Flexible budgeting influence on organizational inertia and flexibility

Abstract

PurposeThe purpose of this paper is to investigate how the use of flexible budgets may influence different institutional logics (organizational inertia and flexibility).Design/methodology/approachA qualitative research based on a single case study in a multinational subsidiary company was carried out. The data were mainly collected using the dialog technique through open-ended and semi-structured interviews and complemented with direct observation in informal and formal meetings and the analysis of internal documents. Content analysis was used for the analysis of the findings.FindingsThe use of flexible budgets, which isolates the negative variations due to the decrease in sales volume, may contribute to organizational inertia. However, this can be counterbalanced if the managers try to minimize the decline in performance through initiatives that promote organizational flexibility. In this case study, it was found that the alignment between the production director and the controller, who frequently work under different institutional logics, was important to stimulate organizational flexibility particularly in continuous improvement projects.Research limitations/implicationsThe findings of this paper are based on only one in-depth case study. Hence, the results cannot be generalized, but a theoretical contribution can be made. Furthermore, the findings are constrained by the constructs used and the specific managerial and theoretical perspectives that have supported the analysis.Practical implicationsThese results can be useful particularly for companies that are dealing with the abrupt drop in the sales volume and use the flexible budget as a performance assessment technique. These firms must pay attention because this combination can stimulate organizational inertia. To counteract this problem, it is necessary that controllers and the managers work by understanding the initiatives that promote organizational flexibility, mainly by Kaizen projects, which can minimize performance decline.Social implicationsThe main contribution may be how to deal with the different managers’ behaviors, given the decrease in sales volume, and it can help an organization survives in times of economic recession and fierce competition environments.Originality/valueThis paper contributes to both practical and academic dimensions. Indeed, despite being widely used, flexible budgeting is not a widely researched topic.