Target Costing in the Automotive Industry: A Case Study of Dynamic Capabilities

19 Pages Posted: 28 May 2009

See all articles by Kathy Knight

Kathy Knight

affiliation not provided to SSRN

Paul M. Collier

Monash University - Department of Accounting

Date Written: May 14, 2009


Management accounting provides a range of non-directive techniques that can be adopted, implemented and discarded at the organization’s will. Management accounting is embedded in routines that satisfy the definition of dynamic capabilities because those routines aid organizations to achieve new resource configurations. The application of specific management accounting techniques has not previously been studied in their function as dynamic capabilities. The literature of dynamic capabilities provides a lens through which management accounting techniques can be seen to leverage organizational resources. The paper describes the case study of the introduction of ‘target costing’ for purchased components within the supply chain of a division of a multinational, non-Japanese automotive assembler faced with considerable cost pressures.

The paper makes three specific contributions to the literature. First, the dynamic capabilities literature is applied within management accounting to show how the adoption of particular techniques in particular organizational settings can provide decision useful information for the improvement of substantive capabilities and improvements in the resource base. Second, a revised model of dynamic capabilities is presented which takes into account the hierarchical and inter-related nature of resources and capabilities. The managerial role is emphasised through the role of managers in accessing external knowledge resources, transferring that new knowledge into new or modified organizational routines and using that knowledge to develop substantive capabilities, thereby leveraging the use of internal organizational resources. Dynamic capabilities must be learned and embedded within organizational routines. These routines include management accounting routines. Third, the literature of capability lifecycles has been expanded to reflect some additional causes of failure of dynamic managerial capabilities. Path dependency, structural inertia, and psychological commitment have previously been identified as impediments to adopting new dynamic capabilities. To this list the present case study adds external pressures, and organizational politics. A failure to understand epistemic issues and differences in cultural, organizational and strategic issues may also have contributed to the failed implementation.

Keywords: Dynamic capabilities, dynamic managerial capabilities, lifecycles, resource based view

JEL Classification: M41, M46

Suggested Citation

Knight, Kathy and Collier, Paul M., Target Costing in the Automotive Industry: A Case Study of Dynamic Capabilities (May 14, 2009). Available at SSRN: or

Kathy Knight

affiliation not provided to SSRN

Paul M. Collier (Contact Author)

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
+61 3 990 52399 (Phone)


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