Beyond Budgeting Movement
Beyond Budget Movement
In most contemporary organizations, the budget plays a very significant role in the management control process. Though it was traditionally developed for controlling cost, it is nowadays strategically focused in the framework of accommodating other tasks. As a result, organization refers to budget as a significant tool that is used to give focus in achievement of its objectives. However, these budgets are often criticized for not being able to meet the concerned organizations requirement, with regard to the volatile environment in operation today. Some of the challenges that are associated with these budgets include strategic short-termism, data manipulation as well as dysfunctional game playing. Further, these budgets prevent other mechanical tools of the organization from reaching their full operational potential.
To solve these problems, several types of budget have been proposed. Examples of these budgets include the activity-based budgets, rolling budgets and zero based budgets. Though these budgets have their own strengths, they do not satisfactorily provide a solution to the problem facing the budgeting system. The most radical approach to solving the budget related problems is adoption of the beyond budget movement. Instead of altering the structure of the budget, companies moves beyond the budget. In relation to this, the present paper presents an examination of the beyond budget concept. The paper provides a deep analysis of the concept through explanation and interpretation. The paper also provides a critique of the concept and its application, with the use of academic literature and case study analysis.
Analysis of the Beyond Budget Concept
As indicated by Hope and Fraser (2013), beyond budget is a concept by which all the companies need to move beyond their budgeting routines because of the inherent drawbacks. The beyond budget concept argues that the use of certain guiding principle can help an organization to perform its activities efficiently, without the need of the traditional budget. The purpose of adoption of beyond budget concept is to help an organization to achieve its success factors in the volatile and dynamic business environment. The concept of beyond budget, as stipulated by Rickards (2006) was developed as most fundamental practicing the strategic and tactical planning process as well as traditional budgeting practices. The concept of beyond budget revolves around the label of going dynamic, and it revolves around some key guiding principles.
These guiding principles include the openness, discretion, trust, vision, openness, learning, accountability networking and guidance. These principles also encourage the organizational leaders to adapt to the rapid changing business environment through system wide dynamism and functional adaption. As a result, they would be able to gain a competitive advantage as well as empower their organization.
Beyond budget advocates for integration more flexible budgeting practices, as one of the process of implementation of strategic policies and processes. The concepts advocates that these processes should not be undermined or prevented by bureaucracies, rigidity in the control system or micro management practices, which is usually associated with the traditional budgeting. Inferring from Rothwell and Cookson (2012), the philosophy of beyond the budget is considered as one of the effective philosophies and effective management system. The Beyond Budget Round Table provides the assumptions underlying the concept of Beyond the Budget as its proponents highlight it. The underlying assumptions stipulate that Beyond Budget concept revolve around rethinking how leaders and managers can manage their organizations effectively, in the post-industrial duration. It also involves releasing people from the fixed control systems and the bureaucratic budgets. Rather, to entrust and give people all the relevant information and allowing them time to think, learn and improve their performances in a job environment.
Reasons for Adopting Beyond Budgeting
One of the major reason for abandoning the traditional budgeting, as stipulated by Rickards (2006) is due to the increased environmental uncertainties. The traditional budget does not accommodate the fluctuating business environment. The business environment is experiencing a rapid change in terms of economical, customers’ preferences, and technology and production activities. In order to cope with the changing environment and maintain competitive edge in the market, the company has to adopt current strategies in its operations. Such strategies as a result can be achieved through Beyond Budgeting movement.
Reason of adopting Beyond Budget, as presented by Rothwell and Cookson (2012) is the high cost and level of cumbersome associated with the process of budget preparation. There is high cost associated with preparation of traditional budget. After their preparation, extra cost is incurred in their following up on those budgets. Therefore, many companies adopt the concept because they realize that the budgeting process is too expensive and too long.
There is also an increase in the level of gaming to unacceptable levels. Setting of traditional budgets and working towards their achievements, acts like setting a fixed performance contact with the subordinates. In this case, budget goal achievement functions as success criteria, for measuring the performance of the subordinates, As a result, the subordinate work their best in order to hit the target that has been set in the budgets. In additions, they apply all means in order to be allocated to the easiest budget goal possible. Further, after the actual goal has been set, there is a high probability that these subordinates will engage in gaming behavior and other dysfunctional activities, in order to reach the target within the stipulated conditions. Further, the bonuses, which are usually attached to the budgets, are potential motivator to the gaming activities. This in turn affects the quality of the budget.
According to Bogsnes (2008), another reason, which necessitates the adoption of the Beyond Budgeting concept, is that budgeting is not in line with the competitive environment. The development of the traditional budget was done when the business environment was less competitive and more stable as compared to the current situation. As a result, a more improved and adaptive way is needed to cope with the changing environment. The Beyond Budget concept helps to empower organizations, to cope with the today’s changing business environment.
Appraisal and Evaluation of the model
Beyond Budgeting, concept id managed using various tools and techniques. The reward of this system is based on the performance achieved by an individual. The adoption of such a strategy helps to achieve two major goals. The first goal is the adaptive management process and the second one is the highly decentralized organization. There are various characteristics, which are associated with this budget. These characteristics include that it encourages the culture of innovation. Further, such budgets allow the cultural managers to react to the changing environment. Further, Beyond Budgeting helps to facilitate its efforts of focusing to the future efforts and competencies, instead of dwelling on the explanation of the past performance.
There are certain areas on which application of the beyond budgeting is more suitable. One of such areas, as indicated by Libby and Lindsay (2010), is the industries where the business environment experiences a rapid change. It is also suitable for the organizations, which applies strict management techniques, such as the total quality management. Organizations experiencing radical change in their functional structure are also suitable to adopt to the movement. These organizations include those using the business process reengineering. In all the above circumstances, traditional budgets cannot be prepared. It therefore becomes appropriate and suitable to apply the Beyond Budget mechanism.
There are several benefits associated with adoption of the beyond budget model. The first advantage is that it shifts the focus of managers within the same organization, from competing among them. Rather, the managers combine their efforts to building the competitive advantage of the company. Through allocation of clear challenges and responsibilities, this policy has a great impact on motivating individuals within an organization. The rewards in this case are team based. Through such policy, it eliminates some behaviors. Another advantage is that there is a faster response to the issues encountered. The reason for this is that operational managers are accorded some authority for their duties. Beyond budget model helps to have a great capacity of providing faster and open information, within the whole organization. This is because it fosters then creation of an organizations information system.
Application of the Beyond Budget Approach
There are two major applications of this model. These applications are private sector and public sector. In private sector, the approach is applied in the development of the managerial responsibilities. In this situation, the power and responsibility go concurrently. Under its application, the concept gives considerable powers to the managers to remove obstacles and resources constrains affecting an organization. It also increases the overall competitiveness of the organization, through combining effort of the managers. For the public sector, the great level of flexibility associated with the models may hinder effective implementation of the model. Further, beyond budget implementation requires a politically free environment.
From the above analysis, it is evident that application of the traditional budgets in management has become outdated. For efficient implementation of organizations practices, it is important for the organizations to adopt the beyond budget concept. The concept refers to a philosophy related to the leadership, representing an alternative approach to budgeting. Therefore, it is used instead of annual traditional budgeting.
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Hope, J., and Fraser, R. 2013. Beyond budgeting: how managers can break free from the annual
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Libby, T., & Lindsay, R. M. 2010. Beyond budgeting or budgeting reconsidered? A survey of
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Rickards, R. C. 2006. Beyond budgeting: boon or boondoggle. Investment Management and
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Rothwell, W. J., and Cookson, P. S. 2012. Beyond Instruction. Comprehensive Program
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