Advantages Of Beyond Budgeting

3.0 FINDINGS AND ISSUES

Beyond budgeting is no longer simply a theoretical concept, but an actual management technique. Various companies have actually shifted or in the process of shifting to beyond budgeting such as Ford Motors (Neely et.al., 2003, pp.25).

3.1 Benefits of beyond budgeting over traditional budgeting

Reduced costs

Cases: Svenska Handelsbanken

Beyond budgeting reduces budgeting costs process consequently improving organization’s performance. The Swedish bank Svenska abolished budgets in 1970 and introduced beyond budgeting by decentralization of decision making process in its 520 operating branches across the Nordic region. It to become the most cost-effective European bank in terms of cost-income ratio and reported better

Rhodia is a large French chemical company operating around the globe with estimated sales of $7.2 billion. Its annual budgeting process took six months to prepare which slowed down the company’s ability to respond to fluctuations in the market. In 1999, beyond budgeting was introduced to solve the problem of fixed planning and control in its operations. Instead of fixed budgets, managers use balanced scorecard to plan on quarterly basis. Managers now focus on medium-term strategies than fixed targets. The management noticed improvement on budget control and an effective response on the emerging market’s threats and opportunities (Hope&Fraser,

The firm creates different teams that are trained by the firm’s chairman about the company’s values and culture in all key unit’s positions (Hope &Fraser 2003, pp.7)

3.2 Criticisms of beyond budgeting

Since beyond budgeting is still a new concept, its shortcomings are not yet completely clear. Instead of controlling, managers have to delegate, train, challenge and motivate them. Corporations with less resources and well-educated employees may face difficulties in implementing beyond budgeting because human and intellectual capital are important (Moorselaar, 2011 pp.19)

Second, it requires changes in the company’s organizational culture which can be complicated because set of values, customs and beliefs of the corporation have been established for a long time and most members will naturally resist changes (Arnold et.al., 2010).

Third, there is little research on how corporations should implement its principles. A survey by Ostergren & Stensaker (2011) on initial implementation of beyond budgeting on large oil and gas company showed that although targets were more aligned with strategy, it resulted into top driven and superficial target setting