Traditional budgeting methods are becoming outdated andcounter-productive. The idea that departments will needlessly spendin the final months of the year to ensure their budget is not cutthe following is unreasonable. Beyond Budgeting looks to rectifythese problems by abandoning traditional methods. The two maindrivers for this are;
1.A more adaptive set of management processes
2.A highly decentralized organization
Beyond Budgeting empowers management by giving them the freedomto achieve their goals without the need of a rigid set of budgetednumber's? Instead, front line management are given goals that arein line with shareholder value and the bigger picture.
As one of the main criticisms of traditional budgeting methodsis the fact it's too short-term in its thinking. These goals aremeasured using a set of KPI's, industry benchmarks, customersatisfaction and revenue or market capitalization.
Hope and Fraser identified 6 shared common principles thatshould be used by all companies who want to adopt a BeyondBudgeting technique:
.A governance framework based on clear priorities andboundaries.
.A high performance climate based on visible and relativesuccess at all levels.
.Front line teams with a freedom to take decisions in line withthe 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 thehigh performers within the company and not just the skilled budgetnegotiators. Other key benefits include accountability andownership by empowering the front line teams to make decisions.And, of course, there is less waste as managers are encouraged towork towards medium and long term strategic goals rather thantraditional annual budgets that produce unnecessary spend.
REQUIRED:
1.Debate the impact of Beyond Budgeting, clearly providingrelevant examples and cases to enhance your discussion. It shouldinclude an analysis of its technical
implementation and overall impact towards the firm's businessmodel and strategy.
2.Determine the behavioral changes expected from the firm'spersonnel in line with the changes explained in Question 1.
