A Field Study of the Emerging Practice of Beyond Budgeting in Industrial Companies: An Institutional Perspective

Abstract

The accounting literature differentiates between key functions of budgeting, such as planning, control, and evaluation, and mostly assumes that firms carry out an annual budgeting exercise. The purpose of this paper is to explore how an institutionalised practice, such as budgeting, changes and to examine the implications of such change for the functions of budgeting. We conduct a field study of five industrial companies that recently either abandoned their annual budgeting system or radically simplified it. Our findings suggest that although new management accounting tools replace the budgeting system, the planning, control, and evaluation functions remain. We observe two approaches for the emerging practice of Beyond Budgeting. In the first approach, firms differentiate between target setting and forecasting. This differentiation appears to be a driver for budget abandonment. In the second approach, target setting and forecasting remain interlinked and many characteristics of traditional annual budgeting remain, albeit in a simplified form.

Acknowledgements

The authors gratefully acknowledge the useful suggestions and comments provided on earlier versions of this paper by Teemu Malmi, Katarina Kaarbøe, Sven Modell, Hanna Silvola and Sinikka Moilanen and also by the participants of the Doctoral Summer School in Management Accounting in Siena, 2010; the ACMAR Conference in Vallendar, 2011; the Doctoral Research Seminar at the Aalto University, 2011; the 8th ENROAC Conference in Lisbon, 2011 and the 35th EAA Annual Congress in Ljubljana, 2012. Mrs. Henttu-Aho also gratefully acknowledges financial support from the Foundation for Economic Education, the Marcus Wallenberg Foundation and the Finnish Foundation for Economic and Technology Sciences – KAUTE.

Notes

^†Supplemental materials are available in an online Appendix at http://dx.doi.org/10.1080/09638180.2012.758596.