article review cost and management accounting

• Open access
• Published: 27 November 2021

Strategic management accounting and performance implications: a literature review and research agenda

• Jafar Ojra 1 ,
• Abdullah Promise Opute   ORCID: orcid.org/0000-0001-6221-1856 2 , 3 &
• Mohammad Mobarak Alsolmi 4  

Future Business Journal volume  7 , Article number:  64 ( 2021 ) Cite this article

38k Accesses

10 Citations

Metrics details

The important role that management accounting plays in driving organisational performance has been reiterated in the literature. In line with that importance, the call for more effort to enhance knowledge on strategic management accounting has increased over the years. Responding to that call, this study utilised a qualitative approach that involved a systematic review to synthesise existing literature towards understanding the strategic management accounting foundation, contingency factors, and organisational performance impact. Based on the evidence in reviewed literature, we flag key directions for advancing this theoretical premise towards providing further insights that would enable practitioners strategically align their strategic management accounting practices for optimal organisational performance. The limitations of this study have been acknowledged.

Introduction

Successful managerial decisions enable organisational profitability and accounting aids effective managerial decisions [ 75 ]. Aimed at optimising the decision-enabling substance of accounting, management was criticised in 1980s as being too focused on internal operational issues that offer little to management from the point of strategy formulation and sustaining competitive advantage (CIMA Report Footnote 1 ). Recognising the importance for a broader impact of accounting on managerial decision-making, Simmonds [ 82 , p. 26] introduced and defined strategic management accounting (SMA) as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” .

Subsequently there has been increasing efforts that stress the importance for organisations to embrace strategic management accounting theory towards boosting strategic decision-making and organisational performance (e.g. [ 4 , 8 , 9 , 17 , 23 , 53 , 58 , 86 , 90 , 48 ], amongst others). As rightly noted by Turner et al. [ 86 ], organisations that aim to enhance their competitiveness and performance, must not only develop but also “implement internal policies and procedures such as strategic management accounting that are consistent with their business strategies and account for changing competitive demands” (p. 33). Doing that will enable the strategic management accounting tool to be effectively used to drive corporate success. This is the underlying argument in this study.

The task of profitably satisfying customers is becoming more challenging [ 61 , 65 , 67 ]. Meeting that challenge requires that organisations recognise the importance for effective decision-making. Accountants play a significant role in enabling effective decision-making in organisations (e.g. [ 21 , 23 , 27 ]). Accounting information enables the organisation determine the going concern [ 6 , 36 ]. Accounting provides the management with relevant information for ensuring and sustaining growth and profitability. The strategic management accounting foundation emphasises that in order to fully fulfil its management decision-making enabling function, accounting practices must not only focus on the internal but also on the external components relating to the organisation's operations. In other words, accounting should embrace a much broader and market-oriented approach and focus on costing (e.g. [ 8 , 17 , 58 , 78 ]); planning, control and performance measurement (e.g. [ 17 , 58 ]), strategic decision-making (e.g. [ 8 , 58 ]), customer accounting (e.g. [ 58 , 86 ]) and competitor accounting (e.g. [ 17 , 58 , 86 ]).

Given the importance of strategic management accounting to effective management decision-making and corporate success, there remains a growing interest in understanding the topic. Little wonder therefore that the advocacy for more research towards a better understanding of what strategic management accounting practices organisations adopt and what motivates their preference for one technique over the other (e.g. [ 4 , 53 , 58 , 86 , 90 ]) remains current. While embracing strategic management accounting is a critical path for enabling effective managerial decision-making and boosting organisational performance (e.g. [ 3 , 9 , 58 ]), the enablement outcome of strategic management accounting practice would hinge on the effectiveness of the organisation in tailoring its strategic management accounting practices to its strategy and environment [ 9 , 11 , 58 ].

Following that contingency logic, this research is a response to the aforementioned call and the aim in this study is to contribute to strategic management accounting discourse by critically analysing the body of knowledge towards enhancing the understanding of how knowledge has evolved in this theoretical domain and also to contribute to knowledge by flagging directions for further knowledge development. To achieve the aim of this study, the theoretical focus in this study is premised along three questions:

What strategic management accounting techniques can organisations use towards driving organisational performance?

What factors would influence strategic management accounting techniques usage and performance association? and

What future research gaps exist based on the explored literature?

Literature review

This study follows the theoretical foundation that strategic management accounting would aid effective management decision-making, and ultimately boost organisational performance. In line with the aim of this study, relevant literature is reviewed to explain the theoretical premise of this study. The literature review is organised along three core themes in strategic management accounting discourse, namely, strategic management accounting techniques, contingency factors of strategic management accounting usage, and the impact of strategic management accounting on organisational performance.

Strategic management accounting: definition and techniques

Management accounting is noted to involve the “generation, communication, and use of financial and non-financial information for managerial decision-making and control activities” ([ 28 ] p. 3). One major criticism of accounting in the 1980s relates to the fact that accountants have hardly taken a proactive role in the strategic management process [ 7 , 8 ]. According to Nixon and Burns [ 55 , p. 229], although strategic management has been variously defined, there is “broad consensus that the key activities are (1) development of a grand strategy, purpose or sense of direction, (2) formulation of strategic goals and plans to achieve them, (3) implementation of plans, and (4) monitoring, evaluation and corrective action”. The role of management accounting is to enable effective decision-making, and it involves typically information gathering and analysis, identifying options, implementation, monitoring and evaluation [ 16 ]. Thus, the focus in strategic management accounting, rephrased also as accounting for strategic positioning [ 73 , 74 ], is to embrace a broader approach that incorporates a strategic management focus into its dynamics towards effectively enabling management decision-making and organisational performance [ 8 , 80 ]).

Since the first attempt by Simmonds [ 82 , p. 26] who defined strategic management accounting as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” , there have been numerous attempts to enhance that definition and identify core techniques of strategic management accounting. For example, CIMA [ 16 ] describes strategic management accounting as a management accounting form that emphasises focusing on information relating to external factor of the entity and also on non-financial information as well as information that is generated internally. In a much earlier contribution, Bromwich [ 7 , p. 28] offers a description of strategic management accounting as involving “the provision and analysis of financial information on the organisation’s product markets and competitors’ costs and cost structures and the monitoring of the organisation’s strategies and those of its competitors in the market over a number of periods” (Cited in [ 56 , p. 14]).

In their 2008 study, Cadez and Guilding asked the question “what is strategic management accounting?” (p. 838). In that same study, they conclude, based on evidence from reviewed literature, that there are two perspectives of strategic management accounting. While one perspective focuses on strategically oriented accounting techniques, the other focuses on the actual involvement of accountants in the strategic decision-making process. Following the former perspective (e.g. [ 8 , 9 , 17 , 58 ]), existing literature distils sixteen (16) strategic management accounting techniques that are categorised under five SMA themes (e.g. [ 9 , 11 , 58 ]):

Strategic costing;

Strategic planning, control and performance measurement;

Strategic decision-making;

Competitor accounting; and

Customer accounting.

Strategic costing

According to literature (e.g. [ 8 , 11 , 23 ]), strategic and marketing information-based cost data can be leveraged by organisations to ensure effective strategies for achieving sustainable competitive advantage. Thus, organisations must recognise the importance of integrating cost strategies and undertake multiple strategic cost analyses. Literature distils five key costing techniques: attribute costing (e.g. Roslender and Hart 2003), life-cycle costing (e.g. [ 8 , 17 ]), quality costing (e.g. [ 17 ]), target costing (e.g. [ 8 , 17 ]) and value chain costing (e.g. [ 8 ]).

Strategic planning, control and performance measurement

Literature has also underlined the need for organisations to give due attention to planning, control and performance measurement features of the strategic management accounting, as doing that is important in the pro-active market orientation approach for competing effectively in the marketplace (e.g. [ 8 , 58 ], Chenhall 2005). Core components under the strategic planning, control and performance measurement tool includes benchmarking (e.g. [ 8 , 17 ]) and integrated performance management (Balanced Scorecard) (e.g. [ 8 , 17 ]).

Strategic decision-making

As a strategic management accounting tool, strategic decision-making is a critical tool for supporting strategic choice [ 11 ]. Core strategic decision-making options include strategic costing (e.g. [ 58 ]), strategic pricing (e.g. [ 11 , 58 ]) and brand valuation (e.g. [ 11 , 58 ]).

The importance of addressing strategic costing as a key strategic decision-making element has been emphasised in the literature (e.g. [ 58 , 78 , 79 ]). In this discourse, it is underlined that effectively driving competitive advantage requires cost analysis that explicitly considers strategic issues. In line with that viewpoint, Cadez and Guilding [ 8 ] note that strategic costing involves “the use of cost data based on strategic and marketing information to develop and identify superior strategies that will produce a sustainable competitive advantage” (p. 27).

In the literature too, strategic pricing is underlined as another core element the strategic decision-making typology of strategic management accounting (e.g. [ 8 , 58 ], Simmonds 1982). According to scholars, understanding market competition level, which as noted by Guilding et al. [ 29 , p. 120] entails the appraisal of the following factors: “competitor price reaction, price elasticity; projected market growth; and economies of scale and experience”, is important (e.g. [ 8 , 11 , 58 ]).

Within the strategic management accounting literature, brand valuation is the third element of the strategic decision-making technique. The brand valuation component “involves combining projected brand earnings (an accounting-orientated measure) with a multiple derived from the brand’s strength on strategic factors such as the nature of the brand’s market, its position in that market and its level of marketing support” [ 29 , p. 118]. In the view of Cescon et al. [ 11 ], brand valuation enables organisations to understand market reputation trends over time and potential implications for marketing executives and strategic accounting. Cescon et al. [ 11 ] contend that organisations would achieve a variable brand valuation that would provide a potential measure of marketing achievement when perceived quality and branded products are considered, while Guilding et al. [ 29 ] remind that achievable impact of brand valuation would hinge, amongst others, on the valuation method used.

Competitor accounting

According to Porter [ 72 ], strategy involves developing appropriate tools that enable a firm to analyse and determine its position in a competitive market. Thus, a firm selects suitable strategies that enables it compete more effectively over its rivals. To effectively do that, a firm needs to collect competitor accounting information. The importance of giving due attention to competitor accounting has been underlined in the literature (e.g. [ 11 , 17 , 58 ]). Three forms of competitor accounting tools are described in the literature, namely, competitor cost assessment (e.g. [ 11 , 17 , 58 ]), competitor position monitoring (e.g. [ 11 , 58 ]) and competitor performance appraisal (e.g. [ 11 , 17 , 58 ]).

Customer accounting

The fifth cluster of strategic management accounting techniques described in the literature relates to customer accounting (e.g. [ 49 , 58 ]). Customer accounting concerns practices aimed at appraising profit, sales or costs related to customers or customer segments [ 58 ]. Core customer accounting techniques include customer profitability analysis (e.g. [ 30 , 58 ]), lifetime customer profitability analysis (e.g. [ 58 ]) and valuation of customers as assets (e.g. [ 30 , 58 ]).

The contingency factors of strategic management accounting

According to management accounting discourse, when organisations carefully embrace appropriate strategic management accounting practices, they would ensure successful managerial decisions that would ultimately lead to optimising organisational performance (e.g. [ 48 , 53 , 56 , 58 ]). Thus, the extent of improved performance that an organisation would achieve would depend on its careful utilisation of appropriate strategic management techniques. As noted by Roslender and Hart (2003), p. 4 and further supported by subsequent literature (e.g. [ 34 , 58 ]), “the adoption of strategically oriented management accounting techniques and accountants’ participation in strategic management processes”, is a core research premise. In line with the carefulness notion mentioned above, the contingency perspective has been widely utilised in the effort to understand strategic management accounting practices and performance impact (e.g. [ 8 , 12 , 30 , 34 , 58 ]). The underlying foundation in the contingency perspective is based on the notion “that an organisation maximises its efficiency by matching between structure and environment” [ 22 , p. 49]. According to Otley [ 68 ]:

The contingency approach to management is based on the premise that there is no universally appropriate accounting system that applies equally to all organisations in all circumstances. Rather, it is suggested that particular features of an appropriate accounting system will depend on the specific circumstances in which an organisation finds itself. Thus, a contingency theory must identify specific aspects of an accounting system which are associated with certain defined circumstances and demonstrate an appropriate matching (p. 413).

Thus, the central foundation in the contingency perspective is that no one single accounting system is universally fit for all organisation in all circumstances (e.g. [ 41 ]). No one accounting control system can be seen as “best” for all situations; rather, the appropriateness of any control system would depend on the organisation's ability to adapt effectively to the environment surrounding its operations [ 41 , 58 , 86 ].

From reviewed literature, numerous researchers have flagged key contingency factors that should be considered in relation to strategic management accounting practice. Four factors were identified as critical contingency factors in the strategic management accounting systems design in Cadez and Guilding's [ 8 ] study, namely: business strategy, strategy formulation pattern, market orientation and firm size. On their part, Islam and Hu [ 41 ] identify core organisational effectiveness factors to include technology, environmental volatility, organisational structure, information system and size of the organisation.

Analysed together, the conceptualisation in the aforementioned studies [ 8 , 41 ] reflect perspectives that have been recognised in the 1980s. For example, Merchant [ 50 ] describe contingency factors to include firm size, product diversity, extent of decentralisation and budgetary information use. In their study of accounting information systems, Gordon and Narayanan [ 26 ] classify three core contingency factors to include perceived environmental uncertainty, information characteristics and organisational structure. Based on a study that examined the extent to which accountants were involved in the strategic management process, CIMA Footnote 2 reports three key contingency factors: “organisational influences, accountant led influences and practicalities” (p. 12). Exploring strategic management accounting practices in the Palestinian context, Ojra [ 58 ] conceptualised a comprehensive contingency perspective that considered (1) organisational structure (involving formalisation and decentralisation), (2) organisational size, (3) technology and (4) organisational strategy. In more recent literature, Pavlatos [ 70 ] suggests seven factors that affect strategic management accounting usage in the hospitality industry (hotels) in Greece, namely, “perceived environmental uncertainty, structure, quality of information systems, organisational life cycle stage, historical performance, strategy and size” (p. 756).

The contingency framing in this study draws from the theoretical guideline which suggests that both the internal and external environments of organisations should be considered in the effort to advance strategic management accounting literature (e.g. [ 58 , 70 ]). The conceptual framing in this study includes two external (perceived environmental uncertainty—competitive intensity, and market turbulence) and three internal (organisational structure—formalisation, and decentralisation, and organisational strategy) factors.

Perceived environmental uncertainty and strategic management accounting usage

From the perceptual lens, the environment could be viewed as certain or uncertain only to the extent that decision makers perceive it to be (e.g. [ 1 , 11 ]). Perceived environmental uncertainty is described as the absence of information relating to organisations, activities and happenings in the environment [ 20 ]. According to Cescon et al. [ 11 ], organisations must give due attention to their operational environment because engaging with environmental uncertainty factors would enable them identify key change drivers.

Prior literature has documented that perceived uncertainty significantly influences the extent to which firms would embrace strategic management accounting practices (e.g. [ 49 , 58 , 70 ]). According to that foundation, how firms respond from the point of strategic management accounting practices that they would endorse would depend on the nature of environmental uncertainties that surround their operational activities.

Studying the hotel property setting, Pavlatos [ 70 ] documents a positive correlation between the degree of environmental uncertainty and the use of strategic management accounting tools. In other words, the higher the perceived environmental uncertainty, the higher the need for use of strategic management accounting tools. Intensified use of strategic management accounting tools is essential because that will enable the hotels to manage the uncertainties, and be more effective in managerial decision-making, and ultimately improves organisational performance [ 70 ]. The notion of a significant influence of environmental uncertainty on strategic management accounting practices is supported by prior literature (e.g. [ 15 ]). According to them, managers who operate in highly uncertain environments would require information that is timely, current and frequent. Other scholars have also argued that environmental uncertainty would be associated with more pro-active and externally focused accounting systems (e.g. [ 32 , 38 ]).

In their study of Italian manufacturing companies, Cescon et al. [ 11 ] found a positive association of perceived environmental uncertainty and strategic pricing usage as a feature of the strategic decision-making SMA technique. In other words, the more the perceived environmental uncertainty, the higher the usage of the strategic pricing feature of the strategic decision-making SMA component.

In the perceived environmental uncertainty literature, two core dimensions have been distilled, namely competitive intensity and market turbulence (e.g. [ 30 , 58 ]). Market turbulence—a subset of environmental turbulence [ 47 ], is defined by Calantone et al. [ 10 ] as characterised by continuous changes in customers’ preference/demands, in price/cost structures and in the composition of competitors. In settings where there is high market turbulence, organizations would need to modify their products and approaches to the market more frequently [ 44 ]. On the other hand, the notion of competitive intensity relates to the logic that organisations compete for numerous resources, such as raw materials, selling and distribution channels, as well as quality, variety and price of products [ 26 , 46 ]. Achieving organisation-environment alignment in highly competitive environments requires that organisations have the capacity to effectively detect environmental signals and timely communicate environmental information (e.g. [ 88 ]).

Exploring Australian hospitality industry, McManus [ 49 ] examined the association of competition intensity and perceived environmental uncertainty on customer accounting techniques usage. The study suggests that competition intensity positively associates with customer accounting practices but also found that higher perceived environmental uncertainty would not lead to greater usage of customer accounting techniques in the explored hotels. In a much similar conceptualisation, Cescon et al. [ 11 ] examined the association of environmental uncertainty and competitive forces on strategic management accounting techniques usage in large Italian manufacturing firms. Empirically, that study found that external factors (environmental uncertainty and competitive forces) positively associate with SMA usage (strategic pricing, balanced scorecard, risk analysis, target costing, life-cycle costing). Based on the two-dimensional conceptualisation, Ojra [ 58 ] examined the relationship between perceived environmental uncertainty and SMA usage in Palestinian firms. Ojra [ 58 ] hypothesised a positive correlation of perceived environmental uncertainty (conceptualised to include competition intensity and market turbulence) but found no support. To the contrary, Ojra [ 58 ] documents a potential for negative influence of perceived environmental uncertainty on strategic management accounting techniques usage, however only significant for the market turbulence dimension. In other words, Ojra [ 58 ] suggests that market turbulence associates negatively with strategic management accounting techniques usage in medium Palestine firms.

Organisational structure (formalisation) and strategic management accounting usage

Across the various streams of management, formalisation has been mentioned as a key contingency factor in understanding the operational dynamics of organisations (e.g. [ 58 , 63 , 64 ]). With regard to strategic management accounting discourse, this notion has been numerously supported (e.g. [ 26 , 58 , 85 ]).

Studying the influence of formalisation in the functional relationship between the accounting and marketing departments, Opute et al. [ 64 ] suggest a positive association. In other words, they argue that the more formalised the processes in the firm, the higher the achieved integration between both functional areas. However, Opute et al. [ 64 ] note that whether this positive association is achieved would depend on the integration component (information sharing, unified effort and involvement) considered.

In the strategic management accounting domain, there is mixed evidence of the association of organisational structure on strategic management accounting usage. For example, Ojra [ 58 ] hypothesised that less formalised organisational structure would lead to higher use of strategic management accounting techniques in Palestinian firms but found no support for that hypothesis. In that study, no support was found for the notion that less formalised structures would lead to higher use of strategic management accounting techniques, both for total SMA as well as for all the dimensions of SMA. Thus, that study concludes that formalisation has no significant influence on strategic management accounting techniques usage in Palestinian firms. That conclusion supports the findings in Gordon and Narayanan [ 26 ], but contrast the view in Tuan Mat’s [ 85 ] exploration of management accounting practices.

Organisational structure (decentralisation) and strategic management accounting usage

Similar to formalisation, management scholars have noted decentralisation as a core organisational structure factor that should be given due attention in the drive to enhance the understanding of contingency theory (e.g. [ 58 , 62 , 63 ]). Organisational structure has been noted to influence the strategic management accounting practices of a firm (e.g. [ 58 , 70 ]). Within that foundation, decentralisation (or its opposite) has been flagged as a major factor. A contention that has been underlined numerously in the discourse is that strategic management accounting usage would be higher in organisations that embrace decentralised structure. Following that foundation, Pavlatos [ 70 ] hypothesised that SMA usage is higher in decentralised hotels than in centralised hotels in Greece. The results support the hypothesis: there is higher need for strategic management accounting practices in decentralised firms, as lower-level managers require more information to aid decision-making.

The above conclusion supports as well as contrasts prior literature, namely Chenhall [ 14 ] and Verbeeten [ 87 ], respectively. According to Chenhall [ 14 , p. 525], “strategic management accounting has characteristics related to aspects of horizontal organisation as they aim to connect strategy to the value chain and link activities across the organisation…”. Chenhall [ 14 ] adds that a typical approach in horizontal organisation is identifying customer-oriented strategic priorities and then exploiting process efficiency, continuous improvements, flattened structures and team empowerment, to initiate change, a conclusion that suggests that higher use of strategic management accounting practices would seem ideal in such decentralised organisational structure. The reason for that outcome is that in decentralised structure, lower-level managers can adapt their MACS as necessary to meet requirements [ 52 ], a logic that finds support in McManus [ 49 ] who found that customer accounting usage is higher in Australian hotels that are decentralised than those that are centralised. In contrast to that logic, Verbeeten [ 87 ] found decentralisation to associate negatively with major changes in the decision-influencing components of MACS.

Insight about the less developed context, namely about Palestinian firms lend support to, as well as contrast past literature. According to Ojra [ 58 ], decentralisation has a tendency to associate negatively with strategic management accounting usage. Therefore, although statistically insignificant, the results indicate that explored Palestinian firms that endorse decentralised decision-making process would seemingly have lesser need for strategic management accounting practices. On the evidence that decentralisation may have a negative influence on strategic management accounting usage, Ojra [ 58 ] supports Verbeeten [ 87 ] but contrasts Pavlatos [ 70 ].

Organisational strategy and strategic management accounting usage

An internal organisational factor that has been considered important in the understanding of contingency perspective of management accounting relates to organisational strategy (e.g. [ 8 , 17 , 58 ]). Hambrick [ 33 ] defined strategy as:

A pattern of important decisions that guides the organisation in its relationship with its environment; affects the internal structure and processes of the organisation; and centrally affects the organisation’s performance (p.567).

In the strategic management accounting discourse, organisational strategy has been mentioned as one of the key factors that would condition strategic management accounting practices of a firm (e.g. [ 9 , 58 , 70 , 86 ]). For example, Turner et al. [ 86 ] note that in hotel property setting, strategic management accounting use would hinge on the market orientation business strategy of the firm. Given the notion that strategic management accounting would aid management decision-making and lead ultimately to improved organisational performance, there is some legitimacy in expecting that organisations that align their strategic management accounting practices to the strategic orientation of the firm would achieve a higher organisational performance.

Following Miles and Snow’s [ 51 ] strategy typology (prospector, defender, analyser, and reactor), efforts to understand the association of strategy to strategic management accounting tools usage have also tried to understand how the various strategy typologies play out in this association. For example, Cadez and Guilding [ 9 ] considered the prospector, defender and analyser typologies in the Slovenian context, while Ojra [ 58 ] considered the prospector and defender typologies in the Palestinian contexts.

Cadez and Guilding [ 9 ] report that companies that endorse the analyser strategy, which is a deliberate strategy formulation approach, are not highly market oriented, but tend to show high usage of SMA techniques, except for competitor accounting technique. Further, they report that prospector strategy-oriented companies also pursue a deliberate strategy formulation approach, but are highly market oriented, and SMA techniques usage is fairly high (for competitor accounting) and averagely high (for strategic costing). For very high prospector-oriented companies, they are highly market oriented, have a strong strategy drive and a very high SMA techniques usage. For the defender strategy-type companies, they suggest that such companies are not only average in their market orientation, but also in their usage of SMA techniques.

In the study of Palestinian companies, Ojra [ 58 ] offers insights that resonate relatively with the findings in Cadez and Guilding [ 9 ]. Ojra [ 58 ] suggests that prospector companies have a higher usage of SMA techniques than defender-type companies. So, SMA technique usage is positively associated to prospector strategy (see also [ 8 ]. Elaborating the findings, Ojra [ 58 ] reports that prospector-type companies focused more on four SMA techniques (mean values reported), namely SMAU-Planning, Control and Performance Measurement (4.601), SMAU-Strategic Decision Making (4.712), SMAU-Competitor Accounting (4.689) and SMAU-Customer Accounting (4.734), statistical results that are significantly higher than the results for 'defender'-type companies. Cinquini and Tenucci [ 17 ] lend support to Ojra [ 58 ]: 'defender'-type companies give more attention to the Costing dimension of SMA.

Without emphasising the strategy typologies, Pavlakos (2015) comments that organisational strategy affects SMA usage in the Greek hotel industry.

Strategic management accounting and organisational performance

A central tenet in the strategic management accounting foundation is that management accounting would significantly aid organisations to achieve sustained competitiveness [ 7 , 82 ]. Implicitly, these scholars argue that in order to stay competitive in the marketplace, organisations should not only focus on cost-volume-profit issues, but rather embrace a broad externally focused management accounting approach that is strategically driven and provides financial information that enables management to effectively formulate and monitor the organisation's strategy. Thus, management accounting should also focus on competitor information as that will enable management effectively organise the firm's strategic structure.

Over the years, there is growing recognition of the importance of strategic management accounting to organisations, leading therefore to increasing research attention. One area that has received attention in the strategic management accounting discourse relates to the organisational performance enhancement notion (e.g. [ 23 , 56 , 58 , 77 , 86 ]).

Insights from Malaysia also add to the discourse on the impact of strategic management accounting usage on organisational performance. In their study of Malaysian electrical and electronic firms, Noordin et al. [ 56 ] examined the extent of usage of strategic management accounting and influence on the performance of the participating firms. The study found that in explored Malaysian companies, the extent of strategic management accounting usage was significantly related to organisation’s performance. That conclusion supports Cadez and Guilding [ 8 ] who contend that there is a positive association between strategic management accounting usage and organisational performance.

In a performance perspective that considers the ISO 9000 Quality Management System (QMS) aspect, Sedevich-Fons [ 77 ] examined the connection between strategic management accounting and quality management systems performance. The findings show that strategic management accounting and quality management are complementary and their effective implementation would enhance overall performance. Sedevich-Fons [ 77 ] notes further that when both are used in conjunction that would spread SMA techniques and enable full exploitation of Quality Management Systems.

Insights from the less developed economy context also associate organisational performance to the implementation of strategic management accounting practices (e.g. [ 3 , 57 , 58 ]). In a conceptual approach that aimed to address one major gap in previous literature, Ojra [ 58 ] examined both the financial and non-financial dimensions of organisational performance. According to Ojra [ 58 ], strategic management accounting usage does not impact the financial dimension of organisational performance but exerts significant positive impact on non-financial performance. That finding resonates with Perera et al. [ 71 ] conclusion that various forms of management accounting associate positively with the use of non-financial measures.

On their part, Oboh and Ajibolade [ 57 ], in their investigation of the association between strategic management accounting practices and strategic decision-making in Nigerian banks, found that explored Nigerian banks “practice SMA not as a concept, but as a principle of operation, and that SMA contributes significantly to strategic decision-making in the area of competitive advantage and increased market share” (p.119).

Alabdullah [ 3 ] offers evidence that adds support to the insights in the aforementioned studies [ 57 , 58 ]. In a study that explored the Jordanian service sector, Alabdullah [ 3 ] found that strategic management accounting enables performance in the service sector in Jordan. If strategic management accounting is effectively implemented, that will enable optimal strategic decision-making and ultimately improve organisational performance.

Research methodology

Research design.

Qualitative research method [ 18 , 76 ] is used in this study to achieve the objectives of this research. Following the methodological approach, as well as responding to the research call, in a past study on the contingency perspective of strategic management accounting [ 41 ], a study which was literature review-based, literature review-based qualitative research approach was deemed fit in this study.

A systematic review approach (e.g. [ 5 , 39 , 81 ]) is used in this research on the topic of strategic management accounting. Using the systematic review approach in this study is appropriate because it enables a systematic and transparent approach in identifying, selecting, and evaluating relevant published literature on a specific topic or question [ 42 , 83 ]. Furthermore, systematic review approach was deemed appropriate for this study as it has been documented to aid core research gaps identification and steering future research (e.g. [ 40 , 59 , 66 ]).

Alves et al. [ 5 ] forward a two-stage guideline for systematic review of literature: planning the review and conducting the review and analysis. As they noted, researchers should describe how the systematic approach was planned (in the former) and also describe the phases of the review and selection of literature (in the latter). In this research, effort was made to combine the best evidence: careful planning was used to determine literatures for inclusion or exclusion (e.g. [ 5 , 65 , 67 ]). The planning was focused at identifying relevant publications in various academic journals on the topic of strategic management accounting. First, the theoretical themes to be considered in the conceptual premise of this study were confirmed and academic resource for tracking relevant publications determined [ 5 , 66 , 83 ].

In the preliminary stage of the literature review, electronic search was carried out to identify relevant literature relating to strategic management accounting. Three steps were taken in the systematic review: we searched the literature, analysed and synthesised the literature, and wrote the review. Several databases were scanned using key search terms to capture relevant literature [ 81 ]. Core search terms were used, such as strategic management accounting, historical aspects of strategic management accounting, contingencies of strategic management accounting practices, strategic management accounting and organisational strategy, strategic management accounting and organisational performance, amongst others. Relevant publications were also found using data extraction tools such as Google Scholar, Emerald Insight and Research Gate.

Using the aforementioned methodological approach, a collection of relevant articles published in academic journals was identified. Identifying the relevant literature in this study followed methodological guideline [ 69 ]: criteria of language, relevance and type of research to identify relevant studies were embraced, and articles that contained non-English contents and also articles that did not fit closely to the thematic premise of this study were excluded. It is important to emphasise here that this study recognises that not all publications relating to the topic of strategic management accounting may have been considered in this research. However, for the scope of this piece of research, the body of literature covered in this study was deemed adequate for the conceptual framing.

Table 1 shows a sample of selected literature covered in this piece of research, pinpointing clearly the focus, context of the studies and findings from the studies.

The analysis

The interpretive approach of analysis was followed in processing the qualitative data to achieve reliable meaning in this study (e.g. [ 59 , 65 , 67 , 84 ]). Following that precedence, an iterative approach that involved reading reviewed literature back and forth, was used in this study. Using that approach, a synthesis of literature was undertaken to capture the core threads, debates and themes in the literature (e.g. [ 65 , 67 ]). Guided also by that methodological approach, relevant directions for future research have been flagged towards enhancing the knowledge about strategic management accounting and performance association.

Subjectivity is a major concern in qualitative researches (e.g. [ 18 , 76 ]). To address that concern, steps taken in this research to validate the articles incorporated into this research include rigor of conduct and strength of evidence by cross-referencing, as well as undertaking a duplicate check (e.g. [ 76 , 81 ]).

The findings

Prompted by the central threads that emerged from the analysis of the selected literature, the findings from this study are organised along three core themes: strategic management accounting techniques, contingencies of strategic management accounting techniques usage and the organisational performance implications of strategic management accounting usage.

The importance of management accounting, and in particular the strategic management accounting element as a tool for enabling top management to make effective decisions that enable organisation compete effectively in the marketplace, is gaining increasing mention in management discourse. In that discourse, five core categorisations of SMA techniques: strategic costing; strategic planning, control and performance measurement; strategic decision-making; competitor accounting; and customer accounting. While literature distils numerous forms of strategic management accounting techniques that organisations may embrace towards enabling effective management decision-making and organisational performance, evidence was found in reviewed literature that in some organisations, practitioners do not believe that strategic management accounting as a separate concept is a notion they subscribe to (e.g. CIMA Footnote 3 ; [ 48 , 55 ]). For example, CIMA Footnote 4 documents that participants unanimously do not subscribe to the notion, a conclusion which lends support to prior literature [ 48 , 55 ] that notes that strategic management accounting as a term, did not exist in the lexicon of accounting practitioners.

Grounded on the substance that effective use of the SMA techniques would improve organisational performance, immense research effort has focused on how organisations can effectively align the SMA usage towards achieving desired performance improvement. Premised in that theoretical domain, this study examined existing literature on the contingency factors of competitive intensity, market turbulence, formalisation, decentralisation and organisational strategy and SMA usage. Cumulative evidence obtained from the review of literature reinforces the need for organisations to pay particular attention to their operational environment in their use of SMA techniques. Reinforcing the fit principle, the cummulative evidence underlines that optimising the benefits of the strategic management accounting techniques in enabling effective customer orientation and boosting organisational performance is dependent on the organisation's ability to effectively align strategic management accounting practices to its operational environment. In other words, what works for an organisation would depend on the organisational dynamics, internal, as well as external. For example, formalisation may work for some but not for some, as decentralisation could work for some but not for some. Similarly, the utility of SMA techniques would hinge on the competitive intensity and market turbulence features of an organisation. Thus, aligning SMA practices to the internal and external features of an organisation is essential to enable them adapt effectively to their circumstances, make rational decisions and optimise their performance. So, alignment is critical because there is no one-size fits all approach for achieving customer orientation and organisational performance goals.

The third focal point of this study relates to the association of SMA techniques usage to organisational performance. Reviewed literature shows that organisations are achieving higher performance through the use of SMA techniques. In other words, effective use of SMA techniques would improve organisational performance. The plausibility in that performance outcome lies in the fact that organisations are able to utilise appropriate SMA measures to ensure effective, customer, competitor, strategic decision-making, costing, and planning and control orientation in their operational activities. Further on the performance point, literature also suggests that management control systems (MCS)–performance relationship is mediated by business strategy (e.g. [ 2 ]). Also, that study documents that the impacts (both indirect and total) of MCS on performance are stronger for family businesses than non-family businesses.

Conclusions

Conclusions and implications.

One of the major challenges that organisations are facing in today's dynamic marketplace is to steer their organisations in a way that they can stay competitive. In the contemporary world, where globalisation and technological evolution have expanded the options that customers have (e.g. [ 31 , 61 , 65 , 67 ]), organisations must strive hard to win the loyalty of customers. For organisations wishing to achieve that, strategic management accounting practices offer a strategic pathway. Organisations must embrace strategic management accounting practices that would enable them understand the market, their competitors, and the customers and leverage the intelligence from that knowledge to organise their operations towards profitably satisfying the customer. To effectively do that, organisations must avoid the mistake of focusing only on the internal issues; rather, their effort must be tailored towards embracing strategic management accounting practices that would enable them to be fully informed of the market trends, customer dynamics and competitor trends. Thus, organisations must ensure that good costing, planning, control and performance measurement; strategic decision-making, customer accounting and competitor accounting measures are embraced to enable them compete effectively.

Furthermore, in that drive to compete effectively in the market and profitably satisfy customers, organisations would not only need to embrace appropriate strategic management accounting techniques but also do that bearing in mind the environments that surround the operational activities. In other words, organisations must give due attention to the contingencies of their operational setting. Organisations must ensure a good blend of critical factors that would enable their optimal operation. Due attention must be given to organisational structure (centralisation or decentralisation of decision-making process), external environment (dynamism and turbulence), technological development, strategic approach, size of the organisation, amongst others. Doing that is critical for corporate success because there is no one size fits all approach—the outcome achieved would depend significantly on the dynamics surrounding the operational activities of the firm.

Thirty-three months on after Covid 19 was documented, Footnote 5 the pandemic is still ever present and has remained a daunting global challenge. Competing effectively in the dynamic marketplace is a major challenge for organisations, and with the Corona pandemic exerting unprecedent effects on organisations globally, most organisations are facing a more daunting challenge to survive (e.g. [ 65 , 67 ]). Organisations must strive to strategically orientate their management accounting practices to enable them find ways to effectively navigate the daunting challenges they face in this Corona era.

Implications of this study

The implications of this study are organised along managerial and theoretical implications.

Managerial Implications —Managers are reminded that optimal use of strategic management accounting techniques would boost organisational performance. Achieving high levels of organisational performance would however hinge on an organisation's ability to effectively align its SMA techniques usage to its internal and external dynamics. In other words, managers must bear in mind that there is no one-size fits all approach; therefore, they should endorse SMA techniques usage that fits their operational dynamics.

Theoretical Implications —In line with the central objective of this paper to sensitise the need for enhancing the understanding of the contingency perspective of strategic management accounting, the theoretical implications of this study are tailored towards specifying core gaps in the reviewed literature.

Overall, evidence from reviewed literature underlines the criticality of SMA techniques usage to organisational performance. Thus, if organisations strategically align SMA techniques usage to their operational setting, this would positively impact organisational performance. Within the goal of enhancing the literature on how to optimise the performance impact, much gaps still exist from the point off illuminating how differences in marketing and national culture differentiate SMA acceptance, usage, contingencies and performance impact.

Finally, on the point of performance, reviewed literature documents an obvious gap in the literature from the point of illuminating SMA techniques usage impact along the performance dimensions. As noted by Ojra [ 58 ], for some societies (especially ones that are Islamic cultured), non-financial performance is of central importance. Theoretical development from the point of SMA techniques usage, contingencies and non-financial performance impact is scanty.

Limitations of the study

Based on systematic review approach, this study aimed to drive further knowledge development on the contingency perspective of strategic management accounting, drawing on the evidence from reviewed literature to understand the core debates in the literature and pinpoint directions for future research. Two core limitations of this research relate to the conceptual framework and volume of literature reviewed.

The conceptual framing of this study embraced only three themes in the SMA discourse, namely perceived environmental uncertainty, organisational structure and organisational strategy. Elaborated, the contingency premise considered in this study relates to perceived environmental uncertainty (competitive intensity, and market turbulence), organisational structure (formalisation and decentralisation), and organisational strategy. This study recognises that there are other contingencies of strategic management accounting practices that have not been included in the conceptual framing of this study.

To capture the central debates in the SMA discourse, extant literature was reviewed. It is however important to acknowledge that this study may have ignored some literature relevant to the conceptual premise of this study. Finally, although efforts were made by the researchers to ensure validity in this research by adopting an analytical approach that involved thorough reading of literature to ensure valid meaning in the interpretation, it must be reminded that subjectivity is a concern in every qualitative research.

Future research directions

In explaining the theoretical implications of this study, core gaps in the literature were underlined (Section “ Implications of this study ”), while the limitations of this study were acknowledged in Section “ Limitations of the study ”. Building on these, this Section “ Future research directions ” extends the contribution of this study by specifying core directions for further knowledge development on the contingency perspective of strategic management accounting.

No doubt, this study has limitations, amongst which are the conceptual framework and the literature review scope. In their study, Naranjo-Gil et al. [ 54 , p. 688] note that “future research is needed to examine other factors to add a more comprehensive view of management accounting”. Given the conceptual limitation of this study, this study reinforces the research call by Naranjo-Gil et al. [ 54 ]. Future research could expand the work done in this research and knowledge development by incorporating contingency factors that have not been considered in the conceptual framing of this study. More research is required in that regard, both from the point of a systematic literature review approach, as well as from the point of empirical investigations that seek to illuminate the contextual (industrial sectors and geographical settings) differentiators to the contingency impacts on the use of strategic management accounting techniques.

Furthermore, more research effort is required from the point of gaining deeper understanding of the various strategic management accounting techniques. Marketing dynamics (e.g. [ 62 ]) and national culture [ 35 , 60 ] differ from one setting to another, therefore exploring the nature of strategic management accounting techniques that organisations endorse and why are core premises for research.

As flagged in the findings, there is a growing support of the notion that accounting practitioners do not subscribe to the use of the term strategic management accounting (e.g. CIMA Footnote 6 ; [ 48 , 55 ]). Further research could help to shed more light not only on why practitioners may not subscribe to the use of the term strategic management accounting, but also on the understanding of how practitioners would prefer to describe the management accounting practices that they embrace, and also why the specific practices are prioritised.

Furthermore, on the point of the content of strategic management accounting, researchers have also noted that not much effort is given to highlighting clearly the accounting information that organisations should give much attention to towards boosting organisational performance (e.g. [ 53 , 89 ]). Future research should aim to fill this gap. Doing that is critical to fully optimising the performance benefits of strategic management accounting [ 56 ].

Reviewed literature has documented that the extent to which strategic management accounting practices would aid management decision-making and organisational performance would depend on the contingency dynamics of the organisation (e.g. [ 11 , 58 ]). Understanding the contingency premise of strategic management accounting utility in driving effective management decision-making and organisational performance is a critical research premise, and future research should aim to shed more light on that. No one size fits all approach that works for all organisations in all contexts. Therefore, future research should seek to enhance the 'fit' foundation of strategic management accounting relevance and performance outcome. In that regard, future research should seek to illuminate further how perceived environmental uncertainty, decentralisation, formalisation, strategy and other contingency factors not considered in this study, would influence strategic management accounting techniques usage and organisational performance impact. In the particular case of perceived environmental uncertainty, more research is not only required from the point of understanding the influence of the construct, but also clarifying the competitive intensity and market turbulence associations.

An insight that emerged from the reviewed literature relates to the fact that majority of efforts to improve strategic management accounting discourse have considered mainly financial aspects of organisational performance (e.g. [ 58 , 86 ]). Focusing only on financial performance is inadequate as the customer perspective of performance is neglected [ 45 , 58 ]. The importance of focusing on customer performance has been re-echoed in further literature: organisational-level customer satisfaction associates positively to financial performance (e.g. [ 24 , 86 ]), and customer performance enables business strategy and an organisation's ability to deliver value to its shareholders as well as customers [ 25 ]. Supporting prior research (e.g. [ 49 , 58 , 86 ]), this study underlines the need for more studies that illuminate non-financial performance aspects and strategic management accounting association.

Finally, the Corona pandemic, which remains a global crisis, has exerted unprecedent global economic damage. Organisations are facing daunting challenges as a result of the Corona pandemic and are still seeking ways to successfully navigate these challenges. Future research should illuminate what strategic management accounting practices organisations are endorsing in the effort to effectively navigate the Corona-crisis-induced challenges.

Availability of data and materials

This study is based on the review of literature.

Management Accounting in support of the strategic management process. https://www.cimaglobal.com/Documents/Thought_leadership_docs/Management%20and%20financial%20accounting/Academic-Research-Report-Strategic-Management-Process.pdf .

January 9—WHO Announces Mysterious Coronavirus-Related Pneumonia in Wuhan, China.

Abbreviations

• Strategic management accounting

Strategic management accounting usage

Chartered Institute of Management Accountants

Management accounting and control system

Management control systems

Quality management system

Achrol R, Stern L (1988) Environmental determinants of decision-making uncertainty in marketing channels. J Mark Res 25:36–50

Google Scholar  

Acquaah M (2013) Management control systems, business strategy and performance: A comparative analysis of family and non-family businesses in a transition economy in sub-Saharan Africa. J Fam Bus Strat 4:13–146

Alabdullah TTY (2019) Management accounting and service companies’ performance: research in emerging economies. Austral Account Bus Finance J 13(4):100–118

Alamri AM (2019) Association between strategic management accounting facets and organizational performance. Balt J Manag 14(2):212–234

Alves H, Fernandes C, Raposo M (2016) Social media marketing: A literature review and implications. Psychol Mark 33(12):1029–1038

Atkinson AA, Kaplan RS, Matsumura EM, Young SM (2011) Management accounting information for decision making and strategy execution, 6th edn. Times Prentice Hall, Hoboken

Bromwich M (1990) The case for strategic management accounting: the role of accounting information for strategy in competitive markets. Account Organ Soc 15(1/2):27–46

Cadez S, Guilding C (2008) An exploratory investigation of an integrated contingency model of strategic management accounting. Account Organ Soc 33:836–873

Cadez S, Guilding C (2012) Strategy, strategic management accounting and performance: a configurational analysis. Ind Manag Data Syst 112(3):484–501

Calantone R, Garcia R, Dröge C (2003) The effects of environmental turbulence on new product development strategy planning. J Prod Innov Manag 20:90–103

Cescon F, Costantini A, Grassetti L (2019) Strategic choices and strategic management accounting in large manufacturing firms. J Manag Governance 23:605–635

Chenhall R (2003) Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Account Organ Soc 28:127–168

Chenhall R (2007) Theorising contingencies in management control systems research. In: Chapman CS, Hopwood AG, Shields MD (eds) Handbook of management accounting research. Elsevier, New York, pp 163–205

Chenhall R (2008) Accounting for the horizontal organization. In: Chapman CS, Hopwood AG, Shields MD (eds) Handbook of management accounting research. Elsevier, Oxford, pp 1207–1233

Chenhall RH, Morris D (1986) The impact of structure, environment and interdependence on the perceived usefulness of management accounting systems. Account Rev 61:16–35

CIMA (2005) Official terminology. CIMA Publishing, London

Cinquini L, Tennuci A (2010) Strategic management accounting and business strategy: a loose coupling? J Account Organ Change 33:228–259

Creswell JW (2014) Research design: qualitative, quantitative, and mixed methods approach, 4th edn. Sage, Thousand Oaks

Cuganesan S, Dunford R, Palmer I (2012) Strategic management accounting and strategy practices within a public sector agency. Manag Account Res 23:245–260

Daft RL, Sormunen J, Parks D (1988) Chief executive scanning, environmental characteristics and company performance: an empirical study. Strateg Manag J 9(2):123–139

Dai J, Vasarhelyi MA (2017) Toward blockchain-based accounting and assurance. J Inf Syst 31(3):5–21

Dik R (2011) Arab management accounting systems under the influence of their culture. Unpublished Ph.D. Dissertation submitted at Dortmund University of Technology, Germany

El Deeb MS (2012) Towards a strategic management accounting: framework for cost management in Egyptian healthcare industry. Egyptian Accounting Review, Cairo University, Faculty of Commerce, Issue No. 2-year 2.

Fornell C, Mithas S, Morgesson FV III, Krishnan MS (2006) Customer satisfaction and stock prices: high returns, low risk. J Mark 70:3–14

Franco-Santos M, Lucianetti L, Bourne M (2012) Contemporary performance measurement systems: a review of their consequences and a framework for research. Manag Account Res 23(2):79–119

Gordon LA, Narayanan VK (1984) Management accounting systems, perceived environmental uncertainty and organization structure: an empirical investigation. Account Organ Soc 9(2):33–47

Granlund M (2011) Extending AIS research to management accounting and control issues: a research note. Int J Account Inf Syst 12(1):3–19

Groot T, Selto F (2013) Advanced management accounting. Pearson, Harlow

Guilding C, Cravens KS, Tayles M (2000) An international comparison of strategic management accounting practices. Manag Account Res 11(1):113–135

Guilding C, McManus L (2002) The incidence, perceived merit and antecedents of customer accounting: an exploratory note. Account Organ Soc 27(1/2):45–59

Guesalaga R, Gabrielsson M, Rogers B, Ryals L, Cuevas JM (2018) Which resources and capabilities underpin strategic key account management. Ind Mark Manag 75:160–172

Haldma T, Lääts K (2002) Contingencies influencing the management accounting practices of Estonian manufacturing companies. Manag Acc Res 13(4):379–400

Hambrick D (1980) Operating the concept of business-level strategy in research. Acad Manag Rev 5:567–576

Henri J-F, Boiral O, Roy M-J (2016) Strategic cost management and performance: the case of environmental costs. Br Account Rev 48:269–282

Hofstede G, Hofstede GJ, Minkov M (2010) Cultures and organizations: software of the mind: intercultural cooperation and its importance for survival, 3rd edn. McGraw Hill, New York

Holm M, Ax C (2019) The interactive effect of competition intensity and customer service competition on customer accounting sophistication—Evidence of positive and negative associations. Manag Account Res. https://doi.org/10.1016/j.mar.2019.07.001

Article   Google Scholar  

Hoque Z (2004) A contingency model of the association between strategy, environmental uncertainty and performance measurement: Impact on organisational performance. Int Bus Rev 13:485–502

Hwang EJ (2005) Strategic management and financial performance in South Korean apparel retail stores, an unpublished Ph.D. Thesis submitted at Virginia Polytechnic Institute and State University, US.

Ibidunni AS, Ufua DE, Opute AP (2021) Linking disruptive innovation to sustainable entrepreneurship within the context of small and medium firms: a focus on Nigeria. Afr J Sci Technol Innov Dev. https://doi.org/10.1080/20421338.2021.1975355

Irene BN, Opute AP, Ibidunni AS (2020) Competency-based entrepreneurship education: analysis of the disruptive innovation theory in African HEIs. International Journal of Business and Globalisation, Inderscience Publishers

Islam J, Hu H (2012) A review of literature on contingency theory in managerial accounting. Afr J Bus Manag 6(15):5159–5164

John KSt, McNeal KS (2017) The strength of evidence pyramid: one approach for characterizing the strength of evidence of geoscience education research (GER) community claims. J Geosci Educ 65(4):363–372

Jusoh R (2010) The influence of perceived environmental uncertainty, firm size, and strategy on multiple performance measure usage. Afr J Bus Manage 4(10):1972–1984

Kandemir D, Yaprak A, Cavusgil ST (2006) Alliance orientation: conceptualization, measurement, and impact on market performance. J Acad Mark Sci 34(3):324–340

Kaplan RS, Norton DP (2001) Transforming the balanced scorecard from performance measurement to strategic management: part I. Account Horiz 15(1):87–104

Khandwalla P (1977) The design of organizations. Harcourt Brace Jovanovoich, New York

Kohli AJ, Jaworski BJ (1990) Market orientation: the construct, research propositions, and managerial implications. J Mark 10:1–8

Langfield-Smith K (2008) Strategic management accounting: how far have we come in 25 years? Acc Audit Acc J 21:204–228

McManus L (2012) Customer accounting and marketing performance measures in the hotel industry: evidence from Australia. Int J Hosp Manag 33:140–152

Merchant KA (1985) Control in business organizations, Ballinger Publishing Company, New York

Miles RE, Snow CC (1978) Organizational strategy, structure and process. McGraw-Hill, New York

Moers F (2006) Performance measure properties and delegation. Account Rev 81(4):897–924

Mohammed BAH, Maelah R, Amir AM (2019) Strategic management accounting information and performance of private hospitals in Malaysia. Int J Econ Manag Account 27(2):473–502

Naranjo-Gil D, Maas V, Hartmann F (2009) How CFO’s determine management accounting innovation: an examination of direct and indirect effects. Eur Account Rev 18(4):667–695

Nixon B, Burns J (2012) The paradox of strategic management accounting. Manag Account Res 23:229–244

Noordin R, Zainuddin Y, Fuad, Mail R, Sariman NK (2015) Performance outcomes of strategic management accounting information usage in Malaysia: Insights from electrical and electronics companies. Procedia Econ Finance 31:13–25

Oboh CS, Ajibolade SO (2017) Strategic management accounting and decision making: a survey of the Nigerian banks. Future Business Journal 3:119–137

Ojra J (2014) Strategic management accounting practices in Palestinian companies: Application of contingency theory perspective. Unpublished Ph.D. Dissertation submitted at University of East Anglia, Norwich, United Kingdom.

Ojra J, Opute AP, Sabti A (2020) Influence of culture on the effectiveness of internal audit: a literature review. Int Rev Bus Res Pap 16(2):46–65

Opute AP (2012) Maximizing effectiveness in team sports: The personal audit tool. Team Perform Manag 18(1 & 2):78–101

Opute AP (2017) Exploring personality, identity and self-concept among young customers. In: Young consumer behaviour. Routledge (Taylor and Francis) Publications, New York

Opute AP, Madichie N (2017) Accounting-marketing integration Dimensions and antecedents: insights from a Frontier Market. J Bus Ind Mark 32(8):1144–1158

Opute AP, Madichie N (2014) Integration of functional areas of business: a research Agenda. Afr J Bus Econ Res 9(1):29–54

Opute AP, Dedoussis E, Tzokas N (2013) Building blocks of Accounting-Marketing integration in UK financial services organizations. J Mark Oper Manag Res 1(4):323–336

Opute AP, Irene BN, Iwu CG (2020) Tourism service and digital technologies: a value creation perspective. Afr J Hosp Tour Leisure 9(2):1–18

Opute AP, Kalu KI, Adeola O, Iwu CG (2021) Steering sustainable economic growth: entrepreneurial ecosystem approach. J Entrep Innov Emerg Econ 7(2):216–245

Opute AP, Iwu CG, Adeola O, Mugobo V, Okeke-Uzodike OE, Fagbola S, Jaiyeoba O (2020) The covid-19-pandemic and implications for businesses: innovative retail marketing viewpoint. Retail Mark Rev 16:1-18

Otley DT (1980) The contingency theory of management accounting: achievement and prognosis. Account Organ Soc 10:413–428

Patton MQ (1990) Qualitative evaluation and research methods. SAGE Publications, London

Pavlatos O (2015) An empirical investigation of strategic management accounting in hotels. Int J Contemp Hosp Manag 27(5):756–767

Perera S, Harrison G, Poole M (1997) Customer-focused manufacturing strategy and the use of operations-based non-financial performance measures: a research note. Acc Organ Soc 22(6):557–572

Porter ME (1985) The competitive advantage: creating and sustaining superior performance. Free Press, New York

Roslender R (1995) Accounting for strategic positioning: responding to the crisis in management accounting. Br J Manag 6:45–57

Roslender R (1996) Relevance lost and found: critical perspectives on the promise of management accounting. Crit Perspect Account 7:533–561

Roslender R, Hart S (2002) Integrating management accounting and marketing in the pursuit of competitive advantage: the case for strategic management accounting. Crit Perspect Account 14(2):77–255

Saunders M, Lewis P, Thornhill A (2012) Research methods for business students. Pearson Education Ltd., Harlow

Sedevich-Fons L (2018) Linking strategic management accounting and quality management systems. Bus Process Manag J. https://doi.org/10.1108/BPMJ-02-2018-0038

Shank JK, Govindarajan V (1992) Strategic cost management: tailoring controls to strategies. J Cost Manag Fall:14–24

Shank JK, Govindarajan V (1993) Strategic cost management: the new tool for competitive advantage. Free Press, New York

Sidhu BK, Roberts JH (2008) The marketing/accounting interface: lessons and limitations. J Market Manag 24(7–8):669–686

Silverman D (ed) (2016) Qualitative research, 4th edn. Sage, Los Angeles, CA

Simmonds K (1981) Strategic management accounting. Manag Account 59(4):26–29

Snyder H (2019) Literature review as a research methodology: an overview and guidelines. J Bus Res 104:333–339

Thomas DR (2006) A general inductive approach for analysing qualitative evaluation data. Am J Eval 27(2):237–246

Tuan Mat T (2010) Management accounting and organizational change: impact of alignment of management accounting system, structure and strategy on performance. Retrieved from http://ro.ecu.edu.au/theses/149

Turner MJ, Way SA, Hodari D, Witteman W (2017) Hotel property performance: the role of management accounting. Int J Hosp Manag 63:33–43

Verbeeten FHM (2010) Effects of business strategy, structure and technical innovativeness on change in management accounting and control systems at the business unit level: an empirical study. Int J Manag 27:123–143

Yasai-Ardekani M, Haug R (1997) Contextual determinants of strategic planning processes. J Manage Stud 34:729–767

Zakaria M (2015) Strategic management accounting information usage and the performance of SMEs in Malaysia. Int J Sci Commerce Human 3(1):99–113

Zamecnik R, Rajnoha R (2015) Strategic business performance management on the base of controlling and managerial information support. Procedia Econ Finance 26:769–776

Download references

Acknowledgements

Not applicable.

No external funding was obtained.

Author information

Authors and affiliations.

School of Management, Swansea University, Swansea, UK

GPROM Academic and Management Solutions, Paderborn, Germany

Abdullah Promise Opute

University of Wales Trinity Saint David, Lampeter, UK

Jeddah City, Saudi Arabia

Mohammad Mobarak Alsolmi

You can also search for this author in PubMed   Google Scholar

Contributions

OJ—the lead author—has made substantial contributions in the design of this study, in the design of the methodological approach and analysis of data, as well as in writing up the conclusions for this study. OA—the corresponding author—has made substantial contributions in the design of this study, the review of literature, the methodological approach and analysis of data, as well as in writing up the conclusions for this study. AM has contributed substantially to the design of this study, review of literature, methodological approach, as well as in writing up the conclusions for this study. All authors read and approved the final manuscript.

Corresponding author

Correspondence to Abdullah Promise Opute .

Ethics declarations

Competing interests.

There are no competing interests.

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ .

Reprints and permissions

About this article

Cite this article.

Ojra, J., Opute, A.P. & Alsolmi, M.M. Strategic management accounting and performance implications: a literature review and research agenda. Futur Bus J 7 , 64 (2021). https://doi.org/10.1186/s43093-021-00109-1

Download citation

Received : 25 May 2021

Accepted : 30 October 2021

Published : 27 November 2021

DOI : https://doi.org/10.1186/s43093-021-00109-1

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Competition intensity
• Market turbulence
• Formalisation
• Decentralisation
• Organisational strategy
• Organisational performance

An official website of the United States government

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

The site is secure. The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

• Publications
• Account settings

Preview improvements coming to the PMC website in October 2024. Learn More or Try it out now .

• Advanced Search
• Journal List
• HHS Author Manuscripts

The Growing Importance of Cost Accounting for Hospitals

Nathan carroll.

Department of Health Services Administration University of Alabama at Birmingham USA

Justin C. Lord

Management scholars have identified several cost accounting methods that provide organizations with accurate estimates of the costs they incur in producing output. However, little is known about which of these methods are most commonly used by hospitals. This article examines the literature on the relative costs and benefits of different accounting methods and the scant literature describing which of these methods are most commonly used by hospitals. It goes on to suggest that hospitals have not adopted sophisticated cost accounting systems because characteristics of the hospital industry make the costs of doing so high and the benefits of service-level cost information relatively low. However, changes in insurance benefit design are creating incentives for patients to compare hospital prices. If these changes continue, hospitals’ patient volumes and revenues may increasingly be dictated by the decisions of individual patients shopping for low-cost services and as a result, providers could see increasing pressure to set prices at levels that reflect the costs of providing care. If these changes materialize, cost accounting information will become a much more important part of hospital management than it has been in the past.

Introduction

Recently, calls for hospitals to be more transparent in their pricing have increased. Policymakers and health care professionals have focused a great deal of attention on finding ways to present price and quality information to consumers in an accessible and comprehensible manner, so that the consumer can make better informed decisions. Hospitals’ efforts to prepare for price transparency have focused on developing systems and processes required to calculate patient and insurance-benefit-specific prices, communicating these prices to patients, and making arrangements to collect cost sharing due from patients (American Hospital Association, 2014). Ultimately, the hope is that value (price and quality) will become the basis of competition, and hospitals will be incentivized to reduce their prices by cutting their underlying costs ( Herzlinger, 2002 ).

Hospital efforts to provide patients with understandable, usable price information will go a long way towards establishing a more transparent market for hospital services. Unfortunately, these efforts will not be sufficient to create the kind of price competition that reduces hospital costs. As patients gain better information about hospital service prices, they are likely to find wide, inexplicable variation in the costs of similar services ( Newman, Parente, Barrette, & Kennedy, 2016 ; Revere, Delgado, Donderici, Krause, & Swartz, 2016 ; Tompkins, Altman, & Eilat, 2006 ). The prices that these newly-informed patients face will, in many cases, bear little relation to the underlying cost of delivering care ( Dobson, DaVanzo, Doherty, & Tanamor, 2005 ). Before price competition can incent hospitals to reduce their operating costs, hospital pricing practices must change. Hospitals will have to set prices that relate to the cost of providing individual services instead of setting prices at levels that maximize profitability under contract pricing with insurers. This is an important step in achieving the ultimate goal of creating a marketplace in which hospitals compete on the basis of price. Unfortunately, little is known about the cost accounting systems hospitals are using to collect service-level cost information and the capabilities these systems afford the hospitals using them. As a result, it is difficult to anticipate how prepared hospitals are for market changes that could make service-level prices and cost information more important bases of competition.

This article begins by offering an overview of several cost accounting systems currently in use, and identifying strengths and weaknesses of each. Next, we describe the little that is known about the cost accounting capabilities of U.S. hospitals. The scant evidence available suggests that for most hospitals, cost accounting capabilities are rather limited. We suggest that the adoption of more sophisticated cost accounting systems has been hindered by pricing processes that emphasize price negotiations at the contract, rather than the individual service level. Under these pricing processes the benefits hospitals realize by implementing systems that provide detailed cost information are relatively modest. Organizational and environmental factors specific to the hospital industry may also make the cost of implementing sophisticated cost accounting systems prohibitively high, reducing the likelihood of adoption. The paper goes on to identify recent changes in payment systems that are likely to make service-level pricing, and hence cost accounting, a more important factor in hospital management. Finally, the paper discusses alternative views of the future of hospital markets in which the importance of cost accounting is more limited.

Cost accounting methods

Cost accounting is the process of estimating and classifying costs incurred by an organization. These costs can be analyzed at the organizational or departmental level, but Gapenski and Reiter have noted that “the holy grail of cost estimation is costing at the service or individual patient level” (2016). It seems Gapenski acknowledged the increasingly important role cost accounting is likely to play in the healthcare market. The most recent update of his widely-used textbook on health care finance and accounting included much-expanded coverage of techniques for estimating costs at the product or service level.

As different industries have evolved over time so have cost accounting methods ( Wendt, 2014 ) and the management accounting research analyzing these methods ( Kaplan & Porter, 2011 ). Different approaches to managerial and cost accounting have emphasized different components of the methodologies such as, accurate cost capture or the ability to capture financial and non-financial performance measures ( Davis & Albright, 2004 ; Henri, 2006 ; Ittner, Larcker, & Meyer, 2003 ). There is a wide spectrum of costing methodologies (e.g. value-based management, benchmarking, life cycle costing, and target costing) that can help inform managers. The literature has identified various cost management accounting techniques, such as, activity-based costing (ABC), activity-based management (ABM), time-driven ABC, target costing, balanced scorecards (BSC) and ratio of cost-to-charges (RCC) ( Agbejule, 2006 ; Ax & Bjørnenak, 2005 ; Bonner, Hesford, van der Stede, & Young, 2012 ; Kaplan & Anderson, 2007 ; Zawawi & Hoque, 2010). This paper will focus on five specific cost accounting techniques seen primarily in the healthcare environment: traditional costing, activity based costing, time-driven activity based costing, performance-focused activity based costing and the ratio of costs to charges. ( Bonner et al ., 2012 ; Selto & Widener, 2004 ).

Traditional Costing is a cost accounting methodology that allocates organizational overhead to a specific output based on a predetermined cost driver or by using a pre-determined percentage rate ( Paulus, van Raak, & Keijzer, 2002 ). The traditional costing technique is easy to understand and apply. It requires minimal financial and/or managerial investment which helps explain its wide use and acceptance ( McKenzie, 1999 ). However, these costing methods have been criticized for failing to account for differences in product/service lines and marketing channels ( Velmurugan, 2010 ), and for producing inaccurate and unrealistic representations of a product or service’s true cost ( McKenzie, 1999 ).

Activity-Based Costing is a costing approach developed by Kaplan in the mid-1980s. Activity-based costing (ABC) has been the subject of numerous articles and books ( Cooper & Kaplan, 1991 ; Gapenski & Reiter, 2016 ; Kaplan & Cooper, 1998 ). This approach has been widely adopted in public and private, service and managerial organizations ( Lawson, 2005 ). Activity based costing is widely used in the preparation of budgets as it serves as a planning mechanism that shows the relationship between goal achievement and resource intensity ( Namazi, 2009 ; Turney, 2010 ). Activity based costing takes a rational approach to product and service costing, since it begins with an effort to identify the fundamental activities and resources involved in producing an output ( Namazi, 2009 ). The indirect expenses are then allocated to the activities using cost drivers that are carefully selected to reflect the use of each particular resource pool. This methodology has been found to produce accurate and rational financial management information ( Velmurugan, 2010 ), and to provide information that helps managers make accurate product mix decisions, product price calculations, and consumer profitability analyses ( Horngren et al., 2010 ).

The basis for ABC is a belief that all activities exist to support the production and delivery of goods and services and that all indirect costs can be traced and allocated to individual products and services ( Velmurugan, 2010 ). Activity based costing provides managers a more accurate view of the ‘true’ cost of their products and services. The accuracy of the ABC can lead to different evaluations of costs and profitability as compared to other simpler costing approaches ( Namazi, 2009 ). Activity based costing is designed to provide more accurate information about product costs so that management can focus its attention on value-added activities ( Velmurugan, 2010 ). Activity based costing has been found to generate information that is superior to traditional systems ( McGowan, 1998 ). The use of ABC systems has been found to help organizations make better product mix decisions, product price calculations, and consumer profitability analyses ( Horngren et al., 2010 ) The use of ABC is also associated with improved firm performance ( Banker, Potter, & Schroeder, 1995 ; Ittner et al., 2003 ) and increased manager and employee satisfaction ( Swenson, 1995 ; McGowan & Klammer, 1997 ).

However, ABC is not without its drawbacks. The ABC process has been criticized as being resource intensive for complex organizations ( Moisello, 2012 ). Identifying the appropriate cost drivers, an essential step in the ABC process, requires significant managerial time and financial investment. Moreover, significant investments are required to maintain an ABC system as the organization’s processes change ( Moisello, 2012 ). Activity based costing systems can become outdated very quickly if the assumptions regarding the cost drivers are not updated to reflect organizational changes. The selection of cost drivers is also subjective. Activity based costing may allow managers to select cost drivers that reflect their personal preferences for particular ineffient processes, under-utilized resources or unprofitable products ( Kaplan & Anderson, 2004 ).

Time-Driven Activity Based Costing (TDABC) is a managerial accounting approach introduced in 2004 by Kaplan and Anderson. Time-driven activity based costing is an attempt to overcome some of the weaknesses associated with ABC. TDABC differs from traditional ABC, in that time is used as the primary cost driver. The assumption underlying the TDABC method is that most resources (i.e. manpower, equipment, and facilities) have capacities that can be measured in terms of time ( Namazi, 2009 ). TDABC does not require the identification of ‘activities’ that the ABC method does. With TDABC no individual activities are needed because the default cost driver is time. TDABC reduces the influence of personal preferences on cost estimation by eliminating managerial discretion in cost driver selection.

Time-driven activity based costing is simpler to implement than ABC and it integrates well with available data from electronic resource planning systems. Time-driven ABC also enables fast and inexpensive cost model maintenance ( Kaplan & Anderson, 2004 , 2007 ). However, the features that make TDABC easier to implement can reduce its usefulness relative to ABC. Under the TDABC system, the activities associated with the indirect expenses are not identified. Time-driven ABC uses a single activity measure and this single cost-time relationship may not represent the actual cause-effect behavior of the costs ( Namazi, 2009 ). The identification of specific drivers can potentially help identify inefficient processes which is one of the most valued components of ABC. Using time as a measure for practical resources may be relevant for some small service firms but not suitable for other more complex enterprises with different department outputs since indirect costs cannot be tied back to the employees’ work time ( Namazi, 2009 ). This may hold especially true in a healthcare organization where different activities may require a wide range of skill sets.

Performance-Focused Activity Based Costing (PFABC) is a third iteration of ABC. PFABC is a hybrid ABC method that attempts to overcome some of the weaknesses associated with TDABC and ABC. PFABC attempts to extend the value of this managerial costing system as a means to examine organizational performance. PFABC is an intensive costing process that requires several steps to properly allocate indirect expenses. PFABC is similar to ABC in that it requires the identification of major cost activities but dissimilar to TDABC in the ways that activities’ resource use is determined. With PFABC, the actual resources for each activity can be assessed in a variety of ways, including interviews, surveys, or based on actual utilization of time, materials or other resources ( Namazi, 2009 ). This is a difference between PFABC and conventional ABC, where the cost driver is determined via specific activities or TDABC where the cost driver is time.

The other significant difference between PFABC and other costing approaches is that PFABC calculates the cost drivers’ standard rate (quantity) and price variances. This helps managers evaluate the true drivers of cost by separating the analysis of volume and price variances. The extra processes in the PFABC approach make PFABC more difficult to establish but enable PFABC to offer a richer and more detailed examination of the organization’s activities.

PFABC does hold several advantages over the traditional ABC and TDABC ( Namazi, 2009 ). PFABC focuses more on the implementation stage by identifying each important activity explicitly and directly mapping the resource costs to the activities. PFABC’s focus on budget variances also helps managers to identify excess capacity. PFABC offers managers more information than other accounting methods. It is a powerful planning and performance evaluation tool, as it can identify variances, such as rate, efficiency, and volume variances. It is the one costing mechanism that is used to examine the efficiency and effectiveness of an organization.

Ratio of cost to charges (RCCs) is a costing method specific to the health care industry. Hospitals participating in the Medicare program are required to file annual Medicare Cost Reports with the Centers for Medicare and Medicaid Services (CMS). The cost report uses traditional costing methods to allocate overhead costs to clinical departments, allowing hospitals to estimate the full cost of each revenue-producing department. Hospitals can pair these estimates with information about the total charges for all services provided by a clinical department to compute a department-level ratio of cost to charges (RCC). The RCC, when multiplied by the hospital’s charge for a specific service, can be used to estimate the cost of providing an individual.

Service-level costing using RCCs is a simple exercise. Using RCCs requires virtually no additional investment of managerial time or financial resources because department level costs are readily available from the Medicare Cost Report and information on total and per service charges are readily available as well. However, the service cost estimates made using this method are of questionable accuracy. For one thing, the Medicare cost reporting process may contain features that encourage hospitals to distort their true costs (Magnus & Smith, 2000 ). The RCC costing method also relies on the tenuous assumption that the charges for all the services provided by a clinical department have a common markup over costs ( Gapenski & Reiter, 2016 ). There is no reason to believe this kind of constant markup exists. As a result, many cost estimates made using RCCs are inaccurate. One estimate suggests that over 30% of the DRG cost estimates within a hospital differ from the estimates made by more sophisticated methods by greater more than 10%. (Shwartz & Young, 1995)

Observations on the state of hospitals’ cost accounting efforts

While the literature describing the features of costing systems and advocating increased use of particular systems is extensive, there is relatively little information available about what types of cost accounting systems are most frequently used in U.S. hospitals today. Overall, U.S. hospitals have been slow to adopt the more sophisticated forms of cost accounting like ABC, TDABC, PDABC or even traditional costing methods. A 2007 report from the Healthcare Financial Management Association (HFMA) reports that 73% of surveyed hospitals rely on the RCCs or Medicare cost allocation methods for product cost information ( Healthcare Financial Management Association, 2007 ). An older survey of academic medical center CFOs suggested that in 2000, 16% of surveyed CFOs were “certain” in their plans to implement ABC in their organizations ( Smith et al ., 2000 ). Unfortunately we do not know how many of the surveyed CFOs were able to successfully implement and maintain ABC systems. It is also important to remember academic medical centers are some of the largest hospitals in the U.S. and are best-able to bear the fixed costs of creating and maintaining accounting systems. It is unlikely the experience of these facilities is representative of U.S. hospitals broadly. Although there is little in the way of academic research on hospitals’ cost accounting capabilities, the consensus among industry experts seems to be that hospitals’ cost accounting capabilities are lacking. Accounting experts have gone so far as to say that “…there is an almost complete lack of understanding of how much it costs to deliver patient care…Instead of focusing on the costs of treating individual patients with specific medical conditions over their full cycle of care, providers aggregate and analyze costs at the specialty or service department level” (Robert S Kaplan & Porter, 2011 ). This begs the question, why have hospitals been slow to adopt systems that hold a great deal of theoretical promise? The answer is that, for hospitals, the costs of implementing sophisticated cost accounting systems are relatively large while traditionally the benefits to doing so have been modest.

High costs of implementing accounting systems

Hospitals are particularly costly organizations in which to implement cost accounting efforts. For one thing, they produce a staggering number of products and services ranging from 12,000 to 45,000 individual items ( Dobson et al ., 2005 ). Next, the specific services that individual patients need can vary drastically, even within the same diagnosis related group (DRG) categories that Medicare and many payers use for payment ( Taheri, Butz, Dechert, & Greenfield, 2001 ). As a result, determining the cost of an output (in this case a DRG) presents the typical cost accounting challenges associated with allocating indirect costs and an additional challenge. Even if costs are perfectly measured, the cost of providing a particular kind of care can vary from patient to patient depending on the patient’s clinical needs and the preferences of the treating physician ( Feinglass, Martin, & Sen, 1991 ). Clearly, the hospital production process is complex and even the normally simple process of defining what outcome is being costed is difficult in the context of hospital operations. All these factors make the cost of implementing and maintaining a sophisticated cost accounting system relatively high for healthcare organizations.

Another notable cost of implementing a sophisticated cost system is the potential resistance from the facility’s medical staff. To the extent that a sophisticated costing system like ABC would assist hospitals in standardizing clinical processes, individual physicians may feel that their professional judgement is being impeded and may oppose efforts to develop more sophisticated systems ( Cardinaels, Roodhooft, & Herck, 2004 ). This conflict may be reinforced by the traditional separation between payments for hospitals’ “facility fees” and “professional fee” payments made to physicians practicing in hospitals. Hospitals reimbursement is, for the most part, case-based while a significant portion of a physician’s reimbursement comes on a fee--for-service basis, so while the hospital has an incentive to reduce per-episode resource use, the physician does not.

Modest benefits of cost system implementation

The costs of implementing a cost accounting system for a hospital are significant, yet the benefits of a sophisticated cost accounting system may be low for many hospitals. The reason for this limited benefit relates to hospitals’ perceived inability to influence their prices. Many hospitals feel that their ability to improve payment rates is limited, even if they develop sophisticated cost accounting systems ( Arrendondo, 2014 ). Moreover, even hospitals that can exert influence on the prices they charge tend to ignore service-level cost information in their pricing negotiations. In fact, in setting charges (which are seldom the actual prices paid for hospital services) large urban hospitals only report using cost information about half of the time while rural hospitals only report using cost information a quarter of the time ( Dobson et al ., 2005 ). This is probably due to the traditional methods used to price and reimburse hospital services. First, most U.S. patients have traditionally been insured and had plans that kept them relatively insulated from the full cost of medical care ( Reinhardt, 2006 ). As a result, price negotiations have taken place not with individual patients purchasing single services, but with insurance companies purchasing a mix of services on behalf of their beneficiaries. For hospitals, setting the price of individual services at rational, profitable levels has not been as important as negotiating entire contracts that proved profitable ( Tompkins et al. , 2006 ). As a result hospitals have not had to profitability price (and hence accurately cost) individual inpatient services, so long as they were able to negotiate acceptable insurer contracts ( Hilsenrath, Eakin, & Fischer, 2015 ; Tompkins et al. , 2006 ). Since negotiations have taken place at the contract rather than the individual service level, hospitals have realized relatively little benefit from investing in cost accounting systems that generate accurate cost estimates at the service or patient level. However, the hospital industry is changing in important ways that may increase the benefits of having a sophisticated cost accounting system while reducing the costs of implementation.

Market changes poised to increase the importance of service-level price negotiations

Firms’ decisions to adopt or change their cost accounting methodologies result from various organizational (Abernethy & Bouwens, 2005; Cavalluzzo & Ittner, 2004; Chapman, 2005; Granlund & Mouritsen, 2003), technical (Waweru, Hoque, & Uliana, 2004), and economic factors (Lin & Yu, 2002). The functionalist view of contingency theory states that organizations will develop or adopt control of management systems to achieve a goal or outcome. However, the goals or outcomes will be influenced by the external environment, technology, organizational structure, size, culture and strategy ( Chenhall, 2003 ). The various cost accounting methodologies (ABC, TDABC, PFABC, and RCCs) and systems have emerged in response to the different information needs of organizations and industries ( Chenhall & Langfield-Smith, 2003 ; Kaplan, 1984). The type of accounting system that a hospital decides to adopt or utilize will be contingent on organizational and environmental factors of the hospital ( Tiessen & Waterhouse, 1983 ). Price transparency and changes in individuals’ insurance benefits will certainly bring important changes to the hospital marketplace and these changes are likely to affect the costs and benefits associated with hospitals’ adoption of cost accounting systems.

Despite the traditional importance of contract-level negotiations in hospital pricing, the industry is currently experiencing changes that have the potential to increase the importance of pricing individual services competitively. These changes include an increase in coinsurance and deductibles, new reference pricing benefits, and an increase in media attention directed at health care pricing structures. Each of these trends will make it more important for hospitals to establish new prices that reflect the costs of providing particular services.

In the past 10 years patients have experienced a marked increase in the proportion of health care costs they pay directly. These increases have come in the form of rising deductibles and increases in the prevalence of coinsurance. In 2016 64% of workers with employer-provided health insurance faced coinsurance requirements for inpatient hospital care. Similarly, 66% of covered workers faced coinsurance requirements for outpatient surgery. For both services the average amount of coinsurance required was 19%. ( Kaiser & HRET, 2016 ). These are dramatic increases in the number of individuals exposed to coinsurance requirements. In 2006 only 22% of covered workers faced coinsurance for inpatient hospital stays and 24% of covered workers faced coinsurance for outpatient surgery ( Kaiser & HRET, 2006 ).

Rising deductibles may also provide an incentive for individuals to seek out low-cost providers. Currently individual deductibles average $1,478 and family deductibles average $4,343. For the 29% of covered workers in high-deductible plans, deductibles are even higher, averaging $2,031 for individuals and $4,321 for families ( Kaiser & HRET, 2006 ). It is true that these deductibles are likely to be met quickly by the cost of an inpatient stay, since commercial insurance payments to hospitals average $12,361 for an inpatient stay ( Cooper et al. , 2015 ). However, rising deductibles may still influence the provider choice of individuals undergoing lower-cost outpatient or imaging procedures. 1

High coinsurance requirements and deductibles create an incentive for patients to compare prices of different providers within their insurers’ networks. Beneficiaries with high coinsurance and deductibles still benefit from the rates negotiated between insurers and hospitals, but even prices offered to commercially insured patients can have tremendous variance within a single hospital market ( Newman et al ., 2016 ; Revere et al. , 2016 ). Increasing pressure on employers to control health care costs and the (now delayed) implementation of the Cadillac Tax from the Affordable Care Act, make it likely that employers will continue to shift the cost of care to employees. If this is the case, hospitals may find it necessary to re-price services based on the cost of providing those services rather than simply pricing services by applying a standard percentage updates to prior years’ prices.

Deductibles and coinsurance requirements are undoubtedly growing. However, another strategy insurers are using to sensitize consumers to the cost of care is reference pricing. Under reference pricing arrangements, insurers limit reimbursement for a defined medical service to a predefined amount. This amount is usually sufficient to cover the cost of services at select providers. Patients that wish to use higher-cost providers are responsible for the difference between the cost they incur and the reference price. Reference pricing benefits have been employed by large employers including the California Public Employees’ Retirement System (CalPERS) (for orthopedic procedures) and Safeway (for imaging and lab tests) ( Robinson & MacPherson, 2012 ). Reference pricing benefits have been shown to affect beneficiaries’ choice of provider and to induce price decreases from high-cost providers ( Robinson & Brown, 2013 ). If reference pricing benefits become more popular, hospitals may require a greater understanding of the cost of providing individual services so that they can establish prices that attract patients without generating financial losses.

Changes in insurance benefits have the potential to make the prices, and hence the costs, of individual services a more important consideration for hospitals. However, the confusing system for pricing hospital services and the inconsistencies it creates have attracted an increasing amount of attention from government regulators and the popular media. In his popular 2013 article, Stephen Brill of Time Magazine called hospital chargemasters “the poison coursing through the health care ecosystem” ( Brill, 2013 ). Since then the Centers for Medicare and Medicaid Services (CMS) have released charge data for hospital services and these releases have prompted a number of newspaper articles commenting on the large variation in charges ( Meier, McGinty, & Creswell, 2013 ; Radnofsky & Barry, 2013 ). On another front, state legislatures continue to be active in developing legislation requiring health care providers to offer pricing information ( Report Card on State Price Transparency Laws, 2015 ). If successful, efforts may encourage service-specific shopping or at least cause providers to increase their focus on service specific pricing that can be justified by a reliable and valid estimate of the cost of producing a specific service.

Alternative future states

Increasing price transparency will likely create market pressure that pushes hospitals to alter their pricing processes so that prices reflect the costs of providing individual services. In this version of the future, it will be important that hospitals adopt new cost accounting systems so that they can better-understand their service-level costs. However, predictions about the future of the health care industry are extremely difficult to make and there are other plausible views of the future in which cost accounting efforts continue to play a minor role in hospital management. One such circumstance could occur if capitated payments become pervasive reimbursement arrangements. In a capitated payment environment, managers may shift their focus from understanding service-level costs to other strategies. Attempts to increase revenues by expanding the population being managed and to reduce costs by improving care management efforts may be preferred to strategies that emphasize operating cost reductions. This sort of strategic behavior was seen in at least one integrated delivery system operating in the late 1990s. (Robinson & Dratler, 2006).

The widespread adoption of narrow networks is another scenario in which cost accounting could continue to play a minor role in hospital markets. Narrow networks plans are insurance benefits that offer relatively low premiums but drastically limit beneficiaries’ provider choice. Many of the plans offered through the federal and state exchanges are narrow network plans. These plans employ a very different strategy of cost reduction than plans that choose to increase coinsurance or deductible amounts. Plans that choose to increases coinsurance or deductible amounts encourage beneficiaries to compare the prices offered by providers within their networks (utilization effects). This puts more pressure on providers to offer rational pricing for individual services. On the other hand, to reduce costs narrow network plans must rely on insurers’ ability to negotiate lower-cost contracts with providers. If narrow network plans dominate the marketplace, the provider contract and not the individual service will continue to be the primary level at which prices are negotiated. In this scenario hospitals may avoid the need to reform their cost accounting efforts.

In the short term, barriers to price transparency include finding ways to communicate complex information on prices, provider quality, and financial liability to consumers in ways that they can understand. If these efforts meet with even partial success, hospitals are likely to encounter new challenges. Patient volumes and revenues may increasingly be dictated by the decisions of individual patients shopping for low-cost services and as a result, providers will see increasing pressure to set prices at levels that reflect the costs of providing care. Though a seemingly straightforward objective, this would be a marked change from hospitals’ current situation in which the primary levers of financial viability are their ability to gain volume through inclusion in payer networks and their ability to negotiate profitably at the contract level. If these changes materialize, cost accounting information will become a much more important part of hospital management than it has been in the past.

1 For example, commercial reimbursement for colonoscopies averages $1,694 and for lower-limb MRIs averages $1,332.

Contributor Information

Nathan Carroll, Department of Health Services Administration University of Alabama at Birmingham USA.

Justin C. Lord, Department of Health Services Administration University of Alabama at Birmingham USA.

• Agbejule A (2006). Motivation for activity-based costing implementation: Administrative and institutional influences . Journal of Accounting & Organizational Change , 2 ( 1 ), 42–73. [ Google Scholar ]
• Arrendondo R (2014). Why Revisit Your Cost Accounting Strategy? Healthcare Financial Management July, 68–73. [ PubMed ] [ Google Scholar ]
• Helathcare Financial Management Association, (2007). Reconstruting Hospital Pricing Systems: A Call to Action for Hospital Financial Leaders . Retrieved from Westchester, IL: [ Google Scholar ]
• Ax C, & Bjørnenak T (2005). Bundling and diffusion of management accounting innovations—the case of the balanced scorecard in Sweden . Management Accounting Research , 16 ( 1 ), 1–20. [ Google Scholar ]
• Banker RD, Potter G, & Schroeder RG (1995). An empirical analysis of manufacturing overhead cost drivers . Journal of Accounting and Economics , 19 ( 1 ), 115–137. [ Google Scholar ]
• Bonner SE, Hesford JW, Van der Stede WA, & Young S (2012). The social structure of communication in major accounting research journals . Contemporary Accounting Research , 29 ( 3 ), 869–909. [ Google Scholar ]
• Brill S (2013). Bitter Pill . Time , 181 ( 8 ), 16. [ PubMed ] [ Google Scholar ]
• Cardinaels E, Roodhooft F, & Herck G. v. (2004). Drivers of cost system development in hospitals: results of a survey . Health policy , 69 ( 2 ), 239–252. doi: 10.1016/j.healthpol.2004.04.009 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Chenhall RH (2003). Management control systems design within its organizational context: Findings from contingency-based research and directions for the future . Accounting, Organizations and Society , 28 ( 2 ), 127–168. [ Google Scholar ]
• Cooper R, & Kaplan RS (1991). Profit priorities from activity-based costing . Harvard Business Review , 69 ( 3 ), 130–135. [ Google Scholar ]
• Cooper Z, Craig S, Gaynor M, Van Reenen J (2015) The Price Ain’t Right? Hospital Prices and the Privately Insured . National Bureau of Economic Research working paper 21815.2015 . Retrieved from http://www.nber.org/papers/w21815 . [ Google Scholar ]
• Davis S, & Albright T (2004). An investigation of the effect of balanced scorecard implementation on financial performance . Management Accounting Research , 15 ( 2 ), 135–153. [ Google Scholar ]
• Dobson A, DaVanzo J, Doherty J, & Tanamor M (2005). A Study of Hospital Charge Setting Practices . Retrieved from Falls Church, VA: http://www.medpac.gov/documents/contractor-reports/Dec05_Charge_setting.pdf?sfvrsn=0 [ Google Scholar ]
• Feinglass J, Martin GJ, & Sen A (1991). The financial effect of physician practice style on hospital resource use . Health Services Research , 26 ( 2 ), 183–205. [ PMC free article ] [ PubMed ] [ Google Scholar ]
• Gapenski LC, & Reiter KL (2016). Healthcare Finance: An Introduction to Accounting and Financial Management (6 ed.). Chicago: Health Administration Press. [ Google Scholar ]
• Henri J-F (2006). Management control systems and strategy: A resource-based perspective . Accounting, Organizations and Society , 31 ( 6 ), 529–558. [ Google Scholar ]
• Herzlinger R (2002). Let’s Put Consumers in Charge of Health Care . Harvard Business Review , 80 . [ PubMed ] [ Google Scholar ]
• Hilsenrath P, Eakin C, & Fischer K (2015). Price-Transparency and Cost Accounting: Challenges for Health Care Organizations in the Consumer-Driven Era . INQUIRY: The Journal of Health Care Organization, Provision, and Financing , 52 . doi: 10.1177/0046958015574981 [ PMC free article ] [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Horngren CT, Foster G, Datar SM, Rajan M, Ittner C, & Baldwin AA (2010). Cost accounting: A managerial emphasis . Issues in Accounting Education , 25 ( 4 ), 789–790. [ Google Scholar ]
• Ittner CD, Larcker DF, & Meyer MW (2003). Subjectivity and the weighting of performance measures: Evidence from a balanced scorecard . The Accounting Review , 78 ( 3 ), 725–758. [ Google Scholar ]
• Kaiser Family Foundation and Health Research & Educational Trust. (2016). Employer Health Benefits Survey: 2016 . Retrieved from http://kff.org/health-costs/report/2016-employer-health-benefits-survey/ . [ Google Scholar ]
• Kaiser Family Foundation and Health Research & Educational Trust. (2006). Employer Health Benefits Survey: 2006 . Retrieved from https://kaiserfamilyfoundation.files.wordpress.com/2013/04/7527.pdf . [ Google Scholar ]
• Kaplan RS, & Anderson SR (2004). Time-driven activity-based costing . Harv Bus Rev , November, 131–138. [ PubMed ] [ Google Scholar ]
• Kaplan RS, & Anderson SR (2007). The innovation of time-driven activity-based costing . Journal of cost management , 21 ( 2 ), 5–15. [ Google Scholar ]
• Kaplan RS, & Cooper R (1998). Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance : Harvard Business Press. [ Google Scholar ]
• Kaplan RS, & Porter ME (2011). The big idea: How to solve the cost crisis in health care . Harvard Business Review , 89 ( 9 ), 46–52. [ PubMed ] [ Google Scholar ]
• Lawson RA (2005). The use of activity based costing in the healthcare industry: 1994 vs. 2004 . Research in healthcare financial management , 10 ( 1 ), 77–95. [ Google Scholar ]
• McGowan AS (1998). Perceived benefits of ABCM implementation . Accounting horizons , 12 ( 1 ), 31. [ Google Scholar ]
• McGowan AS, & Klammer TP (1997). Satisfaction with activity-based cost management implementation . Journal of management accounting research , 9 , 217–237. [ Google Scholar ]
• McKenzie J (1999). Activity-based costing for beginners . Magazine for Chartered Management Accountants , 77 ( 3 ), 56–58. [ Google Scholar ]
• Meier B, McGinty JC, & Creswell J (2013). Hospital Billing Varies Wildly, U.S. Data Shows. (cover story) . New York Times , 162 ( 56130 ), A1. [ Google Scholar ]
• Moisello AM (2012). ABC: Evolution, problems of implementation and organizational variables . American Journal of Industrial and Business Management , 2 , 55–63. doi: 10.4236/ajibm.2012.22008 [ CrossRef ] [ Google Scholar ]
• Namazi M (2009). Performance-focused ABC: A third generation of activity-based costing system . Cost management , 23 ( 5 ), 34–47. [ Google Scholar ]
• Newman D, Parente ST, Barrette E, & Kennedy K (2016). Prices For Common Medical Services Vary Substantially Among The Commercially Insured . Health Affairs . doi: 10.1377/hlthaff.2015.1379 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Nur Haiza Muhammad Z, & Hoque Z (2010). Research in management accounting innovations . Qualitative Research in Accounting and Management , 7 ( 4 ), 505–568. doi: 10.1108/11766091011094554 [ CrossRef ] [ Google Scholar ]
• Paulus A, Van Raak A, & Keijzer F (2002). Core articles: ABC: The pathway to comparison of the costs of integrated care . Public Money and Management , 22 ( 3 ), 25–32. [ Google Scholar ]
• Radnofsky L, & Barry R (2013, May 8 , 2013. ). Data Shine Light on Hospital Bills . Wall Street Journal (Online) . [ Google Scholar ]
• Reinhardt UE (2006). The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy . Health Affairs , 25 ( 1 ), 57–69. doi: 10.1377/hlthaff.25.1.57 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Report Card on State Price Transparency Laws. (2015). Retrieved from http://www.catalyzepaymentreform.org/images/documents/2015_Report_PriceTransLaws_06.pdf
• Revere FL, Delgado RI, Donderici EY, Krause TM, & Swartz MD (2016). Price Transparency and Healthcare Cost: An Evaluation of Commercial Price Variation for Obstetrical Services . Journal of health care finance . [ Google Scholar ]
• Robinson JC, & Brown TT (2013). Increases In Consumer Cost Sharing Redirect Patient Volumes And Reduce Hospital Prices For Orthopedic Surgery . Health Affairs , 32 ( 8 ), 1392–1397. doi: 10.1377/hlthaff.2013.0188 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Robinson JC, & MacPherson K (2012). Payers Test Reference Pricing And Centers Of Excellence To Steer Patients To Low-Price And High-Quality Providers . Health Affairs , 31 ( 9 ), 2028–2036. doi: 10.1377/hlthaff.2011.1313 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Selto FH, & Widener SK (2004). New directions in management accounting research: insights from practice . Advances in Management Accounting , 12 , 1–36. [ Google Scholar ]
• Smith D, Carli N, Adams A, Alcaraz R, Belles N, Ng A, … Tikhtman V (2000). Chief Financial Officers in Academic Medical Centers . Paper presented at the International Society for Research in Healthcare Financial Management Meetings, Baltimore, MD. [ Google Scholar ]
• Swenson D (1995). The benefits of activity-based cost management to the manufacturing industry . Journal of management accounting research , 7 , 167. [ Google Scholar ]
• Taheri PA, Butz DA, Dechert R, & Greenfield LJ (2001). How DRGs hurt academic health systems1 . Journal of the American College of Surgeons , 193 ( 1 ), 1–8. doi: 10.1016/S1072-7515(01)00870-5 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Tiessen P & Waterhouse JH (1983). Towards a descriptive theory of management accounting . Accounting, Organizations and Society 8 ( 2–3 ), 251–267. [ Google Scholar ]
• Tompkins CP, Altman SH, & Eilat E (2006). The Precarious Pricing System For Hospital Services . Health Affairs , 25 ( 1 ), 45–56. doi: 10.1377/hlthaff.25.1.45 [ PubMed ] [ CrossRef ] [ Google Scholar ]
• Turney PB (2010). Activity based costing: An emerging foundation for performance management . Cost management , 24 ( 4 ), 33–43. [ Google Scholar ]
• Velmurugan MS (2010). The success and failure of activity-based costing systems . Journal of Performance Management , 23 ( 2 ), 1–32. [ Google Scholar ]
• Wendt C (2014). Changing Healthcare System Types . Social Policy and Administration , 48 ( 7 ), 864–882. doi: 10.1111/spol.12061 [ CrossRef ] [ Google Scholar ]

McKinsey Global Private Markets Review 2024: Private markets in a slower era

At a glance, macroeconomic challenges continued.

McKinsey Global Private Markets Review 2024: Private markets: A slower era

If 2022 was a tale of two halves, with robust fundraising and deal activity in the first six months followed by a slowdown in the second half, then 2023 might be considered a tale of one whole. Macroeconomic headwinds persisted throughout the year, with rising financing costs, and an uncertain growth outlook taking a toll on private markets. Full-year fundraising continued to decline from 2021’s lofty peak, weighed down by the “denominator effect” that persisted in part due to a less active deal market. Managers largely held onto assets to avoid selling in a lower-multiple environment, fueling an activity-dampening cycle in which distribution-starved limited partners (LPs) reined in new commitments.

About the authors

This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Fredrik Dahlqvist , Alastair Green , Paul Maia, Alexandra Nee , David Quigley , Aditya Sanghvi , Connor Mangan, John Spivey, Rahel Schneider, and Brian Vickery , representing views from McKinsey’s Private Equity & Principal Investors Practice.

Performance in most private asset classes remained below historical averages for a second consecutive year. Decade-long tailwinds from low and falling interest rates and consistently expanding multiples seem to be things of the past. As private market managers look to boost performance in this new era of investing, a deeper focus on revenue growth and margin expansion will be needed now more than ever.

Perspectives on a slower era in private markets

Global fundraising contracted.

Fundraising fell 22 percent across private market asset classes globally to just over $1 trillion, as of year-end reported data—the lowest total since 2017. Fundraising in North America, a rare bright spot in 2022, declined in line with global totals, while in Europe, fundraising proved most resilient, falling just 3 percent. In Asia, fundraising fell precipitously and now sits 72 percent below the region’s 2018 peak.

Despite difficult fundraising conditions, headwinds did not affect all strategies or managers equally. Private equity (PE) buyout strategies posted their best fundraising year ever, and larger managers and vehicles also fared well, continuing the prior year’s trend toward greater fundraising concentration.

The numerator effect persisted

Despite a marked recovery in the denominator—the 1,000 largest US retirement funds grew 7 percent in the year ending September 2023, after falling 14 percent the prior year, for example 1 “U.S. retirement plans recover half of 2022 losses amid no-show recession,” Pensions and Investments , February 12, 2024. —many LPs remain overexposed to private markets relative to their target allocations. LPs started 2023 overweight: according to analysis from CEM Benchmarking, average allocations across PE, infrastructure, and real estate were at or above target allocations as of the beginning of the year. And the numerator grew throughout the year, as a lack of exits and rebounding valuations drove net asset values (NAVs) higher. While not all LPs strictly follow asset allocation targets, our analysis in partnership with global private markets firm StepStone Group suggests that an overallocation of just one percentage point can reduce planned commitments by as much as 10 to 12 percent per year for five years or more.

Despite these headwinds, recent surveys indicate that LPs remain broadly committed to private markets. In fact, the majority plan to maintain or increase allocations over the medium to long term.

Investors fled to known names and larger funds

Fundraising concentration reached its highest level in over a decade, as investors continued to shift new commitments in favor of the largest fund managers. The 25 most successful fundraisers collected 41 percent of aggregate commitments to closed-end funds (with the top five managers accounting for nearly half that total). Closed-end fundraising totals may understate the extent of concentration in the industry overall, as the largest managers also tend to be more successful in raising non-institutional capital.

While the largest funds grew even larger—the largest vehicles on record were raised in buyout, real estate, infrastructure, and private debt in 2023—smaller and newer funds struggled. Fewer than 1,700 funds of less than $1 billion were closed during the year, half as many as closed in 2022 and the fewest of any year since 2012. New manager formation also fell to the lowest level since 2012, with just 651 new firms launched in 2023.

Whether recent fundraising concentration and a spate of M&A activity signals the beginning of oft-rumored consolidation in the private markets remains uncertain, as a similar pattern developed in each of the last two fundraising downturns before giving way to renewed entrepreneurialism among general partners (GPs) and commitment diversification among LPs. Compared with how things played out in the last two downturns, perhaps this movie really is different, or perhaps we’re watching a trilogy reusing a familiar plotline.

Dry powder inventory spiked (again)

Private markets assets under management totaled $13.1 trillion as of June 30, 2023, and have grown nearly 20 percent per annum since 2018. Dry powder reserves—the amount of capital committed but not yet deployed—increased to $3.7 trillion, marking the ninth consecutive year of growth. Dry powder inventory—the amount of capital available to GPs expressed as a multiple of annual deployment—increased for the second consecutive year in PE, as new commitments continued to outpace deal activity. Inventory sat at 1.6 years in 2023, up markedly from the 0.9 years recorded at the end of 2021 but still within the historical range. NAV grew as well, largely driven by the reluctance of managers to exit positions and crystallize returns in a depressed multiple environment.

Private equity strategies diverged

Buyout and venture capital, the two largest PE sub-asset classes, charted wildly different courses over the past 18 months. Buyout notched its highest fundraising year ever in 2023, and its performance improved, with funds posting a (still paltry) 5 percent net internal rate of return through September 30. And although buyout deal volumes declined by 19 percent, 2023 was still the third-most-active year on record. In contrast, venture capital (VC) fundraising declined by nearly 60 percent, equaling its lowest total since 2015, and deal volume fell by 36 percent to the lowest level since 2019. VC funds returned –3 percent through September, posting negative returns for seven consecutive quarters. VC was the fastest-growing—as well as the highest-performing—PE strategy by a significant margin from 2010 to 2022, but investors appear to be reevaluating their approach in the current environment.

Private equity entry multiples contracted

PE buyout entry multiples declined by roughly one turn from 11.9 to 11.0 times EBITDA, slightly outpacing the decline in public market multiples (down from 12.1 to 11.3 times EBITDA), through the first nine months of 2023. For nearly a decade leading up to 2022, managers consistently sold assets into a higher-multiple environment than that in which they had bought those assets, providing a substantial performance tailwind for the industry. Nowhere has this been truer than in technology. After experiencing more than eight turns of multiple expansion from 2009 to 2021 (the most of any sector), technology multiples have declined by nearly three turns in the past two years, 50 percent more than in any other sector. Overall, roughly two-thirds of the total return for buyout deals that were entered in 2010 or later and exited in 2021 or before can be attributed to market multiple expansion and leverage. Now, with falling multiples and higher financing costs, revenue growth and margin expansion are taking center stage for GPs.

Real estate receded

Demand uncertainty, slowing rent growth, and elevated financing costs drove cap rates higher and made price discovery challenging, all of which weighed on deal volume, fundraising, and investment performance. Global closed-end fundraising declined 34 percent year over year, and funds returned −4 percent in the first nine months of the year, losing money for the first time since the 2007–08 global financial crisis. Capital shifted away from core and core-plus strategies as investors sought liquidity via redemptions in open-end vehicles, from which net outflows reached their highest level in at least two decades. Opportunistic strategies benefited from this shift, with investors focusing on capital appreciation over income generation in a market where alternative sources of yield have grown more attractive. Rising interest rates widened bid–ask spreads and impaired deal volume across food groups, including in what were formerly hot sectors: multifamily and industrial.

Private debt pays dividends

Debt again proved to be the most resilient private asset class against a turbulent market backdrop. Fundraising declined just 13 percent, largely driven by lower commitments to direct lending strategies, for which a slower PE deal environment has made capital deployment challenging. The asset class also posted the highest returns among all private asset classes through September 30. Many private debt securities are tied to floating rates, which enhance returns in a rising-rate environment. Thus far, managers appear to have successfully navigated the rising incidence of default and distress exhibited across the broader leveraged-lending market. Although direct lending deal volume declined from 2022, private lenders financed an all-time high 59 percent of leveraged buyout transactions last year and are now expanding into additional strategies to drive the next era of growth.

Infrastructure took a detour

After several years of robust growth and strong performance, infrastructure and natural resources fundraising declined by 53 percent to the lowest total since 2013. Supply-side timing is partially to blame: five of the seven largest infrastructure managers closed a flagship vehicle in 2021 or 2022, and none of those five held a final close last year. As in real estate, investors shied away from core and core-plus investments in a higher-yield environment. Yet there are reasons to believe infrastructure’s growth will bounce back. Limited partners (LPs) surveyed by McKinsey remain bullish on their deployment to the asset class, and at least a dozen vehicles targeting more than $10 billion were actively fundraising as of the end of 2023. Multiple recent acquisitions of large infrastructure GPs by global multi-asset-class managers also indicate marketwide conviction in the asset class’s potential.

Private markets still have work to do on diversity

Private markets firms are slowly improving their representation of females (up two percentage points over the prior year) and ethnic and racial minorities (up one percentage point). On some diversity metrics, including entry-level representation of women, private markets now compare favorably with corporate America. Yet broad-based parity remains elusive and too slow in the making. Ethnic, racial, and gender imbalances are particularly stark across more influential investing roles and senior positions. In fact, McKinsey’s research  reveals that at the current pace, it would take several decades for private markets firms to reach gender parity at senior levels. Increasing representation across all levels will require managers to take fresh approaches to hiring, retention, and promotion.

Artificial intelligence generating excitement

The transformative potential of generative AI was perhaps 2023’s hottest topic (beyond Taylor Swift). Private markets players are excited about the potential for the technology to optimize their approach to thesis generation, deal sourcing, investment due diligence, and portfolio performance, among other areas. While the technology is still nascent and few GPs can boast scaled implementations, pilot programs are already in flight across the industry, particularly within portfolio companies. Adoption seems nearly certain to accelerate throughout 2024.

Private markets in a slower era

If private markets investors entered 2023 hoping for a return to the heady days of 2021, they likely left the year disappointed. Many of the headwinds that emerged in the latter half of 2022 persisted throughout the year, pressuring fundraising, dealmaking, and performance. Inflation moderated somewhat over the course of the year but remained stubbornly elevated by recent historical standards. Interest rates started high and rose higher, increasing the cost of financing. A reinvigorated public equity market recovered most of 2022’s losses but did little to resolve the valuation uncertainty private market investors have faced for the past 18 months.

Within private markets, the denominator effect remained in play, despite the public market recovery, as the numerator continued to expand. An activity-dampening cycle emerged: higher cost of capital and lower multiples limited the ability or willingness of general partners (GPs) to exit positions; fewer exits, coupled with continuing capital calls, pushed LP allocations higher, thereby limiting their ability or willingness to make new commitments. These conditions weighed on managers’ ability to fundraise. Based on data reported as of year-end 2023, private markets fundraising fell 22 percent from the prior year to just over $1 trillion, the largest such drop since 2009 (Exhibit 1).

The impact of the fundraising environment was not felt equally among GPs. Continuing a trend that emerged in 2022, and consistent with prior downturns in fundraising, LPs favored larger vehicles and the scaled GPs that typically manage them. Smaller and newer managers struggled, and the number of sub–$1 billion vehicles and new firm launches each declined to its lowest level in more than a decade.

Despite the decline in fundraising, private markets assets under management (AUM) continued to grow, increasing 12 percent to $13.1 trillion as of June 30, 2023. 2023 fundraising was still the sixth-highest annual haul on record, pushing dry powder higher, while the slowdown in deal making limited distributions.

Investment performance across private market asset classes fell short of historical averages. Private equity (PE) got back in the black but generated the lowest annual performance in the past 15 years, excluding 2022. Closed-end real estate produced negative returns for the first time since 2009, as capitalization (cap) rates expanded across sectors and rent growth dissipated in formerly hot sectors, including multifamily and industrial. The performance of infrastructure funds was less than half of its long-term average and even further below the double-digit returns generated in 2021 and 2022. Private debt was the standout performer (if there was one), outperforming all other private asset classes and illustrating the asset class’s countercyclical appeal.

Private equity down but not out

Higher financing costs, lower multiples, and an uncertain macroeconomic environment created a challenging backdrop for private equity managers in 2023. Fundraising declined for the second year in a row, falling 15 percent to $649 billion, as LPs grappled with the denominator effect and a slowdown in distributions. Managers were on the fundraising trail longer to raise this capital: funds that closed in 2023 were open for a record-high average of 20.1 months, notably longer than 18.7 months in 2022 and 14.1 months in 2018. VC and growth equity strategies led the decline, dropping to their lowest level of cumulative capital raised since 2015. Fundraising in Asia fell for the fourth year of the last five, with the greatest decline in China.

Despite the difficult fundraising context, a subset of strategies and managers prevailed. Buyout managers collectively had their best fundraising year on record, raising more than $400 billion. Fundraising in Europe surged by more than 50 percent, resulting in the region’s biggest haul ever. The largest managers raised an outsized share of the total for a second consecutive year, making 2023 the most concentrated fundraising year of the last decade (Exhibit 2).

Despite the drop in aggregate fundraising, PE assets under management increased 8 percent to $8.2 trillion. Only a small part of this growth was performance driven: PE funds produced a net IRR of just 2.5 percent through September 30, 2023. Buyouts and growth equity generated positive returns, while VC lost money. PE performance, dating back to the beginning of 2022, remains negative, highlighting the difficulty of generating attractive investment returns in a higher interest rate and lower multiple environment. As PE managers devise value creation strategies to improve performance, their focus includes ensuring operating efficiency and profitability of their portfolio companies.

Deal activity volume and count fell sharply, by 21 percent and 24 percent, respectively, which continued the slower pace set in the second half of 2022. Sponsors largely opted to hold assets longer rather than lock in underwhelming returns. While higher financing costs and valuation mismatches weighed on overall deal activity, certain types of M&A gained share. Add-on deals, for example, accounted for a record 46 percent of total buyout deal volume last year.

Real estate recedes

For real estate, 2023 was a year of transition, characterized by a litany of new and familiar challenges. Pandemic-driven demand issues continued, while elevated financing costs, expanding cap rates, and valuation uncertainty weighed on commercial real estate deal volumes, fundraising, and investment performance.

Managers faced one of the toughest fundraising environments in many years. Global closed-end fundraising declined 34 percent to $125 billion. While fundraising challenges were widespread, they were not ubiquitous across strategies. Dollars continued to shift to large, multi-asset class platforms, with the top five managers accounting for 37 percent of aggregate closed-end real estate fundraising. In April, the largest real estate fund ever raised closed on a record $30 billion.

Capital shifted away from core and core-plus strategies as investors sought liquidity through redemptions in open-end vehicles and reduced gross contributions to the lowest level since 2009. Opportunistic strategies benefited from this shift, as investors turned their attention toward capital appreciation over income generation in a market where alternative sources of yield have grown more attractive.

In the United States, for instance, open-end funds, as represented by the National Council of Real Estate Investment Fiduciaries Fund Index—Open-End Equity (NFI-OE), recorded $13 billion in net outflows in 2023, reversing the trend of positive net inflows throughout the 2010s. The negative flows mainly reflected $9 billion in core outflows, with core-plus funds accounting for the remaining outflows, which reversed a 20-year run of net inflows.

As a result, the NAV in US open-end funds fell roughly 16 percent year over year. Meanwhile, global assets under management in closed-end funds reached a new peak of $1.7 trillion as of June 2023, growing 14 percent between June 2022 and June 2023.

Real estate underperformed historical averages in 2023, as previously high-performing multifamily and industrial sectors joined office in producing negative returns caused by slowing demand growth and cap rate expansion. Closed-end funds generated a pooled net IRR of −3.5 percent in the first nine months of 2023, losing money for the first time since the global financial crisis. The lone bright spot among major sectors was hospitality, which—thanks to a rush of postpandemic travel—returned 10.3 percent in 2023. 2 Based on NCREIFs NPI index. Hotels represent 1 percent of total properties in the index. As a whole, the average pooled lifetime net IRRs for closed-end real estate funds from 2011–20 vintages remained around historical levels (9.8 percent).

Global deal volume declined 47 percent in 2023 to reach a ten-year low of $650 billion, driven by widening bid–ask spreads amid valuation uncertainty and higher costs of financing (Exhibit 3). 3 CBRE, Real Capital Analytics Deal flow in the office sector remained depressed, partly as a result of continued uncertainty in the demand for space in a hybrid working world.

During a turbulent year for private markets, private debt was a relative bright spot, topping private markets asset classes in terms of fundraising growth, AUM growth, and performance.

Fundraising for private debt declined just 13 percent year over year, nearly ten percentage points less than the private markets overall. Despite the decline in fundraising, AUM surged 27 percent to $1.7 trillion. And private debt posted the highest investment returns of any private asset class through the first three quarters of 2023.

Private debt’s risk/return characteristics are well suited to the current environment. With interest rates at their highest in more than a decade, current yields in the asset class have grown more attractive on both an absolute and relative basis, particularly if higher rates sustain and put downward pressure on equity returns (Exhibit 4). The built-in security derived from debt’s privileged position in the capital structure, moreover, appeals to investors that are wary of market volatility and valuation uncertainty.

Direct lending continued to be the largest strategy in 2023, with fundraising for the mostly-senior-debt strategy accounting for almost half of the asset class’s total haul (despite declining from the previous year). Separately, mezzanine debt fundraising hit a new high, thanks to the closings of three of the largest funds ever raised in the strategy.

Over the longer term, growth in private debt has largely been driven by institutional investors rotating out of traditional fixed income in favor of private alternatives. Despite this growth in commitments, LPs remain underweight in this asset class relative to their targets. In fact, the allocation gap has only grown wider in recent years, a sharp contrast to other private asset classes, for which LPs’ current allocations exceed their targets on average. According to data from CEM Benchmarking, the private debt allocation gap now stands at 1.4 percent, which means that, in aggregate, investors must commit hundreds of billions in net new capital to the asset class just to reach current targets.

Private debt was not completely immune to the macroeconomic conditions last year, however. Fundraising declined for the second consecutive year and now sits 23 percent below 2021’s peak. Furthermore, though private lenders took share in 2023 from other capital sources, overall deal volumes also declined for the second year in a row. The drop was largely driven by a less active PE deal environment: private debt is predominantly used to finance PE-backed companies, though managers are increasingly diversifying their origination capabilities to include a broad new range of companies and asset types.

Infrastructure and natural resources take a detour

For infrastructure and natural resources fundraising, 2023 was an exceptionally challenging year. Aggregate capital raised declined 53 percent year over year to $82 billion, the lowest annual total since 2013. The size of the drop is particularly surprising in light of infrastructure’s recent momentum. The asset class had set fundraising records in four of the previous five years, and infrastructure is often considered an attractive investment in uncertain markets.

While there is little doubt that the broader fundraising headwinds discussed elsewhere in this report affected infrastructure and natural resources fundraising last year, dynamics specific to the asset class were at play as well. One issue was supply-side timing: nine of the ten largest infrastructure GPs did not close a flagship fund in 2023. Second was the migration of investor dollars away from core and core-plus investments, which have historically accounted for the bulk of infrastructure fundraising, in a higher rate environment.

The asset class had some notable bright spots last year. Fundraising for higher-returning opportunistic strategies more than doubled the prior year’s total (Exhibit 5). AUM grew 18 percent, reaching a new high of $1.5 trillion. Infrastructure funds returned a net IRR of 3.4 percent in 2023; this was below historical averages but still the second-best return among private asset classes. And as was the case in other asset classes, investors concentrated commitments in larger funds and managers in 2023, including in the largest infrastructure fund ever raised.

The outlook for the asset class, moreover, remains positive. Funds targeting a record amount of capital were in the market at year-end, providing a robust foundation for fundraising in 2024 and 2025. A recent spate of infrastructure GP acquisitions signal multi-asset managers’ long-term conviction in the asset class, despite short-term headwinds. Global megatrends like decarbonization and digitization, as well as revolutions in energy and mobility, have spurred new infrastructure investment opportunities around the world, particularly for value-oriented investors that are willing to take on more risk.

Private markets make measured progress in DEI

Diversity, equity, and inclusion (DEI) has become an important part of the fundraising, talent, and investing landscape for private market participants. Encouragingly, incremental progress has been made in recent years, including more diverse talent being brought to entry-level positions, investing roles, and investment committees. The scope of DEI metrics provided to institutional investors during fundraising has also increased in recent years: more than half of PE firms now provide data across investing teams, portfolio company boards, and portfolio company management (versus investment team data only). 4 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023.

In 2023, McKinsey surveyed 66 global private markets firms that collectively employ more than 60,000 people for the second annual State of diversity in global private markets report. 5 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023. The research offers insight into the representation of women and ethnic and racial minorities in private investing as of year-end 2022. In this chapter, we discuss where the numbers stand and how firms can bring a more diverse set of perspectives to the table.

The statistics indicate signs of modest advancement. Overall representation of women in private markets increased two percentage points to 35 percent, and ethnic and racial minorities increased one percentage point to 30 percent (Exhibit 6). Entry-level positions have nearly reached gender parity, with female representation at 48 percent. The share of women holding C-suite roles globally increased 3 percentage points, while the share of people from ethnic and racial minorities in investment committees increased 9 percentage points. There is growing evidence that external hiring is gradually helping close the diversity gap, especially at senior levels. For example, 33 percent of external hires at the managing director level were ethnic or racial minorities, higher than their existing representation level (19 percent).

Yet, the scope of the challenge remains substantial. Women and minorities continue to be underrepresented in senior positions and investing roles. They also experience uneven rates of progress due to lower promotion and higher attrition rates, particularly at smaller firms. Firms are also navigating an increasingly polarized workplace today, with additional scrutiny and a growing number of lawsuits against corporate diversity and inclusion programs, particularly in the US, which threatens to impact the industry’s pace of progress.

Fredrik Dahlqvist is a senior partner in McKinsey’s Stockholm office; Alastair Green  is a senior partner in the Washington, DC, office, where Paul Maia and Alexandra Nee  are partners; David Quigley  is a senior partner in the New York office, where Connor Mangan is an associate partner and Aditya Sanghvi  is a senior partner; Rahel Schneider is an associate partner in the Bay Area office; John Spivey is a partner in the Charlotte office; and Brian Vickery  is a partner in the Boston office.

The authors wish to thank Jonathan Christy, Louis Dufau, Vaibhav Gujral, Graham Healy-Day, Laura Johnson, Ryan Luby, Tripp Norton, Alastair Rami, Henri Torbey, and Alex Wolkomir for their contributions

The authors would also like to thank CEM Benchmarking and the StepStone Group for their partnership in this year's report.

This article was edited by Arshiya Khullar, an editor in the Gurugram office.

Explore a career with us

Related articles.

CEO alpha: A new approach to generating private equity outperformance

Private equity turns to resiliency strategies for software investments

The state of diversity in global private markets: 2022

Exploring the interface between management accounting and marketing: a literature review of customer accounting

• Original Paper
• Published: 17 April 2020
• Volume 31 , pages 157–208, ( 2020 )

Cite this article

• Kohsuke Matsuoka   ORCID: orcid.org/0000-0003-3486-3632 1  

2418 Accesses

7 Citations

Explore all metrics

The availability of customer data has been enhanced in the digital economy, which can be used to measure the performance of marketing activities. Accounting techniques using customer data are collectively called customer accounting (CA). To seek the interface between management accounting and marketing, this study first discusses the three accounting weaknesses (the lack of revenue milepost information, revenue sustainability measurements, and intangibles capitalization) and relate them to marketing concepts (customer journey, customer acquisition and retention, and customer assets). Next, this study reviews literature on CA. Revenue accounting (RA), which focuses on revenue in an accounting period, and aims at the planning and control of marketing. Customer profitability analysis (CPA) has developed in the stream of strategic management accounting. The central focus of CPA is the allocation of selling, general and administrative expenses to individual customers through activity-based costing. Customer lifetime value and customer equity (CLV and CE) focus on the present value of cash flow from customer acquisition and retention. While RA and CPA respectively focus on revenues and costs in an accounting period, CLV and CE take cash flows in all future periods into consideration. Finally, links of each CA tool to the three marketing concepts are discussed to seek further development of CA.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA) Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Rent this article via DeepDyve

Institutional subscriptions

Similar content being viewed by others

Marketing Models for the Customer-Centric Firm

How to really quantify the economic value of customer information in corporate databases

Developing an Effective Measure of Customer Profitability

Although the proponents discuss RA in terms of both financial and management accounting, the following discussion focuses only on issues regarding management accounting.

Glover and Ijiri ( 2002 ) name their other candidate for their new accounting concept as customer accounting (p. 67). This name can capture a wider range of marketing activities, because it includes nonfinancial customer data. Glover and Ijiri, however, adopt the name of revenue accounting because they want to highlight the financial nature of their proposed accounting.

B-10. Although it is slightly beyond the scope of this study, resource allocation between customers or customer prioritization are also debated in marketing literatures as customer profitability and/or CLV are different among customers due to their heterogeneity. Homburg et al. ( 2008 ) show that offering differentiated marketing programs to top-tier customers (customer prioritization) improves customer profitability. Ryals ( 2005 ) and Balboni and Terho ( 2016 ) conducted case studies of customer strategies including customer divestment. Marketing programs for customer divestment, however, entail a risk of revenge from angry customers over the long-term (e.g., Haenel et al. 2019 ; Wagner et al. 2009 ).

Ijiri and Lin ( 2006 ) illustrate that a Markov chain model in RA can also be used to analyze an agency problem that a manager’s decision making aimed at the maximization of short-term profitability does not always lead to the best long-term profitability.

Although the proponents of RA do not explain clearly why they make this assumption, it is convincing. Ijiri (1999), for example, analyzes Amazon.com that spends most of its capital outlay in customer acquisition that results in losses.

Strategic cost management is another term used mainly in United States (e.g., Shank and Govindarajan 1993 ), but this study adopts strategic management accounting as a comprehensive term to explicitly incorporate RA.

Guilding et al. ( 2001 ) is an exception, because they show an illustrative case of customer revenues from multiple departments in the hotel industry.

Two papers are excluded from the table because they do not specify which costs are assigned to customers (Cambra-Fierro et al. 2018 ; Csikósová et al. 2016 ).

Bonacchi et al. ( 2015 ) is an accounting research that estimates CE based on public data, but it is published in Contemporary Accounting Research , which is not listed in Table 1

To analyze customer experience throughout the customer journey, qualitative tools such as text analysis would be useful, because it informs raw customer voices which cannot be understood through qualitative financial data (Roslender and Hart 2010 ; Boyce 2000 ).

Customer asset stock and flow statements are called CE stock and flow statements in the study of Wiesel et al. ( 2008 ) because they use the term CE as the total CLV of current customers.

Allen, B. J., Dholakia, U. M., & Basuroy, S. (2016). The economic benefits to retailers from customer participation in proprietary web panels. Journal of Retailing, 92 (2), 147–161. https://doi.org/10.1016/j.jretai.2015.12.003 .

Article   Google Scholar  

Armelini, G., Barrot, C., & Becker, J. U. (2015). Referral programs, customer value, and the relevance of dyadic characteristics. International Journal of Research in Marketing, 32 (4), 449–452. https://doi.org/10.1016/j.ijresmar.2015.09.004 .

Balboni, B., & Terho, H. (2016). Outward-looking and future-oriented customer value potential management: The sales force value appropriation role. Industrial Marketing Management, 53 , 181–193. https://doi.org/10.1016/j.indmarman.2015.05.022 .

Ballings, M., McCullough, H., & Bharadwaj, N. (2018). Cause marketing and customer profitability. Journal of the Academy of Marketing Science, 46 (2), 234–251. https://doi.org/10.1007/s11747-017-0571-4 .

Banker, R. D., Gordon, P., & Srinivasan, D. (2000). An empirical investigation of an incentive plan that includes nonfinancial performance measures. The Accounting Review, 75 (1), 65–92.

Banker, R. D., & Mashruwala, R. (2007). The moderating role of competition in the relationship between nonfinancial measures and future financial performance. Contemporary Accounting Research, 24 (3), 763–793. https://doi.org/10.1506/car.24.3.4 .

Baumgartner, H., & Pieters, R. (2003). The structural influence of marketing journals: A citation analysis of the discipline and its subareas over time. Journal of Marketing , 67 (2), 123–139.

Bayer, E., Tuli, K. R., & Skiera, B. (2017). Do disclosures of customer metrics lower investors’ and analysts’ uncertainty but hurt firm performance? Journal of Marketing Research, 54 (2), 239–259. https://doi.org/10.1509/jmr.14.0028 .

Bellis-Jones, R. (1989). Customer profitability analysis. Management Accounting, 67 (2), 26–28.

Google Scholar  

Berger, P. D., & Nasr, N. I. (1998). Customer lifetime value: Marketing models and applications. Journal of Interactive Marketing, 12 (1), 17–30.

Bhimani, A., & Bromwich, M. (2009). Management accounting in a digital and global economy: The interface of strategy, technology, and cost information. In C. S. Chapman (Ed.), Accounting, organizations, and institutions (pp. 85–111). Oxford: Oxford University Press.

Chapter   Google Scholar  

Blattberg, R. C., & Deighton, J. (1996). Manage marketing by the customer equity test. Harvard Business Review, 74 (4), 136–144.

Bonacchi, M., Kolev, K., & Lev, B. (2015). Customer franchise-a hidden, yet crucial, asset. Contemporary Accounting Research, 32 (3), 1024–1049. https://doi.org/10.1111/1911-3846.12095 .

Borle, S., Singh, S. S., & Jain, D. C. (2008). Customer lifetime value measurement. Management Science, 54 (1), 100–112. https://doi.org/10.1287/mnsc.1070.0746 .

Boyce, G. (2000). Valuing customers and loyalty: The rhetoric of customer focus versus the reality of alienation and exclusion of (de valued) customers. Critical Perspectives on Accounting, 11 (6), 649–689. https://doi.org/10.1006/cpac.2000.0408 .

Bowman, D., & Narayandas, D. (2004). Linking customer management effort to customer profitability in business markets. Journal of Marketing Research (JMR), 41 (4), 433–447. https://doi.org/10.1509/jmkr.41.4.433.47011 .

Cambra-Fierro, J., Kamakura, W. A., Melero-Polo, I., & Sese, F. J. (2016). Are multichannel customers really more valuable? An analysis of banking services. International Journal of Research in Marketing, 33 (1), 208–212. https://doi.org/10.1016/j.ijresmar.2015.12.007 .

Cambra-Fierro, J., Melero-Polo, I., Sese, F. J., & van Doorn, J. (2018). Customer-firm interactions and the path to profitability. Journal of Service Research, 21 (2), 201–218. https://doi.org/10.1177/1094670517738369 .

Campbell, D., & Frei, F. (2004). The persistence of customer profitability: Empirical evidence and implications from a financial services firm. Journal of Service Research, 7 (2), 107–123. https://doi.org/10.1177/1094670504268419 .

Campbell, D., & Frei, F. (2010). Cost structure, customer profitability, and retention implications of self-service distribution channels: Evidence from customer behavior in an online banking channel. Management Science, 56 (1), 4–24. https://doi.org/10.1287/mnsc.1090.1066 .

Casas-Arce, P., Martínez-Jerez, F. A., & Narayanan, V. G. (2017). The impact of forward-looking metrics on employee decision-making: The case of customer lifetime value. Accounting Review, 92 (3), 31–56. https://doi.org/10.2308/accr-51554 .

Chae, H., & Ko, E. (2016). Customer social participation in the social networking services and its impact upon the customer equity of global fashion brands. Journal of Business Research, 69 (9), 3804–3812. https://doi.org/10.1016/j.jbusres.2015.12.072 .

Chan, T. Y., Wu, C., & Xie, Y. (2011). Measuring the lifetime value of customers acquired from google search advertising. Marketing Science, 30 (5), 837–850. https://doi.org/10.1287/mksc.1110.0658 .

Chang, H., Eunju, K., Henrikki, T., Phan, M. C. T., Aiello, G., Donvito, R., et al. (2014). Marketing mix and customer equity of spa brands: Cross-cultural perspectives. Journal of Business Research, 67 (10), 2155–2163. https://doi.org/10.1016/j.jbusres.2014.04.025 .

Cooper, R., & Kaplan, R. S. (1991). The design of cost management systems: Text, cases, and readings . Englewood Cliffs: Prentice Hall.

Csikósová, A., Čulková, K., & Janošková, M. (2016). Evaluation of quantitative indicators of marketing activities in the banking sector. Journal of Business Research, 69 (11), 5028–5033. https://doi.org/10.1016/j.jbusres.2016.04.075 .

Dahana, W. D., Miwa, Y., & Morisada, M. (2019). Linking lifestyle to customer lifetime value: An exploratory study in an online fashion retail market. Journal of Business Research, 99 , 319–331. https://doi.org/10.1016/j.jbusres.2019.02.049 .

Datar, S. M., & Rajan, M. V. (2017). Horngren’s cost accounting: A managerial emphasis (16th ed.). New York: Pearson.

Dong, W., Swain, S. D., & Berger, P. D. (2007). The role of channel quality in customer equity management. Journal of Business Research, 60 (12), 1243–1252. https://doi.org/10.1016/j.jbusres.2007.05.005 .

Dwyer, R. F. (1997). Customer lifetime valuation to support marketing decision making. Journal of Interactive Marketing, 11 (4), 6–13.

Edeling, A., & Fischer, M. (2016). Marketing's impact on firm value: Generalizations from a meta-analysis. Journal of Marketing Research (JMR), 53 (4), 515–534. https://doi.org/10.1509/jmr.14.0046 .

Edeling, A., & Himme, A. (2018). When does market share matter? New empirical generalizations from a meta-analysis of the market share–performance relationship. Journal of Marketing, 82 (3), 1–24. https://doi.org/10.1509/jm.16.0250 .

Fader, P. S., Hardie, B. G. S., & Ka Lok, L. (2005). Rfm and clv: Using iso-value curves for customer base analysis. Journal of Marketing Research (JMR), 42 (4), 415–430. https://doi.org/10.1509/jmkr.2005.42.4.415 .

Foster, G., & Gupta, M. (1994). Marketing, cost management and managenient accounting. Journal of Management Accounting Research, 6 , 63–77.

Foster, G., Gupta, M., & Sjoblom, L. (1996). Customer profitability analysis: Challenges and new directions. Journal of Cost Management, 10 , 5–17.

Franco-Santos, M., Lucianetti, L., & Bourne, M. (2012). Contemporary performance measurement systems: A review of their consequences and a framework for research. Management Accounting Research, 23 (2), 79–119. https://doi.org/10.1016/j.mar.2012.04.001 .

Gao, L., Melero-Polo, I., & Sese, F. J. (2019). Customer equity drivers, customer experience quality, and customer profitability in banking services: The moderating role of social influence. Journal of Service Research . https://doi.org/10.1177/1094670519856119 .

Gensler, S., Leeflang, P., & Skiera, B. (2012). Impact of online channel use on customer revenues and costs to serve: Considering product portfolios and self-selection. International Journal of Research in Marketing, 29 (2), 192–201. https://doi.org/10.1016/j.ijresmar.2011.09.004 .

Glady, N., Lemmens, A., & Croux, C. (2015). Unveiling the relationship between the transaction timing, spending and dropout behavior of customers. International Journal of Research in Marketing, 32 (1), 78–93. https://doi.org/10.1016/j.ijresmar.2014.09.005 .

Glover, J. C., & Ijiri, Y. (2002). “Revenue accounting” in the age of e-commerce: A framework for conceptual, analytical, and exchange rate considerations. Journal of International Financial Management & Accounting, 13 (1), 32–72.

Guilding, C., Kennedy, D. J., & Mcmanus, L. (2001). Extending the boudaries of customer accounting: Applications in the hotel industry. Journal of Hospitality & Tourism Research, 25 (2), 173–194.

Guilding, C., & McManus, L. (2002). The incidence, perceived merit and antecedents of customer accounting: An exploratory note. Accounting, Organizations & Society, 27 (1/2), 45–59. https://doi.org/10.1016/S0361-3682(01)00030-7 .

Gupta, S., Lehmann, D. R., & Stuart, J. A. (2004). Valuing customers. Journal of Marketing Research (JMR), 41 (1), 7–18. https://doi.org/10.1509/jmkr.41.1.7.25084 .

Gupta, S., & Zeithaml, V. (2006). Customer metrics and their impact on financial performance. Marketing Science, 25 (6), 718–739. https://doi.org/10.1287/mksc.1060.0221 .

Haenel, C. M., Wetzel, H. A., & Hammerschmidt, M. (2019). The perils of service contract divestment: When and why customers seek revenge and how it can be attenuated. Journal of Service Research, 22 (3), 301–322. https://doi.org/10.1177/1094670519835312 .

Haenlein, M., Kaplan, A. M., & Schoder, D. (2006). Valuing the real option of abandoning unprofitable customers when calculating customer lifetime value. Journal of Marketing, 70 (3), 5–20. https://doi.org/10.1509/jmkg.70.3.5 .

Helgesen, Ø. (2007). Customer accounting and customer profitability analysis for the order handling industry—a managerial accounting approach. Industrial Marketing Management, 36 (6), 757–769. https://doi.org/10.1016/j.indmarman.2006.06.002 .

Helliar, C., Cobb, I., & Innes, J. (2002). A longitudinal case study of profitability reporting in a bank. British Accounting Review, 34 (1), 27–53. https://doi.org/10.1006/bare.2001.0180 .

Hidalgo, P., Manzur, E., Olavarrieta, S., & Farías, P. (2008). Customer retention and price matching: The afps case. Journal of Business Research, 61 (6), 691–696. https://doi.org/10.1016/j.jbusres.2007.06.046 .

Hogan, J. E., Lemon, K. N., & Rust, R. T. (2002). Customer equity management: Charting new directions for the future of marketing. Journal of Service Research, 5 (1), 4. https://doi.org/10.1177/1094670502005001002 .

Hogan, J. E., Lemon, K. N., & Libai, B. (2003). What is the true value of a lost customer? Journal of Service Research, 5 (3), 196. https://doi.org/10.1177/1094670502238915 .

Hogan, J. E., Lemon, K. N., & Libai, B. (2004). Quantifying the ripple: Word-of-mouth and advertising effectiveness. Journal of Advertising Research, 44 (3), 271–280. https://doi.org/10.1017/S0021849904040243 .

Holm, M., Kumar, V., & Plenborg, T. (2016). An investigation of customer accounting systems as a source of sustainable competitive advantage. Advances in Accounting, 32 , 18–30. https://doi.org/10.1016/j.adiac.2015.12.002 .

Holm, M., Kumar, V., & Rohde, C. (2012). Measuring customer profitability in complex environments: An interdisciplinary contingency framework. Journal of the Academy of Marketing Science, 40 (3), 387–401. https://doi.org/10.1007/s11747-011-0263-4 .

Homburg, C., Droll, M., & Totzek, D. (2008). Customer prioritization: Does it pay off, and how should it be implemented? Journal of Marketing, 72 (5), 110–130. https://doi.org/10.1509/jmkg.72.5.110 .

Homburg, C., Steiner, V. V., & Totzek, D. (2009). Managing dynamics in a customer portfolio. Journal of Marketing, 73 (5), 70–89. https://doi.org/10.1509/jmkg.73.5.70 .

Howard, J. A., & Sheth, J. (1969). The theory of buyer behavior . New York: Wiley.

Ijiri, Y. (1978). Cash-flow accounting and its structure. Journal of Accounting, Auditing & Finance, 1 (4), 331–348.

Ijiri, Y. (1979). Oil & gas accounting-turbulence in financial reporting. Financial Executive, 47 (8), 18–26.

Ijiri, Y., & Kaneda, N. (2003). Extension of revenue accounting: Using Markov processes and dynamic programming. Journal of Management Accounting, Japan, 12 (1), 3–14.

Ijiri, Y., & Lin, H. (2006). Moral hazard depicted in Markov processes with strategy options. Journal of Engineering & Technology Management, 23 (1/2), 79–99.

Ittner, C. D., & Larcker, D. F. (1998). Are nonfinancial measures leading indicators of financial performance? An analysis of customer satisfaction. Journal of Accounting Research, 36 (3), 1–35.

Iyengar, R., Ansari, A., & Gupta, S. (2007). A model of consumer learning for service quality and usage. Journal of Marketing Research (JMR), 44 (4), 529–544. https://doi.org/10.1509/jmkr.44.4.529 .

Jackson, B. B. (1985). Winning and keeping industrial customers . Lexington: D.C. Heath and Company.

Kaplan, R. S. (1998). Innovation action research: Creating new management theory and practice. Journal of Management Accounting Research, 10 , 89–118.

Katsikeas, C. S., Morgan, N. A., Leonidou, L. C., & Hult, G. T. M. (2016). Assessing performance outcomes in marketing. Journal of Marketing, 80 (2), 1–20.

Kim, A. J., & Ko, E. (2012). Do social media marketing activities enhance customer equity? An empirical study of luxury fashion brand. Journal of Business Research, 65 (10), 1480–1486. https://doi.org/10.1016/j.jbusres.2011.10.014 .

Kim, K. H., Ko, E., Xu, B., & Han, Y. (2012). Increasing customer equity of luxury fashion brands through nurturing consumer attitude. Journal of Business Research, 65 (10), 1495–1499. https://doi.org/10.1016/j.jbusres.2011.10.016 .

Kotler, P. (1974). Marketing during periods of shortage. Journal of Marketing, 38 (3), 20–29.

Kotler, P., Kartajaya, H., & Setiawan, I. (2016). Marketing 4.0: Moving from traditional to digital . New Jersey: Wiley.

Kotler, P., & Kevin, K. L. (2016). Marketing management (15th ed.). Essex: Pearson.

Kumar, A., Bezawada, R., Rishika, R., Janakiraman, R., & Kannan, P. K. (2016). From social to sale: The effects of firm-generated content in social media on customer behavior. Journal of Marketing, 80 (1), 7–25. https://doi.org/10.1509/jm.14.0249 .

Kumar, V., Petersen, J. A., & Leone, R. P. (2010). Driving profitability by encouraging customer referrals: Who, when, and how. Journal of Marketing, 74 (5), 1–17. https://doi.org/10.1509/jmkg.74.5.1 .

Kumar, V., Petersen, J. A., & Leone, R. P. (2013). Defining, measuring, and managing business reference value. Journal of Marketing, 77 (1), 68–86. https://doi.org/10.1509/jm.11.0424 .

Kumar, V., & Shah, D. (2009). Expanding the role of marketing: From customer equity to market capitalization. Journal of Marketing, 73 (6), 119–136. https://doi.org/10.1509/jmkg.73.6.119 .

Kumar, V., Shah, D., & Venkatesan, R. (2006). Managing retailer profitability—one customer at a time! Journal of Retailing, 82 (4), 277–294. https://doi.org/10.1016/j.jretai.2006.08.002 .

Kumar, V., Sriram, S., Luo, A., & Chintagunta, P. K. (2011). Assessing the effect of marketing investments in a business marketing context. Marketing Science, 30 (5), 924–940. https://doi.org/10.1287/mksc.1110.0661 .

Kumar, V., Venkatesan, R., Bohling, T., & Beckmann, D. (2008). The power of clv: Managing customer lifetime value at ibm. Marketing Science, 27 (4), 585–599. https://doi.org/10.1287/mksc.1070.0319 .

Langfield-Smith, K. (2008). Strategic management accounting: How far have we come in 25 years? Accounting, Auditing & Accountability Journal, 21 (2), 204–228.

Larivière, B. (2008). Linking perceptual and behavioral customer metrics to multiperiod customer profitability. Journal of Service Research, 11 (1), 3–21. https://doi.org/10.1177/1094670508319092 .

Lemon, K., & Verhoef, P. C. (2016). Understanding customer experience throughout the customer journey. Journal of Marketing, 80 , 69–96.

Lewis, M. (2005a). Incorporating strategic consumer behavior into customer valuation. Journal of Marketing, 69 (4), 230–238. https://doi.org/10.1509/jmkg.2005.69.4.230 .

Lewis, M. (2005b). Research note: A dynamic programming approach to customer relationship pricing. Management Science, 51 (6), 986–994. https://doi.org/10.1287/mnsc.1050.0373 .

Lewis, M. (2006). Customer acquisition promotions and customer asset value. Journal of Marketing Research (JMR), 43 (2), 195–203. https://doi.org/10.1509/jmkr.43.2.195 .

Libai, B., Muller, E., & Peres, R. (2009). The diffusion of services. Journal of Marketing Research (JMR), 46 (2), 163–175. https://doi.org/10.1509/jmkr.46.2.163 .

Libai, B., Narayandas, D., & Humby, C. (2002). Toward an individual customer profitability model: A segment-based approach. Journal of Service Research, 5 (1), 69. https://doi.org/10.1177/1094670502005001007 .

Lind, J., & Strömsten, T. (2006). When do firms use different types of customer accounting? Journal of Business Research, 59 (12), 1257–1266. https://doi.org/10.1016/j.jbusres.2006.09.005 .

Lord, B. R., Shanahan, Y. P., & Nolan, B. M. (2007). The use and perceived merit of customer accounting in new zealand. Accounting Research Journal, 20 (1), 47–59.

Luo, X. (2007). Consumer negative voice and firm-idiosyncratic stock returns. Journal of Marketing, 71 (3), 75–88. https://doi.org/10.1509/jmkg.71.3.75 .

Luo, X. (2008). When marketing strategy first meets wall street: Marketing spendings and firms' initial public offerings. Journal of Marketing, 72 (5), 98–109. https://doi.org/10.1509/jmkg.72.5.098 .

Luo, X., & Homburg, C. (2008). Satisfaction, complaint, and the stock value gap. Journal of Marketing, 72 (4), 29–43. https://doi.org/10.1509/jmkg.72.4.029 .

McCarthy, D. M., & Fader, P. S. (2018). Customer-based corporate valuation for publicly traded noncontractual firms. Journal of Marketing Research (JMR), 55 (5), 617–635. https://doi.org/10.1177/0022243718802843 .

McCarthy, D. M., Fader, P. S., & Hardie, B. G. S. (2017). Valuing subscription-based businesses using publicly disclosed customer data. Journal of Marketing, 81 (1), 17–35. https://doi.org/10.1509/jm.15.0519 .

McManus, L. (2013). Customer accounting and marketing performance measures in the hotel industry: Evidence from Australia. International Journal of Hospitality Management, 33 , 140–152. https://doi.org/10.1016/j.ijhm.2012.07.007 .

McManus, L., & Guilding, C. (2008). Exploring the potential of customer accounting: A synthesis of the accounting and marketing literatures. Journal of Marketing Management, 24 (7–8), 771–795. https://doi.org/10.1362/026725708X345515 .

McManus, L., & Guilding, C. (2009). Customer accounting adoption in Australian companies: A field study. Accounting, Accountability & Performance, 15 (1), 33–69.

Nenonen, S., & Storbacka, K. (2016). Driving shareholder value with customer asset management: Moving beyond customer lifetime value. Industrial Marketing Management, 52 , 140–150. https://doi.org/10.1016/j.indmarman.2015.05.019 .

Neslin, S., Taylor, G., Grantham, K., & McNeil, K. (2013). Overcoming the 'recency trap' in customer relationship management. Journal of the Academy of Marketing Science, 41 (3), 320–337. https://doi.org/10.1007/s11747-012-0312-7 .

Ng, F., & Wood, Z. (2018). Unlocking customer accounting’s potential: A service-dominant logic approach. Pacific Accounting Review, 30 (3), 371–386. https://doi.org/10.1108/par-07-2016-0071 .

Niraj, R., Gupta, M., & Narasimhan, C. (2001). Customer profitability in a supply chain. Journal of Marketing, 65 (3), 1–16. https://doi.org/10.1509/jmkg.65.3.1.18332 .

Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management Accounting Research, 31 , 45–62. https://doi.org/10.1016/j.mar.2016.02.001 .

Palmatier, R. W. (2008). Interfirm relational drivers of customer value. Journal of Marketing, 72 (4), 76–89. https://doi.org/10.1509/jmkg.72.4.076 .

Persson, A., & Ryals, L. (2014). Making customer relationship decisions: Analytics v rules of thumb. Journal of Business Research, 67 (8), 1725–1732. https://doi.org/10.1016/j.jbusres.2014.02.019 .

Petersen, J. A., & Kumar, V. (2015). Perceived risk, product returns, and optimal resource allocation: Evidence from a field experiment. Journal of Marketing Research (JMR), 52 (2), 268–285. https://doi.org/10.1509/jmr.14.0174 .

Petersen, J. A., Kumar, V., Polo, Y., & Sese, F. J. (2018). Unlocking the power of marketing: Understanding the links between customer mindset metrics, behavior, and profitability. Journal of the Academy of Marketing Science, 46 (5), 813–836. https://doi.org/10.1007/s11747-017-0554-5 .

Pfeifer, P. E., & Carraway, R. L. (2000). Modeling customer relationships as Markov chains. Journal of Interactive Marketing, 14 (2), 43–55.

Pfeifer, P. E., Haskins, M. E., & Conroy, R. M. (2005). Customer lifetime value, customer profitability, and the treatment of acquisition spending. Journal of Managerial Issues, 17 (1), 11–25.

Raithel, S., Taylor, C. R., & Hock, S. J. (2016). Are super bowl ads a super waste of money? Examining the intermediary roles of customer-based brand equity and customer equity effects. Journal of Business Research, 69 (9), 3788–3794. https://doi.org/10.1016/j.jbusres.2015.09.019 .

Rakuten Inc. (2019) Corporate report 2018. https://global.rakuten.com/corp/investors/documents/annual.html . Accessed 28 Sep 2019

Reinartz, W., Thomas, J. S., & Kumar, V. (2005). Balancing acquisition and retention resources to maximize customer profitability. Journal of Marketing, 69 (1), 63–79. https://doi.org/10.1509/jmkg.69.1.63.55511 .

Reinartz, W. J., & Kumar, V. (2000). On the profitability of long-life customers in a noncontractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64 (4), 17–35. https://doi.org/10.1509/jmkg.64.4.17.18077 .

Reinartz, W. J., & Kumar, V. (2003). The impact of customer relationship characteristics on profitable lifetime duration. Journal of Marketing, 67 (1), 77–99. https://doi.org/10.1509/jmkg.67.1.77.18589 .

Rhouma, T. B., & Zaccour, G. (2018). Optimal marketing strategies for the acquisition and retention of service subscribers. Management Science, 64 (6), 2609–2627. https://doi.org/10.1287/mnsc.2017.2752 .

Rogers, E. M. (1962). Diffusion of innovation . New York: Free Press.

Roslender, R., & Hart, S. J. (2003). In search of strategic management accounting: Theoretical and field study perspectives. Management Accounting Research, 14 (3), 255–279.

Roslender, R., & Hart, S. J. (2010). Taking the customer into account: Transcending the construction of the customer through the promotion of self-accounting. Critical Perspectives on Accounting, 21 (8), 739–753. https://doi.org/10.1016/j.cpa.2010.04.002 .

Roslender, R., & Wilson, R. M. S. (2008). The marketing/accounting synergy: A final word but certainly not the last word. Journal of Marketing Management, 24 (7–8), 865–876.

Rust, R. T., Kumar, V., & Venkatesan, R. (2011). Will the frog change into a prince? Predicting future customer profitability. International Journal of Research in Marketing, 28 (4), 281–294. https://doi.org/10.1016/j.ijresmar.2011.05.003 .

Rust, R. T., Lemon, K. N., & Zeithaml, V. A. (2004). Return on marketing: Using customer equity to focus marketing strategy. Journal of Marketing, 68 (1), 109–127.

Rust, R. T., & Ming-Hui, H. (2014). The service revolution and the transformation of marketing science. Marketing Science, 33 (2), 206–221. https://doi.org/10.1287/mksc.2013.0836 .

Rust, R. T., & Tuck Siong, C. (2006). Marketing models of service and relationships. Marketing Science, 25 (6), 560–580. https://doi.org/10.1287/mksc.1050.0139 .

Ryals, L. (2005). Making customer relationship management work: The measurement and profitable management of customer relationships. Journal of Marketing, 69 (4), 252–261. https://doi.org/10.1509/jmkg.2005.69.4.252 .

Ryals, L., & Knox, S. (2007). Measuring and managing customer relationship risk in business markets. Industrial Marketing Management, 36 (6), 823–833. https://doi.org/10.1016/j.indmarman.2006.06.017 .

Schmitt, P., Skiera, B., & Van den Bulte, C. (2011). Referral programs and customer value. Journal of Marketing, 75 (1), 46–59. https://doi.org/10.1509/jmkg.75.1.46 .

Schulze, C., Skiera, B., & Wiesel, T. (2012). Linking customer and financial metrics to shareholder value: The leverage effect in customer-based valuation. Journal of Marketing, 76 (2), 17–32. https://doi.org/10.1509/jm.10.0280 .

Schweidel, D. A., Bradlow, E. T., & Fader, P. S. (2011). Portfolio dynamics for customers of a multiservice provider. Management Science, 57 (3), 471–486. https://doi.org/10.1287/mnsc.1100.1284 .

Segarra-Moliner, J. R., & Moliner-Tena, M. Á. (2016). Customer equity and clv in spanish telecommunication services. Journal of Business Research, 69 (10), 4694–4705. https://doi.org/10.1016/j.jbusres.2016.04.017 .

Shah, D., Kumar, V., Qu, Y., & Chen, S. (2012). Unprofitable cross-buying: Evidence from consumer and business markets. Journal of Marketing, 76 (3), 78–95. https://doi.org/10.1509/jm.10.0445 .

Shank, J. K., & Govindarajan, V. (1993). Strategic cost management: The new tool for competitive advantage . New York: Free Press.

Silveira, C. S., de Oliveira, M. O. R., & Luce, F. B. (2012). Customer equity and market value: Two methods, same results? Journal of Business Research, 65 (12), 1752–1758. https://doi.org/10.1016/j.jbusres.2011.10.034 .

Simmonds, K. (1981). Strategic management accounting. Management Accounting, 59 (4), 26–30.

Skiera, B., Bermes, M., & Horn, L. (2011). Customer equity sustainability ratio: A new metric for assessing a firm's future orientation. Journal of Marketing, 75 (3), 118–131. https://doi.org/10.1509/jmkg.75.3.118 .

Smith, R. E., & Wright, W. F. (2004). Determinants of customer loyalty and financial performance. Journal of Management Accounting Research, 16 , 183–205.

Song, T. H., Kim, S. Y., & Kim, J. Y. (2016). The dynamic effect of customer equity across firm growth: The case of small and medium-sized online retailers. Journal of Business Research, 69 (9), 3755–3764. https://doi.org/10.1016/j.jbusres.2015.12.067 .

Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis. Journal of Marketing, 62 (1), 2–18.

Stahl, F., Heitmann, M., Lehmann, D. R., & Neslin, S. A. (2012). The impact of brand equity on customer acquisition, retention, and profit margin. Journal of Marketing, 76 (4), 44–63. https://doi.org/10.1509/jm.10.0522 .

Strong, E. K. (1922). Theories of selling. Journal of Applied Psychology, 9 , 75–86.

Sublaban, C. S. Y., & Aranha, F. (2009). Estimating cellphone providers' customer equity. Journal of Business Research, 62 (9), 891–898. https://doi.org/10.1016/j.jbusres.2008.10.006 .

Sunder, S., Kumar, V., & Zhao, Y. I. (2016). Measuring the lifetime value of a customer in the consumer packaged goods industry. Journal of Marketing Research (JMR), 53 (6), 901–921. https://doi.org/10.1509/jmr.14.0641 .

Tanima, F. A., & Bates, K. (2015). The incidence and perceived managerial merit of customer accounting in New Zealand. Pacific Accounting Review (Emerald Group Publishing Limited), 27 (4), 466–485. https://doi.org/10.1108/PAR-05-2013-0049 .

Thomas, J. S. (2001). A methodology for linking customer acquisition to customer retention. Journal of Marketing Research (JMR), 38 (2), 262–268. https://doi.org/10.1509/jmkr.38.2.262.18848 .

Thomas, J. S., Blattberg, R. C., & Fox, E. J. (2004). Recapturing lost customers. Journal of Marketing Research (JMR), 41 (1), 31–45. https://doi.org/10.1509/jmkr.41.1.31.25086 .

Thomas, J. S., & Sullivan, U. Y. (2005). Managing marketing communications with multichannel customers. Journal of Marketing, 69 (4), 239–251. https://doi.org/10.1509/jmkg.2005.69.4.239 .

Tirenni, G., Labbi, A., Berrospi, C., Elisseeff, A., Bhose, T., Pauro, K., et al. (2007). Customer equity and lifetime management (CELM) Finnair case study. Marketing Science, 26 (4), 553–565. https://doi.org/10.1287/mksc.1060.0249 .

van Raaij, E. M., Vernooij, M. J. A., & van Triest, S. (2003). The implementation of customer profitability analysis: A case study. Industrial Marketing Management, 32 (7), 573. https://doi.org/10.1016/S0019-8501(03)00006-3 .

Venkatesan, R., & Kumar, V. (2004). A customer lifetime value framework for customer selection and resource allocation strategy. Journal of Marketing, 68 (4), 106–125. https://doi.org/10.1509/jmkg.68.4.106.42728 .

Venkatesan, R., Kumar, V., & Bohling, T. (2007). Optimal customer relationship management using Bayesian decision theory: An application for customer selection. Journal of Marketing Research (JMR), 44 (4), 579–594. https://doi.org/10.1509/jmkr.44.4.579 .

Verhoef, P. C., Reinartz, W. J., & Krafft, M. (2010). Customer engagement as a new perspective in customer management. Journal of Service Research, 13 (3), 247–252. https://doi.org/10.1177/1094670510375461 .

Villanueva, J., Yoo, S., & Hanssens, D. M. (2008). The impact of marketing-induced versus word-of-mouth customer acquisition on customer equity growth. Journal of Marketing Research (JMR), 45 (1), 48–59. https://doi.org/10.1509/jmkr.45.1.48 .

Wagner, T., Hennig-Thurau, T., & Rudolph, T. (2009). Does customer demotion jeopardize loyalty? Journal of Marketing, 73 (3), 69–85. https://doi.org/10.1509/jmkg.73.3.069 .

Wang, H., Kim, K. H., Ko, E., & Liu, H. (2016). Relationship between service quality and customer equity in traditional markets. Journal of Business Research, 69 (9), 3827–3834. https://doi.org/10.1016/j.jbusres.2016.04.007 .

Weir, K. (2008). Examining the theoretical influences of customer valuation metrics. Journal of Marketing Management, 24 (7–8), 797–824. https://doi.org/10.1362/026725708X345524 .

Wiesel, T., Skiera, B., & Villanueva, J. (2008). Customer equity: An integral part of financial reporting. Journal of Marketing, 72 (2), 1–14. https://doi.org/10.1509/jmkg.72.2.1 .

Xiaojing, D., & Chintagunta, P. K. (2016). Satisfaction spillovers across categories. Marketing Science, 35 (2), 275–283. https://doi.org/10.1287/mksc.2015.0941 .

Xue, M., Hitt, L. M., & Chen, P.-Y. (2011). Determinants and outcomes of internet banking adoption. Management Science, 57 (2), 291–307. https://doi.org/10.1287/mnsc.1100.1187 .

Yang, S., Garrett, T. C., & Kim, K. H. (2016). Do confucian principles enhance sustainable marketing and customer equity? Journal of Business Research, 69 (9), 3772–3779. https://doi.org/10.1016/j.jbusres.2015.12.069 .

Yuan, C. L., Kim, J., & Kim, S. J. (2016). Parasocial relationship effects on customer equity in the social media context. Journal of Business Research, 69 (9), 3795–3803. https://doi.org/10.1016/j.jbusres.2015.12.071 .

Zhang, H., Ko, E., & Lee, E. (2013). Moderating effects of nationality and product category on the relationship between innovation and customer equity in Korea and China. Journal of Product Innovation Management, 30 (1), 110–122. https://doi.org/10.1111/j.1540-5885.2012.00990.x .

Zhang, S. T. (2016). Firm valuation from customer equity: When does it work and when does it fail? International Journal of Research in Marketing, 33 (4), 966–970. https://doi.org/10.1016/j.ijresmar.2016.03.007 .

Zou, P., & Li, G. (2016). How emerging market investors' value competitors' customer equity: Brand crisis spillover in china. Journal of Business Research, 69 (9), 3765–3771. https://doi.org/10.1016/j.jbusres.2015.12.068 .

Download references

Acknowledgements

This work was supported by JSPS KAKENHI Grant number JP17K13825.

Author information

Authors and affiliations.

Tohoku Gakuin University, 1-3-1 Tsuchitoi, Aoba, Sendai, Miyagi, 980-8511, Japan

Kohsuke Matsuoka

You can also search for this author in PubMed   Google Scholar

Corresponding author

Correspondence to Kohsuke Matsuoka .

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Matsuoka, K. Exploring the interface between management accounting and marketing: a literature review of customer accounting. J Manag Control 31 , 157–208 (2020). https://doi.org/10.1007/s00187-020-00299-9

Download citation

Published : 17 April 2020

Issue Date : September 2020

DOI : https://doi.org/10.1007/s00187-020-00299-9

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Customer accounting
• Customer equity
• Customer lifetime value
• Customer profitability analysis
• Revenue accounting

JEL Classification

• Find a journal
• Publish with us
• Track your research