The Use of Activity-based Costing with Competitive Strategies: Impact on Firm Performance

Purpose To empirically test for an impact on profit performance when activity-based costing (ABC) is used in companies with customer service and low-price strategies. We also investigate whether the profit impact of ABC usage is affected by higher-quality information systems. Methodology/approach Survey. Findings We find a positive impact on profit performance when ABC is used by companies with customer service as a strategic priority but not when ABC is used by companies with lower emphasis on customer service. For companies emphasizing low-price strategies, we find a positive impact on profit performance, especially when ABC is used together with high-quality information systems. Research limitations/implications This study develops a method of measuring strategic priorities of a firm. It divides firms into strategy groups based on their degree of emphasis on three strategic priorities: low price, flexibility, and customer service. Practical implications Identifies certain contexts when ABC is especially beneficial. Originality/value of paper If the use of ABC information leads to better strategic and operational decisions, firm performance should improve. However, prior research on the impact of ABC on firm performance has found little to no connection and usually only when it is used with other practices. This is the first study to find an impact on profit performance for firms with customer service and low-price strategies and high-quality information systems.