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The Evolution of an Accounting Innovation

By Sebastian D. Becker, Ph.D.; Martin Messner, Ph.D.; and Utz Schäffer, Ph.D.
April 1, 2021

Using the case of Beyond Budgeting, a research study examines what factors contribute to the development of accounting concepts.

 

Every now and then, practitioners or academics develop and promote new accounting tools or concepts. Activity-based costing, Economic Value Added®, or the balanced scorecard are some examples of accounting innovations from the last 40 years. Rather than having a fixed format and content, these tools or concepts often evolve over time. Yet the mechanisms that shape such an evolution are little understood. In our research (“The Interplay of Core and Peripheral Actors in the Trajectory of an Accounting Innovation: Insights from Beyond Budgeting,” Contemporary Accounting Research, Winter 2020), we use the example of Beyond Budgeting to shed light on how and why accounting innovations change over time.

 

We conducted 25 interviews with actors who were involved in the emergence and development of Beyond Budgeting, and we attended public presentations, workshops, conferences, and meetings over 14 years. We also analyzed publications and proprietary data.

 

BEYOND BUDGETING

 

We chose to analyze Beyond Budgeting because there has been much discussion around the scope and content of this innovation since its first conceptualization in the late 1990s, when Jeremy Hope and Robin Fraser published a set of articles in which they described the key pillars of a new management model. Their concept, Beyond Budgeting, is about abandoning management models that rely on the use of traditional budgeting and that have thereby created command-and-control organizations.

 

Instead, it suggests comprehensively changing to a decentralized management approach that can be implemented by creating organizational practices in accordance with six leadership and six management process principles. Many implementers then use rolling forecasts to plan ahead, evaluate performance relative to peers, or allocate resources in more dynamic ways.

 

Although the concept was introduced as a general management model, it created attention particularly among those in accounting practice and research. Professional associations, academics, and consulting firms became interested in the topic, and companies started to inform themselves by participating in meetings organized by the Beyond Budgeting Round Table (BBRT).

 

Since then, many actors have come and gone, and have had a strong influence on how the concept developed, pushing it to be either pragmatic or comprehensive.

 

PRAGMATIC OR COMPREHENSIVE?

 

While Hope and Fraser initially defined Beyond Budgeting as a concept that would replace the management models based on traditional budgeting, we observed how this comprehensive approach, over time, gave way to more pragmatic understandings. This was mainly because academics, consultants, and representatives of professional associations, among others, signaled to Hope and Fraser that the comprehensive approach may not be a feasible strategy for gaining ground in practice.

 

In addition, the publisher of Hope and Fraser’s book Beyond Budgeting, Harvard Business School Press, saw interest in the topic but found it difficult to endorse the concept in the comprehensive way in which it was originally proposed.

 

Consultants, for example, associated it with potential revenues and didn’t want to miss the opportunity. Yet they felt it was difficult to buy into the idea of abandoning management models based on budgets, not least because this was in conflict with projects they sold to clients that perpetuated traditional budgeting, which accounted for an important part of their business. Accordingly, they started to tone down the comprehensive nature of Beyond Budgeting in an effort to position it as an improvement on rather than an alternative to prevailing budgeting practice.

 

The book publisher, in turn, wanted to foreground the pragmatic process principles and tools rather than the leadership principles and changed their order around to make the book more appealing to an audience working in finance and accounting roles.

 

We observed that these efforts of changing the content and meaning of Beyond Budgeting met with resistance from the innovators (and some other proponents) who envisaged a comprehensive departure from budget-based management models and didn’t want to settle for “watered down” versions of their innovation.

 

At the same time, the main proponents increasingly came to understand that the potential of their innovation, in terms of impacting practice, hinged on the cooperation of others such as consultants or professional associations who might (or might not) endorse the practice and provide it with important momentum. The key proponents, therefore, had to engage in a balancing act between staying faithful to their ideas and convictions and trying to induce cooperation of others by being somewhat pragmatic.

 

A JOURNEY

 

Indeed, we could observe how, over time, the pragmatic approach to Beyond Budgeting gained in importance within the Beyond Budgeting community. In the North American cultural context, the BBRT was in frequent exchange with potential adopters and started to strongly propagate a pragmatic approach, where companies could start their journey by improving their budgeting practice rather than more comprehensively changing their management models from the start.

 

In the European cultural context, we could see how a change in the core actors within the Beyond Budgeting community facilitated this move toward a pragmatic approach. The new BBRT directors were all practitioners or consultants in Scandinavia and were thus sensitized to the challenges in changing established budgeting practices.

 

While they didn’t give up on the idea of Beyond Budgeting ultimately aiming at comprehensively changing management models, they framed this task as an evolutionary journey that companies may well embark upon by more incrementally amending their budgeting practices. Framing the adoption in terms of such a journey allowed them to move forward in a pragmatic way in the short term, while at the same time maintaining the idea of more comprehensive change in the long term.

 

EMERGING INNOVATIONS

 

Overall, our analysis shows how different actors contribute to the evolution of an accounting innovation. While the original innovators may have a fixed understanding of what their concept should be about, such an understanding may develop over time by working with actors who look upon the innovation from their particular perspectives. These perspectives are influenced not least by their embeddedness in the cultures of different communities, industries, or geographic areas; they reflect the interests and mind-sets of these actors.

 

Bringing such actors on board is important for the diffusion of a concept, but it may also lead to a change in its content or the way in which it’s appropriated by companies. Our research therefore suggests innovators face a balancing act. While they’re typically driven by their own convictions and ideas, at the same time they want to gain support for their innovation.

 

In some cases, innovators may be successful in pushing through their ideas without much change, while in others, a concept will evolve quite considerably as it diffuses.

 

Sebastian D. Becker, Ph.D., is an associate professor at HEC Paris, France. Sebastian can be reached at becker@hec.fr.
Martin Messner, Ph.D., is a professor at the University of Innsbruck, Austria. Martin can be reached at martin.messner@uibk.ac.at.
Utz Schäffer, Ph.D., is a professor at WHU–Otto Beisheim School of Management in Vallendar, Germany, and director of the Institute of Management Accounting and Control. Utz can be reached at utz.schaeffer@whu.edu.
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