Cost shifting strategy, organizational competitiveness and survival: an empirical investigation

Ahmed, Rafiuddin (2015) Cost shifting strategy, organizational competitiveness and survival: an empirical investigation. In: Proceedings of the Allied Academies Internet Conference (17(1)) pp. 1-7. From: Allied Academies International Internet Conference , 20-24 July, 2015, Weaverville, NC, USA.

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Cost shifting is an organizational strategy to improve organizational profitability and to rationalise the arguments for survival or continuity. The extant literature provides ample evidence of its routine use in organizations with two pronged operating structure, a competitive segment and a monopoly segment. Cost shifting strategy has been used in the defense, health care and regulated monopolies for centuries. The use of cost shifting strategy in government funded regulated organizations in Australia is only a recent addition to extant practice. The current qualitative case study empirically investigates the conventional wisdom that cost shifting is an effective organizational strategy to rationalise survival of business segments. To validate this conventional wisdom, the study is undertaken in a budget constrained government organization in Australia. Using archival data, semi-structured and focused group interviews, the study explores if the organization studied benefited from cost shifting strategy to rationalise operations of one of its competitive segments. The competitive segment had to undergo mandatory market testing and competitive bidding exercise to justify the efficiency of its in-house provision and to comply with the accountability obligations to different stakeholders such as the local and state governments. The case study evidence was analysed by patterns and themes. The study finds that the organization used cost shifting strategically within the stricter codes of conduct of different regulatory and reporting frameworks, managed to save costs, and was successful in receiving stakeholder endorsement on in-house provision of the service. However, the cost shifting arrangement imposed a number of operational risks on other parts (the monopoly units) of the organization. The monopoly segments feared future regulatory scrutiny for exceeding budgetary expenditure thresholds and reclassification of their services as competitive services. Such reclassification was envisaged as harmful by some important users and was contrary to the organization’s agendas on some important services (e.g., aged care, meals on wheels). The findings of the study implies that cost shifting strategy may be repeatedly used in the absence of any regulatory oversight and stakeholders sanctions on funds for service provisions. However, if cost shifting imbalances expenditure thresholds and imposes risks on any organizational unit, then longer term solutions such as cost reductions or productivity improvements need to be contemplated. So, government organizations following such cost shifting practice and likely to anticipate regulatory oversight on such manipulative practice will benefit from the insights gleaned from this paper.

Item ID: 41589
Item Type: Conference Item (Research - E1)
ISSN: 2150-8313
Keywords: cost shifting, monopoly segment, competitive segment, organizational strategy, competitive bidding, organizational efficiency
Date Deposited: 11 Jan 2016 05:21
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150105 Management Accounting @ 40%
15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150101 Accounting Theory and Standards @ 35%
14 ECONOMICS > 1402 Applied Economics > 140214 Public Economics- Publically Provided Goods @ 25%
SEO Codes: 94 LAW, POLITICS AND COMMUNITY SERVICES > 9402 Government and Politics > 940204 Public Services Policy Advice and Analysis @ 50%
91 ECONOMIC FRAMEWORK > 9104 Management and Productivity > 910405 Public Sector Productivity @ 50%
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