Managing in Dynamic Business Environments
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Managing in Dynamic Business Environments

Between Control and Autonomy

Edited by Katarina Kaarbøe, Paul N. Gooderham and Hanne Nørreklit

This timely and innovative book focuses on budgeting control and ongoing Beyond Budgeting trends and its consequences for the organization. Ensuring an optimal balance between individual autonomy and management control is a critical challenge for organizations operating in dynamic business environments. Too much of the former leads to chaos, and too much of the latter guarantees rigidity. This book explores the tensions that arise in seeking the best possible balance between these two dimensions. Resolving these tensions is a critical challenge for achieving competitiveness.
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Chapter 3: Environmental uncertainty and the use of budgets

Niels Sandalgaard


In recent years, the use of budgets has been criticized as a management control tool, and an alternative – the Beyond Budgeting model (Hope and Fraser, 2003) – has been presented. As pointed out by Hansen et al. (2003), critics claim that the assumptions underlying the budget are often quickly outdated, making budgets less useful in turbulent conditions. Likewise, Ekholm and Wallin (2000) note that environmental uncertainty is often used as an argument for abandoning budgets. Despite these criticisms, empirical studies indicate that budgeting is still the dominant method of profit planning and control (Libby and Lindsey, 2010; Sandalgaard, 2012). The discussion of the relevance of budgeting in a competitive and uncertain environment is of great relevance. As pointed out by Hartmann (2000, 2005) and Ekholm and Wallin (2011), the findings are mixed and inconsistent regarding the connection between environmental uncertainty and reliance on accounting performance measures. Some studies find a positive relationship between uncertainty and the use of budgets (e.g., Ezzamel, 1990), while other studies find a negative relationship (e.g., Govindarajan, 1984). Notably, most studies focus only on the use of budgets for performance evaluation, while fewer studies focus on the use of budgets for other reasons (Hansen and Van der Stede, 2004).

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