Question

Traditional budgeting methods are becoming outdated and counter-productive. The idea that departments will needlessly spend in the final months of the year to ensure their budget is not cut the following is unreasonable. Beyond Budgeting looks to rectify these problems by abandoning traditional methods. The two main drivers for this are;

1.A more adaptive set of management processes

2.A highly decentralized organization

Beyond Budgeting empowers management by giving them the freedom to achieve their goals without the need of a rigid set of budgeted number's? Instead, front line management are given goals that are in line with shareholder value and the bigger picture.

As one of the main criticisms of traditional budgeting methods is the fact it's too short-term in its thinking. These goals are measured using a set of KPI's, industry benchmarks, customer satisfaction and revenue or market capitalization.

Hope and Fraser identified 6 shared common principles that should be used by all companies who want to adopt a Beyond Budgeting technique:

.A governance framework based on clear priorities and boundaries.

.A high performance climate based on visible and relative success at all levels.

.Front line teams with a freedom to take decisions in line with the company's governance principles and strategic goals.

.Teams given responsibility for value creating systems.

.Teams focuses on customer outcomes.

.Open and ethical information systems.

If applied correctly, the beyond budgeting process rewards the high performers within the company and not just the skilled budget negotiators. Other key benefits include accountability and ownership by empowering the front line teams to make decisions. And, of course, there is less waste as managers are encouraged to work towards medium and long term strategic goals rather than traditional annual budgets that produce unnecessary spend.

REQUIRED:

1.Debate the impact of Beyond Budgeting, clearly providing relevant examples and cases to enhance your discussion. It should include an analysis of its technical

implementation and overall impact towards the firm's business model and strategy.

2.Determine the behavioral changes expected from the firm's personnel in line with the changes explained in Question 1.

Answer 1

(1): Beyond Budgeting, on an overall basis has a significant positive impact on the operations of a business and helps in improving its business model and bolstering its strategy.

Beyond Budgeting removes the hurdles and drawbacks of a traditional budgeting system. There is no heavy reliance on the agreed budget and the focus is more on the corporate goals, objectives and continuous improvement within the organization. Moreover Beyond Budgeting ensures sufficient external focus that is needed for the systematic growth of a company. What Beyond Budgeting does is that it helps the organization and its employees to take into consideration the current as well as the future opportunities and threats that will be faced by the organization. These forces are factored in the budget and hence the budget is more encompassing and more comprehensive in nature and is not at all only an inward looking tool like the traditional budget. Goal setting, planning action, resources and systematic co-ordination becomes the key features of Beyond Budgeting. This ensures that the organization’s focus is not limited to the short term only but the organization is able to shed its myopic approach and is able to adopt a long term focus and orientation.

For example several companies across the globe (and both in private sector as well as public sector) have started using Beyond Budgeting. Companies have been able to achieve success as they have shifted their focus towards beating the competition. Earlier under the traditional budgeting system beating the competition was never the focus area. It has also enabled companies to stretch their goals and make their planning process more continuous. Overall the company’s strategy will become more aligned with its goals and objectives and its business model will be strengthened and become in line with the company’s mission and vision.

(2): There will be several positive behavioral changes that a firm will witness with regards to its employees and personnel. First of all the company’s personnel and employees will get motivated as they get new challenges, new responsibilities that are accompanied by clear guidelines. As rewards gets team based the level of team work will also increase and improve within the organization. Operational managers will be empowered to act as they will be in a position to remove resource constraints facing them. Moreover employees and managers will be in a position to respond well to external threats and dynamic external factors. The employees and work teams will become more customer oriented and information systems will become open and transparent. All in all productivity and efficiency levels of employees will improve as focus shifts from the short term to the long term.