Budgeting is one of the most important management concepts in today's highly diversified and multinational corporations. It serves three main purposes: forecasting the future development of the organization (and its environment), coordinating activities and tasks, and motivating employees. The uncertainty innate in any business environment leads to the need for forecasting future developments and events in order to make the right decisions at the right time and to handle the future effectively (Lawrence, 2006 pp. 1). Specialization and the division of labor gave rise to the need for ensuring proper cooperation of the various departments and divisions in a company as well as the fit of individual tasks and activities (i.e., their coordination). While forecasting and coordination are important, motivating employees to behave in an organization's best interests is equally necessary and, therefore, has to be considered the third major function of a management concept.
Budgeting relies on budgets for achieving these ends. Budgets are formalized (financial) plans that cover a certain period of time (e.g., one year) and determine the objectives ("numbers") a manager has to reach within that time frame. Managing through budgets was developed in the early 20th century by such companies as Du Pont de Nemours and General Motors in the U.S., Siemens in Germany, and Saint Gobain and Eléctricité de France in France.6 While it was probably one of the most successful management concepts in the first half of the 20th century, it has come into criticism lately for allegedly being, among other things, too time-consuming, too rigid, not linked properly to strategy, inward-oriented instead of market-oriented, backward-looking, and a source of dysfunctional behavior ("budgetary slack" and manipulation).
While some of the points put forward by the budgeting critiques are quite old,8 the growing criticism of traditional budgeting during the last couple of years nevertheless gave rise to two revolutionary concepts: better budgeting, which aims at reforming and renewing budgeting, and beyond budgeting, which goes a lot further by calling for the complete abolition of budgets and budgeting (Weber, 1994 pp. 15).
While both concepts have been at the center of a growing number of publications and management conferences, in-depth analyses of the pros and cons of both new concepts are still quite rare. The majority of the publications focus on promoting one or the other approach as the one option that "fits all sizes". This holds especially true for the rhetoric of many publications and presentations on the beyond budgeting model: it is quite often promoted as the most effective and efficient way of ensuring proper forecasting, coordination, and motivation irrespective of the individual organization. Researchers in management control and budgeting have not yet dealt in an in-depth manner with the strengths and weaknesses of the different concepts (Rieg, 2001 pp. 571). Nevertheless, the pledge of superiority by such concepts as beyond budgeting requires - from our perspective- a closer look at the pros and cons of the ...