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Forthcoming in the Journal of Accounting & Organizational Change
Beyond Budgeting:
Review and Research Agenda
Dai Huu Nguyen
Academy of Finance, Hanoi, Vietnam
Christine Weigel
University of Siegen, Siegen, Germany
Martin R.W. Hiebl
University of Siegen, Siegen, Germany
Structured Abstract
Purpose - Beyond budgeting has received an increased amount of scholarly attention in recent
years. However, because most of the published research is discrete and unconnected, an overall
picture of what is known about beyond budgeting has not evolved. Therefore, the purpose of
this paper is to provide an overview of the available research on beyond budgeting. In particular,
we compare conceptual papers that mostly stress the benefits of beyond budgeting with
empirical evidence on beyond budgeting implementation and offer ideas for future research on
beyond budgeting.
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Design/methodology/approach - This paper employs systematic literature review methods.
After an extensive database search and examination of references/citations, 32 papers were
analysed with regard to bibliographical information, research design and findings.
Findings - Although proponents of beyond budgeting have put substantial effort into
developing and promoting this concept, numerous empirical studies demonstrate that many
organizations being investigated would still rather improve traditional budgeting than abandon
it completely. Our review also highlights the main criticisms of traditional budgeting,
development of management control systems under beyond budgeting and factors hindering the
implementation of beyond budgeting.
Research limitations/implication - This paper suggests that further research is needed on the
scaling of beyond budgeting, organizational changes under beyond budgeting and challenges
resulting from the implementation of beyond budgeting.
Originality/value - The paper is the first comprehensive literature review on beyond budgeting.
Keywords Beyond budgeting, abandoning budgeting, removing budgeting, traditional
budgeting, budget
Paper Type Literature review
1. Introduction
In many contemporary organizations, budgeting is considered to be an important instrument to
implement companies’ strategies and to fulfil a wide range of further tasks (Hansen et al., 2003).
Despite its widespread use, many business managers and practitioners have expressed their
dissatisfaction with budgeting. It is often criticized for causing budget gaming and being
quickly outdated, time-consuming, costly and inflexible (e.g., Hansen et al., 2003; Hope and
Fraser, 1997; Libby and Lindsay, 2003a; Neely et al., 2003).
The most radical solution to overcoming these disadvantages is Hope and Fraser’s
(2003a) “beyond budgeting” approach. The core element of this approach is abandoning
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performance contracts and all the fixed targets that go along with them (Hope et al., 2003). The
concept has quickly attracted the attention of researchers, practitioners and managers. Some
multinational companies such as Svenska Handelsbanken are reported as having abandoned
budgets very successfully (Rickards, 2006).
Although beyond budgeting has enjoyed academia’s attention and is regarded one of the
most advanced management accounting instruments, the method has not been widely adopted
in practice (e.g., Abogun and Fagbemi, 2011; Libby and Lindsay, 2007; Lidia, 2014; Heupel
and Schmitz, 2015). Libby and Lindsay (2010) point out that traditional budgeting still plays
an important role in many companies and that most firms prefer to improve their budgeting
processes rather than abandon them completely. One of the reasons that beyond budgeting is
not (yet) widespread in business organizations may be that there is only a limited amount of
academic studies as well as insufficient empirical evidence on the concept’s implementation in
practice, which might help reducing the uncertainties associated with beyond budgeting
(Hansen et al., 2003; Rickards, 2006). Therefore, current research does not provide adequate
information on how to implement beyond budgeting and manage companies without budgets
(Rickards, 2006). However, we argue that the available research on beyond budgeting has
remained quite fragmented and unconnected and generally lacks a coherent research agenda.
This problem might contribute to practitioners not being able to access research findings in a
compressed manner. To help alleviate these problems, the purpose of this paper is to synthesize
the available research findings on this topic and to identify potential problems of the beyond
budgeting approach that might require further research.
The paper proceeds as follows. In Section 2, we briefly introduce the main tenets of
beyond budgeting and in Section 3, we disclose our literature review methods. Section 4
provides the results of the literature review. These findings are structured into the main points
of criticism of traditional budgeting, the implementation of beyond budgeting and challenges
that arise in the context of this implementation. In Section 5, we identify various fruitful
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avenues for further research. Section 6 concludes the paper with its most important
implications.
2. Beyond budgeting
Although different methods have been designed to improve traditional budgets, previous
research suggests that they are still unable to fully eradicate traditional budgeting’s weaknesses
(Hope and Fraser, 1997; Neely et al., 2003; Player, 2003). Hence, beyond budgeting has been
proposed as an alternative coherent management model that enables organizations to manage
performance in varying business environments (Hope and Fraser, 2003a).
The beyond budgeting concept is based on the 12 principles presented in Table I. The
first six principles are concerned with creating a flexible organizational structure. Principles
seven to 12 deal with designing an adaptive management process that allows performance
management to adapt better to highly competitive environments (Hope and Fraser, 2001).
The essence of beyond budgeting is to abandon traditional budgeting’s principles by
focusing on relative improvement rather than fixed performance contracts and shifting from
top-down control to bottom-up empowerment. Instead of adopting rigid measures and
incentives, beyond budgeting focuses on providing power to front-line teams. Thus, this
concept is deemed to allow companies to adapt their strategies quickly to changing market
requirements. By empowering lower-level managers, the beyond budgeting concept aims to
enable companies to maintain close relationships with customers (De Waal, 2005; Hope and
Fraser, 2001). Hoper and Fraser (2001) further propose that the concept also allows companies
to attract and keep talented employees by providing a challenging work environment. In this
vein, proponents of the beyond budgeting approach suggest that the performance of employees
should be evaluated at the end of each year and that the evaluation should be based on the results
that employees could have achieved under the given circumstances of that period (De Waal,
2005). As targets, measures and rewards are aligned with an organization’s long-term value
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rather than short-term profits, beyond budgeting should also allow companies to focus on value
creation instead of cost reduction (De Waal, 2005; Hope and Fraser, 2001).
Table I. Principles of beyond budgeting
(based on Hope and Fraser, 2001, pp. 22–23)
1. Governance Use clear values and boundaries as a basis for action, not
mission statements and plans
2. Performance responsibility Make managers responsible for competitive results, not for
meeting the budget
3. Delegation Give people the freedom and ability to act, don’t control and
constrain them
4. Structure Organize around the networks and processes, not functions and
departments
5. Coordination Coordinate cross-company interactions through process design
and fast information systems, not detailed actions through
budgets
6. Leadership Challenge and coach people, don’t command-and-control them
7. Goal setting Beat competitors, not budgets
8. Strategy process Make the strategy process a continuous and inclusive process,
not a top-down annual event
9. Anticipatory management Use anticipatory systems for managing strategy, not for making
short-term corrections
10. Resource management Make resources available to operations when required at a fair
cost, don’t allocate them from the centre
11. Measurement and control Use a few key indicators to control the business, not a mass of
detailed reports
12. Motivation and rewards Base rewards on a company and unit-level competitive
performance, not predetermined targets
3. Review methods
To evaluate the current state of the literature on beyond budgeting, this paper applies the
systematic review methodology suggested by Tranfield et al. (2003). The first step of
systematic reviews sets out the motivation for the review, which was presented in Section 1.
The second step of systematic reviews identifies the relevant literature. This was done by
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conducting a keyword search in various electronic databases (e.g., Emerald, ProQuest, Elsevier
ScienceDirect). Within the keyword search, articles were searched that contained a set of
keywords in their title, keywords or abstract.
The group of keywords should ensure that the articles were concerned with different
aspects of beyond budgeting as summarized in Section 2. The search phrase included the
following keywords: “beyond budgeting*” OR “abandoning budget*” OR “abandoning
traditional budgeting*” OR “abandoning traditional budget*” OR “abandon budget*” OR
“without budget*” OR “replace budget*” OR “replace budgeting*” OR “replacing budget*”
OR “absence of budget*” OR “absence budget*” OR “absence budgeting*” OR “remove
budgeting*” OR “remove budget*” OR “removing budget” OR “removing budgeting* OR
“budget removal”. For this literature review, all relevant papers available online or published
before publication up to 2016 were included in the review.
By using these methods, the initial research resulted in 38 articles. As Tranfield et al.
(2003) suggest, those articles were scanned and reselected depending on their fit with the
review’s topic. Consequently, six papers were eliminated from further analysis. For instance,
these excluded papers were written without any reference to scientific studies and entirely
practitioner-oriented or were published in a language other than English. The remaining 32
articles were added to the review sample and will be analysed in the following section.
4. Results
4.1 Article characteristics
The bibliographical information of the sample articles is presented in Table II. The articles were
published in 21 academic outlets, which can be divided into four larger fields: business and
management journals (11 articles), accounting journals (14 articles), finance journals (four
articles) and economics journals (three articles). Only one paper was published before 2000 and
the number of articles studying beyond budgeting has increased significantly since then.
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Table II. Bibliographical sources of the articles included in the literature review
Year(s)
Primary field of journal, journal title 1997 2000 2001 2003 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015 2016 Total
Accounting 1 1 1 1 1 1 2 1 1 2 2 14
European Accounting Review 1 2 1 1 5
Management Accounting Research 1 1 1 3
Journal of Accounting & Organizational
Change 1 1
Cost Management 1 1
Journal of Management Accounting Research 1 1
Management Accounting Quarterly 1 1
Qualitative Research in Accounting &
Management 2 2
Business and Management 6 2 1 1 1 11
CMA Management 2 2
Measuring Business Excellence 1 1 2
Harvard Business Review 1 1
California Management Review 1 1
Investment Management and Financial
Innovations 1 1
Journal of Performance Management 1 1
International Business Research 1 1
Baltic Journal of Management 1 1
Optimize 1 1
Finance 1 1 1 1 4
Strategic Finance 1 1 2
Journal of Corporate Accounting & Finance 1 1
Financial Management 1 1
Economics 1 1 1 3
Procedia Economics and Finance 1 1 2
Management Theory & Studies for Rural
Business & Infrastructure Development 1 1
Total 1 2 1 8 3 1 1 1 1 3 3 1 3 1 2 32
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Table III. Research design of the articles included in the literature review
Article Type Data Collection Time Frame
Author(s), Year Empirical/
Quantitative Empirical/
Qualitative Conceptual Survey Database Case Study/
Interview Cross-
Sectional Longitud
inal
Abogun and Fagbemi (2011) x x x
Becker (2014) x x x
Bourmistrov and Kaarbøe (2013) x x x
De Waal (2005) x
De With and Dijkman (2008) x x x
Ekholm and Wallin (2000) x x x
Hansen et al. (2003) x
Hansen (2011) x
Henttu-Aho and Järvinen (2013) x x x
Henttu-Aho (2016) x x x
Heupel and Schmitz (2015) x
Hope and Fraser (1997) x
Hope and Fraser (2000) x
Hope and Fraser (2001) x
Hope and Fraser (2003a) x
Hope and Fraser (2003b) x
Hope et al. (2003) x
Libby and Lindsay (2003a) x
Libby and Lindsay (2003b) x
Libby and Lindsay (2007) x x x
Libby and Lindsay (2010) x x x
Lidia (2014) x x x
Max (2005) x x x
Neely et al. (2003) x
O’Grady and Akroyd (2016) x x x
Ostergren and Stensaker (2011) x x x
Player (2003) x
Rickards (2006) x
Sandalgaard (2012) x x x
Sandalgaard and Bukh (2014) x x x
Vaznoniené and Ston
c
̌
iuvien
e
̇
(2012) x
Weber and Linder (2005) x
Total 7 8 17 7 0 8 8 7
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Table IV. Criticisms of traditional budgeting
Supporting Studies
Author(s), year
Cluster Finding Number Conceptual Studies Empirical Studies
The expense The expenses represent a
significant disadvantage of
traditional budgeting
5 Hansen et al. (2003); Hope and Fraser
(2003a); Libby and Lindsay (2003a);
Neely et al. (2003)
Sandalgaard and Bukh (2014)
The expenses do not represent a
significant disadvantage of
traditional budgeting
3
Libby and Lindsay (2007, 2010);
Lidia (2014)
Gaming behaviour
Gaming behaviour represents a
significant disadvantage of
traditional budgeting
6
Hansen et al. (2003); Hope and Fraser
(2003a); Libby and Lindsay (2003a);
Neely et al. (2003); Rickards (2006)
Libby and Lindsay (2010)
Gaming behaviour does not
represent a significant disadvantage
of traditional budgeting
2
Libby and Lindsay (2007); Lidia
(2014)
Low adaptability in
dynamic business
environments
Low adaptability in dynamic
business environments represents a
significant disadvantage of
traditional budgeting
7
Hansen et al. (2003); Hope and Fraser
(2003a); Libby and Lindsay (2003a);
Neely et al. (2003); Rickards (2006)
Ekholm and Wallin (2000);
Sandalgaard and Bukh (2014)
Low adaptability in dynamic
business environments does not
represent a significant disadvantage
of traditional budgeting
3
Libby and Lindsay (2007, 2010);
Lidia (2014)
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Table IV. Criticisms of traditional budgeting (continued)
Supporting Studies
Author(s), year
Cluster Finding Number Conceptual Studies Empirical Studies
Misalignment with the
company’s strategy
Misalignment with the company’s
strategy represents a significant
disadvantage of traditional
budgeting
4
Hansen et al. (2003); Libby and Lindsay
(2003a); Neely et al. (2003); Rickards
(2006)
Misalignment with the company’s
strategy does not represent a
significant disadvantage of
traditional budgeting
3
Libby and Lindsay (2007, 2010);
Lidia (2014)
Vertical command-and-
control
Vertical command-and-control
represents a significant
disadvantage of traditional
budgeting
5
Hansen et al. (2003); Libby and Lindsay
(2003a); Neely et al. (2003)
Ekholm and Wallin (2000); Lidia
(2014)
Vertical command-and-control does
not represent a significant
disadvantage of traditional
budgeting
1
Libby and Lindsay (2007)
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As suggested by Tranfield et al. (2003), we provide information on the study design of
the 32 reviewed articles in Table III. Most of the articles are conceptual articles (17 articles).
Eight further articles use various qualitative-empirical approaches. All seven quantitative-
empirical articles employ survey methods. On the one hand, this relatively small number of
empirical studies in our review sample supports the concerns raised by Hansen et al. (2003) and
Rickards (2006), who bemoaned the lack of empirical research on beyond budgeting. However,
more recently, a series of empirical articles on beyond budgeting has been published. This
allows us to compare whether the arguments put forward by conceptual articles—which mostly
stress the benefits of beyond budgeting—typically hold in practice.
4.2 Criticisms of traditional budgeting
Despite the widespread use of budgets in business practice, a stream of the literature on beyond
budgeting suggests that traditional approaches to budgeting will soon be out of date and need
to be abandoned (e.g., Hansen et al., 2003; Hope and Fraser, 2003a; Libby and Lindsay, 2003a;
Neely et al., 2003; Rickards, 2006). This section presents some of the most criticized
disadvantages of traditional budgeting. Similar to Libby and Lindsay (2003a), this paper divides
those disadvantages into five clusters (see Table IV): the expenses associated with budgets,
gaming behaviour, traditional budgets’ low adaptability in dynamic environments,
misalignment with the company’s strategy and a vertical command-and-control structure. We
conclude this section with a brief evaluation of the review findings in Section 4.2.6.
4.2.1 Expenses associated with budgets
Four conceptual papers suggest that budgets absorb a huge amount of time for uncertain
benefits. Preparing and negotiating budgets can thus lead to high costs (e.g., Hansen et al.,
2003; Hope and Fraser, 2003a; Libby and Lindsay, 2003a; Neely et al., 2003). This is
empirically supported by Sandalgaard and Bukh (2014), who show that in their case company,
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the budgeting process was very costly, which was one of the main reasons for going beyond
budgeting. However, the results of Libby and Lindsay’s (2007) survey study show that the
average time spent on an entire budgeting cycle is around 10 weeks, whereas proponents of the
beyond budgeting approach estimate this to be between 10 and 15 weeks. Thus, although the
budgeting process seems to be time-consuming, it might not be as time-consuming as the
conceptual beyond budgeting literature suggests (see also the empirical results in Libby and
Lindsay, 2010; Lidia, 2014).
4.2.2 Gaming behaviour
Five conceptual papers suggest that due to budgets’ use as part of fixed performance contracts,
the attainment of budget goals is an important success criterion for managers. Therefore, there
is a risk that managers will get involved in gaming and other dysfunctional behaviour to meet
the budget goals (Hansen et al., 2003; Hope and Fraser, 2003a; Libby and Lindsay, 2003a;
Neely et al., 2003; Rickards, 2006). It is also indicated that the optimization of an individual’s
performance may affect a company’s long-run and value-oriented development (Rickards,
2006). In their survey study of budgeting practices in North America, Libby and Lindsay (2010)
confirm the occurrence of budgetary gaming behaviour and find that such behaviour is a
problem both in the United States (US) and in Canada. However, two empirical survey studies
show that although gaming behaviour exists, some forms of such behaviour do not represent
significant disadvantages, while others (e.g., sandbagging) indeed come with serious downsides
(Libby and Lindsay, 2007; Lidia, 2014).
4.2.3 Low adaptability in dynamic business environments
Five conceptual articles claim that the traditional command-and-control management style will
soon be out of date (Hansen et al., 2003; Hope and Fraser, 2003a; Libby and Lindsay, 2003a;
Neely et al., 2003; Rickards, 2006). Consequently, according to proponents of beyond
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budgeting, power and authority should be transferred to employees, who are close to the
customers (Hope and Fraser, 2003a). Libby and Lindsay (2003a) argue that not only does the
use of a fixed budget in the context of dynamic business environments result in coordination
problems and/or inefficiencies, but it also decreases the organization’s flexibility and ability to
handle new opportunities, threats or changes in customers’ requirements. Similar results were
found in the case study by Sandalgaard and Bukh (2014) and confirmed by the survey study
among Finnish firms by Ekholm and Wallin (2000).
In contrast to these findings, three further empirical papers find that low adaptability in
dynamic business environments does not represent a major problem (Libby and Lindsay, 2007,
2010; Lidia, 2014). For example, Libby and Lindsay (2010) observe that not only have
numerous companies introduced adaptive processes to better cope with unpredictable
environments, but they also revised their traditionally developed budgets quite frequently
during the budget period.
4.2.4 Misalignment with the company’s strategy
Four conceptual articles propose that traditional budgeting processes may have little or no links
with long-term strategies (Hansen et al., 2003; Libby and Lindsay, 2003a; Neely et al., 2003;
Rickards, 2006). Thus, Libby and Lindsay (2003a) hold the view that it may be difficult for
subordinates to understand how their work is linked to the corporate strategy. Additionally,
subordinates might be encouraged to engage in budget games to achieve strategic initiatives
(Hansen et al., 2003; Libby and Lindsay, 2003a). Results opposing these arguments are found
in the empirical studies by Libby and Lindsay (2007, 2010) and Lidia (2014), who find that
traditional budgeting processes are often explicitly linked to strategy implementation.
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4.2.5 Vertical command-and-control
In a conceptual paper, Libby and Lindsay (2003a) suggest that firms might focus more on the
performance of functions, departments, divisions and cost reduction rather than the firm’s
overall value creation when using budgets that reflect a firm’s vertical command-and-control
culture. Additionally, two conceptual papers (Hansen et al., 2003; Neely et al., 2003) assume
that hierarchical management could intensify departmental barriers, which could hinder
knowledge sharing between departments. Thus, in competitive business environments, it may
be necessary to apply horizontal control that focuses on customer interests rather than vertical
control concerned with managing numbers (Libby and Lindsay, 2003a). These conceptual
arguments are empirically supported by Ekholm and Wallin (2000), who find that budgeting
can lead to incremental thinking. Further, Lidia (2014) shows that one of the main drawbacks
of traditional budgets in Romania is the difficulty achieving the required level of
communication, coordination and cooperation for preparing budgets. Contrary to these
findings, Libby and Lindsay (2007) report evidence that many companies may not use annual
budgets as inflexibly as proponents of beyond budgeting believe.
4.2.6 Evaluation of criticisms of traditional budgeting
In summary, we could identify some research on all five points of criticism regarding traditional
budgeting as voiced by Libby and Lindsay (2003a). Both conceptual and empirical papers
conclude that annual budgeting can be time-consuming and expensive, can encourage gaming
behaviour, might not always be appropriate in a competitive environment, is not always aligned
with a company’s strategy and can strengthen vertical command-and-control. However,
empirical papers argue that while the main elements of the criticisms are valid, these points of
criticisms do not hold in all organizations and may be overstated (Libby and Lindsay, 2007,
2010; Lidia, 2014). From the available findings, however, it seems impossible to conclude
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which types of organizations are more or less prone to the drawbacks of traditional budgeting
approaches.
4.3 Changes to management control systems when implementing beyond budgeting
A frequent theme that emerged from the review sample were changes to management control
systems that result from going beyond budgeting. These changes were organized into eight
clusters (see Table V for a summary) and will be discussed in the following subsections. We
conclude this section with a short evaluation of the findings regarding changes to management
control systems when implementing beyond budgeting.
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Table V. Changes to management control systems under beyond budgeting
Supporting Studies
Author(s), Year
Cluster Changes Number Conceptual Studies
Empirical
Studies
Targets Stretch goals based on
relative improvement
should be used instead
of fixed budgets
9 Hansen et al. (2003), Hope
and Fraser (2000, 2001,
2003a); Hope et al. (2003);
Libby and Lindsay
(2003b); Player (2003)
Bourmistrov
and Kaarbøe
(2013),
Ostergren and
Stensaker
(2011)
Fixed budget targets are
not replaced 1 Sandalgaard
and Bukh
(2014)
Target setting should be
separated from
planning/forecasting
2 Ostergren and
Stensaker
(2011);
Henttu-Aho
and Järvinen
(2013)
Motivation and
rewards Set rewards based on
relative performance
measures with hindsight
9 Hansen et al. (2003); Hope
and Fraser (2000, 2001,
2003a, 2003b); Hope et al.
(2003); Libby and Lindsay
(2003b); Player (2003)
Max (2005),
O’Grady and
Akroyd (2016)
Planning and
forecasting Development of
corporate strategic
objectives will be
devolved to lower
levels
8 Hansen et al. (2003), Hope
and Fraser (2000, 2001);
Hope et al. (2003); Libby
and Lindsay (2003b);
Player (2003)
Bourmistrov
and Kaarbøe
(2013);
O’Grady and
Akroyd (2016)
Planning focuses on
value creation 2 Hope and Fraser (2003a) Ostergren and
Stensaker
(2011)
Updating forecasts 7 Hope and Fraser (2000);
Hope et al. (2003); Libby
and Lindsay (2003b)
Bourmistrov
and Kaarbøe
(2013);
Henttu-Aho
and Järvinen
(2013); Max
(2005);
Ostergren and
Stensaker
(2011)
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Table V. Changes to management control systems under beyond budgeting (continued)
Supporting Studies
Author(s), Year
Cluster Factors/Outcomes Number Conceptual
Studies Empirical
Studies
Measures and
controls Base controls on
effective governance
and on a range of
relative performance
indicators
8 Hope and Fraser (1997,
2000, 2001); Hope et al.
(2003); Libby and Lindsay
(2003b); Player (2003)
Max (2005);
O’Grady and
Akroyd (2016)
Resources
Resources available on
demand
8
Hope and Fraser (2000,
2001, 2003a); Hope et al.
(2003); Libby and Lindsay
(2003b); Player (2003)
Bourmistrov
and Kaarbøe
(2013);
Ostergren and
Stensaker
(2011)
Role of controllers Controller role is more
strategy-focused within
beyond budgeting firms
3 Henttu-Aho
(2016);
Henttu-Aho
and Järvinen
(2013),
Ostergren and
Stensaker
(2011)
Coordination Cross-company
coordination actions 6 Hope and Fraser (2000,
2001); Hope et al. (2003);
Libby and Lindsay
(2003b); Player (2003)
Ostergren and
Stensaker
(2011)
Organization and
culture Employees get the
freedom and capacity to
act; the focus is on
customer satisfaction
8 Hope and Fraser (2000,
2001, 2003a); Libby and
Lindsay (2003b);
Player (2003)
O’Grady and
Akroyd
(2016);
Ostergren and
Stensaker
(2011);
Bourmistrov
and Kaarbøe
(2013)
4.3.1 Targets
Seven conceptual papers hold the view that fixed targets based on annual budgets should be
replaced by stretch goals based on relative improvement (Hansen et al., 2003; Hope and Fraser,
2000, 2001, 2003a; Hope et al., 2003; Libby and Lindsay, 2003b; Player, 2003). Relative
performance can be operationalized as targets by using medium-term benchmarks that are either
external (e.g., from the same industry such as high-ranked competitors) or internal (e.g., past
performance comparisons) (Libby and Lindsay, 2003b). These performance benchmarks are
18
supposed to make performance evaluation more accurate and impartial and thereby reduce
gaming behaviour and motivation issues (Hansen et al., 2003). Ostergren and Stensaker (2011)
and Bourmistrov and Kaarbøe (2013) observe in empirical case studies that one of beyond
budgeting’s cornerstones is setting “ambitious” targets and focusing on value creation rather
than cost reduction. In this context, the term “ambitious” is determined by competitors and other
external factors. By doing so, targets will become more dynamic and might be able to adapt
better to changing competitive environments.
In their empirical case study, Sandalgaard and Bukh (2014) note that companies that
change their management accounting system towards a beyond budgeting concept tend to retain
fixed targets even though those targets are criticized by the beyond budgeting literature. One
reason for this behaviour is the difficulty evaluating performance without fixed targets due to a
lack of available benchmarks (Sandalgaard and Bukh, 2014).
Two qualitative-empirical studies (Ostergren and Stensaker, 2011; Henttu-Aho and
Järvinen, 2013) propose that separating target setting from planning plays an important role in
eliminating traditional budgeting. According to Ostergren and Stensaker (2011), such a
separation allows forecasts to be made independently of budget targets. Consequently, as
evidenced by Ostergren and Stensaker (2011), managers can be prevented from making
forecasts that are similar to the target and therefore easy to achieve, while the resources reserved
for too high, but easily achievable cost targets can be freed up.
4.3.2 Motivation and rewards
Eight conceptual papers (Hansen et al., 2003; Hope and Fraser, 2000, 2001, 2003a, 2003b;
Hope et al., 2003; Libby and Lindsay, 2003b; Player, 2003) suggest that linking rewards to
fixed targets should be turned into “rewards based on relative performance measures with
hindsight” (Hansen et al., 2003, p. 10). “Hindsight” means that targets are adjusted by the actual
situation during the period (Hansen et al., 2003). Additionally, the beyond budgeting approach
19
emphasizes that the development of collective measures and reward programs needs to involve
the whole team rather than an individual to achieve a comprehensive view and foster teamwork
and information sharing (Hansen et al., 2003; Hope and Fraser, 2003b; Libby and Lindsay,
2003b).
Indeed, Max (2005) observes in an empirical multi-case study that beyond budgeting
companies tend to tie incentive compensation to measures other than fixed targets or inflexible
budgets. Similarly, O’Grady and Akroyd’s (2016) case company used league tables of key
performance indicators (KPIs) to compare the relative performances of their branches.
Therefore, all branches in a division could evaluate their performance in comparison to both
their peers and the average performance across the division.
4.3.3 Planning and forecasting
Six conceptual papers (Hansen et al., 2003; Hope and Fraser, 2000, 2001; Hope et al., 2003;
Libby and Lindsay, 2003b; Player, 2003) highlight that the development and implementation
of corporate strategic objectives will be devolved to lower levels while making sure that lower-
level operations are aligned with the corporate strategy. This allows decentralized managers to
take whatever action is required to meet their medium-term targets within the agreed upon
boundaries. The responsibility of lower-level managers is to transfer the corporate strategy into
a local strategy (e.g., by selecting KPIs and developing plans to achieve these goals). As argued
by beyond budgeting advocates, these KPIs and performance benchmarks enable organizations
to stretch goals and ensure that action plans are continuously reviewed, realistic and risk-
appropriate (Hansen et al., 2003; Hope and Fraser, 2000, 2001; Hope et al., 2003; Libby and
Lindsay, 2003b; Player, 2003). O’Grady and Akroyd’s (2016) case study suggests that
operational planning should identify targets for the near future as well as specify tasks that need
to be completed, but that it does not require detailed plans about how to obtain the goals.
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Furthermore, Hope and Fraser’s (2003a) conceptual paper argues that beyond budgeting
companies should perform continuous planning that focuses on value creation. Ostergren and
Stensaker’s (2011) findings suggest that beyond budgeting can create incentives for value
creation because the planning process in such companies focuses on controlling actions rather
than reducing costs as well as on finding relative KPIs that measure real value creation.
In addition, three conceptual papers propose that updating forecasts will allow managers
to compare medium-term goals with the actual situation and give them the information they
need to adjust actions (Hope and Fraser, 2000; Hope et al., 2003; Libby and Lindsay, 2003b).
Two conceptual papers argue that rolling forecasts are important for identifying the necessary
changes in key estimates (Hope and Fraser, 2000; Libby and Lindsay, 2003b).
The qualitative-empirical studies of Bourmistrov and Kaarbøe (2013), Henttu-Aho and
Järvinen (2013) and Ostergren and Stensaker (2011) support arguments proposed by Libby and
Lindsay (2003b) and indicate that the separation of target setting and forecasting is a key
success factor for implementing beyond budgeting. Moreover, Henttu-Aho and Järvinen’s
(2013) case suggests that rolling forecasts play an important role in replacing the planning
functions of traditional budgeting. On the other hand, Bourmistrov and Kaarbøe’s (2013) and
Ostergren and Stensaker’s (2011) findings suggest that realistic forecasts should be developed
to find the gaps between the target, plan and current situation so that action planning can be
adjusted to obtain the goals or, in some extreme cases, to change the goals. Max’s (2005)
findings imply that using either forecasts over various time periods or rolling forecasts might
be ineffective due to the amount of time they require and their accuracy. Thus, Max (2005)
suggests “light touch” forecasts, which are forecasts based on the key drivers of performance.
This could enable companies to achieve reasonably precise forecasts based on the empirically
observed trends of a limited number of significant items.
21
4.3.4 Measures and controls
Instead of employing centralized controls, several conceptual beyond budgeting papers
encourage the utilization of multi-level controls to strengthen effective governance, which
supports local decision-making and interferes only when indicators move out of bounds (Hope
and Fraser, 1997, 2000, 2001; Hope et al., 2003; Player, 2003). Libby and Lindsay (2003b)
argue that by using a self-regulating control approach, local managers can be equipped with
strategic, competitive and market-based information. Moreover, management performance can
be measured by leading and lagging KPIs. (Hope et al., 2003; Libby and Lindsay, 2003b).
O’Grady and Akroyd’s (2016) case company evaluated performance by not only comparing
performance chronologically but also implementing peer comparisons. By doing so, both
branch managers and team members knew how well their branch was performing and when
corrective actions were required (O’Grady and Akroyd, 2016).
4.3.5 Role of controllers
Three empirical studies imply that the role of controllers might focus more on strategic issues
rather than on controlling accounts after firms abandon budgets (Henttu-Aho, 2016; Henttu-
Aho and Järvinen, 2013; Ostergren and Stensaker, 2011). Henttu-Aho and Järvinen (2013)
argue that controllers in beyond budgeting firms take over tasks that used to be fulfilled by
traditional budgeting such as planning and forecasting. Therefore, the role will require a broader
set of skills including analysis and forecasting skills. In line with this notion, Henttu-Aho (2016)
states that controllers play a crucial role in maintaining a more holistic and strategic focus in
the target setting process that is otherwise rather top-down-driven.
4.3.6 Resources
To deal with uncertainty, threat or opportunities, the conceptual beyond budgeting literature
states that organizations need to make sure that lower management levels can access the
22
required resources quickly (Hope and Fraser, 2000, 2001, 2003a; Hope et al., 2003; Libby and
Lindsay, 2003b; Player, 2003). Making resources accessible on demand will eliminate the
possibility of refusing promising investment proposals. Consequently, it is believed that when
any projects meet the respective criteria, front-line managers should not only be able to receive
the necessary resources to implement these projects, but also be held accountable for their
actions (Libby and Lindsay, 2003b). These arguments are supported by Bourmistrov and
Kaarbøe (2013) and Ostergren and Stensaker (2011), who observe that the resource allocation
process in their beyond budgeting case companies changed in two ways. First, a given set of
criteria was used for the allocation of resources. Second, the budgeting process changed from a
static process occurring once a year to a dynamic resource allocation process that could occur
at any time when someone brought up an interesting project. Moreover, Ostergren and
Stensaker (2011) add that by securing the best use of resources for the whole organization, the
beyond budgeting approach allows organizations to operate better in a situation of scarce
resources.
4.3.7 Coordination
Five conceptual papers highlight that instead of using centralized coordination, cross-company
actions should be coordinated to meet customer demand (Hope and Fraser, 2000, 2001; Hope
et al., 2003; Libby and Lindsay, 2003b; Player, 2003). It is believed that coordination between
central services and operating units allows front-line decision-makers to access customer
information. This might encourage a corporation’s mutual accountability and help corporations
foster customer service orientation and act in an integrated manner to reach a common target
(Libby and Lindsay, 2003b).
Currently, only Ostergren and Stensaker (2011) empirically support these conceptual
arguments. They conclude that beyond budgeting practices increase the interaction between
sub-managers, which forces cross-division management teams to always consider where the
23
invested capital will bring the greatest profits across units, rather than focusing only on one unit
and its performance. By contrast, however, as the resource allocation process under a beyond
budgeting philosophy emphasizes the connection between the controllers and division
managers, the division managers will have less contact with the sub-department managers
(Ostergren and Stensaker, 2011).
4.3.8 Organization and culture
Several conceptual papers imply that radical decentralization is a requirement to apply beyond
budgeting (Hope and Fraser, 2000, 2001, 2003a; Libby and Lindsay, 2003b; Player, 2003). It
is argued that leaders need to empower front-line teams to make decisions to decentralize
organizations (Hope and Fraser, 2003a). Thus, employees not only know what they can and
cannot do but also how their work is linked to the big picture—the organization’s strategic
goals. Leaders should empower people to act by providing them with appropriate training,
support and resource capabilities as well as an open and transparent information system.
O’Grady and Akroyd’s (2016) findings indicate that branch managers should be given
high levels of power and manage their branches as they would manage their own businesses. In
other words, branch managers are not only empowered regarding decision-making, but also
responsible for potential outcomes. Ostergren and Stensaker’s (2011) findings imply that
beyond budgeting companies witness a shift in power balance. Top management gains power
in terms of target setting, while division management, lower-level managers and employees are
empowered regarding the operationalization of the strategic target.
Taking a different perspective, Bourmistrov and Kaarbøe (2013) indicate that beyond
budgeting helps design a new information supply, which facilitates the change of decision-
makers’ mind-set and behaviour from “comfort” to “stretch” zones. In “stretch zones”,
decision-makers will be able to not only positively evaluate the business situation and the
challenges in managerial work, but also utilize new managerial information for negotiating,
24
learning and having appropriate responses to changes to the internal and external business
environment.
4.3.9. Evaluation of changes to management control systems when implementing beyond
budgeting
It was shown that organizations’ management control systems need to change regarding targets,
motivations and rewards, planning and forecasting, motivation and controls, resources,
coordination and culture. The empirical findings, however, do not always confirm what the
conceptual beyond budgeting literature suggests and sometimes offer further research avenues.
The conceptual beyond budgeting literature suggests that fixed targets should be replaced by
relative performance goals. The empirical evidence on this is, however, mixed. Whereas some
studies confirm the implementation of such dynamic targets (Ostergren and Stensaker, 2011;
Bourmistrov and Kaarbøe, 2013), Sandalgaard and Bukh (2014) state that firms might have
difficulties evaluating performance without fixed targets. It is therefore very important to gain
a deeper understanding of the circumstances under which beyond budgeting’s principles such
as relative performance evaluation can be applied. It is not known whether companies can go
beyond budgeting when only implementing a small subset of those beyond budgeting
principles. Therefore, it would also be interesting to analyse whether companies can go beyond
budgeting when they are either unable or unwilling to implement all beyond budgeting
principles and what the effects of such a partial implementation would be. Furthermore, the
empirical evidence (Henttu-Aho, 2016; Henttu-Aho and Järvinen, 2013; Ostergren and
Stensaker, 2011) implies that the role of controllers in beyond budgeting firms will become
more strategy-driven and that controllers will require a broader skill set. Therefore, more
research on the changing requirements towards controllers in beyond budgeting firms is
necessary.
25
4.4 Comparison between beyond budgeting and budgeting alternatives
Another main point of interest concerning beyond budgeting is if and how beyond budgeting is
applicable compared with other budgeting alternatives. Table VI includes a summary of the
main findings and shows that most of the 32 articles within this review’s sample investigate
this issue, at least partially.
Eleven conceptual articles (De Waal, 2005; Hope and Fraser, 1997, 2000, 2001, 2003a,
2003b; Hope et al., 2003; Libby and Lindsay, 2003a, 2003b; Neely et al., 2003; Player, 2003)
suggest that traditional budgeting is responsible for dysfunctional game playing, misalignment
with the company’s strategy, time-consuming processes or low adaptability to dynamic
environments. These papers suggest that organizations should go beyond budgeting to
overcome these disadvantages.
Among these 11 conceptual articles, nine argue that different to beyond budgeting,
amendments to traditional budgeting processes (i.e., better budgeting) are unable to solve its
inherent problems (De Waal, 2005, Hope and Fraser, 1997, 2000, 2001, 2003a, 2003b; Hope et
al., 2003; Neely et al., 2003; Player, 2003). Neely et al. (2003) state that among five principal
approaches (value-based management, activity-based budgeting, zero-based budgeting, profit
planning, rolling budgeting and forecasting) that support better budgeting, none of these
approaches provides a complete solution to the problems related to traditional budgets.
Especially the time- and effort-related disadvantages of traditional budgeting cannot be solved
by using those approaches. Hope et al. (2003) and Player (2003) add that although organizations
tend to implement strategic management accounting tools such as the balanced scorecard to
shift their focus from budgets to strategy, the effectiveness of the balanced scorecard is still
constrained by annual budgets.
However, the budgeting process might be more complex than the differentiation into the
above-mentioned labels such as traditional budgeting and beyond budgeting suggests. Neely et
al.’s (2003) Scania case could be considered to be a gradual change towards beyond budgeting,
26
although Neely et al. (2003) classify the company’s processes as pure beyond budgeting. Scania
has implemented a slimmed-down budgeting process that still uses high-level budget figures
for the company’s strategic planning, which is not in line with the idea of abandoning budgets
altogether. However, Neely et al. (2003) report that Scania intended to decentralize control and
give decision-making power to its operating companies, which is in line with the “delegation
of power” principle of the beyond budgeting concept. This evidence suggests that some aspects
of the traditional budgeting process may be suitable for a company, whereas the implementation
of other aspects of the beyond budgeting process is beneficial.
In contrast to the above arguments, two conceptual papers propose that beyond
budgeting is less useful than traditional budgeting and/or better budgeting (Hansen, 2011;
Vaznoniené and Stonc
̌iuvienė, 2012). Based on analytical modelling, Hansen (2011) concludes
that elements of better budgeting such as adopting rolling forecasts are to be preferred to beyond
budgeting. Vaznoniené and Stončiuvienė (2012) suggest that instead of implementing a beyond
budgeting approach, firms should use budgeting logical schema to eliminate budgeting
problems, which means that firms should link activity-based budgeting to strategic management
reflections of operational flexibility in the budgets.
In line with these arguments, seven quantitative-empirical papers show that traditional
budgeting still has considerable benefits and most companies want to improve traditional
budgeting processes rather than abandon them (Abogun and Fagbemi, 2011; De With and
Dijkman, 2008; Ekholm and Wallin, 2000; Libby and Lindsay, 2007, 2010; Lidia, 2014;
Sandalgaard, 2012). Libby and Lindsay (2007) state that companies continue to use budgets for
performance evaluation and control purposes by finding ways to improve their budgets. These
results can be confirmed for organizations in other countries such as Nigeria (Abogun and
Fagbemi, 2011), the Netherlands (De With and Dijkman, 2008), Finland (Ekholm and Wallin,
2000), the US and Canada (Libby and Lindsay, 2010), Romania (Lidia, 2015) and Denmark
27
(Sandalgaard, 2012). These results are in line with the findings of the qualitative study by
Sandalgaard and Bukh (2014).
Two conceptual articles state that neither beyond budgeting nor better budgeting or
traditional budgeting is superior to one another (Weber and Linder, 2005, Rickards, 2006).
Weber and Linder (2005) suggest that the effectiveness and efficiency of the methods depend
on the degree of complexity and turbulence. Whereas traditional budgeting can cope with a
high level of complexity but it is not suitable for a highly turbulent environment, beyond
budgeting is effective and efficient in highly turbulent environments but it cannot handle high
complexity. On the other hand, better budgeting is located between traditional budgeting and
beyond budgeting, as it can only cope with a medium level of complexity and turbulence.
Rickards (2006) indicates that budgeting and advanced budgeting projects have a lower
possibility of failure than beyond budgeting ones. However, if the assumption of the budget-
based coordination of activities is invalid, introducing beyond budgeting may be necessary to
change standard operating procedures (Rickards, 2006).
To summarize, although proponents of beyond budgeting put considerable effort into
developing and promoting the concept, numerous empirical studies demonstrate that using
traditional budgeting has some significant benefits. Many organizations tend to prefer to
improve their existing budgeting process instead of going beyond budgeting. The applicability
of beyond budgeting and other budgeting alternatives thus depends on the assumptions and the
degree of complexity and turbulence.
28
Table VI. Is beyond budgeting more useful than other budgeting alternatives?
Supporting Studies
Author(s), Year
Outcomes Number Conceptual
studies Empirical Studies
Beyond budgeting is
more useful than
traditional budgeting
11 De Waal (2005);
Hope and Fraser
(1997, 2000,
2001, 2003a,
2003b); Hope et
al. (2003); Libby
and Lindsay
(2003a, 2003b);
Neely et al.
(2003); Player
(2003)
Beyond budgeting is
more useful than
better budgeting
9 De Waal (2005);
Hope and Fraser
(1997, 2000,
2001, 2003a,
2003b); Hope et
al. (2003); Neely
et al. (2003);
Player (2003)
Beyond budgeting is
less useful than
traditional budgeting
and/or better
budgeting
10 Hansen (2011);
Vaznoniené and
Stonc
̌iuviene
̇
(2012)
Abogun and Fagbemi (2011); De
With and Dijkman (2008); Ekholm
and Wallin (2000); Libby and
Lindsay (2007); Libby and Lindsay
(2010); Lidia (2014); Sandalgaard
(2012); Sandalgaard and Bukh
(2014)
There are no
dominant
management models
2 Rickards (2006);
Weber and Linder
(2005)
4.5 Factors that hinder the implementation of beyond budgeting
The articles were further analysed for factors that might hinder the implementation of beyond
budgeting. As displayed in Table VII, eight such factors could be identified.
(1) Two conceptual studies (Rickards, 2006; Vaznoniené and Stonc
̌iuviene
̇, 2012) and
two quantitative-empirical studies (Libby and Lindsay, 2010; Sandalgaard and Bukh, 2014)
imply that the beyond budgeting process is not equally suitable for every company and
situation. Rickards (2006) argues that it is hardly possible to abandon traditional budgeting in
the manufacturing and merchandising sectors as companies within these sectors must prepare a
budget based on the average inventory turnover to avoid resource scarcity or overstock. In
29
addition, the suitability of beyond budgeting to organizations of different sizes seems to be
unclear. On the one hand, Vaznoniené and Stonc
̌iuviene
̇ (2012) argue that implementing
beyond budgeting is more expensive than upgrading existing budgeting approaches, meaning
that it is only appropriate for large organizations that have sufficient resources. On the other
hand, the research by Ostergren and Stensaker (2011) has shown a successful implementation
of beyond budgeting in medium-sized firms. In addition, Sandalgaard and Bukh (2014)
conclude that abandoning budgets is only suitable for companies that have a branch structure,
as branch structures provide internal benchmarks for performance evaluation. Libby and
Lindsay (2010) find that beyond budgeting can only be used in stable industries.
(2) Two conceptual papers propose that a fear of change can cause reluctance to abandon
traditional budgeting (Rickards, 2006; Heupel and Schmitz, 2015). Rickards (2006) states that
managers hesitate to empower subordinates to make decisions. On the other hand, subordinates
are reluctant to accept the responsibility because they fear disappointing their supervisor.
Rickards (2006) adds that another form of fear is related to know-how. People who know how
to use the necessary budgeting tools can inspire fears of inadequacy in those persons who lack
such skills. Heupel and Schmitz (2015) argue that the safety of comfort zones associated with
traditional budgeting leads managers to refuse new business opportunities to minimize their
risks.
(3) One conceptual paper (Rickards, 2006) indicates that difficulties managing firms
without budgets is one of the reasons why beyond budgeting is rarely implemented in practice.
This is empirically supported by Libby and Lindsay (2007). Rickards (2006) also claims that
the absence of budgets induces production and sales numbers to be vague, which might increase
throughput times or lead to uncontrollable increases in inventories. Further, abolishing budgets
can affect the ability to evaluate an organization’s credit risk, which could increase the risk of
bankruptcy (Rickards, 2006). One reason for this relationship is that financial institutions need
to make sure that the companies in which they invest are properly managed and many tools that
30
help companies do so are provided by traditional budgeting. If the companies no longer have
access to those tools, they might not be able to guarantee proper management and therefore lose
access to financial capital.
(4) Rickards (2006) also points out that implementing beyond budgeting may cause high
costs, as beyond budgeting companies need to carry out fundamental changes to their
management processes. Vaznoniené and Stonc
̌iuviene
̇ (2012) therefore argue that it is necessary
to carefully analyse whether the benefits of going beyond budgeting increase the associated
costs.
(5) Hansen et al. (2003) point out that the implementation of relative performance
evaluations can lead to difficulties for many organizations, as most organizations lack relevant
internal benchmarks. Sandalgaard and Bukh (2014) empirically support this notion by
demonstrating that one of the hindrances to the implementation of beyond budgeting in their
case firm was the lack of internal benchmarks for performance evaluation.
(6) Sandalgaard and Bukh (2014) add that shareholders’ expectations of a predictable
target could also contribute to the failure of beyond budgeting. This is especially true in
situations in which the income that the owners receive from the organization is a major part of
their total income. Therefore, it is believed that fixed targets appear as the best way to ensure
that the owners’ and suppliers’ expectations would be met (Sandalgaard and Bukh, 2014).
(7) Becker’s (2014) multi-case study indicates that remnants are one reason for the “re-
emergence” of budgets in organizations that ultimately fail to abandon budgets. These remnants
(e.g., control and fixed targets) can be interpreted as a proxy both for the previous
institutionalization of budgets and for the difficulties encountered in their deinstitutionalization.
(8) Rickards (2006) argues that beyond budgeting is still in its early stages of
development and only a small number of users are potential candidates for successfully
implementing and benefiting from a beyond budgeting approach. Rickards (2006) also proposes
that although proponents of beyond budgeting suggest replacing budgets with balanced
31
scorecards as the main control instrument, this might lead to some difficulties. For instance, the
use of the balanced scorecard requires that a company has one or more detailed strategies, which
is not always the case in reality, especially for small and medium-sized enterprises (SMEs).
Table VII. Factors that hinder the implementation of beyond budgeting
Supporting Studies
Author(s), Year
Factors Number Conceptual
Studies Empirical Studies
Beyond budgeting is not
equally suitable to all
companies and situation
4 Rickards (2006);
Vaznoniené and
Stonc
̌iuviene
̇
(2012)
Libby and Lindsay (2010);
Sandalgaard and Bukh (2014)
Fear of change 2 Rickards (2006);
Heupel and
Schmitz (2015)
Difficulties managing without
budgets 2 Rickards (2006) Libby and Lindsay (2007)
High costs of going beyond
budgeting 2 Rickards (2006);
Vaznoniené and
Stonc
̌iuviene
̇
(2012)
Lack of internal benchmarks 2 Hansen et al.
(2003) Sandalgaard and Bukh (2014)
Pressure by shareholders to
have predictable targets 1 Sandalgaard and Bukh (2014)
Role of remnants 1 Becker (2014)
Small number of potential
users 1 Rickards (2006)
5. Future research opportunities
Although beyond budgeting has received an increased amount of attention in recent years, many
questions remain unanswered. In this section, future research avenues are identified and
organized into three clusters (see Table VIII): (1) the scale of beyond budgeting, (2) changes in
organizations under beyond budgeting, and (3) challenges of going beyond budgeting.
32
Table VIII. Future research opportunities
Cluster Research Opportunities
The scale of beyond budgeting - Adaption of beyond budgeting in various sectors
such as manufacturing and IT
- Beyond budgeting in companies of different sizes
- Implementation of beyond budgeting in emerging
countries
- Beyond budgeting in differing business strategy
contexts
- The conditions under which relative and subjective
performance can work most effectively as one pillar
of beyond budgeting
- Implementing only a subset of beyond budgeting
principles
- Importance of employees’ needs and their
acceptance of beyond budgeting for the successful
implementation of the concept
Changes in organizations under beyond
budgeting - The changes in communication between
organizations and stakeholders, creditors and rating
agencies without the availability of detailed budgets
- The effect of new management control systems on
the mind-sets of managers and controllers
- Possibility of employing a subset of the beyond
budgeting concept instead of applying all beyond
budgeting principles
- Performance effects of going beyond budgeting
Challenges of going beyond budgeting - Risks and cost of implementing beyond budgeting
- Lessons learned from unsuccessful attempts to
implement beyond budgeting
- Difficulties managing and controlling without
detailed budgets
- Long-term usage of beyond budgeting
5.1 The scale of beyond budgeting
Apart from the financial services industry, steel industry, forest industry and energy industry,
there is still a lack of research on implementing beyond budgeting in other industries (e.g.,
manufacturing or information technology companies) as well as in SMEs. Furthermore,
numerous articles have analysed the successful implementation of going beyond budgeting in
European and North American companies. Yet, little is known about the findings’ applicability
in non-Western countries such as Asian and Middle Eastern countries. Research on the adoption
of beyond budgeting in various industries, in SMEs and in emerging countries, however, is
warranted since the literature has shown that industry sector (Messner, 2016), small firm size
(Lavia López and Hiebl, 2015) and emerging-country settings (Hopper et al., 2009)
33
significantly affect the design and applicability of management accounting practices. In line
with these notions, meta-analytical evidence has shown that contextual factors are important
for the success of the chosen budgeting process (Derfuss, 2015). Van der Stede (2001) explicitly
names corporate diversity and business strategy as contextual factors that play an important role
in the budgeting process.
Despite the importance of contextual factors for the suitability of management
accounting practices in general and budgeting processes in particular, we still know very little
about their impact on the beyond budgeting process. Although it was previously pointed out by
Rickards (2006) that manufacturing and merchandising companies are not suitable for the
implementation of beyond budgeting, no empirical evidence supports this argument. Even more
so, we have little empirical evidence regarding the suitability of beyond budgeting for specific
sectors in general. Although Svenska Handelsbanken is often portrayed as a successful example
of beyond budgeting implementation in the financial sector (e.g., De Waal, 2005), other
organizations from this sector have struggled with the implementation of beyond budgeting and
decided to return to a more traditional budgeting process (Becker, 2014). Such contradictory
results were also found for companies in the energy sector (e.g., Becker, 2014; Bourmistrov
and Kaarbøe, 2013). Additionally, Vaznoniené and Stončiuviene
̇ (2012) state that beyond
budgeting is only suitable for larger companies. However, beyond budgeting has been
successfully implemented in both medium-sized (Ostergren and Stensaker, 2011) and rather
large companies (e.g., Becker, 2014; Bourmistrov and Kaarbøe, 2013). Until now, there has
been no research on the implementation of beyond budgeting in small firms.
Whereas previous research has not (yet) confirmed that firm size or industry sectors
represent relevant contextual factors for beyond budgeting’s success, internal factors such as
reacting to employees’ needs might be a key success factor. Going beyond budgeting is a drastic
form of organizational change. Not engaging employees in this change has been witnessed in
companies that failed when going beyond budgeting, whereas companies that successfully
34
decided to abandon budgets intensively trained their employees (Becker, 2014). De Waal et al.
(2011) argue that even companies unsatisfied with the traditional budgeting process will face
technical, human and organizational barriers when trying to change the budgeting process as
employees feel threatened or challenged by this change. Further research on the circumstances
under which beyond budgeting can be successfully implemented and what companies can do
to increase the likelihood of successful implementation is thus needed.
Rickards (2006) also indicates that although the purpose of the beyond budgeting
concept is to solve the problems associated with traditional budgeting, there is a lack of
evidence on the degree to which beyond budgeting can fulfil this purpose. For instance, as
argued by Hansen et al. (2003), numerous papers discuss the benefits and limitations of using
relative and subjective performance evaluations (e.g., Janakiraman et al., 1992). However, very
few empirical studies analyse the conditions under which relative and subjective performance
evaluations can work most effectively (Hansen et al., 2003). Thus, a deeper understanding of
the applicability of some of beyond budgeting’s pillars such as relative performance evaluations
will make it easier for organizations to judge whether they can adhere to such pillars and thus
whether the consideration of going beyond budgeting is warranted in the first place. Conversely,
it might also be the case that organizations already adhering to certain beyond budgeting
principles might be better equipped to fully go beyond budgets. For example, it might be easier
for companies with a comparably high level of delegation and inclusive leadership style and
strategic processes to go beyond budgets as the organizational change needed is less radical
than for organizations that do not yet adhere to any beyond budgeting principle. Likewise, firms
already featuring highly participative budgeting processes might be more likely to successfully
implement beyond budgeting.
To summarize, interesting research questions on the scale of beyond budgeting include:
- How do companies in various industries adopt beyond budgeting? Is the beyond
budgeting process more or less suitable for certain industry sectors?
35
- How do SMEs adopt beyond budgeting?
- Is beyond budgeting more suitable for a specific business strategy?
- How can beyond budgeting be applied to emerging country settings? Is national
culture an important factor that influences the successful implementation of beyond
budgeting?
- To what extent does beyond budgeting solve traditional budgeting’s problems such
as missing relative performance evaluations? Under which conditions could relative
and subjective performance evaluations work effectively in a beyond budgeting
setting?
- To what extent are organizations adhering to some beyond budgeting principles more
likely to (successfully) fully go beyond budgeting?
- What steps must be taken to foster employees’ acceptance of beyond budgeting?
What kind of training is needed to prepare employees for the changed demands after
the abandonment of budgets?
5.2 Changes in organizations under beyond budgeting
In terms of organizational changes under beyond budgeting, it is argued in the conceptual
literature (e.g., Rickards, 2006) that the absence of budgets can increase a company’s liquidity
risks, as financial institutions are no longer able to evaluate the risk of beyond budgeting
companies. Similarly, Sandalgaard and Bukh’s (2014) case study suggests that organizations
face huge pressure to deliver detailed budgets to creditors and owners, which are, however, not
available when applying beyond budgeting. Given the scarcity of the empirical literature on
these issues, more empirical research on how companies could manage and communicate their
financial situation and their risk profile without detailed budgets is needed, since such research
could help managers decrease—or at least better foresee—the likelihood of losing access to
financial capital when applying beyond budgeting.
36
Bourmistrov and Kaarbøe (2013) underline that beyond budgeting research should not
only focus on changes in accounting techniques; it also needs to pay attention to the necessary
changes in organizations’ mind-sets. Thus, more studies of the requirements of beyond
budgeting regarding the mind-sets of decision-makers, subordinates and controllers are needed.
For instance, many organizations that change their management accounting system towards a
beyond budgeting concept tend to maintain fixed budget targets (Sandalgaard and Bukh, 2014).
However, there is no agreement on whether beyond budgeting requires the implementation of
all beyond budgeting principles or whether organizations can adopt only a subset of them
(Rickards, 2006).
Furthermore, meta-analytical evidence on traditional budgeting processes has shown that
a high level of participation is positively linked to budgetary performance (Derfuss, 2009).
However, there is no knowledge about the impacts of beyond budgeting on the performance.
Thus, a deeper understanding of these issues could help organizations that intend or are
attempting to abandon traditional budgets. If empirical evidence would show that beyond
budgeting is positively associated with performance or growth, the acceptance of the concept
among practitioners might increase, too, especially regarding the high investments that are
likely to occur during the process of going beyond budgeting.
In summary, possible research questions on organizational changes under beyond
budgeting include the following:
- How does risk management have to change under beyond budgeting?
- How do organizations communicate with their stakeholders, rating agencies and
creditors without detailed budgets?
- How do new management control systems under beyond budgeting affect the mind-
sets of managers/controllers?
- How will the accountability of subordinates change when organizations carry out
beyond budgeting?
37
- How far can organizations implement beyond budgeting when only adopting subsets
of the beyond budgeting principles? What are the effects of adopting such subsets?
- What performance effects can be observed when firms decide to go beyond
budgeting?
5.3 Challenges of going beyond budgeting
As indicated above, conceptual research maintains that the high cost and uncertainty are
hindrances that lead organizations to hesitate to abandon budgets (e.g., Rickards, 2006;
Vaznoniené and Stonc
̌iuvienė, 2012). However, we still know little about the actual costs that
organizations may incur and potential risks that organizations may face when moving towards
a beyond budgeting approach, which includes substantial organizational changes such as radical
decentralization. Furthermore, proponents of beyond budgeting have spent considerable time
and effort studying companies that have successfully implemented beyond budgeting (e.g.,
Hope et al., 2003; Player, 2003), while there is a limited literature about companies who have
failed to abandon budgets or reintroduced budgets. Thus, empirically investigating the
challenges that organizations may face when going beyond budgeting may enable
organizations, consultants and practitioners to consider the benefits and risks of abolishing
budgets. At the same time, this review has shown that some organizations are unable to manage
and control without budgets (Libby and Lindsay, 2007; Rickards, 2006). Nevertheless,
knowledge of what difficulties or barriers organizations experience in managing and controlling
without budgets and how organizations have overcome these barriers remains scarce and future
research is needed to shed more light on this issue. Furthermore, there is little knowledge about
the long-term usage of beyond budgeting. Future research might therefore analyse how beyond
budgeting works out in the longer-term.
In summary, interesting research questions include:
38
- Which potential risks and costs do organizations face when implementing beyond
budgeting?
- What lessons can be learned from organizations’ failed attempts to abandon budgets?
- What difficulties or barriers do organizations experience in managing and controlling
without budgets? How can these be overcome?
- How does beyond budgeting work out in the long-term?
6. Conclusions
This paper aimed to provide an overview and a synthesis of the existing literature on beyond
budgeting. To do so, we addressed the question of how management control systems change
under beyond budgeting, we compared the applicability of beyond budgeting and budgeting
alternatives and analysed the factors that hinder the implementation of beyond budgeting. We
conclude that although a number of conceptual and empirical papers have criticized traditional
budgeting for being time-consuming and expensive, encouraging gaming behaviour, being not
suitable in competitive environments, producing the misalignment of budgets with the
company’s strategy and strengthening vertical command-and-control cultures, several
empirical papers argue that these points of criticism are not equally true for all organizations
and/or generally overstated (Libby and Lindsay, 2007, 2010; Lidia, 2014). Nevertheless, these
issues are present to some extent. Consequently, our review also shows that when implementing
a beyond budgeting approach, organizations’ management control systems must change
regarding targets, motivation and rewards, planning and forecasting, measures and controls, the
role of controllers, resources, coordination, and culture. At the same time, our review reveals
that although proponents of beyond budgeting put enormous effort into developing and
promoting the beyond budgeting concept, numerous organizations have chosen to improve
budgets rather than abandon them. Our paper also highlights the reasons why this may be so
and which factors may hinder the implementation of beyond budgeting. These reasons include
39
the fear of change, difficulties managing without budgets, high costs, the lack of internal
benchmarks, the pressure to deliver payback to suppliers or owners, remnants of traditional
budgets and a small number of potential users. Furthermore, it can be stated that beyond
budgeting is not equally suitable for every company and situation.
Against the backdrop of these observations, our review delivers two contributions to the
literature. First, our review is the first synthesis of the literature on beyond budgeting. We
highlight that the arguments brought forward in conceptual papers on beyond budgeting do not
all hold when looking at the empirical literature. In fact, the empirical literature suggests that
many organizations only choose to improve traditional budgeting instead of going beyond
budgeting, or when going beyond budgeting, some organizations reintroduce budgets after
some time. Thus, our review should be useful for consultants and practitioners since we offer
synthesized knowledge on the implementation of beyond budgeting and on the challenges that
could appear within organizations that go beyond budgeting. Second, our paper proposes future
research opportunities on beyond budgeting, which we believe is desperately needed.
However, the limitations of this review paper need to be considered. First, as usual in
systematic literature reviews, this review only includes papers that could be found in electronic
databases. Other types of sources such as books were not analysed, although they might include
important contributions. Second, papers in languages other than English were not considered
for the review, although they might contain valuable information. Finally, although three
databases were searched for the keywords described in the methodology section of this paper,
there is still the risk that not all relevant papers were included in those databases.
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