The impact of applying the target cost and continuous improvement (Kaizen) on achieving the sustainable competitive advantage of Palestinian industrial companies

Abstract

PurposeThis study aims to examine the impact of implementing target costing and continuous improvement techniques in industrial companies operating in southern Palestine on achieving sustainable competitive advantage (SCA). The study mainly assesses the level of application of these techniques by Palestinian industrial companies (PICs). Furthermore, it evaluates the extent to which the integration of these two methods can impact SCA, by producing cost-effective and innovative products that meet customer demands and needs, while simultaneously achieving continuous development of the company and an SCA.Design/methodology/approachA descriptive analytical approach was used to study the target costing and continuous improvement techniques employed by industrial companies in southern Palestine. A questionnaire was administered to 415 companies in the southern West Bank to collect data on the application of target cost and continuous improvement and their impact on SCA, measured through market share, differentiation and cost reduction. Control variables, such as company age, size (measured by the number of employees) and industrial sector classification were also included in the study model.FindingsThe findings of the study revealed that the PICs apply target costing and continuous improvement at a high level. Furthermore, all dimensions of achieving SCA were found to be achieved at a high level, with market share being the most prominent. The study also found that the integration of the target costing and continuous improvement had a positive impact on achieving SCA in the PICs. However, the study found no impact on company size, age or industrial sector on achieving a competitive advantage in terms of market share or other results.Research limitations/implicationsThe current study was limited to the application of strategic management methods to companies within the industrial sector only. This may constitute a limitation because it neglected other sectors. Likely, another limitation was the difficulty of obtaining the quantitative numbers needed for some quantitative variables that pertain to that type of industrial companies, which are mostly family companies that could not be regulated by the local companies' law to disclose their financial statement.Practical implicationsIf industrial companies have ambitions to reduce production costs from the planning and design stage to set the target selling price. It is based on the understanding and awareness of customers' desires while maintaining the quality of products according to the best methods of improvement and innovation; therefore, this can be achieved by using the target costing and the continuous improvement techniques through reviewing the current study and its results.Social implicationsThe current study sought to link two methods, simultaneously and complementary, with each other of the strategic methods of managerial accounting, which helps the companies to offer their best to attract customers, develop the product or service and maintain their continuity in a changing labor market that enables it to achieve sustainable and competitive advantage.Originality/valueThis study is unique in that it explores the impact of the integration of target costing or continuous improvement techniques (Kaizen) on achieving SCA in Palestine industrial companies. While previous studies have examined either target costing or continuous improvement techniques separately, this study enhances the integration of these two methods to achieve SCA.

Revolutionizing Manufacturing Business: Unleashing The Power of Kaizen and Target Costing for Sustainable Success

“…The combination of Kaizen and Target Costing can provide a comprehensive solution for manufacturing companies looking to improve efficiency and competitiveness. This can be supported by a study (Alkababji, 2023) where findings of the study revealed that the integration of Target Costing and continuous improvement had a positive impact on achieving sustainable competitive advantage in Palestinian industrial companies. However, the study found no impact on company size, age, or industrial sector on achieving a competitive advantage in terms of market share or other results.…”

“…A company can avoid larger problems from arising and keep the production process running smoothly by identifying and addressing small issues as they arise. This can be justified by the fact that the more the company's management practices continuous improvement, the more effectively it can address defects, resulting in development and creativity and, eventually, sustainable competitive advantage for the establishment (Alkababji, 2023) Target Costing, on the other hand, is a cost management methodology that sets a target cost for a product based on customer needs and competitive pricing by focusing on the primary cost drivers in the manufacturing process. By implementing Target Costing, manufacturing businesses can design products that meet customer needs while remaining cost-effective, allowing them to compete in a highly competitive market.…”

“…On the other hand, if the target cost is set too low, it may result in a product that does not meet customer expectations or quality standards but if the cost is set too high, the product may not be competitive in the market. To achieve real cost reduction, organizations can employ value engineering technology, which involves the use of so-called functional analysis (Alkababji, 2023).…”

“…Make sure that cost targets are achievable without compromising product quality or customer expectations. It is important to ensure that the target cost reduction is real and achieved through a set of activities that concentrate on breaking and challenging existing standards to reduce overall product costs through all available means (Alkababji, 2023).…”

“…This has led to the globalization of the manufacturing industry, with companies seeking to tap into new markets and access a wider range of resources and expertise. In response to these economic, environmental, and technological changes, various modern strategic management accounting methods have emerged, with the most important being Target Costing and continuous improvement (Kaizen) techniques (Alkababji 2023). It aims to reduce production costs by enabling employees to express their opinions and suggest appropriate recommendations for company development (Carnerud et al, 2018).…”