1 Introduction
The rapid development of modern high technology has brought about a revolutionary change in the characteristics of business operations, thereby greatly promoting the growth of cost management theory and practice, forming two representative cost management models on a global scale: Activity-based Cost Management (ABCM) and Target Costing (TC). This article intends to provide a brief introduction to the Target Costing model as a reference for enhancing and perfecting cost management in Chinese enterprises.
2 The Historical Context of Target Costing's Emergence
Internally driven target costing is at the core and essence of the Japanese cost management model, first sprouting in the early 1960s, originating from the new car development and model updates of Toyota Motor Corporation in Japan. However, target costing truly became a means to ensure target profits after the first oil crisis in 1973. The oil crisis severely impacted developed nations worldwide, yet Japan expanded its international market share during this period. Their success was mainly attributed to the highly effective cost reduction capabilities of target costing. Target costing addressed the issue of skyrocketing automobile costs that traditional cost management methods could not solve at that time. Subsequently, centered around the automotive industry, target costing rapidly spread across many sectors in Japan and has since evolved into a "comprehensive profit management activity" where targets (target costs) are set according to customer needs during product planning and development, with the aim of achieving these targets simultaneously.
From this, it can be seen that the emergence and development of target costing were carried by large multinational corporations, externally driven by international market competition. To this day, its comprehensive promotion and continuous refinement have been fueled by external market competition, injecting the first driving force into the formation of target costing.
3 The Organizational Governance System Supporting the Operation of the Target Costing Model – Internal Conditions
Target costing, as the essence of the Japanese management accounting system (cost management integrated into management accounting), is not innovative in an international sense because target costing was originally introduced from the United States. However, once target costing combined with Japan’s unique organizational governance system, it formed today's globally recognized, Japanese-characteristic "Target Cost Calculation - Target Costing" cost management model.
Japan’s organizational governance system exhibits the characteristics of a comprehensive strategic governance system, comprising team spirit, visible management, multifunctionalization, Total Quality Management (TQM), and a regular information transmission system. Due to space limitations, these specifics will not be elaborated upon here. Instead, we will examine the organizational governance system of target costing from the following two perspectives.
3.1 The Cultural Foundation of Organizational Governance Operations – Collectivism
A nation's social culture can be glimpsed through the relationship between individuals and groups. In societies with a strong inclination toward collectivism, individuals are highly dependent on the group, giving the social structure cohesion. Therefore, within an organization, individuals can collaborate effectively and brainstorm ideas to achieve expected goals.
Japan is a society with a deep foundation in collectivist culture. In people's minds, there is a long-standing historical perspective that individuals inherently belong to some organization and would struggle without it. People center their lives around organizations, forming an integrative system where individuals and organizations coexist harmoniously. However, not all organizational systems can operate effectively. The integrative organizational system requires appropriate management conditions to activate it. Management involves influencing individual behaviors within a given organizational system using management techniques to unleash individual potential.
3.2 The State of Organizational Governance Operations – Horizontal Management
The collectivist consciousness of citizens must align with the organization's governance system. That is, a governance system should be constructed where employees' subconscious collectivist tendencies can be fully unleashed and utilized, thereby creating significant efficiency and improving benefits. Otherwise, not only will benefits not be created, but also prices may have to be paid due to conflicts and contradictions between the two. For example, after World War II, Japan introduced the vertically linear European and American-style organizational governance system to achieve modernization. This system aligned well with the stronger individualism prevalent in European and American societies but did not resonate with Japan's collectivist society. By the 1970s, the conflicts and frictions between the collectivist society and the strongly self-centered governance system became increasingly prominent...
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This article comes from: Procter & Gamble Company – The Leading Global Player in Daily Consumer Goods_241