Beyond Budgeting

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due to it being outdated. Instead they believe that Beyond Budgeting should be implemented. Ekholm and Wallin (2000) also added that the traditional system is firm and if used widely, has the ability to be of value to companies which (Libby and Lindsay, 2010) strongly agreed.

BB consists of targets that are not fixed as managers can review budgets regularly and make changes which makes BB flexible (Rickards; 2006, Daum; 2004). By implementing BB, benefits such as a decentralised system and self-managed working environment will form (Bourmistrov and Kaarbøe, 2013). Goode and Mali (2011) added that BB provided regular performance reviews that allowed setbacks of traditional budgeting such as inefficiency and time to be overturned (Horváth et al., 2004). But the implementation of a decentralised system could result in employees being overwhelmed with the sudden freedom (Hope and Fraser, 2003).

Moreover, Goode and Mali (2011) added that the abandonment of budgets leads companies relying on no framework which can cause them to lose their direction. BB is still new hence so Rickards (2006) suggests more research and encourage companies to try out BB so as to draw up a balanced analysis about the effects of BB.

On a brighter note, there have been many successful companies BB such as Svenska Handelsbanken (Bank) and Borealis (Petrochemicals) based in Sweden and Austria respectively (Daum; 2004, Rickards; 2006). Svenska Handelsbanken eliminated the use of traditional budgeting around 1970s and they are performing much better (Daum, 2004). In an interview with Lennart Francke by Juergen Daum (Daum, 2003), Dr. Jan Wallander, CEO of the bank then found budgeting to be unnecessary as he believed that having a budget based on forecasts would be more helpful than having an outdated budget (Daum, 2003). He also emphasised that with a budget, employees tend to be inflexible in decision-making as the budget restricts them. The main factor that contributed to the successful change was believed to be direct communication between all employees regardless of position (Daum, 2003).

In another set of interview questions with Hope, Dr Wallander said that BB requires factors such as less control of employees, tight corporate culture and no budget to be successful. This ensures the company has a trust system with all employees to ensure the company’s goals can be achieved.

Another example of a company that successfully implemented BB was Borealis in 1996 to improve management, reduce resources and simplify their budgeting processes (Boesen 2000). Their main reasons for abolishing budgeting was similar to drawbacks mentioned previously. Furthermore, the company felt that managers tend to spend almost all the resources allocated to them, leading to many resources being wasted. With BB, they were able to substitute some of their processes by using a Balanced Scorecard for target-setting and allocating costs when required (Boesen, 2000). Hence they came up with a model which contained processes on Rolling Financial Forecast, Balanced Scorecard, Limited Cost Understanding and an Annual Plan which is still in place till today (Boesen, 2000).