Research The Concept Of Beyond Budgeting Over And Above The Required Assigned Readings. Research Paper Sample
Type of paper: Research Paper
Topic: Beyond, People, Utilization, Flexibility, Forecast, Accountability, Roundtable
The beyond budgeting concept is an approach developed by the Beyond Budgeting Roundtable (BBRT). The latter is a program of the Consortium for Advanced Manufacturing. The argument posed by the BBRT comes from the fact that organizations need to be more flexible and responsive to deal with unpredictable change, hyper-competition, and increasingly fickle customers, by implementing more effective strategic management (Libby and Murray 30).
This model from the BBRT exposes that barriers derived from the traditional budgeting model shall be overcome by adhering to BBRT’s twelve principles to create a devolved and adaptive organization that gives local managers the self-confidence and freedom to think differently, to take fast decisions, and to feel comfortable about engaging in innovative projects with colleagues in multi-functional teams both across the company and outside the firm. The mentioned principles are detailed below (Hope and Fraser 9).
Governance – Establish a framework for devolution by clarifying purpose, principles and values, don’t enforce central control through rules and procedures.
Empowerment – Give people the freedom and capability to act, don’t control and constrain them.
Accountability – Make people accountable for achieving competitive outcomes, not for meeting functional targets.
Organization – Organize around a network of interdependent customer-oriented units, not a hierarchy of functions and departments.
Coordination – Coordinate cross-company interactions through “market like” forces, not through central planning, budgeting and control.
Leadership – Challenge and coach people, don’t command and control them.
Goal setting – Beat the competition, not the budget.
Strategy process – Make strategy a continuous and inclusive process, not a top-down annual event.
Anticipatory system – Use anticipatory systems to inform strategy, not make short-term corrections to ‘keep on track’.
Resource utilization – Make resources available when required, don’t allocate them on the basis of annual budgets.
Measurement and control – Provide fast, open information for multi-level control, not detail for micro-management.
Motivation and rewards – Base rewards on company and unit-level competitive performance, not predetermined negotiated targets.
Find an example of an organization that adopted beyond budgeting and briefly outline the characteristics of the organization’s beyond budgeting approach. Identify what changes took place in that organization and what benefits it gained by using the beyond budgeting techniques.
Bogsnes (2011), as the Vice President of Performance Management Development at Statoil, describes their approach as a way to end with the traditional brick by brick management processes which caused increased rigidity and bureaucracy. As per his explanation, Statoil moved forward to the beyond budgeting model, aiming for real and sustainable change, by focusing on the following aspects:
Introducing “Ambition to Action” point of view, abolishing traditional budgeting.
Increasing flexibility, in order to make Statoil work as a big and small company at the same time.
Setting the differences between a sales target and sales forecast and their usage to get a good cost forecast.
Dividing the three purposes of the budget in order to solve the traditional budget problem itself (fig. 1).
The benefits observed as results from these changes in Statoil were represented by:
Increased autonomy and flexibility.
Higher accountability for results.
Improved utilization of autonomy and delegation tools.
Trust-based management but reacting firmly to those who abused of it, giving as a response a more serious organizational culture.
Dynamism and decentralized decision power improving the development of processes.
Libby, Theresa and R. Murray Lindsay. Budgeting, An Unnecessary Evil. CMA Management Part One. March 2003. (Note from the writer: please complete other information relevant to the source here).
Hope, Jeremy and Robin Fraser. Beyond Budgeting White Paper. Beyond Budgeting Roundtable. May 2001.
Bogsnes, Bjarte. Taking reality seriously - towards a more self-regulating management model at Statoil. Management Innovation eXchange. 28 Nov. 2011. Web. 02 Jan. 2015.