Navigating frugality and creativity urgencies: the role of diagnostic use of budgets and goal clarity

Abstract

Organizations increasingly promote individual creativity as a strategy to manage their performance and financial strain. Drawing on self-regulation and goal-setting theories, this study examines whether the diagnostic use of budgets stifles or stimulates managers’ creativity directly or indirectly through frugal spending behaviour and perceived goal clarity. Budgetary controls and frugal spending behaviour—with the focus on conserving resources and constraining spending—have traditionally been suggested as hindering individual creativity. However, by analysing survey data collected from middle-level managers in Indonesia, our findings show that the diagnostic use of budgets increases managers’ frugal spending behaviour which, in turn, enhances their creativity. Furthermore, the diagnostic use of budgets increases managers’ perceived goal clarity, with goal clarity and frugal spending behaviour fully mediating the relationship between the diagnostic use of budgets and creativity. The study contributes to the budgeting literature by showing that diagnostic use of budgets encourages managers’ frugal spending behaviour to effectively manage organisational costs and stimulate their creativity.