MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS, HO CHI MINH CITY BUI THI TRUC QUY FACTORS AFFECTING THE APPLICATION OF STRATEGIC MANAGEMENT ACCOUNTING IMPACT ON FIRM PERFORMANCE EVIDENCE FROM MANUFACTURING ENTERPRISES IN SOUTH EAST REGION OF VIETNAM MAJOR : ACCOUNTANCY CODE : 9340301 DOCTORAL THESIS - SUMMARY HO CHI MINH CITY – 2020 The thesis was complete at: University of Economics Ho Chi Minh City Supervisor: Assoc Prof Dr Pham Van Duoc Dr Tran Anh Hoa Reviewer 1: Reviewer 2: Reviewer 3: The Thesis will be presented to the University Dissertation Board at: At hours day month year The thesis can be found at the library: INTRODUCTION Motivations In the last decades of the twentieth century, the global business environment has been strongly affected by technological development Due to the development, Vietnamese manufacturing enterprises (VME) suffer not only the increasing pressure of product quality, price, raw material supply, but also the more shorten product life cycle In order to survive and develop in the new business environment, VMEs need to plan new strategies and adopt new management methods to increase value for organizations based on operating performance, not only on the financial competition Implementing new management techniques helps firms effectively respond to changes in the business environment, then achieve sustainable competitive advantages To so, managers tend to adopt Strategic Management Accounting (SMA), which provides fundamental techniques in strategic planning Compared to traditional management accounting, SMA outperforms in creating relevant business strategies due to its combination of internal and external information (Bromwich and Bhimani, 1994) In Vietnam, the application of management accounting implemented in businesses and teaching programs primarily focuses on the content of traditional management accounting The application at this level makes management accounting not fully play its role in supporting firms’ operation (Võ Văn Nhị, 2014) As of now, empirical research on the role of SMA has been ignored, except for Đoàn Ngọc Phi Anh (2012) Đoàn Ngọc Phi Anh (2012) shows that the adoption of SMA in Vietnamese medium and big firms improves firm performance in both financial and non-financial aspects Based on the importance of using SMA to help VMEs achieve their strategic goals, we follow and expand Đoàn Ngọc Phi Anh (2012) to investigate factors affecting the adoption of SMA in VMEs, in addition to the competition and management decentralization Besides, despite the same methodologies and research objectives, the subject and survey period in this study are different from those of Đoàn Ngọc Phi Anh (2012) In other words, this study contributes to the extant literature in some ways First, this study examines the potential application of SMA in manufacturing enterprises, not all firms Second, this study attempts to offer some managerial implications that help managers increase the possibility of applying SMA in VMEs, then improve VMEs’ operating performance Finally, this study provides more evidence of the roles of SMA in improving firms’ operating performance Research Objectives - Common objectives: This study investigates determinants of the adoption of SMA in VMEs and its impact on VMEs’ operating performance - Specific objectives: In this study, we break down the common objectives into the specific objectives as follows: + Identifying factors affecting the application of SMA in VMEs + Calibrating the influence that the factors have on the application of SMA in VMEs + Testing the causal relationship between the application of SMA and operating performance in VMEs Research Questions This study attempts to answer the following questions: (1) What are the factors affecting the application of SMA in VMEs? (2) How the factors influence the application of SMA in VMEs? (3) Is there the relationship between the application of SMA and operating performance in VMEs? Subjects and Scope of the Study - Subjects: The determinants of applying SMA and the relationship between the application of SMA and operating performance in VMEs - Research Scope: In this study, we investigate the possibility of applying SMA in VMEs, which are located in South East Vietnam, specifically in Ho Chi Minh City, Binh Duong Province, and Dong Nai Province We collect data used to test the proposed research model and hypotheses in the period from October 2015 to March 2019 Research Methodology The study applies the mixed methods approach that combines qualitative and quantitative methods - The qualitative method is used with three main techniques, including desk research, expert interviews, and group discussion This approach aims to (1) preliminarily explore possible factors that affect the adoption of SMA in VMEs, (2) construct the proposed research model that expresses the paths among the variables in the model, (3) build the scales used to measure the variables in the model - The quantitative method is applied to test the proposed research model and hypotheses In particular, in this stage, we collect data using questionnaires, then analyze the collected data by using SPSS and AMOS Research Contributions 6.1 Contributions to Literature + Providing a comprehensive understanding of theories of SMA and the relation between the application of SMA and firms’ operating performance by reviewing extant literature + Building a framework of the determinants of SMA and the causality between SMA and operating performance in manufacturing enterprises + Providing empirical evidence of factors affecting the adoption of SMA, and the causal relationship between the adoption of SMA and operating performance in VMEs 6.2 Managerial Implications This study provides useful information for managers in manufacturing enterprises This helps them have enough information in making decisions about designing and implementing SMA, then improve operating performance in manufacturing enterprises The outline of disertation The dissertation includes five chapters as follows: Chapter 1: Literature Review Chapter 2: Theoretical Background Chapter 3: Research Design Chapter 4: Empirical Results and Discussions Chapter 5: Conclusions and Implications CHAPTER 1: LITERATURE REVIEW 1.1 Related Studies SMA, as of now, has been investigated by domestic and foreign scholars in two main veins, including (1) the application of SMA and (2) factors affecting the adoption of SMA and the relationship between the adoption of SMA and firm performance In the first stream, prior studies mainly focus on two aspects: the first is researching the importance of applying SMA, and the second is how to apply SMA using some specific techniques 1.2 Review of foreign studies 1.2.1 The Adoption of SMA SMA is essential for decision makers in planning long-term targets, so scholars support the adoption of SMA in firms like Bromwich (1990), Bromwich and Bhimani (1994), Tayles et al (2002), Chenhall (2003); Valanciene and Gimzauskiene (2007), Tillman and Goddard (2008), Ma and Tayles (2009), Wall et al (2009), Shah et al (2011), Almaryani and Sadik (2012), Ramljak and Rogosic (2012), Abolfazl et al (2017), Oboh and Ajibolade (2017), Emiaso et al (2018), and Thapayom (2019) Some empirical works also point out the benefits of applying SMA using specific techniques Among these studies, we can list some influential ones like Anderson et al (2002), Lindholm and Suomala (2007), Ansari et al (2007); Yek et al (2007); Cadez et al (2008), Smith (2008), Fowzia (2011), Woods et al (2012), Ramljak and Rogosic (2012), Al-Hosaini et al (2015), Alsoboa (2015), and Noordin et al (2015) 1.2.2 Determinants of the Adoption of SMA, and Effects of SMA on Firm Performance There have been many empirical works investigating factors affecting the adoption of SMA and the relationship between the adoption of SMA and operating performance in firms, for examples, Ноquе (2004), Cadez and Guilding (2008), Ojra (2014), and Аbоthfаzl et al (2017) 1.3 Review of domestic studies 1.3.1 The Adoption of SMA Like the foreign studies, many Vietnamese authors examine the importance of applying SMA in the modern business environment, such as Đoàn and Trinh (2014); Đoàn Ngọc Quế and Trịnh Hiệp Thiện (2014); Đỗ Thị Thanh Hương and Lê Trọng Bình (2016), Nguyễn Thị Thanh Loan (2016), and Huỳnh Đức Lộng (2018) In recent years, some empirical works research on how to implement SMA in firms using specific techniques In particular, scholars attempt to find out effective ways to apply SMA in a specific firm or a group of firms having similar characteristics or operating in the same industry, like Đặng Thị Hương (2010), Bùi Thị Thanh (2011), Huỳnh Tấn Dũng et al (2013), Vũ Thùy Dung (2017), and Đàm Phương Lan (2019) 1.3.2 Determinants of the Adoption of SMA, and Effects of SMA on Firm Performance In Vietnam, except for Đoàn Ngọc Phi Anh (2012), there have been no studies investigating factors affecting the adoption of SMA in firms, especially in manufacturing enterprises 1.4 Some comments Based on the literature review, we extract some main comments on prior studies as follows: - In terms of research topics, prior studies examine SMA in different aspects as follows: + The importance of applying SMA in firms: previous works indicate that the adoption of SMA is necessary for providing managers more information to plan strategic goals Besides, these works suggest that the business environment today gets more complicated, changed, and competitive, so firms are required to adopt new management methods such as SMA in their operations Finally, these works also point out the limitation of traditional managerial accounting in fully meeting information management requirements and strategic planning + The application of SMA in firms: there have been many different ways to apply SMA in firms due to different understandings about or definitions of SMA Moreover, although SMA outperforms traditional management accounting in collecting and processing information, the application of SMA has been not as popular as expected + Factors affecting the adoption of SMA and the relationship between the adoption of SMA and firm performance: there has been much evidence proving that the adoption of SMA driven by various factors However, as of now, these driving factors are not consistent The relationship between the adoption of SMA and firm performance has not been investigated extensively Furthermore, among studies examine this relationship, the evidence is still mixed - Talking about research methodologies, most previous studies only rely on quantitative, not combine quantitative and qualitative methods The literature review shows that research on SMA, especially the determinants of applying SMA and the relationship between the application of SMA and firm performance in Vietnam, has not been appropriately investigated Although some earlier studies identify the determinants of applying SMA and explore the effect of applying SMA on firm performance, this study only focuses on applying SMA in VMEs to gain a better understanding of SMA 1.5 Research Problems – Research Design Inheriting and expanding previous studies, this study examines factors affecting the application of SMA and the relationship between the application of SMA and operating performance in VMEs We apply the mixed methods approach (combine quantitative and qualitative methods) to answer the above research questions On the one hand, we identify potential driving factors affecting the adoption of SMA in VMEs using the qualitative approach On the other hand, we conduct quantitative research using questionnaires to test the framework and hypotheses proposed in the first stage From the results, the study suggests some managerial implications in applying SMA, then improve operating performance and competitive advantages as well in VMEs 5 CHAPTER 2: THEORETICAL BACKGROUND 2.1 Strategic Management Accounting 2.1.1 Effects of Changes in the Business Environment on Management Accounting Facing effects of recent changes in the business environment on management accounting, scholars and practitioners have to change their minds on management accounting They suggest that firms’ management accounting should be flexible to frequently changed strategies, called SMA 2.1.2 Definitions of SMA Langfield – Smith (2008) indicate that SMA was mentioned the first in Simmonds (1981) From that, there have been many studies related to SMA conducted like Shank (1989), Bromwich (1990), Ward (1992), Roslender and Hart (2003), CIMA (2012a), Langfield-Smith (2008), Ma and Tayles (2009), and Ojua (2016) There has been no widely accepted definition of SMA However, definitions of SMA have some common characteristics as follows Fisrt, SMA goes beyond collecting and processing internal affairs, and it collects more information related to externals (customers, competitors, etc.) Second, SMA accepts both financial (production costs, profit margins, etc.) and non-financial (product quality, market share, customer satisfaction, etc.) information Third, SMA tends to serve long-term targets of firms In this study, SMA is referred as a management accounting information system that supports managers in planning strategies 2.1.3 The role of SMA - Collect and process data to provide information for marketing, production, and other departments, including financial accounting, to identify strategic business units - Collect information related to external business situations to help managers make relevant decisions and respond to uncontrollable changes - Help firms develop and conduct planned strategies at the lowest costs - Forecast economic situations in the future, in turn, help firms improve their market share 2.1.4 Characteristics of SMA SMA integrates different information, including customers, competitors, and the market This integration allows firms to identify their competitive advantages, then improve their profitability 2.1.5 Techniques in SMA Up to date, there has been no clear set of techniques used in SMA due to different definitions of SMA Techniques used in SMA are not merely a set of tools, but a multi-dimensional construction (Cuganesan et al., 2012) Therefore, in this study, we define the techniques of SMA by following the classification of Cravens et al (2008), activity-based costing method in Cinquini and Tenucci (2007), and five groups of techniques in Cravens et al (2008) These techniques are widely accepted in many studies like Ojra (2014), Al-Mawali (2015), etc Group 1: Strategic Costing Group 2: Customer Accounting Group 3: Competitor Accounting Group 4: Strategic Planning Group 5: Management and Control 2.2 Firm Performance As economies become developed, and social relationships get complicated, the firm performance includes both financial and non-financial outcomes Therefore, to estimate operating performance accurately requires firms having a system of financial and non-financial criteria This system helps managers gauge the growth rate of firms precisely 2.3 Grounded Theories 2.3.1 The Provision of Information The provision of information shows how features of the business environment and firm affect the use of management accounting information Following Gordon and Miller (1976), this study uses the provision of information to explain the effect of the business environment (competition) and organization characteristics (strategic planning, firm size, technology) on organizational behaviors (the adoption of SMA) 2.3.2 Agency Theory Agency Theory is the basis for the management decentralization used to build relevant SMA systems for each unit or each department Based on the agency theory, we expect that “management decentralization” and “the participation of accounting in strategic planning” affect the adoption of SMA in firms 2.3.3 Information-Processing Theory According to the information-processing theory, we suggest that the adoption of SMA in VMEs would improve operating performance 2.4 Research Framework Based on the above grounded theories, including the provision of information, agency theory, information-processing theory, we provide the theoretical framework for this study as Figure 2.5: Informaton-Processing Theory Operatng Performance Adopton of SMA Management Decentralizaton Partcipaton of Accountng in Strategic Planning Competton Firm Size Strategic Planning Technology Figure 2.5 The theoretical framework Source: Reading comprehension Agency Theory Provisio n of Informa ton 2.5 Hypothesis Development 2.5.1 Firm Size Based on earlier works, the firm size would affect the adoption of management accounting in general and SMA in particular in firms Therefore, Hypothesis H1 is stated as follows: firm size positively affects the adoption of SMA in VMEs 2.5.2 Competition The more intensive competition is, the more techniques/tools of SMA firms have to apply to get more information that helps managers make the right decisions to reach their goals Therefore, Hypothesis H2 is stated as follows: the competition positively affects the adoption of SMA in VMEs 2.5.3 Strategic Planning Many previous studies indicate that there is a relationship between strategic planning and the adoption of management accounting in general and SMA in particular (Hoque, 2004; Cadez and Guilding, 2008; Ojra, 2014) Consequently, Hypothesis H3 is stated as follows: Strategic planning positively affects the adoption of SMA in VMEs 2.5.4 Accounting Information in Making Decisions According to Nyamori et al (2001), the participation of accountants into strategic planning would help them better understand managers’ demand for information As a result, we state Hypothesis H4 as follows: the participation of accounting into strategic planning positively affects the adoption of SMA in VMEs 2.5.5 Management Decentralization Many previous papers illustrate that management decentralization impacts the adoption of SMA Besides, the expert interviews in this study show that the adoption of SMA is necessary for estimating costs, then making appropriate decisions Therefore, Hypothesis H5 is stated as follows: Management decentralization positively affects the adoption of SMA in VMEs 2.5.6 Technology Previous studies prove that the extent to which firms apply new technologies in their operations would affect the adoption of management accounting or SMA Therefore, we hypothesize H6 as follows: Technology positively affects the adoption of SMA in VMEs 2.5.7 The relationship between the adoption of SMA and operating performance in firms Extant literature related to SMA shows that the adoption of SMA will improve firm performance (Hoque, 2004; Cadez and Guilding, 2008; Đoàn Ngọc Phi Anh, 2012; Ojra, 2014; Аbоӏfаzl et al., 2017) We, therefore, hypothesize H7 as follows: The adoption of SMA increases the operating performance in VMEs 8 2.6 The proposed research model Firm Size Competton Adopton of SMA Strategic Planning Firm Performance Partcipaton of Accountng in Strategic Planing Management Decentralizaton Technology Figure 2.6 The proposed research model Source: Reading comprehension CHAPTER 3: RESEARCH DESIGN 3.1 Research methods and processes 3.1.1 Overview of research methods The mixed methods research is a combination of qualitative research method and quantitative research method and is being used by many scientists The thesis applied this method to test the research hypotheses, too 3.1.2 The research process Phase 1: Qualitative research - Desk study: The author has summarized previously published studies from reliable sources Then, combining with the knowledge and theories related to the field of SMA, the author identified the research problems, thereby, the research summarized the preliminary factors affecting SMA adoption - Face-to-face interview: Based on the proposed research model and draft scales, the author has used the face-to-face interview technique organized to the questionnaire for collecting specialized information from the Interviewees The results of interviews helped the author to confirm that the proposed research model is appropriate and to design a preliminary scale At the same time, based on the preliminary scales, the author built survey questionnaire preparing for the next research phases Phase 2: Preliminary quantitative research In this phase, the author collected data with small sample by convenient sampling method, and processed this data with SPSS program The analysis has included: assessing the reliability of the scale by Cronbach’s Alpha coefficient and performing exploratory factor analysis (EFA) to eliminate the invalid observed variables 9 Phase 3: Qualitative research Based on the results from the preliminary study, the author used a focus group method with the participation of experts The goal of this phase is for experts to provide insights into research issues The author used an open-structured questionnaire to record ideas from group discussions The results of this step helped the author build the final scales and formulate the official questionnaire Phase 4: Official quantitative research At this time, the data collection is done by sending survey questionnaires to interviewees The author also conducted the assessment of the reliability of the scale and EFA similar to that done in the preliminary quantitative research Next, the author performed CFA to verify the fit of data The scales that satisfied the CFA criteria have joined in the testing of the SEM through AMOS software to evaluate the research hypotheses 3.2 Designing qualitative research Qualitative research is used for two main purposes: (i) Identifying factors affecting the adoption of SMA; (ii) Develop a scale of research concepts considered in the thesis 3.2.1 Qualitative research data In qualitative research, data collected includes primary data and secondary data collected as follows: + Primary data: collected from discussions with colleagues and interviewing experts, managers and accountants at the surveyed enterprises + Secondary data: Secondary data is collected from previous researches published, journals related to research topics, accountant related textbooks, 3.2.2 Qualitative research sampling The author has determined the "cut point" when conducting the 11th expert interview The author continued to interview the 12th expert and had the same results Therefore the qualitative research sample for this study is 12 experts Criteria for selecting experts: Experts participating in this study are divided into groups, including experts working in enterprises and experts working in the field of education or research Specifically: - For experts working in enterprises: + Requirements on experience: working in the field related to management accounting more than 10 years; Or have experience in positions such as chief accountant, enterprise manager for more than years; Or adviser or responsible for implementing SMA in enterprises + Qualification requirements: bachelor or above - For experts working in the field of education or research + Requirements for experience: working for over 10 years in the field of accounting management + Qualification requirements: Having a master's degree or above 3.2.3 Before interview 3.2.3.1 Identifying the questions to be investigated + What factors affect the adoption of SMA in enterprises? + Which criteria enterprises rely on to determine its size? + In the modern business environment, what are the competitive pressures usually faced? + How is enterprise built strategies? + What is the role of accountant in the process of strategic decision making in enterprises? 10 + In enterprises, what tasks they usually authorize? + Which advanced technology is interested for the operation of enterprises? + Which SMA tools usually enterprise use to collect and analyze information on strategic management? + Which criteria enterprise usually use to measure performance? + Do these factors affect the adoption of SMA in enterprises? + Does the adoption of SMA affect the performance of enterprises? 3.2.3.2 Identifying question types for case studies For this study, in order to ensure that all necessary information is collected, most of the questions used are explicit and designed with close-structured questions And to limit the omission of information due to the disadvantages of this type, the questionnaire also uses open questions such as "Do you add anything else?" Thus, in this study, the questionnaire has used both types of question 3.2.3.3 Designing interview question outline The in-depth questionnaire was developed by the author based on the proposed research model and influencing factors Since then, the author has built an interview outline The content of those interviews revolved around factors affecting the adoption of SMA in enterprise, and SMA adoption affect to the performance of enterprise 3.2.4 The in-depth interview Due to the fact that experts work in different positions and businesses, the time and location requirements were different, so it was difficult to arrange experts in a single session, so, the author chose indepth interview method Implementation time: the interviews were conducted between January 2018 and March 2018 3.2.5 The focus group interview After conducting a preliminary survey, the author has continued to use focus group interview with 15 management accounting experts In this section, the author used it in conjunction with data from the preliminary survey The purpose of this section is to help the author build the final scales and formulate the official questionnaire 3.2.6 Model, scales and research concepts 3.2.6.1 Research models and hypotheses Firm size Competton H1 + Strategic Planning H2 + Partcipaton of Accountng in Strategic Planning H7 H3 Adopton of SMA + H4 + Management Decentralizaton H5 + + + Technology H6 + + Firm Performance 11 Figure 3.3 The proposed research model Source: Reading comprehension Research hypotheses Based on the previous results, research gaps and theoretical basis presented in Chapter and Chapter 2, the proposed research model has the following hypotheses: - H1: Firm size has a positive influence on SMA adoption in enterprise - H2: Competition has a positive influence on SMA adoption in enterprise - H3: Strategic planning has a positive influence on SMA adoption in enterprise - H4: Participation of Accounting in Strategic Planning has a positive influence on SMA adoption in enterprise - H5: Management Decentralization has a positive influence on SMA adoption in enterprise - H6: Technology has a positive influence on SMA adoption in enterprise - H7: Adoption of SMA has a positive influence on Firm performance 3.2.6.2 Measurements + Scale of Firm size Firm size is essentially the extent of the organization (Khandwalla, 1972) This scale is designed by Mintzberg (1979), Hoque and James (2000) with observed variables + Scale of Competition The Competition scale proposed by Tuan Mat (2010) includes observed variables + Scale of Strategic Planning The scale of Strategic Planning is proposed by Mintzberg (1987a) including observed variables + + Scale of Participation of Accounting in Strategic Planning Through the literature review, the Participation of Accounting in Strategic Planning scale inherited from Wooldridge and Floyd (1990) and measured through observed variables + Scale of Management Decentralization The Management Decentralization scale is constructed with five items that assess the extent to which the decentralized business is made by Gordon and Nayananan (1984) and Chia (1995) + Scale of Technology The technology scale discovered by Ojra (2014) includes observed variables + Scale of Adoption of SMA The scale of adoption of SMA has been developed by many studies such as Kaplan and Norton (2005); Cadez and Guilding (2008); Cinquini and Tenucci (2007); Fowzia (2011); Ojra, (2014); Ojua (2016) From the theoretical and empirical research, the author built this scale measured through observed variables + Scale of Firm performance 12 The scale of firm performance is proposed by Hoque and James (2000) The original scale consists of observed variables Later, it was developed by Tuan Mat (2010) and Ojra (2014) From theoretical and empirical studies, the author built the firm performance scale that is measured through observed variables 3.3 Process and methods of quantitative data analysis 3.3.1 Preliminary quantitative research In this study, the questionnaire was designed with 40 questions corresponding to 40 variables The author selected samples according to the convenient sampling method In order to ensure the standard of EFA, 150 surveys were issued which were distributed to firms in industrial parks in Binh Duong Province and collected 139 After that, the author removed the invalid surveys Finally, 125 firms were eligible for preliminary quantitative research  Cronbach’ Alpha test In this study, the observed variables, with Item-total correlation greater than 0.3, and Cronbach's Alpha coefficient of 0.6 or higher, are not be excluded  Exploratory Factor Analysis (EFA) In this study, the author used Promax method with eigenvalue > because after EFA, the study continued to analyze CFA and SEM Thus, EFA results are more accurate (Nguyen Dinh Tho, 2012) KMO coefficient is within 0.5 0.9; And RMSEA = 0.048