Activity-Based Costing, Total Quality Management and Business Process Reengineering: Their Separate and Concurrent Association with Improvement in Financial Performance

Article excerpt


This study examines whether use of the strategic business initiatives activity-based costing (ABC), total quality management (TQM), and business process reengineering (BPR), are associated with improvement in financial performance. Top executives of 305 firms operating in the motor carrier industry furnished information regarding use of the initiatives. Dependent variable information is obtained from financial statement data filed with the U.S. government. Multiple regression analysis is used to identify the improvement in ROA associated with the use of each initiative, and concurrent use of two initiatives.

A simple effect for use of TQM and BPR is confirmed. Context-specific benefits obtained from concurrent use of ABC with BPR and TQM are identified. It appears that ABC functions as an enabler of other improvement initiatives since its use provides the information necessary to optimize the effectiveness of TQM and BPR. The positive findings regarding ABC are of particular interest to practicing and academic accountants because they are often the primary proponents and administrators of ABC, and there has been little empirical evidence of ABC efficacy.


The focus on cost, quality and time has generated many management changes with significant accounting implications (Smith, 1998). These changes increasingly include the implementation of strategic business initiatives such as activity-based costing (ABC), total quality management (TQM), and business process reengineering (BPR). Profit-maximizing firms would not implement strategic business initiatives if they did not expect a net financial benefit from their use; however there has been little empirical evidence that demonstrates that ABC, TQM, or BPR improves financial performance in any industry.

Researchers have often suggested that ABC and other strategic business initiatives complement and enhance each other, rather than being individually necessary and sufficient conditions for improvement (Cooper and Kaplan, 1991; Anderson, 1995; Evans and Ashworth, 1995; Player and Keys, 1995; Swenson, 1998). There has been no empirical investigation of context-specific benefits obtained from ABC or from the concurrent use of TQM and BPR. In this study the contexts investigated include use of ABC to enhance the benefits of other initiatives, concurrent use of BPR and TQM, and non-concurrent use of ABC, TQM, and BPR.

The purpose of this study is to investigate the improvement in financial performance associated with the single and concurrent use of the strategic business initiatives ABC, TQM, and BPR. Data is obtained through a cross-sectional mail survey of 305 motor carrier industry top executives and from a database containing financial statement information reported to the U.S. government. Multiple regression analysis is used to investigate the association between use of initiatives and improvement in financial performance (proxied by ROA) and to identify positive context-specific effects from the use of TQM with BPR and of ABC with TQM and BPR.

This research adds to the limited body of empirical strategic business initiative research in four ways. The first contribution is to provide empirical evidence that the benefits claimed by initiative advocates are net benefits. Second, this research confirms the existence of a context-specific benefit from concurrent use of ABC with TQM and BPR. Third, the study focuses on the motor carrier industry, an important member of the service sector, which has become the dominant sector of the U.S. economy. Researchers have often postulated, but not tested, the efficacy of initiatives in a service setting. Finally, limitations of previous research are addressed (i.e., the lack of control for simultaneous use of multiple initiatives, and prior level of performance).

The remainder of the paper is organized as follows: Section II defines and describes strategic business initiatives, situates this study in the context of past research, and provides hypothesis development. …