beyond budgeting Flashcards
what did hope and fraser believe
they believed that budgets should be abandoned and replaced with range of indicators and techniques
what problems do Hope and Fraser believe arise from budgets?
- Budgets meet only the lowest targets
- They use more resources than necessary
- Budgets are all about making a bonus – whatever it takes.
- They lead to competition between divisions, business units and departments.
- Lead to spending what is in the budget
- They provide inaccurate forecasts
- Lead to meeting the target but not beating it
- Lead to the avoidance of risks.
What other criticisms from budgets exist? (additionals from jane)
- Encouraging rigid planning and incremental thinking
- Time consuming (and costly)
- Producing inadequate variance reports (not answering why and how)
- Ignoring key drivers of shareholder value – focus on short term financial numbers
- A yearly fixed ritual
- 12-month commitment, risky due to uncertainty
what do hope and fraser believe is the result of the criticisms of budgeting
beyond budgeting.
what do Hope and Fraser believe should replace budgets (specifically)
a policy of radical decentralisation and implement appropriate KPIs, scorecards and rolling forecasts.
what is contingency theory and why should you consider this when thinking about Beyond budgeting
contingency theory says that there is no best way to lead an organisation, and there are too many internal and external constraints for a company. that will alter what really is best for a company.
this need to be considered for beyond budgeting as this theory might not work for all companies.
what are the 6 main principles for beyond budgeting?
- clear boundaries to organisational structure – responsibilities and authority known and understood.
- Managerial targets based on relative success and linked to shareholder value (KPI and benchmarks
- Managers have high degree of freedom (TQM and BPR)
- Front-line teams have responsibility for decisions that generate value
- Front-line teams responsible for relationships with customers, associates and suppliers
- Information support systems are transparent and ethical (ABB systems fit within this)
what are the four principles of beyond budgeting?
- faster response times
- greater innovations
- lower costs
- improved customer and supplier loyalty
what are the Dugdale and Lyne beliefs as to why Hope and Fraser want to abandon budgets?
- svenska handelsbanken influence
2. the focus on relationship between operating units and corporate centre
who did Dugdale and Lyne survey and interview
Dugdale and Lyne surveyed financial and non-financial managers in 40 companies and had interviews with 8 of them..
what was the main finding from Dugdale and Lyne?
budgets are still well and truly in use.
what did the financial and non-financial managers from the dugdale and lyne survey generally think about budgets?
(dugdale and lyne)
they thought they are important for control, planning, performance measurement, co-ordination and communication
what were the two areas of budgeting which was found from the financial and non-financial managers that caused problems for a company
(dugdale and lyne)
- budgets are time consuming.
2. managers are constrained by budgets and will therefore delay necessary actions
why may budgets be seen as good for large companies?
dugdale and lyne
as they have much more complex structures. for e.g. there are a lot more lines of management between the bottom and the top, therefore it can be complex in terms of communication. so budgets are seen to be very helpful for large companies.
how did all finance directors regard budgets in the dugdale and lyne research?
all said they regard budgets as a key element in their mix of structural and procedural planning and control mechanisms.
what kind of companies would be suited to beyond budgeting?
banks (svenska handelsbanken),
what is an example of a company that supports beyond budgeting? (apart from svenska handelsbanken)
Ahlsell (wholsaler). they have 200 decentralised profit centres. The KPIs are profit growth, return on sales, efficiency (determined by gross profit/total salary cost), and market share.
what do dugdale and lyne believe about budgets?
Dugdale and Lyne believe that when a co has internal differentiation and is complex that budgets help to manage this. And SH probably don’t have this.
why do dugdale and lyne believe these beliefs differ to hope and frasers?
Dugdale and Lyne believe the finding of Hope and Fraser differ to theirs due to their focus on managing operating units and Hope and Frasers focus on managing the relationship between operating units and the corporate centre. (see org structure for what a corporate centre is).
who are Svenska Handelsbanken?
where do they operate?
the are a swedish bank that operates beyond budgeting and very successfully
what is unique about svenska handelsbanken?
their business model
what is the svenska handelsbanken business model?
i.e. what are the principles it is based on?
- strongly decentralised org.
- so branch managers are fully responsible for their branch and for any transactions made with customers - Customer in focus
- they always focus on the customer and not on sales specific products..
- they do not perform any marketing, therefore. they only advertise at the local level as they know what local customers want and have the best knowlege of it
what do SH believe regarding brexit?
They think they will be able to deal with the tougher market conditions of Brexit due to their low tolerance of risk, sound capitalisation, and strong liquidity situation. They believe the business model based on local branches and tight control of credit and cost risk puts them at an advantage over others regarding Brexit.
what does bob Paladino describe indicators as?
one of the things Hope and Fraser believe budgets should be replaced with
“measures of success”