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 institutionalized 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.

Keywords: Management accounting change, Functions of budgeting, Beyond Budgeting, Institutional theory

JEL Classification: M40, M46