Is the traditional view of the management control system a modern factoid - a phenomenon that is held true, but that is not? While more companies are abandoning the traditional budget as a management tool in favor of something else, the perception of the budget as a necessary and excellent financial management tool is strong. Factoids have however been disproved before. How long will it take this time?
I am probably sticking my neck out when I argue that the traditional view of the budget management model is nothing more than a modern factoid. In management literature and research articles you will, for example, read: "Most companies cannot justify such a powerful break against established norms as the abandonment of the budget would demand. We can therefore conclude that the budget management model has come to stay." In the Journal of Management Accounting Research it says: "Overall, we find for the majority of firms that budgets continue to be used for control purposes and are perceived to be value-added." Many similar statements can be found, but the list is too long in this context.
I note that conclusions from Academia, many times, are that traditional budgeting is necessary and an important instrument - because most companies are still using budgeting as one of its main instruments. The main advocates of this view - pro the traditional budgetary control system - are not only in, but also among the companies that have not yet modernized its approach to management. They simply haven’t worked with Management Innovation. At the same time, I more often meet companies, even in the public sector, who are abandoning the traditional budget as an instrument for the benefit of other models, more adapted to the market's dynamics and each company's business rhythm.
The whole thing looks very much like a known factoid in the Middle Ages, namely the perception of the earth as flat and the center of the universe. The main proponent of this geocentric worldview was the catholic church. There was a kind of church doctrine that was best to follow. According to the Bible, God placed the Earth and the Human kind in the center. It is understandable that priests were angered when some astronomers came up with their profane heresy that the earth, in fact, was not in the center of the universe, but rotated around the sun like the other planets.
Similarly, it may be understandable that scholars from academia become angered when some practitioners and management consultants come with proclamations that the traditional management model, with the budget in the center, is not required but is an Unnecessary Evil. There are other theories that might help us to manage beyond the annual budgets performance trap. As evidence we might look at prosperous companies from different countries and sectors like Handelsbanken, Schneider Electric, Coloplast, Statoil, Maersk and others.
In a hundred years Columbus, Copernicus, Brahe, Galilei and others, altered our perception of the universe. For Catholicism, it took four times as long. Right now more and more companies are, in addition to the above, facing an increased complexity and looking for new solutions to manage their operations Beyond the traditional budgetary control. This is very much in the same way that contemporary scientists sought answers to how the earth and the universe was structured and moved.
If the traditional approach to management is a modern factoid it will take four times as long for the academy to alter its views on the issue this time. Or will it go faster in today's dynamic world?