Are traditional annual static budgets functional during crises? é:A case study into the Swiss retail world during the COVID-19 pandemic and the war in Ukraine

Abstract

Compiling a traditional budget is an annual process in the international business world. Many studies have identified that companies using budgets have higher profitability, so this wide dispersion is unsurprising. However, there are also significant concerns surrounding its practice, particularly regarding the substantial resources required to compile a budget and the inflexibility of traditional budgets. The COVID-19 pandemic and the war in Ukraine have confronted businesses worldwide with rapidly changing circumstances. This turmoil can be seen as “the new normal” in the VUCA world concept. During these challenging times, the question of whether traditional budgets can deliver on their core functions and support managers in directing and operating businesses has become more pronounced. The existing concerns about traditional budgeting, particularly its inflexibility, together with the VUCA circumstances that are currently prevalent, lead to the research question of this thesis: Are traditional annual static budgets functional during crisis? The research objectives are to understand the underlying decision drivers for the specific reaction, to determine the expectations associated with the operational function of budgets and to what extent individual professional knowledge of budgeting approaches has influenced the decision. A qualitative case study approach was applied with semi-structured interviews to collect data. The thesis demonstrates that during crises, the strategy formation function is crucial, the performance evaluation role of budgeting is questionable, decoupling is evident in the case study company, and key budgeting functions become obsolete under severe crisis conditions. The study proves that there is only one answer to the research question, no! Although some managers experimented with alternative methodologies, the majority were hesitant, which can be attributed to a lack of knowledge and experience. Organisations believe in the VUCA world, and considering contingency theory, they should try using the existing budgeting alternatives and find the best individual solution. This alternative has to deliver on the planning and control and the resource allocation function, be flexible to incorporate changes and include the north star element for longer-term strategy formation. They should also upskill their people to lose respect for other options and become more agile in VUCA times.