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JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH

Volume Eighteen
2006
pp. 21–53

How Top Management Teams Use


Management Accounting Systems to
Implement Strategy
David Naranjo-Gil
Pablo de Olavide University at Seville
Frank Hartmann
RSM Erasmus University
ABSTRACT: In this paper we investigate how top management teams (TMTs) use man-
agement accounting systems (MAS) for strategy implementation. Consistent with upper
echelon theory we argue that professional and administrative TMTs differ in their use
of MAS, which in turn affects the implementation of strategic policies. We extract three
dimensions of MAS use from extant research on the MAS-strategy relationships. We
further distinguish between sets of strategic objectives aimed at cost reduction and
flexibility enhancement as part of an overall firm strategy. Hypotheses are developed
and tested in a survey study among 884 TMT members in all 218 general hospitals in
Spain, forming 92 complete TMTs. Overall, we find systematic differences between
professional and administrative TMTs in their use of MAS and its effects on strategy
implementation. In a secondary analysis, we explore whether the observed differences
in the use of MAS are consistent with the coercive-enabling framework recently intro-
duced into the management accounting literature. We find considerable support for the
validity of this framework in our sample. Overall, the paper contributes to the growing
literature on the role of MAS in supporting strategy implementation. We extend this
literature by explicitly recognizing the role of TMT composition in both strategy imple-
mentation and the use of MAS and by providing evidence of the validity of the coercive-
enabling framework of MAS in a cross-sectional analysis.
Keywords: cost reduction; flexibility; strategy implementation; nonfinancial information;
hospital management.
JEL Classification: M41, J41, L20.

INTRODUCTION

T
he management accounting literature makes strong claims about the importance of
how managers design and use management accounting system (MAS) to support the
implementation of organizational strategies (Dent 1990; Kaplan and Norton 1996;

The authors express their thanks for comments received on earlier versions of this paper from Ma Concepción
Álvarez-Dardet, Margaret Abernethy, Jan Bouwens, Victor Maas, David Otley, Paolo Perego, Marcel van Rinsum,
seminar participants at Pablo Olavide University and Rotterdam School of Management, Erasmus University, par-
ticipants at the management accounting seminars of the EAA, EIASM, AAA, and ARNN conferences, and in
particular to the editor and reviewers of JMAR. The authors also acknowledge the partial funding of this research
project by the Spanish Ministry of Education and Science (project PB98-1358).

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22 Naranjo-Gil and Hartmann

Simons 1995, 2000). However, despite considerable research effort and significant practical
and academic interest in strategy implementation in the wider management literature (e.g.,
Mintzberg 1994; Mintzberg et al. 1998; Braganza and Ward 2001), relatively little is known
about which aspects of MAS are effective antecedents of the realization of particular stra-
tegic objectives. First, MAS studies have typically emphasized the fit between MAS and
the organization’s strategy formulation (Langfield-Smith 1997; Gerdin and Greve 2004),
whereas it is increasingly considered important to understand the role of managers’ use of
MAS in implementing strategies (e.g., Mintzberg 1990; Burgelman 1991; Marginson 2002).
Second, studies of the strategy-MAS relationship typically model MAS use as exogenous
(e.g., Abernethy and Brownell 1999), without explaining why management use MAS in
certain ways for strategy implementation in the first place (e.g., Ittner and Larcker 2001).
In a recent study on the strategy—MAS relationship, Abernethy and Brownell (1999)
therefore propose that it is important to understand the style in which top management uses
the MAS strategically. However, this study only suggested that the use of MAS reflected a
certain management style, without any formal test of this relation. In the present paper we
aim to develop and test a general model of how different top management teams (TMT)
use the MAS differently, and how this use of MAS affects strategy implementation. We
ground our analysis in the upper echelon literature (e.g., Hambrick and Mason 1984;
Carpenter et al. 2004) that explains organizational choices, arrangements, and outcomes by
the composition of the organizations’ TMT (e.g., Finkelstein and Hambrick 1990; Hambrick
et al. 1996). In this study, we propose that TMT composition determines the way in which
MAS information is used (e.g., Johnson and Kaplan 1987; Ahrens and Chapman 2004),
which, in turn, affects the implementation of strategic policies.
The present study attempts to contribute to the management accounting literature in
several ways. Despite considerable attention to the relationship between MAS and organi-
zational strategy, this is the first study of which the authors are aware that examines the
linkages between TMT composition, MAS use, and the implementation of strategy. The
paper therefore addresses implemented strategy as a consequence of MAS, rather than
formulated strategy as an antecedent of MAS (cf., Mintzberg 1990). Second, it explicitly
considers TMT composition an antecedent of MAS, thus extending models in which MAS
is modeled as exogenous (cf., Mia and Chenhall 1994; Bouwens and Abernethy 2000;
Ittner and Larcker 2001). In this way, the paper also provides a more complete explanation
of the contingency fit between MAS and strategy implementation by using the mediation
model of fit explicitly (cf., Gerdin and Greve 2004). Third, we will explore the extent to
which the MAS aspects we address are consistent with the coercive-enabling framework
recently introduced into the management accounting literature (Ahrens and Chapman 2004).
The remainder of this paper is structured as follows. The next section develops a
theoretical model that combines individual hypotheses about the relationships between TMT
composition, MAS, and strategy implementation. The Method section describes and moti-
vates the design of the empirical survey study, conducted in all 218 general hospitals in
Spain, to test the hypotheses. The Results section presents the results from the statistical
analyses of the hypotheses for which we use partial least squares (PLS). The final section,
Discussion and Conclusions, presents the conclusions of this study, summarizes its strengths
and weaknesses, and points out directions for further research.

DEVELOPMENT OF THE THEORETICAL MODEL


In their study of the strategy-MAS relationship in 63 public Australian hospitals,
Abernethy and Brownell (1999) analyze the effects of a match between top managers’
diagnostic and interactive styles of using accounting budgets (cf., Burchell et al. 1980;

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How Top Management Teams Use Management Accounting Systems 23

Simons 1990; Chapman 1997, 1998), and the organizations’ extent of strategic change.
They conclude that organizational performance is highest when a diagnostic use of budgets
(i.e., using the budget to monitor and control operational efficiency) is matched with low
levels of strategic change, and when an interactive use of budgets (i.e., using the budget to
stimulate dialogue and continuous learning) is matched with high levels of strategic change.
These results are important for understanding the performance effects of aligning the use
of MAS with the extent of strategic dynamism in an organization. As such, they can even
suggest normative conclusions about the way in which an organization’s top management
should use the MAS. However, because this study modeled both strategic change and the
use of MAS as exogenous variables, these results do not explain why top management
actually uses MAS in particular ways, nor how the use of MAS is related to the strategic
direction of the organization.
This study, and studies about the strategy-MAS relationship in which MAS is the
dependent variable (Gerdin and Greve 2004), thus provides little direct evidence on the role
of MAS in supporting the implementation of strategic policies once they are chosen (cf.,
Simons 1995, 2000), nor do they explain top management’s role in using the MAS for this
aim. The present paper, while building on Abernethy and Brownell’s (1999) recognition of
the importance of style in which top management uses MAS, aims to extend their frame-
work in several directions. We elaborate on these directions in general terms now, after
which we will develop specific hypotheses.
Instead of Abernethy and Brownell’s (1999) focus on the use of budgets only, we
address MAS more broadly as the set of managerial instruments, part of the organization’s
planning and control system, which are designed to provide top management with the
information for their decision making and control vis-à-vis strategic policies (cf., Fisher
1992; Simons 1995; Chenhall 2003). This acknowledges that management’s repertoire for
strategy implementation extends beyond the use of the traditional budget. Consistent with
extant research that suggests the strategic relevance of several specific dimensions of the
MAS, we extend the analysis of the diagnostic and interactive styles of MAS use with an
analysis of the use of financial and nonfinancial MAS information (cf., Abernethy and Lillis
1995). This distinction corresponds to the use of monetary versus operational metrics
(Fisher 1992; Perera et al. 1997).
We also consider the extent to which top managers use MAS information for resource
allocation and for performance evaluation, which we regard as two central functions of
every MAS (cf., Kren and Liao 1988; Reck 2001; Zimmerman 2003).
The resource allocation function of MAS is defined as the distribution of monetary and
nonmonetary resources over decentralized units within the firm to enable managers to per-
form the tasks in their area of responsibility (cf., Chenhall and Morris 1991; Meslin et al.
1997; Reck 2001). In a broad sense, it is the ex ante use of MAS for planning and coor-
dination. Performance evaluation, instead, relates to the monitoring and controlling of the
achievement of goals and targets preset for managers and their units (Kren and Liao 1988;
Hartmann 2000; Reck 2001). Thus, it reflects the ex post use of MAS for monitoring and
control.
These three dimensions of MAS use—diagnostic versus interactive style of use, use of
financial versus nonfinancial information, and use for resource allocation versus perform-
ance evaluation—are initially analyzed as separate variables. In a secondary analysis, we
explore what can be learned from treating them as elements of a second-order variable,
coercive versus enabling use of MAS (cf., Adler and Borys 1996; Ahrens and Chapman
2004).

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24 Naranjo-Gil and Hartmann

A second extension of the previous framework concerns our interest in the role of MAS
for pursuing directional strategic objectives, rather than its alignment with a formal strategy
as such. We distinguish between the execution of strategic goals and policies aimed at cost
reduction, and strategic goals and policies related to increased flexibility, thereby following
classifications by Porter (1985) and Govindarajan (1988). In our analyses, however, we
acknowledge that these sets of policies and objectives may not be mutually exclusive, as
in fact contemporary organizations are more often pressed toward the implementation of
strategic policies that achieve cost efficiency and enhanced flexibility simultaneously
(Ahrens and Chapman 2004).
The third extension of the existing framework involves our modeling MAS as an en-
dogenous consequence of the top managers’ characteristics, answering to the critique about
the exogenous status of MAS in extant research (cf., Ittner and Larcker 2001; Hartmann
and Moers 2003; Luft and Shields 2003). We use the upper echelon perspective to predict
differences in the way in which TMTs use MAS. The upper echelon perspective emphasizes
that the cognitions, values, and perceptions of the organization’s TMT influence or deter-
mine the (strategic) behavior and performance of organizations (Carpenter et al. 2004, 750).
TMT member backgrounds, such as education and functional experience, are considered
observable proxies for underlying psychological constructs that determine the way in which
a TMT perceives the world and processes informational cues (Hambrick and Mason 1984;
Finkelstein and Hambrick 1996; Carpenter et al. 2004). Education and experience thus
explain why some TMTs are more familiar with, or more knowledgeable about, certain
courses of action than others (Song 1982; Michel and Hambrick 1992), and why TMTs
interpret and use available information differently (Hambrick and Mason 1984, 195;
Carpenter et al. 2004).
Several upper echelon studies have pointed to fundamental differences in behavior
between TMTs consisting of members with a background in general administration, such
as in economics, business, and law, and TMTs with members whose background is rooted
in the primary technical and professional processes of the organization, such as in engi-
neering, physics, and medicine (Benveniste 1987; Bacharach et al. 1991). We expect that
this distinction may also explain TMTs’ use of MAS, and the information contained therein,
and will address it in terms of TMTs with an administrative or a professional orientation.
Specific hypotheses about the relationships between TMT orientation, the use of MAS, and
the implementation of strategic objectives and policies are developed now.

TMT Orientation and the Use of MAS


The behavioral relevance of the professional or administrative orientation of individual
managers is recognized across the management literature (e.g., Daft 1982). Available evi-
dence suggests that this distinction has predictive power in MAS settings as well. Abernethy
and Stoelwinder (1990), for example, document the tension between professionals and
administrators in professional bureaucracies, and show that part of this tension is caused
by the fact that administrators show a higher preference for and use of formal controls than
professionals. In a study on TQM (total quality management) adoption, Young et al. (2001)
found that managers with an administrative background are more inclined to control system
innovation than managers with a professional background, as they appeared better able to
perceive the advantages of administrative innovation.
Since the upper echelon perspective concerns the organization’s strategic behavior, it
proposes that managerial backgrounds should be analyzed at the level of the executive
board, as the collective responsible for the formation and implementation of strategies
(Finkelstein and Hambrick 1996; Mintzberg et al. 1998). By focusing on the TMT, the

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How Top Management Teams Use Management Accounting Systems 25

upper echelon perspective emphasizes that differences between managerial orientations do


not merely originate from functional responsibilities, but instead are rooted in the cogni-
tions, values, and perceptions that are formed by education and experience (Carpenter et
al. 2004, 750). For example, medical education is shown to predispose managers toward
emphasizing patient care and health improvement, rather than toward the improvement of
overall organizational or financial performance (Carretero 2000; Kurunmäki 2004). MBA-
type education, instead, is shown to provide managers with ‘‘mainstream mind-sets’’ geared
toward the commonalities and regularities across organizations Finkelstein and Hambrick
(1996, 104).
Managers’ cognitive make-up is also shaped by their work-related experiences (Song
1982; Michel and Hambrick 1992). Experience involves internalizing the tacit com-
mon knowledge of the organization’s production processes (Hambrick and Mason 1984;
Athanassiou and Nigh 1999), which happens over time through experience with, and feed-
back from, the organization’s primary routines and the human actors therein (e.g., Mc-
Dermott 1999, 110). Together, the education and experience of its members cause TMTs
to adopt a more professional or administrative orientation in (strategic) management. TMTs
consisting of members with such professional experience and education appear to be more
interested in, and knowledgeable about, the primary processes of the organization (Ben-
veniste 1987, 33; Bacharach et al. 1991). Professional experience and education also pro-
vide them with the skills and inclination to be operationally involved in the organization’s
core operational activities (Henke et al. 1993). TMTs consisting of managers with dominant
administrative backgrounds are characterized instead by their knowledge of the organiza-
tion’s general and financial management rather than the specifics of the operating core
(Benveniste 1987). We propose that these distinctive orientations also affect TMTs use of
MAS.
Regarding the first aspect of MAS, we expect that the professionalism of TMTs is
positively related to the interactive use of MAS, and negatively related to the diagnostic
use of MAS. This expectation is based on both the general management style that profes-
sional and administrative TMTs display, and the role MAS information plays in managerial
decision making and control. Regarding the former, Sheldon (1971), for example, demon-
strates how professionals tend to identify with other professionals, regard them as referent
groups, and talk the ‘‘same language.’’ TMTs with a dominant professional orientation have
a larger understanding of the production process, and will therefore be inclined to offer
more autonomy and participation to professional colleagues at lower hierarchical levels in
establishing working goals (cf., Bacharach et al. 1991). Abernethy and Lillis (2001, 113)
claim, in a hospital setting, that professionals typically resist ‘‘obtrusive accountability
mechanisms’’ and suggest that the gap between the required accountability and professional
autonomy may be bridged by using the accounting system to provide accountability about
professional results.
Abernethy and Vagnoni (2004) showed, that professional managers indeed used the
accounting system to cope with the role conflict between their medical (professional) and
managerial (administrative) roles. In particular, professionals used the accounting system
for communication and dialogue with their professional peers, rather than in a traditional,
cost-oriented way (Abernethy and Vagnoni 2004, 219). In combination, these arguments
suggest that professionals will use the MAS not for mere top-down control, but as a device
to stimulate accountability, coordination, and motivation, which are constitutive elements
of interactive control (Simons 1995, 2000).
Administrative TMTs, instead, are more confident with, and more inclined to rely on,
distant and financial controls when managing the organization (Song 1982; Finkelstein and

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26 Naranjo-Gil and Hartmann

Hambrick 1996). These controls require less specific knowledge and information on the
specifics of the primary process, and emphasize the measurement of performance against
preset targets (see, e.g., Baysinger and Hoskisson 1990). This aligns with a more diagnos-
tic use of MAS (Simons 1995, 2000). In sum, therefore, we formulate the following
hypotheses:

H1: The level of professionalism in the TMT is (a) positively related to the interactive
use of MAS and (b) negatively related to the diagnostic use of MAS.

We expect that the distinction between professional and administrative orientation of


TMTs also affects the extent to which they will use the MAS as a source of primarily
financial or nonfinancial information. Although the MAS, in principle, provides each TMT
and its individual members with the same information, the actual selection and use of MAS
information is likely to be determined by personal preferences, which in turn are determined
by cognitive, affective and knowledge-related factors. Cognitive accounting research, for
example, demonstrates the effect of cognitive style on the use of opportunity cost infor-
mation (see, e.g., Chenhall and Morris 1991), and the preference for financial and quanti-
tative information (Hartmann 2005). Jones and Dewing (1997) studied the resistance of
health care managers toward a MAS change that involved more reliance on financial in-
formation, finding that professionals opposed the dominant use of financial controls. This
is in conformity with our earlier arguments regarding the familiarity of professional TMTs
with the core operational processes of the organization. As a consequence, we expect that
they will emphasize information from the MAS that supports their interest in, and emphasis
on, processual, operational aspects (e.g., Sheldon 1971; Bacharach et al. 1991; Abernethy
and Vagnoni 2004), as conveyed through nonfinancial information. Instead, TMTs with an
administrative orientation will be more confident with, and inclined to, the use of financial,
rather than nonfinancial, information, since this type of information aligns with their gen-
eral, administrative view of organizations (cf., Song 1982; Benveniste 1987; Finkelstein
and Hambrick 1996). In sum, therefore, we formulate the following hypotheses.

H2: The level of professionalism in the TMT is (a) positively related to the use of
nonfinancial MAS information and (b) negatively related to the use of financial
MAS information.

Finally, we address the more exploratory question of whether TMTs with a professional
orientation differ from TMTs with an administrative orientation in the importance they
attach to the planning and control functions of MAS (cf., Kren and Liao 1988; Meslin et
al. 1997; Reck 2001). As briefly discussed before, we distinguish between two such func-
tions—resource allocation and performance evaluation—that reflect two phases of the con-
trol cycle. Resource allocation reflects the use of the MAS for decision making about the
distribution of resources among organizational units. This typically occurs at the planning
phase of the control cycle, such as when preparing the yearly budget (e.g., Fisher et al.
2002), but also with capital budgeting (e.g., Chenhall and Morris 1991). Performance eval-
uation reflects the use of MAS for measuring and evaluating managerial and unit goal
achievement. This typically occurs at the evaluation phase of the control cycle, when com-
paring budgetary with actual numbers (cf., Reed 1986; Reck 2001; Abernethy and Vagnoni
2004).
Although MAS may typically support both kinds of functions (cf., Zimmerman 2003),
we expect that the importance attached to the MAS for resource allocation decisions and

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How Top Management Teams Use Management Accounting Systems 27

for performance evaluation decisions may differ between managers (cf., Armstrong 1987;
Chenhall and Morris 1991; Chenhall 2003). Armstrong (1987), for example, found that
managers with education and experience in finance and accounting were inclined to-
ward the detailed control of outcomes of activities and processes. At the executive level,
Bacharach et al. (1991) argued that professional TMTs are inclined to attach the highest
importance to information that supports the effective organization of tasks and resources
consistent with the needs of the production flow. They may also pay less attention to MAS’
role in performance evaluation in the form of top-down control of goal achievement, as
they rely more on the self-control of subordinates or interactive control (cf., Benveniste
1987).
Overall, this suggests that professional TMTs emphasize the resource allocation role
of MAS. However, Coombs (1987) analyzed the use of the MAS by doctors, and found
that doctor-managers (professionals), who were expected to show a primary interest in the
allocation of funds to operations (i.e., resource allocation), were increasingly integrating
their professional and administrative roles. This suggests a more balanced role for the MAS
for both resource allocation and performance evaluation than would follow from the upper
echelon perspective alone. This finding also aligns with the recent finding by Abernethy
and Vagnoni (2004, 219) that the formal delegation of authority to physicians enhanced
their use of the MAS for decision management and decision control. Since evidence is
limited, and we cannot predict which of these opposing arguments is stronger, we propose
to formulate the following hypothesis in the exploratory null-form:

H3: The level of professionalism in the TMT is (a) not related to the importance at-
tached to the performance evaluation function of MAS, (b) nor to the importance
attached to the resource allocation function of MAS.

MAS Use and Strategy Implementation


In this section we formulate predictions on the relationship between strategy imple-
mentation and the three characteristics of MAS that we explore. We analyze the imple-
mentation of strategic policies and objectives that aim at cost reduction and at flexibility
enhancement respectively, thereby adopting the dichotomy that underlies the majority of
studies looking at the MAS-strategy relationship (see, e.g., Fiegener 1994; Perera et al.
1997; Chenhall and Langfield-Smith 1998; Bouwens and Abernethy 2000). We do not make
the assumption that organizations can pursue only one set of strategic objectives at any
given time, however, as cost-related and flexibility-related goals may in fact be comple-
mentary rather than mutually exclusive (cf., Porter 1985; Govindarajan 1988; Simons 1990;
Nilsson and Rapp 1999; Carretero 2000; Ahrens and Chapman 2004). Although we further
acknowledge that the implementation of any set of strategic policies may require some level
of MAS sophistication (cf., Abernethy and Brownell 1999), we expect, consistent with the
extant MAS-strategy literature, that the MAS characteristics that support the achievement
of cost reduction goals may differ from the MAS characteristics that support the achieve-
ment of the goals related to flexibility enhancement.
MAS studies suggest that the successful adoption of flexibility strategies requires a
combination of coordination, autonomy and decentralization within the organization (e.g,
Bouwens and Abernethy 2000), and a control system that allows and stimulates fluent
working relationships between hierarchical levels (López 1999) and organizational functions
(Abernethy and Lillis 1995). Flexibility strategy implementation will thus benefit from the
combination of coordination and continuous learning that is encouraged by discussion and
interaction in the organization (Mintzberg 1990). These characteristics all correspond with

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28 Naranjo-Gil and Hartmann

an interactive style of using MAS (Storey 1985; Simons 1995, 2000). In contrast, the
implementation of cost strategy policies and objectives seems to benefit more from cen-
tralized decision making and control, in which work rules are transmitted through prescrip-
tive guidance and tight control (Porter 1985; Langfield-Smith 1997). Porter (1985) strongly
argues that cost strategies emphasize solving existing problems by optimizing current pro-
duction, rather than searching for new products or services. Thus, cost strategies tend to
emphasize current rather than new structures (Porter 1985, 73). We expect that the diag-
nostic style of using MAS, which involves the monitoring and controlling efficiency of
prescribed tasks, will support this latter emphasis (Simons 1995, 2000).
Flexibility strategy implementation requires product customization rather than stan-
dardization (e.g., Miles and Snow 1978; Porter 1985), and customization causes relation-
ships between inputs and outputs of production tasks to be unclear. This reduces the pos-
sibilities for establishing a priori optimality of input-output ratios (cf., Thompson 1967;
Galbraith 1973). Under such conditions, the establishment and measurement of efficiency
and effectiveness requires an extended set of performance measures that provide more
insight in the various parts of transformation processes (cf., Abernethy and Lillis 1995).
This suggests that operational, nonfinancial information will be more consistent with, and
useful for pursuing flexibility and customization priorities, than information reported in the
aggregated format of financial indicators (cf., Fisher 1992; Simons 1995, 2000). Empirical
evidence provides support for this line of argumentation. Abernethy and Lillis (1995), for
example, found a negative association between the use of financial information and strat-
egies based on manufacturing flexibility. Perera et al. (1997) found that organizations with
a customer-oriented strategy use more nonfinancial and operational information for man-
agement control. Both Carr et al. (1997) and Ittner and Larcker (1995) found empirical
evidence for a relationship between quality strategies (based on International Standards
Organization [ISO] and TQM respectively), and an increased use of nonfinancial infor-
mation that expresses physical measurements. In contrast, cost reduction strategies assume
and require standardization and comparability of products and activities (Porter 1985),
which demands the use of generic financial information. Financial information that ex-
presses cost control objectives in monetary terms enables standardization and comparison
across organizational functions (cf., Fisher 1992; Reck 2001).
Finally, since implementation of a flexibility strategy requires cross-functional inter-
action and cross-functional responsiveness to specific customer demands (cf., Bouwens and
Abernethy 2000), the MAS should support interdepartmental planning and coordination
more than intradepartmental performance control (Bouwens and Abernethy 2000). López
(1999) argues that this requires managing information from interdependent departments
directed at improving workflows, prioritizing tasks, and optimizing resource consumption.
This means that relatively more importance should be attached to the resource allocation
function of MAS, as this function aims at the ex ante allocation of resources to different
departments in appropriate levels and in balance with overall organizational goals (cf.,
Cuervo 1996; Carretero 2000; Golden et al. 2000; Reck 2001). In contrast, the use of MAS
for performance evaluation focuses on ex post monitoring and (top-down) control and clear
specification of how performance is to be improved. This is the traditional performance
evaluation function of MAS, which stresses the measurement and evaluation of unit per-
formance rather than communicating operational decisions (Morissette 1998; Reck 2001).
Several authors have argued that the use of MAS for performance evaluation fits cost
strategy implementation, through emphasizing the efficiency of units and services of the
organization (e.g., Porter 1985; Cuervo 1996; Nilsson and Rapp 1999). In sum, therefore,
we propose the following set of hypotheses:

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How Top Management Teams Use Management Accounting Systems 29

H4: Flexibility strategy implementation is positively affected by (a) the interactive use
of MAS, (b) the use of nonfinancial MAS information, and (c) the use of MAS
for resource allocation decisions.
H5: Cost strategy implementation is positively affected by (a) the diagnostic use of
MAS, (b) the use of financial MAS information, and (c) the use of MAS for
performance evaluation.

TMT Composition and Strategy Implementation


The hypotheses above express our expectations about mediating effects of MAS on the
relationship between TMT orientation and the pursuit of strategic objectives. The upper
echelon literature, however, typically investigates direct relationships between TMT com-
position and strategic decisions or the achievement of strategic objectives (e.g., Song 1982;
Bantel and Jackson 1989; Finkelstein and Hambrick 1996; Carpenter et al. 2004). Thomas
et al. (1991), for example, found that prospector firms were more likely to be led by
managers with backgrounds in ‘‘output related functions’’ (i.e., product research and de-
velopment), while defender firms had a significantly greater proportion of managers with
backgrounds in ‘‘throughput related functions’’ (i.e., finance). Song (1982) investigated two
types of diversification strategies, and showed that the financial and legal background of
TMTs is associated with diversification through profitable acquisition, whereas an internal
production background is associated with internal diversification strategies, which involved
exploitation of synergies between existing business lines. Hitt and Tyler (1991) found that
the type of academic degrees managers held affected their strategic decision making. TMTs
with a dominant background in business and law appeared more oriented toward organi-
zational control and efficiency (Bacharach et al. 1991; Hitt and Tyler 1991), whereas back-
grounds in science and medicine were associated with innovation, inventions, and strategic
change (cf., Wiersema and Bantel 1992). Govindarajan (1989) found that managerial ex-
perience in research and development (e.g., internal and technical experience) contributed
to effectiveness of strategic business units pursuing a differentiation strategy. Although these
TMT characteristics may affect strategy through the use of MAS, as our first set of hy-
potheses acknowledge, we must take into account that there may be direct effects or effects
which are not MAS related. As the studies mentioned used various strategic perspectives,
it is difficult to summarize them into any straightforward prediction for the sets of strategic
objectives that we investigate. However, in combination these studies provide some sug-
gestion that TMTs with a dominant experience in the internal (i.e., technical and opera-
tional) processes of the organization tend to be more inclined toward improving the content
of processes (cf., Thomas et al. 1991; Finkelstein and Hambrick 1996). In contrast, TMTs
with a dominant experience in the externally oriented processes of the organization (i.e.,
business and general management; cf., Song [1982]) are more inclined toward improving
processes in general, financial, terms. Therefore, we formulate the following hypotheses:

H6: The level of professionalism in the TMT is (a) positively related to flexibility
strategy implementation and (b) negatively related to cost strategy implementation.

The overall model, containing the hypotheses, is depicted in Figure 1.

TMT Composition, Enabling, and Coercive Use of MAS and Strategy


In addition to the separate hypotheses about individual aspects of MAS presented
above, we propose to explore the three sets of MAS aspects in combination. We chose to

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30 Naranjo-Gil and Hartmann

FIGURE 1
TMT, MAS Uses and Strategy Implementation (General Model)

Financial inf.
Perf. Evaluat. H5 (+)
H1; H2, H3 Diagnostic
(-) Cost Strategy
Implementation
Professionalism
of TMT H6 (-)
(+)
Flexibility strategy
Implementation

H1; H2, H3 Non-Financial


(+) Res. Allocat. H4 (+)
Interactive

use the general framework of coercive and enabling use of MAS, which has recently been
introduced into the management accounting literature by Ahrens and Chapman (2004),
following the typology developed by Adler and Borys (1996).1 Using case evidence, Ahrens
and Chapman (2004) illustrate how the coercive-enabling classification helps to describe
how organizations balance mechanistic and organic controls in the simultaneous pursuit of
efficiency and flexibility (Ahrens and Chapman 2004, 277). This type of analysis comple-
ments traditional MAS studies that have addressed mechanistic and organic control as
distinct and stable archetypes (e.g., Chenhall and Morris 1995).
The enabling and coercive dimensions have not been operationalized for the method-
ology applied in the present study, but according to the available definition of the coercive
use of MAS, which intends to apply top-down control and emphasizes centralization and
planning (see Ahrens and Chapman 2004, 271), we propose that the diagnostic use of MAS,
the use of financial MAS information, and the use of MAS for performance evaluation are
control elements that contain considerable similarity with the coercive use of MAS, as that
refers to more typical top-down management that focuses on central control, emphasizes
its role in performance evaluation, and uses preset financial standards (cf., Adler and Borys
1996, 70–74; Ahrens and Chapman 2004, 273).
Consistent with the definition of the enabling use of MAS, as an instrument to empower
employees to deal with uncertainties and to apply self-control (cf., Ahrens and Chapman
2004, 271), we propose that this resembles a combination of the interactive use of MAS,
the use of nonfinancial MAS information, and a dominant use of MAS for resource allo-
cation decisions, as this expresses a management style which seeks the delegation and
participation of employees, focuses on helping subordinates establish improvement oppor-
tunities for the processes under their responsibility, emphasizes the use of operational mea-
sures, and de-emphasizes target-based performance control (cf., Adler and Borys 1996,

1
We thank one of the reviewers for suggesting the potential applicability of this framework to our analysis.

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 31

70–74; Ahrens and Chapman 2004, 279–281). Based on the argumentation presented earlier
for the directional hypotheses, we have reason to believe that the enabling (coercive) use
of MAS will be primarily associated with professional (administrative) TMTs. However,
the correspondence between the individual MAS elements and the enabling-coercive frame-
work is likely to be less than perfect. Thus, to express the exploratory nature of the analysis
of these relationships, and given the lack of previous cross-sectional evidence, we formulate
the associated hypothesis in the null form:

H7: The level of professionalism in the TMT is (a) not related to the enabling use of
MAS, (b) nor to the coercive use of MAS.

Since a strategy focused on flexibility enhancement is customer oriented, and empha-


sizes innovation, it requires control systems that facilitate product customization rather than
standardization (e.g., Abernethy and Lillis 1995), which may be supported better by the
control elements that make up the enabling use of the MAS, as argued before in the analysis
of individual MAS aspects. Ahrens and Chapman (2004), however, point to the more im-
portant role of an enabling use of MAS for managing innovation and decentralization, and
for balancing objectives of efficiency and flexibility. This suggests that enabling use of
MAS, in contrast with the coercive or classical top-down role of MAS, may contribute both
to strategic objectives aimed at flexibility enhancement and cost reduction. In contrast, we
expect that the coercive use of MAS, which emphasizes top-down control and the evaluation
of performance against preset standards (Porter 1985), will primarily be able to support the
adoption of strategic goals and policies aimed at cost reduction, as centralized decision
making and control is better facilitated with monitoring and standardization. Also here,
however, we prefer to formulate the associated hypotheses in the exploratory null form,
because of lack of previous evidence:

H8: Flexibility strategy implementation is (a) not affected by the enabling use of MAS,
(b) nor by the coercive use of MAS.
H9: Cost strategy implementation is (a) not affected by the enabling use of MAS, (b)
nor by the coercive use of MAS.

METHOD
Data were gathered with a written questionnaire that we distributed among the 884
TMT members of all 218 public hospitals in Spain. We selected this specific setting for
four reasons. First, given the complexity of the variables and relationships in our model,
we decided to focus on a single industry, controlling for variables of no theoretical interest
to the study, and thus attempting to reduce noise in measurement and analyses. Second,
the medical sector has been the object of empirical study in several previous contingency
studies that explored the organizational and strategic roles of MAS, thus providing the
present study with the empirical benchmarks (see, e.g., Abernethy and Brownell 1999;
Abernethy and Lillis 2001). Third, the medical industry across the Western world is cur-
rently involved in processes of serious strategic and managerial reorientation (Carretero
2000; Peirce 2000; Abernethy and Lillis 2001; Kurunmäki 2004).
In Spain, these developments have resulted in formal legislation that spurs hospitals to
pursue strategic goals expressed in enhanced cost efficiency and flexibility simultaneously,
which provided the context appropriate to the research questions (see, e.g., Cuervo 1996,

Journal of Management Accounting Research, 2006


32 Naranjo-Gil and Hartmann

Naranjo-Gil and Hartmann 2004).2 Moreover, although these developments in the medical
industry were themselves not the object of the present study, it assured us that the topic of
our study would be considered relevant and salient by respondents, with positive expected
consequences for respondents’ willingness to cooperate, the perceived relevance of the
constructs measured, and the validity of construct measurement. These expectations were
supported in an initial pilot-study conducted in a subset of the sample (cf., Abernethy and
Brownell 1999; see Appendix A). We used the Spanish National Catalogue of Hospitals to
obtain a list of all 218 public hospitals and developed a list of 884 TMT members from
this catalogue, supported by information from Internet and telephone calls to hospitals (cf.,
Naranjo-Gil 2003).3 The written questionnaire was composed, distributed, and recollected
using procedures recommended by Dillman (2000). First, based on the extant literature, we
selected instruments for the constructs (see below), and created a draft version of the entire
questionnaire. Second, we tested this draft version of the questionnaire in 18 interviews
with members of the target population, and made small adaptations based on the comments
received.4 Third, we chose an attractive layout for the questionnaire, assuring good quality
of paper and printing, a professional overall impression, and the clear association with the
two universities sponsoring the study. Fourth, the distribution and recollection procedures
involved sending (1) a prenotice letter announcing the survey; and subsequently (2) the
survey package containing the survey, a cover letter, a prepaid self-addressed envelope, and
a pen with the names of the two universities carrying out the project, and (3) a follow-up
letter to all respondents, reminding them of the survey and the importance of participating.
Three weeks later (4) a second copy of the survey was sent to nonrespondents. Finally, (5)
two weeks later contact was made by phone to all nonrespondents, who were personally
invited to respond to the questionnaire. All initial and follow-up letters contained hand-
written signatures, and were personalized for names and addresses.
A satisfactory response rate was achieved with 496 (56.10 percent) questionnaires re-
turned of which 473 (53.51 percent) were deemed useful for further analysis. From these
data, 92 complete TMTs were formed for which all members had responded. The remainder
of the responses were discarded for the analyses of hypotheses, but were included for the
validity and response-bias tests.
Measurement of variables
Appendix B contains a full overview of the questionnaire and the results of the factor
analyses. Professional versus administrative TMT background was measured with factual
questions about managers’ years of educational and functional experience in the profes-
sional (clinical) field and the administrative (general management) field (cf., Hambrick and
Mason 1984; Bantel and Jackson 1989; Hambrick et al. 1996).5 From the individual scores,
two TMT variables were constructed. An ordinal variable TMT background was constructed

2
Various Spanish laws require regional health care authorities to encourage hospitals to be cooperative and flexible
organizations in order to offer a quality service at low cost (e.g., Law 16 / 1986; Decree 63 / 1995; Law 21 /
2001).
3
TMTs are on average formed by a CEO, a medical director, a nursing director, and an administrative financial
director. TMT members are chosen through an internal selection process in every hospital without involvement
of the regional government authorities.
4
A total of 18 interviews were performed in four general hospitals. We interviewed three full TMTs in the four
hospitals. Through these interviews we refined the design of the study and the measurement of the constructs.
5
To exclude the possibility of CEOs being the single source of variation of TMT scores, we tested whether the
correlation analysis of the variables including and excluding CEO scores were similar, which they were. We
also ran independent-samples t-tests to test for differences between the mean scores between CEO and the rest
of directors in terms of experience and education. The results show no difference between CEOs and the
remaining TMT scores.

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 33

as the ratio of the average individual scores for years of professional background to the
total number of years of professional and administrative background.6 A dichotomous, vari-
able, professional TMT, versus administrative TMT, was constructed based on whether the
majority of TMT members had a professional or administrative background.7 Thus, the final
variable scores accounted for all years of professional or administrative background in the
TMT and corrected for TMT size.
The MAS characteristics were measured as follows. The diagnostic and interactive
styles of MAS use were measured using a Likert-type instrument from Abernethy and
Brownell (1999), which we adapted to the specific setting.8 Ten items reflected the main
features of an interactive or diagnostic use of MAS (Simons 1995; Bisbe and Otley 2004).
Exploratory factor analysis revealed two factors, with all items loading higher than 0.50 on
the expected factor. The interactive style factor explained 31.36 percent of variance, and
had a Cronbach alpha of 0.81. The diagnostic style factor explained 27.39 percent of var-
iance, and had a Cronbach alpha of 0.75. Both alphas thus exceeded the recommended 0.70
level (Nunnally 1978; Hair et al. 1998).
The use of (non) financial information was measured with a Likert-type instrument
adapted from Abernethy and Lillis (1995) and Perera et al. (1997). The ten information
items listed in the question corresponded with measures commonly reported by hospitals
through the Spanish Inter-Hospital Information System,9 which ensured that respondents
were familiar with the type of information and its potential use. The exploratory factor
analysis revealed that all items loaded higher than 0.50 on the expected factor. The nonfi-
nancial information factor explained 28.30 percent of variance and had a Cronbach alpha
of 0.77. The financial information factor explained 24.32 percent of variance and had a
Cronbach alpha of 0.70.
The variables expressing the purpose of MAS use, resource allocation and performance
evaluation, were measured following the logic applied in the instruments used by Reed
(1986) and Reck (2001). Respondents were offered two (not mutually exclusive) descrip-
tions, one for each type of decision, and were asked to indicate on a five-point Likert-type
scale the extent to which they used the MAS, and the (non)financial information contained
therein, for these purposes. Cronbach alphas were 0.79 and 0.78 respectively.10

6
To assess the appropriateness of aggregation, we compute inter-rater reliability coefficients for each construct
and team (cf., James et al. 1984). All coefficients computed were above 0.70, which indicates good agreement
among judgments made by the team members (cf., Anderson et al. [2002, 203], who used 0.60). We checked
for outliers using plot analysis, but observed no effect on final results of eliminating any outlier scores (Barnett
and Lewis 1984).
7
For example, a TMT with a total of 10 years of professional background and 15 years of administrative back-
ground obtained a score of 0.4 on TMT professionalism (ordinal). A TMT with two ‘‘professionals’’ (managers
with more years of professional background than administrative background) and three ‘‘administrators’’ (more
years of administrative background) was considered an ‘‘administrative’’ TMT (dichotomous).
8
In the pilot study we observed that in the medical sector, the word ‘‘diagnostic’’ obtained a special meaning
related to the diagnosis of patients’ illnesses. For this reason, we operationalized the concept of diagnostic with
short statements derived for descriptions from Simons (1995) and Abernethy and Brownell (1999) rather than
relying on the term ‘‘diagnostic’’ as such.
9
This system, known as INIHOS (INformation Inter HOSpitales), provides several indicators used for measuring,
comparing, and evaluating health care performance among hospitals. Hospitals are required to report monthly
more than 20 financial and nonfinancial indicators that cover use of resources, productivity, and health care
performance. INIHOS is a recent system that is currently replacing a similar, but noncomparative, system CMBD
(Conjunto Mı́nimo Básico de Datos).
10
Performance evaluation and resource allocation decisions were recognized by top managers as very relevant in
the pilot study. Through interviews with these managers we fine-tuned a valid description for both types of
decisions, with resource allocation relating to the distribution of resources among the different services, and
performance evaluation being related to monitoring the achievement of targets.

Journal of Management Accounting Research, 2006


34 Naranjo-Gil and Hartmann

The coercive and enabling uses of MAS were constructed as formative second-order
variables formed by the items used in the first-order MAS characteristics. As further ex-
plained below, we used PLS-Graph (version 3.00) for our analysis. Thus, the enabling use
of MAS is formed by the items used for measuring the interactive use of MAS, the use of
nonfinancial MAS information, and the use of MAS for resource allocation. The coercive
use of MAS is formed by all items used for measuring the diagnostic use of MAS, the use
of financial MAS information, and the use of MAS for performance evaluation.
The implementation of strategic goals related to cost reduction and quality improvement
was measured with a nine-item, Likert-type instrument that was based on the instrument
used by Gupta and Govindarajan (1984) and Govindarajan (1988). We adapted the instru-
ment to the context, by assuring that the selected items were explicitly stated in the new
strategic governmental policy documents.11 Respondents were asked to indicate the extent
to which these sets of strategic policies and goals were implemented in their hospital. The
exploratory factor analysis revealed two factors, explaining 31.24 percent and 24.98 percent
of variance respectively, and Cronbach alphas of 0.71 and 0.76. One item did not exceed
the 0.50 loading criterion, and was discarded for further analysis.12 Two control variables
were included. The first is hospital size, which was measured by the number of beds (cf.,
Errasti 1997; Abernethy and Lillis 2001). The second was a dummy variable for govern-
mental dependency of hospitals.13
The test for potential nonresponse bias involved comparing survey respondents to the
original mailing list, comparing early and late respondents, and comparing respondents used
for TMT formation with other respondents (cf., Pedhazur and Pedhazur 1991; Roberts
1999). Chi-squared tests and independent-samples t-tests on various characteristics, size of
hospitals, governmental dependency, and type of directors, did not reveal any sign of non-
response bias.

RESULTS
The hypotheses are tested using Partial Least Squares (PLS). Similar to covariance
based structural equation modeling techniques (e.g., LISREL, EQS), PLS is a second gen-
eration statistical technique that allows testing causal models with multiple independent,
mediating and dependent variables with multiple indicators or measures per variable. Unlike
covariance-based structural models, PLS explains variance and resembles ordinary least
squares regression with regard to output (Barclay et al. 1995). PLS allows smaller sample
sizes than covariance-based models. PLS does not report on the fit of the whole model (see
Chin 1998), and thus overcomes some of the theoretical and estimation problems associated
with the use of covariance-based models (see, e.g., Hulland 1999).
Before designing and testing the comprehensive model, a preliminary data analysis was
done to establish the appropriateness of the causal model (see Tables 1 and 2), following

11
For example, the Strategic Plan of Andalusia Regional Health Care Authority (1999) encourages ‘‘the introduc-
tion of accounting models for calculating costs per product / service lines, and the use of management information
systems for controlling and reducing the cost per patient.’’ The Strategic Plan of the Madrid Regional Health
Care Authority (1999) mentions the intent ‘‘to adopt a strategic shift to a culture of flexibility and decentrali-
zation, through a permanent collaboration among different hospital services, and collaboration and networking
between hospitals to put patients at the centre of services.’’
12
The lack of specific loading of this item ‘‘Adapting and updating of staff knowledge’’ can be explained by its
general formulation, which did not associate it clearly with either cost or flexibility.
13
The inclusion of ‘‘governmental dependency’’ allowed distinguishing between hospitals in regions with a long
history of autonomy in health care management, and the regions with a recent autonomy in health care man-
agement, to control for any spill-over effect from the 2002 health care reform. This reform implied larger and
more uniform autonomy and independence for every region.

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 35

recommendations by Hair et al. (1998, 600). We calculated bivariate correlations for the
various relationships proposed, using the variable scores based on the average item scores
for the Likert-type instruments. For hypotheses concerning TMT-MAS relationships, we
tested for differences of means between paired characteristics of MAS for the two sub-
groups, professional versus administrative, that were based on the dichotomous TMT back-
ground variable score. Descriptive statistics for the constructs are reported in Table 1. The
results of the bivariate correlation analyses are reported in Table 2. The results of the paired-
samples t-test are depicted in Table 3.
The analyses in Tables 2 and 3 provide preliminary support for hypotheses H1a and
H1b, which predict that the level of professionalism in the TMT is positively related to the
interactive use of MAS and negatively related to the diagnostic use of MAS. Table 2 also
shows support for H2a and H2b, which predict that the level of professionalism in the TMT
is positively related to the use of nonfinancial MAS information and negatively related to
the use of financial MAS information. Table 2 shows support for H3a and H3b, which
predict that the level of professionalism of the TMT is not related to the use of MAS for

TABLE 1
Descriptive Statistics for Variables
(n ⴝ 92)

Variable Mean SD Theoretical Range Actual Range


1. TMT Professionalism 0.42 0.04 0.00–1.00 0.00–1.00
2. MAS Interactive 3.34 0.56 1.00–5.00 1.56–4.56
3. MAS Diagnostic 3.44 0.52 1.00–5.00 1.83–4.50
4. MAS Financial 3.26 0.41 1.00–5.00 2.00–4.00
5. MAS Nonfinancial 3.47 0.45 1.00–5.00 2.00–4.44
6. MAS Resource Allocation 3.55 0.46 1.00–5.00 2.00–4.71
7. MAS Performance Evaluation 3.25 0.48 1.00–5.00 2.00–4.31
8. Flexibility Strategy 3.05 0.47 1.00–5.00 2.00–4.20
9. Cost Strategy 2.91 0.44 1.00–5.00 1.56–4.00
See Appendix B for definition of variables.

TABLE 2
Pearson Correlation Coefficients
(n ⴝ 92)

1 2 3 4 5 6 7 8
1. TMT Professionalism 1.000
2. MAS Interactive 0.334* 1.000
3. MAS Diagnostic ⫺0.231** 0.251** 1.000
4. MAS Financial ⫺0.241** 0.162 0.298* 1.000
5. MAS Nonfinancial 0.213** 0.315* 0.103 0.213** 1.000
6. MAS Resource 0.096 0.246** 0.294* 0.364* 0.122 1.000
Allocation 1.000
7. MAS Performance 0.038 0.307* 0.289* 0.461* 0.146 0.460*
Evaluation
8. Flexibility Strategy 0.171*** 0.297* 0.111 0.161 0.327* 0.411* 0.440* 1.000
9. Cost Strategy 0.243** 0.441* 0.178*** 0.252** ⫺0.073 0.352* 0.296* 0.412*
*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
See Appendix B for definition of variables.

Journal of Management Accounting Research, 2006


36 Naranjo-Gil and Hartmann

TABLE 3
Use of MAS Elements for Professional and Administrative TMTs: Paired-Samples t-tests

Panel A: Professional TMTs Subsample (n ⴝ 33)a


MAS Use Mean SD t p
Resource allocation ⬎ performance evaluation 0.034 0.453 0.437 0.665
Interactive ⬎ diagnostic 0.152 0.629 1.939 0.073
Nonfinancial ⬎ financial 0.323 0.542 3.425 0.002

Panel B: Administrative TMTs Subsample (n ⴝ 59)


Performance evaluation ⬎ resource allocation 0.145 0.459 2.432 0.018
Diagnostic ⬎ interactive 0.524 0.468 8.604 0.000
Financial ⬎ nonfinancial 0.035 0.639 0.429 0.669
See Appendix B for definition of variables
a
We split the sample in TMTs with a dominant professional and administrative background. Then we compared
the means of their use of every MAS element (e.g., purpose, style, and type of information). Panel A shows how
professional TMTs use MAS (on average) more for resource allocation than for performance evaluation, more
interactively than diagnostically, and use more nonfinancial information than financial information. In a similar
way, Panel B shows how administrative TMTs use MAS (on average) more for performance evaluation than for
resource allocation, more diagnostically than interactively, and use more financial information than nonfinancial
information. Note that two of the six difference scores are not significant at the 0.10 level.

performance evaluation, nor to the use of MAS for resource allocation. Regarding the
relationships between MAS use and the adoption of strategic objectives and policies, pre-
liminary support was found for hypotheses 4 and 5. The results of the t-tests between MAS
scores for TMTs classified as either administrative or professional, reported in Table 3,
largely support the correlation findings, except for insignificant differences between per-
formance evaluation and resource allocation for the professional subgroup, and use of fi-
nancial and nonfinancial information for the administrative subgroup. Table 2 further shows
a positive relationship between the implementation of a flexibility strategy and the inter-
active use of MAS, the use of nonfinancial MAS information, and the use of MAS for
resource allocation. Table 2 also shows a positive relationship between the implementation
of a cost strategy and the diagnostic use of MAS, the use of financial MAS information,
and the use of MAS for performance evaluation. Regarding the relationship between the
level of professionalism in the TMT and strategy implementation, only partial support was
found for H6: the level of professionalism in the TMT is positively related to both flexibility
strategy implementation and cost strategy implementation.
Figure 2 displays the full PLS model tested and reports on the standardized ␤s and the
R2 results from this analysis.14 In testing the model, we use the manifest item scores for
all variables, except for TMT background. Table 4 contains a detailed analysis of the
structural path coefficients and reports on the significance of these coefficients, based on a
bootstrapping procedure using 500 samples with replacement.15 Appendix B reports on the
results for the measurement model. The PLS analysis confirms the preliminary analyses of

14
In the PLS analyses we included the two control variables with paths to all (in)dependent variables. Except for
a significant, positive path between size and the use of MAS for performance evaluation, no paths were signif-
icant. The results reported are those of the model tested with control variables. For reasons of clarity, we have
not included these variables in the graphical presentations.
15
The control variables (size and governmental dependency) did not reveal any significant path with TMT, MAS
use and strategy implementation.

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 37

FIGURE 2
Professional TMT, MAS Characteristics and Strategy Implementation Path Model
(only significant paths and their PLS path coefficients are shown)

Financial Inf.
R2=0.197
0.459*
*** *
-0.230 0.583
Perf. Evaluat.
R2=0.107
0.182*** Cost strategy
Diagnostic implementation
-0.198 R2=0.221
R2=0.233

Professionalism -0.258*
of TMT 0.208**
0.214* Flexibility strategy
Nonfinancial implementation
R2=0.211 0.159***
R2=0.279
***
0.168

Res. Allocat
0.246*
0.185*** R2=0.114
0.313*

Interactive 0.226*
R2=0.257

*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).

reliability and unidimensionality of the variables, with high composite reliability of the
latent variables (see Appendix B, Table B2) and with general loadings of manifest variables
on latent variables exceeding 0.60. We demonstrate discriminant validity of the measure-
ment model by comparing Average Variance Extracted (AVE, see Appendix B, Table B2)
with squared correlations between constructs (Table 2, cf., Fornell and Larcker 1981).16
The results in Table 4 show support for the expected positive relationship between
professionalism of TMTs and the interactive use of MAS, and the expected negative relation
between professionalism and the diagnostic use of MAS (H1a and H1b). Support was also
found for the expected relationships between TMT professionalism and the use of financial
and nonfinancial information (H2a and H2b). Table 4 shows that H3a and H3b cannot be
rejected, since the relationships between TMT orientation and the use of MAS for resource
allocation or performance evaluation are both insignificant. This suggests that TMT com-
position has no effect on the perceived importance of the two roles of MAS. Regarding the
relationships between MAS characteristics and strategy implementation, results in Table 4
show support for H4, since there are positive relationships between flexibility strategy
implementation and the interactive use of MAS, the use of nonfinancial MAS information,

16
Discriminant validity is concerned with the degree to which a variable measures a concept that is uniquely
defined and is not highly correlated with other variables included in the model (Fornell and Larcker 1981).

Journal of Management Accounting Research, 2006


38 Naranjo-Gil and Hartmann

TABLE 4
Results from PLS Analysis (First-Order Model, Path Coefficients)
(n ⴝ 92)

To: From: 1 2 3 4 5 6 7
1. TMT Professionalism — — — — — — —
2. MAS Interactive 0.185*** — — — — — —
3. MAS Diagnostic ⫺0.198*** — — — — — —
4. MAS Nonfinancial 0.214* — — — — — —
5. MAS Financial ⫺0.230*** — — — — — —
6. MAS Res. Allocation 0.033 — — — — — —
7. MAS Perf. ⫺0.127 — — — — — —
Evaluation
8. Flexibility Strategy 0.208** 0.226* ⫺0.188 0.159*** 0.583* 0.168*** ⫺0.033
9. Cost Strategy 0.164 0.313* ⫺0.096 ⫺0.258* 0.459* 0.246* 0.182***
*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
See Appendix B for definition of variables.

and the use of MAS for resource allocation decisions. Table 4 also shows that the use of
financial MAS information positively affects flexibility strategy implementation. Regarding
cost strategy implementation, Table 4 shows positive effects of the use of financial MAS
information (cf., H5b) and the use of performance evaluation (cf., H5c) on cost strategy
implementation. However no support was found for H5a, since cost strategy implementation
appears to be unrelated to the diagnostic use of MAS. Results in Table 4 additionally
suggest that cost strategy implementation is positively related to the interactive use of MAS
as well as to the use of MAS for resource allocation decisions, and negatively related to
the use of nonfinancial MAS information.
Regarding the relationship between professionalism of TMTs and strategy implemen-
tation, partial support was found for Hypothesis 6, since the path coefficient between pro-
fessionalism of TMTs and flexibility strategy implementation is positive and significant.
However, no support was found for the relationship between the level of professionalism
in the TMT and cost strategy implementation, since the path coefficient is not significant,
and even in a direction opposite to our expectation. Overall, the results are largely consistent
with the correlation statistics.
For the secondary analyses, in which the MAS factors are studied as elements of the
coercive and enabling dichotomy, we followed the procedure for constructing second-order
variables outlined by Yi and Davis (2003, 158–160).17 The results of the PLS analysis of
show significant relationships between the enabling and coercive uses of MAS, and its first-
order factors (see Table 5). Regarding the relationships between TMT professionalism, the
coercive and enabling uses of MAS, and strategy implementation (cost and flexibility),

17
We first examined the relationship between TMT composition and MAS characteristics (first-order constructs),
and also the relationship between TMT and strategy implementation. Second, we examined the relationship
between strategy implementation and coercive and enabling uses of MAS (second-order constructs), where the
computed first-order factors of the MAS characteristics were used as manifest indicators of the enabling uses
of MAS (i.e., interactive, nonfinancial, and resource allocation) and coercive uses of MAS (i.e., diagnostic,
financial, and performance evaluation). Because the coercive and enabling uses of MAS are modelled as a
formative second-order construct, we needed to avoid unstable estimates of weights resulting from multicollin-
earity among first-order factors when running the second model (Chin 1998). Therefore we tested the second
model using loadings rather than weights to relate the first-order constructs (three MAS dimensions) to the
second-order construct (two uses of MAS) (see Yi and Davis 2003).

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 39

TABLE 5
Results from PLS Analysis (Second-Order Model, Path Coefficients)
(n ⴝ 92)

From: To: Coercive Use of MAS Enabling Use of MAS


MAS Interactive 0.124 0.307*
MAS Diagnostic 0.266** 0.149
MAS Nonfinancial 0.111 0.226**
MAS Financial 0.274** 0.097
MAS Res. Allocation 0.152 0.190***
MAS Perf. Evaluation 0.178*** 0.086
*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
See Appendix B for definition of variables.

the results of the second-order model are largely consistent with the results from the pre-
vious analyses (see Figure 3 and Tables 6 and 7) with some interesting differences.18 As
table 7 shows, the professional orientation of TMTs is positively related to the enabling
use of MAS, and unrelated to the coercive use of MAS (H7), as the latter path coefficient
is insignificant. Results in Table 7 show that the implementation of a flexibility strategy is
not affected by the coercive use of MAS, but only by the enabling use of MAS (H8). Table

TABLE 6
Construct Correlations (Second-Order PLS Model)

1 2 3 4
1. Professionalism of TMT 1.000
2. Coercive use of MAS ⫺0.185 1.000
3. Enabling use of MAS 0.206** 0.187*** 1.000
4. Flexibility Strategy 0.171*** 0.092 0.259** 1.000
5. Cost Strategy 0.243** 0.219** 0.166*** 0.412*
*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
See Appendix B for definition of variables

TABLE 7
Results from PLS Analysis (Second-Order Model, Path Coefficients)

To: From: 1 2 3
1. TMT Professionalism —
2. Coercive use of MAS ⫺0.177 —
3. Enabling use of MAS 0.224** — —
4. Flexibility Strategy 0.208** ⫺0.134 0.288*
5. Cost Strategy 0.164 0.231** 0.174***
*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
See Appendix B for definition of variables

18
Table 7 reports a significant correlation between the coercive and enabling uses of MAS (0.187, p ⬍ 0.10),
which indicates that the operationalization of these constructs in our study has not resulted in optimal discri-
minant validity.

Journal of Management Accounting Research, 2006


40 Naranjo-Gil and Hartmann

7 furthermore shows a positive and significant relationship between cost strategy imple-
mentation and both the enabling and coercive use of MAS (H9).
These analyses, however, also show some notable differences with the separate and
combined analyses of the sets of MAS characteristics. For example, we established a neg-
ative relationship between the use of nonfinancial MAS information and cost strategy im-
plementation in our separate analyses, but find a positive relationship when nonfinancial
information is modeled as a part of the enabling use of MAS. Similarly, the negative
associations of TMT professionalism and both the use financial MAS information and the
diagnostic use of MAS disappear when both these aspects are analyzed as part of the larger
coercive construct. Finally, the positive association between the use of financial MAS in-
formation and flexibility strategy implementation disappears when the use of financial MAS
information is modeled as a part of the coercive use of MAS. Below we will discuss the
substantive implications of these findings.

DISCUSSION AND CONCLUSIONS


This paper has explored the role of management accounting systems (MAS) in sup-
porting strategy implementation, and how this role was affected by TMT background. Con-
sistent with our general expectation, we found that TMT background does affect the use

FIGURE 3
Second-Order Model: TMT Professionalism, MAS Role, and Strategy Implementation Path
Analysis (only significant paths and their PLS path coefficients are shown)

Financial Inf.

Diagnostic 0.274** Perf. Evaluat.

0.178***
0.266**

Coercive use of MAS


0.231** Cost strategy
R2=0.166
implementation
R2=0.221
Professionalism
0.208** 0.172*
of TMT

0.224** Flexibility strategy


Enabling use of MAS
implementation
R2=0.179 0.288* R2=0.279

0.307* 0.190***
**
0.226
Interactive Res. Allocat.

Nonfinancial

*, **, and *** Significant at 0.01, 0.05, and 0.10 levels respectively (two-tailed).
All R2 values were significant (p ⬍ 0.05) by conducting F tests.

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 41

of MAS, and such use subsequently affects strategy implementation. As TMTs have a more
professional (administrative) orientation, they make more interactive (diagnostic) use of
MAS, and the use of nonfinancial (financial) information. These results are consistent with
our hypotheses and extend earlier findings by Abernethy and Lillis (2001) and Abernethy
and Vagnoni (2004), who found that physicians in management positions tend to de-
emphasize cost information. Although the correlation analyses suggested that professional
TMTs also use MAS more for resource allocation decisions than for performance evaluation
decisions, we did not find significant relationships between the professionalism of TMTs
and these different uses of MAS, when testing the full causal model. One explanation for
this lack of association may be that TMTs use MAS as a complement to, rather than as an
extension of, their experience and educational background. As TMTs are confronted with
both types of decisions, they may use the formal control system, and therefore the MAS,
especially for those decisions not connected with their background. Professional TMTs,
who are more confident with resource allocation decisions relating to their lower level peers,
will therefore need less support from the MAS for this function. This effect may also
explain why Abernethy and Stoelwinder (1990) found that professional managers preferred
informal controls for decision making.
The use of MAS appeared to have an effect on strategy implementation as expected,
but the patterns are more diverse than recognized in our hypotheses. For example, we found
in addition to our expectations that the use of financial MAS information is positively
related to flexibility strategy implementation, which suggests its importance regardless of
the exact strategic objectives pursued (cf., Govindarajan and Gupta 1985). Moreover, the
use of nonfinancial MAS information, the interactive use of MAS, and the use of MAS for
resource allocation all seem to support cost strategy implementation as well. In contrast
with our expectation, we did not find a positive relationship between the diagnostic use of
MAS and cost strategy implementation. These particular results are of interest for under-
standing the relationship between MAS and strategy, but in the context of our overall model
suggest that different TMTs may achieve similar strategies through different uses of MAS.
For example, more professional TMTs may contribute to flexibility strategy implementation
by emphasizing the nonfinancial information in the MAS, whereas more administrative
TMTs may emphasize the financial part of MAS for the same purpose. MAS studies do
not typically recognize these kinds of alternative paths, nor have they been investigated in
the upper echelon literature. Our findings suggest that the simultaneous analysis of MAS
antecedents and consequences is beneficial for understanding alternative views on the MAS-
strategy relationship.
The professional orientation also appears to be related to the implementation of strategic
objectives directly, as well as through the mediating effect of MAS. More professional
TMTs are more inclined to implement strategic goals focusing on flexibility rather than on
cost. This latter finding seems consistent with some earlier research in management, for
example, that found that managers with a research and development background were more
effective in organizations pursuing a differentiation strategy, than those with a low-cost
strategy (Song 1982; Govindarajan 1989). This is also consistent with some upper echelon
studies that typically study only these direct effects (Finkelstein and Hambrick 1996;
Carpenter et al. 2004).
Overall, the findings support the relevance of TMT backgrounds. More specifically,
they support the theoretical argument that professional TMTs are more oriented to use
systems in a flexible and adaptive way to manage organizations (Benveniste 1987; Simons
1995, 2000). In contrast, administrative TMTs seem to be focused on classical top-down
control, with less involvement of subordinates.

Journal of Management Accounting Research, 2006


42 Naranjo-Gil and Hartmann

We have analyzed MAS elements both individually and jointly. This provides some
insight into the elements of the MAS that covary, but also provides additional evidence on
the meaning of coercive and enabling beyond that of their constitutive dimensions. For
example, the differences between our first and second models might be reconciled if some
TMTs use the nonfinancial figures within the MAS diagnostically and the financial figures
within the MAS interactively. This would not necessarily be consistent with the upper
echelon perspective, but at least suggests that understanding the style in which management
uses the MAS may require more subtle rules than currently recognized (e.g., Abernethy
and Brownell 1999). Moreover, our results show that the use of more nonfinancial MAS
information has a negative incremental effect on cost strategy implementation when other
MAS elements are held constant (Table 4), but that it has a positive effect on cost strategy
implementation insofar as it is part of a constellation of MAS elements representing the
enabling use of MAS (Table 7). In combination, these findings suggest that there may be
interactions between various aspects of MAS, and that the same objectives, such as cost
reduction, may be achieved in different ways, through different patterns of emphasis on the
multiple aspects of MAS use. This suggests that our understanding of MAS composition
may be enhanced by taking into account that various combinations of controls may be
applied for various purposes. Furthermore, these results suggest that different TMTs may
not only make different strategic choices, but may also choose different paths through which
similar strategic objectives are pursued. As it is, our combined enabling and coercive con-
ceptions of MAS have picked up shared variance among each of the underlying MAS
aspects, but clearly do not fully explain all variance in its indicators.
Regarding the relationships between the use of MAS and strategy implementation, the
findings show positive and significant relationships between the different characteristics of
MAS and strategy implementation. They demonstrate a positive and significant relationship
between the coercive use of MAS and cost strategy implementation. Additionally, they
show positive and significant relationships between the enabling use of MAS and both
types of implemented strategy. Although this does not fully align with our expectations, it
seems to confirm the arguments provided by Ahrens and Chapman (2004) who argue that
the enabling use of MAS supports organizations’ balancing of their flexibility and cost
objectives. These results also corroborate the findings of Abernethy and Lillis (1995, 2001)
and Perera et al. (1997), about the importance of stressing nonfinancial performance mea-
sures for flexibility strategies; they are consistent with Simons’ (1995, 2000) arguments that
an interactive style promotes search, innovation, and coordination, and thus enables strat-
egies with multiple goals (Simons 1995, 2000). Since our findings also support an effect
of the coercive use of MAS on cost strategy implementation, we conclude that different
uses of MAS may affect different parts of an overall strategy differently (Chenhall and
Morris 1995). This is consistent with the assertion by Fiegener (1994) and Milgrom and
Roberts (1995) that control mechanisms may complement each other, for example in tight-
loose combinations, to support the strategic focus of the organization. The lack of consis-
tency between the first and second model may indicate that the combined characteristics
of MAS we used for measuring the enabling and coercive construct are not fully represen-
tative of these constructs. Thus, the operationalization of these second-order constructs
clearly requires further work in future research.
As with any empirical study, this paper has its limitations. Some limitations are inherent
to the survey method, such as the use of perceptual measures, purposive sampling (Young
1996), and the common-method bias (Podsakoff and Organ 1986). Limitations may also be
found in the lack of testing of the directions of causality due to the cross-sectional nature

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 43

of the study, and in the focus on a single industry. Although we believed that this industry
is well suited to test our expectations, it may contain idiosyncrasies that have been over-
looked. Finally, we proposed that the first-order MAS factors are appropriate proxies for
the coercive-enabling dichotomy in the present survey study, but this claim needs confir-
mation from further studies.
Several possible paths for further research exist, of which we mention three here. First,
TMT variables could be associated with other and different contingencies, such as power
and communication structures, which are not studied or controlled for in this study (e.g.,
Finkelstein and Hambrick 1996). Second, the constructs central to this study could be
defined and operationalized in different ways (see Carpenter et al. 2004 for new directions
on upper echelon research). For example, TMT background could be defined and measured
in alternative, more detailed, ways that involve other factors than education and experience
alone. Also additional MAS dimensions can complement our classification of MAS, in-
cluding a more detailed description and measurement of the distinction between the coercive
and enabling use of MAS. Strategy was conceptualized according to Porter’s (1985) ty-
pology, but alternative definitions exist (cf., Langfield-Smith 1997). Third, the linear con-
tingency model explored here could be replaced by models that express other forms of
contingency fit, given a proper theoretical foundation. In this study, we argued that TMTs
display a direct preference for the use of MAS that, subsequently, was expected to affect
strategy implementation. This assumption supported our linear, mediating models, but since
our explanation does not account for all variance, alternative models and contingency for-
mats may be developed and tested.
In sum, however, we believe that the results of the empirical study reported in this
paper support the importance of MAS for strategy implementation, and suggest that man-
agerial background is an important influential factor. Furthermore, we believe that the upper
echelon perspective is useful to explain management accounting phenomena, as it provides
an antecedent of the use of MAS, which in turn affects strategy implementation (Hambrick
and Mason 1984). Finally, we believe that our study shows the usefulness of extending
current contingency work on the use of MAS for strategy implementation, by analyzing
different aspects and characteristics of MAS beyond the standard accounting budget.

APPENDIX A
Pilot Study
A pilot survey study was performed, and designed in two steps, a pretest and the design
of the questionnaire. The pretest was done in three stages, following Dillman (2000, 1)
interview rounds, (2) question formulation, and (3) pretests of draft versions of the ques-
tionnaire among members of the target population. A total of 18 interviews were performed
between November 2001 and January of 2002, in four general hospitals. We interviewed
three full TMTs (five members each) in the four hospitals. A total of four general managers,
four medical directors, three nursing directors, three administration directors and four fi-
nancial directors were interviewed. Through these interviews we collected ideas and com-
ments for designing the study, for writing the various letters (prenotice, cover and follow-
up letters), and for measuring the constructs.
The questionnaire was pretested among six Spanish colleague members of the account-
ing and organization department, including Ph.D. students and professors, some of them
holding positions in general management in the recent past. Several changes were made to
the survey instrument based on their comments. Then the questionnaire was pretested
among four managers in the health care sector (two from private hospitals, working as

Journal of Management Accounting Research, 2006


44 Naranjo-Gil and Hartmann

directors in public hospitals, one ex-director in a public hospital, still working in the public
hospital, and one manager from health care central services). With all of them, the ques-
tionnaire was discussed in a face-to-face, one-hour interview. We asked all of them about
the wording and understandability of the individual items, and the instruments. Respondents
highlighted some confusing words. Most wording problems were due to the original English
wording. Careful attention was paid to add clarifying words, rather than completely chang-
ing the item. Some minor problems with alignment and layout were found as well. These
included insufficient space for answers and misunderstanding of answer locations. Based
on the respondents’ suggestions, some directions and titles were clarified. Additional word-
ing was added to clarify where answers should be located.
The layout of the questionnaire was also developed following Dillman (2000). Steps
were taken to ensure the vehicle of delivery—in this case, cover letter, survey, and enve-
lope—would create a positive impression. The survey was printed on high quality paper
and in booklet form and limited to three A4 (210 ⫻ 297 mm) sheets folded, including the
cover. The layout was designed as a booklet to provide an easy and comfortable reading
and answer of the questions, which was framed to highlight response areas.

APPENDIX B
Questionnaire
(1) Professional Background of TMT Members
● University degree and title
● Years of education on health care issues after university (e.g., seminars, special
courses, master ... )
● Years of education on management and business administration issues after univer-
sity (e.g. seminars, special courses, MB)
● Years of experience as doctor at public hospital
● Years of experience as manager at public hospitals
● Years of experience as doctor at other health care organizations
● Years of experience as managers at other health care organizations

(2) Style of Use of Management Accounting and Control Systems


Please indicate your general use of your Management Accounting System, considering
it as the whole system of information and techniques for management and control:
● Set and negotiate goals and targets
● Debate data assumptions and actions plans
● Signaling key strategic areas
● Challenge news ideas and ways for doing tasks
● Follow up significant exceptions and deviations
● Involve in a permanent attention with subordinates
● Evaluate and control subordinates tightly
● Follow up preset plans and goals
● Align performance measures with strategic goals
● Learning tool

(3) Use of Financial and Nonfinancial Information


Please indicate the extent to which you use the following indicators in your work:

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 45

● Health waste under hospital’s responsibility


● Number of claims against your service or staff
● Cost per patient (GDR)
● Staff absenteeism
● Cost reduction in your service or activities
● Information from customer satisfaction surveys
● Cost per service, activity or treatment
● Discharge rate
● Index of external debts charged
● Percent entrance and use of urgency service

(4) Management Accounting Systems and Types of Decision Making


Consider the two descriptions of Decision A and B, and please answer the following
questions about the use of your Management Accounting System. Use these key
descriptions:
● DECISION A: Concerns the distribution of monetary and nonmonetary resources
(e.g., material, human, time) of your area of responsibility among the different ser-
vices and units under your management. The ultimate objective of this type of de-
cisions is to make available resources for a defined purpose, person, or place.
● DECISION B: Concerns the monitoring and control of goal and target achievement
of units or services under your supervision. The ultimate objective of this type of
decision is the performance evaluation of the units or services of your area of
responsibility.
For each of these decisions, please rate the importance of:
● Management Accounting System, considering it as the whole system of information
and techniques for management and control;
● Quantitative Financial Information, which is the set of information elements ex-
pressed in the monetary metric, resulting from the measurement of past, present, and
future economic events;
● Quantitative Nonfinancial Information, which is the set of other quantitative mea-
sures expressed in a metric other than monetary.

(5) Cost Strategy and Flexibility Strategy Implementation


Consistent with the strategic plans of your region, please consider the extent of the
implementation of the following dimensions in your hospital:
● Decentralization of responsibilities
● Customer participation in management
● Continuous updating of staff’s knowledge
● Programs of enhancing budget performance
● Cooperation with others units or departments inside hospital
● Coordination and cooperation with others organizations relate to hospitals (e.g., so-
cial services, environmental services)
● Programs of harmonization and cooperation inside your department
● Actualization and use of management information systems
● Introduction and applying of cost models or programs by products or services lines

Journal of Management Accounting Research, 2006


46 Naranjo-Gil and Hartmann

Tables B1 and B2 report on the results of the factor analyses of the constructs (Table
B1) and the results of the PLS measurement model (Table B2). The Kaiser-Meyer-Olkin
Measure of Sampling Adequacy and Bartlett’s test of sphericity were calculated before the
factor analysis. The results of both tests showed that factor analyses were possible for the
data for each construct.

TABLE B1
Result of Factor Analysis for every Construct (Varimax Rotated)

Factor 1 Factor 2
TMT Background Professional Administrative
Item 1: Clinical education at university 0.800 0.013
Item 2: Management education at university ⫺0.375 0.464
Item 3: Clinical education after university 0.641 0.073
Item 4: Management education after university ⫺0.035 0.809
Item 5: Clinical experience at public hospitals 0.674 0.369
Item 6: Clinical experience at others health care organizations 0.493 0.205
Item 7: Management experience at public hospitals 0.155 0.765
Item 8: Management experience at other health care org. 0.182 0.760
Eigenvalue 2.574 2.004
Cumulative variance (%) 32.176 57.225
Cronbach alpha 0.768 0.781
Factor 1 Factor 2
Style of Using MAS Interactive Diagnostic
Item 1: Follow up targets 0.146 0.819
Item 2: Negotiate goals 0.696 0.017
Item 3: Review significant deviations 0.243 0.757
Item 4: Encourage new goals and priorities 0.660 0.453
Item 5: Signaling key strategic areas 0.646 0.404
Item 6: Encourage new ideas and actions 0.780 0.264
Item 7: Permanent involvement with subordinates 0.772 0.271
Item 8: Evaluate and control subordinates 0.171 0.722
Item 9: Learning tool 0.625 0.241
Item 10: Align performance measure with strategy 0.364 0.543
Eigenvalue 3.175 2.700
Cumulative variance (%) 31.360 58.756
Cronbach alpha 0.810 0.745
Factor 1 Factor 2
Type of Information Used Nonfinancial Financial
Item 1: Cost per patient (GDR) 0.057 0.723
Item 2: Staff absenteeism 0.646 0.405
Item 3: Cost reduction in your service or activities 0.135 0.720
Item 4: Health waste under hospital’s responsibility 0.507 0.324
Item 5: Cost per service, activity or treatment 0.065 0.791
Item 6: Discharge rate 0.809 0.183
(continued on next page)

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 47

TABLE B1 (continued)

Factor 1 Factor 2
Type of Information Used Nonfinancial Financial
Item 7: Information from customer satisfaction surveys 0.510 0.196
Item 8: Index of external funds incomes 0.379 0.520
Item 9: Number of claims against your service or staff 0.749 0.141
Item 10: Percent entrance and use of urgency service 0.855 ⫺0.061
Eigenvalue 2.830 2.432
Cumulative variance (%) 28.297 52.613
Cronbach alpha 0.771 0.703
Use of MAS for Resource Allocation Factor 1
Item 1: Use of MAS as a set of techniques 0.824
Item 2: Use of MAS’s financial information 0.822
Item 3: Use of MAS’s nonfinancial information 0.865
Eigenvalue 2.103
Total variance explained (%) 70.097
Cronbach alpha 0.785
Use of MAS for Performance Evaluation Factor 1
Item 1: Use of MAS as a set of techniques 0.824
Item 2: Use of MAS’s financial information 0.841
Item 3: Use of MAS’s nonfinancial Information 0.832
Eigenvalue 2.080
Total variance explained (%) 69.336
Cronbach alpha 0.776
Factor 1 Factor 2
Strategy Implementation Flexibility Cost
Item 1: Decentralization of responsibility 0.672 0.266
Item 2: Customer and staff participation in the organization 0.530 0.381
Item 3: Adaptation and updating of staff knowledge19 0.304 0.298
Item 4: Programs of cost and performance control 0.351 0.620
Item 5: Cooperation with others units or departments inside 0.772 0.276
hospital
Item 6: Coordination and cooperation with others institutions 0.688 0.093
relate to hospital
Item 7: Programs of harmonization and cooperation inside 0.685 0.269
your department
Item 8: Adaptation and actualization of management 0.192 0.742
information systems20
Item 9: Programs of control by products or services lines 0.152 0.865
Eigenvalue 2.812 2.248
Cumulative variance (%) 31.243 56.21
Cronbach alpha 0.764 0.708

19
Based on its low and unclear loading, Item 3 was discarded for further analysis.
20
Management information systems and the programs of control are focused on the cost of medicines and medical
appliances for services lines.

Journal of Management Accounting Research, 2006


48 Naranjo-Gil and Hartmann

TABLE B2
Loadings of Manifest Variables in PLS Analysis

Interactive Use of MAS


Items Loadings Composite Reliability Average Variance Extracted
Item 2 0.621 0.852 0.541
Item 4 0.738
Item 5 0.765
Item 6 0.815
Item 7 0.809
Item 9 0.725
Diagnostic Use of MAS
Item 1 0.830 0.857 0.603
Item 3 0.721
Item 8 0.883
Item 10 0.650
Financial Information
Item 1 0.714 0.773 0.578
Item 3 0.596
Item 5 0.943
Item 8 0.633
Nonfinancial Information
Item 2 0.628 0.846 0.582
Item 4 0.711
Item 6 0.803
Item 7 0.767
Item 9 0.701
Item 10 0.767
Resource Allocation
Item 1 0.711 0.722 0.560
Item 2 0.708
Item 3 0.822
Performance Evaluation
Item 1 0.889 0.899 0.748
Item 2 0.868
Item 3 0.836
Flexibility Strategy Implementation
Item 1 0.823 0.868 0.622
Item 2 0.683
Item 5 0.850
Item 6 0.788
Item 7 0.782
Cost Strategy Implementation
Item 4 0.839 0.827 0.617
Item 8 0.652
Item 9 0.848

Journal of Management Accounting Research, 2006


How Top Management Teams Use Management Accounting Systems 49

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