Management Tools
Who Uses Them, and How Effective Are They?

By Clement C. Chen and Keith T. Jones

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AUGUST 2007 - The concept of “continuous improvement” first took root in the business world in the early 1990s. Companies that once were leaders in their industries now must fight to maintain growth and viability. Even nonprofit organizations and educational institutions must adapt to new forms of competition.

Managers have introduced a number of relatively new tools to aid in delivering products and services faster, better, and cheaper. These include total quality management (TQM), benchmarking, activity-based costing (ABC), and balanced scorecard. Few studies, however, have been undertaken to show those that are actually in use. Fewer still have compared which management tools appear to be most popular at various types and sizes of organizations, and the effectiveness perceived by those using them or affected by them. The authors surveyed MBA students also working at a variety of enterprises to learn which management tools are in place at their organizations.

The survey results indicate that, on average, both public and private companies use multiple management tools. Among public and private companies, benchmarking, TQM, and strategic planning are the most commonly cited management tools adopted, although a surprising number did not indicate that their organization is involved in strategic planning. Supply chain management is quite common as well, particularly among public companies, as is ABC. Survey participants regard most of the management tools as fairly effective. Balanced scorecard received among the lowest ratings for effectiveness, perhaps indicating that the participants haven’t yet “bought into” the performance measurement system or that they do not view it as fairly representing performance.

Management Tools at a Glance

Activity-based costing (ABC). Generally used as a supplemental costing method in addition to GAAP, this is a procedure that attempts to more-accurately assign costs to cost objects compared with traditional methods. Indirect costs are first assigned to activities, such as machine setup or purchase order processing, then to cost objects based on the relative use of those activities. This costing method often involves significant departures from tradition in terms of defining and allocating overhead costs.

Activity-based management (ABM). Used in conjunction with ABC, this tool is aimed at identifying and eliminating non–value-added activities, and finding ways to perform activities more efficiently.
Balanced scorecard. This is a set of performance measures intended to line up with an organization’s specific strategy. Although long-term financial performance is the primary concern, it focuses on measuring certain root causes of ultimate financial performance, such as employee motivation and training, and customer satisfaction.

Benchmarking. This is the process of identifying other organizations that excel in certain business processes (e.g., order processing) and adopting the other organization’s methods to achieve greater effectiveness and efficiency. The other organization may or may not be in the same industry.

Process reengineering. Often driven from the top down, this technique is generally described as a radical rethinking of business processes for the purpose of dramatically improving these processes in terms of cost and quality.

Total quality management (TQM). This tool can be contrasted with process reengineering in that it typically seeks incremental improvements and is generally less radical. A careful attempt is made to identify the primary internal and external “customers,” what they need, and how best to provide for those needs. While led by management, this tool is often associated with the involvement and input of front-line workers, thereby creating more buy-in on the part of those affected.

Strategic planning, supply chain management, and shareholder value management. These terms are somewhat generic and may not necessarily be thought of as specific tools. The authors included them in this study because they are issues of current focus at many organizations, and they receive considerable attention in some management accounting textbooks. The authors will define “strategic planning” simply as the attempt to articulate the organization’s specific strategy and to align long-, intermediate-, and short-term plans with this strategy.

According to Charles T. Horngren, Srikant M. Datar, and George M. Foster (Cost Accounting: A Managerial Emphasis, 11th Ed., Prentice Hall, 2003), the supply chain is “the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations.” Companies try to reduce costs and create value by integrating and coordinating the activities along the supply chain. In fact, a number of companies’ primary reason for existence is to assist other companies in leveraging technology to manage their supply chain.

Finally, the authors include “shareholder value management” to obtain a sense of the extent to which the survey participants viewed their companies as focusing intently on creating value for shareholders by using certain measures (e.g. economic value added and residual income).

Survey Results

The authors received surveys from 101 MBA students at two universities, one located in the Southeast, and one in the Midwest. Students ranged from those with little or no management experience to those with more than 25 years of experience in management. Their ages ranged from 24 to 60. Approximately 70% of the participants were managers and 30% were not currently working in management when they completed the survey. Sixty-one participants were male and 40 were female. The organizations they represented included various types of nonprofit organizations in addition to small and large private and publicly held companies.

Who is using these tools? The authors provided participants with a list of management tools and asked them to indicate which ones were currently in use at their companies. For those tools that had been implemented, participants were also asked to rate the effectiveness at their organization. Finally, participants also indicated whether they perceived certain factors as impeding the adoption of new management approaches at their organizations. Exhibit 1 shows the management tools listed in the survey, along with the number of participants indicating that their organization currently uses the approach. The bottom row shows the mean number of management tools/
approaches in use.

As shown in Exhibit 1, all three types of organizations in the sample used an average of more than one management tool. Respondents working at public companies indicated an average of more than five of these tools currently in place at their organizations, and privately owned companies have implemented nearly as many. Nonprofit organizations have implemented an average of nearly three management tools. These numbers suggest that managers are increasingly willing to use any means at their disposal to create value and simultaneously control or reduce costs.

Exhibit 1 also shows that approximately three-fourths of the survey participants indicated that their organization uses strategic planning. While this percentage is high, whether it is good or bad depends on one’s perspective. As stated by Horngren, Datar, and Foster, a 1999 survey of management accountants indicated that strategic planning is the most critical work performed by management accountants. Horngren and his coauthors define strategy as “how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.” They further clarify by stating that strategy describes “how a company will compete and the opportunities its employees should seek and pursue.” Therefore, having a strategy and making plans in accordance with that strategy are critical in providing direction for employees.

An indication that potentially 25% of the organizations represented in the sample make plans without a well-articulated strategy in mind casts new light on the numbers. One caveat is that, because approximately 30% of the respondents are not currently in management, some may simply not be aware that the company is involved continuously in strategic planning. If this is the case, this shortcoming might be somewhat overstated.

Not shown in the Exhibit is the fact that 35 out of 101 respondents indicated that their company plans to implement new management tools in the future. Many tools listed in the survey are complementary. For instance, TQM and benchmarking are often used in conjunction as organizations seek to make incremental improvements in internal business processes.

TQM and benchmarking are widely used at the companies represented in this survey. TQM is currently in use at three-fourths of the public companies, and slightly more use benchmarking. More than half of respondents working for private companies indicated that their companies use one or both of these approaches. Nearly half of the public companies and nearly one-third of the private companies are using ABC. Roughly half of the subjects indicated that their companies are using process reengineering. This is significant, because process reengineering is generally considered more radical and involves more sweeping changes than TQM, which focuses on small, incremental improvements. In addition, nearly half of the participants working at public companies indicated that their companies currently use balanced scorecard in measuring performance of employees.

Exhibit 1 indicates somewhat less involvement by nonprofit organizations in the use of these management approaches. This is not surprising when one considers that the institutions represented in this sample range from churches to universities to hospitals. What is interesting considering this diversity is the extent to which these organizations do use the management tools. Although the number of respondents from nonprofits was relatively small, 75% of those who did respond indicated involvement in strategic planning. This suggests that, even in the absence of a profit motive, managers see a need to have a clear strategy to guide in decision-making. In addition, benchmarking is in use at nearly half of these organizations. One-fourth of these participants also indicated that ABC is in use at their organizations. Although the percentage is not large, two respondents even indicated that their organization is involved in supply chain management. Together, these results indicate that even organizations that are not profit-motivated find it necessary to continuously improve and to control costs by using tools more often associated with for-profit organizations.

Management tools under the “other” category included IS0 9000–based initiatives, lean manufacturing, and Six Sigma initiatives, designed to help companies improve their quality and business processes. ISO 9000 standards are international standards for application in all types of organizations. They are among the most widely used quality standards in the world. Thirteen respondents indicated that Six Sigma, which sets customer-specified tolerances for acceptable output at six standard deviations—sigma—from the mean, is in use at their organizations. This management tool is likely to show up more significantly in future surveys. Having been successfully implemented in the 1980s at Motorola, Six Sigma attempts to link strategy to quality improvement and improved financial results. It is now being used aggressively at large organizations, from banks to manufacturers.

The authors also considered whether there was different use of these tools based on whether the organization was relatively small or large. The median size was 1,500 employees. The authors divided the sample at the median, resulting in two roughly equal groups of “small” and “large” organizations. The small group included 40 organizations with fewer than 1,000 employees, with over half of that subset having 100 or fewer employees. The large companies ranged from 1,800 to 500,000 employees. Interestingly, the smaller organizations appear nearly as likely to adopt the management initiatives as their larger counterparts (mean of 4.2 versus 5.2 for larger organizations). TQM appears to be the most popular among smaller companies, with nearly 70% of respondents indicating that it had been adopted. TQM was followed closely by benchmarking, with nearly 63% adopting it. Also popular among smaller organizations were supply chain management (51%), ABC (33%), ABM (30%), process reengineering (37%), and balanced scorecard (33%). Over 75% of both small and large organizations are active in strategic planning.

Do These Tools Work?

Although employees may indicate whether or not management has implemented a particular management tool, their perception of its effectiveness may be an entirely different matter. Therefore, participants also rated the effectiveness of the tools currently in use on a five-point scale from 1 (very ineffective) to 5 (very effective). Exhibit 2 shows the mean responses on this scale, by type of organization.

Survey participants overall viewed the management tools currently in use as at least moderately effective, particularly strategic planning and ABC. The latter bodes well for proponents of ABC because this costing method continues to be implemented at organizations of all types and sizes to fine-tune the costs assigned to products and services. The perceived effectiveness of strategic planning is consistent with the results from another question that asked the participants to rank tools in order of effectiveness.

For those who indicated more than one tool in use at their organizations, strategic planning received the most favorable response, with 18 participants ranking this approach first. Interestingly, benchmarking was next, with 15 indicating it was the most effective tool. Perhaps most interesting was that TQM received only three first-place votes despite being one of the most commonly implemented tools. Because TQM is often linked with benchmarking, it is possible that the participants associated most of the effectiveness with the benchmarking aspect rather than with TQM itself. Process reengineering received a surprisingly high rating, considering the radical nature often associated with this complete overhaul of business processes.

Also somewhat surprising is that managers’ and nonmanagers’ responses did not differ significantly on the effectiveness ratings for any of the management tools indicated, including process reengineering. One might expect that nonmanagers would view these tools as far less desirable than managers would, because nonmanagers often must cope daily with frustrating changes in their jobs. Yet nonmanagers rated the
effectiveness higher than managers on nearly all of the tools named, although the differences were not statistically significant.

The management tools with the least impressive effectiveness ratings included balanced scorecard, especially for private companies. Despite its increasing popularity, it is quite likely in some cases that managers and their employees alike do not perceive added value in the additional measurements involved. Indeed, cost/management accounting textbooks even warn about the use of too many measures whose usefulness or added value may be dubious at best.

Although, as previously noted, the number of respondents at nonprofits was quite small, they looked favorably upon the management tools that their organizations have implemented. As also previously noted, most participants from nonprofit organizations indicated that they have implemented strategic planning. These results indicate that they believe the use of strategic planning has been reasonably effective.

The authors also examined these results broken down into small and large organizations as defined previously. Using conventional measures of statistical significance, none of the differences between small and large companies was significant.

The survey also asked participants about factors that limit their organization’s ability to implement new management tools. Exhibit 3 shows the mean responses to a number of conditions that may inhibit an organization’s ability to implement new tools. Participants responded on a five-point scale from 1 (strongly disagree) to 5 (strongly agree).

The results shown in Exhibit 3 indicate that the factors listed are not impediments to adoption of new management tools. Of the factors listed, lack of communication has the highest mean response for both publicly owned and privately owned companies; yet it does not clearly outdistance the others. Overall, these results are consistent with Exhibit 2, which indicates that participants think that the tools are at least reasonably effective.

Respondents at nonprofit organizations were somewhat less inclined to believe that lack of management or staff support is an impediment. They were more likely to see cost constraints as impeding the adoption of new management techniques. Statistical tests indicate that the type of institution makes a significant difference only with respect to cost constraints. Because any of these management tools are likely to involve a substantial cost, it is no surprise that nonprofit organizations find cost constraints to be a hindrance to adopting new techniques. Their lower tendency to view lack of management and staff support as an impediment, however, is intriguing. Are such differences due to a tendency for nonprofits to be smaller? Are there individual personality differences between those who tend to prefer working for nonprofit organizations as opposed to for-profit organizations? One might expect managers and nonmanagers to differ on these factors, and that one group would tend to blame the other more. Statistical tests indicate, however, that these two groups do not differ significantly in their views toward staff or management support.

Many Roads—and Obstacles—to Continuous Improvement

The survey results indicate that both profit-seeking and nonprofit organizations have made wide use of some of the management tools discussed above. The participants also find these tools to be fairly effective on average. Small and large organizations alike are adopting popular management initiatives, and employees at smaller organizations generally appear no less likely to view them as achieving their purpose.

A strong majority of the participants who work at public companies indicated that their companies are currently using TQM or benchmarking. Supply chain management is also quite common, as also evidenced by the increasing use of service providers by large companies. To a lesser extent, although still impressive, public companies are pursuing the bold changes associated with process reengineering. Presumably, companies would spend the resources and undergo dramatic changes in their processes only when sufficient pressures exist to do so. The fact that balanced scorecard is in use at a number of companies further underscores organizations’ realization that a holistic performance evaluation approach is often more desirable than looking only at the bottom line.

The fact that even nonprofit organizations find it necessary to implement changes leading to greater efficiency and cost management further demonstrates that virtually no one is excluded from the need to continuously improve. Even federal and state governments—not generally associated with efficiency—have implemented such tools as TQM in an attempt to better serve “customers” and control costs. For example, the State of Texas has even implemented ABC or ABM in order to more effectively identify cost drivers, reduce non–value-added time, and streamline processes. (For more information, see

Any impediments to adoption of the tools considered necessary for continuous improvement could hinder an organization’s ability to adapt to changing circumstances and maintain or improve upon its current position. The fact that participants do not perceive a lack of management or staff support bodes well for the organizations represented here. Ultimately, support from the top is critical for any change to achieve its intended purpose. Likewise, for optimum effectiveness, employees must buy in to the changes. For this to occur, particularly in an age when a “facilitative” management style is in vogue, employees must be convinced that management is trustworthy and there will be mutural benefits from this change. Otherwise, change may come about at the expense of employee motivation, and undesired employee turnover could result.

A significant number of the organizations represented here appear not to have implemented strategic planning. To the extent that organizations do not incorporate organizational strategy into their planning processes, there appears to be room for improvement by linking their short- and long-term goals to an overall strategy. In a time when organizations of all types must fine-tune themselves, such organizations may be well served to decide where to focus their resources. A carefully formulated strategy is arguably the best starting point.

As is true of virtually any survey, these results must be interpreted in light of certain limitations. The sample is not random and, therefore, may not be generalizable. Still, the sample includes MBA students who vary dramatically in age and experience and who work at a wide range of organizations. Furthermore, the participants are students at two different schools in different regions of the country. Given the above caveats, the sample is likely a reasonable cross-section representing a variety of management attitudes, approaches, and perspectives.

Clement C. Chen, PhD, CPA, is an associate professor of accounting in the school of management at the University of Michigan–Flint.
Keith T. Jones, PhD, CPA, is an assistant professor of accounting in the department of accounting at Illinois State University, Normal, Ill.




















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