Optimizing Performance With Beyond Budgeting: A Contingency Perspective

Abstract

In many years, budgeting has proven to be an excellent starting point for management control systems. However, due to the changing environment, criticism has developed around the traditional budgeting. If the traditional budgeting is out of sync with the organisation's environment, it doesn’t enable innovation as it is too rigid. On that basis Jeremy Hope and Robin Fraser developed Beyond Budgeting. This is an approach where the company completely abandons the budget and instead uses a set of guidelines provided by Beyond Budgeting. The keywords for Beyond Budgeting are adaptive processes and decentralization. The purpose of this thesis is to determine the specific contingencies where the usage of the different budgeting methods create better performance. Through a contingency approach this thesis incorporates innovation and the external environment’s; hostility and dynamism, to determine under which circumstances the different budgeting methods are advantageous. Therefore, this thesis does not try to conclude whether one budgeting method is better than the other. Furthermore, we try to examine whether a coherence between the different principles is necessary to gain better performance. To answer our research question, we formulated five hypotheses based on the existing literature. The hypotheses were analysed though a statistic analysis. Based on the analysis it was concluded that firms who are using exploratory innovation are also able to enhance their performance by using Beyond Budgeting as their management control system. Furthermore, it was found that if the company operates in a very dynamic environment companies can create better performance by leveraging Beyond Budgeting as their management control system. Lastly, it was concluded that only companies that are coherent in their Beyond Budgeting principles can enhance their performance by implementing more of Beyond Budgeting principles.