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The Competitive Environment and Strategy of Target Costing Implementers: Evidence from the Field

2003; Pittsburg State University; Volume: 15; Issue: 1 Linguagem: Inglês

1045-3695

Aleecia R. Hibbets, Tom Albright, Wilfried Funk,

Operations Management Techniques

Researchers investigating Target Costing (TC) frequently have identified a link to firm strategy as a defining factor of this cost management tool (e.g., Cooper and Slagmulder, 1997; Ansari and Bell, 1997). Ansari and Bell state that TC is intimately linked to an organization's competitive strategy. However, the nature of the relationship between TC and firm strategy has been empirically investigated. This study evaluates the competitive environment and strategy of firms that have been identified as implementers of TC to determine whether specific environmental forces coupled with firm strategy can be traced to a firm's decision to adopt the tool. Strategy may moderate the relationship between competitive environment and the decision to adopt TC. That is, given the competitive environment of the firm, the decision whether to adopt TC may depend on its strategy. The competitive strategy (1) a corporation chooses to pursue identifies the manner with which management intends to compete successfully in its product markets and provide superior value to customers (Thompson and Strickland, 1996). The firm's competitive environment influences its ability to successfully carry out a chosen strategy. For example, a low-cost provider strategy works best when price competition among rival firms is especially intense and when the industry's product is standardized. Alternative competitive forces allow a product differentiation strategy to be effective. Examples include diverse needs or uses for the item or service, or relatively few competitors pursuing a similar differentiation approach (Thompson and Strickland, 1996). The firm's strategic vision is put into action through various tools, techniques, and corporate policies. One such tool that is being adopted by firms worldwide is the cost management system of TC. As Ansari and Bell (1997) explain, the link between a firm's comp etitive strategy and use of TC exists primarily because TC provides the means for achieving the firm's goals of satisfying market demands at an acceptable level of profitability. A TC system provides a means for managing a company's future profits by integrating strategic variables to simultaneously plan how to satisfy customers, capture market share, generate profits, and plan and control costs (Ansari and Bell, 1997). Several large international corporations have been identified as TC adopters, including Boeing, Daimler Chrysler, Caterpillar, Rockwell, Eastman Kodak, Texas Instruments (Ansari and Bell, 1997), Mercedes Benz (Albright, 1998), and leading Japanese companies such as Toyota (Kato, 1993), Nissan, Sony, Matsushita, Daihatsu, Canon, Olympus Optical, and Komatsu (Ansari and Bell, 1997). In Japan, over eighty percent of all assembly-type industries use TC (Ansari and Bell, 1997; Kato, 1993); however, U.S. companies have been slower to adopt the technique. Reasons for this include TC being not well known in Corporate America and the existence of both cultural and organizational barriers to developing a broad team-oriented strategy TC requires (Banham, 2000: 130). Using a sample of firms identified as TC adopters, we interviewed managers to collect data about the competitive environment faced by the firm and the strategy the firm pursues. Managers' responses are analyzed to determine a relationship between competitive forces and strategy choice for the adopters. Finding determinant factors of implementation will lead to greater insight into the adoption and use of TC systems, and to the nature of the tool itself While this research is descriptive in nature, it provides the first step for determining the successful utilization of TC. The remainder of the article is organized into four sections. The next section presents the propositions. We then discuss the research method used to collect data from adopting firms, present results, and conclude with limitations and opportunities for further research. Development of Research Propositions The concept of TC (Genkakikaku in Japanese) originated in Japan at Toyota Motor Corporation in the 1960s. …