefinement as theorgan-
ization'scentralmanagement
system
(Hoffeckerand Goldenberg,1994;
Kaplan and Norton,1993), contex-
tualizesthe applicationof ABC. For
example, Newing (1995) suggests
that the balanced scorecardworks
wellin conjunction withABC and ac-
tivity-basedmanagement(ABM) be-
cause theyare integralpartsof the
balancedscorecard, givingquantified
ofwhatis reallydriving
visibility cost
fromoutsidethebusiness,as wellas
within.ABC is a system thatattempts
Vol. XV Number 3 Fall 2003
286 Maiga and Jacobs
FigureI. Theoretical Between
Relationships
Independent
DependentVariables
BalancedScorecard
CustomerPerspective
Internal
ProcessPerspective ,
Growth
Learning Perspective'
Financial
Perspective '
' Performance
ABCOrganizational
Support /
andCoherence
to accuratelylinkthe consumptionof
resources to designated outputs.Be-
cause of this,ABC is likelyto facilitate
the measurementswithinall four of
the BSC sectorsas well as assistingin
analyzingthe trade-off implicitin the
foursectors.
Withinthisframework, ABC can be
viewed as an "enabler" to support
the development of cost-effective
product designs and manufacturing
processes.For example,withaccount-
ants providingimportantinputsinto
productdesign and developmentde-
cisions,ABC attemptsto mirrorthe
manufacturingprocess, so that engi-
neers and production managers eas-
ily can see how design changes will
affectcosts (Swenson,1998). Further-
more, by extending the concepts of
ABC and BSC throughoutthe value
chain, accountants could provide
data on the relativecosts of contin-
ued productionproblems and prod-
JOURNALOF MANAGERIAL
ISSUES Vol.XV Number3 Fall2003
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and
Organizational
' Product
Quality
r Customer
Satisfaction
/ onSales
Margin
uct design changes so that product
managers can evaluate alternatives
when poor design qualityarises (Kap-
lan and Norton,2001). As a result,as
depicted in FigureI, we propose that
the implementation of ABC when
combined withBSC is likelyto have a
significantpositiveimpact on organ-
izational performance.
More specifically, the following
propositionsare stated:
Proposition1: Productqualityis a positive
ordinalinteractive
functionof (a) BSC cus-
tomerperspective andABC,(b) BSC inter-
nal processperspectiveand ABC, ) BSC
andABC,and
learninggrowth perspective
(d) BSC financial
perspectiveandABC.
Proposition2: Customersatisfaction is a
positiveordinalinteractive
function of (a)
BSC customerperspective and ABC, (b)
BSC internalprocessperspective andABC,
(c) BSC learninggrowthperspective and
ABC,and (d) BSCfinancialperspective and
ABC.
Proposition3: Marginon salesis a positive
ordinalinteractive
functionof (a) BSC cus-
 Balanced Scorecard, Activity-BasedCosting
tomerperspectiveand ABC, (b) BSC inter-
nal process perspectiveand ABC, ) BSC
learninggrowthperspectiveand ABC, and
(d) BSC financialperspectiveand ABC.
RESEARCH METHODS
Sample
The sampleselectionprocessfor
thisstudyinvolved a variety
searching
ofsourcesin orderto identify adopt-
ers of ABC and BSC. The primary
sourceis the Industry Week serieson
manufacturingexcellence. Addi-
tionalsourcesincludeTheWallStreet
variousindustrialengineer-
Journal,
ingjournals,and periodicalindices
forarticlesin anyjournalthatmight
producea case reportor otherinfor-
mationtodetermine ifBSC andABC
are adopted.
Information wascollectedthrough
a questionnaire instrument2 sent to
themanageror directorof each tar-
getedstrategic businessunit (SBU).
A coverletterwassentto theseman-
agersand directors askingfortheir
participation in the study.These
managers and directors
wereselected
as theyare themostappropriate per-
sonnel,withexperience, and havere-
sponsibilityforthe performance of
theirunits.The surveycover-letter
also promisedanonymity and de-
scribedthe objectivesof the study.
The letteralso describedtheimpor-
tance of understanding whyfirms
maychoose to implement BSC and
ABC.As an inducement to reply,re-
spondentswere promisedsumma-
rized resultsof the study(respon-
2
Surveyquestionnaireis available upon request.
3We used discriminant
analysisto compare thegroupsof respondents,theearlyand late respondents
(Fowler,1993). Resultsrevealed thatthe twogroups did not differsignificantly
of the variablesor in the relationshipbetweenthe variablesat the .05 level.This suggeststhatnon-
responsebias maynot be a problem.
287
dents were asked to include a
businesscard).
A totalof 347 questionnaireswere
mailed and 63 questionnaires were
returned withinthefirstthreeweeks;
thatwasfollowed bya secondmailing
resultingin 54 newresponses.Of the
totalof 117 returned questionnaires,
only68 wereusable.In an attempt to
increasethenumberofrespondents,
a randomsampleof 53 non-respon-
dentswas contactedby telephone;
thatresultedin a returnof 15 ques-
tionnaires.However,mostof those
contactedbytelephonedid notwish
to fillout thequestionnairebecause
of contraveningcompany policy.
Overall,thisdatacollectionled to 83
usable responses.The sensitiveand
confidential natureof the informa-
tionrequestedlikelyaccountsforthe
overallmodestresponserate.3
Variable Measurement:Independent
Variables
To testthe interactioneffectsof
ABCandBSC,one construct wasused
to measureABC (Shields,1995) and
fourconstructs
wereusedtomeasure
BSC (Hoque andJames,2000;Kaplan
and Norton,1992).
ABCMeasures. A desirablequality
ofABC implementation wouldbe to
havethosevariablesthatare mostas-
sociatedwithABCsuccessbe theones
thathavea highdegreeof presence
duringimplementation (McGowan
and Klammer,1997; Shields,1995;
Shieldsand Young, 1994). Shields'
(1995) workwas the firstempirical
studyto proposecertainABC organ-
in eitherthe level

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288
izationaland technicalfactorsand
foundonly"organizational support
and coherence"4to be related to
ABC success.Hence, ABC variables
used in thecurrent studyare related
to the basic framework of Shields
(1995). Specifically, data were col-
lectedon sixABCvariables:(1) man-
agementsupport,(2) consensuson
objectives,(3) competitive strategy
link,(4) linkageto qualityinitiative,
(5) non-accounting ownership, and
(6) performanceevaluation/ com-
pensation(assumedto be closelyre-
lated to ABC success).These meas-
ures were providedby respondents
usinga seven-point Likertscale (1 =
extremely low, 7 = extremely high).
To examinethe extentto which
thesemeasuresare interrelated, we
used principalcomponentanalysis
with varimaxrotation,which pro-
duced one factorwithtotalvariance
of 80.14 percentand an eigenvalue
greaterthanone. A reliability check
for the ABC measuresproduceda
Cronbachalpha of .94, indicating
thatthemeasures werereliable(Nun-
nally, 1967). The loadings of the
measuresare also consistentwith
Shields (1995). To compose the
measurement forthemodel,a mean
scoreoftheresponses tothesixitems
in thequestionnaire wascomputedas
themeasureofABCimplementation.
BSC Measures, The balancedscore-
card integratestraditional financial
measureswith"customer," "internal
business process," "learning and
growth" and "financial-related"
measuresthatarevitaltogrowth and
long-term competitiveness.
4
Organizationlsupportand coherence are factors(managementsupport,consensus on objectives,
competitivestrategylink,linkageto qualityinitiative,non-accountingownership,and performance
evaluation/compensation) found to be associated withABC success. However,Shields (1995) did
not providea specificdefinitionof success.
Maiga and Jacobs
Borrowing fromHoque andJames
(1997) and Kaplan and Norton
(1992), BSC is measuredusinga 20-
itemscale.We first checkedforsam-
plingadequacy.The Bartlett Test of
Sphericity(Chi-Square= 936.044,
Significance = .000) and theKaiser-
Meyer-Olkin (KMO) MeasureofSam-
plingAdequacy(.798) producedre-
sults in the acceptable range as
reported inTable 1.Next,toexamine
theextentto whichthesecategories
are interrelated,we used factoranal-
ysis with principalcomponentanaly-
sis and withvarimaxrotationto de-
termine whether theBSC itemscould
be groupedaccordingto the BSC's
fourperspectives.
Four factors with eigenvalues
greaterthanone emergedfromthe
analysis,withthe varimaxrotation
factorsolutionretaining67.31 per-
centofthetotalvariancein thedata.
Eight measuresthatvarywithcus-
tomer perspective (customer re-
sponsetime,surveyof customersat-
isfaction, number of customer
complaints,on-timedelivery,cycle
timefromorderto delivery, percent
shipments returned due topoorqual-
ity,warranty repaircost and market
share)are denotedCUSTOMER.Six
measurescapturinginternalprocess
perspective (manufacturinglead
time,ratioof good outputto total
output,laborefficiency variance,ma-
terialefficiencyvariance,rateof ma-
terialscraprate,and percentdefec-
tiveproductsshipped) are denoted
INT. Threemeasuresassociatedwith
learning and growth perspective

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Balanced Scorecard,Activity-Based
(numberofnewpatents, timetomar-
ketnewproduct,and numberofnew
product launches) are denoted
LEARN.Finally, threemeasuresthat
vary with financial perspective(re-
turn on investment, operatingin-
come,and salesgrowth)are denoted
FINANCIAL.The factorpatterns are
consistentwiththefourperspectives
identifiedby Hoque and James
(2000) and Kaplan and Norton
(1992). Factorloadings,eigenvalues
and corresponding Cronbachalphas
are providedin Table 1. The factor
solutionsforthe definedconstructs
supportthe construct of the
validity
survey instrument. Convergent valid-
ity is demonstrated by each factor
havingmultiple-question loadingsin
excessof .50. In addition,discrimi-
nantvalidity is supported, sincenone
ofthequestionsin thefactoranalysis
have loadingsin excess of .40 on
morethanone factor.Overall,these
testssupportthevalidity ofthemeas-
uresrepresenting theconstructs used
in thisstudy.The loadingsare com-
parableto Hoque andJames(2000).
Next, followingHoque and James
(2000), a mean scorewas calculated
foreach of the fourperspectives to
represent extent ofBSC usage.
Dependent Variables
Organizationalperformancewas
measuredbyusingthreedimensions
ofperformance: cus-
productquality,
tomersatisfaction,and marginon
sales.Followingtheproceduresused
byothers(e.g.,Abernethyand Lillis,
1995;Brownelland Merchant,1990;
Hoque and James,2000; Merchant,
1984),respondents wereaskedto in-
dicate theirorganization's
perform-
ance comparedto theircompetitors
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Costing
289
usingthe above threeperformance
measureson a scale from1 = below
averageto 7 = aboveaverage.
ControlVariables
Size. Hicks (1997) suggeststhat
smallercompaniesoftenavoidimple-
mentinginnovation notfora lackof
resourcesbutfora perceivedlackof
resources.On theotherhand,larger
firmshavemorecapitalresources and
professionalmanagerial expertise
(Finch,1986). Researchon thesize-
innovationissue has yieldedmixed
Forexample,Gosselin(1997)
results.
findsno statistically rela-
significant
tionshipbetweenorganizational size
and the decisionto adoptABM and
ABC. Similarly,Libby and Water-
house(1996) findno relationship be-
tweensize and numberof manage-
mentaccountingchanges.However,
Blau and McKinley(1979) and Tol-
bertand Zucker(1983) finda posi-
tiverelationshipbetweensizeand in-
novation.
Research Model and Testing
Procedures
Propositions1, 2 and 3 (above)
posita two-way interactionbetween
BSC and ABC to affect
performance.
To insurethatthe relationship be-
tweenperformanceand BSC/ABC
interactionwas significant,a hierar-
chical regression analysis was
used.Performance was regressedon
the controland independentvaria-
bles in the firststep.In the second
step,the interaction BSC/ABC was
enteredin the regression. Following
Vol. XV Number 3 Fall 2003
290 Maiga and Jacobs

Table 1. Resultsof Factor Analysis

Factor 1 Factor 2 Factor 3 Factor 4

Internal Learning
Customer process growth Financial
persp. persp. persp. persp.

Eigenvalues 5.87 3.74 2.05 1.79

PercentVarianceExplained(67.31) 29.43 18.71 10.23 8.64
CronbachAlpha 0.93 0.89 0.75 0.67

ItemLoading
Customerresponsetime 0.80 -0.10 -0.03 0.11
Surveyof customer satisfaction 0.89 - 0. 16 - 0.01 - 0.06
Numberofcustomercomplaints 0.89 0.07 0.01 -0.02
On-timedelivery 0.71 -0.06 -0.11 -0.13
Cycle-time fromorderto delivery 0.76 0.01 - 0.20 0.07
Percentshipments returned
due to poorquality 0.80 -0.07 0.01 -0.15
Warranty repaircost 0.83 -0.05 0.14 0.00
Marketshare 0.88 -0.12 -0.06 -0.11
Manufacturing lead-time - 0.07 0.78 0.00 - 0.02
Ratioofgood outputto totaloutput - 0.06 0.85 0.03 0.04
Materialefficiencyvariance -0.18 0.73 0.05 0.05
Rateofmaterialscraploss 0.06 0.87 0.11 0.03
Percentdefectiveproductsshipped -0.05 0.84 -0.01 0.05
Laborefficiency variance - 0.05 0.70 0.04 - 0.02
Numberofnewpatents -0.10 0.06 0.79 -0.04
Timeto marketnewproducts -0.04 -0.03 0.81 -0.08
Numberofnewproductlaunches 0.00 0.14 0.83 0.09
Sales growth -0.09 0.11 -0.03 0.86
Returned on investment -0.17 0.25 0.01 0.78
Operatingincome 0.07 -0.25 -0.03 0.67

Kayser-Meyer-Olkin Measureof SamplingAdequacy= .80

= 986.04, Significance
Batlett'sTestof Sphericity = .000

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 Balanced Scorecard,Activity-Based
Costing 291
theseapproaches5,the following re- electricequipmentindustry (19), fol-
gressionmodels were em-
initially lowed by instruments and related
ployedto testthepropositions: products(15), chemicaland allied
Perf¡ = ao + ßiSize + ß,Customer+ products(13), fabricated metal(11),
ß2lnt+ ß3Learn+ ß4Financial+ ß^ABC primary metal industries(7), food
+e (1) and kindredproducts(5), paperand
Perf¡= oco+ a,SIZE + ß^ustomer+
+ + +
ß2lnt ß3Learn ß4Financialß^ABC allied products (5), apparel and
+ ß6Customer*ABC + ß7Int*ABC+ otherfabricated textileproducts(5),
ß8Learn*ABC + ß9Financial*ABC+ e (2) and stoneclayand glassproducts(3).
where
Additionalinformation on respon-
Perf¡= organizational performance(cus-
tomersatisfaction, productquality,and dents' characteristicsis providedin
marginon sales) Table3. The respondents totheques-
Size = firm sizeas measuredbythenumber tionregarding numberofyearswith
ofemployees
Customer = customer thebusinessunithad a meanof51.57
perspective
Int= internal-business processperspective months(4.3 years)in theircurrent
Learn= learning and growthperspective position,witha rangeofninemonths
Financial= financial to 19
perspective
ABC = extantofABC implementation years.To the numberofyears
8 = errorterm. in managementquestion, respon-
dentsindicateda meanof16.70years.
It appearsfromtheirpositionsthat
RESULTS therespondents are wellqualifiedto
provide the information required.
Descriptive Statistics The resultsalsoshowthattheaverage
number of employeesequals 254
Data forthe studywereobtained (standarddeviation= 192.60).Busi-
from83 companies.Table 2, PanelA nessunitsalesrangedfrom$2.35mil-
indicatesthatrespondents' job titles lionto$8.040billion.Forthe55 busi-
included13 accounting managers, 21 nessunitsthatprovidedsalesfigures,
plant managers,16 manufacturing themeanwas$1.762billion.Table 3
managers,13 operationsmanagers, also
sevendirectors ofoperations, ninedi- presentsthe scale meansof the
rectors of manufacturing,three independent and dependentvaria-
bles usedto test
thepropositions. The
sourcingand fabrication managers, meansindicatemoderate
and one productintegrity manager. implemen-
Table 2, Panel B providesthepro- tationofBSC and ABC.
fileoftheresponding companiesthat The bivariatecorrelations among
constitute a broadspectrum of man- the variablesused to testthepropo-
ufacturers as definedby the 2-digit sitionsare reportedin Table 4. No
SIC codes. The classification by the pairs of independentvariablesare
primary 2-digit SIC code placethere- correlated.Table 4 also showsthat
spondents intheelectronic andother ABC and learningand growthper-

5Wemakethree wheninterpreting
theestimation
results
ofthemodels.First,
weassume
assumptions
havenotchosentheirBSC andABC optimally,
thatsomeorganizations so thatorganizaitonal
per-
formance withtheextentofBSC and ABC implementations.
withvarycros-sectionally Second,we
assumethatour variableshavelowmeasurement errorand thefunctionalformof themodelsis
we assumeBSC and ABC constructs
Finally,
appropriate. are exogenous,makingthecoefficient
forourmodelconsistent.
estimates

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292 Maiga and Jacobs

Table 2. DescriptiveStatistics

Panel A. Job Titleof Respondents

NumberofRespondents Percentage
Accounting Manager 13 15.66 %
PlantManager 21 25.30
Manufacturing Manager 16 19.29
OperationsManager 13 15.66
Directorof Operations 7 8.43
DirectorofManufacturing 9 10.84
SourcingandFabricationManager 3 3.61
ProductIntegrity
Manager 1 1.21

Total 83 100

Panel B. ProfileofRespondingCompanies

SIC Industry Organization Numberof

Code Type Companies

36 Electronicand otherelectricequipment 19
38 Instrumentsandrelatedproducts 15
28 Chemicaland alliedproducts 13
34 Fabricatedmetal 11
33 Primarymetalindustries 7
23 Appareland otherfabricated textileproducts 5
20 Food andkindredproducts 5
33 Paperand alliedproducts 5
32 Stoneclayand glass products 3

Total 83

spectiveare the only independent thesesignificant

correlations
is that
variablescorrelatedwitheach of the improvement ofproductqualitymay
dependent variables.The correla- be accompaniedbyimprovements in
tionsamongthedependentvariables customersatisfaction
and marginon
are significant.
One interpretationof sales.

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 Balanced Scorecard, Activity-BasedCosting 293

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294 Maiga and Jacobs

PropositionsTests 2.17,p < .05),BSC financial perspec-

tiveandABC (t = 1.74,p < .10), and
We obtainedinteraction termsby BSC learningand growth perspective
multiplying each ofthe four BSC per- and ABC (t = 1.98,p < .10).
spectivesby the ABC measure. In an Proposition2 predictsa significant
initialassessment, the controlvaria- and positiveordinalinteraction be-
ble (Size) was regressedagainstthe tweeneach of the BSC perspectives
dependentvariables.There was no and ABC affecting customersatisfac-
significantsize effect(p > .10). tion.ResultsinTable 5, equation(2),
Therefore, givendegreesoffreedom showthat,overall,theinteraction be-
requiredwhen the controlvariable tweenBSC perspectives and ABC is
was included,we removedthe size significantand positive(F = 7.76,p
variablein order to provideaddi- < .01,R2-change = .10). The model
tional power for the propositions
tests.Next,toimprove explains49% ofthevariance.The re-
computational gressionresults alsoindicatethatcus-
accuracy(Bring,1994),we standard- tomer satisfactionis a significant pos-
ized theindependent variablesin or- itive functionof the interaction
der to overcome multicollinearity betweenBSC customerperspective
due to the interaction betweenthe and ABC (t = 1.93,p < .10), BSC in-
variables.6Since the varianceinfla- and ABC (t = 1.98,p
tion factorswere low (i.e., < 10) ternal-process
< .10),BSC financial perspective and
(Hairetal, 1995),multicollinearityis = = < and BSC
ABC (t 1.93,p .10),
notan issue. and
Next,wehierarchically constructed learningand growth perspective
ABC (t = 1.99,p< .10).
a regression modelforeach depend- 3 predictsa significant
entvariable.In thefirststep,we en- Proposition
and positiveordinalinteraction be-
teredonlytheindependent variables.
In the second step,the interaction tweeneach of the BSC perspectives
termswereadded. and ABC affecting marginon sales.
1 predictsa significant ResultsinTable5,equation(2), show
Proposition that,overall,theinteraction between
and positiveordinalinteraction be-
tweeneach of the BSC perspectives BSC perspectives and ABC is signifi-
and ABC affecting cantand positive(F = 9.87,p < .00,
productquality.
ResultsinTable5,equation(2), show R2-change= .09). The model ex-
that,overalltheinteraction between plains55% of the variance.The re-
BSC perspectives and ABC is signifi- gressionresultsindicatethatmargin
cantand positive(F = 7.31,p < .01, on salesis a significant positivefunc-
tionof theinteraction betweenBSC
R2-change= .10). The model ex- and ABC (t =
customerperspective
plains47% of the variance.The re-
gressionresultsalso indicate that 1.78,p < .10),BSC financial perspec-
productqualityis a significant posi- tiveandABC (t = 2.75,p < .05), and
tivefunctionof the interaction be- BSC learningand growth perspective
tweenBSC customer perspectiveand and ABC (t = 2.54,p = < .05).
ABC (t = 1.96,p < .10),BSC internal- However,the interaction BSC in-
= perspective ABCand
processperspectiveand ABC (t ternal-process

6The a mean of 0
independent variableswere transformedinto new measurementsvariableswith
and standarddeviationof 1.

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 Balanced Scorecard, Activity-BasedCosting 295

Table 4. Pearson CorrelationsBetween Variables

(p-values shownbelow)

12 3 4 5 6 7 8
1.Customer 1.00

2.1nt -0.17 1.00

0.13

3. Financial -0.10 0.10 1.00

0.37 0.35

4. Learn -0.13 0.05 -0.02 1.00

0.23 0.62 0.86

5. ABC 0.01 -0.18 -0.08 -0.09 1.00

0.96 0.10 0.50 0.43

6.P-quality -0.02 -0.03 0.01 0.49** 0.31** 1.00

0.86 0.76 0.93 0.00 0.00

7. C-satisf -0.04 -0.05 0.03 0.50** 0.31** 0.99** 1.00

0.70 0.68 0.78 0.00 0.00 0.00

8.M-sales -0.08 -0.04 0.08 0.50** 0.39** 0.86** 0.89** 1.00

0.48 0.75 0.47 0.00 0.00 0.00 0.00

9. Size 0.10 -0.19 0.03 0.09 -0.15 -0.08 -0.07 -0.11

0.36 0.09 0.80 0.41 0.18 0.49 0.55 0.33

**Correlation
is significant
at the.01 level

Customer= customerperspective
Int= internalbusinessprocessperspective
Financial= financialperspective
Learn= learningand growthperspective
ABC = extentof ABC implementation
P-quality= productquality
C-satisf= customersatisfaction
M-sales = marginon sales
Size = plantsize as measuredby thenumberof employees

ISSUES Vol.XV Number3 Fall2003

JOURNALOF MANAGERIAL

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All use subject to JSTOR Terms and Conditions
296 Maiga and Jacobs
wasnotsignificant (t = -.34,p = .74).
This non-significance maybe due to
thecostly continuous monitoring and
deployment ofresourcesnecessary to
assessinternalprocessin theformof
manufacturing lead time, ratio of
good output to total output,laboref-
ficiencyvariance,materialefficiency
variance,rateof materialscraprate,
and percent defective products
shipped.In otherwords,thegreater
the proportionof committedcosts,
the less able a firmis to reducere-
sourcespendingquicklytomatchthe
reductionin resourceconsumption
stemming fromBSC internalprocess
implementation.
LIMITATIONS OF THE STUDY
The resultsof thisstudyshouldbe
assessedinlightofseverallimitations.
thecross-sectional
First, designofthis
study examined the interactive im-
pactofBSC andABC on manufactur-
ing unit performanceat the same
pointin timeand does not consider
the differencebetween short-term
and long-term A longitudinal
effects.
researchdesignwouldallowresearch-
erstoexaminedynamic effectsofim-
plementing BSC and ABC. Second,
the questionnairesurveymethod
usedself-reported datato collectper-
formancemeasures.Hidden biases
and randomerrorsboth potentially
caninflateassociations(Bagozzietai,
1991). Hence, furtherstudiesmay
use objectivemeasures (e.g., Eco-
nomicValueAnalysis and cash flow)
toovercomethelimitations ofself-re-
portedsurveydata forperformance
measures.Third,we assumed that
someorganizations havechosentheir
BSC and ABC optimally.However,
giventhe necessity of properimple-
mentation/designto ensure ex-
pected outcomes,futureresearch
JOURNAL OF MANAGERIAL ISSUES Vol. XV Number3
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All use subject to JSTOR Terms and Conditions
shouldinvestigatewhybusinessunits
whohaveimplemented BSC andABC
have failed.Fourth,thisstudyused
onlysixitemsto measureABC.Thus,
additionalfeaturesofABC could be
investigated.Futureresearchcould
also incorporateother featuresof
management accounting systemsand
productionsystems to identifyaddi-
tional typesof complementarity ef-
fectson manufacturing performance.
Fifth,thesampleincludedBSC/ABC
firms only.To givemorecredenceto
thebenefitsderivedfromBSC/ABC
implementation,furtherresearch
should comparedifferences in per-
formancebetweenBSC/ABC,BSC
only,ABC onlyand non-BSC/non-
ABC implementers.
CONCLUSIONS AND
DISCUSSION
Thisstudyseeksto provideempir-
icalevidenceabouttheinteraction ef-
fectofBSC and ABC on manufactur-
ing unit performance.Previous
researchhas typicallyexaminedeach
implementation variableseparately.
Althoughunivariate analysisis an es-
sentialstartingpoint,thereis definite
conceptualand practicalmeritin
movingtowardtestingcomplexthe-
ories.In thisstudy,we testedcomple-
mentarity effectsbetweenBSC and
ABC. Based on surveydata obtained
from a sample of manufacturing
units,theresultsofthisstudyindicate
thateach of the fourBSC perspec-
tivesinteractswithABC to affect per-
formance. However,we did notfind
a significantpositiveinteraction be-
tweenBSC internalprocessand ABC
to affectmarginon sales.Overall,we
interpret and empiri-
the theoretical
cal evidencepresentedas supporting
theviewthatBSC systems and man-
agementaccounting systemscan have
Fall 2003
 Balanced Scorecard, Activity-BasedCosting 297

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JOURNAL OF MANAGERIAL ISSUES Vol. XV Number 3 Fall 2003

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All use subject to JSTOR Terms and Conditions
298 Maiga and Jacobs

complementarity, or synergisticef- This studyhas takena smallstep

fectson performance. Thus, infer-
encesfromthisresearchare that(1)
researchersneed to be awareof the
important BSC andABCcanplay
role
in determining the effectiveness
of
any"intervention" in contemporary
manufacturing environments and (2)
companies seeking substantialim-
provements in theirprograms should
modify their manufacturing initia-
tivesto complementthe new per-
formance standards.
toward buildingmorecomprehensive
empirical evidence of SBU-level
BSC/ABC implementation bytesting
a bivariate
model.However, fromthe
of
standpoint theory advancement,
considerableworkis needed to de-
velopmorecomplextheoriesarguing
that,forsuperiorperformance, sev-
eralimplementation variablesshould
be internallyconsistentand consis-
tentwithan SBLPsstrategic context.

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