Does budgeting kill creativity and innovation in organization

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With the introduction of modern advanced technologies, the usability of traditional Management Accounting theories and techniques have been questioned by the corporate world as well as academics in Management Studies. As a main subfield of Management Accounting, the practice of Budgeting too has been re-examined and criticized by many world class business organizations, as to its appropriateness in the modern business culture. The drawbacks inherent in budgeting have compelled managers of such organizations to revise their performance evaluation and control mechanisms involved in their budgetary planning process.

The pressures arising from extensive global competition, rapid changes taking place in the market, among others, raise the important question, "how can organizations improve the budgetary planning process so that organizations could motivate the management and other employees to participate and make necessary revisions which will contribute towards developing an organization with a competitive edge."

Traditional budgeting approaches discourage information sharing and slow-down responses to changes in the market place owing to the associated command and control culture. In order to compete successfully in the industry, modern business organizations use innovations as a weapon because, in spite of the risks involved, innovative operations can result in substantial performance improvements and, thereby the profits growth and shareholder value. The most valuable asset of an organization is the creative human capital, whose ideas can be turned in to valuable products and services.

However, with the traditional planning process, operational level employees are reluctant to make innovations or even slight modifications to the original budget. This will inversely affect the organization's performance in the long run. Therefore, there is a 3 emerging need to look for a frame work, a learning process that can be incorporated into the traditional budgetary process. This will undoubtedly encourage innovation in the enterprise and result in superior market performance in the long run.

As a result, some academics as well practicing organizations have gone to the extent of advocating and abandoning the traditional budgeting process. For example, Svenska-Handelsbanken (an international bank) has abandoned the traditional budgeting process and adopted a decentralized management model (Hope 2003). As they stated, faster response rates to customer requests, innovative strategies, lower costs, more loyal customers are the major sources of competitive advantage they achieved through breaking the traditional approach.

Likewise, in Sri Lanka, the intense global competition and the loss of monopoly power in the Sri Lankan Telecommunication industry compelled the Sri Lanka Telecom Limited (SLT) to re-examine their traditional management accounting practices. Their current traditional management accounting practices do not support the company to introduce rapid technological advancements which is the key to industry competitiveness. This study intends to study the budgetary and budgetary control process at the SLT. It will focus on the drawbacks of the traditional planning and control process and its impact on the creativity of employees at the SLT.

Problem Statement

The traditional command and control style of budgeting and budgetary control process operative at the SLT restricts innovations and the learning process of its managers and the operational level employees. This inflicts an adverse impact on the employees at personal level as well as the performance of the organization at corporate level.

Research Question

Does budgeting and budgetary control carried out under command and control type organization systems give rise to lack of creativity and innovativeness, and if so, why?

This will be examined in the context of the SLT. For the purpose of this study command and control type organization system means an organizational environment where low degree of delegation of authority to subordinates in decisions making.

Brief description of project objectives.

(i.e. scope of proposal, constructs used, limitations and significance)

Project Aims and Objectives

Successful completion of the research intends to achieve the following objectives in relation to the Sri Lanka Telecom.

I. Study the budgeting and budgetary control process operative at SLT.

II. Examine the positive and negative behavioural interactions associated with the above process.

III. To find possible reasons for the behaviours observed in (ii).

IV. To suggest ways of overcoming some of the issues identified in (ii) and (iii).

Scope and Limitations of the Study

1. The research focuses on behavioural aspects of the budgeting and budgetary control system of the SLT and the main source of data collection is through responses given by employees. The data gathered from the employees could carry personal bias thus affecting the findings.

2. The study is based on a privately owned organization. Budgeting and budgetary control system of an organization which operates under a different management structure may have different practices which will result in contradictory findings. Thus lacks the ability of generalizing the findings.

Brief description of the models/theories/concepts that will be used in this proposal.

(i.e. consumer behaviourism model, CSF and etc.)


This chapter will explain the concepts associated with a budgeting and budgetary control system carried under a command and control culture.

The research question, "Does budgeting and budgetary control carried under command and control type organization systems give rise to lack of creativity and innovativeness, and if so, why?" is conceptualized in figure 1.

Figure 1: Role of Budgeting and Budgetary Control within the Organization and its Impact on Organizational Competitiveness






Creativity and





Operating constraints

Organitional structure

Culture command and control system

Management style

Behavioural implication

This study focuses on the impact of budgeting and budgetary control on organizational competitiveness. Organizational competitiveness can be identified as a function of Budgeting and Budgetary Control. As depicted above, the competitiveness of an organization depends on its level of creativity and Innovation, and this serves the role of an intervening variable in the model. Further, the level of innovation and creativity of an organization is constrained by the command and control culture of an organization, environmental macro factors (external environment) and other industry. Specific factors (task environment). For the purpose of this study, positive and negative behavioural implications arising out of the organizational structure and the management style under a command and control culture will be looked at.

Operating constraints that inflict on a command and control type organization system can be categorized under three main headings.

Academic research being carried out and other information, techniques being learnt.

(i.e. literature - what are the names of books you are going to read / data sets you are going to use)

Brief description of the materials/methodologies needed by the proposal.

(i.e. data collection methods, sampling, sample size and target group etc.)


The data relevant for the study is obtained from two primary sources. i.e. Primary Data and Secondary data. Primary data will be collected through interviews with employees who are involved in preparing budgets as well as and some other operational level employees. The interviews will take the form intimate discussion that will be conducted at the SLT. The interviewer will be guided by a set of basic questions. However deviations and flexibility will always be maintained.

Secondary data will include publications by the SLT, previous research articles and relevant web sites.

The data gathered through primary sources will edit and summarize in order to detect errors and omissions. Then the collected data will be classified in to homogeneous groups to get meaningful relationships.

Brief description of the evaluation and analysis proposed for this project.

(i.e. project deliverables and hypothesis, correlation test etc)


The case study method of research is applied in this study. This study will explore and analyse the budgetary system of the SLT. The case study method is well recognized as an effective method for qualitative analysis and involves a careful and complete observation of the organization in question. This study intends to identify unique features of the budgeting and budgetary control process of the SLT and will assess its impact on the level of employee creativity and in turn the organizational competitiveness.

The findings of the study may not generalizable owing to the fact that solutions to such issues are generally context driven. However, since the problem could be one which affects many an organization the findings can certainly benefit organizations confronted with problems and probing into ways of overcoming them

Illustration of how this project will benefit the future employability