Improving Strategic Performance Management Using

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Tanta University Faculty of Commerce Accounting Department

Improving Strategic Performance Management Using Beyond Budgeting Information: An Exploratory Study Thesis submitted to fulfill the requirements for the master degree in Accounting Prepared by Abed Mohamed Hamed Sallam Demonstrator - Accounting Department

Under Supervision of Prof. Dr. Tahany Mahmoud El-Nashar Professor of Cost Accounting Faculty of commerce Tanta University Dr. Medhat Naguib El Guindy Assistant Professor of Accounting Faculty of commerce Tanta University 2017

‫بسم هللا الزحمه الزحيم‬ ‫ث ۚ َو ه‬ ‫(‪ ...‬يَ ْزفَ ِع ه‬ ‫هللاُ ِب َما تَ ْع َملُونَ َخبِي ٌز)‬ ‫هللاُ اله ِذيهَ آ َمنُوا ِم ْن ُك ْم َواله ِذيهَ أُوتُوا ا ْل ِع ْل َم َد َر َجا ٍ‬ ‫جزء مه اآليت رقم ‪ – 11‬سورة المجادلت‬


Members of the Dissertation Oral Defense Committee

Prof. Dr. Tahany Mahmoud El-Nashar Professor of Cost Accounting Tanta University

Chairman & Supervisor

Prof. Dr. Modather Taha Abu Elkhair Professor of Financial Accounting University Vice President for Education and Student Affairs Tanta University

Internal Member

Prof. Dr. Reda Ibrahim Abdul Kader Saleh Professor of Financial Accounting Dean of Faculty of Commerce Kafrelsheikh University

External Member

Defense date: / / 2017 Committee Decision: Faculty Council Decision and its Date:


Acknowledgements Thanks to ALLAH, the most merciful and the most compassionate, without his help nothing could be done. I am delighted to express my sincere appreciation to Prof. Dr. Tahany Mahmoud El-Nashar, not only for constant help, but also for instructive supervision, valuable guidance, the time and effort she generously gave to me. I am also grateful to Assistant Professor Dr. Medhat Naguib El Guindy, for his expert advice and assistance. His great help and guidance are very much appreciated. I owe special thanks to Prof. Dr. Modather Taha Abu Elkhair and Prof. Dr. Reda Ibrahim Abdul Kader Saleh for accepting to be in the defense committee and contributing with helpful comments. I want to thank them for giving me some of their valuable time. I am sure that their comments will make my dissertation more valuable.

And finally, I am deeply grateful to all the faculty members in the Accounting Department. Their advice and guidance will never be forgotten. Also, I would like to thank all the representatives of Vodafone Egypt, and all those who helped in the case study, which helped a lot in completing this research.


DEDICATION This thesis is dedicated to my father, mother, my kind sister and brothers. May ALLAH bless them, protect them from all the bad, give them continued good health, prolonged life and best rewards.


Improving Strategic Performance Management Using Beyond Budgeting Information: An Exploratory Study Abstract Traditional budgeting has been criticized over the years for several reasons such as consuming time, high cost of preparation, inflexibility, and in addition, traditional budgets are rarely strategically focused. As a result, this research aims at clarifying the problems related to traditional budgeting. Those problems represent the trigger for beyond budgeting for more innovative, flexible, and reliable budget. This leads to the availability of information relative to better decision making that make the firm more adaptive to the changing business environment. In addition, one of the main objectives of this research is to illustrate how rolling forecasts are implemented in a Beyond Budgeting environment. Through the use of qualitative research, the study takes a holistic view of analyzing how rolling forecasts are evaluated and used by managers, and how the rolling forecasts affect managerial behavior. The findings indicate that implementation of Beyond Budgeting has mitigated the dysfunctional and gaming behavior caused by the traditional budgeting process. This leads do enhanced strategic performance. However, there have been some problems related to the application of beyond budgeting with regard to the need to apply a number of tools and procedures and the availability of relevant information. Keywords: Budgeting, Traditional Budgeting, Beyond Budgeting, Rolling Forecast, Benchmark, Balanced Scorecard, Target, Strategy, Reward, Control, Resources, Coordination, Delegation. f

‫تحسين ادارة اآلداء االستراتيجي باستخدام معلومات مدخل التخلي عن الموازنات ‪:‬‬ ‫دراسة حالة استكشافية‬ ‫ملخص البحث‬ ‫ىقذ ٗاجٔ اىَذخو اىحقييذي العذاد اىَ٘اصّبت اىعذيذ ٍِ االّحقبدات يَنِ اجَبىٖب في (جستحرش‬ ‫ٗقث غ٘يو العذادٕب‪ ،‬اسجفبع جنبىيف االعذاد‪ ،‬اّخفبض اىَشّٗة‪ ،‬اىبعذ عِ اىح٘جٔ االسحشاجيجي)‬ ‫ٗىتتزىل يٖتتذا ٕتتزا اىب تتد اىتتي جفستتيش إتتٌ اىَقتتنطت اىحتتي جحعيتتن تح بيتتن ٍتتذخو اىَ٘اصّتتبت‬ ‫اىحقييذية ٗاى حي جعذ ّق تة اىبذايتة ىوٖت٘س اى بجتٔ اىتي ٍتذخو تتذيو يعتبىت اىَقتنطت اىحتي جتٌ عشظتٖب‬ ‫ٗيعذ ٍذخو اىحخيي عِ اىَ٘اصّبت تتذيط امرتش ٍشّٗتة ٗاستحجبتة ىيحريتشات اىحتي ج تذخ تبستحَشاس فتي‬ ‫تيئة االعَبه اى ذيرة ٗي٘فش ٍذخو اىحخيي عِ اىَ٘اصّبت اىَعيٍ٘بت اىَطئَة الجخبر قشاسات افعو‬ ‫مَب جٖذا ٕزٓ اىذساسة اىي اتشاص دٗس اىحْبتاات اىَستحَشف فيَتب يختد اعتذاد اىَ٘اصّتبت ٍتِ‬ ‫ختتطه اىب تتد اى٘اتتفي اىتتزي يتت٘فش ّوتتشف ج ييييتتة عتتِ ٍتتذي استتحخذاً اىحْبتتاات اىَستتحَشف ٍتتِ قبتتو‬ ‫اىَذيشيِ ٍٗب ٕ٘ جأذيش ج بيقٖب عيي سي٘ك االداسف‬ ‫ٗقتذ اّحٖتتث اىذساستة اىتتي اُ ج بيتتن ٍتذخو اىحخيتتي عتِ اىَ٘اصّتتبت ي فتتض عيتي ٍقتتبسمة مبفتتة‬ ‫االغشاا في اعذاد اىَ٘اصّبت ٍَب يذعٌ ٍِ اآلداء االسحشاجيجي ٗىنِ في ّفس اى٘قتث جح٘اجتذ تعتط‬ ‫ٍقتتنطت ج بيتتن ٕتتزا اىَتتذخو فيَتتب يحعيتتن تعتتشٗسف جتت٘افش اىعذيتتذ ٍتتِ اةدٗات االداسيتتة ٗاىَعيٍ٘تتبت‬ ‫اىنبٍية عْٖب مي يح٘افش اسبسب جيذا ىح بين رىل اىَذخو ٍَب قذ يح يب ٍتِ اىقتشمة اىعَتو عيتي جت٘فيش‬ ‫جيل اىَعيٍ٘بت ٗتص٘سف دقيقة‬


Table of Contents Topic Members of the Dissertation Oral Defense Committee Acknowledgements Dedication English Abstract Arabic Abstract Table of content List of figures List of tables List of abbreviations Chapter One: Research Framework 1-1 Introduction 1-2 Research Problem 1-2-1 Limitations of Traditional budget 1-2-2 Activity Based Budgeting 1-2-3 Time-Driven Activity Based Budgeting 1-2-4 Resource Consumption Accounting in Budgeting 1-3 Research Questions 1-4 Research Objectives 1-5 Research Hypothesis 1-6 Research Methodology 1-7 Literature Review 1-8 Comment 1-9 Research Limitations Chapter Two: Beyond Budgeting Overview 2-1 Introduction 2-2 Beyond Budgeting: Concept 2-3 Beyond Budgeting: Principles 2-3-1 Process Management Principles 2-3-1-1 Setting Targets 2-3-1-2 Strategy 2-3-1-3 Growth and Improvement 2-3-1-4 Resource Management 2-3-1-5 Co-ordination 2-3-1-6 Cost Management 2-3-1-7 Forecasting 2-3-1-8 Measurement and Control h

Page Number c d e f g h j j j 1 2 3 5 6 9 11 14 14 15 16 16 23 24 25 26 27 29 30 30 31 33 34 35 36 37 38

2-3-1-9 Rewards 2-3-2 Entrepreneurship Principles 2-3-2-1 Motivation of Managers 2-3-2-2 Delegation of Authority 2-3-2-3 Transparency 2-3-2-4 Corporate Governance 2-4 Strategic Performance Management 2-5 Summary Chapter Three: Beyond Budgeting Tools, Practices, and Contributions in Budgeting 3-1 Introduction 3-2 Beyond Budgeting: Tools and Practices 3-2-1 Balanced Scorecard (BSc) 3-2-2 Benchmarking 3-2-3 Rolling Forecasts 3-2-4 Resource Consumption Accounting (RCA) 3-2-5 Enterprise Resource Planning (ERP) 3-2-6 Customer Relationship Management (CRM) 3-2-7 Value-Based Management (VBM) 3-3 Beyond Budgeting: Framework 3-4 Summary Chapter Four: Exploratory Study 4-1 Introduction 4-2 Exploratory Study 4-2-1 Aim of the Study 4-2-2 Data Collection: Methods 4-2-2-1 Interviews 4-2-2-2 Questionnaire 4-2-3 Data Sample 4-2-4 Variables of the Study 4-2-5 Data Analysis 4-2-6 Statistical Results 4-2-7 Comment on Statistical Results Chapter Five: Conclusions, Recommendations, and Suggestion for Future research 5-1 Introduction 5-2 Research Conclusion 5-3 Beyond Budgeting & Strategic Performance Management i

38 39 39 40 41 41 42 44 45 46 46 46 49 51 55 56 57 58 60 66 67 68 69 70 70 71 74 74 74 75 76 78 80 81 81 84

5-4 Research Recommendations 5-5 Suggestions for Future Research References Appendix A: Interview Questions Appendix B: Questionnaire Appendix C: Statistical Tables

88 88 89 99 101 107

List of Figures Figure 1-1: Basic steps of the budgeting process Figure 2-1: Basic differences between traditional budgeting model & beyond budgeting model Figure 3-1: The role of BSc in setting strategy Figure 3-2: The suggested role of benchmarks Figure 3-3: Rolling forecasts Figure 3-4: The improvement of the traditional budgeting process Figure 3-5: Beyond Budgeting framework Figure 3-6: Enterprise Resource Planning (ERP) Figure 5-1: The Performance Management Cycle

5 28 48 51 53 59 62 63 85

List of Tables Table 4-1: Number and types of interviews Table 4-1: Reliability test results summary Table 4-2: Mean and significance level for the first group of questions Table 4-3: Mean and significance level for the Second group of questions

72 76 77 78

List of Abbreviations Time Driven Activity Based Costing Activity Based Costing Resource Consumption Accounting Enterprise resource Planning Balanced Scorecard Beyond Budgeting Beyond Budgeting Round Table Customer relationship Management Value Based Management Activity Based Budgeting Strategic Performance Management


Chapter One Research Framework

Chapter One Research Framework 1-1. Introduction For a business firm to be innovative, well-managed, and admired; it relies on a comprehensive formal planning, budgeting, and control system in formulating and implementing strategy, coordinating and monitoring operations, and reviewing and evaluating performance. (Blocher et. al., 2010, P. 364) In addition, accounting information system is the source for information needed for making decisions. Relevancy and reliability of such information depend- with no doubt- on relevancy and reliability of the system generating it. But the lack of information or even distorted information is a sufficient reason for business failure. (Grasso, 2005) argued that, accounting systems - aimed at supporting financial reporting - were providing too aggregated data and information about products and services that was distorted and too late to support management‘s planning and control decisions. At the same time, one of the important managerial uses of information is budgeting. Budgeting is a common tool that business firms use for planning and controlling what they must do to serve their customers and succeed in the marketplace. In other words, a budget is a plan for the acquisition and use of resources. (Blocher et. al., 2010)


In details, Budgeting is essential for accomplishing many goals in a business firm, but at the same time, evaluating the potential impact of a change in the budgeting process itself is difficult (Hansen, 2011). Generally, it can be said that the primary purpose of a corporate budget is to aid the planning of the business operations. Budgets are also recognized as a tool assisting in establishing the scope of business activities, the required resources and the efficiency of their use. (Marija & Neringa, 2012) Based on the facts mentioned above, a number of approaches have already revealed different aspects of budgeting previously were out of consideration in business. Many arguments against traditional budgeting were the trigger for those approaches to become true in both academic studies and practice. The researcher has already explored the essential arguments against the basic approaches used in budgeting with the aim of justifying the need for an alternative approach called ―Beyond Budgeting‖, and also identifying what might be the major contributions of such approach on strategic performance management since the budget is not only a planning tool but also an essential control and evaluation tool.

1-2. Research Problem Budgeting is still regarded as an organizational imperative and there is little empirical evidence that firms alter their existing budgeting practices. So, there is no single approach that can be seen as perfect in budgeting, starting with the traditional approach. (Waal et. al., 2011, PP. 316) And as plans become more sophisticated, they should be documented in writing and include qualitative narratives of goals, objectives, and means 3

of accomplishing the objectives set far in the plan. And as it can be said that the process of formalizing plans and translating qualitative narratives into a documented, quantitative format is called budgeting. (Kinney & Raiborn, 2011) In particular, budgeting indicates a direction or path chosen from many alternatives. Inclusion of quantifiable amounts provides specific criteria against which future performance can be compared. Thus, a budget is a type of standard that allows variances to be computed and feedback about those variances to be given to appropriate individuals and generally, budgets can be either a master budget or a flexible budget. Although the budget is considered the cornerstone of the management control process in nearly all business firms, and it is widespread use, it is still considered far from what should be. In recent years, there has been a growing interest in the subject of planning versus budgeting. Many articles and books have condemned the annual budgeting ritual in favor of more relevant planning to support the strategic objectives of a business firm. Some firms have gone so far as to eliminate the budget completely and depend on other alternatives which provide more flexibility. (Stevens, 2004, P. 15) From another point of view, practitioners express concerns about using budgets for planning and performance evaluation. They argue that budgets restrict the allocation of organizational resources to their best uses. They attribute these problems mainly to traditional budgeting process. (Hansen et al, 2003), (Abdel-Aal, 2013)


Figure 1-1: basic steps of the budgeting process (Blocher et. al., 2010, P. 369) From the researcher point of view, even if the budget is set in the light of strategic goals, which in turn is translated into long-term objectives, and then to short-term objectives, and the master budget is actually prepared, the budget numbers become static. There will be an important need for updating of budget data relevant to the changing environment. This fact is not clear with the traditional budget, or even with the other approaches of budgeting (except for beyond budgeting)

1-2-1.Limitations of Traditional Budgeting: The major limitation of traditional budgeting approach is that the budgeted costs for the actual level of activity are obtained by assuming that a single unit-based driver (e.g., units sold, units produced or direct labor hours) drives all costs. A cost formula is developed for each cost item as a 5

function of units produced or direct labor hours, if, however, costs vary with respect to more than one cost driver, and the drivers are not highly correlated with direct labor hours, then the predicted costs can be misleading. (Mowen et al. 2012) Similarly, the main limitations of traditional budgeting can be summarized as follows: (Abdel-Latif, 2014) — Time consuming — High cost of preparation and implementation — Irregular updating of budget information — Budgets are (sometimes) set so far from the firm strategy — Limited flexibility and ability to adapt to the changing environment — More convenient to the centralized decision making and management — Lead to sub-optimization of goals — Provide basis for misappropriation of resources (in some cases)

1-2-2.Activity Based Budgeting: Another approach came into existence as a result of the drawbacks of traditional budgeting process considering the main concepts of ActivityBased Costing (ABC). As with traditional budgeting, Activity-Based Budgeting (ABB) begins with sales and production budgets. Direct materials and direct labor budgets are also compatible with an activity-based costing framework because these inputs can be directly traced to the individual products. The major differences between traditional and ABB are found in the overhead and selling and administration categories. (Mowen et al., 2012) 6

Accordingly, Changes in product pricing, promotion, and mix decisions based on ABC costs led to dramatic improvements in profitability and competitiveness for some U.S. firms. (Grasso, 2005) While the Activity Based Budget-approach focuses on deriving a budget explicitly from activities and resources because it incorporates batch, facility and other types of cost drivers not found on traditional budgeting systems. It also highlights the sources of imbalance, inefficiencies and bottlenecks. These insights allow better product, process, or activity costing and decision making and better allocation of resources to support organization priorities. This will lead to more accurate budget estimates. (Hansen et al. 2003) It is also argued that the use of ABC information in budgeting provides solid reasoning for budgeting costs at particular levels since the underlying ABC information is based explicitly on relationships among cost drivers, activities and resources consumed. Moreover the resulting budget is more useful to management because it reveals how cost level will change if the predicted quantities of the cost drivers change. (Hilton et al. 2008, P. 617) In contrast, Activity-based budgeting (ABB) has been regarded as the remedy for many budget ailments because it uses the activities in the value chain as the mechanism to convert anticipated levels of activity output into monetary equivalents. In other words, the budget numbers are derived from activities and their consumption of resources rather than the static forecasts. (Van Der et al., 2002)


Regardless the refinements in the budgeting process introduced by ABC , ABC as a cost system left a number of problems related to its application as well as ABB, those problems can be listed in a summary as below: - Many






surveying and data-processing costs of ABC systems, either abandoned ABC entirely or ceased updating their system, which left them with out-of-date and highly inaccurate estimates of process, product, and customer costs. (Kaplan & Anderson, 2007) - Under traditional volume-based costing models and the ABC model, allocation of resource costs is based on the assumption that all committed resources are fully utilized in an organization‘s operations. Therefore, resource costs are allocated to cost pools in full; and resource capacity is employed as a denominator in the calculation of monetary values allocated to cost pools. (Michael & Maleen, 2009) In particular, ABB falls short in three areas: (Van Der et al., 2002, PP. 23) - First, the approach doesn't adequately consider the fixed costs on unitrelated activities. ABB assumes all costs of these activities to be variable. Yet every activity/process inherits the nature of the cost of the resource that executes it, and very few, if any, activities contain zero fixed costs. - Second, because ABC doesn't use quantities in defining relationships in the cost model, the backflush in ABB from activities to resources is a calculation based solely on dollar values (hereafter referred to as a


value-based calculation). This results in a diminished ability to accommodate planned excess capacity. - Third, because of the view in ABC that resources are primarily monetary inputs into activities, insight into resource-specific demands due to a particular characteristic of the plan is lost. For example, training cabin crew in safety procedures differs among airplane types. The impact of the new flight timetable on cabin crew safety procedure training can't be gleaned from the ABB information. From the researcher point of view, searching for an appropriate cost driver for each resource or resource pool may be too costly and time consuming. Also the fact that a value based calculation is used while applying ABB makes the matter sometimes a little bit away from the objective of identifying how much a specific resource is needed at first, and after that how much does it cost.

1-2-3.Time-Driven Activity Based Budgeting: After the evolution of ABB, Time-driven Activity Based costing (TDABC) is considered another approach for budgeting. TDABC avoids the assignment of resource costs to activities, so it‘s avoiding the need for interviews with employees on the production line and others. Resource costs are assigned directly to departments (or processes, if resources are heterogeneous) through, the cost of supplying resource capacity are divided by the practical capacity of resources supplied (usually measured in terms of time) to obtain the capacity cost rate. Multiplying the capacity cost rate by


the time required to perform each process, to obtain costs per process. (ELHelbawy & EL-Nashar, 2013, PP. pp116-121) TDABC approach also allows easy updating of the cost system when products or service offerings change, or when production or service processes are redesigned. This characteristic makes time-driven ABC more suitable for fast-changing environment and makes it a candidate for corporate agility, the time equations allow easy updating of the cost system. (Everaert & Patricia, 2007) In addition, TDABC model acknowledge the fact that part of the committed resources may not be utilized in firms normal course of business and remain idle. Therefore resource costs are allocated to cost objects only when resources are actually consumed. All resource costs associated with idle resources remain in resource pools rather than being allocated to cost objects. (Michael & Maleen, 2009) Although the major betterments offered by TDABC, certain problems may be faced during application. (EL-Helbawy & EL-Nashar, 2013) Firstly, problems related to estimating costs of the operating unit such as: - Estimating wages and additional benefits of employees and supervisors. - Estimating occupation costs. - Estimating costs of using machines and equipment such as depreciation. - Estimating costs of utility to be used.


- Estimating Administrative costs i.e. Internal Auditing, Accounting, etc. - Estimating costs of support departments such as quality inspection, machine setup, engineering, etc. Secondly, another problem is related to estimating practical capacity which differs according to the nature of the operating unit which may be a labor-intensive or capital intensive operating unit. (EL-Helbawy & ELNashar, 2013) In addition to problems mentioned above, a third problem may be related to the fact that it is difficult in some cases to translate certain processes into time especially when the process is mental or in other words not a technical process. From another point of view, a budget also can be set upon the information gathered from Resource consumption accounting (RCA) system which is a comprehensive, fully integrated cost management system. (Van Der et al., 2002)

1-2-4.Resouce Consumption Accounting in Budgeting: RCA is a blend of advanced German costing methods, and activity-based costing (ABC). This system is being promoted in the United States as a way to enhance management decision making and control. (Krumwiede & Suessmair, 2008)


Using RCA information in budgeting may contribute to the efficiency of budgeting process through a number of reasons: (Van Der et al., 2002, P. 56), (EL-Helbawy & EL-Nashar, 2013, PP. 126-131) - RCA properly accounts for excess/idle capacity through the distinction between; used capacity, unused but inventoriable capacity, and waste. This distinction is to be made through depending on quantifiable output measures of resources. - RCA accurately reflects the nature of cost of the invested resource base. Two aspects are true; the inherent nature of cost behavior as fixed or proportional, and the potential nature. The above points may be translated into more details as follows: - Accurate projection of monetary equivalents can be used for planning scenarios based on activities. - The ability to perform reconciliation of demand for and supply of resources' outputs in a proactive manner. - Superior decision support for incremental investment decisions based on insights related to resource demand and the nature of cost of the resource pool in question. - Detailed resource-related impacts of particular planning scenarios from the information-e.g., training requirements or compliance with statutory requirements around rest time. - Ability to derive a comprehensive and accurate monetary plan by reversing the entire quantity-based RCA cost model, including all simultaneous support relationships.


As a wider view, control is more than measurement and analysis; it includes the determination of a relevant threshold, given prevailing circumstances—i.e., adjusting to changes to remain perpetually relevant as a yardstick. The best way to achieve this is by leveraging the superior qualities of a cost model based on RCA principles— recognition of management tiers, quantity-based definition of causal relationships with unit standards, and RCA‘s view of the nature of cost. (Keys & Merwe, 2002) In spite of the potential benefits of using RCA information in budgeting, there might be some problems related to the application of such approach. Those problems can exist as a result of the following reasons: - RCA works well with enterprise resource planning (ERP) systems, capturing information at the lowest level (such as the manufacturing point) to accurately determine costs. (Clinton & Werber, 2004) The absence of an ERP system means that it is too difficult to get the needed information for setting an RCA- based budget. - The complexity of the cost relationships represented by the RCA model may limit its adoption to business firms having the prerequisite technological




expertise. These

prerequisites may, in fact, exist in many firms that have already implemented ERP technology (Sharman, 2003). When these requirements do not exist, the costs of implementing the RCA approach may be prohibitive. Arguments against the latter approaches in the field of budgeting open an area for another approach which differs completely in terms of the view to


the budget itself. Studies suggest ―Beyond Budgeting‖ as a new approach replacing those illustrated above.

1-3. Research questions: This research will try to answer the following question: What might be the management accounting tools that contribute in justifying the requirements for implementing beyond budgeting with the aim of improving strategic performance management? The answer to such question can be met through the trial to find answers to the following: 1- What are the main shortcomings of the basic budgeting approaches? 2- What are the principles of Beyond Budgeting? 3- What might be the management accounting tools that satisfy the requirements for implementing beyond budgeting? 4- What is the main role of beyond Budgeting in improving strategic performance management?

1-4. Research Objective: The main purpose of this research is exploring the potential benefits of using beyond budgeting information in improving strategic performance management through the following:

1- Identifying the main shortcomings of the basic budgeting approaches. 2- Exploring the principles of Beyond Budgeting. 3- Exploring the management accounting tools that may satisfy the requirements for implementing beyond budgeting.

4- Exploring the role of Beyond Budgeting in improving strategic performance management. 14

1-5. Research Hypothesis: From the research problem and objectives the researcher can conclude the following hypotheses that suggest the existence of a direct relationship between








First Hypothesis: The first hypothesis is related to the existence of certain problems in the traditional budgeting approach (time consuming, inflexibility, and cost). For statistical analysis the first hypothesis can be stated as follows: H0: there is no statistically significant difference in responses that there are certain problems with traditional budgeting. H1: there is statistically significant difference in responses that there are certain problems with traditional budgeting.

Second Hypothesis: The second hypothesis is related to the existence of certain benefits for beyond budgeting approach. For statistical analysis the second hypothesis can be stated as follows: H0: there is no statistically significant difference in responses that there are certain benefits for beyond budgeting. H1: there is statistically significant difference in responses that there are certain benefits for beyond budgeting.


1-6. Research Methodology: To achieve the objectives of the research, the researcher will depend upon the deducting approach to deduct theoretically the potential benefits of beyond budgeting in addition to the inductive approach through developing an exploratory study which is conducted into research problem or issue when there are very few or no earlier studies to which we can refer for information about the issue or problem. The aim of this type of study is to look for patterns, ideas or hypotheses, rather than testing or confirming a hypothesis. A hypothesis is an idea or proposition which can be tested for association or causality by deducting logical consequences which can be tested against empirical evidence. Empirical evidence is data based on observation or experience. In exploratory research the focus is on gaining insights and familiarity with the subject area for more rigorous investigation at a later stage. (Hussy & Hussy, 1995) In an exploratory case study, in-depth interviews can be very helpful to ‗find out what is happening and to seek new insights‘ (Robson, 2002, P. 59) Semi structured interviews may also be used in relation to an exploratory study.

1-7. Literature review: Firstly, Studies related to budgeting approaches:

1- (Connolly & Ashworth, 1994):One of the most important criticisms of traditional functional approaches to budgeting is that the prime focus is on the justification or resource inputs (e.g. salaries, wages, expenses, equipment, etc.) rather than on assessing the benefits of, or outputs from, those resource inputs (e.g. 16

processing orders, raising invoices, visiting customers etc.). This makes budgeting away from the realities of a business. Findings of the study provide reasonable evidence that an integrated Activity-Based approach to budgeting will have a significant impact on managing resource inputs.

2- (Mak & Roush, 1994):Researchers consider how ABC affects traditional flexible budgeting and variance analysis. They argue that the basic flexible budgeting and variance analysis frameworks remain useful, and discus how they can be adapted for cost control and performance evaluation under ABC. The study suggests modifications of the basic flexible budgeting and variance analysis frameworks. Researchers suggest also more analysis on the relevance of other management accounting techniques in an ABC environment, and how these techniques may be modified to better fit the structure of the ABC model.

3- (Hansen et al., 2003):Practitioners recently proposed two approaches regarding the shortcomings of traditional budgeting practices. One approach primarily focuses on the planning problems with budgeting. The other abandons the budget and primarily focuses on the performance evaluation problems with budgeting. As a conclusion, critics have charged that planning and traditional budgeting systems; generate only incremental changes vis-à-vis prior period plans and budgets; are not responsive to rapidly changes environment; 17

impose a vertical command-and-control structure, centralize decision making, and stifle initiatives; focus on cost reduction rather than value creation; and are too costly for the few benefits they produce. As a proposed solution to the foregone problems, the study also suggested the application of two different techniques (ABB and the Beyond Budgeting Approach)

4- (Clinton & Werber, 2004):The study illustrates the importance of and need for reliable management accounting system information. The study suggests that the most dramatic effect in the RCA application was the proper recognition of causal relationships regarding support department costs and their proper assignment based on resources consumed. Causality is the key principle to proper cost assignment relationships, and RCA requires it. There is a major shift from treating certain costs as fixed when they were innately proportional costs. Innate means the initial inherent nature of costs. Using a supply-based denominator concept, such as theoretical capacity, provides a consistent cost that doesn‘t change based on changes in other resources used elsewhere in the plant or changes in other products. Moreover, RCA assigns only the cost of the resources used. With RCA cost assignment, there is an increase in the fundamental reliability of management accounting information the system provides. In addition, the use of replacement cost depreciation and theoretical capacity mitigates the risk of changes in cost assignment due to unrelated changes elsewhere.


5- ( Krumwiede & Suessmair, 2008):The purpose of this research is to move the U.S. discussion of German cost accounting methods from its focus on theory to study of actual practice. A cross-sectional survey of cost management system (CMS) used among companies in Germany, Switzerland, and Austria provide results as a representative picture of the systems that German-speaking firms are using, particularly GPK. Researchers tried to address the stages of GPK systems implemented in the surveyed companies, factors affecting GPK usage and success, and the relationship between GPK and other cost management methods. Ultimately this survey indicates that users in German-speaking countries are generally satisfied and successful with GPK implementation shows that certain contextual, organizational, and behavioral factors distinguish GPK users and are more likely to lead to success. There is consistent evidence that GPK users are quite satisfied and successful when applying this advanced costing approach. Yet GPK is rated higher in meeting overall costing needs when implemented within a strong, highly integrated information system and when it is used with other complementary costing practices, such as ABC and target costing. In addition, it is more likely to be deemed worth the cost if top management strongly supports it in the business firm.

6- (Perkins & Stoval, 2011):The study argues that the selection of a costing system can be a daunting decision as one seeks to choose the appropriate costing 19

methodology for a given (1) decision context, (2) production environment, and/or (3) information system available to a firm. The study attempts to offer some basic guidance as to when each system may be appropriate. Managers may use compare between different costing systems to support organizational efforts to train staff with varying levels of management accounting background on the similarities and dissimilarities between the various product costing alternatives. As a practical matter, maintaining multiple costing systems may not be feasible or desirable; however, understanding the conceptual benefits of different approaches may encourage management to make adaptations to an existing system to accommodate various decision contexts. When the appropriate technological environment and managerial expertise are available, the RCA would seem to accommodate all time horizons. In addition, RCA‘s division of proportional and fixed costs can provide support for short-range marginal decisions and RCA‘s insights to resource capacities can support long-term decisions that impact and/or rely on capacity requirements. Another important point must be taken into account is the fact that in a simple production environment, the information provided by one of the more sophisticated approaches may not be justified from a cost/benefit perspective.

7- (Waal et al., 2011):Traditional budgets are -as seen by practitioners- incapable of meeting the demands of the competitive environment and are criticized for inefficient 20

resource allocation and encouraging myopic decision making and budget games. A deeper understanding is needed of the process by which business firms decide on altering and renewing budgeting practices. The purpose of this paper is to present a framework which identifies the factors that play a role in the acceptance of changes to the budgeting process. The research results confirm there is a paradox of a high degree of criticism on traditional budgeting and a low number of business firms that adopt adjusted practices and search for alternatives. A lack of a need for change - because the process is considered satisfactorily efficient - is the most important factor why firms are not considering changes to their budgeting process, followed by cognitive and preconscious constraints. The paper contributes to the accounting literature as it provides evidence on the factors that could influence the acceptance of changes in the budgeting process. Knowing these factors will increase the chance that managers can successfully introduce and implement an adjusted budgeting process.

Secondly, Studies related to Beyond Budgeting:

1- ( Hope et. Al., 2000):The study argued that the traditional performance management model it too rigid to reflect today‘s fast moving economy. Two new approaches – devolution and strategic performance management- have risen in popularity, but they are equally frustrated by unyielding budgeting systems. The reason


for that dissatisfaction is the fact that the group finance people implement directives aimed at (unplanned) cost reductions. In contrast, beyond budgeting paves the way for business to simplify their performance management process, reduce the cost and complexity of the firm, and create a firm that is strategically focused and much more innovative and responsive. This means, building a business model that operates at high speed; self-questioning; self-renewing; self-controlling; and rewards innovation and learning.

2- (Marshall, Jeffrey, 2003):The study focused on exploring the main reasons behind success of certain business firms trying to identify the basic steps required to break free of the annual performance trap. Many critics say that the focus on fixed targets and incentives can trigger unethical behavior. As a result the researchers suggest the new management model that attempts to replace centrally determined goals with self-regulating, marketplace-based benchmarks and to transfer the power and decision making from the top to the front lines.

3- (McVay, Cooke, 2006):The study aimed at responding to an important question about the benefits of traditional budgeting in relation with time and costs needed for it. An explanation of the basic differences between traditional budgeting and beyond budgeting is provided clarifying that beyond budgeting is an innovative, more flexible approach to budgeting that avoids many of the pitfalls of traditional budgeting. 22

The study also showed the main steps needed for the transition from traditional budgeting to beyond budgeting; those steps are basically gathering information, developing the initial plan, presenting the plan to the management team, refining the plan, testing the plan and making adjustments, and retesting the plan for further adjustments.

4- (Abdel-Latif, 2014):The study summarized the main limitations of traditional budgeting as being a time consuming function with regard to preparation and implementation with irregular updating of budget information which leads to limited flexibility and ability to adapt to the changing environment. The study suggests the introduction of beyond budgeting for achieving a number of refinements to the budgeting process as a whole in terms of flexibility, innovation, continuous updating, and more realistic evaluation of performance and control. The study also suggested the application of certain management tools to support the application of beyond budgeting in manufacturing firms.

1-8. Comment Prior studies focused mainly on the shortcomings of the basic budgeting approaches and the resulting problems in areas such as managerial control. Cost and time required for preparation and implementation of budgets, inflexibility, irregular updating of budget information, and being away from the strategy are of the main limitations related to traditional budgeting process.


Studies also provided a number of alternatives may be used as a valuable source of information for management upon which control decisions can be made at a higher level of efficiency such as developing the budget numbers based on ABC, TDABC, or RCA. The researcher has studied one of the alternative approaches used in budgeting, through exploring the role of management accounting tools in justifying the requirements for beyond budgeting aiming at improving strategic performance management. This can be done through overcoming the shortcomings of traditional budgeting, responding to innovation, enhancing the competitive advantage.

1-9. Research Limitations: Due to the few companies in Egypt applying the approach of beyond budgeting (as known by the researcher) so the study depends on data collected through interviews (both online and personal interviews) and data sharing with specialists in a number of firms applying a number of tools employed by beyond budgeting and also through pre-defined questionnaires directed to academic and practical specialists in accounting and budgeting. The aim of the research is to explore only the proposed benefits of applying beyond budgeting principles as suggested by the beyond budgeting round table (BBRT) since – as known to the researcher – there are few firms that apply the full principles and utilize all tools necessary for beyond budgeting in Egypt. The full application of beyond budgeting as a substitute to other budgeting approaches needs further practical studies to give a clear identification of the steps, major effects, and limitations.


Chapter Two Beyond Budgeting Overview

Chapter Two Beyond Budgeting Overview 2-1. Introduction Over the years researchers have claimed that traditional budgeting has lost relevance with regard to the contemporary business environment and is no longer satisfying the needs of managers. (Rickards, 2006; Goode and Malik, 2011) Also, a budget should not be an inflexible set of targets, or a paper exercise that is ignored in practice. It should rather be a communication tool, giving guidance and coherence to all the firm‘s activities. Budgets set goals and timelines, and are absolutely critical to holding people accountable for their work. Without a budget, how do you measure performance? (Phillips, 2012) In truth, it is probably unfair to lay the blame for these weaknesses at the door of ―budgeting‖ because we are demanding much more of it today than it was ever intended to deliver (Bunce; Fraser, 1997). So, if the existing budgeting systems have such crucial weaknesses, why do we still rely on them? This depends on their history and their challenged position in the top division of accepted management practices. (Hope; Fraser, 1999) In addition to that, there‘s been much debate in recent years about a new approach for budgeting called ―Beyond Budgeting‖, a movement to replace the traditional budget process with a more flexible system (usually rolling forecasts) that enables firms to be more fast-moving and adaptive. (Phillips, 2012) 26

2-2. Beyond Budgeting: Concept Generally, beyond budgeting refers to an innovative, more flexible approach to budgeting that avoids many of the pitfalls of traditional budgeting. (McVay, Cooke, 2006) In the same way, the "Beyond Budgeting" model represents a set of information-age best practices - from organization design and devolution of authority to planning and performance management - which leading-edge companies are now using to respond much faster to customer demands. Understanding what these practices are and what you need to do to adopt them is increasingly likely to determine whether or not your business firm is able to compete effectively in the new economy. (Hope, et al., 2000) In addition, beyond budgeting focus on improving current and future financial performance rather than retrospectively reviewing budget performance. Continuous financial improvement is now the focus of financial discussions and planning within the leadership ranks. Improving cost per unit allocations is an organizational goal that makes sense and provides tangible value to all stakeholders. (McVay, Cooke, 2006) Thus, in the latter decades of the 20th Century, the role of budgets mutated from a set of coordinated financial plans to a wide-ranging management system for controlling the business, driving management behavior, and rewarding performance. (Hope, et. al., 2000) The following figure shows the basic differences between the budgeting model and the beyond budgeting model:


Strategic goals & boundaries Challenge & stretch

Figure 2-1: basic differences between traditional budgeting model & beyond budgeting model (Source: Hope, et al., 2000, P. 3) As shown in the left hand side of the above figure, under traditional budgeting model, the underlying thread was one of control. The overall vision of the chief executive was translated into the strategic plan by the planners and handed down the hierarchy to operational managers who prepared their budgets. Once these were agreed, all that was demanded was adherence to the plan. The head office didn't like surprises. Control reports were constantly fed back up the line, and if they showed that performance was veering off track, new directives would be issued from the head office. It isn't hard to see why the budgeting system became essential to success. It 28

was the core management process and provided much needed stability and continuity in an increasingly competitive business world. (Hope et al., 2000) In contrast, the right hand side of the above figure 2-1, under the beyond budgeting approach depend mainly on a different way of thinking regarding the budgeting process. Strategic goals, boundaries, or even threats are to be translated into targets relative to the changing conditions. This requires the distributed responsibility among all members toward the achievement of better performance. As a conclusion, the budgeting process should be much more flexible, fully-participative, and dynamic to respond faster to the changing competitive environment. To achieve that, a number of tools and practices are suggested by beyond budgeting to be implemented which can enhance the budgeting process and drive the firm toward the achievement of strategic objectives.

2-3. Beyond Budgeting: Principles To implement beyond budgeting effectively, (Hope & Fraser, 1999) argued that there is a number of main principles and practices to manage a business firm without a budget i.e. applying beyond budgeting, those principles are last updated by the ―Beyond Budgeting Institute‖ forming two sub-groups of principles. The first sub-group is concerned with the entrepreneurship (or leadership) and the other one is concerned with management processes.


Mainly, the principles of beyond budgeting should be taken into consideration not only by the top-level of management, but also by each member in the business firm.

2-3-1. Management Processes Principles: 2-3-1-1. Setting Targets Traditional budgets set financial targets that are typically negotiated between operating managers and the budget committee. The targets are set far for the year and typically serve the dual purpose of being the basis for organizational planning and control and a key component of performance contracts. (McVay, Cooke, 2006) Accordingly, the business firm is then managed to meet the financial targets, with the result that decision-making behavior becomes sub-servant to the budget rather than to the demand of customers and the long-range financial well-being of the firm. (McVay, Cooke, 2006) Therefore, many critics argue that the focus on fixed financial targets and incentives can trigger unethical behavior. (Marshall, Jeffrey, 2003). Instead of setting a fixed sales/profit target, the business firm trusts everyone to maximize profit potential by continuously improving against an agreed upon benchmark and remaining in the top of the industry peer group. (Hope; Fraser, 2003a) In particular, the relative performance component sets targets using benchmarked performance, where the benchmarks are either internal (e.g., different units within the same business firm) or external (e.g., comparison with leading competitors). And as suggested by researchers, it can be said 30

that the benchmarked performance targets are difficult to argue against and also allow adjusting for uncontrollable factors. (Hansen, et al., 2003) In other words, researchers suggest that the only measure of success that ultimately matters to shareholders is relative success. Investors that are willing to place their funds in a particular business sector want to back the right horse over the longer-term. So providing the best competitive returns is what matters most. (Hope and Fraser, 2001) Beyond budgeting – for the most part – is likely to increase the accuracy and perceived fairness of performance evaluation, thereby reducing gaming behaviors and motivational problems. Relative performance standards also potentially increase motivation because the performance bar adjusts naturally to be challenging, yet achievable when there is an appropriate benchmark group. (Hansen, et al., 2003) From the researcher point of view, it can be said that budget targets derived in traditional budgeting processes often create tension between what upper managers identify as desirable and what lower-level managers claim is feasible. And as a solution to such problem, targets should be set to maximize value on the long run and also beat the competition, not the budget itself.

2-3-1-2. Strategy A strategy is a set of goals and specific action plans that, if achieved, provide the desired competitive advantage. Strategic management involves identifying and implementing these goals and action plans. Next, management is responsible for planning and decision making, which involve budgeting and profit planning, cash flow management, and other decisions 31

related to the firm‘s operations, such as deciding when to lease or buy a facility, when to repair or replace a piece of equipment, when to change a marketing plan, and when to begin development of a new product. (Blocher et. al., 2010, PP. 5) In addition, Planning doesn‘t have to revolve around the calendar. The planning period can be divided into smaller time frames since the future is inherently unpredictable, therefore decisions should happen continuously and adapt to events as they happen. (Hope and Fraser, 2001) A possible implementation of the beyond budgeting model starts with identifying the need for adapting and changing the budgeting process. It is therefore necessary to check whether there is dissatisfaction within the business firm with the existing budgeting process. Hence, the willingness of the firm to adapt and change the organizational structure and processes should be identified. (Waal, 2011) In general, both large and small firms in all types of industries use cost management information. A firm‘s degree of reliance on cost management depends on the nature of its competitive strategy. Many firms compete on the basis of being the low-cost provider of the industry‘s goods or services; for these firms, cost management is critical. Other firms, such as cosmetics, fashion, and pharmaceutical firms, compete on the basis of product leadership, in which the unusual or innovative features of the product make the firm successful. (Blocher et. al., 2010, P. 7) Turning a strategy from a top-down annual event to be a continuous, and an open process is considered an essential action to adopt beyond


budgeting. As a result, the firm can respond faster to the target customers‘ needs.

2-3-1-3. Growth and Improvement A budget should challenge people to think radically, not incrementally. Managers should be able to evaluate strategic alternatives and take tactical decisions that are appropriate to their own part of the business yet ensure that these are consistent with group policy and direction. (Hope & Fraser, 1999) While applying beyond budgeting, there is larger ability to learn from the market system than under traditional approaches. If resource ―buckets‖ were allocated to users and they had the scope to spend that money in the way they thought best to maximize their performance and they had the cost information to understand their inputs and the flexibility to buy in their resources from an internal (and external) market, then they might have the incentive to take a harder look at their costs which in turn makes clear improvements in the business firm. (Hope and Fraser, 2001) Now, by turning into a beyond budgeting system, a firm has a much better chance of building strategic capabilities and flexible growing business firms. This will comprise a combination of income growth, process improvements, and profit/cash flow/return-on-capital targets for the next cycle. Beyond budgeting support growth and improvement in several ways such as: — Enhancing the correctness of forecasts. — Enhancing the formulation and execution of budgets 33

— Enhancing the efficiency of planning. — Improving current and expected financial performance — Improving and handling market expectations.

2-3-1-4. Resource Management Resources should be provided only when needed with the aim of achieving the firm strategy. Rather than the traditional acquisition of resources at the beginning of each period. Hence, resources should be devoted to activities based on the extent to which the value added by an activity to the firm. (Bourmistrov and Kaarboe, 2013) Under beyond budgeting, each teamwork has the responsibility to identify the amount of resources needed to fulfill market needs taking into account that their amounts are within the agreed-upon limits. But the resources needed with larger quantities are to be managed by a higher-level of management applying the concept of ―transfer pricing‖ to make it beneficial for various strategic business units within the same business firm and prevent sub-optimization which in turn supports the improvement of performance as awhole. (Bourmistrov and Kaarboe, 2013) In addition to this, if there is a potential to expand the market for a specific product in the future, budgets should facilitate such expansion through the reallocation of the needed resources to the product under development. (Hope and Fraser, 2001) support the same point of view arguing that breaking down the budgeting barriers that prevent the sharing of resources and knowledge, team-based rewards encourage people to be more open with each other.


Another benefit of beyond budgeting is the fact that plant managers have freedom to manage resources and thy do not need any approval for amounts to be expended within the guidelines. This means that they can acquire resources when needed and with the necessary quantities only. Resource waste in now can be reduced and a large part of costs can be under control of the responsible manager. (Player, 2005)

2-3-1-5. Co-ordination Traditionally, co-ordination efforts were directed toward achieving financial objectives only, through the early determination of sales and production volume that satisfy the previously set financial objectives. This approach is not consistent with the contemporary business environment and needs further updates. (Abdel-Latif, 2014) Alternatively, under the beyond budgeting approach, strategic business units (SBUs) continuously share information. All SBUs can see the performance of each other. This drives the sharing of knowledge, experience and best practices. In addition to this, the desired production volume is determined in accordance with customer orders. Hence, co-ordination between the interrelated business activities is now required to support the connection between different strategic business units (SBUs) through the information system applied within the firm aiming at managing capacity in the short-run taking in account the cause-and-effect relationship between different business processes. (Abdel-Latif, 2014) To sum up, beyond budgeting can achieve co-ordination by managing cause-and-effect relationships across business units and responsibility 35

centers (such as processes), not by using departmental budgets. Coordination between different members can lead to a number of benefits that may be summarized as shown below: — The aim of the collaborative efforts is to be forwarded toward satisfying the customer needs not the boss. — There will be less waste since there will be no duplication of activities and processes.

2-3-1-6. Cost Management Strategic thinking involves anticipating changes; products, services, and operating processes are designed to accommodate expected changes in customer demands. Flexibility is important i.e. ―the ability to make fast changes‖ is critical as a result of the demand of the new management concepts of e-commerce, speed-to-market, and flexible manufacturing. A product life cycle is expected to become shorter and shorter. Success in the recent past days or months is no longer a measure of ultimate success; the manager must be ―driving‖ the firm by using the windshield, not the rearview mirror. (Blocher et. al., 2010, PP. 6) Furthermore, the management should understand the concept of action/performance lag which is the time between the initiation of an intervention and the resulting improvement in performance. Thus preventing the continual initiation of new projects that are supposed to create short-term benefits but inflict long-term damage, as they consume management time and resources while failing to reach completion before they are taken over by events. (Neely et. al., 2003)


Management of a business firm should challenge all costs on the basis of whether they add value, not whether they should be increased or decreased compared with last year to meet the customers‘ needs. This means that the costs (or activities) that do not add value to the firm should be eliminated and efforts must be forwarded to those costs that contribute directly to the overall value of the firm. And finally, value is determined with respect to customers not on the basis of management point of view.

2-3-1-7. Forecasting Morlidge and Player (2010) define the rolling forecast as ―a financial estimate of likely future outcomes, where the company thinks it will be, based on current assumptions and economic forecasts about the environment and the organization‘s plan‖. Simply, the rolling forecast signals the financial outcome based on current assumptions and economic forecasts similar to how a compass provides navigational information. Leadership continuously looks twelve to eighteen months into the future. Instead of the above, the idea behind rolling forecasts is to provide an ongoing and continuous planning horizon. The rolling forecast projects future outcomes based on managements‘ assumptions and previous decisions. Current decisions can change the forecast to hit constantly moving targets. The rolling forecast serves as a navigational tool. (Zeller; Metzger, 2013) Now, beyond budgeting use rolling forecasts for managing strategy and making decisions, not merely for ―keeping on track‖. Fixed financial targets are now more flexible and changing rapidly so, the traditional budgeting cannot cope with those targets. 37

2-3-1-8. Measurement and Control Typically managers model all the non-financial data that derives their costs in a spreadsheet and simply cut and paste their line item costs into the central budgeting application. The net result is all that the budgeting application contains is ―dead‖ cost data. Variance analysis can be done, but it tells you very little about what is actually driving cost in the enterprise or what demands it faces in the future. (Abdel-Latif, 2014) Key non-financial data is important to managers when they come to prepare their budgets and re-forecasts. The new generation of planning and budgeting applications is going beyond simply consolidating and reporting on costs. Non-financial data is to be brought into the budgeting system to produce a ―truly dynamic‖ budget. (Barret, 2003) To conclude, beyond budgeting uses a few key leading and lagging indicators to monitor performance, not a mass of detailed historical reports with misleading information that tell false about the true picture of costs.

2-3-1-9. Rewards Performance indicators are developed for each of the "strategic products" in the institution's strategy statement. Performance targets are set for each indicator, and the performance incentive system delivers rewards which are to a large degree based on institutional performance against these performance targets. (Hawkesworth, et. al., 2013) Hence, incentive system should include both financial and nonfinancial key performance indicators (KPIs) such as return on equity (ROE), and customer retention rate. Rewards are to be given on the basis of results


at different levels; the business firm as a whole, a business unit as a teamwork, first-line operators. (Henttu-Aho and Jarvinin, 2013) Then, rewards should be based on company and unit-level competitive performance, not personal financial targets. This leads to the continuous effort toward improvement of – not individual but overall – performance of the business firm.

2-3-2. Entrepreneurship Principles 2-3-2-1. Motivation of Managers The beyond budgeting model focus mainly on making key changes to the culture of managers from being afraid of failure to achieve static targets to flexibility and responding quickly to different situations. Rather than the internal financial targets, managers now are concerned with the benchmarks to be achieved; or at least getting closer and closer to the best practices. This gives managers the motive to undertake the relevant decisions and actions to get the best use of resources. (Hope, et al., 2011) In addition to that, Bergstrand ( 2009) argued that the budget creates motivation by identifying goals of ongoing activities. By setting clear and defined targets based on the budget, employees understand what is expected of them, which can make them more motivated. Furthermore, when employees are involved in the budget and target setting process, they are often more motivated and committed to achieve the goals.


2-3-2-2. Delegation of Authority The traditional central control system with many rules and procedures is thus abandoned. Managers have the authority to run their unit as they see fit. The hierarchical structure is used only if decisions have to be taken that affect all units. Because the self-managing units are small, the organizational structure is less complicated and therefore more flexible. As a result, so exploitation costs are decreasing. (André A, 2005) The principal feature of the new management model is that it is highly decentralized. Devolution includes not just authority to spend but also strategic thinking, target setting, and responsibility and accountability for performance. Beyond budgeting give managers the responsibility and freedom to act through the participation in the budget setting process. (Hope & Fraser, 1999) Conversely, under beyond budgeting, teamwork is solely responsible for responding to customer needs. Integration of expertise and effort is essential for providing valuable solutions consistent with successive customer needs at the most appropriate time. This also requires the exchange of knowledge and information between different teams within the firm to achieve the overall objectives not only the objectives of each team separately. The budget now is to be used to confirm delegation of authority and to identify who is responsible for what. The budget authorizes responsibility center managers to spend specified amounts of money for certain designated purposes without seeking the approval of higher authority. It is a tool to make managers responsible for their actions and to work in the best interest of the firm. (Anthony & Govindarajan, 2007; Bergstrand, 2009) 40

2-3-2-3. Transparency Open information systems are to be used showing all good in addition to bad news about the business firm to all included members. Beyond budgeting supports knowledge sharing by breaking down the budgeting barriers that prevent the sharing of resources and knowledge. Work teams are now responsible for resolving such problems depending on information sharing and transparency. The more the updating of information, the more the accuracy of forecasts and decision making process. (Bourmistrove and Kaarboe, 2013)

2-3-2-4. Corporate Governance The beyond budgeting is a self-regulated model that support trust, and empowerment. The role of governance is to provide sufficient basis for directing members toward achieving the firm strategy in parts and as a whole I the light of broad directives and recommendations ensuring the application of a set of common values within the business firm. (Hansen, et. al., 2011) More specifically, an essential part of beyond budgeting deals with radical decentralization of decision making and empowerment of employees at different levels, where the employees are authorized to make decisions independently without the immediate interaction of group executives (Hansen et al., 2003; Hope et al., 2011). And when the traditional command and control –type of management is abandoned, the governance of the business firm should happen with the help of transparent and accessible information (Bourmistrov and Kaarboe, 2013) and with the accommodation of high levels of trust (Hope et al., 2011). 41

2-4. Strategic Performance Management To manage performance toward the business strategy, a relevant and reliable measurement process should be in place first. Performance measurement is the process by which managers at all levels get information about the performance of tasks within the firm and judges that performance against preestablished criteria as set out in budgets, plans, and goals. (Blocher et al., 2010, P. 11) Performance measurement cannot do anything alone since companies are having more and more difficulty in achieving sustained performance. They are forced to look for new management methods and to develop better processes to deal with existing trends and developments. This leads to the necessity of strategic performance management. In other words, a well-designed performance management process stimulates managers to develop high-quality strategic plans, set ambitious targets, and track performance closely-all activities which help to achieve strategic objectives and consequently sustained value creation. (C. Lobo, D. Cochran, J. Duda, 2,000) To be more specific, Performance management can be defined as ―a strategic and integrated approach to delivering sustained success to organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors‖. (M. Armstrong, 2006) Accordingly, performance management strategy aims at providing the means through which better results can be obtained from the organization, teams and individuals by understanding and managing performance within 42

an agreed framework of planned goals, standards and competence requirements. It involves the development of processes for establishing shared understanding about what is to be achieved, and an approach to managing and developing people in a way that increase the probability that it will be achieved in the short and longer term. And practically, it can be said that evaluating periodically the human resource inside the organization can increase the motivation and commitment of employees and enable individuals to develop their abilities, increase their job satisfaction and achieve their full potential to their own benefit and that of the organization as a whole. Performance management strategy has to focus on developing a continuous and flexible process that involves managers and those whom they manage acting as partners within a framework. This should set out how they can best work together to achieve the required results. It focuses on future performance planning and improvement rather than on retrospective performance appraisal. It provides the basis for regular and frequent dialogues between managers and individuals or teams about performance and development needs. Performance management is mainly concerned with individual performance and development but it can also be applied by teams.

As a conclusion, the strategic performance management process consists of various sub-processes: strategy development, budgeting/target setting, forecasting, performance measurement, performance review and incentive compensation. These integrated sub-processes may be found through the application of beyond budgeting.


2-5. Summary To switch from the traditional approach to the beyond budgeting approach, a number of principles and practices should be followed. The matter is not the concepts itself but there is no doubt that the thoughts of management should be also changed. Flexibility, timeliness, continuous updating, participation, and customer orientation are of the main factors requiring further consideration while planning for the budget process. The budget is a process, not a fixed financial target to be met within a planning period. The main differences between traditional budgeting and beyond budgeting can be summarized in the following table: Traditional budgeting Targets

& Static incremental)


Beyond Budgeting

(sometimes Stretch goals with relative with

fixed targets & rewards

incentives Planning

& Fixed annual plans with Continuous



KPI‘s & rolling forecasts

variance control



& Pre-allocated resources with Resources on demand with


central coordination

dynamic coordination


Central control with focus Local/segment


on managing numbers


goals/plans with focus on value creation



Chapter Three Beyond Budgeting Tools, Practices & Contributions in Budgeting

Chapter Three Beyond Budgeting Tools, Practices & Contributions in Budgeting 3-1. Introduction As introduced in the preceding chapter, the main goal of the budgeting process is providing an appropriate basis for evaluating and directing performance of a business firm. The ongoing efforts to improve the budgeting process have actually introduced Beyond Budgeting as a substitute for Traditional Budgeting. For Beyond budgeting to become effective – in addition to the principles mentioned in the preceding chapter – there is a number of management accounting tools, and practices that support the implementation of beyond budgeting. Those tools and practices are considered essential for beyond budgeting that in turn will enhance the strategic performance management process.

3-2. Beyond Budgeting: Tools and Practices 3-2-1. Balanced Scorecard (BSc) An accounting report based on four perspectives is called a balanced scorecard. The concept of balance captures the intent of broad coverage, financial and nonfinancial, of all factors that contribute to the firm‘s success in achieving its strategic goals. The balanced scorecard provides a basis for a more complete analysis than is possible with financial data alone. The use of the balanced scorecard is thus a critical ingredient of the overall approach


that firms take to become and remain competitive. (Blocher et al., 2010, P. 11) In addition, The Balanced Scorecard is considered an essential tool used to provide a concise description of different strategic perspectives i.e. financial performance, customer satisfaction, internal processes, and learning and growth. This helps identify key processes that adds value to the final customer. Hence, the BSc aims at specifying a target for each strategic measure of performance reflecting the four strategic perspectives based on cause – and – effect relations represented as a strategy map. This can support the competitive advantage of such a business firm as the BSc ensures the alignment of actions with objectives. ( Helal, 2012; El-Helbawy and El-Nashar, 2013; Shim, et al., 2012) The idea of operating without budgets often evokes suspects that companies would lose control over their operations. For example, (Rickards, 2006) states that beyond budgeting is based on total management action freedom and therefore it is not suitable to be used for control purposes. Similarly (Otley, 1999) doubts that a business firm could survive without the existence of traditional budgetary tools, even if it would be using other modern performance management tools such as balanced scorecards in its operations. The BSC implements strategy by providing a comprehensive performance measurement tool that reflects the measures critical for the success of the firm‘s strategy and thereby provides a means for aligning the performance measurement in the firm to the firm‘s strategy. Thus, managers 47

and employers within the firm have the awareness of the firm‘s CSFs (through the balanced scorecard) and an incentive to achieve these CSFs in moving the firm forward to its strategic goals. (Blocher et. al., 2010, P. 42)

Figure 3-1: the role of BSc in setting strategy (Blocher et. al., 2010, P. 368) The above figure illustrates the use of balanced scorecard which is recommended in order to find the appropriate measures. The measures provided by the BSc can be used by the Beyond Budgeting as key performance indicators (KPIs) or strategic internal benchmarks, those strategic indicators can be aggregated as objectives for the firm an a whole that in turn help in forming the overall strategy, rather than the traditional financial measures adopted in traditional budgeting process.


3-2-2. Benchmarking: Benchmarking is a process by which a firm identifies its critical success factors (i.e. time, quality, and innovation) , studies the best practices of other firms (or other business units within a firm) for achieving these critical success factors, and then implements improvements in the firm‘s processes to match or beat the performance of those competitors. (Blocher et. al., 2010, P. 13) Benchmarking has been introduced as a part of the management philosophy and is used for comparing performance against competitors. Traditional benchmarking focus mainly on internal performance measures which – in most cases – are financial. These measures are set-aside of the contemporary – continually updated – external competitive business environment. In other words, internal comparisons (internal benchmarking) may show improvements in cost and quality of products with regard to the past performance but those improvements tend to be lower than those of competitors. Hence, benchmarking is considered a useful tool to ensure that the business firm is in line with the latest levels of performance indicators of competitors‘ best practices. (Helal, 2012; Hussein, 2013) It can be said that the main benefit that the use of benchmarking is argued to offer is that they stimulate the employees to strive for continuous performance improvement. Because even though the managers do know what KPIs they are evaluated against, in the absence of absolute numbers they cannot know what is enough and what is not. This should reduce the amount of gaming behavior where for example available profits are reserved to next year (Hope and Fraser, 2003b). 49

Based on the facts mentioned above, benchmarking is considered supportive to the implementation of beyond budgeting since it is not only used in the performance evaluation but in several tasks such as: (Jin, et al., 2006) — Planning: bench marking can be used to identify the best practice of competitors in terms of a number of key success factor to compare with like; productivity, process quality, innovation, flexibility, spoilage, and resource consumption. Those indicators re essentially considered in the planning process. — Data collection: a firm is required to gather only formally published information about competitors needed for making sound comparisons. And there is no need to collect unnecessary detailed data that has no strategic use for the firm. — Data analysis: benchmarking requires processing gathered data and making it ready for comparisons and conclude the differences in performance between different internal units, and also between the firm and competitors. — Identify the required improvements: in the light of the results concluded, a set of objectives are to be revised and a group of tasks should be specified to get the desired outcome. — Implementation and control: carrying out the improvement programs and having control over activities based on continually updated comparisons of the relative performance. In addition to the external benchmarking, internal benchmarking is also useful to help other departments of a business firm make a good


understanding of the performance of the best department in the same firm. (Hope; Fraser, 2003a) Targets/ Strategy

Benchmarks (internal/external)

Resources/ Cost


Growth/ Improvement Figure 3-2: the suggested role of Benchmarks To conclude, as shown in figure (3-2) both internal and external benchmarks contribute directly to more than one activity in the firm such as setting targets, and resource allocation, and also alters the improvement and growth of the firm through keeping a close eye to the best practices both internally and externally. Based on the benefits of using benchmarks, rewards can be set for managers and other employees relative to the performance related to the activities mentioned before.

3-2-3. Rolling Forecasts: The forecasting process and the use of the rolling forecasts vary across the business units. Some middle managers use the rolling forecasts as a decision making tool, while for others the rolling forecasts are just another reporting tool. (Ton-Nu, 2014)


Bergstrand (2009) defines rolling forecasts as ―projections of a small number of key variables that are updated on a rolling basis‖. Rolling forecasts are different from budgets because rolling forecasts aims to represent an unbiased, expected outcome; they typically have less line item, shorter time horizon, and more frequent updates. (Goyagina & Valuckas, 2012) As mentioned in the preceding chapter, forecasts should be continually updated rather than being fixed financial estimates. The updating of forecasts is done in a number of business firms each quarter of a year to cope with the fast-changing business environment. Each 3 moths, a forecast for the first quarter of the next year is made. Hence, a continually updated one year plan is set and also updated each three months to make planned steps toward fulfilling performance gaps with regard to benchmarks or KPIs. (Morlidge et al., 2010) Several participants thought that, in their companies, forecasting is in fact more important than budgeting. Because the assumptions on which the budgeting numbers are based change so quickly, they depend on forecasts which are updated more frequently. However, a detailed budget still provides a basis to work from, especially if something goes wrong. It acts as an anchor – although things change along the way, it is important not to lose sight of what was budgeted in the first place. (Starovic & Jackson, 2004) How often forecasts are done largely depends on the nature of the business and the environment in which it operates. A fast-changing industry such as telecommunications would need constant updating whereas, say, a


not-for-profit organization with relatively predictable annual revenues would only need to do a fixed budget annually. In other words, the rolling forecast approach differs from the traditional fixed budget in that it eliminates the constraints of a set forecast period with a defined and unchanging end point (Leon et al., 2012). The forecasts are frequently updated, typically each quarter or month and the updates consist of re-forecasting for at least the upcoming year. (Libby & Lindsay, 2003). As one month or quarter ends, it is simply dropped from the forecast and a new month or quarter is added. (Leon et al., 2012) The rolling forecast end period is constantly projected forward, as shown in the following figure:

Figure 3-3: rolling forecasts (Ton-Nu, 2014, P. 23)


Unlike budgets, rolling forecasts provide management of the firm with a flexible, moving, and fast responding window of the future (as shown in figure 3-2). They enable managers to anticipate short-term outcomes and thus influence them (Libby & Lindsay, 2003b; Hope, 2010; Leon et al., 2012). The rolling forecast process requires managers to continuously review business operations more frequently and strategically than is in a fixed annual budgeting process. Instead of looking at historical budget data, the rolling forecast force managers to look forward, enabling them to respond quickly if performance gaps occur or new business opportunities arise. (Leon et al., 2012) Hope and Fraser (2003) argued that rolling forecasts should be primarily used to improve strategic management and learning within a business firm and to empower employees. Rolling forecast results should thus not be related to performance evaluation and rewards; therefore they should be free from bias and show objective projections for key performance indicators. (Hope & Fraser, 2003a) And to make it practical, rolling forecasts can be applied through some basic steps that can be summarized as follows: (Abdel-Latif, 2014) — Focusing mainly on the critical success factors (CSFs) such as revenues, costs, and required resources. — Forwarding efforts toward achieving the updated targets with regard to competitors‘ best practices rather than the historical – one time- targets.

— Updating operational management decisions to take into account the effects of these decisions on cash flows.


3-2-4. Resource Consumption Accounting (RCA): Using RCA information in budgeting may contribute to the efficiency of budgeting process through a number of reasons:(Van Der et al., 2002, PP. 56), (EL-Helbawy & EL-Nashar, 2013, PP. 126-131) - RCA properly accounts for excess/idle capacity through the distinction between; used capacity, unused but inventoriable capacity, and waste. This distinction is to be made through depending on quantifiable output measures of resources. - RCA accurately reflects the nature of cost of the invested resource base. Two aspects are true; the inherent nature of cost behavior as fixed or proportional, and the potential nature. The above points may be translated into more details as follows: - Accurate projection of monetary equivalents can be used for planning scenarios based on activities. - The ability to perform reconciliation of demand for and supply of resources' outputs in a proactive manner. - Superior decision support for incremental investment decisions based on insights related to resource demand and the nature of cost of the resource pool in question. - Detailed resource-related impacts of particular planning scenarios from the information-e.g., training requirements or compliance with statutory requirements around rest time. - Ability to derive a comprehensive and accurate monetary plan by reversing the entire quantity-based RCA cost model, including all simultaneous support relationships. 55

In spite of the potential benefits of using RCA information in budgeting, there might be some problems related to the application of such approach. Those problems can exist as a result of the following reasons: — RCA works well with enterprise resource planning (ERP) systems, capturing information at the lowest level (such as the manufacturing point) to accurately determine costs. (Clinton & Werber, 2004) — The absence of an ERP system means that it is too difficult to get the needed information for setting an RCA- based budget. — The complexity of the cost relationships represented by the RCA model may limit its adoption to firms having the prerequisite technological sophistication and managerial expertise. These prerequisites may, in fact, exist in many firms that have already implemented ERP technology (Sharman, 2003). When these requirements do not exist, the costs of implementing the RCA approach may be prohibitive.

3-2-5. Enterprise Resource Planning (ERP): Implementing an ERP system should help a company to provide customers the highest quality products and best possible service since it is an integrated, centralized information system. In theory, the ERP system should link the customer end of the supply chain with all functional areas responsible for the production and delivery of a product or service—all the way upstream to suppliers. (Kinney & Raiborn, 2011) According to the beyond budgeting principles, resources should not be allocated on a yearly basis, but instead continuously following a centrally planned just-in-time ideology (Hope et al., 2011, Ostergren and Stensaker, 2011). In other words, a central committee should be formed to actively 56

manage the resource portfolio and to evaluate the projects individually through a common set of qualitative and quantitative criteria. A wellfunctioning information system plays a crucial role here as it provides information about where the business is accelerating and where cooling off (Banham, 2012). The ERP provides the beyond budgeting with the following: (Abdel-Latif, 2014) — Flexible measurement systems for KPIs in relation to the benchmarks. — Flexible resource planning systems. — Availability of information about process at various levels. ERP also ensures that financing is to be given for the overall best projects in the business firm, not just for the best projects within a division. Managerial focus is directed to emphasize continuous search of good projects, and the problem of necessary projects being rejected due to the budget constraints of the business units, is removed (Bourmistrov and Kaarboe, 2013).

3-2-6. Customer Relationship Management (CRM): The traditional budgeting process aims at increasing sales volume and revenues from customers in the short-run. In contrast, firms view customers as long-lived assets that can be best utilized and enriched through managing relations with customers to identify clearly their needs aiming at achieving them to the most possible extent. Accordingly, CRM Systems provide data about customer types, the most profitable customers to the firm, and who are the most loyal ones. Hence, the business firm can utilize such information to capture, retain, and serve customers on a long-run basis through: (Abdel-Latif, 2014) 57

— Customer database analysis. — Market research to identify the changing customer needs. CRM also help the firm identify the major commitments based on market. Whenever possible respond to unanticipated customer requests. Give those who are making the front-line decisions access to customer profitability information or they risk creating losses as the costs of customizing affect customer profitability. (Hope; Fraser, 2003a) In Brief, responding to customer needs should be done as a push system instead of a pull system to cope with the instantaneous customer orders.

3-2-7. Value-Based Management (VBM): Business firms should focus on activities that add value and eliminate those not contributing to the value of the firm. In other words, any business firm is to be viewed as a portfolio of resources, products, and customers. Hence, resources should be employed only in activities that can contribute to the overall value of the firm rather than spending resources toward achieving static financial targets. (Hope & Fraser, 2003a; Hansen et al., 2003) Accordingly, rewarding employees will turn from individual basis to team work basis in the light of the KPIs adding value to the firm. Each member now is concerned with development programs himself. This creates a favorable competition between work teams supporting the strategic goals of the firm. From another point of view, shareholders now expect managers to make decisions based on creating value greater than the cost of capital. This is hard to do in the traditional budgeting environment, where goals and 58

resources are allocated for the year with little relationship to the allocations‘ impact on segments of the business. Some get more than they need in relation to their value-creation while others don‘t get enough. Instead, give front-line managers access to the information they need to see what creates the most value. (Hope; Fraser, 2003a) Based on the main concept of beyond budgeting and the suggested contributions of the tools and practices illustrated before, there will be a need for the separation between three main items: Traditional Budget

Step 1- Separate


 Goals  Forecasts  Resource Allocation


Resource Allocation

Same number – conflicting

Step 2 - Improve  Front-loaded  Ambitious  Relative    

Action-based Expected outcome Financial & non-financial Limited detail

   

No pre-allocation Clear criteria Operations KPIs Monitoring

Different numbers

objectives Figure 3-4: The Improvement of the Traditional Budgeting Process (Ton-Nu, 2014, p. 22)


As shown in the above figure, practitioners suggest that the basic stages of transformation from the traditional budgeting to beyond budgeting are separation, then improvement. The separation of forecasts, targets, resource allocation is crucial in order to receive early warnings regarding gaps between plans and targets. Hence the improvements are unlikely to appear until the three main budgeting purposes are separated. After the stage of separation, the next step is to make improvements to each item individually. Ambitious goals are to be set in the light of strategy by the top management relative to those set by competitors to get closer and closer to the best practice in the marketplace. In addition, forecasts should be related to practical actions not just as a repetition of static numbers with little modifications. They also must reflect the expected outcomes of the business firm containing not only financial but also non-financial desired outcomes. As for the resource allocation, the matter is not as easy as before. No pre-allocation of resources is needed rather that, allocation of resources is to be done when needed in a specific activity or process. It is also necessary to clarify a set of specific allocation criteria linked with the KPIs. This requires monitoring of the allocation process itself to get best use of resources.

3-3. Beyond Budgeting: Framework Different budgeting alternatives lead to different effects on the performance measures of the organization‘s budgetary functions. All of the alternatives generate a direct improvement in the performance. (Hansen, 2011). 60

As shown in the following figure (Figure 3-5), a business firm in the contemporary business environment focus mainly on creating value. And as said before, the value based management guide efforts to add value to members, customers, shareholders, and other stakeholders such as the external environment. Traditionally, a lot of dysfunctional behaviors occurred because the managers limited actions to the annual performance trap. This is due to the annual performance evaluation process based on the fixed targets set in advance at the early beginning of each year. (Hansen, et. al., 2003) In contrast, Hope and Fraser (2003a) suggested to drop the budget altogether and replace it with the Beyond Budgeting philosophy which aims for addressing management control challenges, replacing budgets and making organizations more adaptive to change. Within Beyond Budgeting rolling forecasts are suggested as an alternative to the budget. In addition, the managerial accounting tools – with the support of information systems – can provide valuable information needed for the implementation of beyond budgeting principles. Philosophies, systems, tools, and practices are linked together consisting a framework for the efficient application of beyond budgeting. Components of the suggested framework can supply the needed, updated, and multi-purpose information required for the implementation of beyond budgeting. The following is an illustration of the main role of each component of the framework and the interaction between each of them making a contribution to value provided by the business firm to stakeholders. Higher value for stakeholder is considered a reflection of better performance than before. 61

Value Creation

Value for Stakeholders (As a major performance indicator)

Empowered Members

Targets & Strategy







Resources & Cost



Growth & Improvement






Entrepreneurship Principles

(Capability – Authority – Commitment)

Balanced Scorecard


Rolling Forecasts

Customer Relationship Management

Resource Consumption Accounting

Value-Based Management (Efficiency – Quality – Flexibility – Innovation)

Figure 3-5: Beyond Budgeting framework Source: (Abdel-Latif, 2014, P. 159) 62 – with modifications by the researcher

The starting point is the ERP. Rather than historical data being used for planning and control purposes only, the ERP utilizes data for forecasts needed to support decisions related to various functional areas as shown below in figure 3-5:

Figure 3-6: Enterprise Resource Planning (ERP) Available at: Here the ERP contains vast amount of information about resources, processes, activities, departments, work team members, and also customers of the business firm. ERP is a linking channel between Resource Consumption Accounting and Customer Relationship Management from one side and Balanced Scorecard, Benchmarks, and Rolling Forecasts from the other side. In details, The RCA provides detailed information about resources and patterns of resource consumption by different processes. This is a good 63

indicator of the resources needed and quantities. This information is continually delivered between RCA and ERP. Instead, the Customer Relationship Management provides vast amount of data about customers and their needs. Also this information is to be delivered to the ERP. Moreover, for internal processes to be matched with what intended to be, an interaction between the Balanced Scorecard, Benchmarks, and Rolling Forecasts is considered essential for providing the basis to apply the main principles of beyond budgeting. Similarly, The Balanced Scorecard supports the strategic orientation through taking in account the true internal image of the firm from the four strategic perspectives. While Benchmarks help managers keep a close eye to what competitors do and how well they do it. Finally, the role of rolling forecasts becomes important to continually correct the path for achieving a competitive advantage. The role of each of the three main tools in various managerial practices can be illustrated in details as follows: — Targets and strategy: the balanced Scorecard helps managers replace the traditional financial targets with more strategic financial and nonfinancial targets – such as customer satisfaction and quality – guided by best practices (Benchmarking) translated into Rolling Forecasts. — Forecasts: Forecasting is not limited to the financial outcomes, as it is done based on the BSC information. In addition, forecasting become for flexible, responding faster to customer needs (Rolling Forecasts)


— Rewards: Rewarding performance of both managers and other members in the business firm will be shifted to ensure conformity with the strategic view of the firm. And keeping a close eye to the benchmarks to give rewards will induce members to employ much more effort toward achieving the desired targets. — Control: control is no longer centralized. The control function focuses not only on the financial perspective but also on the other KPIs. Team members themselves have to participate in the control activities to identify, handle, and overcome the performance problems from the early beginning before it affects the customers outside the business firm. — Resource Consumption & Cost: resources have to be consumed according to the overall strategy and to the most possible extent as the amount consumed by competitors. Hence, forecasts about resource consumption and associated costs must be updated continually so that the budget number can reflect the true requirements of resources and their accurate costs. — Co-ordination:

coordination between members and activities is

required to achieve the strategic objectives of the firm. Hence, work is to be divided between work teams with the aim of finding the best way to serve the customer needs while focusing on the most profitable customers first.


— Growth & Improvement: updating targets, Benchmarking, and rolling forecasts have the potential to make the business firm get better improved and gain larger market share. Turning to the entrepreneurship principles, the information systems, tools, and practices of management and other members should be in line with a number of leading concepts such as: motivation of all members, the need for corporate governance, transparency of information, and delegation of authority between different levels within the business firm. Then, empowered members who have the needed capabilities, the relative authority, and commitment can make a sound change and add value to the customers which in turn will affect positively the value provided to other stakeholders.

3-4. Summary Practitioners with the aid of academic studies had ongoing efforts to improve the budgeting process. As a result, Beyond Budgeting is recently considered an innovative, flexible, and more realistic approach than Traditional Budgeting. From the researcher point of view, applying principles, systems, and tools that support the implementation of beyond budgeting results in aspirational goals, reduced gaming, ambitious strategies, fast response, reduced waste, improved customer service, and an atmosphere that promotes learning and ethical behavior.


Chapter Four Exploratory Study


Chapter Four Exploratory Study 4-1. Introduction Beyond budgeting uses a number of tools and techniques as a replacement for the traditional budgeting process. For example, the Balanced Scorecard could be combined with rolling forecasts and shareholder value models. In addition, beyond budgeting offers an implicit performance contract to managers, with rewards based on relative performance achieved. The targets which replace budgets must be aligned with incentives to support a new culture of accountability within the organization. The researcher suggests a number of practical steps considered essential to apply beyond budgeting approach: 1. Define the need for change and provide an overall vision. 2. Good preparation to convince the Board of directors with beyond budgeting. 3. Design and implement innovative processes. 4. Train and educate personnel. 5. Rethink the role of finance. 6. Change behavior – new processes, not management orders. 7. Evaluate the benefits. 8. Consolidate the gains. For a successful beyond budgeting implementation, (Hope & Fraser, 3003a) argued that the following criteria are necessary: 68

 There needs to be a clear case for change, with the benefits fully explained  Managers should consider carefully the degree of decentralization that might be possible within their organization  There must be a governance framework with clear priorities and boundaries  A high performance ethos based on visible and relative success at all levels will be necessary  Front line teams need the freedom to take decisions within agreed parameters  Trust and openness at all levels of the organization will be paramount.

4-2. Exploratory Study Exploratory study is an examination into a subject in an attempt to gain further insight. With an exploratory study, the researcher starts with a general idea and uses research as a tool to identify issues that could be the focus of future research. Exploratory research ―tends to tackle new problems on which little or no previous research has been done. In other words, exploratory studies are a valuable means of finding out ―what is happening; to seek new insights; to ask questions and to asses phenomena in a new light‖. (Robson, 1993, P. 42). It can be said that this type of study is useful if you wish to clarify your understanding of a research problem. And mainly, there are three main ways of conducting exploratory research:


— A search of the literature — Talking to experts in the subject — Conducting focus group interviews. In particular, unstructured interviews is the most popular primary data collection method with this type of research since it provides flexibility in questions and can provide a wide range of valuable data about new concepts and issues. (Suanders et al, 2000) If a researcher is conducting an exploratory research, he/she must be willing to change his/her direction as a result of new data which appears and new insights which occur to him/her. In addition, others reinforced this point by arguing that the flexibility inherent in exploratory research does not mean absence of direction to the enquiry. But that the focus is initially broad and becomes progressively narrower as research progresses.

(Adams &

Schvaneveldt, 1991)

4-2-1. Aim of the Study The study aims at: — Exploring the differences between firms in terms of the problems related to the application of traditional budgeting. — Exploring the proposed benefits related to the application of beyond budgeting as a direct contribution to the improvement of strategic performance management.

4-2-2. Data Collection: Methods Data collected from studying the budgeting process of a number of firms through online and personal interviews with senior managers and 70

business specialists in the field of budgeting and financial planning. Questionnaires are also forwarded to academic and practical specialists in accounting and budgeting to support the understanding of the new approach to budgeting.

4-2-2-1. Interviews Interview is a method of collecting data in which selected participants are asked questions in order to find out what they do, think, or feel. Interview







unstructured. Structured interview is based on a predetermined and incidental set of questions. Interview would be semi-structured when the interviewer has a list of areas to be covered and there are some standardized questions, but he/she may omit from or add to these questions depending on the situation and the flow of the conversation. If there are no predetermined questions, the interview is said to be unstructured. (Hussey & Hussey, 1997: 156) The researcher depended mainly on structured interview to get specific responses to a pre-defined set of questions about beyond budgeting with regard to tools, practices, and potential benefits from both theoretical and practical point of view. (interview questions are listed in appendix A)

Interviews: Results The following table summarizes main interview groups and the number of respondents to interview questions:


Personal Interviews

Online Interviews

Academic interview



Budget Specialists






Table 4-1: number and types of interviews From the data gathered through to interviews (as shown in table 4-1) about the role of rolling forecasts as an essential tool used by beyond budgeting, a summary of the interviews can be illustrated as follows:

Forecasting in Budgeting Process Budgeting process takes several ways as well as tools and techniques. But in general, the process can be subdivided into strategic plan, annual operating plan, financial forecast, sales & operations plan.


2013)  Strategic Plan: is a long-term direction setting plan covering a period from 3 to 5 years and carried out once a year.  Annual operating plan: is a plan intended to set a performance contract and commitment.  Financial Forecast (Rolling Forecast): is a quarterly forecast which is used as a basis for corrective actions.  Sales and Operational Planning: is a rolling forecast used as a basis for balancing between operational demand and supply. Before starting with budgeting, it is considered of high importance to monitor expectations of the firm and stakeholders as set by the strategy. Provided that strategy is available, it needs to enter into the annual budgeting process in which, targets and commitments are set as milestones. From this


point forth, forecast is used to track whether or not is being achieved. Consequently, the budget is being checked quarterly against a set of KPIs.

— Forecasting: Reasons From the answers to the interviews questions, a number of business specialists stated that the main objective behind forecasting is supporting the accurate decision making capability. Forecasting enables a firm to make predictions about future events and conditions which – in some cases – are out of control of management team, yet enabling the management to take right decisions in early stages shaping the future by using such results in consideration while updating plans. However, forecast is about obtaining the latest realistic expectation of financial status of the year in the future. One of the senior managers being interviewed argued that ―The role of rolling forecasting becomes clear in changing environment‖. He also stated that in some cases, it might be even required to carry out forecasting more often than quarterly. Sales for example, need to be tracked daily, or weekly and immediate actions should be taken in case of anything goes substantially wrong. A budgeting official stated that ―the purpose of forecast is managing costs and profitability to ensure that the market share is going in the right direction. And you will see through investigating operations if objectives are being met or not. And if not, you have to do some corrective actions either operationally or strategically. And in general, to adapt the rolling forecasts, financial forecasting is to be done quarterly (other studies also suggested monthly rolling forecasts). 73

Each quarter, a budget is reviewed and updated with the most recent forecasting results for a period covering one year.

4-2-2-2. Questionnaire: A questionnaire is a list of a research or survey questions asked to respondents, and designed to extract specific information. It serves four basic purposes: (Design of questionnaire is shown in appendix b) — Collect the appropriate data — Make data comparable and amenable to analysis — Minimize bias in formulating and asking question, and — To make questions engaging and varied.

4-2-3. Data Sample The sample of the study consist of a number of business firms located in Egypt and selected randomly in addition to a number of the leading firms applying the beyond budgeting approach (outside Egypt). Interviews were held with academic members, active members in the management team of firms, and budget specialists.

4-2-4. Variables of the Study First: Independent Variable: the main independent variable is the beyond budgeting model that consist of a number of principles. The study focused mainly on the following:  Non-financial data used in budgeting process (KPIs)  Relative benchmarking  Rolling forecasts  Flexible Targets 74

 Decentralization of decision making  Governance  Information sharing & transparency Second: Dependent Variables: The dependent variable is strategic performance management and the aim is to identify whether the application of beyond budgeting has a measurable effect on strategic performance management or not through the effect on the following variables:  Flexibility of forecasts  Target setting  Continuous improvement and growth  Performance measurement (KPIs)  Compensation (or rewards)  Corrective actions

4-2-5. Data Analysis The sample of the study was collected through (103) valid questionnaire responses out of (142) distributed but (39) responses were rejected for statistical reasons. The questionnaire is divided into two main groups of questions. The first group asked about the main problems of traditional budgeting with the aim of clarifying the main problems related to traditional budgeting while the second one asked about the main benefits of applying beyond budgeting as suggested by the research.


4-2-6. Statistical Results The study used (SPSS) to analyze data through the use of the following tests:

 Reliability Analysis: Cronbach’s Alpha: which is used to indicate the degree of reliability of a specific statistical test. And as known, the closer the value to one is better.


No. of questions

Problems related to traditional 13 budgeting 16 Benefits of beyond budgeting Table 4-2: reliability test results summary

Cronbach’s Alpha 0.731 0.768

From the above table, the Cronbach‘s Alpha for the first group of question is 73.1 % (or 0.731) and 76.8 % (or 0.768) for the second group of questions, both data groups are considered reliable since the results are greater than 60%.

 T-Test: T-Test: is a statistical test used to compare two averages (means) and tells if they are different from each other. The test tells also how significant the differences are. A large t- score (over the average) tells you that the groups are different.

First Hypothesis: T-test was used and the arithmetic average and standard deviation were computed for the answers to questions included in the first part of the questionnaire to measure the availability of problems included in the traditional budgeting approach. 76

N Mean Significance P1 103 3.44 .000 P2 103 3.43 .000 P3 103 3.42 .000 P4 103 3.52 .000 P5 103 3.43 .004 P6 103 3.65 .000 P7 103 3.58 .000 P8 103 3.44 .000 P9 103 3.68 .000 P10 103 3.76 .000 P11 103 3.42 .006 P12 103 3.50 .000 P13 103 3.71 .000 Average 103 3.54 .000 Table 4-3: Mean and significance level for the first group of questions From the results shown in the t- test results shown in table 4-2, (details in Appendix C) it can be said that there are certain problems with traditional budgeting with an overall average of (3.54). And it can be noticed that the average for all observations is above the test value (3) and the significance level for all items is less 5%. Based on the facts mentioned above, it can be concluded that – despite the last question – all items are considered statistically significant and this is considered a sufficient evidence for the existence of such problems related to traditional budgeting.

Second Hypothesis: T-test was used and the arithmetic average and standard deviation were computed for the answers to questions included in the second part of the questionnaire to measure the availability of benefits included in the beyond budgeting approach. 77

N Mean Significance B1 103 3.74 .000 B2 103 3.43 .000 B3 103 3.42 .000 B4 103 3.50 .000 B5 103 3.56 .000 B6 103 3.61 .000 B7 103 3.55 .000 B8 103 3.56 .000 B9 103 3.68 .000 B10 103 3.73 .000 B11 103 3.54 .000 B12 103 3.34 .007 B13 103 3.42 .006 B14 103 3.44 .003 B15 103 3.50 .000 B16 103 3.56 .000 Average 103 3.52 .000 Table 4-3: Mean and significance level for the second group of questions From the results shown in the t- test results shown in (Appendix C) it can be said that there are certain benefits for beyond budgeting with an overall average of (3.52). And it can be noticed that the average for all observations is above the test value (3) and the significance level for all items is less 5%. Based on the facts mentioned above, it can be concluded that all observations are considered statistically significant and this is considered a sufficient evidence for the existence of such benefits.

4-2-7. Comment on Statistical Results Statistical results show that the first hypothesis is accepted, this means that there are certain problems with the application of traditional budgeting 78

related to the inflexibility, remoteness from strategic targets, inability to adapt fast to the changing business environment. And as a result there is a need for an alternative approach suggested by the current study, i.e. the application of beyond budgeting through the use of different tools and practices as illustrated in the theoretical part of the current study. The second hypothesis suggested that there are certain benefits for the application of beyond budgeting as an alternative for traditional budgeting. By analyzing responses of academic and practical specialists in budgeting, it may be concluded that the application of beyond budgeting tools and practices will improve the budgeting process itself which in turn can contribute to enhancing strategic performance management through the introduction of new flexible targets, innovative performance indicators and benchmarks, more adaptive and realistic compensation plans. Those factors are mainly considered the basic elements for improving strategic performance management. To be more specific, statistical results of this study encounter a major limitation that it cannot be generalized as it is. This is because the aim of the study is just to explore the main tools, practices, and benefits of beyond budgeting from different points of views either academic or practical. Interview questions and questionnaires were designed to clarify the existence of such benefits mentioned in the theoretical part but the clear effect of each tool or practice on strategic performance requires further investigation and analysis that can be done in future researches.


Chapter Five Conclusion, Recommendations and Suggestion for Future Research

Chapter Five Conclusions, Recommendations, and Suggestion for Future Research 5-1. Introduction Beyond Budgeting is considered the remedy for several budgeting problems related to the adoption of traditional budgeting approaches. The application of beyond budgeting is not as easy as it appears since there is a number of principles and tools to be implemented to get the desired improvements in the budgeting process itself which in turn will improve strategic performance management in several ways. In the current chapter, a final conclusion will be introduced to justify the need for beyond budgeting and make it clearer.

5-2. Research Conclusion In the first chapter of this research, it can be noticed that the purpose of this research is to provide an understanding of how the traditional budgeting process has encountered several problems. Traditional budgets consume too much time, cost a lot of resources during preparation and implementation, may lead to suboptimazation of goals, and also have less strategic orientation than beyond budgeting. Those problems represent the trigger for beyond budgeting for more innovative, flexible, and reliable budget. This leads to the availability of information relative to better decision making that make the firm more adaptive to the changing business environment.


With regard to budgeting, an effective information system is needed to provide relevant information upon which budget forecasts can be made accurately. In spite of that, the traditional accounting systems – in most cases – provide too aggregated information with few details not sufficient for planning and budgeting or in other words, would provide misleading results about the business firm. Accordingly, the control function also would be misleading if based on the inaccurate data used in planning and budgeting hence, the overall performance of a given firm would also be away from what stated in the strategy. From another side, moving from traditional budgeting to beyond budgeting requires the adoption of a number of principles and practices with the support of a group of management accounting tools to achieve the proposed benefits of beyond budgeting. The second chapter of the research illustrates the principles of beyond budgeting which are last updated by the beyond budgeting round table (BBRT) and were classified into two main groups; the first group represent leadership







organization, autonomy, and customers. But the second group is related to process management and include rhythm (movement toward targets), flexible targets, forecasts, resource allocation, performance evaluation, and rewards. Researchers and practitioners have found a common area of acceptance on a list of benefits that may exist if they apply the principles of beyond budgeting such as: 82

— Increasing flexibility of budgets to respond faster to the changing environment — Management processes become more adaptive — Decentralization of decision making — Empowerment of work teams — Coordination between work teams — Better use of resources and cost control than traditional budgeting — Enhancing product quality and innovation By the same way, the proposed framework of the research illustrated in details in chapter three suggests the interaction between a set of tools that pave the way for the efficient application of beyond budgeting. Among the most important tools is the balanced scorecard (BSc) which provides relevant information not only about the financial performance but also about the other three performance perspectives (internal processes, learning and growth, and customer relations). That information is useful in evaluating and directing internal performance. In addition, benchmarking is an essential tool that can be employed to assist in planning while setting targets relative to competitors, collecting data necessary for making comparisons, and identifying the proper actions for continuous improvement and growth. After the collection of relevant data and information, forecasts should be continually updated using rolling forecasts to reflect the ongoing changes in the competitive environment. Those forecast require the existence of an enterprise resource planning system (ERP) to supply the required information about different activities. And there is doubt that the customer 83

relationship management is also essential to keep a close eye to the various customer needs to be reflected in the forecasts in an organized way. From another point of view, despite the clear benefits of beyond budgeting, some problems should also be considered regarding the application of beyond budgeting which can be summarized as below: — Some practitioners argued that without a budget, there is no overall framework of control which allows companies to plan, co-ordinate and control their activities. And there would be a lack of a road map which details where a business is and where it wants to go. — They also argued that it may be very difficult or impractical for firms to adopt the culture of decentralization on which successful BB depends. — Other research claims that 99% of European companies have a budget in place and do not intend to abandon budgeting. (Kennedy and Dugdale , 1999). While a few companies do use the BB process, they are in the minority.

5-3. Beyond Budgeting & Strategic Performance Management Based on

the data collected and interviews results illustrated in

chapter four, it can be said that strategic performance management (SPM) is a system that provides direction for people‘s work while allowing for innovation and course adjustment to produce better results more efficiently. The system includes elements of strategic planning and connects them to performance measures, productivity considerations, and ongoing processes for gauging progress, improving practice, and exceeding expectations. (Redding and Layland, 2015) 84

However, Strategic performance management results in a business firm moving from a static plan to a reiterative process using an adaptive performance management system with performance measures for goals and strategies, milestones for strategies, and action plans to meet milestones. SPM requires ongoing mechanisms for feedback and adjustment in course. SPM develops and operationalizes a plan that goes beyond the basic elements of vision, mission, values, goals, and strategies to include careful analysis of various functions within the firm. (Redding and Layland, 2015) To clarify the proposed contributions of beyond budgeting with regard to strategic performance management; the following figure summarizes the main steps of performance management cycle:

Figure 5-1: The Performance Management Cycle Available at: As shown in figure (5-1), performance management consists of four main phases; plan, act, monitor, and review. The four phases can be supported by the application of beyond budgeting since the performance management has the following detailed components: (The Institute of Cost Accountants of India, 2014) 85

— Performance Planning: forms the basis of performance appraisals. During a specified period, the employees decide upon the targets and the key performance areas which can be performed over a year within the performance budget. This phase is strongly supported by the flexible targets and rolling forecasts which are among the basic tools of beyond budgeting. —

Performance Appraisal and Reviewing: The appraisals are normally performed twice in a year in an organization in the form of mid reviews and annual reviews which is held at the end of the financial year. The final ratings are provided by the appraiser for the quantifiable and measurable achievements of the employee being appraised. The entire process of review seeks an active participation of both the employee and the appraiser for analyzing the causes of loopholes in the performance and how it can be overcome. Regarding this function, beyond budgeting utilizes performance contracts and uses not only financial indicators, but also nonfinancial key performance indicators to evaluate performance and provide adequate rewards.

Feedback on the Performance: feedback and counseling is given a lot of importance in the performance management process. This is the stage in which the employee acquires awareness from the appraiser about the areas of improvements and also information on whether the employee is contributing the expected levels of performance or not. Transparency and governance adopted by beyond budgeting can help improve the feedback become more realistic.


Rewarding good performance: is a very vital component as it will determine the work motivation of an employee. During this stage, an employee is publicly recognized for good performance and is rewarded.

Performance Improvement Plans: In this stage, fresh set of goals are established for an employee and new deadline is provided for accomplishing those objectives. The employee is clearly communicated about the areas in which the employee is expected to improve.

To sum up, performance management is a continuous process of setting goals and objectives, observing performance, and giving and receiving ongoing coaching and feedback. This flexibility of goals and feedback information can be provided using the major tools of beyond budgeting such as; flexible targets, rolling forecasts, benchmarks, etc. In addition, performance management is strongly linked to mission and goals. Hence, performance management requires managers to ensure that employees‘ activities and outputs are congruent with the firm‘s goals and, consequently, help the firm gain a competitive business advantage. Performance Management therefore creates a direct link between employee performance and organizational goals, and makes the employees‘ contribution to the organization explicit. And to facilitate the link between performance and strategy; targets are to be translated into actions guided by internal and external benchmarks and also should be supported be an adaptive compensation plan. Beyond budgeting as a comprehensive system can provide the information needed to strengthen that link.


5-4. Research Recommendations Based on the results of the research, the researcher recommends the application of beyond budgeting rather than traditional budgeting through: — Forming a clear image about the customer needs. — Adopting the principles set by the beyond budgeting round table (BBRT) — Support decentralization of budget setting process — Support information sharing and transparency — Setting more realistic targets and evaluating performance based on KPIs

5-5. Suggestion for Future Research — The researcher suggests an in-depth quantitative study with practical results based on the background of this study — The researchers suggest conducting a comparative practical study between firms that apply the beyond budgeting approach to reveal the different tools employed and results achieved.



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Secondly, English References:A) Articles: - Barret, Richard (2003), ―How incorporating drivers can revolutionize budgeting and re-forecasting‖, The Journal of Bank Cost & Management Accounting; 2003; 16, 1; ProQuest PP. 16 - Bourmistrov, A., and Kaarboe, K. (2013), ―From comfort to stretch zones: A field study of two multinational companies applying beyond 90

budgeting ideas‖, Management Accounting Research, Vol. 24, PP. 196211 - Bunce, Peter and Fraser, Robin (1997), ―Beyond Budgeting…‖, Management Accounting, Feb 1997, 75, 2 - Clinton, B. Douglas and Werber, Sally A., (2004), ―RCA at Clopay‖, Strategic Finance; October 2004. - C. Lobo, D. and Cochran, J. Duda, (2000), ―Using axiomatic design to support the development of balance scorecard‖, In Performance Measurement Past, present and future, p.347-357 - Connolly, Tim and Ashworth, Gary (1994) ―An integrated activity-based approach to budgeting‖, Management Accounting, Mar 1994; 72, 3. - De Waal and André A (2005), ―Is your organization ready for beyond budgeting?‖, Measuring Business Excellence, 9, 2, P.P 56 - Everaert, Patricia, Cleuren, Geert and Hoozee, Sophie (2012) "Using timedriven ABC to Identify Operational Improvements", Journal of CostManagement, March/April; 26, 2; Accounting & Tax. - Goyagina, A., and Valuckas, D. (2012). Reviewing literature on rolling forecasts, benchmarking and customer profitability. A management accounting perspective. Published Master thesis, Norwegian School of Economics, Bergen. - Grasso, Lawrence P., (2005) ―Are ABC and RCA Accounting Systems Compatible with Lean Management?‖, Management Accounting Quarterly, fall 2005, Vol.7, No.1. - Hansen, Stephen C. (2011) ―A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting and Beyond Budgeting‖, European Accounting Review, Vol. 20, No. 2, 289–319, 2. 91

- Hansen, Stephen C.; Otley, David T. and Vander, Wim A. (2003) "practice Developments in Budgeting: An Overview and Research Perspective", Journal of Management Accounting Research, vol. 15. - Hawkesworth, Ian; Melchor, Oscar Huerta, and Robinson, Marc (2013), ― Selected budgeting issues in Chile: Performance budgeting, medium-term budgeting, budget flexibility‖, OEGD Journal on Budgeting, Volume 2012/3 - Henttue-Aho, T. and Jarvinen, J. (2013) ―A Field Study of Emerging Practice of Beyond Budgeting in Industrial Companies: An Institutional Perspective‖, European Accounting Review, Vol.22, No. 4, PP. 765 – 785. - Hope, Jeremy; and Fraser, Robin, (1999), ―Beyond budgeting: Building a new management model for the information age‖, Management Accounting, Jan 1999; 77, 1 - Hope, Jeremy and Fraser, Robin. (2000) ―Beyond Budgeting‖, Strategic Finance, Oct 2000; 82, 4; ProQuest Central - Hope, Jeremy and Fraser, Robin. (2001) ―Beyond Budgeting Questions and Answers‖, Beyond Budgeting Round Table, Oct 2001. - Hope, Jeremy and Fraser, Robin, (2003a), ―Beyond budgeting: how managers can break free from the annual performance trap?‖, 25, 9, September 2003. - Hope, Jeremy, and Fraser, Robin (2003b). ―Who Needs Budgets?‖. Harvard Business Review, 2003, Vol. 81, Issue 2, pp. 108-115. - Kaplan, Robert S. and Steven R. Anderson (2007) Time-Driven ActivityBased Costing: a Simpler and More Powerful Path to Higher Profits, Boston, Massachusetts: Harvard Business School Publishing


- Kennedy, A. and Dugdale, David. (1999) Getting the most from budgeting, Management Accounting: Magazine for Chartered Management Accountants, Vol. 77, No. 2, PP. 22-24 - Keys, David E; and Van Der Merwe, Anton, (2002) ―Gaining Effective Organizational Control with RCA‖, Strategic Finance; May 2002; 83, 11. - Krumwiede, Kip; and Suessmair, Augustin (2008) ―A Closer Look at German Cost Accounting Method‖, Management Accounting Quarterly, fall 2008, Vol.10, No.1. - Leon, L., and Patrcia D. Rafferty, R. H. (2012). Replacing the Annual Budget with Business Intelligence Driver-Based Forecasts, Intelligent Information Management, 5, pp. 6- 2. - Libby, T., and Lindsay, R. (2003). Budgeting - an unnecessary evil (part 2). CMA Management, 7(2), pp. 28-32. - Mak, Y T;Roush, Melvin L (1994) ―Flexible budgeting and variance analysis in an activity-based costing environment‖, Accounting Horizons; Jun 1994; 8, 2. - Marija Vaznonienė; and Neringa Stončiuvienė (2012), ―The Formation

of Company Budgeting System: Importance, Problems and Solutions‖, Management theory and studies for rural business and infrastructure development, No. 1 (30). Research papers. - McVay, Gloria ;and Cooke, David . (2006) ―Beyond Budgeting is an IDS : The Park Nicollet experience‖, Healthcare Financial Management; Oct 2006; 60, 10; ProQuest Central - Michael, S. C. T. and Maleen, Z. G. (2009). Recognition of idle resources in time-driven activity- based costing and resource 93

consumption accounting models, Journal of Applied Management Accounting Research, 7 (2): 41-54. - Morlidge, S., and Player, S. (2010), Future Ready: How to Master the Business Forecasting, West Sussex: John Wiley & Sons, Ltd. - Neely, Andy; Bourne, Mike; and Adams, Chris (2003), ―Better budgeting or beyond budgeting?‖, Measuring Business Excellence, Vol. 7, 3; ProQuest Central PP. 22 - Ostergren, Katarina, and Stensaker, Inger: ―Management Control without Budgets: A Field Study of ‗Beyond Budgeting‘ in Practice‖. European Accounting Review, 2011, Vol. 20, No. 1, pp. 149-181. -

Perkins, David; and Stovall, O. Scott (2011) ―Resource Consumption Accounting – Where Does It Fit?‖, The Journal of Applied Business Research, September/October 2011, Vol. 27, No. 5.

- Phillips, Kevin (2012), ―Beyond Budgeting – the dynamic budget‖, May, 2012.


Player, Steve (2005) ―Guardian Industries Corp: Achieving Continuous Growth & Profits for 45 Years Without Budgets”, Beyond Budgeting Round Table, July 20, 2005

- Rickards, R.C. (2006) ―Beyond budgeting: boon or boondoggle?‖, Investment Management and Financial Innovations, vol. 3, no. 2, pp. 62-76 - Sharman, Paul A. (2003) ―Bring on German cost accounting‖, Strategic Finance, 85 (6), 30-38. - Shim, Jae K.; Siegel, Joel G.; and Shim, Allison I. (2011), Budgeting Basics and Beyond. Hoboken, NJ, USA: John Wiley & Sons, 2011.


- Starovic, Danka; and Jackson, Chris (2004) ―Better Budgeting, A report on the Better Budgeting forum from CIMA and ICAEW, Chartered Institute of Management Accountants, Faculty of Finance And Management, July 2004 - Stevens, Mark E (2004), ―Activity-based planning and budgeting: The coming of age of the consumption-based approach‖, The Journal of Corporate Accounting & Finance, Mar/Apr 2004; 15, 3. - Ton-Nu, Vivi (2014), Rolling Forecasts in a Beyond Budgeting environment, A case study on the use of rolling forecasts as a management tool, Institute for Research in Economics and Business Administration, Bergen, February 2014 - Van der Merwe, and Anton; Keys E. David (2002) "The case for Resource Consumption Accounting", Strategic Finance, April 2002. - Waal, Andre D; Janssen, Miriam H and Deven, Acro V. (2011) "The Evolutionary Adoption Framework: Explaining the Budgeting Paradox", Journal of Accounting & Organizational Change, Vol. 7. - Zeller, Thomas L; and Metzger, Lawrence M., (2013), ―Good Bye Traditional Budgeting, Hello Rolling Forecast: Has The Time Come?‖, American Journal Of Business Education, May/June 2013 Volume 6, Number 3

B) Books: - Adams, G. and Schvaneveldt, J. (1991) Understanding Research Methods, 2nd edition, New York, Longman. - Anthony, R. N., and Govindarajan, V. (2007). Management Control Systems, New York: McGraw-Hill. - Banham, Russ (2012) ―Freed From the Budget‖. CFO, 2012, Vol. 28, Issue 7, pp. 41-46. 95

- Bergstrand, J. (2009). Accounting for Management Control. Lund, Sweden: Student littaretur AB. - Bogsnes, B. (2009). Implementing Beyond Budgeting, Unlocking the Performance Potential. Hoboken, New Jersey: John Wiley & Sons. - Blocher, Edward J; David E. Stout, Gary Cokins, and Kung H. Chen. (2010) Cost Management: Strategic Emphasis"; 5th edition Mc-GrawHill Irwin, New York. - Hilton, Ronald R,; Maher, Michael W, and Selto, Frank H, (2008) "Cost Management"4th edition, McGraw-Hill Higher Education.


Hope, Jeremy; Bunce, Peter; and Franz Röösli (2011) The Leader’s Dilemma, How to build an empowered and adaptive organization without losing control, Beyond Budgeting Round Table, Jossey-Bass, April 2011.

- M. Armstrong (2006) ―Strategic Human Resource Management‖, 3rd edition, ed. Kogan Page, London, p. 142. - Mowen, Maryanne M; Hansen, Don R. and Heittger Dan L. (2012) "Management Accounting", 4th edition, South-Wewaalstern Cengage learning. - Redding, Sam ; and Layland, Allison (2015) Strategic Performance Management; Organizing People and Their Work in the SEA of the Future, Edvance Research, San Antonio, TX - Robson, C. (1993) Real World Research: a Resource for Social Scientists and Practitioners Researchers. Oxford, Blackwell.


- Suanders, M.; Lewis, P.; and Thornhill, A. (2000) Research Methods for Business Students, 2nd edition, financial Times, Prentice Hall, an imprint of Pearson Education, Great Britain. - ------ (2014), STRATEGIC PERFORMANCE MANAGEMENT, Study Notes, The Institute of Cost Accountants of India, CMA Bhawan, 12, Sudder Street, Kolkata, Directorate of Studies 2014

C) Online Sources: 




Appendix A Interview Questions Introduction: — Introducing the researcher first, and the topic of research. — Asking about the educational background, and position of the interviewee General Questions: — What do you know about budgeting in general? — Do you have a basic role in the budget setting process? — Has your role changed over time? — What are the main problems related to traditional budgeting process? — What do you know about strategy? Questions about different aspects of budgeting: — What do you know about forecasts, and rolling forecasts used in budgeting? — Based on your experience in budgeting, what might be the basic difference between traditional budgeting and rolling forecasts? — What is the role of non-financial measures in budgeting? — Comment with ―yes‖ or ―No‖ on the following statement; the more the updating of information, the more the accuracy of forecasts and decision making process. — What do you think about flexibility entitled in beyond budgeting? — Do you think that the use of KPIs in performance evaluation support the achievement of strategy? 99

— Based on your experience, what might be the role of customer relationship management in setting targets of budgets? — Is it better to work as separate departments within the firm or as cooperative teamwork, and what is the effect of this on achieving goals? — What might be the benefits of decentralization in the budget setting process? — Please comment on the following statement ―governance is essential for directing members toward achieving strategic objectives‖. — Please comment on the following statement ―Information sharing and transparency enhance flexibility in responding to customer needs‖


Appendix B Questionnaire

Tanta University Faculty of Commerce Accounting Department To whom it may concern, I‘m preparing a research under the title of ―Improving Strategic Performance Management Using Beyond Budgeting Information: An Exploratory Study‖. Kindly answer the enclosed questionnaire with the aim of supporting the empirical results of the study and there is no doubt that data will be used for scientific purposes only keeping confidentiality of such data. Your responses to the questionnaire are considered essential for the research, so the researcher would be grateful for the caring about correct answers. Researcher Abed Mohamed Sallam Demonstrator - Accounting Department Faculty of Commerce Tanta University [email protected] +2 01098768385


Name (Optional): E-mail address (optional): Contact (optional): Field of Work (Required): Academic Accounting Specialist Other


As shown below a number of indicators representing your evaluation about different aspects of the budgeting process. Please choose the best answer to each individual question: Problems related to traditional budgeting process 1. 2. 3. 4. 5. 6. 7. 8.

9. 10. 11. 12.


Strongly Disagree

Traditional budgeting estimates do not reflect the actual operational needs Traditional budgeting estimates are the same each year with slight differences Traditional budgeting process is costly and time consuming Traditional budgeting process has limited flexibility to change Traditional budgeting process do not contribute directly to the corporate strategy It is difficult to review and update targets in traditional budget Traditional budgeting process focus on reducing costs rather than customer satisfaction According to traditional budgeting, resources are allocated to departments once at the beginning of the year Employee compensation and rewards system is strongly connected with static targets Traditional budgeting process limits active participation in the management process Traditional budgeting process limits information & knowledge sharing Short term financial targets set by the traditional budgets may block the achievement of strategic objectives Traditional budgeting may encourage the false shifting of revenues and expenses between different periods to achieve targets





Strongly Agree

Benefits related to beyond budgeting tools and techniques 1. Key non-financial data is important to managers when they come to prepare their budgets and re-forecasts 2. The more the updating of information, the more the accuracy of forecasts and decision making process. 3. Key performance indicators used in beyond budgeting help identify more realistic and flexible targets 4. Flexibility of targets in beyond budgets support better planning, control and performance evaluation 5. Combining financial and non-financial targets together contribute to better evaluation of progress toward benchmarks 6. Flexibility of targets support the achievement of corporate strategy 7. Evaluating performance based on key performance indicators help concentrate on actual achievements rather than static targets 8. Incentive system should include both financial and non-financial key performance indicators 9. Continuous updating of targets makes the performance evaluation more realistic 10. Rolling forecasts facilitates quick responding to the changing business environment 11. Customer relationship management facilitates setting targets that support corporate strategy 12. Dividing staff into a number teamwork facilitate better allocation of resources 13. Rolling forecasts is more suitable to products with shorter life cycle than traditional budgeting 14. Decentralization and participation in budgeting process enhance the achievement of strategic goals 15. Governance is essential to providing sufficient basis for directing members toward achieving the firm strategy 16. Information sharing and transparency enhance flexibility in responding to customer needs

Strongly Disagree





Strongly Agree

‫جامعة طنطا‬ ‫كلية التجارة‬ ‫قسم المحاسبة‬ ‫الي السيد الفاضل ‪............................... /‬‬ ‫اح يييا س يييادً م ني ي يا ااا ييي حت ييدد ان ييداد ححي ي‬

‫ًحي ي‬

‫ناي ي ان تحسيييي ن ادارة اآلداء االسييييترات‬

‫باستخدام معلومات مدخل التخلي نين الموازتيات ‪ :‬دراسي حالي استافيا " حرجيا الً يرم حااجاحي‬ ‫نن اسئي ااسًقتا الًاليي‬ ‫ان الحيااييا‬

‫الي ارد ييي ااسًقتييا يييًم اسييًتدا غا لاييرا الد ارسي ال ي يي قييا ليين يييًم ًييدا لغا حييا‬

‫ش ل اتر‪ .‬رجا‬ ‫ج هر‬


‫ين الد ارسي الًاحيقيي ليححي‬

‫دييد الد ارسي‬

‫ي اعتيا يي اانًحيار‬

‫ن سيادً م الحرص نيي ً ير اجاحا‬

‫ن الحح ‪ .‬يش ر ل م الحاح‬

‫دديق نيي ااسئي ال ارد ااغا ً ثيل جي‬

‫حسن شار ً م ً ا ا م‪.‬‬ ‫الحاح‬ ‫نابد محمد حامد سالم‬ ‫يد حقسم ال حاسح‬ ‫يي الًجار‬ ‫جا‬


‫‪[email protected]‬‬ ‫‪+2 01098768385‬‬


‫االسييييييييييييييم (اخت اري)‪:‬‬

‫نتوان البر د االلاتروت (اخت اري)‪:‬‬ ‫رقم الهاتف (اخت اري)‪:‬‬

‫م ال العمل (مطلوب)‪:‬‬ ‫أ ادي ي‬

‫ًتتص ي ال حاسح‬

‫جال آتر‬

‫ي ييا ييييي ‪ 3‬ج نييا‬


‫يين ااسييئي ً ثييل ًقييييم سيييادً م حتت ي ص ااح يياد ال تًيف ي ل يي ي انييداد‬

‫ال ا اا ‪ .‬ن ضيك ض نال‬

‫‪ ‬ا ام اجاحه احد قا ل ل سؤال ن ااسئي الًالي ‪:‬‬ ‫أوا ق‬

‫المفاالت الت تتعلق بتطب ق الموازتات التقل د‬ ‫‪ .1‬ال تعايييس التقيييد رات المسيييتخدم‬ ‫الفعل ‪.‬‬


‫ييي الموازتيييات التقل د ييي المتطلبيييات التفييي ل‬

‫ياء نلي التقييد رات السييابق مي‬ ‫‪ .2‬ييتم انييداد تقييد رات الموازتييات التقل د ي اييل نييام بتي ا‬ ‫قل ل من التعد الت‪.‬‬ ‫‪ .3‬تعد نمل‬

‫انداد الموازتات التقل د‬

‫‪ .4‬تعد الموازتات التقل د‬

‫غ ر مرت واقل قابل‬

‫‪ .5‬ال تساهم الموازتات التقل د‬ ‫‪.6‬‬


‫بفال مبافر‬

‫مالف وتست رق وقت طو ل الندادها‪.‬‬ ‫للتعد ل خالل العام‬ ‫تطب ق استرات‬

‫عد من الصعب تعد ل مستهد ات الموازتات التقل د‬

‫‪ .7‬تراز الموازتات التقل د‬

‫الفرا ‪.‬‬

‫بعد انتمادها‪.‬‬

‫نل تخف ض التاال ف بفال اابر من االسيت اب لرغبيات‬

‫العمالء‬ ‫‪ .8‬و ق ا للموازتات التقل د‬ ‫ال نام‬


‫يتم تخصي ا الميوارد نلي امقسيام ميرة واحيدة ي بدا ي‬

‫رتبط تظام ماا آت العامل ن بفال اب ر نل مستهد ات ثابت للموازت‬

‫‪ .11‬تمثل الموازتات التقل د‬

‫نائق ا امام المفارا الفعال‬

‫‪ .11‬تمثل الموازتات التقل د‬

‫نائق ا امام مفارا المعلومات والمعر‬

‫‪ .12‬تمثل المستهد ات الثابت للموازت التقل د‬ ‫‪ .13‬تييييدنم الموازتييييات التقل د يييي‬ ‫المحاسب‬

‫العمل ات االدار‬

‫نائقا امام تحق ق استرات‬


‫اييييرة ترح ييييل اال ييييرادات والمصييييرو ات بيييي ن الفتييييرات‬

‫بفال خاطئ حرصا من االدارة نل تحق ق المستهد ات الثابت‬


‫أوا ق‬

‫محا د‬


‫أوا ق‬

‫ال أوا ق‬ ‫بفدة‬

‫مم زات تطب ق ادوات وممارسات مدخل التخل نن الموازتات‬ ‫‪ .1‬تمثل الب اتات ال ر مال‬


‫للمد ر ن نتد انداد الموازتات والتتبؤات‬

‫‪ .2‬الما تم تحد ث الب اتات الما ازدادت دق التتبؤات ونمل‬ ‫‪ .3‬تساهم مقا س اآلداء المر ع‬ ‫تحد د مستهد ات ااثر واقع‬


‫تحس ن التخط ط‪ ،‬والرقاب ‪ ،‬وتق م اآلداء‬


‫ي ميدخل التخلي نين الموزتيات ي‬


‫‪ .4‬تسييياهم مروتييي المسيييتهد ات المسيييتخدم‬

‫اتخاذ القرار‬

‫ييي ميييدخل التخلييي نييين الموازتيييات ييي‬

‫ساهم الربط بي ن المسيتهد ات المال ي وغ ير المال ي‬

‫ي تحسي ن تق ي م اآلداء ي‬

‫ضوء ا ضل آداء للمتا س ن‬ ‫‪ .6‬تساهم مروت المستهد ات‬ ‫‪.7‬‬

‫التسه ل من تطب ق استرات‬

‫سيياهم تق ي م اآلداء ي ضييوء مؤف يرات اآلداء الرئ س ي‬ ‫عل‬

‫بدالا من تحق ق مستهد ات ثابت غ ر واقع‬

‫الفرا‬ ‫ي الترا ييز نل ي تتييائ‬

‫‪ .8‬من اال ضل ان تضمن تظام ماا آت العامل ن نل مؤفرات مال‬ ‫‪.9‬‬

‫ساهم التحد ث المستمر للمستهد ات‬

‫‪ .11‬تساهم التتبؤات المستمرة‬

‫وغ ر مال‬

‫عل تق م اآلداء ااثر واقع‬

‫تو ر است ابات سر ع للت رات‬

‫ب ئ امنمال‬

‫‪ .11‬تسيياهم ادارة العالقييات مي العم ييل ي وضي مسييتهد ات تييدنم تطب ييق اسييترات‬ ‫الفرا‬

‫‪ .12‬ساهم تقس م العامل ن ال‬

‫رق نمل‬

‫تحق ق توز ا ضل لموارد الفرا‬

‫‪ .13‬تعد التتبؤات المستمرة ااثر مالءم للمتت ات ذات دورة الح اة القص رة‬ ‫‪ .14‬تدنم الالمراز والمفارا‬

‫انداد الموازتات‬

‫‪ .15‬تعييد الحوام ي متطلب ي ا اساس ي ا لتييو ر اساس ي ا‬ ‫استرات‬


‫‪ .16‬ييدنم ايالا ميين مفييارا المعلومييات والفييفا‬ ‫لمتطلبات العم ل‬

‫تحق ق االهداف االسترات‬ ‫ييد ا لتو ييي العييامل ن ت ييا تحق ييق‬

‫تحق ييق مروتي اابيير نتييد االسييت اب‬


‫أوا ق‬ ‫بفدة‬

‫أوا ق‬

‫محا د‬


‫أوا ق‬

‫ال أوا ق‬ ‫بفدة‬

Appendix C Statistical Tables







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