The purpose of this paper is to critically evaluate the two approaches to managing business, which are called Beyond Budgeting and Better Budgeting. Furthermore, the empirical evidence use and various motivational theories will be discussed so as to define the best way of budget setting for accounting manager.

Beyond Budgeting and Better Budgeting Approaches to Managing Business

The first management model that will be considered is Beyond Budgeting. It was developed as a means to change the situation that was often met by different organizations, when the management process related to budgeting, such as the way of setting goals and strategies, allocating resources, actions coordination, etc. were not neutral in terms of management behavior and thinking. So, there were defined ten reasons why budgeting caused considerable problems and should have been replaced:

1. It is too expensive and detailed, being highly bureaucratic, which results in its absorbing of 20 percent of the manager’s time.
2. It stifles innovation and initiative, as it supports authoritarian management.
3. It increases reputational risk and encourages unethical behavior, as it presupposes aggressive targets and incentives that usually have to be met at any cost.
4. It demotivates people, as budgeting usually entails going with the flow, instead of maximizing performance. As a result people tend to do minimum of work.
5. It is out-of-date within short periods of time, as its key assumptions usually become outdated rather frequently, and their mastering requires additional time spent.
6. It doesn’t deal with strategy, as budgeting is founded on departments and functions.
7. It is out-of-killer with competitive environment, as today mangers are more concerned with continuous innovation and fast response, than with the actual management of budgets and people.
8. It protects costs that do not add value, as they are usually compiled on the basis of previous year outcomes.
9. It prevents rapid response, as it is not the purpose of budgeting, but is required for successful work.
10. It reinforces control and command.

So, it is obvious that the budgeting in this way was designed not for working on several tasks with an emphasis on speed and autonomy, but instead for large companies with deep hierarchies (Beinhocker, 2006).

As a result, the traditional management model can be summarized in the following way:

• There are too many costs incurred in setting budgets and targets, implementing tools and managing budgets and people from remote locations.
• There are too few people involved in decision-making and strategy, which is top-down process.
• There are many trade-offs made between the demand for short-term results and long-term value creation, which results in micro-management development.
• This model doesn’t have transparency in decision-making.
• The structure is too rigid, and talented people tend to leave it.
• Accountability is aimed at pleasing the management, not the customer (BBRT, 2011).

Figure 1. Traditional management model interpretation (BBRT, 2011).

The Beyond Budgeting model offers an effective alternative to the existing traditional model. The proposed changes are presented in the form of Table 1.

Table 1. Beyond Budgeting model compared to the traditional management model.

In order to reach such a style of management, it is necessary to rethink the traditional vertical organization and change it into the one to face the customer. The basis of the Beyond Budgeting model is rethinking team-based accountability (Bogsnes, 2009).

Figure 2. Accountability map of adaptive organizations (BBRT, 2011).

In Beyond Budgeting model there are three kinds of teams: executive team, which is responsible for setting goals and purpose and maximization of other units’ performance; support services teams that support and serve the value centers; value center teams, which formulate strategy, deliver value and invest capital (Hope, Fraser, 2003). Besides, there are usually project teams formed, but they are project-specific and temporarily established.

There are 12 principles of Beyond Budgeting approach that were developed on the basis of evidence collected during 12 years (CIMA, 2004). They combine the best of the best practices of world leading organizations so as to define the best budgeting model. The list of principles is as follows:

I Governance and Transparency

1. Values – there is no central plan; instead, there is common cause.
2. Governance – there are no detailed rules and regulations; instead – sound judgment and shared values.
3. Transparency – no restriction an control of information; instead – transparent and open data.

II Accountable teams

4. Teams – there are no centralized functions of departments; instead – network of accountable firms.
5. Trust –no micro-management of firms; instead – trust to regulate their performance on their own.
6. Accountability – there are no hierarchical relationships; instead – accountability basis on peer reviews and holistic criteria.

III Goals and rewards.

7. Goals – no turning of goals into fixed contracts; instead – facilitation of ambitious goals setting by the teams.
8. Rewards – there are no fixed targets; instead – rewards basis on relative performance.

IV Planning and controls.

9. Planning – it is not a top-down event; instead – it is inclusive and continuous process.
10. Coordination – interactions are coordinated not through budgets that are defined on annual basis, but instead – dynamically.
11. Resources – they are made available not just-in-case, but just-in-time.
12. Controls – the basis is not budget variances, but instead – frequent and fast feedback.

There are seven steps that are necessary to be made in order to implement the Beyond Budgeting model into reality (Hope, Fraser, 2001):

1. Establishing of a guiding coalition – it should be a team of 10-12 people who can create the vision for change and guide the process of its implementation.
2. Thinking like a revolutionary – leaders have to apply their creative thinking to the management processes, apart from the business models, products and processes.
3. Establishing several design teams – they will implement the Beyond Budgeting principles so as to design an effective management model and implement it into reality.
4. Building an urgent case for change and convincing the board – the executives should understand why Beyond Budgeting principles are necessary for your particular organization.
5. Looking for quick wins – leaders should identify quick wins to maintain momentum and build credibility.
6. Education and training – all the newly-established teams should be properly trained and educated so as to be aware of all the peculiarities of the new model.
7. Consolidating the gains and maintaining the momentum – it is necessary to constantly create value centers and reduce operating process and support services teams.

According to the Better Budgeting approach, there are five techniques that are believed to generate improvements (Neely, Bourne, Adams, 2003):

• Value-based management – it is dedicated to managing the shareholder value’s creation over time. All the expenditure plans are assessed in terms of the shareholder value they will create and evaluated as project appraisals. It helps to link shareholder value and strategy to budgeting and planning.
• Activity-based budgeting – it involves controlling and planning along value-adding processes and activities. Organization’s activities, as well as business processes are structured so that they better meet external and customers’ needs.
• Profit planning – it is dedicated to planning financial cash flows of profit centers so as to assess whether a unit or organization creates economic value, generates sufficient cash, and attracts sufficient financial resources for investment. When preparing its financial plans, it ensures consolidation of an organization’s long- and short -term prospects.
• Zero-base budgeting – it presupposes that expenditures are rejustified during each of the budgeting cycles, which helps to avoid building on the inaccuracies and inefficiencies or previous history. The value of this approach depends on operating environment’s stability.
• Rolling forecasts and budgets – it solves issues related to infrequent budgeting and, thus, results in more accurate forecasts. It overcomes problems with budgeting at a fixed point in time and the often dubious practices that encourage such cut-offs. It’s also more responsive to changing circumstances, but at the same time requires permanent resources to administer.

In order to improve the accuracy and focus of budget outputs, it is reasonable to use zero-base and activity-based budgeting techniques. But in this case, there is a problem – they involve even more work than the traditional budgets. It is the main reason why it Is not recommended to use them on regular basis.

Rolling forecasts and budgets has the most potential as a better regular budgeting approach. Many organizations have already introduced it successfully to overcome the traditional budgeting time-lag problem and improve the accuracy of their forecast.

Profit planning and value-based management are more theoretical than broadly adopted. It is hard to evaluate their efficiency, as very few examples of implementation techniques and practical applications exist. On the whole, there is no universal approach to better budgeting that can solve all the problems at once (Bunce, Fraser, Woodcock, 1995).

Motivational Theories

Now let us consider the motivational theories and the use of empirical evidence in them, so as to define the best of them for accountant management purposes. First of all, it is necessary to understand that motivation is a complex issue, and in terms of management they are based on the needs of individuals (CliffsNotes.com, n.d.).

The first theory we are going to analyze is the content theory of motivation, which is focused on the specific factors motivating an individual. These specific factors are found within a person, but at the same time things surrounding him/her can exert influence as well.

It is clear that all people have some needs that they want to satisfy. Among them it is possible to single out the primary needs, such as ones for sleep, food, and water. They deal with the physical aspects of human behavior and are still considered unlearned. The needs of this kind have biological nature and are relatively stable. The influences they have on people’s behavior are obvious and, thus, are easy to be identified.

Another group of need is called secondary needs (Reid, 2002). As distinct from the first group, these needs are of psychological nature and are learned through experience. Thus, they deal directly with empirical evidence. They usually vary considerably by individual and by culture. These needs consist of internal states, such as the desire for achievement, power, and love. Interpreting and identifying these needs is more difficult, as they are demonstrated in a variety of ways. At the same time, they are responsible for exactly the kind of behavior managers are concerned with and for the rewards a person seeks in an organization. We will consider the theories that explain needs as motivation that were developed by several theorists, including Frederick Herzberg, Abraham Maslow, Clayton Alderfer, and David McClelland.

According to Abraham Maslow, need is a psychological or physiological deficiency that a person feels the compulsion to satisfy. It can create certain tensions that influence a person’s work behaviors and attitudes. The scientists formed a theory on the basis of his definition of need, which presupposes that people are motivated by various needs, which exist in a hierarchical order. His premise is that a satisfied need is not a motivator, and so, only an unsatisfied need can influence behavior (Simons, Irwin, Drinnien, 1987).

The following two principles lie in the foundation of the Maslow’s theory:

1. Progression principle: he identified five needs that exist in a hierarchy, which means that a need of any level starts influencing a person when a lower-level need is satisfied.
2. Deficit principle: satisfied need doesn’t motivate people’s behavior, because they act to satisfy only deprived needs.

The levels of needs defined by Maslow are presented below:

I Higher level needs:

1. Self-actualization needs – the person needs challenging and creative work, as well as participation in decision-making and job flexibility and autonomy.
2. Esteem needs – it is necessary to establish conditions of recognition and praise from the management; responsibility for important part of job; availability of promotion prospects.

II Lower level needs:

3. Social needs – it is necessary to have interaction with customers, pleasant supervisor and friendly coworkers.

4. Safety needs – person needs job security, compensation and benefits, as well as safe conditions of work.

5. Physiological needs – person should feel physical comfort at job; reasonable working hours and rest and refreshment breaks.

Frederick Herzberg developed another framework for understanding the motivational implications of work environments (Lundberg, Gudmundson, Andersson, 2009). He has developed two-factor theory, which identifies the factors that influence performance level of people:

• Motivators or satisfiers involve such things as achievement, responsibility, growth opportunities, and feelings of recognition. They are the key to job motivation and satisfaction.
• Hygiene factors are job security, salary, organizational policies, working conditions and technical quality of supervision. They do not motivate employees, but can cause dissatisfaction if they are missing.

According to Herzberg’s two-factor theory, managers should ensure that hygiene factors are adequate and only then build satisfiers into jobs.

Clayton Alderfer developed ERG (Existence, Relatedness, Growth) theory. It is founded upon Maslow’s hierarchy of needs. First of all, he collapses Maslow’s five levels of needs into three (Arnolds, Boshoff, 2002):

• Existence needs – deal with desires for material and physiological well-being.
• Relatedness needs – deal with the desires for satisfying interpersonal relationships.
• Growth needs – deal with desires for continued psychological development and growth.

According to this theory, unsatisfied needs motivate behavior, and when lower level needs are satisfied, they become less important. At the same time, higher level needs become more important when they are satisfied. If they are not met, a person may move down the hierarchy, which is called the frustration-regression principle. It means that already satisfied lower level need can become activated again and will influence behavior when a higher level need cannot be satisfied.

David McClelland developed a theory, according to which everyone prioritizes needs in a different way (1987). He also believes that it is done on the basis of empirical evidence. He defined the following three needs:

• Need for achievement – the main drive to excel.
• Need for power – deals with the desire to make others behave in a way that they would not have behaved otherwise.
• Need for affiliation – deals with the desire for close, friendly interpersonal relationships and conflict avoidance.

Each need is associated with a distinct set of work preferences, which can help managers tailor the environment to meet these needs.

High achievers differ from others by their desires to do things better. They are strongly motivated by job situations with feedback, personal responsibility, and an intermediate degree of risk.

Those who have a high need of power are likely to follow a path of continued promotion over time. They usually enjoy being in charge and prefer being placed in competitive and status-oriented situations.

People with the highest need for affiliation seek social approval, companionship, and satisfying interpersonal relationships. They usually are more interested in work that provides social approval and companionship; they strive for friendship and prefer cooperative situations.

Recommendations and Conclusions

On the basis of the conducted analysis of widely-spread approaches to accountant management, it is possible to single out the following recommendations and conclusions:

1. It is not reasonable to make use of the traditional model that involves budgeting, as it brings many implications on the way of successful company management and achieving of goals.
2. It is necessary to change the traditional strategy into the one presupposed by the Beyond Budgeting approach, as it was proven that it positively influences the overall efficiency of the company’s management and brings numerous benefits. It was already chosen by many companies, such as Google, Toyota, American Express and success of these companies is another evidence of the model’s edge over the traditional one.
3. In order to successfully base the manager’s work, it’s necessary to take into account the empirical evidence of the workers, and in particular the needs derived by this evidence. In order to do it, it is recommended to make use of the motivational theories based on the individual needs of employers.