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Beyond budgeting in Jotun : a case study on substituting the budget with separate forecasting and targeting tools in a global, industrial corporation

Engesæth, Peder; Marthinussen, Jonas
Master thesis
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http://hdl.handle.net/11250/2403715
Issue date
2016-09-02
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  • Master Thesis [2465]
Abstract
The following thesis is a qualitative study aimed at contributing to the Beyond Budgeting

literature on unbundling the traditional budget by answering the question:

“Why may global, industrial corporations attempting to go Beyond Budgeting struggle to

effectively substitute the budget with separate forecasting and targeting functions?”

We find this research problem interesting, as there are no case studies today documenting

potential struggles of separating the forecasting and targeting functions. The aim is to fill this

gap in this literature by providing insight into the process and struggles inherent in this

separation process.

As the basis to answer this question, we have performed a case study on Jotun, a global

chemicals company originally from Norway. Jotun introduced a targeting tool called Strategic

Target Planning (STP) in 2007, and have in parallel attempted to make what they call cost

budget into a forecasting tool.

Beyond Budgeting literature proposes several reasons for separating the traditional budget into

individual processes, such as decreased resource use due to less negotiation, more flexibility

because of more autonomy, and less gaming as there are fewer conflicting purposes.

In this case study we found that Jotun has only partially managed to remedy these issues by

substituting the budget with separate forecasting and targeting tools. One interesting finding

that has not been addressed in previous literature is the paradox of autonomy. If an

organization already has a culture based on the decentralization and trust that is necessary for

Beyond Budgeting to function well, this culture can be counter-productive to the

implementation of Beyond Budgeting in the first place. We also found evidence that

separating the forecasting and targeting function from the traditional budget could still lead

to skewed incentives and gaming, as these new tools can still be misinterpreted or involve

conflicting purposes, such as resource allocation, benchmarking and bonus schemes. A third

finding was that the substitution of the budget with separate forecasting and targeting tools

may lead to more flexibility in terms of upwards spending, but not as much downwards. This

implies that spending in excess of the forecast is possible as long as the business case is

good, but that there is less flexibility in reducing costs when actual needs turn out to be less

than forecasted as employees perceive the funds to be allocated already.

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