THE ROLE OF MANAGEMENT ACCOUNTING

IN A TURNAROUND STRATEGY
Adibah Jamaluddin1, Nurul Izwah Mohd Husin2 and Normah Omar3

Universiti Teknologi MARA, Malaysia

1

E-mail: adibahj@salam.uitm.edu.my
2
Bank Muamalat, Malaysia
E-mail: nurulizwah@gmail.com
3
Accounting Research Institute (ARI), Universiti Teknologi MARA, Malaysia
E-mail: normah645@salam.uitm.edu.my
ABSTRACT

This paper investigated how management accounting (MA) was applied in

a turnaround strategy to recover from a company’s fragile business position.
A case study at a Malaysian company, Care, that went through a turnaround
process was conducted to understand how the use of MA contributed to their
turnaround process. While an economic downturn is claimed to be the major
cause of poor organisational performance, Care was in a financial distress
situation before the economic crisis. More importantly, Care successfully
recovered their poor condition during the economic downturn with the use of
MA techniques. This paper describes the way MA was utilised before, during
and after the turnaround process. Prior to the economic crisis, MA was used
merely to provide reports with no strategic focus. Failure to manage cost and
understand the changes in the market compromised their performance. It is
during the turnaround phase that MA information was used to understand
the company’s current performance to devise a turnaround strategy, cost
reduction and revenue generation. Concurrently, MA techniques which
focused on quality was introduced. Consequently, better quality products
at a lower production cost contributed towards improving their financial
performance. More sophisticated MA techniques were introduced post
turnaround period to sustain their performance. This paper contributes
toward demonstrating how MA facilitates the turnaround process while
undergoing an economic crises. Concurrently, it helps to minimise the gap
between MA theory and practice by describing the application of MA in a
turnaround strategy.

Keywords: Management accounting, management accounting practice,

turnaround strategy
ARTICLE INFO
Article History:
Received: 23 July 2018
Accepted: 14 November 2018
Published: 31 December 2018
Asia-Pacific Management Accounting Journal, Volume 13 Issue 3

INTRODUCTION

Tikici et al. (2011) claimed that the major external cause that contributes
to organisational decline is an economic crises. Hence, it is critical for
companies to rely on their accounting information to devise appropriate
strategies and action plan to survive the crisis (Erol et al., 2011). Although
issues on corporate recovery and the turnaround strategy can be traced as
early as the 1980s (e.g. Hofer, 1980), empirical research is mainly focused
on quantitative studies (Boyne, 2006). Consequently, practitioners find it
difficult to practically apply the turnaround strategies, thereby adding the
gap between MA theory and practice (Baldvinsdottir et al., 2010). Hence,
Baldvinsdottir et al. (2010) call for MA research which aims at providing
practical accounting development.

Haron et al. (2013) contend that understanding a turnaround process

is vital for a company to add value and create their competitive advantage.
However, for some companies, undertaking a turnaround strategy is
very risky, where opening a new business may offer a better solution and
be cheaper (Canda, 2002). While there are many successful turnaround
stories such as Adidas, British Steel, and Chrysler, which survived their
worst financial crisis (Zimmerman, 1989), a great number of firms failed
to recover their financial position (Pandit, 2000). Hence, turning around a
company’s position is challenging.

In Malaysia, the financial crisis and the global economic slowdown had
resulted in many businesses going through bankruptcy proceedings. Many
companies failed to recoup from the financial crisis due to being unaware
of the possible turnaround strategies or the effectiveness of the strategies to
revive their weak performance (Haron et al., 2013). Additionally, there is
limited evidence of the role of MA in the implementation of a turnaround
strategy (Pandit, 2000; Haron et al., 2013) especially in non-Western
countries (Schoenberg et al., 2013). Therefore, the objective of this study
was to examine the role of MA in turnaround strategies.

A case study was conducted at a Malaysian company, Care (a

pseudonym), which successfully turned around their position during the
economic crisis period. Consistent with Haron et al. (2013), we demonstrate
how MA practices can help a company to revive their weak performance

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in a difficult period successfully. More importantly, the turnaround process

occurred during the economic downturn period where most companies were
severely affected. In support of Baldvinsdottir et al. (2010) who call for
a minimisation of the gap between MA theory and practice, the findings
provide an understanding of the role of MA in turnaround strategies and
how practitioners can use MA to turnaround their business performance.

LITERATURE REVIEW

A corporate turnaround is a situation where a firm’s economic performance

has recovered from an existence-threatening decline (Balgobin & Pandit,
2001). One of the main reason for being in such a financial distress situation
is the occurrence of global economic crises which has severely resulted in
production loss and unemployment (Erol et al., 2011). Hence, research on
corporate turnaround tends to focus on identifying the causes, strategy, and
the process to recover from such a fragile business position (Balgobin &
Pandit, 2001; Haron et al., 2013).

Hofer (1980) discusses four ways to revive a company’s financial

position, (1) revenue generation strategy, (2) cost-cutting strategy, (3) asset
reduction strategy, and (4) combining two or all the strategies. While the
revenue generation strategy aims to improve a company’s liquidity and
profitability position by price-cutting and massive advertising to stimulate
sales, the cost-cutting strategy aims for survival and generating sufficient
cash by restructuring the organisation and financial cutbacks. Whereas, an
asset reduction strategy relates to the sale of unproductive assets. Therefore,
to implement any of the turnaround strategies, relying on MA information
and techniques are crucial (Erol et al., 2011).

Burchell et al. (1980) claim that the role of MA extends beyond

merely providing information for decision making, but in shaping action. In
this vein, determining product cost and understanding demand are critical
to creating value (Bromwich, 1990). Accordingly, several accounting
techniques were introduced such as activity-based costing (ABC), target
costing and life-cycle costing to accurately determine the cost of products
(Langfield-Smith, 2008).

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However, MA was criticised for being irrelevant (Johnson & Kaplan,

1987) which saw the development of MA research to promote accounting
for strategic positioning by linking management control system and strategy
(Langfield-Smith, 1997). Accordingly, the Balanced Scorecard (BSC) was
introduced to bring MA to a broader perspective by linking strategy and
vision, financial and non-financial measures to be used by managers across
the organisation such as management, marketing, information system, and
operation management (Kaplan & Norton, 1996; Kaplan & Norton, 2004).
Other MA techniques introduced include Total Quality Management (TQM),
Value Engineering and Zero-based Budgeting (Drury, 2008).

Nevertheless, the extent of adoption and success of MA in practice

remains questionable (Langfield-Smith, 2008) particularly in the area of
a corporate turnaround (Haron et al., 2013). In response, this study aimed
to contribute to the body of literature by demonstrating the role of MA in
a turnaround strategy.

RESEARCH CONTEXT AND METHOD

A case study was conducted at Care (a pseudonym), to explore how they

used MA techniques in turning around its weak performance. Incorporated
since 1972, Care was fighting an uphill battle to establish its position in the
local fertiliser industry. Due to high production costs and fading customer
confidence, Care’s profit level for two consecutive years, i.e. Year 2 and
Year 3 had sharply declined by more than 90% as compared to Year 1
(Table 1). The weak performance was alarming considering that fertiliser
consumption had been on an upward trend prior to Year 1. However, from
Year 8 onwards, Care began to recover from its fragile financial position
and started to progress as evidenced by the key financial indicators such as
sales, net income, return on investment (ROI) and return on equity (ROE)
(Table 1), which indicates an evidence of a turnaround position (Robbins &
Pearce, 1992). More importantly, the event took place during the financial
crisis (Year 9) where most companies were badly affected. Therefore, Care
is considered “a contact zone” (Ahrens & Chapman, 2006) to answer the
research question: How did the company turnaround its performance using
MA?

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Table 1: Selected Financial Ratios from Year 1 to Year 16

1 2 3 4 5 6 7 8
Year Sales Net Profit Asset Equity ROIa ROEb
(RM’000) Income Margin Turnover Turnover (%) (%)
(RM’000) (NI/Sales) (Sales/TA) (TA/CE)
(%) (Times) (Times)
1 182,496 5,324 2.92 2.40 2.35 7.01 16.47
a. Crisis Period
2 97,696 353 0.36 1.43 2.14 0.51 1.10
3 81,326 1,007 1.24 1.22 1.54 1.51 2.33
b. The turnaround phase
4 77,179 583 0.76 1.19 1.57 0.90 1.42
5 79,709 1,310 1.64 1.35 1.43 2.21 3.16
6 97,578 2,048 2.10 1.36 1.69 2.86 4.83
7 123,274 5,449 4.42 2.06 1.42 9.11 12.93
c. The post turnaround phase
8 140,229 6,985 4.98 2.39 1.41 11.90 16.78
9 204,636 12,486 6.10 2.21 2.09 13.48 28.18
10 215,319 11,470 5.33 2.45 1.90 13.05 24.81
11 235,632 19,832 8.42 2.81 1.68 23.66 39.75
12 247,095 14,832 6.04 2.47 2.03 14.91 30.29
13 165,513 967 0.58 1.77 2.05 1.03 2.10
14 203,997 6,507 3.19 2.27 1.99 7.24 14.41
15 271,979 7,402 2.72 2.71 2.21 7.37 16.29
16 343,652 12,137 3.53 2.80 2.54 9.89 25.11
a= Column 4 x Column 5
b= Column 4 x Column 5 x Column 6
Source: Care’s Financial Statements from Year 1 to year 16

Care was selected as a case study for two reasons. First, Care did not
only manage to turnaround their weak performance before the occurrence
of an economic downturn; it was remarkable that the company also
improved their financial position during the critical time. Second, Care’s
notable performance resulted in the company being selected as one of the
recipients for the National Award for Management Accounting (NAfMA)
Best Practice Framework. The NAfMA award was deemed appropriate to
recognise Care’s best practice in MA and creating value that led to business
excellence, as well as to promote the application of MA techniques and
systems in Malaysia towards achieving world-class business performance.
Hence, how Care practised their MA during and post turnaround period
should provide valuable lessons for business practitioners to internalise
and apply in case they encounter a similar event.

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Phase 1 of the research process involved a literature review in the

area of MA and corporate turnaround. This is the phase where research
questions were refined. Phase 2 was where data was collected using semi-
structured and non-structured interviews with the directors and managers,
followed by observations at Care. The data were complemented by internal
documents provided by the research participants, annual reports, web pages
and media coverage. During Phase 3, the initial findings and reports were
sent to the research participants for validation purposes. In particular,
the interviewees provided feedback on whether the researchers correctly
interpreted the interviews and observations. Accordingly, the data were
analysed by classifying the case study into three stages, the crisis period
(Year 2 – Year 3), the turning point (Year 4 – Year 7) and the post turnaround
phase (Year 8 – Year 16).

FINDINGS

The Crisis Period (Year 2 – Year 3)

Care began its operation five years before its incorporation in 1972. In
1967, the parent company set up the first compound fertiliser manufacturing
plant in Malaysia. Being the only manufacturer in producing potassium
nitrate, complex compound fertilizer, Care was recognised as one of the key
players in the field. One of its brand names gained popularity, and customers
received the products for three consecutive decades well. Since then, Care
was well-known for its superior and quality products as evidenced by a
various award received on product quality.

However, the stagnant fertiliser industry, poor commodity prices and

intense competition exposed Care to new challenges as competitors began
to offer cheaper products or better-quality products at affordable prices.
More importantly, we found that the company faced two major problems:
(1) escalating production and administrative cost and (2) deterioration in
customer confidence. The first problem was associated with productivity,
i.e. machine and workforce. Since its inception, none of the machines was
replaced, which resulted in a decline in efficiency. In the event of machine
break down, the whole production process would be disrupted, resulting
in an increase in fixed costs due to idle plant capacity and non-productive
workers.

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The second problem relates to deterioration in customer confidence.

The market share had shrunk significantly from 45% in Year 1 to roughly
10% to 20% during the crisis period (Year 9). Two main reasons were
identified: (1) failure to maintain product quality due to the high frequency of
machine breakdown and (2) failure to innovate new products. Consequently,
Care’s compound fertiliser market share had dropped from 30% in Year 1
to as low as between 10% to 20% during the crisis period (Year 9), thus
hurting their bottom line.

Meanwhile, Care began to lose its competitive advantage due to (1)

employees lack of cost consciousness and (2) priorities were placed on short-
term performance measures. During this period, there was poor cost control.
Care failed to manage its costs effectively due to (1) some operational
managers not understanding the nature of the expenses in the budget; (2)
it was a common practice for managers to inflate their budgets, without
having to provide justification; (3) irrational expenses (transactions) were
evidenced in some departments, (4) internal control was compromised; (5)
incremental budgeting were used resulting in excessive budgeting amounts;
and (6) it was a common phenomenon for managers to incur unnecessary
spending towards the second half of the year to maintain or increase their
future budget.

Additionally, the management placed too much emphasis on short-term

measures by depending heavily on financial information such as profit and
loss and balance sheet figures at the expense of non-financial information
such as product quality, customer satisfaction and employee productivity
level. Consequently, Care failed to notice the changes in the marketplace,
where other market players were introducing new products at better prices.
For example, merely relying on the rudimentary management accounting
tools such as the application of Budgeting and Financial Statement Ratio
Analysis resulted in the management being unable to detect red flags and
take corrective actions accordingly. Hence, innovation was not initiated
resulting in no new product introduced to maintain their market shares.

The Turnaround Phase (Year 4 – Year 7)

In reviving Care’s position, the parent company brought in new

management in Year 4 to lead Care. The management team began to rely

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heavily on MA to make decisions. The role of MA information at this stage

was to (1) understand current performance and take proper corrective action
(2) motivate the employees to increase their efficiency (3) evaluate and
fairly measure performance (4) assess the company’s strategic positioning
(Table 2). For example, the CVP Analysis was used to determine (1) type
of fertiliser to produce; (2) which customer to prioritise upon facing any
constraint; (3) pricing policy. Accordingly, two strategies were devised, cost
reduction and revenue generation, as the turnaround strategy.

Table 2: Management Accounting Techniques Applied

during Turnaround Period (Year 4 – Year 7)
No Technique Purpose Benefits
1. Financial • To ascertain the financial • Provide a “snap” shot of the
Statement health of the company on a performance of the company
and Ratio regular basis. at a particular period vis-à-vis
Analysis • To keep the Board of Directors the same period last year and
informed on the performance targets.
of the company.
2. Cost Control • This technique is applied in • This technique is one of the
and Cost conjunction with Budgeting most successful management
Management and Budgetary control to accounting practices adopted
maximise the benefits to the by the company as it had
company contributed significantly towards
• To assist the company to the profitability and continued
manage its operational cost existence of the company.
in tandem with the level • For example, the company
of its activities and remain converted certain elements
profitable when confronted of fixed costs to a variable
with various adversities. cost by outsourcing certain
• This technique includes: business operations like packing
 Zero Based Budgeting operation, and the contractors
 Activity Based Costing were paid based on actual
 Converting Cost Centre to output plus a small amount of
Profit Centre retainer fee for unscheduled
 Converting Fixed Costs to downtime.
Variable Costs.
 Multi-skilling
3. Standard • To track the efficiency of • Enable the company to take
Costing raw materials used in the corrective actions to reduce
production process. e ff i c i e n c y b e c a u s e e v e r y
1% inefficiency would cost
the company RM 1.1 million
annually.

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4. Cost-Benefit • To seek approval for capital • Enable line managers to

Analysis and operating expenditure. tabulate their proposal for capital
and operating expenditure
systematically and logically for
management decision-making.
5. Cost Volume • To obtain at the optimum • Enable decision on pricing that
Profit pricing strategy would maximise the profitability
Analysis of the company.
6. Total Quality • To enhance the competitiveness • As a means to solve problems
Management of the company. affecting the company’s
(Quality • To equip all personnel to operation.
Improvement undertake quality improvement
Activities) activities.
7. Productivity • To monitor the performance • Enable tracking of its performance
Analysis of the company between vis-à-vis specific areas which
specific periods, and between were important in achieving the
t he c om pany and ot h e r strategic objectives.
competitors on specific areas
of operation.
8. Relevant • To provide useful information • Contribute to enhancing the
Costing and for pricing decision on company’s bottom line.
Decision- compound fertilisers.
Making
Analysis

The main MA techniques that were practised during this period were:

Zero Based Budgeting (ZBB) with modified Activity Based

Costing (ABC)
The introduction of ZBB and ABC was aimed to help the managers
to eliminate slack and inefficiencies in the company. Before that, the key
personnel have poor cost control because the operational managers were
not aware of the nature of the expenses in the budget. Hence, the budget
prepared was not as meaningful as it was based on managers’ discretions.
Under the new management, the Finance Manager outlined the guidelines
for preparing the budget for individual cost and profit units. Accordingly,
all operational managers must ascertain the cost drivers according to areas
by understanding the nature of expenses incurred in the department. The
practice enabled an optimum and meaningful budget to be drawn up for
the following year. Apart from that, this technique provided an opportunity
for operational managers to identify and address major problems affecting
their business areas.

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Total Quality Management (TQM)

The TQM activities, which started at the beginning of Year 3 was in
tandem with the changing needs of the company from being a “product
driven” to “customer-driven” company. The program consisted of three
main quality programs, Awareness Workshop, Measurement and Problem
Solving, and forming a Quality Improvement Team. The aim was to promote
the culture of continuous improvement, towards increasing customer
satisfaction. An Awareness Workshop was introduced in Year 3 to train
employees on the importance of quality to the business environment and
the need to improve product and services to satisfy internal and external
customers. The Measurement and Problem-Solving Workshops focused
on selected employees, who were coached on resolving problems affecting
business performance. Following this, Quality Improvement Teams were
formed to address issues that affected the efficiency of operations. Indirectly,
Care empowered employees to come out with new initiatives to improve
operational efficiencies while at the same time striving to achieve the
company’s strategic goals.

Prior to Year 4, the productivity level was identified to be low, thus

resulting in high costs. Following the turnaround strategy, the profit margin
had substantially increased from Year 4 [Year 5 (115.79%), Year 6 (176.31%)
and Year 7 (481.58%)] (Table 1). It indicated that the cost reduction strategies
undertaken by the Managing Director began to materialise. The improved
cost control, particularly through the application of ZBB with Modified
ABC contributed to a higher bottom line recorded for all turnaround years
under review [Year 4 (RM 0.58 million), Year 5 (RM 1.31 million), Year 6
(RM 2.05 million) and Year 7 (RM 5.45 million).

On the other hand, the revenue generation strategy started to

materialize significantly in Year 7 as evidenced by the significant increase
in asset turnover ratio (2.06 times) compared to the previous three years
[Year 4 (1.19 times), Year 5 (1.35 times) and Year 6 (1.36 times)] (Table 1).
Additionally, Care successfully captured a bigger market share in Year 7
[Year 4 (RM 77.18 million), Year 5 (RM 79.71 million), Year 6 (RM 97.58
million) and Year 7 (RM 123.27 million)]. Meanwhile, the ROI from Year
5 to Year 7 (Year 5: 2.21%, Year 6: 2.86% and Year 7: 9.11%) showed an
upward trend, suggesting that the efficiency level of the assets for each year
had increased. Thus, the cost reduction and revenue generation strategy were
deemed successful in turning around Care’s performance.
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The Post Turnaround Phase

In Year 13, the slumped in the Crude Palm Oil (CPO) price below the
production price, forced Care to re-examine its corporate strategies while
utilising MA. The decline in product demand and an increase in fixed
costs resulted in the application of an improved and more sophisticated
MA techniques such as Target Costing and Just in Time. Care continued
to apply several sophisticated MA techniques to manage its daily business
operations as listed in Table 3.

Table 3: Additional Management Accounting Techniques

Applied After Turnaround Period (Year 8 – Year 16)
No. Technique Purpose Benefits
1. Just in Time • To achieve savings by • Synchronised the production
avoiding double handling. schedule with customers’
requirements to avoid double
handling expenses.
2. Target • To e n s u r e o p t i m u m • Launched two affordable
Costing utilisation of plant capacity formulations in Year 13 and Year
to remain profitable 14, namely Fert 100 and Fert 200.
and to retain their loyal • Generated an additional revenue
customers. for the company of RM6.6 million
and RM1.2 million for Year 14 and
Year 15, respectively.
3. Benchmarking • To compare the company’s • Enabled comparison regarding
performance with that of profitability and financial ratios
competitors. about specific aspects of the
operation such as production
costs and product variable cost.
4. Enterprise • To prevent unforeseen • All possible risks which may
Risk incidences as this may affect the operations of the
Management be costly to the company company were addressed and
or even resulting in the documented together with the
closure of the business. relevant preventive or mitigating
measures to treat the said risks.
5 Balanced • To monitor the performance • The company’s performance
Scorecard of the company and its was not measured only through
personnel in a more performance measures but also
pointed and structured non-financially.
manner.

Zero Based Budgeting (ZBB) with Modified Activity Based

Costing (ABC)
This technique was further improved with the introduction of the
Integrated Budgeting and Budgetary Control System in Year 15. The new
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online budgeting process assisted the managers to control their fixed and
variable costs more effectively. Moreover, the system enabled the managers
to optimise the use of resources to increase the efficiency of their business
processes.

Target Costing
Given the impaired customer’s purchasing power due to the volatile
CPO prices in Year 13, Care decided to adopt target costing. By focusing
on two important criteria (1) customer’s affordability and (2) nutrients
requirements, Care introduced two new formulations namely, Fert A and
Fert B (pseudonyms) which were launched in Year 13 and Year 14. The new
MA technique enabled Care to achieve optimum utilisation of plant capacity
while maintaining their profit and retaining loyal customers.

Just-In- Time
The Just-In-Time technique was used to synchronise the production
and delivery schedules to enable the loading of the fertiliser from the
production line to the waiting lorries directly, thus avoiding double
handling. The practice had resulted in cost savings in handling costs of
approximately RM0.02 million and RM0.06 million for year Year 14 and
Year 15 respectively.

It was obvious that more sophisticated MA techniques were introduced

during the post turnaround period (Table 4). The most preferred technique
was Target Costing, Just in Time, Benchmarking and the Balanced Scorecard
as a tool to improve Care’s business performance.

Table 4: List of All Management Accounting Techniques

during and After the Turnaround Period (Year 4 – Year 16)
During Post
No. Techniques
Turnaround Turnaround
1. Financial Statement and Ratio Analysis • •
2. Standard Costing • •
3. Cost-Benefit Analysis • •
4. Cost Control and Cost Management • •
5. Cost Volume Profit Analysis • •
6. Productivity Analysis • •
7. Relevant Costing and Decision-Making Analysis • •
8. Economic Value Added (EVA) •

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9. Just in Time •
10. Target Costing •
11. Benchmarking •
12. Enterprise Risk Management •
13. Balanced Scorecard •

The subsequent nine years after the turnaround phase marked a

significant improvement in ROI and ROE. Although, the trend fluctuated,
by the end of Year 16, the ROI and ROE recorded were 9.89% and
25.11% respectively (Table 1). Hence, the application of both traditional
and emergent MA practices were claimed to contributed to the improved
financial health in the post turnaround period.

DISCUSSION AND CONCLUSION

The role of MA is to provide financial and non-financial information for

planning, decision-making, controlling and performance evaluation (Drury,
2008). Our findings support the argument by demonstrating how the use
of MA was critical in reviving Care’s weak organisational performance.

The Crisis Period (Year 2 – Year 3)

The role of MA in this phase was quite insignificant. The reason is

Care’s management relied heavily on financial statement figures instead of
understanding cost information. Consequently, non-financial information
indicators such as efficiency and quality were neglected. Moreover, the
emphasis was on the short-term measures, instead of long-term ones. Thus,
there were no proper strategies or action plan taken to ensure the company
remained competitive. At this point, MA information was not utilized for
the strategic process. For example, although basic MA techniques such
as Financial Statement Analysis, Ratio Analysis and Budgeting was used,
they were not utilised to detect red flag signals. Meanwhile, the budgeting
process failed to meet its objectives because the operational managers did
not know how to develop a realistic budget. Consequently, the actual cost
incurred was significantly higher than the budgeted figures which severely
affected the reported net profit figure.

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The Turnaround Phase (Year 4 – Year 7)

Under the new management, there had been a lot of improvement in

the implementation of MA techniques and the use of MA information. First,
the budgeting process was improved by adopting ZBB with modified ABC
to control and manage costs. By emphasising on cost consciousness and
cost reduction, Care’s head of departments became more alert and aware of
the costs incurred. Second, Care began to pay more attention to qualitative
indicators by aiming to inculcate a quality culture among its employees.
The program focused on producing quality products to customers. The MA
practice at this period focusseds on the reduction of waste in resources used
in the business process and the creation of value to its employees, customers
and shareholders. Meanwhile, the MA techniques used such as Financial
Statement Analysis and Ratio Analysis, Standard Costing and Cost Volume
Profit Analysis continued to be used with a more strategic focus.

Proper execution of MA techniques resulted in an improvement in

Care’s bottom line, subsequently delivering higher returns to shareholders.
The MA practices had enabled Care to recoup from a financially distressed
position and regained its market position in the industry. Care’s marketing
strategies and quality efforts began to materialise as the sales figures
continued to soar each year, signalling an increase in product demand.
Meanwhile, the employees began to record a higher productivity level,
reducing both labour and administrative costs. By Year 7, the company
had successfully recorded a ROI of 9.11%, which was higher than the ROI
posted in Year 1, i.e. 7.01% (Table 1).

More importantly, the role of MA extended by providing a link between

management and employees, between the company and customers and finally
between the management and shareholders. In turning around the declining
performance, the management focused on improving the productivity of
the plant and the workers. For such purposes, the management depended
heavily upon the information generated from the MA system to provide
both financial and non-financial reports such as financial statement analysis,
production report, plant efficiency report and profitability report to measure
and evaluate past performance. Accordingly, a more informed decision was
made. For example, the efficiency of the plant was critically examined, and
the sub-optimally operating machines were either refurbished or replaced by

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new ones. Additional machines were also purchased to increase productivity.

For such a purpose, relying on the Productivity Analysis and Cost and
Benefit Analysis helped in determining whether the existing resources
were used optimally. What was more important is, this occurred when the
economic environment began to deteriorate where the economic financial
crisis happened in Year 9.

Another profound aspect is the use of advanced manufacturing

technologies. These had successfully changed the production process to
meet Care’s objectives. The shift from being labour-dependent to machines
had affected the cost structure. During this period, the overhead formed the
largest component of Care’s costs. Realising this, Care deployed a modified
version of ABC, which was used together with ZBB. All operational
managers had to understand the nature of the costs incurred in their
departments. Thus, using MA information to arrive at the optimal budget
had effectively supported the planned level activities. The MA techniques
allowed the current activities to be consistently controlled and monitored.

To increase market share, Care introduced TQM programs aimed

at improving product quality to meet customers’ expectations. Employee
involvement in this program had resulted in the improvement of internal
communication between the management and employees. In particular,
the employee’s input or suggestions were taken into consideration by the
management. In tandem with the quality efforts, Care managed to change its
marketing strategy to accommodate its customer-oriented approach. Here,
MA information played a significant role in providing the information on
cost, volume and profitability of each product lines to meet customer needs
while ensuring that both price and volume can cover the costs incurred.

The Post Turnaround Phase (Year 8 – Year 16)

The post turnaround period denoted the fast transition process whereby
Care became more committed to applying more MA techniques. Thiswas
evidenced by the introduction of more sophisticated MA techniques such as
Target Costing, Just in Time, Benchmarking and the Balanced Scorecard.
The adoption of advanced MA practices signified Care’s continuous effort to
maximising its operational efficiencies while meeting customer expectation.

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The use of multiple MA techniques such as ZBB with a modified ABC,

Cost Volume Profit Analysis, Ratio Analysis, Profitability Analysis, Target
Costing, Just in Time and Total Quality Management was to complement the
shortcomings of each technique. For instance, ZBB with a modified ABC
was used as the cost control mechanism while Ratio Analysis was applied to
measure financial performance like sales, gross profit and net profit. Thus,
the usage of various MA techniques had become a comprehensive tool for
Care to sustain its position in the industry.

The limitation of this study is a generalization to other settings may be

difficult as the sample size is limited to one particular company. However,
we argue that the findings can be internalised by other practitioners
seeking to recover their weak financial performance and be able to respond
appropriately and promptly to unfavourable circumstances. Meanwhile,
future studies may consider extending this type of research to other
companies in different industries to examine whether there are similarities
in the application of MA techniques. More importantly, while this paper
offers the lessons that can be drawn from the body of work on organisational
recovery in the private sector, future studies may explore how public service
turnaround should be analysed and achieved. By using the same research
method, i.e. a case study approach; further observations can be made with
regard to the relationship between turnaround strategies and MA practices.

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