Budgetary Management and Innovation

Abstract

This paper examines how budgeting can be used to enable lower level managers to create innovation and strategic change in a rapidly changing environment. In the case company management accounting calculations and budgeting rhythms provided the structure for the strategic context and led to the creation of new product innovations. While budget targets were fixed the firm altered their strategy and actions plans in an ad hoc way so as to react to changes in the environment. In particular, this paper shows how new product innovations were created to enable the firm to meet their budget targets. Using budget-variance analysis the managers at the case company were able to continually synchronize their product roadmaps with the budget, through budget target accountability. Furthermore, the budget provided a framework to interpret the uncertain competitive environment and enabled interactions between the environment and organizational activities, which determined the scale, space, speed and timing of product innovation.