2011 Cambridge Business & Economics Conference
ISBN : 9780974211428
AN EXPLORATORY ANALYSIS OF MANAGEMENT
ACCOUNTING PRACTICES IN EGYPT –
A TRANSITIONAL -- ECONOMY COUNTRY
Sherine Farouk Abdel Al
Department of Accounting,
College of Business Administration,
Abu Dhabi University
and
John D. McLellan
College of Business Administration,
Abu Dhabi University
ABSTRACT
This study focuses on the adoption rate of Management Accounting practices by two
hundred and fifteen manufacturing companies in Egypt. Egypt is an important and
influential country in the Middle East and in Africa. It has always been recognized as a
leader among its neighbour countries. Egypt as one of the transitional-economy countries
has never been studied to determine the current status of adopted management
accounting practices by manufacturers and managements analysis of benefits derived
from their applications.
A questionnaire was developed concerning the use and benefits derived from 42
management accounting practices, a pilot study carried out and the final survey
conducted by personal interviews of senior financial managers of manufacturing
companies listed on the Egyptian stock exchange.
Results indicate that Egyptian manufacturing organizations rely heavily on traditional
management accounting practices, while the adoption rates of recently developed or
advanced practices are rather low and slow. The study reveals that in most of the cases,
higher benefits are derived from the traditional practices compared to the advanced one.
Keywords: Management Accounting Practices; Transitional Economy Country.
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INTRODUCTION
Egypt is an important and influential country among African and Arab states. Unique because of its
strategic location; situated in the north of Africa sharing borders with Libya in the west, Sudan in the
south, the Mediterranean Sea, Israel and the Red sea in the east. The population totals over 70 million
(January 2003), the official language is Arabic, although English and, to a lesser extent, French, are
widely spoken, particularly in business centres and tourist areas. Before 1952 Egypt was a kingdom,
however, from July 1952 Egypt was declared a republic ‘The Arab Republic of Egypt”.
During the 1980s and 1990s, the Egyptian government embarked on an ambitious economic reform
program, with the main aim to create a decentralized, market-oriented economy designed to encourage
private sector activity in all sectors and reduce the size of public sector through privatization (Road,
1997).
Egypt as one of the transitional-economy countries, has not been studied concerning the current status
of adopted management accounting practices and the benefits derived from their applications of its over
four hundred manufacturing organizations. The movement towards privatization and economic reform
in Egypt has lead to a change in the objectives of manufacturers from maximizing production to
maximizing profits; this has created different environmental contexts that would be associated with
equally dramatic changes in Egyptian management accounting practices and strategies.
Generally, there is a lack of knowledge concerning the current state of management accounting, and
management accounting practices in Egypt. It is argued that due to cultural factors, Egyptian
manufacturing organisations are slow in adopting the newer management accounting practices. Instead
they rely strongly on traditional management accounting practices. No evidence exists concerning the
current adopted management accounting practices (MAP’s) in Egypt.
This report is organised as follows: the next section presents the background of this study, followed by
the research methodology, the results and analysis section is next followed by the conclusion of this
study.
Background of This study
Many studies have been conducted, describing MA practices of businesses. Management Accounting
European Perspectives outlines the management accounting practices of business in many European
countries (Virtanen et. al 1996; Torrecilla et. al 1996; Groot 1996; Israelsen et. al 1996; Bruggeman et.
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al 1996; Barato et. al 1996; Ballas and Venieris 1996; Ask et. al 1996; Lebas 1996). In the USA, studies
done by Ernst and Young (2003); the UK, (Abdel-Kader and Luther 2006 and 2008; Bhimani 1996;
Burns et. al 1996, 1999); Ireland (Clarke 1997); Australia (Chenhall and Langfield-Smith 1998); New
Zealand (Lamminmaki and Drury 2001) and South Africa (Weweru et. al 2005). Studies were also
conducted in “eastern” countries such as India (Anderson & Lanen 1999), Malaysia, Singapore, China
and India (Sulaiman et al 2004), in China (Xiao et al 2007) and in the Gulf Cooperative Council
Countries (GCC) (Mclellan and Moustafa 2010).
Chenhall and Langfield-Smith (1998) surveyed 140 large Australian manufacturing companies and
found that traditional management accounting techniques were more widely adopted than recently
developed techniques. They called for a better understanding of the factors that influence adoption of
MAP’s, particularly the newer ones and mentioned that “some ‘western’ innovations may not be
developed readily in various European countries because of cultural and historical differences in the
development of costing systems.”
Sulaiman et al (2004) examined the extent to which contemporary and traditional MAPs are being
adopted in Malaysia, Singapore, China and India. They found that not only was the use of
contemporary techniques lacking in all four countries but also that survey respondents perceived that
the benefits that accrue from using traditional MAPs were “very high”. They concluded that there is a
need for future studies in the use of MAPs to be grounded in theory and not merely exploratory and
descriptive and called for a rigorous statistical analysis of results in an attempt to examine specific
factors as to why firms in Asia adopt certain MAPs. These countries have economies at different stages
of development and there is a need to examine the rate of adoption of various MAPs in relation to the
nature and size of the firm. The authors advocated for the use of a consistent data collection instrument
across the surveyed countries in examining for the use of MAPs.
Abdel-Kader and Luther (2008) investigated the impact of multiple firm characteristics on management
accounting practices in the British food and drinks industry. They used cluster analysis and other
statistical techniques in their investigation and concluded that differences in MA sophistication are
significantly explained by some environmental uncertainty, customer power, size and decentralization,
while other contingencies such as process complexity and competitive strategy could not be explained.
Clarke (1997) in his study of the costing systems of large manufacturing companies in Ireland
concluded that there is a significant gap between theory and practice. He also classified the companies
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as indigenous Irish versus subsidiaries of multinationals, by industry, by annual sales and by the
number of products produced. However he made no attempt to statistically analyze or compare results
related to these various corporate characteristics.
Anderson & Lanen (1999) examined the effects of economic transition in India on the evolution of MA
practices. They suggested that for firms with international partnerships the top management of the
“foreign” partner has as great or greater role in strategy development as the local management, and that
local organizations place more emphasis on competitor benchmarking and on cost data. They found
improvements in planning and budgeting procedures, employees involvement in planning, collection
and analysis of cost data, and limited evidence that management performance evaluation were
increasingly based on quantitative measures.
Bruggeman et al (1996) surveyed 42 Belgium companies dividing then into multi- nationals and family
owned small and medium business and concluded that companies that have implemented activity based
costing and/or management were foreign companies and the decision was made by head office.
Israelsen et al (1996) in Denmark arrived at the same conclusion that activity based costing appears to
be common only among subsidiaries of foreign owned companies. Ballas and Venieris in Greece
interviewed 23 companies and found four firms that have implemented activity based costing and each
case the decision was mandated by head office. Ask et al in Sweden sees activity based costing as an
American initiative although the underlying concepts and ideas have been well known to Swedish
academics. They state “in the marketing of ABC one might note, only American and no Swedish
academics are involved. Noticeable too is the absence of references to Japan in the arguments for
ABC”.
Torrecilla’s et al (1996) study of Spanish companies found that internal accounting practices differ
among companies depending on the industry sector and also concluded “there are size related issues”
that affect the adoption of MAPs, but they did not attempt to explore the issue further.
Xiao et. al (2007) studied the use of MAPs in China and attempted not only to establish if there had been
an increase in the use of MAPs by businesses in China but also to examine if there was a difference in
use depending on the businesses’ location in China, the industry type and the size of the business. They
found that in general there had been an increase in the use of MAPs but that the various degrees of
regional economic development in China had little impact on that use; however, based on their
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observations, they concluded that larger firms and firms in the manufacturing sector are more likely to
have implemented management accounting methods.
McLellan and Moustafa’s (2010) study of organizations in the GCC, found that the most
frequently used tools are the traditional short term planning and control tools such as budgeting
for both planning and control, flexible budget variance analysis and contribution margin
analysis; traditional costing tools such as job costing and standard costing with variance analysis
of direct material, direct labour and variable overhead were also ranked high in use.
Contemporary cost accounting systems such as ABC and target costing were ranked as less
frequently or rarely used tools. Traditional performance evaluation tools such as divisional
profits and ROI were ranked ahead of the more contemporary balanced scorecard.
Against this background, the methodology of the study of Egyptian manufacturing companies is
presented next.
Methodology
Questionnaire Design
The questionnaire was modeled after the one developed by Chenhall and Langfield-Smith
(1998). The first part of the survey contained questions on industry type, number of employees,
sales turnover, issued capital, date of starting operations (Organization age), and manufacturing
legal status (type of ownership). The second part of the questionnaire consisted of two questions;
1) the extent of which their organization has adopted each of the 42 management accounting
practice over the last three years - scaled on a three rating scale anchored from high adoption to
low adoption rate and 2) the benefits derived from the adopted 42 management accounting
practices over the last three years. Degree of benefit gained are scaled on a five-point-Likert
scale.
A pilot study was conducted to test the efficacy of the questionnaire. The study targeted five
large manufacturing organizations in Alexandria, Egypt. The first one was “El-Ezz” Iron and
Steel Company, “Sumed” Petroleum Company, “El-Hayat” Mineral Water Company, “Kabo”
Textile Company, and finally, “Alexandria Portland Cement” Cement Company. The
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questionnaires were distributed through a personal interview with the heads of management
accountant departments or heads of accounting and finance departments in the respective
manufacturing organizations. The aim was to improve the questionnaire by establishing how to
phrase the question, evaluating how respondents interpret the questions’ meaning and checking
whether the range of response alternatives was sufficient. Based on the feedback, the
questionnaire was revised and some other modifications were made: The final version of the
Arabic questionnaire is shown in Appendix C.
Unit of Analysis
The unit of analysis for this research project was manufacturing organizations listed on the Egyptian
stock exchange market. Choosing the stock exchange market as the population of the study provided the
advantage to a) facilitate the process of identifying the sample and gathering information. The Kompass
Egypt was the directory used as it contained all the financial information related to the Egyptian stock
exchange market and b) because these manufacturing organizations belong to the private sector the
management team would understand the aim of the research, and be cooperative in the process of
distributing the questionnaire and collecting data.
Due to the large number of manufacturing in each industry type, the disproportionate sampling decision
is the most efficient, appropriate and representative for the study, because industry types are adequately
sampled and comparisons among them are possible. The following table describes the main
characteristics of the sample.
TABLE 1
Industry Type
No. of listed
Organizations
Sample
Size
%
of
Population
(Population)
Agriculture
20
15
75 %
Gas & Mining
13
10
76 %
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Food & Beverage
55
29
52.7 %
Milling
15
9
60 %
Textiles & Garments
57
40
70.1 %
Paper &Packaging
41
27
65.8 %
Chemical Industry
43
29
67.4 %
Pharmaceutical
38
21
55.2 %
Construction (Building 47
materials
&
refractory& cement)
25
53.1 %
Engineering
81
67
82.7 %
Total
410
272
66.3 %
Table 1. Sample characteristics
As the previous table illustrates, the sample size represents 66.3% of the population and this considered
a good sample size to represent the population which consists of 10 industry types.
Distribution and Collection of Questionnaires
After determining the sample size and the number of manufacturing organizations included in the study
for each industry type, addresses and contact numbers of all these manufacturing organisations were
obtained from Kompass Egypt. Due to the generally low level of awareness and understanding of
research importance and objectives in the Egyptian culture, it was decided to distribute and collect the
questionnaire through personal interviews with the organisation’s management accountants or the
financial managers.
However, due to the widespread geographical locations of the manufacturing organisations included in
the sample across Egypt, the personal administered questionnaires of 272 manufacturing organizations
would be difficult. The Arab Academy for Science and Technology (AAST) provided five research
assistants to assist in distributing and collecting questionnaires.
Two letters were prepared, the first a cover letter explaining the objective and benefits of the study and
the second an official letter from the AAST personally addressed to the company asking permission for
the research assistant to distribute the questionnaire and collect the data. This letter was signed by the
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Assistant Dean of Postgraduate Studies and stamped from the research center with the official stamp of
the Arab Academy of Science and Technology.
Of the 272 surveys distributed, 30 companies refused to participate, 123 companies completed the
survey as conducted by the research assistant survey and 108 companies requested that the survey be left
with them to be completed later. Of the 108 companies 92 successfully completed and returned the
survey.
The total collected rate is 79% ( 215/272) a very acceptable rate compared to other surveys. Mclellan
and Moustafa (2010) had a response rate of 34% for their survey of companies in the GCC; in the
United States a survey of CMA’s conducted by Ernst & Young (2003) had a response rate of 9% . The
next table shows the industrial classification of collected questionnaires.
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TABLE 2
Category
Frequency
Percent
Cumulative Percent
Food &Beverage
15
7.0
7.0
Engineering
63
29.3
36.3
Textiles &Garments
Industry Type
36
16.7
53.0
Pharmaceutical
11
5.1
58.1
Chemical
25
11.6
69.8
Building, Refractory, Cement
12
5.6
75.3
Agricultural
12
5.6
80.9
Gas & Mining
9
4.2
85.1
Paper & Packaging
24
11.2
96.3
Milling
8
3.7
Total
215
100.0
100.0
60.5
60.5
11.2
71.6
5.6
77.2
5.1
82.3
3.3
85.6
Turnover
Less than 25,000,000
130
25,000,000 to 50,000,000
24
50,100,000 to 75,000,000
12
75,100,000 to 100,000,000
11
100,100,000 to 125,000,000
7
more than 125,100,000
31
Total
215
14.4
100.0
100.0
Type of Ownership
Private Sector
166
Public Sector
26
Multinationals
23
Total
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215
77.2
12.1
77.2
10.7
89.3
100.0
100.0
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Issued Capital
Less than 15,000,000
78
36.3
36.3
15,100,000 to 25,000,000
24
11.2
47.4
25,100,000 to 50,000,000
45
20.9
68.4
50,100,000 to 75,000,000
44
20.5
88.8
75,100,000 to 100,000,000
19
8.8
97.7
more than 110,000,000
5
2.3
Total
215
100.%
Less than 250
21
9.8
251 to 500
43
20.0
9.8
501 to 750
74
34.4
29.8
751 to 1000
51
23.7
64.2
1001 to 1250
15
7.0
87.9
more than 1250
11
5.1
94.0
Total
215
100.0
100.0
100.%
Number of Employees
Organization Age
Less than 10 years
32
11 to 20
99
21 to 30
48
31 to 40
14
41 to 50
3
more than 50
19
215
Total
14.9
46.0
14.9
22.3
60.9
6.5
83.3
1.4
89.8
8.8
91.2
100.0
100.0
Table 2 Sample Characteristics (b)
Table 2 shows that most of the Egyptian manufacturing organizations belong to the private sector about 77.2 % of the sample - and this is due to the speed up of the privatization program in Egypt since
1997 by authorities aiming to expand the Egyptian private sector .These significant steps have been
taken to privatize a large number of manufacturing organizations in different sectors including electric
utilities. Additionally, authorities have recently decided to offer shares in the stock exchange market in
favor of strategic investors who would take a longer-term position in a company and provide better
technology transfer as well as management techniques. As a result, a number of strategic investors – i.e.
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foreign investors - have made offers or showed interest in companies in several sectors, specially cement
and pharmaceuticals, which had resulted in an increasing number of multinational companies in several
manufacturing sectors from 8 to 23 in 1999.
From table 2 it is also remarkable that about 60% of manufacturing organizations have a turnover rate
not more than 25,000,000, which indicates lower performance compared with their higher issued capital.
This is due to the increasing number of recently privatized companies which are considered to be in a
transition phase from public to private sector, and it will take time to increase and improve their
performance, through the restructuring of their strategy, operations, and management, etc…
It is also remarkable that about 61% of the manufacturing organizations included in the sample have not
exceeded 20 years of establishment, which indicates the increasing level of investment in Egypt in the
past few years, as a result of offering the healthy investment climate since 1990’s till now. The Egyptian
government began to undertake structural economic reforms in the early 1990s, at the request of few key
reformers in government and the recommendations of international economic organizations. The
Government was encouraged to undertake reforms after the debt-forgiveness and the financial support it
received from Western governments and Gulf countries following its support of allied action in the
liberation of Kuwait in early 1991 from the Iraqi invasion (EFG-Herms reports, 2003).
Analysis of Management Accounting Practices Adopted in Egyptian Manufacturing
Organizations
In Table 3, each management accounting practice is ranked according to the percentage of respondents
who indicated that their business adopts the practice. To help analysis and discussion, the practices were
divided into three groups: the first 8 practices are classified as relatively high adoption; the next 9
practices are classified as relatively moderate adoption, and the remaining 25 practices, relatively low
adoption. Similarly, the practices in table 4 in the next section are organized in three groups: high
benefit, moderate benefit, and low benefit. This classification is computed as follows:
The range, which is the difference between the higher number of ranking and the lowest one, is divided
by the number of categories needed to get the length of the category, and then this length is added to the
lowest adoption rate - for example to get the maximum percentage of adoption for the lowest category,
and so on. Consider the following example to define the high, moderate and low adoption ranges as
follows:
215 (higher adoption rate) - 4 (Lowest adoption rate) = 211 (range)
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211(range)/3 (number of category wanted) = 70 (length of category)
70(length of category) + 4 (lowest adoption rate) = 74 (maximum adoption rate in the lowest category,
and then: 70(length of category) +74 (maximum adoption rate in the lowest category) = 144 (maximum
adoption rate for the moderate category).
70 (length of category) + 145 (maximum adoption rate for moderate category) = 215(maximum
adoption rate for the high adoption category). The same calculation is made for classifying benefit
derived from adoption. However the ranking of practices does not necessarily correlate with rankings of
benefits received. This classification scheme provides a basis to compare, initially, the relative adoption
of practices across the sample and then the benefits derived from each practices by adopters.
TABLE 3 Adoption Rates of Egyptian Management Accounting Practices
Management Accounting Practices
% Adoption Rank N
High Adoption
Budgeting for controlling costs
100%
1
215
Performance evaluation :Budgets variance analysis
100%
1
215
Budgeting for planning cash-flows
98%
2
211
Budgeting for coordinating activities across business units 96%
3
207
Performance evaluation: return on investment
96%
3
207
Budgeting to plan day-to day operations
91%
4
196
Performance evaluation: controlling profit
86%
5
185
Capital budgeting techniques, (e.g. NPV,IRR, Payback)
77%
6
167
Budgeting for planning financial positions
65%
7
141
Performance evaluation: residual income
64%
8
139
Performance evaluation: cash flows return on investment
62%
9
135
Budgeting for compensating managers
58%
10
125
Performance evaluation: customer satisfaction surveys
46%
11
99
Performance evaluation: Divisional profit
46%
11
99
Strategic plans: developed with budgets
45%
12
97
Cost-volume profit analysis
41%
13
88
Product profitability analysis
41%
13
88
Moderate Adoption
Low Adoption
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Product costing : absorption cost
33%
14
71
Formal strategic planning
31%
15
68
Product costing :variable cost
31%
15
68
Strategic plans: developed separate from budgets
28%
16
60
Product life cycle analysis
27%
17
59
Performance evaluation : team performance
27%
18
58
Performance evaluation: ongoing supplier evaluations
26%
18
56
Performance evaluation: non-financial measures
25%
19
55
Long range forecasting
24%
20
53
Performance evaluation: Qualitative measures
20%
21
44
ِOperation research technique
18%
22
40
Shareholder value analysis
15%
23
33
Performance evaluation: employee attitudes
14%
24
30
Activity based costing
13%
25
28
Activity based management
11%
26
24
Benchmarking :product characteristics
7%
27
15
Benchmarking :for operational processes
7%
27
15
Benchmarking within the organization
6%
28
14
Activity-based budgeting
4%
29
8
Benchmarking management processes
4%
29
8
Value chain analysis
3%
30
7
Benchmarking with outside organizations
2%
31
5
Benchmarking of strategic priorities
2%
32
4
Target costing
2%
32
4
Performance evaluation: balanced scorecard
2%
32
4
Table 3 Adoption Rates of Egyptian Management Accounting Practices
It is evident from the previous table that only eight practices, the highly adopted ones, are adopted by at
least 78% of the sample; while nine practices, the moderately adopted ones, are adopted by at least 41%
of the companies; and finally, the rest of practices that belong to the lowest adoption category, are
adopted by at least 2% of the Egyptian manufacturing organizations.
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Classification of these practices to related groups is the same as in chapter three (which presents the
adoption of management accounting practices in different contexts) and is carried out in the next section
to form the analysis of the Egyptian management accounting practices. Moreover, discussion and
reasons for these relatively low rates of adoption, particularly of those advanced or recently developed
practices, are considered in a latter section with a comparative analysis of findings.
Planning Practices
Management accounting provides information for planning (Emmanuel et al., 1990). Traditionally, this
has been dominated by the application of budgeting systems to assist resources in the short-term and
capital budgeting and strategic planning for the long term (Chenhall and Langfield- Smith, 1998a).
The data presented in table 4 indicates that 5 traditional planning techniques, including 4 budgeting and
one long term planning, are identified as relatively highly adopted. The budgeting practices are:
budgeting for controlling costs, which is ranked 1 at 100% adoption rate, budgeting for cash flows and
budgeting for coordinating activities across business units , which are ranked 2, 3 respectively and at
98%, and 96 % adoption rates. Finally, the budgeting for planning day to day operations is ranked 4 at
91% adoption rate. Only one long term planning, which is capital budgeting technique is highly adopted
at a percentage of 77% and ranked as 6.
Three other traditional planning practices are ranked as relatively moderate adoption, 7, 10, and 13
respectively, at percentages of 65%, 58% and 41%; i.e., budgeting for planning financial positions,
budgeting for compensating managers, and cost-volume profit analysis respectively. Only the strategic
plans developed with budgets, which is considered one of the long term plans, is also ranked as 12 of
moderate adoption rates at a percentage of 45% of 215 manufacturing organizations.
These results show that Egyptian manufacturing organizations are still relying heavily on traditional
planning practices. Other traditional long term planning practices; formal strategic planning ranked 15 at
31% adoption rate, strategic planning separate from budgeting ranked 16 at 28% adoption rate, and long
range forecasting ranked 20 at only 24%adoption rate, are all considered relatively low adoption, which
means that Egyptians tolerate uncertainty and they do not invest in uncertainty avoidance practices.
Performance Evaluation Practices
Performance evaluation has been identified as an important function of management accounting
(Emmanuel et al., 1990).
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a) Financial measures
The previous table shows that financial performance evaluation measures are relatively highly adopted
than non-financial measures, especially budget variance analysis which is ranked 1 at a percentage of
adoption of 100%, ROI which is ranked 3 at 96% percentage of adoption, and performance evaluation
based on controlling profit at 86% adoption rate and a rank of 5.
Performance evaluation based on residual income ranked 8 at 64% adoption rate, cash flow return on
investment ranked 9 at 62% adoption rate, and finally performance evaluation based on divisional profit
ranked 11 at 46% adoption rate, which is considered a relatively moderate adoption rate of financial
performance measures.
Accordingly, it seems that all financial measures for performance evaluation are either highly or
moderately adopted, which indicates that Egyptian manufacturing organizations place greater emphasis
on short-term profitability, which in turns reduces R&D costs.
b) Non-Financial measures
While financial measures continue to be useful, the growing importance of non-financial measures is
beginning to be noted in Egyptian manufacturing organizations.
Only performance evaluation based on customer satisfaction surveys is ranked 11 at 46% adoption rate,
which is considered a relatively moderate rate of adoption; almost half of the Egyptian manufacturing
organizations use this non-financial measure, which indicates that Egyptian manufacturing organizations
have started realizing new practices, but their adoption is rather slow.
However the rest of the non-financial measures are considered to be relatively low adopted, for example
performance evaluation based on team performance and ongoing suppliers is ranked 18 at 27% adoption
rate. Thus, both of them were considered to be in the beginning of the relatively low adoption rank.
Finally, performance evaluation based on non-financial measures, qualitative measures, employee
attitude, and implementation of balanced scorecard are ranked as 19, 21, 24, and 32 respectively at
adoption rates 25%, 20%, 14% and finally, 1% which is considered the lowest rank in practices.
Strategically–Focused Practices
The evidence from the current survey ranks the adoption of advanced management accounting practices
as relatively low compared with other techniques surveyed, except for product profitability analysis
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which is the only advanced practice relatively moderately adopted with a rank of 13 and 41% adoption
rate.
All other advanced techniques including product life cycle analysis at a rank of 17 and adoption rate of
27%, operation research techniques at a rank of 22 and adoption rate of 18%, Shareholders value
analysis at a rank of 23 and adoption rate of 15%, are considered to be relatively low adopted.
Additionally, activity based costing is ranked 25 at an adoption percentage of 13%, activity based
management is ranked 26 with adoption percentage of only 11% of the sample, and activity based
budgeting is the lowest one at a rank of 29 and 4% percentage rate. All benchmarking practices are also
considered relatively low adopted
Additionally, activity based costing is ranked 25 at an adoption percentage of 13%, activity based
management is ranked 26 with adoption percentage of only 11% of the sample, and activity based
budgeting is the lowest one at a rank of 29 and 4% percentage rate. All benchmarking practices are also
considered relatively low adopted; benchmarking product characteristics are ranked at 27 with 7%
adoption rate, while
both benchmarking operational processes and benchmarking within the
organization are ranked at 28 both of them and at 6% adoption rate. The lowest two benchmarking
techniques are for outside the organization and strategic priorities, which are ranked at 29, 32 and
adoption rate of 2%.
The last two practices were value chain analysis and target costing at adoption rates of 3% and 2%
respectively and at ranks of 30 and 32.
In conclusion, findings indicate low adoption rates of advanced practices, and the high reliance on
traditional ones, which is consistent with other studies in developing countries (see section 3.5 in chapter
three). These findings are based on many reasons; two of them are the non-awareness of implementing
those practices, and the conservative attitudes of Egyptian managers. The detailed analyses of these
reasons that hinder the adoption of advanced practices are introduced in a next chapter when analyzing
management accounting practice performance gap.
Analysis of Benefits Derived from Adopting Management Accounting Practices in Egyptian
Manufacturing Organisations
Table 4 lists practices in order of the average benefits derived from using each practice during the last
three years. Standard deviations are provided to show the extent of diversity of responses.
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TABLE 4 Benefits Derived from Adopted Egyptian Management Accounting practices
Management Accounting Practices
Mean SD
Rank N
Capital budgeting techniques
3
0
1
215
Budgeting to plan day to day operations
3
0
1
215
Budgeting for controlling costs
3
0
1
215
Performance evaluation: return on investment
3
0
1
215
Budgeting for coordinating activities across
2.93
0.36 2
208
Performance evaluation: customer satisfaction surveys
2.87
0.49 3
201
Strategic plans: developed with budgets
2.74
0.67 4
187
Product profitability analysis
2.68
0.73 5
181
Formal strategic planning
2.62
0.79 6
174
Budgeting for planning cash flows
2.61
0.79 7
173
Performance evaluation: divisional profit
2.6
0.8
8
172
Product costing :Absorption cost
2.59
0.81 9
171
Cost-volume-profit analysis
2.55
0.83 10
167
Performance evaluation: non- financial measures
2.55
0.83 10
167
Strategic plans: developed separate from budgets
2.55
0.83 10
167
Budgeting for planning financial positions
2.54
0.84 11
166
Budgeting for compensating managers
2.46
0.89 12
157
Product life cycle analysis
2.42
0.91 13
153
Performance evaluation: budgets variance analysis
2.33
0.95 14
143
Long range forecasting
2.32
0.95 15
142
Performance evaluation: ongoing suppliers evaluations
2.29
0.96 16
139
Shareholder value analysis
2.25
0.97 17
134
Performance evaluation: residual income
2.17
0.99 18
126
Performance evaluation: controllable profit
2.1
1
19
118
Performance evaluation: team performance
2.04
1
20
112
Activity based costing
1.98
1
21
105
High Benefits:
businesses units
Moderate Benefits:
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Product costing: variable costing
1.89
1
22
96
Performance evaluation: Qualitative measures
1.86
0.99 23
92
Performance evaluation: cash flows return on investment 1.79
0.98 24
85
Operation research techniques
1.76
0.97 25
82
Benchmarking of product characteristics
1.73
0.97 26
79
Performance evaluation: employee attitudes
1.7
0.96 27
75
Activity based management
1.67
0.95 28
72
Benchmarking within the organizations
1.62
0.93 29
67
Benchmarking strategic priorities
1.61
0.92 30
66
Activity- based budgeting
1.6
0.92 31
64
Benchmarking: of management processes
1.58
0.91 32
62
Product costing: Target costing
1.52
0.88 33
56
Performance evaluation: balanced scorecard
1.52
0.88 33
56
Benchmarking of operational processes
1.4
0.8
34
43
Benchmarking with outside the organizations
1.3
0.71 35
32
Value chain analysis
1.25
0.66 36
27
Low Benefits:
Table 4 Benefits Derived from Adopted Egyptian Management Accounting practices
Results from the above table show mixed benefits reported by respondent organizations. High benefits
are identified with capital budgeting techniques, planning day to day operations, budgeting for
controlling costs, performance evaluation, return on investment ranked 1. Budgeting for coordinating
activities across business units ranked 2, Budgeting for planning cash flows ranked 7, all of which are
traditional techniques and have high adoption rates. This indicates that Egyptian manufacturing
organizations still retain and believe in the benefits derived from using these traditional practices, and
they fit well for their unstable economy.
As for performance evaluation; customer satisfaction surveys ranked 3, product profitability analysis
ranked 5 in high benefit category, all of which are advanced practices that have moderate adoption rates.
In addition, non-financial measures ranked 10 in high benefit category, which is also an advanced
technique also and has low adoption rate in table 3. Other advanced practices were low adopted, for
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example formal strategic planning ranked 6 in the high benefit category. This indicates that Egyptian
manufacturing organizations have started recognizing the benefits of some advanced practices.
The case is the same with other advanced practices which are low adopted and are ranked in the
moderate benefit category. This is true for long range forecasting, shareholder value analysis, product
life cycle, ABC, and performance evaluation and ongoing supplier evaluations, which are ranked 20, 23,
17, 25, and 18 adoption rates respectively, and are ranked 15, 17, 13, 21, and 16 respectively in the
moderate benefit category.
On the other hand, other practices are highly adopted in table 4, but their derived benefits are moderate
and low. As for performance evaluation, budget variance analysis is ranked 1 in adoption rate table, and
is ranked 14 in moderate benefit category. Moreover, cash flows return on investment is ranked 9 in
moderate adoption rate, and is ranked 24 in the low benefit category. This indicates that some traditional
practices are adopted by Egyptian manufacturing organizations but their derived benefit starts to decline
with the emergence of advanced practices.
At the end, other advanced practices are low adopted and so are their derived benefits. These practices
include all benchmarking techniques, target costing, performance evaluation; balanced scorecard,
activity based budgeting and value chain analysis, which means that Egyptian manufacturing
organizations are not conscious of or familiar with either adoption or benefits of these advanced
practices.
Conclusion
Results indicate that Egyptian manufacturing organizations rely heavily on traditional
management accounting practices, while the adoption rates of recently developed or advanced
practices are rather low and slow. The study reveals that in most of the cases, higher benefits are
derived from the traditional practices compared to the advanced one. A few of the advanced
practices; such as customer satisfaction survey for performance measurement, product life cycle
analysis, and non–financial performance measures that have moderate and low adoptions rates,
attain higher benefits. However, there is definitely a slow shift in adopting advanced practices.
The findings are consistent with other similar studies in transition countries.
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