Management accounting concepts and applications

Management Accounting

Body Glove was highly successful prior to 2001 despite an extensive budgetary process. Why might this be so?

As a general rule of business operations, budgetary control is imperative to achieving successful outcomes. Yet, some examples within business history have proved that organizational triumphs can be reached with little emphasis on budgetary process, and Body Glove is one of these exceptions. The budgetary control is generically defined as the totality of mechanisms and techniques employed in the process by which an entity organizes its agenda for the following year based on budgetary constraints. The importance of constructing an extensive budgetary process is given by the fact that "the budget is, arguably, the single most effective tool for influencing organizational behavior" (Cohen, Eimicke, Heikkila, 2008, p.225). An important focal point of an effective budgetary process is that of taking into considerations the elements of uncertainty. Otherwise put, an extensive budgetary process will allocate certain amounts of financial resources to unforeseen events or to contingency plans (Premchand, 1983, p.85).

Yet, as previously mentioned, some situations emerge in which organizations are able to succeed in the absence of an extensive budgetary process. In the case of Body Glove, this was possible due to the following:

The company's founders were former lifeguards, meaning that they based their decisions on first hand observations and interactions with the customer base

The quality of the original and brightly colored wetsuits manufactured and sold met the highest of standards and was as such able to satisfy the customers

They distributed the products through a diverse and complex network

The prices were affordable, the customer services were delivered at superior levels of quality and the company managed to form a loyal customer base

They developed strategic partnerships with reputable partners which further increased their success rates

The business was generically run by family members (until 2000) and the large majority of the executives felt the same way, were guided by the same principles and saw eye-to-eye on most issues

Q5: Can a company function effectively without a budget, as Body Glove tried to do prior to fiscal year 2001? Discuss.

Achieving organizational success is generally a challenging task, but even more so when the company has not instituted a solid budgetary process. The control of the financial resources is pivotal in any occupation as it serves a multitude of purposes. For instance, an extensive budgetary process helps set realistic and attainable objectives, while also considering resource constraints (Shim and Siegel, 2005, p.9). Additionally, the financial planning component is a central element in the final success of any business endeavor, and one could wonder how it is possible to reach business success without focusing on financial constraints. It is in fact rather difficult. While it may be doable for companies in the public sector or for not-for-profit institutions, to a for-profit company, for which "profitability is the primary goal of the firm, […] financial systems are inevitably the primary mechanism through which top management seeks to control performance" (Grant, 2005, p.214).