Competition and Cost Management Investment

Abstract

The purpose of this study is to improve the understanding of the relation between management accounting information and control system design and environmental uncertainty i.e. intensity of competition. This study empirically tests the association between the types of competitive intensity and the investment in integrated cost management systems. The investment of cost management systems is measured using a comprehensive set of cost management practices across the value chain. These systems are tested as integrated strategies i.e. either upstream focussed or downstream focussed. Based on a sample of 77 responses from a survey of Australian manufacturing and service organisations, the study demonstrates that the association between the level of integrated cost management system investment and the individual intensity of competition dimensions of purchase and marketing for upstream-focussed systems whereas downstream-focussed systems are associated with the individual dimensions of price, technical personnel and purchase competitive intensities. This study is one of a limited number that provide evidence of (i) the importance of controlling for the type of competition in the design of management accounting information and control systems, specifically for cost management systems; and (ii) provides a comprehensive examination of cost management practice investment and integration across the value chain.