Mar. 2010, Volume 9, No.3 (Serial No.

81)

China-USA Business Review, ISSN 1537-1514, USA

Target costing as a strategic cost management tool for success of balanced scorecard system
Rifat Yilmaz1, Gkhan Baral 2
(1. Faculty of Economics and Administration, Bilecik University, Bilecik 11100, Turkey; 2. Osmaneli Vocational School, Bilecik University, Osmaneli-Bilecik 11100, Turkey)

Abstract: The precondition of gaining and sustaining competitive advantage for companies that operate todays competitive markets is the effective cost management. Since price is determined by the market, the ways of increasing profits are productivity and cost reduction. Balanced scorecard system is accepted by academicians and practitioners as an effective strategic management tool for applying the strategy successfully. In the financial perspective of the balanced scorecard system, cost reduction is a strategic objective. It is necessary that companys cost reduction strategy should not only be a reaction to the market, but also a continual strategy. The approach which aims to the reduction of costs that reveal along product life cycle and preset this aim at the design stage is target costing (TC). TC can be used as an effective tool in BSCs financial perspective for the objective of cost reduction. In this study, the authors aim to display how to integrate the TC to BSC. Key words: balanced scorecard; target costing; strategic cost management

1. Introduction
Recent conditions have brought the necessity for the business enterprises to have meaningful information about cost and performance of their products, service and customers. The methods, such as balanced scorecard and target costing have been developed as a response to the new global competitive environment. Innovation is essential for a successful organization and the management of innovation is central to this success. The importance to managers of having a balanced measurement system has led companies to develop a variety of corporate scorecards which suggest a process approach to innovations in performance measurements. The BSC has gained prominence in accounting research as a way of integrating financial and non-financial performance measures into an overall control system (Maiga & Jacobs, 2003, p.283). However, target costing is a strategic planning and cost management system focusing on reducing the cost of developing, producing and distributing new products, without sacrificing the quality of the finished goods. Target costing is a cross-functional system. In some aspects, it has similarities with balanced scorecard. Both methods initially take the ideas of the customers and the demands of the shareholders. They both use these demands to shape the internal organisation and make it

This paper was presented and published before at the International Conference on Social Sciences in Izmir, Turkey 2009. Rifat Yilmaz, Ph.D., assistant professor, Faculty of Economics and Administration, Bilecik University; research field: accounting. Gkhan Baral, lecturer, Osmaneli Vocational School, Bilecik University; research field: accounting. 39

Target costing as a strategic cost management tool for success of balanced scorecard system

into an output in terms of cost and profit. The aim of both methods is to present the products to the customer at a appropriate price and as qualified products. In this study, it will be discussed whether these two methods, whose aims do not conflict with each other, can be used in integration; In other words, it will be discussed whether target costing can be used effectively in the balance scorecard system.

2. Balanced scorecard system

Balanced scorecard makes the strategy of a business enterprise into measures of aim and performance. It places the organisations vision and strategy into the center of the managerial system in order to determine the objectives. It includes financial and non-financial measures and indicators, represents a balance between internal and external measures, and puts personal enterprise strategies into an order. It emphasizes the importance of guiding measures for the future performances (Chow, et al., 1997, p.21-27).
Financial perspective Objectives Measures

How do the customers consider us?

How to consider the shareholders

Customer perspective Objectives Measures

Internal process prespective Objectives Measures

Can we make up values improving? Learning and growth Objective Measures

What can we do to be perfect?

Fig. 1 Four perspectives of the balanced scorecard system Data source: Kaplan & Norton (1992, January-February). The balanced scorecard-measures that drive performance. Harward Business Review, 72.

Kaplan and Norton have compared the business enterprises to a jet aircraft in that an aircraft can not fly at a

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Target costing as a strategic cost management tool for success of balanced scorecard system

straight course if several direction indicators are looked at the same time. Thus, they have developed some indicators. They have reduced the performance criteria of twelve different business enterprises, which they have examined, to four perspectives searching for an answer to four critical questions shown in Fig.1. Fig. 1 shows how the four perspectives of the balanced scorecard were formed in the axis of four critical questions. The indicators chosen for balanced scorecard represent an instrument that can be used in order to transmit the performance drivers and their printouts which will help to achieve mission and strategical objectives of the business to the shareholders and the staff (Niven, 2002, p.12). Although it has been developed as a performance measurement system initially, in time it has turned into strategic management tool due to the business tendencies to use it as a tool to manage their strategies. Today, various factors make it hard to use any strategies. Practice is more important than making up a good vision and strategy (Lawson & Caldwell, 2000, pp.12-30). Balanced Scorecard obtains a new framework to a business enterprise in order to turn their vision and strategies into practice. In other words, balanced scorecard is a management system that obtains a framework to a business enterprise which helps them to turn their strategies into operational objectives which manipulate both their performances and actions (Lewis, 2001, p.1). The real power of balanced scorecard occurs when it is transformed into a management system from a measurement system. The measures in balanced scorecard are not a resolution list for a continual improvement and they need a plan to achieve a strategy (Epstein & Birchard, 1999, p.5). The researches have shown that only 10 percent of the business enterprises managed to implement the strategies while 85 percent could spend only an hour a month to share the strategy (Kaplan & Norton, 2001a, p.13).
Translation of the vision into balanced scorecard -Explanation of the vision -Achievement of a consensus

Communication and connection -Communication and education -Establishing the objectives -Rewarding the performance measures

Balanced scorecard

Feedback and learning -To make the vision understandable. -To achieve a strategic feedback -To make strategic learning and researches easy

Business planning

-To place the targets -To order the strategic attempts -Resource allocation -To make up the milestones Fig. 2 Balanced scorecard as a strategical management tool

Data source: Kaplan & Norton (1996b, January- February). Using the balanced scorecard a strategic management system. Harward Business Review, 80. 41

Target costing as a strategic cost management tool for success of balanced scorecard system

The most important handicaps of the businesses to implement strategies are the following ones: The vision of the business cannot always be understood by the staff, the concepts of target, reward; The use of sources cannot be associated with strategies; The businesses can not explain the staff the necessary methods to reach the level that they want to be in the future and they can not accomplish the cultural change. In order to connect short-term activities with long-term objectives, balanced scorecard focuses on the four perspectives that are shown in Fig. 2: transformation of the vision, communication and connection, business planning and feedback and learning. Its a hard and time-consuming work to enable the whole business to grow in the same direction sharing a common vision. To adapt the vision into balanced scorecard helps the management to create a common thought around the organisations vision and strategy. The best intentions are expressed as first class, the main supplier, the organisation who has delegation of authority among the top management. However, these terms cannot be easily translated into operational terms which would guide the operations in the local level. In order to make people act according to the framework of strategy and vision, these expressions should be translated into an integrated set of aims and measures which describe the long-term drivers of the consensus of opinion and success of the top executives (Kaplan & Norton, 1996a, p.3).
Financial
Objectives Measures Targets Initiatives

How should we appear to our shareholders in order to achieve a financial success?

Customer
How should we Objectives Measures Targets Initiatives appear to our customers so that we could achieve our vision? Vision and strategy

Internal processes
In what business Objectives Measures Targets Initiatives processes should we be perfect in order to please our customers?

Learning and growth How will we Objectives Measures Targets Initiatives sustain ability to change and improvement in order to achieve our vision? Fig. 3 Translating vision and strategy into the four perspectives of balanced scorecard system Data source: Kaplan & Norton (1996b, January-February). Using the balanced scorecard a strategic management system. Harward Business Review, 4. 42

Target costing as a strategic cost management tool for success of balanced scorecard system

A strategy, after being turned into aims, the executives and the staff should know whether this aim was achieved. In other words, each aim should be connected to a measure (Steele, 2001, pp.22-23). Communication and connection, business planning, feedback and learning make up the other stages of the administrational period. The first stage of balanced scorecard as a strategical management tool is to translation of vision and strategy into balanced scorecard (translation of vision and strategy). This stage is shown in Fig. 3. Kaplan and Norton have developed an instrument that they called the map of strategy to be helpful in the explanation of strategy of balanced scorecard. They have written an article called Having trouble with your strategy? Then map it, and a book called Strategy maps: Converting intangible assets into tangible outcomes. Strategy map was formed as a strong communicational tool which enabled the whole staff to understand the strategy and translate it into activity and thus, to get the contribution of the ones who struggle for the achievement of the strategy. A strategy map provides a meeting structure where businesses can judge the points of success and failure. The reasonable connections in the strategy map help the management test the effectiveness of their strategies (Lagace, 2004, p.1). A strategy map shows the vital elements of a business strategy and the connection between these elements in detail (Kaplan & Norton, 2001b, p.90). Fig. 4 shows the general form of the strategy map. It would be useful to explain the perspective of the customer. The essence of any business strategy is the customervalue proposal. Customer value proposal describes the image of a business, the unique blend of products, the prices, services and the relationships. It determines how a business would make itself different from the others. Value proposal is very important, because it helps an organisation to improve their communications with the customers and relate them with their internal processes (Kaplan & Norton, 2000, p.170). The business enterprises make their value proposals different from the others by choosing from operational perfection, customer loyalty and production leadership. After determining the value proposal, a business enterprise knows who the target customer is (Kaplan & Norton, 2001b, p.93). The formation of the strategy map starts with the financial target. Customer value proposal that will enable to reach this target is set in the customer perspective. How to achieve a value proposal for the customer is discussed in the internal perspective. However, in the growing perspective, the investment on the staff and the system is set.

3. Target costing approach in the success of balanced scorecard system

Business enterprises use two fundamental strategies in order to get a competitive advantage: product differentiation and cost leadership. Product differentiation refers to offering products and services that are perceived by customers as being superior and unique relative to those of its competitors. Cost leadership is achieving low costs relative to competitors. Reducing prices of products is critical for any industry to grow. Balanced scorecard deals with cost leadership in the financial perspective. The financial perspective of balanced scorecard focuses on the increase in operational income, the return rate of the capital supplied by reducing the costs and selling more products. This perspective evaluates the profitability of the strategy. Some measures in the

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Target costing as a strategic cost management tool for success of balanced scorecard system

financial perspective are: operation income; income growth; cost reduction in some areas; return rate of investments (return on investmentROI). A business enterprise can manage to reduce costs by focusing on these areas: productivity and efficiency improvements; elimination of waste; tight cost control.
To improve the shareholder value Financial perspective *Share prices The return on investment The strategies of productivity Improving the cost structure Improving the use of assets *The use of assets

The strategies to raise income Franchising Increasing the value to the customer *Customer Profitability

*Income from new sources Customer Perspective

*Operation cost per production unit Product leadership

Customer friendship

Operational perfection * Gaining, keeping and pleasing the customers

Internal process pers. Franchising through innovation Learning and growth pers. Increasing customer value through Customer Management process Achieving operational perfection through operations and Being a good member of business enterprise through regulatory and outer process

Skills of the staff Fig. 4

Technology The map of strategy

Business culture

Data source: Kaplan & Norton, Having trouble with your strategy? Then map it. Harward Business Review, Boston, September-October 2000. 44

Target costing as a strategic cost management tool for success of balanced scorecard system

Target costing approach aims to reduce the cost of a product in the stage of designing before the complete costs appear. A profit-focused strategy of cost reduction should be a systematic approach that aims to cover all the activities of a business enterprise including supplier and customer relations, and reduce the cost of these relations in connection with this strategy. Balanced scorecard has a perspective of cost reduction and target costing deals with costs at the early stage of designing. Therefore, target costing can be used as an important instrument in terms of Balanced Scorecard. In the following part, target costing approach is discussed in details.
Operational perfection Product / Service quality Price Quality Time Choice Relationships Image

The business enterprises which are perfect in competitive pricing, product quality and punctual distribution Customer friendship Product / Service quality Relationships Service Customer relations mage Trusted trademark

The business enterprises which are perfect in offering the customers personalized products and achieving long-term relations with them Product leadership Product / Service quality Time Functionality Relations Image The best class

The business enterprises which are perfect in creating a unique product General needs = Success scales =* Alternators =

Fig. 4

The map of strategy

Data source: Kaplan & Norton, Having trouble with your strategy? Then map it. Harward Business Review, Boston, September-October 2000.

Target costing method, firstly used in Toyota in 1965, has played an important role in the success of Japanese

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Target costing as a strategic cost management tool for success of balanced scorecard system

business enterprises both in national and the international areas. It is a much more competitive approach that changes rapidly and never forgives any mistakes and delays. It is customer-market focused, and it reconciles with the conditions of creating new values. It enables to handle concurrently the quality, costs, functionality and the time of design-production-delivery. In Japan, in the area of transportation equipments, it is used at a rate of 100 %, in the area of electrics and electronics 88 %, in the area of machine production 83 % and in the area of metal stuff it is used at a rate of 67 %. It is possible to say that target costing practices provide more than a 17.1 % reduction in costs per year in Japanese business enterprises (zer, 2003). Target costing has a product developing strategy that focuses on the design team, concurrently on the customers and on the real alternatives in the market. The logic of target costing is simple. The business enterprise maps the customer segment considering the future market and chooses the most attractive one as the target. Then, on the pre-determined target price axis, it decides which level of quality and price would be effective in each customer segment. Later, it plans the sources, production and delivery period that would help the profit to be achieved. Target costing depends on the principle that success on a customer brings the economic success of the business (Cooper & Chew, 1996). On a research done on the seven big Japanese companies (Isuzu Motors Ltd., Komatsu Limited, Nissan Motor Corp., Olympus Optical Company Ltd., Toyota Motor Corp., Sony Corp. & Tapcon Corp.) that have applied target costing method in their strategic management concepts since 1960s, the applications of target costing in these companies are found out to be different from each other, but they can be examined under three common stages (Cooper & Slugmulder, 1999 ): (1) determining the target cost setting out from market prices and the profit policy of the business; (2) assessment of target costing in terms of product (production department); (3) assessment of target costing in terms of item (suppliers). 3.1 The basic principles of target costing approach and target costing process Target costing is an approximate of price that potential customers would like to pay for a product or service. In other words, the business enterprises take the market prices as the data, calculate the probable costs that would bring them the desired profit in terms of their products or services. Target costing can be considered as a systematic process for cost management and profit planning. Target costing depends on six basic principles (Swenson, et al., 2003, p.12): (1) Price-led costing: Market price is used to determine the feasible (target) cost. Target cost is calculated by this formula: Market price Desired profit = Target costing; (2) Focusing on the customer: In terms of quality, cost and time, customer needs are concurrently combined with product and process decisions and cost analysis. The value of a feature or a function that is added in a product should be higher than the costs; (3) Focusing on the design: Controlling of the costs, production and process are emphasized at the stage of designing. So, the changes about the engineering that would shorten the process of presentation to the market and

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Target costing as a strategic cost management tool for success of balanced scorecard system

therefore would cost less for a new product should be made before the production starts; (4) Demand on cross-functionality: The teams of cross-functional products and processes are responsible for the whole products from the beginning to the end; (5) Demand on value chain: All the members of value chain, suppliers, distributors, service suppliers and customers take place in the process of target costing; (6) The orientation of product life cycle: The total product life cycle cost is reduced for both the customers and the producers. The product life cycle costs include purchase costs, maintaining operation costs and the costs of delivery.
Target costing process Sale price (Obtained from the market data) To make up the difference between target costing and current cost level 1-A continual strategy 2-Correct assessment of costs 3-Value engineering 4-Kaizen costing 5-Considering the product life cycle

Desired profit level

Sale priceDesired profit = Target costing

Gap

Current cost level of the business

Fig. 5

Target costing process

Target costing process, as shown in Fig. 5, starts with the managements determining of a target cost for a new product. Generally, there is a difference between the cost projection and the target cost of the new product due to the current capability of design and production. Making up the difference by reducing costs is the basis of target costing system. This can be achieved by cross-functional target costing team. This team analyses the product design, raw product needs and production period for the alternatives of cost savings. The businesses have two alternatives to reach the target cost level, to put new production technologies into service and to re-design a product or service. Target costing process has the stages below: (1) to determine the market price; (2) to determine the desired profit level; (3) to calculate the target cost by subtracting profit level from the market price;

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Target costing as a strategic cost management tool for success of balanced scorecard system

(4) to make up the difference between current business competence and accessed cost according to the aims and targets, via engineering practices and using accurate information about costs. This should be done by target costing in the pre-production, production and post-production periods. The most important stage of this four-level process is the stage of reaching the target costing from the cost level accessed by current business competence. This is the basis of target costing. 3.2 Closing the gap between target cost and the cost accessed by current business competence The most important problem in the fulfillment of the target costing that is estimated to achieve competitive advantage and is determined according to the market conditions is the problem of closing the difference between target costing and the costs accessed by current business competence (Cooper & Chew, 1996; Soissi & Ito, 2004). To simplify, how will unit production cost be reduced to target cost? Basically, there are two ways to achieve this: productivity and reduction of cost. General productivity is an indicator which shows how close the technological knowledge and experience is, which is needed to compete with the leading business enterprises in the market. Another basic component is reducing the costs. Cost reduction is an element that should be achieved by increasing the quality without compromising it (Elmac & Kurnaz, 2004). To close the difference between target costing and the costs accessed by current business competence, these points should be focused on: Cost reduction should be a continual business strategy; Cost factors inside the business should be stated and passed on the customer precisely; Cost reduction oriented engineering (internal process dimension); Efforts to reduce costs before and after production (supplier and customer dimension). (1) Cost reduction as a continual business strategy The factors such as increasing competition, decreasing inflation and conscious customer are factors of pressure on the profitability of the business. Changing market conditions forces the business enterprises to reduce the costs. Depending on this, many of them take cost reduction as a reaction against the pressure of competition. The number of enterprises which deal with cost reduction as a continual business strategy or an expansion strategy is quite limited (Ylmaz, 2008). Cost reduction as a continual business strategy is an application which enables the improvement of the institutional performance with direct and sustainable cost development. The important factor here is that it is essential that the efforts to reduce costs should be established as a business culture. In this way, permanence of these efforts could be achieved. The aim of reducing the costs is essential for the long-term achievement of strategies of a company. (2) Determining the cost elements truly inside the business and reflecting them to the customers and products correctly Determining whether target cost is achieved depends on the correct measurement of unit production costs. For the last 30 years, production has changed into technological based from labour based, so this caused indirect production costs have a higher proportion in the production. Today, the 60 % of the production cost is overhead

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Target costing as a strategic cost management tool for success of balanced scorecard system

cost (Pieper, 1999, p.3). Traditional cost accounting systems are inefficient in calculating the proportion of the unit product out of the indirect costs. As a solution to this problem, the method of activity based on costing is developed. Activity based costing approach is a system which depends on the principle that all the costs in the business enterprise should be divided into cost objects paralel to the formation of the costs. After the year 2000 in order to make it easy to use this approach it is developed further under the title of Time driven activity based costing with the help of the information provided from the practice data. As a result, reaching the target cost should be by means of true cost information. For this purpose, activity based costing approach should be used in order to determine the costs precisely in the target costing system. (3) Cost reduction oriented engineering (internal process dimension) The difference between the target cost and the cost accessed by current business competency should be made up by using engineering especially by value engineering without compromising from quality and functionality. Value engineering (generally used as value analysis or value management) is described as an effective problem-solving-tool that reduces the costs in the need of quality, performance improvement and continuity by American Value Engineering Organization and Professional Value Engineers Club. Value engineering has been used as a successful method to improve the value of products and processes for more than 50 years.

4. Integration of target costing to the balanced scorecard system

Balanced scorecard, in the present environment when success is not possible to evaluate just by financial data, also includes customers, internal processes and employed dimension to the management approach. It stresses that the non-financial factors should be paid attention in the financial success. Three objectives in relation with other objectives are achieved in the financial perspective of balanced scorecard that is income increment, cost reduction and asset utilization. Balanced scorecard, by focusing the management profit on these 3 components, aims to increase it. However, recovery in these 3 components will be able to be procured through the improvement in the other 3 perspectives. Balanced scorecard and target costing resemble to each other in some aspects. Both methods pay attention to customer suggestion and copartner demand. Both methods use these demands in shaping internal organization, and in aspect of profit and cost, they transform them into the output. In both methods, the aim is to serve fine and cheap commodity to the customers (Chapman, et al., 2007, p.523). The most important advantage of target costing is that it, tackles the cost reduction in the design phase in the very beginning. As of this quality, it fits for the purposes in the internal process perspective of balanced scorecard. Purposes in the balanced scorecard internal process perspective are mostly shaped as to the customer expectation. The aim is to serve fine commodities continuously to the customers with appropriate prices. The relation between objectives in 4 perspectives of balanced scorecard and 6 main principles of target costing are as below (Swenson, et al., 2003, p.12; Soissi & Ito, 2004).

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Target costing as a strategic cost management tool for success of balanced scorecard system

(1) Price-led costing: Market price is used to assign the possible (target) cost. Target cost can be assigned in accordance with the financial perspective in balanced scorecard system. As a financial purpose, measures related to the cost reduction, regarding target costing, can be designated to enable in the target costing of production without any sacrifice in quality, creditability and functionality demanded by the customer. For this perspective, in conjunction with target costing, percentage of approaching target costing can be assigned as a measure. (2) Focus on the customer: Designing the production and fixing the price, it is to be acted customer-oriented. What is needed to be emphasized is that price of any quality and functionality built in the production (offered to the customer) is to be more than the cost providing this quality and functionality. In the customer perspective of balanced scorecard, such purposes as increase in customer satisfaction and acquisition of fidelity of client come in on. The borderline in achieving these purposes will be the target costing which is estimated to provide the competition advantage. For the customer perspective, as a measure, percentage of the customer satisfaction relating the target costing can be developed. (3) Focus on design: Cost control, production and process are emphasized in the production process. Consequently, changes related to engineering which enable less costing for a new production and reduce the time for serving to the market should be brought out before production begins. This quality is the most important superiority of target costing approach. A target, which concerns production overheads during the design process, in the targets related to the production process in the internal process perspective of balanced scorecard will enable production, during the design process, to be produced with less cost and higher quality and functionality. These measures in this perspective of balanced scorecard are designed to make an evaluation of the performance in the value engineering with the other components. (4) Requirement of cross functionality: Cross functional output and process teams are constituted by integration of individuals specialized in different areas as to the same purpose. These teams are responsible for all the outputs from the initial step to the last processing step. This principle of target costing system enables to create synergy in the areas of expansion and extension. This principle can be dealt together with learning and growth perspective of balanced scorecard. Regular instruction of the personnel, measuring and evaluating of developments are dealt in the learning and growth perspecive of balanced scorecard. (5) Requirement of value chain: We define the value chain as the set of activities and resources necessary to create and deliver the product or service valued by customers. Its basic components include research and development, production and supplier relations, marketing and distribution, and customer service activities. All these elements of the value chain that we talked about take place in the process of target costing and they determine the activities that will face the customer needs and set up the costs. The cross-functional, cross-organizational value chain approach allows for simultaneous, rather than sequential, consideration of possible solutions, speeding up new product development time. However, in terms of balanced scorecard, each company has their own methods to gain customers and get financial values. But in general, the value chain model in balanced scorecard has a three-step pattern that every company can adapt considering their own features

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Target costing as a strategic cost management tool for success of balanced scorecard system

(Kaplan & Nortpn, 1996a, p.96). Renewal phase (Innovation): In the renewal phase, a business management assigns the delayed or new wants of target customers or market sector and manufactures production and service in parallel with them. Renewal phase is a long-term creation process which involving meeting the present or potential demands and, by following that process, covering the need of new markets and customers. In the renewal phase, directors should make market surveys in order to assign the size of market about the production or service they will serve to the customers, customer demands and possible price level. Operational phase: Operational phase is the second phase of the dimension of internal process perspectives in which present production and service are produced and delivered to the customer. This phase does not constitute a term as long as the renewal phase. Business phase is a value creation process which begins with the order of the customers and ends with the delivery of the required commodity and service to the customer. Service phase after sales: Service phase after sales, which is last phase of the internal process perspective, includes the services given to the customers after the presentation of existing service or production. Such services are exemplified as repairing services, warranty coverage, training programs about the service and production given, expediting and tracking of payments. (6) Product life cycle orientation: Product life cycle cost analysis is the analysis of costs that are directly associated with the product all through its life cycle. Organizational strategy literature divides the product life cycle stages into four categories; introduction to the market, growth, maturity and reduction (James & Houqe, 2000, p.3). In the introductory stage, sales are low because of the high product price; In the stage of growth, sales begin to increase rapidly due to the customer consciousness and promotion of products; In the maturity stage, increase in the sales stop, since there are no new customers, prices are low and the sales are at the peak level; In the stage of reduction, the sales are low, and the product needs to be changed step by step with the new version. The balanced scorecard examines performance in the key broad performance areas of financial, customer, internal business process, and innovation and learning. It allows a balanced perspective over a products life while highlighting critical category emphasis in specific product life cycle stages. Organisations are inclined to use traditional financial control tools (such as budgeting) less at the beginning of product life cycle. This logic could be enlarged with the use of BSC by developing a potential relationship between the phases of product life cycle. Especially, in the introductory stage, in order to decide whether true decisions were made, instead of the measures in the financial perspective of BSC, non-financial indicators (such as new product development, customer reply measures) can be used. According to the alternative growing strategies, the process of new product development is highly risky and costly. The success of the new product may be planned and measured against its performance at different stages of products life cycle if a company uses this method of control over the progress of its products. With regard to product launch, the most important ones are introductory, growth and maturity stages. However, the company may choose some other indicators. Target costing approach is described as a method that aims to reach the cost leadership by reducing life-cycle costs (Kato, 1993). It is also effective in developing new products

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Target costing as a strategic cost management tool for success of balanced scorecard system

(Nicolini, et al., 2000, p.303). In terms of target costing, the aim is to reduce the total product life cycle costs for the use of both the customer and the producer. Product life cycle costs include purchase costs, maintaining the operational costs and the costs of delivery. Target costing aims to reduce product life cycle costs at the very early stage of design, whereas balanced scorecard uses performance measures suitable for the stages of product life cycle.

5. Conclusion
Strategy describes how an organisation matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives. One of the key factors in the business enterprises achieving their customer focused strategies is strategic management accounting. This requires making a life-time analysis for the goods and services offered to the customer, applying target costing method for these goods and services, setting up systems that can calculate customer costs accurately and punctually, and by using all the data analysing customer profitability and focusing on getting the advantage of competition. In a research made in India (Anand, et al., 2005 p.11), most of the business enterprises expressed that balanced scorecard application has led to identify the alternatives of decreasing the costs. Such an aim in financial perspective encourages the enterprises to develop cost decreasing applications. Target costing approach and balanced scorecard aim to offer the appropriate quality products that would satisfy the customer expectations. Cost decreasing aim in BSCs financial perspective overlaps the one in target costing and the essential principles of target costing supports the BSC. BSC is a general approach that handles the business achievements in four perspectives and the financial achievements as an output of the success in the other three perspectives. One of the factors in financial success is the decrease of costs, and this also occurs as an aim in financial perspective. Target costing, which deals with cost decreasing in terms of products, can be used as an effective tool in BSC cost decreasing, and this will also ensure the business enterprises a competitive advantage.

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(Edited by Ruby and Chris)

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