DEPARTMENT OF MANANGEMENT SCIENCES HAZARA UNIVESRITY
MANSEHRA
Assignment 07
Subject: Advanced Strategic Management
Submitted to: Dr. Rizwana Tirmizi
Submitted by: Syed Noman Ashraf
Class: MS 1st
Explain the role of budgeting procedures and organizational life cycle in the
strategy implementation.
Introduction
Budgeting as a system of registration and optimization of costs is already spread and studied in
many organizations, but is not applied in the work of production entities. At present,
development and implementation of an effective budgeting system is practically a necessity, as
production entities are in a deep instability and periodic crises, which are influenced by the
financial and economic fluctuations. Therefore, management of the production entities faces
difficulties of internal nature, characterized by increased costs, poor discipline in the
implementation of tasks, lack of transparency and clarity in the delivery system of the entity,
which directly determines the worsening of financial indicators.
Application of budgets: difficulties and advantages
Although many entities notifies the necessity and effectiveness of the budget schemes in the
work of their entities, its real application impose a number of problems that do not achieve the
expected support. In this context, some of them are specified:
Lack of budget coordination with the strategy of the entire entity.
With reference to this matter, the budget is not the first step in developing a strategy. However,
entity managers must know the strategies and access to budget in order to determine the
algorithm in order to achieve the tasks stipulated.
Heads of departments do not participate in the approval and control of budgets.
This causes discontent and criticism both heads of departments and individuals who directly
perform the tasks proposed. If the budget is not made known to the workers, it gives no
motivation and no influence on the results of the effort, but becomes an object of assessment and
detection of errors.
Analysis and control are performed by employees of economic departments, but not by those
responsible for budgeting. Thus, managers are outside the budget process, considering that this
does not refer to their direct duties.
Reduced data specification and control. Often, developing a budget requires more time,
sometimes even a year. During this period a number of changes may take place: reorganization,
restructuring, the attitude of suppliers and competitors may change or other reactions, which are
usually not budgeted. In this context, budget does not reflect the reality, which reduces the
reliability of the management towards its data.
Subjectivity in the process of drafting the budget.
Some managers involved in the development budget increases or decreases some indicators
intended to have a backup if the owners will require their reduction or growth. This is done in
order to protect them in case of failure to achieve the proposed plan, the charges or reprimands.
Budget fragmentation takes place within entities, i.e. development of certain budget segments
and not the general, for example, budget income statement or cash budget or forecast balance
sheet Budgeting comes as a simple and effective method for solving these problems. It ensures
functionality of administrative records, creating a system of self-regulation of business, which
adequately and timely react to external environmental influences in all areas: purchasing,
production, sales, new product launch, improving the quality of development techniques and
technologies.
Investigation of the budgeting significance has allowed identifying that it lies in the
planning activity of the entity, based on strategic goals and tactical predetermined, based on
tangible indicators of budgets, focused on achieving objectives. In this context, the correct choice
of strategy is the most important stage of the budget process.
Practice shows that in the process of planning / budgeting is necessary to take into
account several stages:
Type of planning (depending on the degree of binding: planning is binding or of
voluntary nature);
Unit of measurement (applies various units like natural value, conventional);
Range of finished products / services / works (production activity within the entities
should be planned both in terms of quantity and in terms of assortment of finished goods /
services / works);
Type and quality of raw materials / materials (improving the quality of raw materials
purchased, as well as basic and auxiliary materials, allowing fully exploit the production).
The production program is calculated in accordance with supply agreements of raw
materials and products for consumers and release the norms set for the return of products
The optimization decision as part of the planning perspective and more detailed program of these
actions is called a budget. One may conclude that at the beginning of the budget is a plan of
intent and at the end it becomes a tool to control the results, in order to compare them with
planned data.
Planning is related to establishing the objectives and strategies to achieve them. Budgets shows
how resources will be allocated to implement the strategy and the strategy specifies how an
entity combining their capabilities with market opportunities for the goals. Within an entity
budgets can be developed both short-term (1 month, quarter) and long-term (from one year)
Figure 1.
Figure 1. The connections between strategy, planning and budgeting
Budget as element of planning
The aim of budget is to develop plans correlated with the whole entity and certain sections or
separate sectors, based on established strategies and financial structure formation, fulfillment of
the plan, control, analysis and correction, which is shown in Figure 2.
According to the data presented in Figure 2, the financial structure formation budgeting is
supposed to perform the following procedures: to determine the structure and presentation of
financial responsibility centers, determining the type of budgeting, budgets and enumeration
mutual connection between them, developing budgets articles and structure indicators,
appointment of managers at three levels (head / head center o responsibility, responsible person
per article, executor) and finally the development and regulation of the planning process
(definition of powers, terms, procedure, necessary documents).
The planning phase is to establish key indicators and tasks of planning, developing detailed
plans by managers, operational and functional consolidation plans, approval of plans and
budgets.
The implementation phase is characterized by the adoption of the budget plans that are known
to the responsible persons, managers. In this context, the staff shall carry out measures to
implement the plan, setting results through various tasks and documents.
Figure 2. The structure of the budgeting process
Internal budgeting rules
In measuring the effectiveness of the budget process, a particularly important quality is dedicated
to internal document, which shall be disclosed to the basic rules and principles of conduct of the
budget. Thus, entities need an internal budgeting rules or regulations.
Figure 3. Correlation among stages of creation of the budgeting structure with documents
And results obtained
Organizational Life Cycle
Given the importance of the organization in organizational life chart and its direct impact on
strategy formulation and the executive procedure of the organization, we have tried to double the
importance of this issue by proving the importance of all aspects and through analysis of
samples. The most ideal situation to measure the progress of the organization would be its
output, which has a more considerable importance than employment and sales (McDonald et al,
2009).
Life cycle theory, also applies to cases such as products, market, technology, and industry.
Therefore, by positioning each of these factors in the curve, we can have a clear picture about the
measures to be taken in the future.
It should be noted that several factors such as mission of organization, technology,
organizational structure, corporate ownership, market status and many other factors are
directly involved in the formation of each of the stages of lifecycle of the organization
(Ahmadi, 2010). Strong marketing programs to sell most of products and keep customers are
one of the achievements in this direction. Many executives believe that the company should
not have to pay expenses at every level of profitability to attract every customer, but it should
spend its limited resources to catch and keep key customers optimally (Blatberg, 2001) .paying
attention to the customer and his values is a factor regarded by the organizations and can be
achieved through a formulated plan. Impacts of comprehensive management approach on
customer-orientation, participation and creativity of staff, enhancement of organizational
structure, reducing costs and increasing efficiency and profitability have been proven through
comprehensive investigations (Malayeri et al., 2013). Executives try to keep the organization
at growth level and move it toward maturity. The shorter the time between growth and
maturity, the higher the importance of R&D activities (Adizes, 1979). The rate of delegation in
the organization is one of the most important factors involved in management and has a direct
relationship with organization lifespan. According to the studies, delegation can be both
natural and detrimental (Adizes, 2004). With the help of delegation, the organization moves
from rapid growth to maturity. Accelerating the decision making and allocation of more time
for strategic planning and creation of policies are some of the benefits of delegation (Rasooli,
2013). To identify the position of the organization on the curve of life, first, it is necessary to
identify the major features an organization has in various stages of its life cycle. To do so, first
the key factors that change during the transition of an organization through its lifespan and
through which the organization change should be specified. For this purpose, by checking the
previous models and using the ideas of experts, all the factors affecting the transition of the
organization have been collected and classified according to common points (Dr. Sirous et al,
2002). The factors are listed in Table 1.
Table 1: Factors influencing on the transition of organization through different stages of its
lifecycle
Providence Risk taking
entrepreneurship Conservatism
Predictability and control Permission for doing new works
Human Resources Creativity and innovation
Criteria of evaluation and hiring staff Efficiency and effectiveness
responsibilities and powers in
organizational The flexibility of the organization
structure
organizing and Mechanization Goal setting and planning
Control of management on the
funding and liquidity organization
product or service Consequences of changing the Leader
Public space and the organization
sales and market share environment
As mentioned, organizational life chart is composed of four general stages among each of
which there is a special stage with differentiated features. With the choice of an idea, the
organization is created; a new step that requires commitment and risk taking by the founder. It
is important to bear in mind at the beginning of the route that if the founder establishes the
organization only with the goal of creating a successful return on investment and profitability,
he will not be successful, because return on investment is seen as a constraint and not a driver.
This makes the founder disappointed; however, if attention is also paid to meeting the
requirements of people and the rate of demands as well, he would seek gaining experience and
achieve correct solutions. This would have a positive effect on gaining the given profit. As a
result, with the transition of organization from growth to the fall of quality, the quality of profit
increases (Reza Gholi, 2013).
After acceptance of a level of risk, the organization enters into the infancy stage and it is tries
to change the ideas into reality by appropriate liquidity and higher sales. During the cycle,
changing parameters such as Initial instability, anxiety, awareness, acceptance of change,
integration, etc. become obvious especially in infancy (Max Maher Shora, 2006). Sufficient
liquidity and sustained commitment of the founder is very important at this stage. Costing
system based on activity of 105 companies indicates that the liquidity management during
growth and maturation is considerable (kalonki et al, 2008). Also the investment of investors
at any stage of the lifespan of the organization affects the management system of the company
particularly at growth and development stage (Silvola, 2008). When the transactions with
customers, cash flow, access to raw materials and production are balanced, it will be prepared
to enter the phase of rapid growth. This is an opportunity to turn ideas into action. At this
course, the organization can not only survive but can also develop, no lack of liquidity is felt,
and sales are increased. These conditions can lead the founder to pride and to forget the
problems of infancy. In such circumstances, priorities of the organization will be numerous.
The manager seizes every opportunity.
According to Adizes in the book "Genesis and mortality of organizations", it should be
considered that many priorities means no priority.
The features of this period include the one that the organization acts in the events in a reactive
way, the opportunities run the organization and division of tasks is done based on the
availability of people. At this level, the delegation is one of the things that is hardly done due
to the pride or lack of confidence by the founder, and there is the possibility of emergence of
traps by the founder. But it is possible to delegate to various sectors and to identify the path, in
order to enter a period of puberty. At maturity, the organization will continue to operate
independently of its founder. The company must change their goals from "more is better" to"
better is more". This means that a series of continuous and formulated activities must be done
(Adizes, 1979). Responsibilities, powers, regulations and written rules must be clearly defined.
Following the delegation of powers and formulation of regulations, sometimes contradictions
emerge, respect and trust between individuals fade, and even leads to creative and innovative
people’s leaving the organization. Lack of proper behavior paradigm leads the organization to
a state of premature aging. After passing through this period, the organization enters a stage in
which it has the maximum potential. This is an optimum point of the curve of the organization
in a position between controllability and flexibility. Under these conditions there is a perfect
balance in the organization. Lack of trained staff may be felt. However, it should be noted that
evolution does not mean reaching the peak, but it means that the organization is growing.
Evolution is a process not a purpose. Stability is the first period of senility in an organization.
The system has reached its final growth. Not much passion and entrepreneurial spirit and
change will be seen, and because of the prolonged period of stagnation, the organization is
forced to enter the aristocracy. At this stage, financial resources are spent to control the
profitability system of the organization. Common procedural matters of dress, titles and
traditions prevail. With observing loss of market share, profits, etc., the organization enter its
initial bureaucracy. Under these circumstances, conflicts and suspicion within the organization
rise and people look for answers to the question "Who is guilty?"
In the end, gradually the affinity of the organization with the environment decreases and the
lack of control is felt and bureaucracy and death arrive. Thus it becomes clear that what is
desirable in one period of the organization may prove unjustified in others. Adizes defines four
essential roles for the survival and continuity of the activities in the course of organizational
life and believes that these roles will lead to a change in the quality of the decisions of the
organization. By decision quality it is meant that after its entry into force, the organization
becomes efficient and effective in the short term and long term.
These roles include:
(P) pragmatic role in the organization that represents the effort to accomplish the
organization's purpose;
(A) is to manage organizational administration that is synonymous with the creation of the
system, regulation and planning.
(E) entrepreneurial role and trying to survive, which means creativity and risk taking instead of
reactive behaviors in to changes toward the environment.
(I) Integration and cohesion of the organization, which represents an attempt to gather and
integrate activities and create a common culture. PAEI roles listed on life curve determine
important roles at any stage of organizational life cycle in accordance with the definitions.
Every character of PAEI in capital letters means its emphasis and importance at that stage, and
any small character indicates the faded role at the related period.
