The Impact of Strategic Cost Management on Financial Performance with Emphasis on Environmental Costs

Abstract

The purpose of this study is to investigate the impact of two important component of strategic cost management (SCM) (executional cost management and structural cost management) on financial performance. For this purpose, one specific context is investigated, namely environmental costs. The environmental costs reflect an ‘executional’ aspect aimed at managing, controlling and optimizing costs for a given environmental strategy, but also a ‘structural’ aspect based on their influence on the firm's cost structure notably in terms of product design, raw materials used and operational process design. Survey data have been collected on a sample of 126 Esfahan’s manufacturing firms. In order to analyze the research hypotheses Pearson correlation matrix and the structural equation model were used. According to the research findings, tracking of environmental costs and implementation of environmental initiatives have significant effects on financial performance. Executional cost management (the tracking of environmental costs) and structural cost management (the implementation of environmental initiatives) are related to each other and they act together to contribute to financial performance. Finally, through improving the current cost structure and providing new initiatives regarding cost structure, the tracking of environmental costs has influence on financial performance.

Keywords

• strategic cost management
• tracking of environmental costs
• implementation of environmental initiatives
• financial performance