MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS, HO CHI MINH CITY --- TRINH HIEP THIEN Mediating effect of strategic management accounting practices in the relationship betw
Background
It is often argued that organizations in today’s knowledge-based economy do not only initially invest in physical assets, nevertheless in intangibles, as these are but also today’s value drivers (Mehralian, Rasekh, Akhavan, & Ghatari, 2013) Amongst these intangible assets, intellectual capital plays a key role, and due to the huge investments in intellectual capital, its management becomes a critical issue given the direct and indirect advantages Some of these advantages may consist of the added value of the knowledge that is processed, the learning process included in the measurement of intellectual capital (Roos, Roos, Dragonetti, & Edvinsson, 1997), the enhancement of sustainable competitive advantages arising from the strategic assets i.e intellectual capital (Riahi-Belkaoui, 2003), the determinants and the foremost sources of company success (Alum & Drucker, 1986) Like the countries with free trading, Vietnam has adopted an open-door policy since 1990’s, the level of competition in the economy has been therefore increasing significantly for most Vietnamese enterprises when Vietnam’s integration in AEC and TPP, thereby, managers in Vietnamese firms should be aware of the importance of intangibles as well intellectual capital, which achieve sustainable competitive advantages in the international competitive arena This will be a motivator to impulse scholars doing research on the influence of intellectual capital in the Vietnamese context
Based on the concerns of the society, the concept of intellectual capital was introduced in the large body of literature and has expanded in three stages The first stage started in the 1990s and concentrated on increasing awareness, defining concepts, reviewing case studies and developing primary definitions (Mehralian et al., 2013) The second stage, which started in the year of 2000, consider measurement, modelling, international case studies, and various level of analysis (Mehralian et al., 2013) Therefore, there are a numerous piece of research in many countries, affirming the correlation between intellectual capital and corporate performance, that has been undertaken by a variety of research methods In general, these studies find a positive relationship between intellectual capital (or some of its components) and corporate performance The third stage of IC research, which began from 2004, focuses on the managerial implications of managing IC Although most of the studies on intellectual capital have been conducted in developed Western countries and some of Asian developing countries such as Thailand, Malaysia,
Hong Kong, this specific area of intellectual capital has been neglected in the body of Vietnamese literature
On the other hand, as being introduced by CIMA, strategic management accounting is a form of management accounting which emphasis is placed on information which relates to key strategic decision (CIMA, 2014a) Simultaneously, following by resource- based theory, intellectual capital is the asset used for strategic purposes Strategic management accounting would therefore appear to have a potential role to play in intellectual capital management Notwithstanding the intellectual capital literature in accounting is varied but mainly addresses external reporting or the measurement or the valuation of such strategic assets, there has been little discussion on the two-way relationship between intellectual capital and strategic management accounting Firstly, the organizations with strong levels of intellectual capital will have the assets as the necessary concrete to develop strategic management accounting system to support the managerial efforts in terms of identifying, measuring, and communicating the value drivers (Tayles, Pike, & Saudah, 2007) Secondly, once strategic management system has been evolved, it will address the issues of identifying, measuring, and communicating intellectual capital to support the strategic objectives The challenge, therefore, is to devise a system of strategic management accounting practices that are in alignment with the unique attributes and the competitive strategies of the company In other words, it must be possible to identify and value, with some precision, the component elements of the generic intellectual capital of the company Furthermore, when analysing the Vietnamese transitional economic context, Vietnamese enterprises have gradually applied the advanced accounting techniques, in line with market mechanisms because many wholly foreign-owned enterprises established in Vietnam have been providing practical knowledge of strategic management accounting, which has been introduced to Vietnamese practitioners and scholars Therefore, it is undeniable that medium and large enterprises in Vietnam do not have any understanding of how to implement strategic management accounting in their business operations Not surprisingly, the issue of strategic management accounting thereby started to be studied in Vietnam since the 2010s Based on all above arguments, the author believes the necessity of studying the correlation between intellectual capital, strategic management accounting practices and corporate performance in the case study of Vietnam Vietnamese business environment will provide enough information about intellectual capital as well as strategic management accounting practices that support such research endeavours More particularly, the author emphasizes “the mediating role of strategic management accounting practices in the relationship between intellectual capital and corporate performance”.
Research questions and research objectives
The research gaps mentioned in Section 1.4 suggest that a need to investigate the effects of intellectual capital and strategic management accounting practices on corporate performance in the organizations operating in the transitional economy such as Vietnam because these issues have not been discovered in such economy This also raises the issue of whether an organization should develop strategic management accounting system that supports intellectual capital which in turn to enhance its financial performance If doing so, it is also inevitable that how strategic management accounting manages intellectual capital to boost an organization’s financial performance Accordingly, three research questions have been proposed:
Research question 1: What is the direct effect of intellectual capital components on corporate performance in Vietnamese enterprises?
Research question 2: What is the effect of intellectual capital components on corporate performance in the presence of strategic management accounting practices?
Research question 3: How do strategic management accounting practices handle each component of intellectual capital to improve corporate performance?
The overall research objective of this dissertation is to empirically examine the association between intellectual capital, strategic management accounting practices and corporate performance More importantly, it investigates the mediating effect of strategic management accounting practices on the relationship among intellectual capital components and three financial dimensions of corporate performance It also empirically analyses the role of strategic management accounting practices playing the management of intellectual capital components
- RO1: Testing the direct impact of each of intellectual capital components on corporate performance
- RO2: Examining the direct influence of strategic management accounting practices over corporate performance
- RO3: Investigating an indirect path between intellectual capital components and corporate performance through the mediating role of strategic management accounting practices
- RO4: Empirically analysing which group of strategic management accounting practices (i.e strategic cost management, competitor accounting, strategic accounting and customer accounting) are related to manage which components of intellectual capital
- RO5: Providing additional evidence on the interconnection of intellectual capital components.
Research object and research scope
The research object of this dissertation is the relationship among intellectual capital, strategic management accounting practices and corporate performance Therefore, the unit of analysis is a business organization To investigate SMA practices applied in a business organization, the data is collected through questionnaire survey which is sent to SMA practitioners; thereby, the unit of observation is the informant (i.e managers or members of top management) with knowledge about accounting, planning or finance and at least two years of working experience in the current organization Moreover, the unit of observation is also financial information in annual reports or financial statement reports which draw financial data on IC and corporate performance
The scope of this study is limited in three aspects Firstly, this study selects Vietnam, a developing country in Asia with a transitional economy and a collectivist culture, as the research site for observation and empirical testing Secondly, the observed business organizations are enterprises listed on Hochiminh Stock Exchange (HoSE) and Hanoi Stock Exchange (HNX) in order the author to collect financial data more conveniently Thirdly, since the survey related to SMA practices is conduct in the year of 2016, this study only uses 2016 financial information about IC and financial performance of the public companies where respondents has been working instead of using panel data with many successive years to analyse intellectual capital alike the previous studies However, to calculate some variables such as organizational capital, innovation capital, investment efficiency, the author has to collect financial data in the period of 7 years (from 2010 to
Methodology
This study first reviews the literature related to intellectual capital, strategic management accounting practices, corporate performance before proposing two research models with six hypotheses This study mainly uses quantitative research method by using empirical survey data and financial data obtained from a sample of at least 127 public enterprises in Vietnam for the year of 2016 Due to the complex of the research models with mediators and a small sample size context, data analysis is conducted by applying partial least squares structural equation modelling (PLS-SEM) with the support of SPSS 24.0 and SmartPLS 3.1 software packages.
Outline of the dissertation
Besides the parts of introduction and conclusion, this dissertation is organized with 7 chapters, as follows:
Introduction part This part states the background well as the research questions and objectives Then it briefly describes the research methodology and provides the research scope
Chapter 1: Literature review This chapter reviews the literature in terms of intellectual capital, strategic management accounting studied in many different countries as well as in Vietnam so as to reveal the research gaps which are desirable research directions to develop the research objectives of this dissertation
Chapter 2: The concepts and intellectual capital measurement models This chapter not only determines the definitions of intellectual capital and its components but also discusses the concepts of corporate performance and strategic management accounting practices in order to explain the relationships amongst these concepts Next, the existing theories underpinning the measurement of intellectual capital are introduced in the literature extant so that the measurement of the intellectual capital variables are clearly understood in the next chapters
Chapter 3: Theoretical framework and hypotheses development This chapter focuses on underlying conceptual framework to develop the testable hypotheses of the two research models, that answer research questions to bridge research gaps This chapter then presents the arguments that led to six testable hypotheses
Chapter 4: Research methodology This chapter presents in detail the development of the research methodology It describes and explains how the constructs in the theoretical model are operationalised and measured It also discusses the unit of analysis and informants as well as sample size
Chapter 5: Sample characteristics and measurement scales assessment This chapter firstly demonstrates how to collect data to construct the variables of SMA practices and the pilot test to examine the attributes of the indicators of SMA practices before collecting main data The next is to represent the refinement of the measurement scales from the data obtained in Vietnamese public enterprises Finally, it provides descriptive statistics of the research data and an evaluation of collinearity issue in the inner structural models
Chapter 6: Data analysis and discussion Chapter 6 presents and analyses the data used in this study It is started at the evaluation of the fitness of theoretical models The next sections present the empirical results of examining the hypotheses developed in Chapter 3 It includes the outcomes of the direct regressions and the mediated path regressions that are processed by the tool of SmartPLS 3.1 The empirical results are arranged in order from the first to sixth hypothesis and finally the testing results of control variables Not only is the analysis of the data described but corresponding to each significant proposition it is also explained in the managerial context
Chapter 7: Implications for managing intellectual capital by strategic management accounting practices The managerial implications of this study are outlined in this chapter
It is started at a discovery of three-stage value creating process, which is inferred from the testing results of six hypotheses This chapter also presents the suggestions for leaders, policymakers and academic community the approaches to manage intellectual capital Particularly, the last section suggests the orientations how to manage intellectual capital following each group of strategic management accounting techniques
Conclusion part Following the introductory part, a summary of the main findings is presented in this part Then, the theoretical contributions and managerial contributions of this study are also summarized, followed by a discussion on the research limitations and suggested directions for further research.
LITERATURE REVIEW
Review of international studies of intellectual capital
When changing from an industrial-based economy to knowledge-based economy, a firm’s value is no longer measured solely on the basis of financial results; rather than value of activities that develop knowledge resources must also be considered (Stewart & Ruckdeschel, 1998) Doing so helps understanding how employees, stakeholders and activities contribute into value creation, leading to the challenge of how to identify, measure and report on the value of intellectual capital (Dumay, Guthrie, & Ricceri, 2012) Therefore, the emergence of the intellectual capital topic in the mid-1990s has produced literature spanning a range of research disciplines In retrospect, it appears that like a research fashion (Alcaniz, Gomez-Bezares, & Roslender, 2011), the intellectual capital’s specialist journals have been continuously developed including the Journal of Intellectual Capital, the International Journal of Learning and Intellectual Capital, the Journal of Human Resource Costing and Accounting, as well as within the pages of many leading business and management journals, with the Accounting, Auditing and Accountability Journal, European Accounting Review, the Accounting Organizations and Society Journal especially important in the accounting discipline of intellectual capital measurement and management
1.1.1 Stages in developing intellectual capital as a research field
The historical perspective is a vital component in fostering an understanding of the context within which intellectual capital came to be viewed as the essential business element that it is today Petty and Guthrie (2000) also outlined two stages in researching intellectual capital The first-stage efforts typically focused on raising awareness as to why recognizing and understanding the potential of IC towards creating and managing sustainable competitive advantages is extremely essential (Petty & Guthrie, 2000) Additionally, attempts were characterized by the creation of guidelines and standards These early publications pay attention to the fact that intellectual capital is something significant and should be measured and reported, but without referring to specific empirical research (Petty & Guthrie, 2000) Most research conducted prior to the mid-1990s is considered first stage (Petty & Guthrie, 2000) The second stage of IC research gathered further evidence, at an organizational level, focusing on the how of IC capital and labour market reacted towards the potential for IC to create value (Petty & Guthrie, 2000) In general, the first and second stages contributed to a commonly accepted terminology of intellectual capital Several classifications of IC have been provided, resulting in the identification of three main IC components Together with the appearance of three components of IC, the researchers defined the accounting discipline of IC as a management, measurement and accountability toward IC (Dumay et al., 2012) According to Dumay et al (2012), a third stage of IC research is emerging and is characterised by research critically examining IC in practice, devoted to the managerial implications of how to use IC in managing a company, at the beginning with the 2004 special edition of Journal of intellectual capital entitled “IC at the crossroads – theory and research” by Marr and Chatzkel (2004) While second stage IC research is predominately devoted to evaluating IC’s influence on financial outcomes, third-stage IC research focuses on “the deeper managerial implications of managing IC in all types of organisations and can be classified as bottom-up research as opposed to top-down” (Dumay & Garanina, 2013) Thus, the third stage considers value from IC is not just monetary but incorporates worth and importance of the products and services to customers and other stakeholders (Dumay & Garanina, 2013)
Despite looking at three developing stages of IC, Guthrie (2001) provides a timeline of major IC research milestones, as summarized in Table 1.1
Table 1.1 Milestones of significant contributions to the identifications, measurement and reporting of intellectual capital
General notion of intangible value (often generically labelled
The “information age” takes hold and the gap between book value and market value widens noticeably for many companies
Early attempts by practitioner consultants to construct statements/ accounts that measure intellectual capital (Sveiby, 1989)
Initiatives to systematically measure and report on company stocks of intellectual capital to external parties (e.g The Swedish Coalition of Service Industries (SCSI) (1995))
Kaplan and Norton (1992) introduce the concept of a Balanced Scorecard The Scorecard evolved around the premise that “what you measure is what you get”
Nonaka and Takeuchi (1995) present their highly influential work on “the knowledge creating company” Although the book concentrates on “knowledge”, the distinction between knowledge and Intellectual Capital is sufficiently fine as to make it relevant to those with a pure focus on Intellectual Capital
Also in 1994, a supplement to Skandia’s annual report is produced which focuses on presenting an evaluation of the company’s stock of Intellectual Capital “Visualizing Intellectual Capital” generates a great deal of interest from other companies seeking to follow Skandia’s lead (Edvinsson & Sullivan, 1996)
Pioneers of the Intellectual Capital movement publish bestselling books on the topic (Kaplan and Norton (1996); Edvinsson and Sullivan (1996); Sveiby (1997)) Edvinsson and Malone’s work, in particular, is very much about the process and the “how” of measuring intellectual capital
Intellectual Capital becomes a popular topic with researchers and academic conferences, working papers, and other publications find an audience
An increasing number of large scale projects (e.g the MERITUM project; Danish; Stockholm) commence which aim, in part, to introduce some academic rigour into research on Intellectual Capital
In 1999, the OECD convenes an international symposium in Amsterdam on intellectual capital (Organization for Economic Co-operation and Development (OECD), 2000)
Through the 2000s and onwards, IC research is continuously disseminated to the wider accounting research community The generalist accounting journals and generalist accounting conferences have opened the doors to special editions to accept
IC accounting papers (Dumay et al., 2012)
There is an increasing trend on knowledge management research besides intellectual capital research (Dumay et al., 2012)
Source: Summarized by the author on the sources of Guthrie (2001) and Dumay et al (2012)
1.1.2 Research trends on intellectual capital in the accounting discipline
Although it is generally accepted that intellectual capital is a knowledge resource that needs to be well managed, it can be analysed not just from a microeconomic viewpoint, but also from a macroeconomic aspect The issue of intellectual capital is studied in four perspectives, such as economic, strategic, managerial and accounting perspective (Alcaniz et al., 2011) For example, on the economic perspective, intellectual capital is related to the wealth of countries which possess it such as high technology, well-educated labour forces, etc (Stewart & Ruckdeschel, 1998) On the strategic perspective, the success of a company’s strategy is critically dependent no longer on its tangible assets, but on its intangibles, and the accumulation of intellectual capital is also determined by strategy as a consequence of a two-way relationship existing between resources and strategy (Brooking,
1996) On the managerial perspective, types of capital (i.e physical, financial, and intellectual capital) combine to form an organization’s resources, and thus such need to be well identified and managed as the roots of an organization’s value (Bontis, 1999) However, this study concentrates on numerous insights on the issues involved in accounting for intellectual capital In the accounting discipline, as showed in Dumay et al (2012)’s paper examining 423 journal papers in terms of intellectual capital during the period from 2000 to 2009 (Table 1.2), the popular focus of IC accounting research is management accounting and external reporting but little has been published about accountability, governance and auditing
Table 1.2 Topics of intellectual capital research in the accounting discipline
Table 1.2 presents the focus of research trends on intellectual capital in the accounting discipline, as follows:
External reporting: The disclosure on IC can be voluntary and non-quantitative and if IC is linked to firm performance, firms as well investors would benefit from this disclosure Therefore, a great deal research has been undertaken on intellectual capital disclosure practices in developed countries, a substantially less amount of research can be found on IC disclosure practices in emerging countries (Wagiciengo & Belal, 2012) Amongst few studies available from the emerging economies’ context, most of them concentrated on the Asian countries The studies have provided an empirical understanding of IC disclosure practices by collecting a range of media in which IC disclosure was made including annual reports, website, corporate social responsibility reports and others The findings of studies include variations in IC disclosure with company size and industrial sectors (Striukova, Unerman, & Guthrie, 2008), disclosure in Europe on relational capital around 49%, 30% related to structural capital and 21% concerning human capital (Bozzolan, O'Regan, & Ricceri,
2006) The review suggests that most of the previous studies focused on single year’s data by content analysis while only a handful of studies used longitudinal data Several researchers such as Bozzolan, Favotto, and Ricceri (2003), Bharathi Kamath (2008) used for longitudinal studies for detailed examination of intellectual capital disclosure practices
Accountability and governance: Some papers (Keenan and Aggestam (2001); J
Li, Pike, and Haniffa (2008)) examine the influence of corporate governance factors on intellectual capital disclosure, using various disclosure measures These papers hypothesise that significant relationships exist between intellectual capital disclosure in annual reports and board structure, role duality, ownership concentration, audit committee size and frequency of audit committee meetings, controlling for listing age, firm size and profitability
Management control: The extent of publications in management control and strategy, as the most researched area of interest, is highlighted in Table 1.2, demonstrating 160 articles covering a wide range of management-related subjects For examples, there were articles on the Balanced scorecards (Flamholtz, 2003) and its uses for managing IC (O'Connor & Feng, 2005), managing IC in different organization settings such as service organizations (Namasivayam & Denizci, 2006), banking industry (Puntillo, 2009) and for the not-for-profit sector (Kong, 2009), and for mapping IC inside organizations (Hellstrửm & Husted, 2004) Some studies (Tayles, Bramley, Adshead, and Farr
(2002), Tayles et al (2007)) suggest the application of management accounting approach to support the control of IC, that draws on the authors’ experience in the service company environment These publications also indicate the appropriateness of management accounting techniques to control IC, such as less reliance on traditional and zero-based budgeting, preferring the beyond budgeting concept to control IC (Tayles et al., 2007), real options valuation better than capital budgeting approach to assess strategic IC investment opportunities (Neil & Hickey, 2001)
Performance measurement: In the early 1990s, various performance measurement frameworks were developed, to overcome the weaknesses of financial-only measures (Tayles et al., 2007) Such models place greater focus on intangible resources (Amir & Lev, 1996) such as key customers, internal processes and learning Commonly used models include Intangible Assets Monitor (Roos, Edvinsson, & Dragonetti, 1997), and Skandia Navigator (Sveiby, 1997) which were particularly developed with intellectual capital in mind and the Balanced Scorecard (Kaplan & Norton, 1996) which had a more general strategic focus The Balanced Scorecard (BSC), for example, considers relational capital (customer perspective), structural and human capital (innovation, learning, and internal perspectives) and the impact of these on shareholder goals (financial perspective) Lev (2001) advocates the Value Chain Scoreboard, to be used by both management and investors, which seeks to report in a structured manner on the impact of intellectual capital on corporate performance and valuation As many of these performance measurement frameworks have been developed or adapted to accommodate IC, the greater part of the extant literature evidence the tested hypotheses that firms with relatively high intellectual capital are more likely to employ various performance measurement framework approaches linked to shareholder value
Commentaries/ Policy statement: A group of articles did not have empirical research and tended to be either commentaries or policy statements referred to Petty and Guthrie (2000), Brennan and Connell (2000), Roslender and Fincham
Review of international studies of strategic management accounting
In 1981, Simmonds published a paper in the UK professional magazine, Management Accounting, in which he presented a strong case for the adoption of strategic management accounting (SMA) (Simmonds, 1981) Many professional and academic papers continued this theme Overall, the research continues to maintain four themes emphasizing on (1) how to define the concept of strategic management accounting, (2) what kinds of SMA techniques applied in a variety of industries, countries, (3) the impacts of strategy options on SMA changes and (4) strategic management accounting process (see in Appendix 2) Most of the published empirical research over the past 30 years has consisted of questionnaire surveys that sought to establish the extent to which specific SMA techniques have been adopted (Langfield-Smith, 2008) However, the limitations of surveys and the relative dearth of case studies mean that very little is known about how the SMA techniques are used, by whom and for whom (Nixon & Burns, 2012)
1.2.1 Research on conceptualizing strategic management accounting
There is no agreed definition of SMA in the literature At its very simplest, SMA is conceptualized as an approach that lies at the interface between strategic management and accounting (Roslender & Hart, 2003) According to Simmonds (1981)’s first definition, SMA can be generally defined as a generic approach that connects management accounting, strategy and strategic positioning of the company, while Bromwich (1990) provides a definition that limits SMA to financial information, but which is focused on performance relative to competitors However, some other authors see marketing as the more relevant orientation for SMA (for example, Foster and Gupta (1994); Roslender (1995); Wilson (1995)) From the relevant literature, three main approaches in conceptualizing SMA can be distinguished as follows:
Simmonds (1981)’s approach to SMA is based more on Porter’s framework, which catalysed a stream of research, focusing more on cost management needed to support low price competitive strategy rather than design and innovation to earn a price premium through product differentiation Thus, there is a demand of financial information about competitors to cope with core competitors’ moves
Bromwich (1990)’s SMA approach is based on attribute costing technique, where the aim is to cost a product’s benefit providing to customers, as opposed to the approach that determines reasons driving costs of product Thus, there is a need of considering the benefits offered to customers, and how these contribute into building sustainable competitive advantage
On the perspective of marketing connecting to SMA, Roslender and Hart (2003) argue that SMA should become “more thoroughly infused with marketing issues, theories and concepts to form a marriage of equal partners” Thus, there is a necessity of “brand management accounting” that would include performance measures such as market share, market growth and brand strength, and customer profitability focusing on sub-brands and specific market offerings
From the stated definitions, it is obvious that the terminology of SMA has a multitude of different interpretations, depending on the researchers’ scientific background, underlying assumptions and starting points Since Simmonds’ first definition was introduced over 30 years ago, there is little agreement what is and what constitutes SMA This term itself is opening to a number of interpretations due to varied nature of research associated with it, while some researchers has emphasized the interface between accounting and marketing, while others pay more attention on linkages to strategy The 1990s are described as “the glory decade” where academics, consultants and practitioners all played a role in popularizing strategic accounting (Langfield-Smith, 2008) Shank and Govindarajan (1993) note that many SMA techniques has been implemented as pilot studies in US companies and published as teaching case studies, or as chapters in books Professional journals carried articles with SMA themes and the training activities of professional accounting bodies focused on SCM tools and techniques (Langfield-Smith,
2008) Global consulting firms developed very active practices in the field of SMA and thereby the SMA term, due to the absence of generally conceptual framework, ranges in its definitions from narrow ones (competitor-focused and performance measurement practices) to the umbrella under the viewpoint of “external orientation”
1.2.2 Research on strategic management accounting techniques
When it comes to SMA practices, due to the absence of generally conceptual framework, there is a multitude of listing and propositions of various accounting techniques that have strategic focus As can be seen in Appendix 2, there are significant overlaps between the classifications of SMA techniques, whereas the differences exist in customer accounting and strategic accounting Despite the differences in research viewpoints, the groups of SMA techniques such as strategic cost accounting, competitor accounting and strategic accounting are widely accepted as the components of SMA practices Until 2001, Guilding and McManus (2002)’s research adds 3 customer-focused techniques that may be referred to as the fourth dimension “customer accounting” The literature review neglects the dimension of customer accounting due to perhaps its late appearance and its difficulty-to-observation
Table 1.4 Literature review of essential techniques in strategic management accounting toolbox
The valuation of customer group
Source: The author’s literature review
The studies around this theme add to the literature on SMA by identifying particular SMA techniques important for corporate, analysing the dissemination of SMA techniques in consideration of structural characteristics and performing a cluster analysis in order to investigate performance differences between various groups of corporates The usage level of SMA techniques varied depending on what kind of firms being investigated For example, Lachmann, Knauer, and Trapp (2013) concludes that a plethora of SMA techniques originally developed for the non-hospital sector is now used in hospitals, several widely-applied techniques (i.e balanced scorecard, activity-based costing) are used only moderately in hospitals Cadez (2006) finds that capital budgeting and competitor-focused techniques are the most widely used while customer-focused techniques are the least widely used
1.2.3 Research on the relationship between environment, strategy choice and strategic management accounting practices
This theme discovers strategic management accounting in the organizational context by building on the premises of contingency theory The studies tried to affirm that performance is a product of an appropriate fit between the structure (management accounting system) and context (contingent factors), as the study of Cadez (2007) As can be showed in the research outcomes of Gerdin (2005); Seaman and Williams (2011), SMA plays a role as medium focusing on performance measurement using strategic rather than tactical indicators owing to SMA’s support to the organization’s strategic intent
Alternatively, the studies have been conducted to investigate the effects of competitive strategies and strategic management accounting techniques on the perceived qualitative and quantitative performance of medium and large size businesses For example, Cinquini and Tenucci (2010) test 328 Italian manufacturing firms with sales higher than $25 million to conclude that both defender- and cost leader-type of strategy are found to be more willing to use SMA techniques addressing cost information Similarly, Fowzia (2011) indicates that there are differences in using different types of strategic management accounting techniques applied among cost leadership and differentiation strategy, build and harvest strategy Aykan and Aksoylu (2013) examines whether or not competitive strategies (cost leadership, differentiation and focusing) and the use of strategic management accounting techniques have any significant effects on the perceived performance (qualitative and quantitative) of businesses The results reveal that differentiation strategies and competitor-oriented and customer-oriented strategic management accounting techniques affect the perceived qualitative performance of the businesses (Aykan & Aksoylu, 2013)
1.2.4 Research on strategic management accounting process
Surprisingly, there is an importantly smaller attention in literature being paid on the process of SMA usage in comparison with some other research aspects that discussed with a great deal of articles, conference papers Some researchers have seen SMA as a process and argue that the usage of SMA techniques can be framed into process stages (Langfield-
Smith, 2008) Likewise, the variety of SMA definitions, there are also variations in perceptions of the SMA process For examples, Dixon and Smith (1993) present four stages to their SMA process: “strategic business unit identification, strategic cost analysis, strategic market analysis, and strategy evaluation” while Brouthers and Roozen (1999) think that the usage of SMA techniques via three process stages: (1) monitoring, (2) decision-making and planning, and (3) controlling In this context, Lord (1996) differentiates SMA as a six-stage process as follows:
(2) Exploitation of cost reduction opportunities
(3) Matching of accounting emphasis with strategic position
(5) Exploitation of cost reduction opportunities
(6) Matching of accounting emphasis with strategic position.” (Lord, 1996, p 352)
Following Lord (1996)’s study, Shah et al (2011) summarize SMA process into four stages: (1) collecting information related to the competitors, (2) using accounting for strategic decisions, (3) cutting costs on the basis of strategic decisions and (4) gaining competitive advantage through identifying opportunities and strategic choice Overall, although the process of strategic management accounting usage can be varied by the viewpoint of researchers, the perception of this process majorly relies on the perception of strategic management process
In summary, the issue of strategic management accounting has been studied worldwide for more than 25 years and it can be argued that SMA has made an impact on practice, scholars and accounting Although it exists the interest of how SMA manages intellectual capital or intangibles, little research to the best of my knowledge do empirical exploratory study to discover this issue Therefore, it may open more recently IC stage research has continued to focus on developing how intellectual capital is managed and reported and more importantly how strategic management accounting practices are applied to manage intellectual capital
1.2.5 Review of studies investigating the relationship between strategic management accounting practices and corporate performance
Review of studies of intellectual capital and strategic management accounting in Vietnam
Vietnam is a developing country with a large population Major changes occurred in 1986, when individual entrepreneurs obtained the right to get involved in light industry, and the Sixth Party Congress approved economic reforms eliminating much of the basic apparatus of control Since the introduction of reforms during the 1980s, Vietnam has experienced phenomenal economic growth, with annual growth rate in GDP averaged 6.45 percent from 2000 until 2017, reaching a high record of 8.48 percent in the fourth quarter of 2007 and a low record of 3.12 percent in the first quarter of 2009 (Trading Economics,
2017) Although the transition from a centralized to a market economy is smooth and the entrepreneurial spirit is strong, several difficulties should be addressed such as lack of physical infrastructure, technology, marketing skills, international business skills or even lack of clarity (Dana, 1994) Therefore, Vietnam needs to improve education quality to enhance the competence of Vietnam labour forces (human capital) One of the areas related to structural capital that are paid adequate attention is intellectual property protection Statistics from the Government Office of Industrial Property shows that only about 25,000 products/ services have been registered in Vietnam and very few industrial designs and mechanical designs registered (Nga & Thomas, 2005) Vietnamese exporting may wish to play a greater role in the international arena, they will need to learn about international banking, shipping, insurance and even marketing know-how to develop international relations (relational capital) (Dana, 1994) The success of Vietnam economy would appear the outcome of an intangible combination of national structural capital and natural human capital as well international relations as the openness to ideas in policy and leadership after economic reforms, a culture of enduring hardships and ability to learn and adapt From these reasons, initiatives in developing intellectual capital in Vietnam is extremely critical; thereby government and businesses should give higher priority to intellectual capital as the future of the country, Vietnamese enterprises
The emergence of a private sector, the development of securities markets and participation in international trading have positioned Vietnam as one of the world’s growing economies As in many other countries, the public enterprises are an important component of Vietnamese economy since the market capitalization value of listed companies consists of 26.8% of Vietnamese GDP in 2015 (Trading Economics, 2017) When Vietnam’s deeper integration into the global economy, especially the Trans-Pacific Partnership (TPP) or the establishment of the ASEAN Economic Community (AEC), this implies that the competitive environment faced by Vietnamese listed enterprises has intensified The flood of foreign companies into Vietnam has positive impacts such as inflow of knowledge, skills and infrastructure Indirectly, the greater level of competition has encouraged innovation and positive development in each industry Although there are many “incremental” or “big bang” changes in Vietnamese overall organizations, including listed companies, during Vietnam’s progress of international integration, these have not actually measured or valued their intellectual capital (i.e human resources capital, structural capital, relational capital) which are generated in the past and after the impacts due to competitive pressures
1.3.2 Research on intellectual capital in Vietnam
Most of the world’s intellectual capital research is sourced out of Western countries The empirical studies on intellectual capital have been conducted in many countries, including but not to limited to, North America (Bontis, 1998; Riahi-Belkaoui, 2003), Germany (Bollen et al., 2005), South Africa (Firer & Mitchell-Williams, 2003), Australia (Dumay, 2009), Bangladeshi (T Hussain, Chakraborty, & Rahman, 2010), China (J Chen, Zhu, & Hong Yuan, 2004) and conducted in many Asian countries such as Malaysian (Bontis et al., 2000), Taiwan (Ming-Chin et al., 2005), Singapore (Hong Pew et al., 2007), Thai (Saengchan, 2008) Although it would seem the emerging Asian economies having experienced significant growth in recent years, there is limited research generally in the role of IC in sustaining that rapid growth (Nga & Thomas, 2005) In Vietnam, intellectual capital research has not yet obtained an adequate attention
Through the 2010s and onwards, the leading international interdisciplinary accounting research conferences have offered greater opportunities for IC accounting researchers to disseminate and receive feedback on their work Although there are some sessions opened for the theme of intellectual capital in these conferences, most of the papers participating in the international conferences organized in Vietnam were conducted by overseas researchers in the context of foreign countries, but lack of recognition of specialist IC papers investigating in Vietnamese context By searching on the specialist academic websites (i.e Google Scholar, Emerald, Science Direct, ProQuest Central), the author finds only one academic paper of Nga and Thomas (2005) related to the structural and perceptual issue of IC in Vietnam This paper firstly, discusses the role of intellectual capital in the current development of Vietnam at three levels, including the national economy, the industry sectors and the individual firms and then provide some suggestions for Vietnamese policy makers (Nga & Thomas, 2005) Another article explores the impacts of the intellectual capital dimensions, human, the organizational and social capital on firm performance as well as the mediating role of human and social capital on the relationship between organizational capital and Information Communication Technology firm’s performance in Vietnam (Nhon, Thong, & Van Phuong, 2018) This is only a commentary paper, not using empirical research To summarize, Vietnamese firms are in developing various aspects of IC, thus the need for more research in this area is evident Research of
IC in the Western countries has produced a detailed picture of IC, its measurement and its management The question however is, how much of the currently existing knowledge can be applied to the emerging economy of Vietnam IC practices recommended by international studies may not be assumed to be directly translatable to practice in Vietnam Therefore, research is needed to determine Vietnamese managers understanding and perception of intellectual capital
1.3.3 Research on strategic management accounting in Vietnam
Economic transformation in Vietnam has been a key driver for development of the economy and businesses In the progress of integration with the international accounting, Vietnamese enterprises have gradually applied the advanced accounting techniques, in line with market mechanisms Over the past decade, since it has been officially recognized in the Accounting Law 2003 and in the Circular 53/2006/TT-BTC, management accounting in Vietnam has certain development stages although it appeared long time ago in the world The issues about Vietnamese management accounting system were begun to study from the early 1990s with a great deal of distinct themes including, but not limited to the list below (see in Table 1.5)
Table 1.5 Research trends on management accounting in Vietnam
1990s The directions are related how to build the contents and organization approaches of management accounting system in Vietnamese enterprises (Duoc, 1997)
The author came up with organization solutions of management accounting nested within financial accounting (Dung, 1998)
The directions are how to build reports system of management accounting in Vietnamese enterprises (Quang, 1999)
2000s Management accounting has been studied in-depth within one narrower industry, such as in manufacturing companies (Le, 2002), mining organizations (Hoi, 2007), construction state-owned enterprises (Giang, 2002), companies operated in transportation industry (Dinh, 2003) or pharmaceutical industry (Thuy, 2007)
2010s Management accounting has been studied in association with the other research fields such as management of environmental issues (Thien, 2010), sustainable development reporting (Thien & Hung,
2016), corporate social responsibilities (Long, 2015), management control system (Tran, 2010), strategic decision making in market orientation and competition (Nguyen & Doan, 2016)
Strategic management accounting is directed how to implement in Vietnamese enterprises (Que & Thien, 2014)
The factors have facilitated the use of strategic management accounting in Vietnam – a transitional economy (Anh, 2010)
The authors have focused on only one of strategic management accounting techniques (i.e Strategic cost management (Hoa,
2014), Time-driven ABC (Thien, 2014), Lean accounting (Hoa,
2015), Balanced scorecard (Van, 2015)) to analyse the conditions resulting in the successful implementation
Source: The author’s literature review
Overall, Vietnam’s economic, political and social environment are much more different from the Western countries or even other Asian countries Since Vietnam adopted an open-door policy, the level of competition in the economy has been increasing significantly for most Vietnamese enterprises, because many privates, joint ventures and the wholly foreign-owned enterprises have been established in Vietnam during the last two decades (Anh, 2010) Therefore, the foreign organizations bring practical knowledge of strategic management accounting introduced to Vietnamese practitioners and scholars Not surprisingly, hence, the issue of strategic management accounting started to be studied in Vietnam since the 2010s; however, there has been little systematic documentation and analysis of recent efforts to the use of strategic management accounting practices in
Vietnamese enterprises In Vietnam, some studies (Loi (2014); Que and Thien (2014)) imply that the small and medium enterprises apply the traditional management accounting and only medium-to-large enterprises pay more attention on implementing strategic management accounting to obtain relevant information for decision making Little empirical research is found to investigate the impact of strategic management accounting practices on Vietnamese enterprises’ performance although this is a popular research topic examined in many other countries.
Research gaps
This study has identified three major research gaps: lack of studies concerning performance implication of intellectual capital in association with the mediating role of strategic management accounting practices, lack of empirical research concerning the relationship between IC and each group of SMA practices, and lack of Vietnam empirical studies on intellectual capital and strategic management accounting practices
1.4.1 Lack of studies concerning performance implication of intellectual capital in association with the mediating role of SMA practices
In the history of IC accounting research, the focus of empirical studies has always been the direct relationship between intellectual capital components and corporate performance A little research investigates that intellectual capital has an indirect relationship to corporate performance According to Ittner and Larcker (1998), management is required to identify, measure and communicate the value drivers (i.e intellectual capital) expected to improve information systems, performances and resource allocation for investors This suggests that organizations with strong level of intellectual capital should have developed management accounting with strategic directions that support such endeavors However, according to Tayles et al (2007), in terms of research avenue, it has not yet been examined whether, and if so how, firms with high levels of intellectual capital have developed their strategic management accounting practices to address the issues that accounting for IC promotes which in turn enhance corporate performance While most of the models follow the indirect path between strategy and performance through the mediator of management practices (e.g Prajogo and Sohal (2006); Spencer, Joiner, and Salmon (2009); Teeratansirikool, Siengthai, Badir, and Charoenngam (2013)), a few study has systematically investigated the mediating role of management practices in fostering the correlation between resources and performance Only Asiaei, Jusoh, and Bontis (2018)’s article does examine the mediating effect of the performance measurement system (one of the SMA techniques) from a control perspective on the relationship between IC and organizational performance Therefore, little is known about the differences in the effects of intellectual capital (resources) on corporate performance (performance) via the mediating role of SMA practices (management practices) As literature review of Alcaniz et al (2011), the practitioner-oriented literature on IC has become repetitive, i.e the direct relationship between IC and performance is repeatedly examined in many other research contexts To develop further research direction, this raises the need for a study that systematically investigates both direct and indirect effects of intellectual capital on corporate performance through the mediator of strategic management accounting practices within organisations
1.4.2 Lack of empirical research concerning the relationship between intellectual capital and each group of SMA practices
A literature review regarding intellectual capital found that, as Roslender and Fincham (2001) observe, although it has been argued that professional accountants should adopt a more strategic management accounting approach to avoid neglecting the organization’s most valuable IC, it is unclear just what role management accounting plays in association with IC management in high IC companies It is because there is very little empirical academic literature on how management accounting practices evolve as organizations adapt their management strategies as well practices to reflect the value drivers (i.e intellectual capital) when they are developing on the basis of strategic intangible assets In other words, how strategic management accounting handles intellectual capital is another gap that should be bridged
1.4.3 Lack of Vietnamese empirical studies on intellectual capital and SMA practices
In terms of research venue, most of the studies on intellectual capital and SMA practices have been conducted in developed Western countries and some of Asian countries such as China, Malaysia, Taiwan, Hong Kong rather than in Asian developing countries with the transitional economy – Vietnam Although the popularities of western studies on intellectual capital have built on the assertion that it is the key source of superior performance, there are very few studies in developing countries validating, operationalizing above propositions where the business environment is very unstable like
Vietnam Vietnam may differ from Western countries in terms of culture, economy and political environment that influence the progress of IC development (Nga & Thomas,
2005) as well as the orientations how to implement strategic management accounting (Loi,
2014) Concerning the relationship between culture and strategic management accounting, collectivism in Vietnam confronted individualism in the West Therefore, it raises the question if the national culture of collectivism really distinguishes the Vietnamese style of strategic management accounting implementation from that adopted in the West Although there are many international studies confirming the benefits of strategic management accounting, to the best of my knowledge, there are currently no empirical studies that directly investigate the link between strategic management accounting practices and corporate performance in Vietnamese context Therefore, a study on the impacts of SMA practices on Vietnamese enterprises’ performances can contribute into the understandings of whether the benefits of SMA may be performed in the transitional economy as consistently as in the Western contexts
On the other hand, although research in the extant literature has primarily focused on the value relevance and the market valuation of intellectual capital in many other countries (e.g Ming-Chin et al (2005); Mondal and Ghosh (2012); Cleary (2015)), the performance of intellectual capital remains empirically under-explored in the context of Vietnam More specially, Vietnamese empirical cross-sectional studies of the performance implication of intangible investments or intellectual capital are scarce probably due to two main difficulties Firstly, Vietnamese enterprises often do not provide a comprehensive account for intangible investments Much of the expenditures in this category are expensed rather than capitalized Disclosure on those expenditures is also severely inadequate Secondly, because Vietnamese managers have not actually realized the critical value of intellectual capital in their managing process, such a business environment having no more concern about intellectual capital may not boost the wave of IC research in Vietnam As evidence of this, few researchers in Vietnam have addressed the issue of performance implication of intellectual capital
Therefore, the studies on intellectual capital as well as strategic management accounting in the context of an Asian country, the case of Vietnam with the transitional economy, can add more insight to the literature
Chapter 1 reviews the international studies and Vietnamese studies in terms of intellectual capital, strategic management accounting, corporate performances and their mutual relationships to identify research gaps for this research
Although the focus of empirical studies has always been the direct relationship between intellectual capital components and corporate performance, a little research investigates that intellectual capital has an indirect relationship to corporate performance, especially via the mediating correlation of strategic management accounting practices In addition, there is very little empirical academic literature that making clearly what the role of strategic management accounting plays in relation with intellectual capital
Like the other countries, intellectual capital is one of intangibles, that are extremely important to sustain the competitive advantages of an economy or a firm Even though intellectual capital research began from the 1980s, intellectual capital research in Vietnam is very limited or it is evenly undeniable that this issue departs from the starting point in the Vietnamese context Hence, the author believes the necessity of a systematic, completed study on the correlation between intellectual capital, strategic management accounting practices and corporate performance in the case study of Vietnam This study not only contributes into a body of Vietnamese literature but also develops the generally theoretical contents related to IC management by SMA practices
The next chapter introduces not only the definition of intellectual capital and its components but also discusses the concepts of corporate performance and strategic management accounting practices The existing theories underpinning the measurement of intellectual capital are introduced as the premises of literature to construct the IC variables in Chapter 3.