Public Money & Management

ISSN: 0954-0962 (Print) 1467-9302 (Online) Journal homepage: http://www.tandfonline.com/loi/rpmm20

Management accounting, performance

measurement and strategy in English local
authorities

Andrew Goddard & Alexa Simm

To cite this article: Andrew Goddard & Alexa Simm (2017) Management accounting, performance
measurement and strategy in English local authorities, Public Money & Management, 37:4,
261-268, DOI: 10.1080/09540962.2017.1295726

To link to this article: http://dx.doi.org/10.1080/09540962.2017.1295726

Published online: 31 Mar 2017.

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 261

Management accounting,
performance measurement and
strategy in English local authorities
Andrew Goddard and Alexa Simm
This paper analyses the results of an extensive survey of UK local government
which explored the relationship between strategy, management accounting
practices (MAPs), and performance measurement techniques (PMTs). The
research investigated a resource-based view of strategic capabilities and Porter’s
strategic typologies. PMTs and MAPs were shown to be associated with strategic
capabilities. Strategic typologies, however, were found to be only weakly associated
with the use of PMTs and MAPs.
Keywords: Local authorities; local government performance; local government strategy;
management accounting.
UK government initiatives, including best value leadership and differentiation. Organizations Andrew Goddard is
(BV) and the comprehensive performance following a cost leadership strategy aim to become Professor of
assessment (CPA), have encouraged local the lowest-cost producer in their industry. A Accounting in the
authorities to review their management differentiation strategy results in an organization School of
accounting practices (MAPs) and performance focusing on providing unique products or Management,
measurement techniques (PMTs). However, products with attributes that are highly valued University of
management accounting in government is a by its customers. Brignall (1993) proposes that Southampton, UK.
neglected research area (Lapsley, 2000; Jackson these strategies can be applied to local authorities.
and Lapsley, 2003). Similarly, there has been Henri (2006) suggests that strategy should Alexa Simm is a
limited research into the relationship between be studied at the capabilities level. This resource- Senior Lecturer at
strategy and accounting in the public sector based view of strategy focuses on the capabilities Bristol Business
(Llewellyn and Tappin, 2003). Although a organizations have to use their internal resources School, University of
theoretical link between strategy and to successfully develop or deliver goods and the West of England,
performance measurement systems (PMSs) is services (Knutsson et al., 2008). Primary UK.
suggested in the literature (Jääskeläinen and capabilities to achieve competitive advantage
Laihonen, 2014; Johnsen, 2015), the include market orientation, entrepreneurship,
interrelationship between management control innovation and organizational learning (Henri,
systems (MCSs) and strategy is not clear. However, 2006). Market orientation is the emphasis an
there is no empirical research on the relationship organization places on their customers’ expressed
between these phenomena in the public sector. or latent needs. Entrepreneurship is the ability
This paper provides an understanding of of an organization to renew, innovate and take
contemporary management accounting and constructive risks on an ongoing basis. Innovation
performance measurement practices in UK local relates to an organization’s openness to new
government and the relationships between these ideas, products and processes. Organizational
practices and strategy. In particular, the paper learning refers to the processes of improved
explains the associations between strategic knowledge and understanding, resulting in
typology and the extent MAPs and PMTs are improved future performance.
currently used by English local authorities, as The relationship between strategy and MAPs
well as whether the use of MAPs and PMTs foster has been well established in accounting research
strategic capabilities. in the private sector. Chenhall and Langfield-
Smith (1998), Bouwens and Abernethy (2000),
Literature review and theoretical framework McCabe et al. (2002), and Hyvönen (2007) all
Strategy established the relationship between Porter’s
In the private sector, alternative strategic (1980) typologies and MAPs. Henri (2006) used
typologies have been developed, including a resource-based perspective to examine the
Porter’s (1980) generic strategies of cost relationship between the use of MAPS and
http://dx.doi.org/10.1080/09540962.2017.1295726
© 2017 CIPFA PUBLIC MONEY & MANAGEMENT MAY 2017
262
organizational capabilities. He found, inter alia,
significant statistical relationships to suggest that
the use of MAPs fosters the four capabilities.
Management accounting
The Local Government Act 2003 requires local
authorities to set a balanced budget and places
responsibility on chief finance officers to advise
their councils on the robustness of the budget.
Previous research has found incremental
budgeting to be the most commonly adopted
budget-setting method (Pendlebury, 1985; 1994;
Skousen, 1990). However, alternative approaches
have developed, including zero-based budgeting
(ZBB), activity-based budgeting (ABB) and
programme planning budgeting systems (PPBS),
with recent legislative developments and
inspection regimes encouraging the adoption of
such methods (Seal, 2003; Audit Commission,
2005).
Local authorities are required under the
Local Government Act 2003 to review their set
budget during the year and take any necessary
action to address any problems. Receipts and
payments have previously been found to be the
primary basis adopted for reporting such
budgetary control information in English local
authorities, although the use of both income and
expenditure and commitment bases has
increased (Pendlebury, 1985; Skousen, 1990).
The second main area of management
accounting in local government is cost accounting.
Overheads are a significant cost in public sector
organizations. They have traditionally been
allocated and apportioned across functions and
departments through absorption costing.
Alternative costing techniques have emerged,
including activity-based costing (ABC) in local
government (Arnaboldi and Lapsley, 2003;
Jackson and Lapsley, 2003). However, there
remains a limited amount of research into costing
techniques and the use of contemporary MAPs
in the public sector (Guilding et al., 2000) and
even less on the relationship between MAPs and
performance measurement and strategy.
Performance measurement techniques (PMTs)
There have been a number of initiatives in local
government in the UK over the past three decades
focusing on performance measurement,
including value-for-money (VFM), BV, CPA,
comprehensive area assessment (CAA), balanced
scorecard (BSC) and benchmarking. The use of
performance indicators (PIs) by local authorities
has also been complemented by other
performance measurement models, such as the
results and determinants framework (RDF)
(Brignall, 1993; Jackson and Lapsley, 2003).
PUBLIC MONEY & MANAGEMENT MAY 2017
Research hypotheses and statistical analysis
As previously stated, the aim of this paper is to
investigate the relationships between strategy,
PMTs and MAPs. The development of
hypothesized relationships between these
variables is discussed below.
Porter (1980) stressed the importance of cost
management and its relationship with strategy.
This was further developed by Shank and
Govindaram (1993), who identified the need for
more sophisticated costing and budgeting
practices for a cost leadership strategy, compared
to a differentiation strategy. In local government,
cost control is primarily achieved by setting a
budget and closely monitoring its attainment.
More recently there has been interest in
using more sophisticated budgeting techniques.
Seal (2003) suggests that legislation, such as BV,
has gradually been impacting on budgeting in
local authorities, with budgets responding to
policies and priorities rather than incremental
budgeting based on the prior year.
Budget setting based on ZBB and policy or
planned activities is deemed to provide more
accurate cost plans than incremental budgeting,
with accruals and commitment-based budget
monitoring also providing more reliable cost
monitoring compared to receipts and payments
(Drury, 1996). Therefore, to achieve better cost
control and follow a cost leadership strategy it
would be expected that a local authority would
develop these more sophisticated budgeting
practices. This leads to our first two hypotheses:
Hypothesis 1 (H1): Departments that place an
emphasis on a cost leadership strategy will exhibit
higher use of more sophisticated budgeting-
setting practices than departments pursuing a
differentiation strategy.
Hypothesis 2 (H2): Departments that place an
emphasis on a cost leadership strategy will exhibit
higher use of budget monitoring on accruals and
commitment bases than departments pursuing
a differentiation strategy.
ABC is also proposed to provide a more
realistic view of costs compared to the more
traditional method of absorption costing (Drury,
1996). Previous research in the private sector
suggests that cost control is more important in
organizations following cost leadership
(Hyvönen, 2007) and that contemporary MAPs
are used in conjunction with differentiation
strategies (Bouwens and Abernethy, 2000).
Chenhall and Langfield-Smith (1998) undertook
a study of private sector companies, and found
that activity-based techniques were associated
© 2017 CIPFA

with higher performance in firms adopting low
price (cost leadership) strategy. There is some
evidence of a relationship between cost leadership
and use of more sophisticated MAPs from
research in healthcare organizations in the USA
(Devine et al., 2000). They concluded that the
adoption of MAPs including ABC, would improve
cost management. Brown et al. (1999) reviewed
the current arrangements in a USA city
government, trying to implement ABC and
concluded that there are intriguing possibilities
for using ABC in government, with more accurate
cost data for services and associated improved
management. It seems reasonable to test this
relationship in UK local government and hence
the third hypothesis is:
Hypothesis 3 (H3): Departments that place an
emphasis on a cost leadership strategy will exhibit
higher use of ABC than departments pursuing a
differentiation strategy.
There has been little prior research into the
relationship between strategy and PMTs in local
government. An exception is Kloot and Martin
(2000) who explored the strategic link to
performance management in Australian local
government. They used the key elements from
the BSC and RDF models, adapted for the public
sector, as the basis for their research. They found
that there are some areas, such as financial
performance measurement, where performance
measures are linked to strategic priorities.
The relationship between Porter’s strategic
typologies and PMTs has been explicitly
researched in the private sector. Hyvönen (2007)
found a significant positive relationship between
differentiation (or customer-focused) strategies
and contemporary performance measures in
private sector organizations. Again, it would be
reasonable to suggest a similar relationship exists
in local government organizations in the UK:
Hypothesis 4 (H4): Departments who place an
emphasis on a differentiation strategy will exhibit
higher use of contemporary PMTs than
departments pursuing a cost leadership strategy.
Chenhall and Langfield-Smith (1998) and
Auzair and Langfield-Smith (2005) recognized
that an organization may pursue both of these
strategies at the same time. In such cases it seems
reasonable to expect high use of all the above
contemporary accounting and performance
practices.
Hypothesis 5 (H5): Departments that place an
emphasis on both cost leadership and
© 2017 CIPFA
263
differentiation strategies will exhibit higher use
of contemporary accounting practices and PMTs.
With regard to strategic capabilities one
would expect both MAPs and PMTs to contribute
to their attainment. Furthermore it seems
reasonable to suggest that the use of more
sophisticated techniques would enhance these
capabilities. For instance, basing their budgets
on policy or planned activities, rather than a
traditional incremental approach, would provide
local authorities with insights into their activities
and their associated planned costs. This, in turn,
would enhance market orientation by focusing
planned expenditure more precisely on existing
and future service users. It would contribute to
entrepreneurship and innovation capabilities by
consciously considering new policies as well as
existing ones. Lastly it would enhance
organizational learning by ensuring a better
understanding of the cost of existing, potential
and future policies. Similar arguments can be
made for the use of ZBB. Hence:
Hypothesis 6 (H6): There will be a significant
positive association between use of budget
setting based on policy or planned activities or
ZBB and the capabilities of market orientation,
entrepreneurship, innovation and
organizational learning.
With regard to budgetary monitoring
techniques the capabilities most enhanced by
the use of more sophisticated techniques is that
of organizational learning. Closer and more
accurate information on how budgets are spent
can only enhance this strategic capability. It is
less obvious how such techniques would
enhance the other capabilities:
Hypothesis 7 (H7): There will be a significant
positive association between accruals and
commitment-based budget monitoring
techniques and the organizational learning
capability.
Henri (2006) explored the relationships
between the use of PMTs, capabilities and
performance in Canadian manufacturing
firms. He found that the use of PMTs
significantly and positively related to the four
capabilities of market orientation,
entrepreneurship, innovation and
organizational learning. As with the use of
more sophisticated budget-setting techniques
it seems reasonable to expect higher use of
PMTs would enhance all four strategic
capabilities in local government:
PUBLIC MONEY & MANAGEMENT MAY 2017
264
Hypothesis 8 (H8): There will be a significant
positive association between use of
contemporary PMTs and capabilities of market
orientation, entrepreneurship, innovation and
organizational learning.
ABC is a technique for more accurately
assigning overheads, including central service
costs, to service provider departments, based on
the actual use of such overhead costs. To achieve
this, a detailed knowledge of the activities
underpinning the overhead usage is required
and this will enhance organizational learning. In
addition, the use of ABC exposes the existing
pattern of use which, in turn, often prompts
overhead users to reconsider and possibly change
the way they consume such overheads, thus
encouraging innovation. To test this hypothesis
9 is suggested:
Hypothesis 9 (H9): There will be a significant
association between use of ABC and the
capabilities of organizational learning and
innovation.
Research method
Data was collected by an electronic questionnaire,
which included structured questions about what
MAPs and PMTs were currently being used and
to what extent. The extent to which cost
leadership and differentiation strategies were
followed and resource-based capabilities
possessed were also assessed. The questionnaire
was emailed to 2,156 directors of services/heads
of departments at all local authorities in England.
A total of 531 (24.63%) questionnaires was
returned over a six-week period; 528 (24.49%)
were usable. Descriptive statistics were obtained
on the data set and ANOVA was subsequently
applied to test the significance of the hypothesized
relationships.
Survey design and variable measurement
The questionnaire comprised questions from
previous research, where possible, with the
terminology tailored to local government. All
variables were measured on a seven-point Likert
scale, ranging from not at all (1), to a great extent
(7). The measurement of the extent councils
used MAPs was tailored from instruments used
in previous research (Guilding et al., 2000).
Accounting terms were explained to aid
understanding. The questionnaire included four
questions to measure PMTs, covering the extent
PIs, benchmarking, BSC and RDF were used. A
further 11 questions asked how PIs were used.
Cost leadership and differentiation strategies
were measured on separate scales, recognizing
that an organization may pursue both of these
PUBLIC MONEY & MANAGEMENT MAY 2017
strategies in varying degrees (Chenhall and
Langfield-Smith, 1998; Auzair and Langfield-
Smith, 2005). A question on each of the four
strategic capabilities was included, with each
question comprising four or five sub-questions.
These questions were tailored from instruments
used by Henri (2006).
The response rate of 24.5% raises the
potential for non-response bias. No significant
difference at the 1% or 5% significance level was
found between respondents and non-
respondents in terms of local authority type; and
a comparison of the means of the variables found
no significant differences at the 1% or 5% level
between early and late responders for responses
to all but two questions.
Results
Descriptive statistics
The data provides some interesting information
concerning current practices. With respect to
MAPs, there was extensive budget setting based
on both the last year’s budget and on policy or
planned activity, and relatively little use of ZBB
by local authority departments. The use of budget
monitoring on a cash basis was reasonably
consistent with previous research by Pendlebury
(1985) and Skousen (1990). However, the use of
accruals and commitment bases were
considerably higher than found by previous
research. The most surprising finding with
costing was the relatively high use of ABC.
In relation to PMTs, local authority
departments reported high levels of PI use and
of benchmarking. However, there was less use of
the BSC and the RDF. Although the PIs adopted
tended to be predominantly quantitative, had a
predominantly financial focus, and measured
what is easy to measure, the mean scores were
not as high as previous research might have
suggested. The score for PIs being compared to
targets was particularly high, with PIs being
linked to strategy and focusing on both financial
and non-financial aspects also scoring highly.
Although the extent to which PIs were set
externally scored highly as expected, the extent
to which they were also set locally was almost as
high. This suggests that a PI culture was being
established, as suggested by prior research (Broad
et al., 2007).
Strategy was measured as two separate scales
of cost leadership and differentiation, and the
sample consisted of departments that were (1)
high on both strategies; (2) low on both strategies;
and (3) high on one strategy, but low on the
other. A median split was undertaken to separate
high cost leaders from low cost leaders, and high
differentiators from low differentiators, consistent
© 2017 CIPFA
 265

with previous research (Auzair and Langfield-
Smith, 2005). Over a third (37%) of departments
were found to be placing a high emphasis on
both cost leadership and differentiation strategies.
The adoption of a combination of cost leadership
and differentiation is also consistent with the
pressure local authorities were under to meet
restricted budgets and maintain low council tax
rises, as well as to meet customer demands for
high quality services.
Resource capabilities possessed by
departments were categorized as high-low using
a median split consistent with the approach for
strategic typology and prior research (Auzair
and Langfield-Smith, 2005). Departments scored
relatively most highly on organizational learning
and least on entrepreneurship.
Hypothesis testing
A series of ANOVA tests were undertaken to
investigate whether there were any significant
associations between strategic typology and MAPs
(to test H1–H3 and H5), strategic typology and
PMTs (to test H4–H5) and between MAPs, PMTs
and resource-based capabilities (to test H6–H9).
Levene’s test of homogeneity of variance was
applied to test whether the variances in the data
groups were equal. Where the Levene’s test is
significant, the assumption of equal variances
has been violated and the Welch statistic is
subsequently adopted in preference to the F
statistic. Tamhane’s T2 test was also applied as a
multiple comparison test, enabling the significant
differences to be identified where there are more
than two groups, such as strategic typology.
MAPS and strategic typology: A significant
association was identified between budgets being
set based on policy or planned activities and
strategic typology. The Tamhane test shows this
is due to the significant difference between the
low emphasis shown by cost leadership strategy
and high emphasis by departments with joint
strategies. No significant difference was found
between cost leadership and differentiation
strategies. There was no significant relationship
between strategy and budget setting based on
previous year’s budget or the use of ZBB. There
is, therefore, no support for H1, but some support
for H5.
The analysis shows a similar story for the
relationship between strategy and budget
monitoring. Departments pursuing either a cost
leadership or differentiation strategy placed
relatively less emphasis on the use of budget
monitoring on accruals basis than departments
with joint strategies. There was no significant
relationship between strategic typology and
budget monitoring based on cash or
commitments. Thus, there is no support for H2,
but some support for H5.
H3 proposed that there would be a significant
association between emphasis placed on a cost
leadership strategy and the use of ABC. The
analysis provides no support for this hypothesis.
PMTs and strategic typology: Although no significant
differences were found between strategies in the

Table 1. Summary of hypothesis testing results.

Hypotheses Results

There will be a positive significant association between:

H1 Strategic typology and budget setting based on Not supported
(a) policy or planned activities or (b) ZBB
H2 Strategic typology and budget monitoring on Not supported
(a) accruals and (b) commitment bases
H3 Strategic typology and ABC Not supported
H4 Differentiation strategy and use of contemporary PMTs Weak support
H5 Joint strategy and use of MAPs and PMTs
H6 Use of (i) policy or planned activities and (ii) ZBB budget-setting Supported
techniques and the capabilities of (a) market orientation, (i) Policy/planned activities (ii) ZBB
(b) entrepreneurship, (c) innovation and (d) organizational learning (a) Supported (a) Weak support
(b) Supported (b) Not supported
(c) Not supported (c) Not supported
(d) Supported (d) Weak support
H7 Use of (i) accruals and (ii) commitment-based budget monitoring (i) Accruals (ii) Commitment
techniques and the capabilities of (a) market orientation, (a) Weak support (a) Supported
(b) entrepreneurship, (c) innovation and (d) organizational learning (b) Not supported (b) Not supported
(c) Supported (c)Weak support
(d) Supported (d) Supported
H8 Use of contemporary PMTs and capabilities of (a) market orientation, (i) PMTs (ii) PI elements
(b) entrepreneurship, (c) innovation and (d) organizational learning (a) Supported (a) Supported
(b) Supported (b) Weak support
(c) Not supported (c) Weak support
(d) Not supported (d) Supported
H9 Use of ABC and the capabilities of (a) market orientation, (a) Supported
(b) entrepreneurship, (c) innovation and (d) organizational learning (b) Not supported
(c) Supported
(d) Supported

© 2017 CIPFA PUBLIC MONEY & MANAGEMENT MAY 2017

266
overall use of PIs, several differences are evident
in the practices used to manage them: see table
2. Significant differences were clear only for the
use of contemporary PMTs. The lack of difference
with respect to overall use and traditional PI
elements is almost certainly due to the demands
made by external agencies and central
government which result in high use of PIs
irrespective of strategy. With respect to the
majority of other variables concerned with PI
practices, there were significant differences
between departments with those pursuing either
a cost leadership or differentiation strategy
placing relatively less emphasis on each practice
than departments with joint strategies. One
exception is that departments pursuing a
differentiation strategy did place more emphasis
on qualitative PIs than those pursuing a cost
leadership strategy. However, overall there is
little support for H4, where departments
pursuing a differentiation strategy were
hypothesized to use PMTs to a higher extent
than cost leaders. However, once again, there is
support for H5.
Management accounting, PMTs and resource
dependency capabilities: H6 proposed that there
will be a significant association between the use of
both policy or planned activities and ZBB budget-
setting techniques and the capabilities of market
orientation, innovation and organizational
learning. This hypothesis was partially supported
with significant associations identified between
budget setting based on policy or planned
activities and three of the capabilities, namely
market orientation, innovation and
organizational learning. In contrast, only weak
significant association was identified between
budget setting from a zero-base for two of the
four capabilities (market orientation and
organizational learning). No significant
association was identified between the traditional
budget-setting method, based on last year’s
budget.
Surprisingly, a positive significant association
was found between the use of budget monitoring
on an accruals basis and innovation, with only
weaker associations on organizational learning
and market orientation. Some significant
associations were identified between use of budget
monitoring on a commitment basis and the
capabilities of market orientation, innovation
and organizational learning. No significant
association was identified between budget
monitoring on the traditional cash basis and any
of the four capabilities, or between accruals or
commitment bases and entrepreneurship. The
findings therefore provide some support for H7.
PUBLIC MONEY & MANAGEMENT MAY 2017
Use of the different types of contemporary
PIs was found to be significantly associated with
the capabilities of market orientation,
entrepreneurship, innovation and organizational
learning, supporting H8 (see table 3). The
traditional PI elements were only weakly or not
significantly associated with any of the four
strategic capabilities. Use of benchmarking, BSC
and RDF were all found to be significantly and
positively associated with market orientation and
entrepreneurship, but there were no significant
relationships between these PMTs and either
innovation or organizational learning.
The empirical data provides some support
for H9, with significant positive associations
identified between the use of ABC and innovation
and organizational learning but also with market
orientation. Table 1 summarizes the results of
the hypothesis testing.
Discussion and conclusion
The study of strategies can be summarized as
hypothesizing that local authority departments
pursuing a cost leadership strategy would make
more use of MAPs than those following a
differentiation strategy, who would make more
use of PMTs. The empirical data provides little
or no support for these hypothesized
relationships; rather, all departments make
relatively high use of policy-based budgets and
information from previous year. Although not as
cost conscious as cost leaders, local authorities
pursuing a differentiation strategy may be
applying budget-setting techniques to meet their
planning needs in line with their differentiation
focus. ZBB has been adopted by some local
authorities, but its use is not significantly related
to the strategic typology being pursued. The
findings suggest that, although ZBB provides a
detailed and accurate budget, it is not necessarily
adopted by cost leaders. One reason for this
could be the time-consuming task of starting
from a zero base each year. Similarly, budget
monitoring was not particularly associated with
cost leaders and again departments made high
use of these practices irrespective of strategy.
This is perhaps not surprising in a time of limited
resources and austerity.
Although there was no significant difference
between strategies with respect to ABC in the
whole data set if the joint strategic departments
were omitted ANOVA identified that
departments following a cost leadership strategy
were significantly associated with higher use of
ABC, supporting H3.
All departments, irrespective of strategy,
made high use of PIs. However, when joint
strategies were omitted from the ANOVA,
© 2017 CIPFA

departments pursuing a differentiation strategy
made significantly greater use of locally developed
PIs and of qualitative PIs, than cost leaders.
The strongest support from the empirical
data was for H5, hypothesizing that departments
with a joint strategy would make higher use of
both MAPs and PMTs. However, it was more of
a surprise that such departments also made
more use of MAPs than cost leaders and more
use of PIs than differentiators. A possible
explanation is that such departments have to
manage a complex strategic bundle and are
generally more reliant on information than those
with simpler strategic approaches.
Setting budgets based on policy or planned
activities has been found to be significantly
associated with the capabilities of market
orientation, innovation and organizational
learning, as hypothesized (H6). In contrast,
budget setting on an incremental basis or by ZBB
was only weakly or not significantly associated
with any of the four strategic capabilities included
in the study. Basing their budgets on policy or
planned activities would provide local authorities
with insights into their activities and their
associated planned costs, which would enhance
market orientation, innovation and
organizational learning capabilities. With PMS
part of the MAS, similar relationships would be
expected between contemporary budget-setting
methods and the strategic capabilities. As outlined
above, ZBB had been adopted by some local
authorities but its use is not strongly or
significantly related to the strategic capabilities.
Although ZBB would provide a detailed and
accurate budget it may not add to the knowledge
and understanding of the local authorities and,
therefore, not foster such strategic capabilities.
Budget monitoring on accruals and
commitment bases and ABC were all found to be
significantly associated with market orientation,
innovation and organizational learning. Each of
these MAPs provides more detailed and accurate
accounting information in comparison to the
traditional methods of budget monitoring on a
cash basis and absorption costing. The results,
therefore, suggest that provision of detailed
budgeting and costing information may positively
enhance the strategic capabilities that local
authorities possess.
Significant positive relationships were
identified between the majority of contemporary
PI elements and the capabilities of market
orientation, entrepreneurship, innovation and
organizational learning. In contrast, no significant
relationship was identified between use of
benchmarking, BSC or RDF and innovation or
organizational learning but were found to
© 2017 CIPFA
267
significantly foster market orientation and
entrepreneurship. This may be due to the more
outward looking elements of BSC and RDF,
such as competitiveness and customer satisfaction,
and the external focus of entrepreneurship and
market orientation.
It is also interesting to speculate on the
effects the current cuts in local government
funding may have on the use of MAPs and PATs,
as well as the emphasis currently being placed on
market mechanisms rather than performance
measurement. It may well be that as resources
become more stretched, organizations will be
unable to support expensive performance
management practices and will rely more on the
use of MAPs and PMTs which help to reduce and
control costs. Another contemporary
development which may well affect the
relationship is the demise of the Audit
Commission, which was instrumental in requiring
high use of PIs irrespective of strategy. However,
there is now the opportunity for local government
to rise to the challenge of applying relevant
PMTs and MAPs in the context of their strategies
and individual circumstances.
The research has all the limitations of using
a quantitative survey with a positivistic approach
(such as difficulty in identifying, measuring and
interpreting variables, prefabricated answer
options, bias towards socially desirable answers).
This study is also subject to specific limitations.
First, being static, it does not incorporate the
evolution of MAPs, PMTs and strategies over
time. Second, the study incorporated specific
MAPs and PMTs but the list is not exhaustive and
further MAPs or PMTs may provide additional
insights. Furthermore, Porter’s (1980) cost
leadership and differentiation strategies assessed
in this study is only one amongst several other
strategic typologies.
Another limitation of the paper is that it only
uses a univariate statistical approach. It would be
interesting to explore the relationships between
the variables in more detail using a multivariate
approach, such as structural equation modelling.
Several accounting researchers have used this
approach in public sector studies (Abernethy
and Lillis, 2001; Speklé and Verbeeten, 2014),
but such approaches involve complex statistics
which are beyond the scope of this current
paper.
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IMPACT
Although performance management, budgeting and costing practices in local government were
found in this paper to be allied to the strategic capabilities of market orientation, entrepreneurship,
innovation and organizational learning, they were less clearly aligned to the strategic direction
of the authorities. However, there is now the opportunity for local government to rise to the
challenge of applying relevant performance measurement techniques and management accounting
practices in the context of their own strategies and individual circumstances. In particular those
following a strategy of cost reduction might consider more extensive use of advanced techniques
such as zero-based budgeting and activity-based costing. Those more concerned with a quality-
related strategy might consider more extensive use of non-financial and qualitative performance
measures.

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