RELATIONSHIP QUALITY: A CRITICAL LINK IN MANAGEMENT ACCOUNTING PERFORMANCE MEASUREMENT SYSTEMS

Performance measurement has benefited from several management accounting innovations over the past decade. Guiding these advances is the explicit recognition that it is imperative to understand the causal linkage that leads a firm to profitability. In this paper, we contend that the relationship quality experienced between two organizations has a measurable impact on performance. Guided by prior models developed in distribution channel and relationship marketing research (Cannon et al., 2000; Morgan & Hunt, 1994) we build a causal model of relationship quality that identifies key relationship qualities that drive a series of financial and non-financial performance outcomes. Using the healthcare industry to illustrate its applicability, the physician practice – insurance company relationship is described within the context of the model’s constructs and causal linkages. Our model offers managers employing a causal performance measurement system such as, the balanced scorecard (Kaplan & Norton, 1996) or the action-profit-linkage model (Epstein et al., 2000), a formal framework to analyze observed outcome metrics by assessing the underlying dynamics in their third party relationships. Many of these forces have subtle, but tangible impacts on organizational performance. Recognizing them within performance measurement theory adds explanatory power to existing performance measurement systems.