The impact of targets and incentive systems in a Beyond Budgeting setting : A case study of how target-setting and incentive systems are applied in a firm employing Beyond Budgeting principles

Abstract

The goal of this empirical study isto understand how performance management systems are applied in a firm which has implemented Beyond Budgeting. The thesisfocuseson the management control systems of result controls, which includes the process of setting targets, measuring performance and issuing rewards.Collectively these systems are designed to guide and motivate employees, by aligning the goals of both principals and agents. To understand how these systems function in a Beyond Budgeting settingthe analysis addresses theproblem statement: What is the impact of targets and incentive systems in a Beyond Budgeting setting?The methodused is aninductive qualitative case study, were interviews are conductedto gain credible and authentic data on how these systems are applied in the case firm.By applying a theoretical framework,we find the effects of both targets and incentive systems within the firm. The targets that are applied in the firm are specificand effectively communicate strategic direction and goals. However, their impact islimited by certain factors. The targetsarenot adjusted with the rolling forecasts, and while strategic targets arecommunicated throughout the organization there is little use of official personal targets. The firm have specific strategies under development to counter these elements. The newer implementation partly followsthe Beyond Budgeting system, however the focus seemsto be on designing an impactful solutionregardless of framework. Consequently,there is less focus on relative targets, but they will be designed as directional and ambitious. Regarding incentive systems, the research identifies that the key factor is designing the systems to fit any givensetting. Critical factors were observed to be a clear connection witheffort exerted, impact size and timing. However, these factors vary across almost every position in the firm. Hence, simply implementing systems to match the Beyond Budgeting theory did not seem to yield optimal results.The result is that the motivational and guiding impact of these systems are dependent on matching the setting their applied to,more so than a specific system.