International Journal of Contemporary Hospitality Management

An empirical investigation of strategic management accounting in hotels

Odysseas Pavlatos
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IJCHM
27,5
756
Received 31 December 2013
Revised 9 March 2014
1 May 2014
Accepted 7 June 2014
Downloaded by FECAP At 11:35 18 April 2016 (PT)
International Journal of
Contemporary Hospitality
Management
Vol. 27 No. 5, 2015
pp. 756-767
© Emerald Group Publishing Limited
0959-6119
DOI 10.1108/IJCHM-12-2013-0582
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0959-6119.htm
An empirical investigation of
strategic management
accounting in hotels
Odysseas Pavlatos
Department of Business Administration,
Technological Educational Institute of Athens, Athens, Greece
Abstract
Purpose – The purpose of this paper is to investigate the relationship between contextual factors,
strategic management accounting (SMA) and historical performance in hotels.
Design/methodology/approach – An empirical survey was conducted on a sample of 106 leading
hotels in Greece.
Findings – The analysis of the survey data indicates that seven contingent factors affect SMA usage
in hotels: The seven factors are perceived environmental uncertainty, structure, quality of information
system (IS) information, organizational life cycle stage, historical performance, strategy and size. The
findings also indicate that lagging performance affects SMA and that this effect is moderated by the
perceived environmental uncertainty.
Research limitations/implications – Some of the limitations are inherent to the survey method
used, such as the use of perceptual measures and the potential of common method bias. Data were
collected from the Greek hospitality industry, and consequently, the results may be generalizable only
to that population.
Practical implications – The accounting professionals and hotel managers will also be benefited, as
the study aims to identify the most relevant SMA tools adopted in the hotel industry, as well as the
relationship between these tools and other external and organizational factors.
Originality/value – This research adds to the current knowledge in management accounting system
design in hotels. This paper increases the understanding as to why hotels are more likely to implement
SMA. The results provide the first empirical evidence of the relation between SMA usage,
organizational factors, external factors and historical performance in hotels.
Keywords Performance, Greece, Contingent factors, Management accounting innovation,
Management accounting practices, Strategic management accounting
Paper type Research paper
1. Introduction
Over the past three decades, there has been a tremendous increase in the number of
innovative management accounting techniques which were developed across a wide
range of industries (Abdel-Kader and Luther, 2008). Just recently, it was discovered that
the management accounting innovations were part of strategic management accounting
(SMA) (Zawawi and Hoque, 2010).
Simmonds (1981) was the first to use the term “strategic management accounting”.
He determined it as “the provision and analysis of management accounting data about
a business and its competitors for use in developing and monitoring the business
strategy” (Simmonds, 1981, p. 26). The past few years have seen a growing interest in
SMA. Nevertheless, “very little has been achieved in terms of empirical enquiry
 designed to further our appreciation of the nature and the context of SMA application” Strategic
(Cadez and Guilding, 2008, p. 856). management
Management accounting literature suggests that there is a need for more research
into service organizations on management accounting system (MAS) design and
accounting in
contextual factors, as these firms become increasingly important within most economies hotels
(Chenhall, 2003; Auzer and Langfield-Smith, 2005, Modell, 1998).
Management accounting literature demonstrates that MASs are equally important in 757
service organizations and that MAS of service organizations must be considered in their
wider context, which includes accounting for contingent variables external and internal
to the service organizations (Sharma, 2002).
The hotel industry is particularly pertinent to the examination of SMA practices.
First, the hotel industry is market-oriented (Kotas, 1999), which has been found to be
more conducive to SMA usage (Cadez and Guilding, 2008). Second, Collier and Gregory
(1995) concluded that SMA is increasingly being adopted in hotels (high number of SMA
adopters). Third, Potter and Schmidgall (1999) make the assumption that little
innovation has occurred in hospitality management accounting, and there are many
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issues that deserve research attention. Finally, there is an active interest in management
accounting practices of hotels (McManus, 2012; Pavlatos and Paggios, 2009a, 2009b;
Anderson and Guilding, 2006).
The study’s objectives are as follows:
• to investigate the application of SMA techniques in hotels;
• to analyze factors that influence the adoption and usage of SMA in a hotel context;
and
• to investigate the impact of historical performance on SMA design in hotels.

The aim of this research is to examine the relationship between contextual factors, SMA
and historical performance in hotels.

2. Literature review and hypotheses development

Despite having been introduced into the literature as a potentially exciting development
over 20 years ago, there is still little or no agreement about what constitutes SMA.
Finally, Cadez and Guilding (2008) identified 16 SMA techniques from the literature.
The literature search reveals little prior empirical work concerned with the application
of SMA techniques in a service context.
In the hotel management literature, there has also been little work tool place with regard
to SMA (Collier and Gregory, 1995). These studies have mainly focused on customer-focused
accounting (a part of SMA) (McManus, 2012; Anderson and Guilding, 2006).
Figure 1 provides an overview of the framework of the study. Regarding the selection of
the independent variables, management accounting literature suggests that there are a lot of
contingent factors that affect MAS and SMA (Chenhall, 2003; Cadez and Guilding, 2008).
First, contingent variables, such as perceived environmental uncertainty and
structure have been reported in prior research as influential factors of the design of MAS
in hotels (McManus, 2012; Pavlatos, 2010; Pavlatos, 2012; Sharma, 2002). Perceived
environmental uncertainty plays an equally, if not more, important role in service
organizations than in manufacturing firms because service firms have greater exposure
to the external environment (Sharma, 2002). Brignall (1997) suggests that the volatility,
uncertainty and competition in a service firm’s external environment cause complexity
 IJCHM
PEU
27,5 H1 Control variables

Strategy
H2
Structure
SMA usage

758 H3
Size

Quality of IS Category
information

H4
Management status

Organizational life
cycle stage
Age of organization
Figure 1.
Research model and H5
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expected significant Historical Type of hotel

paths performance

and influence the design of MASs. Hence, SMA information can assist hotel managers in
coping with the complexities of their external environment.
Organizational structure is likely to play a positive role to the extent of usage of SMA
tools in hotels. Hotels which are more decentralized are likely to require a greater volume
of information at lower levels of management to assist in decision-making as opposed to
centralized hotels.
Furthermore, quality of information system (IS) information is expected to contribute to
the extent to which SMA is used by hotels. Pavlatos and Paggios (2009a) found that there is
a relationship between quality of IS information and cost system design in hotels.
Management accounting suggests that improvements in information quality increase the
usefulness of decision systems and the usage of management accounting techniques.
Organizational life cycle stage has been reported in prior studies as a main factor of
the MAS design in service firms (Auzer and Langfield-Smith, 2005; Brignall, 1997;
Brignall et al., 1991; Moores and Yuen, 2001). Kallunki and Silvola (2008) report that
greater organizational size and greater resources are expected to result in greater usage
of innovative management accounting techniques among firms in the maturity stage as
opposed to firms in the growth phase.
Performance management literature suggests that there is a relationship between
performance management system design and previous performance in services (see
Naranjo-Gil et al., 2009 for a review). Based on the above discussion, the following
hypothesis will be tested in the research:
H1. SMA usage is higher in hotels perceiving a higher degree of environmental
uncertainty than in hotels that perceive lower environmental uncertainty.
H2. SMA usage is higher in decentralized hotels than in centralized hotels.
H3. There is a positive association between the quality of IS information and the
SMA usage in hotels.
 H4. SMA usage is greater among hotels in maturity phase than among hotels in a Strategic
growth phase. management
H5. SMA usage is higher in hotels that have a relatively low historical performance accounting in
than in hotels that have a relatively high historical performance. hotels
Based on previous studies, we predict that a negative effect of previous performance on
SMA usage will be established. In this study, we predict that perceived environmental 759
uncertainty, structure, organizational life cycle stage and quality of IS information will
moderate the effect of past performance on SMA usage. Hence, we propose the following
hypotheses:
H6a. The negative impact of past performance on SMA usage is more common for
hotels realizing a higher level of environmental uncertainty.
H6b. The negative impact of past performance on SMA usage is more common for
decentralized hotels.
H6c. The negative impact of past performance on SMA usage is more common for
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hotels in maturity phase.

H6d. The negative impact of past performance on SMA usage is more common for
hotels that provide improved IS information quality.

3. Research methodology
To test the relations among SMA techniques, contingent factors and historical performance,
empirical data were collected from the Greek hotel industry. The survey instrument was sent
by email to 320 large Greek hotels which are included in the Gallup’s subsidiary in Greece
(ICAP) database. A total of 106 hotels fully completed and returned the questionnaire,
yielding a 33 per cent response rate. Tests for non-response bias were performed. Chi-square
tests indicated no significant differences in the demographic characteristics.
“SMA usage” was measured using five constructs to account for the multi-level character
of SMA practices drawing on the scale by Cravens and Guilding (2001). It was slightly
adapted to be understandable in the hotel context. Based on the premise that “exploratory
factor analysis can contribute to a useful heuristic strategy for model specification prior to
cross-validation with confirmatory factor analysis” (Cadez and Guilding, 2008, p. 824) factor
analyses were used. The factor analyses provide evidence for discriminant validity of the
five constructs. Hence, we used the five constructs (11 techniques were collapsed into five
SMA dimensions), which formed a multi-dimensional construct.
“Quality of IS information” was measured by Dunk (2004), as a five-item, seven-point
Likert-scaled instrument. “Organizational life cycle stage” was measured by Auzer and
Langfield-Smith (2005). “Structure” was measured by Gordon and Narayanan (1984), as
a six-item, seven-point Likert-scaled, fully anchored instrument. “Perceived
environmental uncertainty” was measured by Gordon and Narayanan (1984), as a
seven-point Likert-scaled, fully anchored instrument. It was slightly adapted to be
understandable in the hotel context.
“Historical performance” was measured using objective data. We obtained
performance data for the three years before the research was conducted from the
Association of Greek Tourism Enterprises and Hellenic Chamber of Hotels. To measure
the hotel performance correctly, we studied the hospitality management literature
 IJCHM (O’Neill and Mattila, 2004; Pine and Phillips, 2005; Sainaghi, 2011). According to Harris
27,5 (1999), hoteliers monitor the management of their firm via revenue, rather than profit
metrics (revenue accounting).
Hence, we used the following five performance items, according to Kim et al. (2013):
(1) Average room rate (ARR);
760 (2) Revenue per available room (RevPAR);
(3) Total revenue per available room (TrevPAR);
(4) Restaurant food and beverage (F&B) revenue per occupied room; and
(5) Banquet F&B revenue per occupied room (Table I).

We included a number of control variables and specific industry factors (strategy, size,
management status, age of the organization, category and type of hotel).
“Organizational strategy” used Porter’s measurement (Porter, 1980). “Size” was
measured using the number of beds adopted by Tavitiyaman et al. (2012). The variable
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“Age of the organization” was measured by Kallunki and Silvola (2008). “Category of
hotel” (5 stars ⫽ 48 hotels, 4 stars ⫽ 60 hotels), “Management status” (membership of
multinational chain ⫽ 20 hotels, membership of national chain ⫽ 32 hotels, private ⫽ 54
hotels) and “Type of hotel” (resort ⫽ 42 hotels, city ⫽ 64 hotels) were measured as
categorical variables adopted by Pavlatos and Paggios (2009b).

Theoretical Theoretical Actual Actual

Variable N Mean SD minimum maximum minimum maximum

SMA usage 106 4.11 0.66 1 7 1 7

Quality of IS information 106 4.02 0.38 1 7 1 7
Organizational life cycle
stagea 106 0.64 0.48 0 1 0 1
Perceived environmental
uncertainty 106 4.32 0.72 1 7 2 7
Structure 106 4.05 0.54 1 7 1 7
Historical performance (€) 106 79.12 35.3 – – 53.24 135.42
Control variables and specific industry factors
Strategy 106 4.87 0.55 1 7 1 7
Size (number of beds) 106 329.12 239.51 – – 85 1185
Management statusb 106 0.18 0.39 0 1 0 1
Age of the organization 106 29.12 15.12 – – 3 48
Categoryc 106 0.45 0.50 0 1 0 1
Type of hoteld 106 0.39 0.49 0 1 0 1

Notes: a Organization life cycle is a categorical variable. It was translated as a dummy variable that
reflected whether a sampled organization belongs to the maturity stage; b management status is a
categorical variable. It was translated as a dummy variable that reflected whether a sampled
Table I. organization is member of a multinational chain; c category is a categorical variable. It was translated
Descriptive statistics as a dummy variable that reflected whether a sampled organization is a 5-star hotel; d type of hotel is a
of the variables in the categorical variable. It was translated as a dummy variable that reflected whether a sampled
study organization is a resort
 4. Data analysis and results Strategic
We test the research model using partial least squares (PLS). As shown in Table II, all management
internal composite reliabilitys (ICRs) exceeded 0.8, indicating satisfactory reliability of accounting in
the constructs in the model (Hulland, 1999). Additional support for reliability is provided
by Cronbach’s alphas. The average variance extracted (AVE) by the latent constructs
hotels
from their indicators exceeded the recommended criterion of 0.50 for all variables
(Fornell and Larcker, 1981). Results showed that discriminant validity was also 761
satisfactory, as in all cases, the AVE was higher than the squared correlation.
In analyzing our results with PLS, we first ran the model with main effects only, and
then, we analyzed the full model including the interaction effects. Table III presents the
path coefficients, t-values observed with the level of significance achieved and the
proportion of explained variance of the endogenous variable (R2) for the whole sample
(n ⫽ 106). Figure 2 shows the significant path coefficients for the full model.
We conducted several robustness checks to validate our findings. Particularly, we
performed a regression analysis for the full model receiving similar results.
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Furthermore, we investigated the interaction effects of perceived environmental

uncertainty, structure, organizational life cycle stage and quality of IS information on
SMA usage. Results show that none of the interactions are significant.

5. Conclusion and discussion

This study responds to recent calls to analyze factors that influence the adoption and
usage of management accounting innovation and SMA (Naranjo-Gil et al., 2009; Cadez
and Guilding, 2008). According to Naranjo-Gil et al. (2009, p. 688) “future research in
needed to examine other factors to add a more comprehensive view of management
accounting innovation”.
According to the survey’s results, seven factors were identified as potentially
affecting SMA usage in hotels. The seven factors are as follows:
(1) perceived environmental uncertainty;
(2) organizational structure;
(3) quality of IS information;
(4) organizational life cycle stage;
(5) historical performance;
(6) strategy; and
(7) size.

The results show that hotels realizing a higher degree of environmental uncertainty use
more SMA tools to help them reduce uncertainty and improve managerial
decision-making, managerial planning and control, as opposed to hotels that realize a
lower level of environmental uncertainty. The results for perceived environmental
uncertainty indicate that hotels align SMA usage in varying degrees, depending on
whether the environment is turbulent, competitive or unpredictable. In practical terms,
the results imply that management of hotels respond to increased environmental
uncertainty by increasing the SMA usage. This enables them to enhance their
competitiveness and control the issues before they become increasingly difficult to
 IJCHM Variable ICRa Alphab AVEc Item Loading
27,5
Costing 0.814 0.79 0.601 Life cycle costing 0.759
Value chain costing 0.734
Planning, control and 0.821 0.78 0.612 Benchmarking 0.734
performance Integrated performance 0.752
762 measurement measurement
Decision-making 0.834 0.79 0.634 Strategic costing 0.824
Strategic pricing 0.834
Competitor-focused 0.842 0.81 0.641 Competitor cost assessment 0.814
accounting Competitive position motoring 0.819
Competitor performance appraisal 0.839
Customer accounting 0.819 0.77 0.639 Customer profitability analysis 0.816
Valuation of customers as assets 0.836
SMA usage 0.842 0.804 0.654 Costing 0.802
Construct of higher Planning, control and performance 0.814
order of the five SMA measurement
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usage dimensions Decision-making 0.792

Competitor-focused accounting 0.799
Customer accounting 0.805
Quality of IS information 0.885 0.856 0.703 Accuracy 0.895
Precision 0.858
Reliability 0.838
Completeness 0.822
Relevance 0.864
Perceived environmental 0.832 0.814 0.624 Price competition 0.821
uncertainty Economic (external) environment 0.801
New services by industry 0.794
Market activities of competitors 0.812
Tastes and preferences of customers 0.824
Legal, political and economic 0.724
constraints surrounding firm
Structure 0.822 0.802 0.632 Initiating ideas for new services 0.824
Hiring and firing managerial 0.824
personnel
Budgeting allocations 0.812
Pricing decisions 0.804
Selecting large investments 0.814
Operating decisions are made at 0.834
manager level
Historical performance 0.851 0.819 0.689 ARR 0.812
RevPAR 0.834
TrevPAR 0.862
Restaurant F&B revenue per 0.833
Table II. occupied room
Reliability and Banquet F&B revenue per occupied 0.824
validity analysis of room
multi-item constructs
(n ⫽ 106) Notes: a Internal composite reliability; b
cronbach’s alpha; c AVE
 Strategic
Path to: SMA usage management
Path from: Path coefficient Cohen’s f 2 accounting in
A. Main effects model hotels
Perceived environmental 0.290* (2.984) 0.27 Supported H1
uncertainty
Structure 0.203* (2.046) 0.20 Supported H2
763
Quality of IS information 0.228* (2.315) 0.22 Supported H3
Organizational life cycle stage 0.204* (2.052) 0.20 Supported H4
Historical performance ⫺0.264* (2.634) 0.25 Supported H5
Control variables and specific
industry factors
Strategy 0.229* (2.412) 0.23
Size 0.184* (2.064) 0.17
Age of the organization 0.132 (0.154)
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Management status 0.152 (0.168)

Category 0.182 (0.211)
Type of hotel 0.104 (0.102)
R2 ⫽ 0.291
Q2 ⫽ 0.016
B. Full model (interactions effects)
Perceived environmental
uncertainty 0.272* (2.815) 0.25 Supported H1
Structure 0.194* (2.146) 0.18 Supported H2
Quality of IS information 0.250* (2.507) 0.22 Supported H3
Organizational life cycle stage 0.201* (2.054) 0.20 Supported H4
Historical performance ⫺0.215* (2.134) 0.21 Supported H5
Historical performance ⫻ Perceived
environmental uncertainty ⫺0.261* (2.614) 0.24 Supported H6a
Historical performance ⫻ Structure ⫺0.105 (0.109) No Supported H6b
Historical performance ⫻
Organizational life cycle stage ⫺0.144 (0.144) No Supported H6c
Historical performance ⫻ Quality
of IS information ⫺0.180 (0.155) No Supported H6d
Control variables and specific industry factors
Strategy 0.218* (2.205)
Size 0.182* (2.054)
Age of the organization 0.143 (0.154)
Management status 0.154 (0.168)
Category 0.192 (0.201)
Type of hotel 0.102 (0.119)
R2 ⫽ 0.343
Q2 ⫽ 0.014

Notes: * Indicates correlations is significant at the 0.05 level (two-tailed); significance tests are Table III.
two-tailed; t-values are in parentheses; Cohen’s f 2 indicates effect sizes that are small (0.02); medium Results from PLS
(0.15) or large (0.35) analysis (n ⫽ 106)
 IJCHM H1 PEU
27,5 Control variables

H2 Structure 0.27 0.21 Strategy

0.19

Quality of IS
764 H3 information 0.25
0.18 Size

0.19
Category
Organizational life 0.20 SMA usage
H4 cycle stage 2
R = 34.3
0.15
–0.21 Management status
H5 Historical 0.14
performance
– 0.26 Age of organization

Historical 0.1
H6a
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performance X PEU
–0.10 Type of hotel
H6b Historical performance
X Structure
– 0.14
H6c
Historical performance
X Organizational life
cycle stage

Figure 2. –0.18
H6d
PLS full model Historical performance
X Quality of IS
(N ⫽ 106) information

manage. Chenhall (2003) reported that the external environment is a strong contextual
variable of contingency-based research.
It has also been found that SMA usage is related to hotel structure. Hotels
characterized as decentralized use more SMA tools than hotels characterized as
centralized. Hotels that have devolved authority for decision-making to lower-level
managers require more SMA information. Decentralized hotels have a greater need for
SMA techniques, as these provide additional information to help lower-level managers
in their decision-making processes.
The study reveal that quality of IS information plays a positive role in the usage of
SMA tools in many hotels. Improved IS information quality should have accuracy,
relevance, precision, reliability and completeness properties, which should further help
managers use more contemporary management accounting techniques. Nicolaou et al.
(1995) reported that improvements in information quality increase the use and efficacy
of decision systems.
Moreover, the results indicate that the use of SMA techniques is far much greater in hotels
at maturity phase than those in growth phase. In this context, mature hotels analyze
competitor positions within the industry more, use more cost data based on external
information and analyze strategic factors in the pricing decision process. Furthermore, we
conclude that SMA usage is higher in hotels that have a low performance in the previous
period than in hotels that have a high performance in the previous period.
 The findings also indicate that lagging performance affects SMA usage and that this Strategic
effect is moderated by the perceived environmental uncertainty. While, on average, management
hotels with lagging performance are more likely to use SMA, this effect of previous accounting in
performance is more common for hotels perceiving higher degree of environmental
uncertainty. These hotels use more SMA tools to improve managerial planning and hotels
controlling as compared to hotels perceiving lower degree of environmental uncertainty.
The survey revealed that structure, organizational life cycle stage and quality of IS 765
information do not moderate the impact of previous performance on SMA usage.
However, the findings presented in this paper are subject to a number of limitations. First,
data were collected from the Greek hospitality industry, and consequently, the results may
be generalizable only to that population. Furthermore, the variables “size” and “age of
organization” have high standard deviations. The bias of the sample could disrupt the
results. Finally, measurement of “structure” says little about whether decisions were
decentralized or not, but rather indicates whether they were taken at the “appropriate level”.
This study extends prior research in several ways. First, this research adds to the
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knowledge in MAS design in hotels. It provides a conceptual presentation of SMA in a

hotel context that extends prior SMA literature in hotels (Collier and Gregory, 1995;
McManus, 2012). Furthermore, this research examined the contingent factors according
to the management accounting literature and its effect in SMA design in hotels. The
results provide the first empirical evidence of the relation between SMA usage,
organizational factors, external factors and historical performance in hotels.
Furthermore, this study fills an empirical gap that exists and concerns how SMA
systems operate under environmental uncertainty, which is mainly driven by recession
and economic crisis. It should be reported that data were collected from Greece, which is
under recession for the past 5 years. Moreover, this research enhances the
understanding of management accounting practices among firms in Greece.
The accounting professionals and hotel managers will also be benefited, as the study
aims to identify the most useful SMA tools adopted in the hotels and also the
relationship between these tools and other external and organizational variables.
Finally, this study could help professionals develop new directions in designing MAS
systems in hotels. Future research should consider examining the relationship between
SMA and top executives’ characteristics (chief executive officers and chief financial
officers) in hotels. Finally, other innovative management accounting tools in hotels
should also be examined (e.g. value-based management).

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Corresponding author
Odysseas Pavlatos can be contacted at: opaulatos@gmail.com

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