A Critical Review By;

T. H. D. C. M. De Silva
(2017/MBA/WD/14)
R. M. N. S. Divulwewa
L. K. N. Lihinikumara
D. N. P. Munasinghe
K. A. Upeksha
(2017/MBA/WD/ 17)
(2017/MBA/WD/37)
(2017/MBA/WD/40)
(2017/MBA/WD/63)

MBA 5103 - Management Process & Practice Master of Business Administration (General- Weekday)
Overview of the
Article…
Background of the Article

Title : Beyond budgeting or budgeting reconsidered?

Subtitle : A survey of North American Budgeting Practice
Year : 2009 (Vol 21, Pages 56 to 75)
Authors : Theresa Libby and Murray Lindsay
Journal : Management Accounting Research
Key Words : Budgets, Beyond Budgeting, Budgeting Practice
Availability : Available at ScienceDirect, Elsevier
Summary of the Article

 Discusses the role of ‘Budgets’ in management control.

 Compares problems with budgeting in two ways;

1. Problems stem from the way budgets are used
2. Budgeting processes are fundamentally problematic

 This article attempts to find systematic evidence by;

1. To do an updated literature review
2. Collect empirical evidence to assess the relationship
3. To suggest some recommendations from the patterns identified
Background of the Study

• Traditional budgeting practices were criticized in the early literature

Examples: Otley (1994), Hansen et al (2003).
• Many scholars argue that the traditional budgeting cannot be
improved effectively.
• As a solution to traditional budgeting, beyond budgeting concept
was developed .
• Research on this topic has generated mixed results.
• It is recommended in previous research that, it may be useful to
consider practitioner views to generate new research perspectives in
budgeting.
Significance of the Article..

• This study attempts to undertake a step forward to fill the

research gap suggested in the previous research.
• For this purpose, the study uses two large surveys.
• The study is conducted to investigate the budgeting patterns in
North American companies in three ways;
• Budgeting practices
• Manager beliefs about budgeting and,
• Key outcomes associated with budgeting systems.
Methods Used in the Article..

Few steps involved;

1. Update the literature in the budgeting practices in North America
(The only giant previous research was Umapthy (1987)
2. To investigate the budget managers’ overall perception
3. To examine the extent to which practitioners identify with criticisms
4. To identify the avenues for future research

Web based survey was conducted for managers holding senior positions
13.6% Response rate
Main Argument..

• Use of the fixed performance contract is less prevalent than

what is suggested by the BBRT or the RAPM literature.
• Time spent on budgeting is considerably less
• Many firms used adaptive processes to different environments
• Budget process is explicitly linked to strategy implementation
in majority of firms
• Budgetary gaming appears more pronounced in the US firms.

Most companies have no plans to abandon good budgeting practice, although

many are planning to take steps to improve their budgeting systems to
overcome some of the common criticisms.
Findings and Recommendations..

• Should not taking beyond budgeting vs. traditional

• Found evidenced for very successful companies who utilize both
approaches.
• Should develop the possibilities of each model using highly
successful companies.
• Requires more in-depth studies.
STRENGTHS
of the Article…
Greatest Strengths of the Article..
1. The article is published in a top rated journal..

Reviewers
Cite Score: 5.42
Average Citations
Impact Factor: 4.044
5-Year Impact Factor: 6.612
Source Normalized Impact per Paper (SNIP): 2.497
Journal Rank (SJR): 2.166
Greatest Strengths of the Article..

1. The article is based on giant previous

studies..
• Which attempts to fill their gap by updating the literature..
• Examples: Hope and Fraser (2003) and Umapathy (1987)

Libby and Lindsay (2010). Page 57

Greatest Strengths of the Article..

3. Addresses criticisms of budgeting in previous studies..

Budgeting consumes a lot of managerial time

Benefits may not worth the cost
Controls firms from adapting to changes in a timely manner
Fixed in nature
Disconnected with strategy
Fixed performance contract leads to unreliable performance evaluation
Promotes budget gaming
Greatest Strengths of the Article..

4. Confirms the findings of other related studies..

Traditionally budgets are widely used for planning, coordinating,

controlling, motivating, evaluating and allocating resources
(Drury, 2005, Horngren et al., 2008, Langfield-Smith et al., 2000)

It has, however, received much criticism as a barrier to competitive success

especially in the information age (Hope and Fraser, 1997, Jensen, 2001)

Beyond budgeting (BB) has been suggested as a potential solution

BB requires far reaching changes in the organizational structure (Hope and

Fraser, 1997, 1999)
REMAINING GAPS
in the Article…
Remaining Gaps in the Article..

1. Limited to the North American Context..

• Two surveys in the study were conducted only for the North America
• Findings may not compatible with the other countries..
Remaining Gaps in the Article..

2. Web based survey..

• The study was conducted for managers holding senior positions using a
web based survey.
• Which was conducted in the year 2009 where there was a comparatively
less IT development.
Remaining Gaps in the Article..

3. Low Response Rate

• IMA Response rate is 1.5%
(CMA Canada 13. 6 %)

Reasons:
Used emails without postal mail
Difficult to specify a meaningful group
Less follow up reminders

Libby and Lindsay (2010). Page 58

Remaining Gaps in the Article..
4. Some gaps are covered in recent literature..

• Recent articles have filled some gaps in this article by using different methods.
• Example: Nguyen et al (2019) have done a comprehensive literature review ..

Nguyen, Wigel and Hiebl (2018), Page 6

APPLICABILITY
in Sri Lanka…
Samudrage and Beddage (2018)

• Conducted multiple case studies for four reputed companies in

Sri Lanka..
• Those four leading companies are; Muffler, Carol, LFC and Brown
They found that the main barriers of moving to Beyond budgeting Sri Lanka are;
1. Lack of awareness on beyond budgeting
2. Complications of setting rolling forecasts
3. Bureaucracy
4. Lack of virtues and difficulties in assessing team performance
5. Dependency culture on budgets to guide and evaluate competitor
intelligence
Goonaratne (2018)

• Discusses the applicability of 3 modes of management control from

‘traditional’ budgeting to ‘better’ budgeting and ‘beyond’ budgeting.
• Traditional budgeting has many weaknesses
• With these weaknesses, practically organisations initiate improvements
in the name of ‘better’ budgeting.
• Better budgeting is a balancing act between addressing the limitations
of ‘traditional’ budgeting and the inspiration gained from ‘beyond’
budgeting.
Applicability of Beyond Budgeting for Sri Lanka Corporates

“As you move beyond budgeting, your structure should become more
networked. You will be able to locate and combine expertise across the
network and bring collective expertise together to provide customer
solutions.”
Professor Wickremasinghe
(Press Room: The Institute of Chartered Accountants of Sri Lanka)
He explained the applicability of beyond budgeting concept to the Sri Lankan context as follows;

Old command and control management style is out of tune with the new need for agile and
adaptive leadership and the need to transfer more power and authority to people closer to the
customer..

Sri Lanka’s budgeting is out of date with the competitive environment and no longer meets the
needs of either executives or operating managers.
Top 3 companies in Sri Lanka
01. John Keells Holdings

• Budgeting and forecasting programme

Which helps to build the capacity of the company’s managers, enabling them to
enhance their contribution towards financial planning process.

• Risk Universe Analysis

The company has analysed budgeting and financial planning to assess the
identified risks in terms of implication and impact to the company.
Top 3 companies in Sri Lanka
02. Commercial Bank of Ceylon

• Annual Strategic Planning and Budgeting Exercise

In 2019 with the recent developments the bank revealed the urgent need for
strengthening the corporate plan and budgeting exercise.
• Strategic Risk
Corporate planning and budgeting process are used to alignment with bank’s
vision, mission and the risk appetite to facilitate management of strategic risk.
Further, they used to have forward looking information to identify and document
the areas for improvement quantitatively and qualitatively.
Top 3 companies in Sri Lanka

03. Ceylon Tobacco Company

• Business Plan and Budgets

Targets are set for key performance indicators that are
critical to achieve the plan. The performance is monitored
against the targets on a regular basis.

The companies in Sri Lanka practices traditional good

budgeting practices and try to improve their budgeting
systems…
Learning from some successful cases
Beyond budgeting lead to better performance in IKEA

IKEA
(World’s largest furniture manufacturer)

Hope ad Fraser (2003) and, McVay and Cooke (2006)

Learning from some successful cases
Decentralization, team working and empowerment have been used to develop the
beyond budgeting in Volvo Cars..

VOLVO
(World’s top ranked car manufacturer)

Hope ad Fraser (2003) and, McVay and Cooke (2006)

Conclusion..

• The article explain how the beyond budgeting concept was

developed as a solution to traditional budgeting.

• There are less researches conducted on this topic globally and

locally.

• Many countries and companies including Sri Lanka do not use

beyond budgeting techniques.

• Lack of awareness, bureaucracy and dependency culture on

budgets to guide and evaluate competitor intelligence are
some of the reasons for non using of beyond budgeting.
Recommendations..
To prepare a good environment for the beyond budgeting in the countries
including Sri Lanka, following steps can be implemented;

I. Enhancing leadership Principles such as self governance framework,

empowered managers, accountability for dynamic outcomes, network
Organization, market Coordination and supportive Leadership.

II. Process Principles can be controlled by better focusing on;

Relative Targets
Continuous Strategy setting
Anticipatory systems
Resource on demand
Fast, distributed information
Relative team rewards
References..
I. Samudrage,D.N and Beddage, H.S. (2018). Status and Challenges in
Implementing Beyond Budgeting: Evidence from Sri Lanka, International
Business Research. 11 (12), 113-126.

II. Gooneratne, T.N (2017). ‘Traditional’ Budgeting, ‘Better’ Budgeting and

‘Beyond’ Budgeting: Theoretical and Practical Perspectives, Economic
Review.

III. “Tenability of ‘Beyond Budgeting’ for Sri Lankan corporates”,21 th

January, 2012, DailyFt, http://www.ft.lk/opinion/tenability-of-beyond-
budgeting-for-sri-lankan-corporates/14-67316
Thank You!