Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Budgeting Patterns in Japanese Companies and Their
Relationship with Exploration and Exploitation: An
Exploratory Study
Takeyoshi Senoo

Faculty of Commerce, Chuo University
Japan Cost Accounting Association
Abstract
This

study

aims

to

empiricallyclassify

thebudgetingpatterns(configurations) of general Japanese companies and present an exploratory
description of the relationship between the patterns and organizational learning interms of exploration and exploitation. Drawing on Sponem and Lambert’s (2016)
typology of budgeting in French companies, this research conducted a similar
analysis utilizing the results of a questionnaire survey administered to companies
listed on the First Section of the Tokyo Stock Exchange. According to the results,
the budgeting practices of general Japanese companies can be classified into threepatterns: flexible, strategic, and poor. These patterns differ from the characteristicsof “Japanese-style” budgeting noted in the literature. Flexible budgeting resembles
a combination of the features characteristic of the yardstick budget and the loose
budget patterns presented by Sponem and Lambert (2016). Strategic budgeting issimilar to Sponem and Lambert’s (2016) interactive budget and poor budgeting are
similar to what they term indicative budget. Sponem and Lambert’s (2016) coercive
budget, which fundamentally prioritizes posterior control, was not perceivable in
the results. Furthermore, the results of the analysis on the relationship withorganizational learning in terms of exploration and exploitation showed that of thethree patterns, strategic budgeting displayed a pronounced tendency toward
exploration.
Keywords
Budgeting patterns, Japanese-style budgeting, Management control systems,
Exploration, Exploitation, Configurational approach1

Journal of Japanese Management Vol.3, No.1, November 2018(1) Introduction

ISSN 2189-9592

budgeting is related to organizational

Despite budgeting being at thelearning in terms of exploration andcore of management control systems

exploitation, the degree of such learning(MCS), it has been constantly subjected

may differ according to the budgeting

to criticism (Hansen et al., 2003; Lee etpattern.

al., 2010). Nevertheless, most companies

Given the above discussion, thisengage in budgeting and are aware that

study

poses

the

it has some effect (Libby and Lindsay,

questions (RQs).

following

research2010). Furthermore, budgeting is now
different than it was in the past because

RQ1: How can the budgeting practices of

there

general Japanese companies be classified

has beenanincreaseintheresearch that describes the influence of

empirically?

budgeting on organizational learning andRQ2: How are such patterns related toinnovation (Horii, 2015). In particular,organizational

recent studies have shown that budgeting

exploration and exploitation?

learning

in

terms

of

is related to exploration and exploitation,
which

are

two

organizational

importantlearning

types

of

This study conducts an exploratory

requiredtoinvestigation of the above questions andsecure a competitive advantage (Bedford,

presents

2015; Fukuda, 2015; Yoshida et al.,findings from a questionnaire survey

2015a).

administered to companies listed in the

However,theeffectivenessofadiscussion

based

on

the

First Section of the Tokyo Stock Exchange.

budgeting practices varies given theirdifferent characteristics and the multiple(2) Literature Review

patterns (configurations) of combining

1. Budgeting patterns (configurations)them (Hansen and Van der Stede, 2004;

In recent years, research interest

Sponem and Lambert, 2016). Moreover, it

in MCS as packages of mutually related

hasJapanesecontrol practices has been increasing

companies practice a unique “Japanese-(Malmi and Brown, 2008). However, thestyle” of budgeting that differs from those

types of patterns for control practiceof other countries (Lee et al., 2012).

linkages in general companies remain

beenclaimedthat

Despite this, there is a lack of

unclear.

Bedford

and

Malmi

(2015)

research that empirically examines the

adopted a configurational approach tobudgetingempiricallypatternsofJapaneseexaminetherelationshipcompanies. Thus, such a classification

between accounting and other control

would help to accurately describe thepracticescomplexassociation of such combinations withbudgetingpractices ofsuchorganizations. Furthermore, even though2and,furthermore,theJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

context factors. 1 Conducting a cluster

budgeting patterns: yardstick, coercive,

analysis using the characteristics of 22interactive, loose, and indicative. The

control practices as input variables, they

following

discussion

derivedauthor’sinterpretationataxonomy

configurations

of

and

five

control

described

summarizes
of

these

the
five

the

characteristic patterns in terms of therelationships with the context factors ofdegree of importance in prior, concurrent,

technology, environment, and strategy.

and posterior control. 2 The reason for

Two of the control configurations—action

doing so is that many studies analyzing

and hybrid control—differed from those“Japanese-style” budgeting (e.g., Lee etin the literature.

al., 2012) use these categories.

Demonstrating the same under-First, the involvement of high-standing, Sponem and Lambert (2016)

level executives in senior management isshed light on budgeting configuration.

necessary because a yardstick budget

They

the

formation requires managerial partici-

budgetingpation. Furthermore, it can be inferredcharacteristics and their relationshipthat emphasis is placed on prior andwith the role of, and satisfaction with,concurrent control because revision isbudgeting.

budgetingrare. Second, among the patterns thatpatterns using a cluster analysis with 11

exhibit a strong linkage of the budget

budgetingwithempiricallyassociationofexaminedvarious

Theyclassified

characteristics

as

input

variables. The results highlighted five
1

of

and

group

for

budgetingpracticesthatparts,

comprises managerial accountants. They

components, mechanisms, or attributes.

classify these characteristics into prior,

The configurational approach refers to a

concurrent,

strand of research that attempts to (1)control. In particular, the prior stage

understandincludesMCS

multipleevaluation

rewards, a coercive budget generally

Configuration refers to the specificarrangement

performanceasaresultofandposterior

participation,

stages
type

for
of

combinations of such diverse elements

negotiation, and difficulty of meetingand (2) present the fundamental patterns.

budget targets. The concurrent stage

This

consists

approachcanbeconsideredofbudgetvariance,

budgetconsistent with an understanding of MCS

revisions, and budget reforecasts. The

as packages of mutually related control

posterior stage includes budget-based

practices (Bedford and Malmi, 2015;

evaluations and rewards. Furthermore,

Sponem and Lambert, 2016).

involvement in budgeting，budget details,

2

Sponem and Lambert (2016) employs

characteristics

establishedinand degree of budget formalization arethecharacteristics that span across the time

literature, and they conceptualize the 11

scale.

characteristics on the basis of a focus
3

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

places importance on posterior control,

necessarily

while an interactive one emphasizes priorJapanese companies. As described above,and concurrent control through manager

itparticipation in budget formulation andcompanies practice a unique “Japanese-senior management involvement in thestyle” of budgeting that differs from thosebudget process. However, target difficultyof other countries (Lee et al., 2012). 3

hasremains low and the degree of budgetary

apply

been

to

budgetingclaimedFurthermore,

that

the

in

Japanese

relationshiprevision is average in the case of an

between the budgeting patterns andinteractive budget. Third, an interactive

context factors remains unclear.

budget is similar to interactive control
systems (ICS) (Simons, 1995) but differs

2. Japanese-style budgeting

owing to its strong linkage with rewards.

This study will reference Lee et al.

Fourth, among the patterns demons-(2010, 2012) and recent field studies totrating a weak link of the budget withpresent the characteristic aspects of thisperformance evaluation and rewards, aunique “Japanese-style” of budgeting inloose budget warrants the participation

Japanese companies in the context of theof high-level management in the budget

three stages of control discussed earlier:formulation, although the involvement ofprior, concurrent, and posterior.

senior management in the budget process

There are three key arguments

is low and the budget is subject towith regards to the prior control that isfrequent revisions. As a result, emphasis

observed in the budgeting of Japaneseis placed on prior control. Fifth, anCompanies.

indicative budget exhibits low levels ofbudgeting in Japanese companies is said

most budgeting characteristics; in otherto possess a prior control function (Lee etwords, the budget is less likely to beal., 2012). Kishida’s (2013) survey, forconsidered

instance,forcontrol

purposes.

First,

showedhighofparticipation

has the highest levels of satisfaction, an

managers

indicative one has low satisfaction levels.

budgeting. Second, budgetary slack ispatterns

identifiedbySponem

and

and

both

degreeFurthermore, while an interactive budget

While it is possible that the fivebyaparticipative

theirconsideredtobecompanies(Ueno,

departmental

subordinates

low

in

1997).

inJapaneseIn

their

Lambert (2016) are characteristic ofcomparative study, Lee et al. (2012)

Frenchnotmainly examined this aspect in four

“Japanese-style” management accoun-style management (Yoshida et al., 2012,

3

ting

companies,

impliesthey

managementmay

accounting

pp.2-3). This study interprets the latter

originating in Japan or the practice of

as “Japanese-style” budgeting and the

management accounting closely related

analysis explores whether such practices

to the organizational context of Japanese-

exist.
4

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Japanese companies and discussed the(2013) indicated that budgeting is more

systems used by each company to meet

often used as an ICS than as a diagnostic

challenging targets. Third, as in the casecontrol system.

of non-Japanese companies, the criticism

As for posterior control, a weakof a weak linkage between strategy andlink has been noted between performancebudgeting targets (Hansen et al., 2003)

evaluation and financial rewards in the

may be valid for Japanese companies too.

budgetingpracticesof

While Shimizu (2013) noted the value ofJapanesecompanies(Asada,linking a balanced scorecard (BSC) with

However,thisthe budget, few Japanese companies haveowing to the rise of pay-for-performance

been reported as implementing BSCs

systems (Lee et al., 2010).

(Yoshida et al., 2012).
Next,

in

terms

tendency

Nevertheless,ofconcurrent

argue

that

all

it

traditionalmayis1997).
changedifficultJapanesetocompanies

control, first, it is possible that budget

possess similar budgetary characteristics.

revisions, which are also practiced in

Furthermore, relationships are possible

severalareamong the various characteristics. Thus,

more common in Japanese companies.

there is significant value in classifying

For instance, 20% of companies in Yokota

theet al.’s (2013) survey responded that “Thecompanies.

non-Japanesecompanies,

budgetingpracticesofJapanese

initial budget is fixed and is not revised
at all during the period”. 4 However, in

3. Relationship with exploration and

Libby and Lindsay’s (2010) survey on

exploitation

business units in North America, about

When classifying the budgeting

half of the respondents reported thatpatterns“Budgets are fixed. No changes made todifferences in organizational contexts

them”. Second, vertical interaction isthat align with such patterns are highlycommon in the budget formulation of

likely. This study focuses on two types ofJapanesecompanies,

thatorganizational learning—exploration andbudgetingis

ICS

exploitation—as

utilized

implying
as

an

of

Japanesecompanies,

organizational(Kobayashi, 1990). Lee et al. (2012) also

contexts. 5 Exploration and exploitation

showed that interactions are common inare concepts proposed by March (1991):

concurrent control. Similarly, Kishida

the former refers to radical learning in

However, approximately 70% of thecompanies reported “reviewing andrevising, as required” on a regular or
irregular basis; in other words, budget
revisions were not necessarily carried out.
5 As Fukuda (2015) noted, in analyses onorganizational learning, organizationaltheorientation.

4

relationshipbetween

MCS

learning is often understood as orientation toward organizational learning. This
study adopts the same approach byfocusing

and
5

on

organizational

learning

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

the pursuit of new knowledge and theinlatter is incremental learning based oncompanies; and (3) the simultaneous use

utilizing existing knowledge.

of both in companies with tendencies

This study focuses on exploration

exploitative

towardinnovation-orientedorganizational

ambidexterity.

and exploitation for two reasons. First,

Yoshida et al. (2015a) analyzed thethere is an increase in research that

influence of exploration and exploitation

describes the influence of budgeting andon

MCS on organizational learning andaccounting

innovation. Horii (2015), for example,

indicatedconducted

performance

bothqualitative

and

four

Japanese-typemanagement

behaviors.
that

the

The

resultslink

betweenevaluation

andrewardquantitative studies to show the positive

increases with a rise in exploration

effects of setting challenging goals andorientation.

fixing budgetary targets on organizational learning and product innovation.

(3) Research Design

Second, the concept of organizational

1. Analysis method

ambidexterity—wherein an organization

The

present

analysis

method,simultaneously pursues exploration andwhich is based on Bedford and Malmi

exploitation—has become a key focus in(2015) and Sponem and Lambert (2016),

organizational learning and innovationis performed as follows. First, a cluster

research (O’Reilly and Tushman, 2013;

analysis was conducted to classify the

Yoshida et al., 2015a).

budgeting

In recent years, there has been agrowthinresearch

relationshipofexploration

andshowing

patternsofJapanesecompanies. Each cluster was interpretedthethrough an analysis of variance andwithmultiple comparison procedures on the

exploitation. Fukuda

input variables. Similarly, an analysis ofbudgeting6(2015) showed that operational divisions

varianceandmultiplecomparison

with an orientation toward exploratory

procedures was performed to investigate

learning tend to have higher perceptions

the relationship of budgeting patternsof achieving budgetary targets and thatwith exploration and exploitation.

the use of funds for ICS contributes tosuccessfulorganizational

learning.

2. Data collection

Bedford (2015) utilized Simons’ (1995)

The data were compiled using aframework to show the positive effect onquestionnaire survey conducted by aperformanceinresearch team, of which the author is acompanies oriented toward exploratory

member. The purpose of the survey was toinnovation; (2) diagnostic control systems

elucidate the current state of manage-Bedford (2015) and Fukuda (2015)
analyzed the relationship between MCS

and exploration and exploitation, withbudgeting included as a part of the MCS.

byusing:

(1)

ICS

6

6

Journal of Japanese Management Vol.3, No.1, November 2018

ment accounting, including budgeting
andperformance

management. 7

ISSN 2189-9592

The following analysis employsOndata from 234 companies. Responses fromJanuary 14, 2014, the survey was sent to

13 companies are excluded owing to

1,752 companies listed on the First

missing values for questionnaire items.

Section of the Tokyo Stock Exchange witha response deadline of January 31, 2014.

3. Measurement of variables

The number of respondent organizations

This study

was 247 (response rate: 14.1%). 8

relatedtomeasuredbudgetary

variables

characteristics

This study uses the survey results

utilized in the classification of Japanese

for two reasons. First, while the survey

companies’ budgeting practices and those

was not designed to investigate theassociatedwithresearch

exploitation.

Becausequestions of

this

study

in

exploration
there

and
is

no

particular, it contains many items related

established scale for both, the existing

to the characteristics of budgeting andliterature was consulted to the greatest

performance management. Second, toextent possible.

empiricallyclassify

thebudgetingFirst,

anexploratory

factorpractices of general Japanese companies,

analysis was performed on the 12 items

it seems appropriate to use a survey thatthat were selected, based on Sponem andtargets all companies listed on the First

Lambert (2016), from the questionnaire

Section of the Tokyo Stock Exchange,

items for budgeting characteristics. Two

including

traditionalquestionnaire items were not heavily

industry-based

loaded on any factor; however, they weremany

companies,

major

without

restrictions.
7

As

will

still converted into the “No changes tobequestionnaire

discussed

items

for

later,

thedistribution of companies listed on the“Challenging

First Section of the Tokyo Stock Exchange

performance targets” and “Performance-(intermediate

reward link” are related to performancetion of the Securities Identification Codemanagement

notCommittee). Second, in terms of thebudgeting characteristics. This is because

difference in organizational size (i.e.,the survey considers budgeting a core

consolidated

performance

numbercharacteristics,

management

technique(Yoshida et al., 2012, p.163).
8

of

industry-type

sales

and

classifica-

consolidated

employees)

betweenrespondents and non-respondents, only

See Yoshida et al. (2015b) for details on

the manufacturing industry had a highly

the survey method. As for the non-consolidated

response bias, first, the results for the(Yoshida

goodness-of-fit

implies the absence of any serious non-test

showedthat

respondents’ industry-type distribution
conformed

to

the

7

of

employees

et al., 2015b, p.167).

response bias.

industry-type

numberThis

Journal of Japanese Management Vol.3, No.1, November 2018budgetary

targets”

the(Appendix Table 1). Items with high“Strategic budget formulation” variableloadings for each factor were named

and each was measured with a single“Degreequestionnaire item. This is because they“Interactive budgeting”, and “Assignment

are related to important concepts thatof specific targets to individuals”. In thewill be discussed in this section. A repeat

operationalization of the variables, theanalysis

items

average values of the items that were

resulted in the extraction of three factors

heavily loaded on each factor were usedwithas scale scores.

excludingeigenvalues

variable

these
of

and

ISSN 2189-9592

two

one

or

higherofbudgetarysophistication”,

Table 1. Results of the exploratory factor analysis on performance-reward link(n = 234)
Questionnaire Item

Performance-

Mean

Std. Dev.

3.65

1.26

.95

4.21

1.19

.93

Business unit regular employee

3.40

1.30

.83

Business unit director

4.68

1.36

.66

Business unit lower manager (subsection
chief)
Business unit middle manager (section
chief level)

Reward Link

Note 1: A factor analysis was conducted using a principal factor method. Factor
loadings of 0.4 and higher are rendered in bold.
Note 2: All questionnaire items in response to the question “To what degree is thefinancial reward of individuals with the following rank related to businessperformance?” were measured on a seven-point scale, ranging from 1 = “Not at all
related” to 7 = “Very strongly related”.
Next,

to

the

1, only one factor—“Performance-reward

targets”

link”—with an eigenvalue of one orvariable, one item was selected andgreater was extracted, and its scale score

measured from the questionnaire items

was calculated as the average values ofrelatedthe four relevant questionnaire items.

“Challenging

tooperationalize

performance

performance

management.

Then, to grasp the posterior control

Appendix Table 2 presents the

aspect, an exploratory factor analysis wasvariables

performed

fourcharacteristics used in this analysis as aquestionnaire items as were used inresult of the above. These somewhat

Yoshida et al. (2015a). As shown in Table

correspond to Sponem and Lambert’s

on

the

same

8

relatedtobudgetingJournal of Japanese Management Vol.3, No.1, November 2018(2016) constructs. 9 The variables are

ISSN 2189-9592

Finally,an

exploratory

factorassociated with the characteristics ofanalysis based on He and Wong (2004)

Japanese-style budgeting, as describedand using the same six questionnaire

above in terms of prior, concurrent, anditems as those in Yoshida et al. (2015a)

posterior

wascontrol.

First,“Degreeofperformed

for

exploration

andbudgetary sophistication”, “Challenging

exploitation. In Yoshida et al. (2015a),

performance

one questionnaire item did not load

budgettargets”,

formulation”

and

to

heavily on either factor. This item wasparticipative budgeting, budgetary slack,excluded and the analysis was repeated.

and

and

As shown in Appendix Table 3, twobudgetary targets, respectively. Second,

factors with eigenvalues of one or higher“No changes to budgetary targets” andwere extracted. As per the interpretation“Interactive budgeting” are related toof the items with heavy factor loadings,

budgetthe two factors were termed “Exploration”

the

link

are

“Strategic

betweenrevision

relatedstrategy

and

ICS.

Third,“Allocationofspecific

toand “Exploitation”. According to Yoshida

individuals”

and“Performance-reward

et al. (2015a, p.56), items loading heavily

link” are related to posterior control

on the former indicate a tendency tocharacteristics.

emphasize

Sincetargets“Challenging

innovativeness

and

new

performance targets”, “Strategic budget

markets and prioritize new technology,

formulation”,

toproducts, and services. On the other hand,budgetary targets” are each measured bythose loading heavily on the latter denotea single questionnaire item, as noted

a tendency toward kaizen and employees

above, their scales may be subject toachievingreliability

and

10

simultaneously. In the operationalization

Cronbach’s

alpha

the

of the variables, the average values of theremaining items are 0.7 or greater,

items that heavily loaded on each factor

indicatingwere used as the scale scores. 11 Both

and

no

“No

changes

validity
valuesinternal

issues.
forconsistency

multipletargets

problems.

have Cronbach’s alpha scores of 0.7 or

However, there are points of difference.
For example, certain elements of theconstructs relating to the degree ofbudgetary detail and the degree to which
the budget is formalized are included in
the “Degree of budgetary sophistication”
and“Interactive
budgeting”.
Furthermore, budget revision and budget
reforecast, as well as budget-based
evaluation and rewards, are notdifferentiated at a conceptual level.
10 In Sponem and Lambert (2016) too,budget revision was measured using asingle questionnaire item and, thus, it ishighly likely that the scale is subject toreliability or validity issues.
11 While Yoshida et al. (2015a) focused onthemanufacturingindustry,
theirmethod to measure the relationship of“Performance-reward
link”
with
“Exploration” and “Exploitation” isidentical to that adopted in this study.
This
research
still
conducts
anexploratory factor analysis because it
expands the scope of analysis beyond the
manufacturing industry to organizations

99

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

more, implying no internal consistency

mance targets” and “No changes inissues.

budgetary targets”, indicating that nonchallenging and achievable performance(4) Results
1.

targets are maintained and the initial

BudgetingpatternsofJapanesebudgetary targets are flexible. Thus, thiscompanies

cluster was named “Flexible budgeting”.

To classify the budgeting patterns

Furthermore, the values for the degree ofof Japanese companies, a hierarchicalbudgetary sophistication and interactive

cluster analysis was conducted using as

budgeting were high, implying that priorinput variables the seven budgetaryand concurrent control is emphasized.

characteristics measured above (Ward’s

Cluster two (C2) showed the highest

method): “Degree of budgetary sophisti-

values for all characteristics, except

cation”,

performance

strategic budget formulation, implying

targets”, “Strategic budget formulation”,

that control is emphasized in all phases“Notargets”,(pre, concurrent, and post). This cluster“Interactive budgeting”, “Allocation of

was termed “Strategic budgeting”. In

specific

andcluster three (C3), the values for most of“Performance-reward link”. The input

the budgeting characteristics were lower

variables

thethan those of the first two clusters,

analysis. Then, on the basis of the results’suggesting that the budget is unlikely todendrogram, three final clusters werebe used for control purposes. This cluster

defined.

“Challenging

changestotargets
werebudgetary
toindividuals”,

standardizedaone-waywasandmultiple

Appendix Table 4 shows, 92 (39.3%)

comparison procedures (Tukey-Kramer

companies used flexible budgeting, 95

method) were performed on the input(40.6%) companies implemented strategic

variables. The results are presented inbudgeting, and 47 (20.1%) companies

Appendix Table 4. The significance level

reported poor budgeting. Furthermore,

for the statistical analyses was set at 5%.

organizational size and industry type did

analysis

Subsequently,

for

12

of

Clustervariance

one

(C1)

reported

the

named

“Poor

budgeting”.

As

not vary by cluster. 13

lowest levels of “Challenging perforin the non-manufacturing industries. It isnoteworthy that the analysis results are
identical to those of Yoshida et al. (2015a).
12 The pseudo F-statistic, which is thefollowed by 34.94, with three clusters.
Almost all the companies were in C1,
rendering

Harabasz,1974),

interpretation

was decided to include three clusters.

clusters in a hierarchical cluster analysis
andclusterdifficult. Thus, if two clusters were set, it

index used to determine the number of(Calinski

the

13

was

The results of the one-way analysis ofvariance for average consolidated sales

highest at 39.50, with two clusters,( F -value (2,231) = .169, p -value = .845)
10

Journal of Japanese Management Vol.3, No.1, November 2018

2. Relationship with exploration andsection (1).

exploitation
To

ISSN 2189-9592

To determine if the budgetary
relationshippractices of general Japanese companies

patternsofcan be empirically classified, let us

Japanese companies and exploration andcompare the results of this study with the

exploitation, the former was set as thepatterns

identified

independent variable and the latter two

Lambert(2016)

were the dependent variables. In addition,

concept of “Japanese-style” budgeting.

betweenelucidatethethebudgetinga one-way analysis of variance andFirst,

inandflexible

Sponemandre-examine

thebudgetingisamultiple comparison procedures (Tukey-

pattern resembling a combination of

Krameraspects that are characteristic of themethod)were

performed.

Appendix Table 5 presents the results.

yardstick

The analysis results showed arelationshipbetween

the

and

loose

budgetpatterns

presented in Sponem and Lambert (2016).

budgeting

Both patterns involve a high degree ofpatterns of Japanese companies andmanagerial

participation

exploration and exploitation. The results

formulation.

Flexibleoftheparticular, has a high degree of budgeting

differences across all patterns indicatedsophistication. However, it differs fromthat poor budgeting had the lowest mean

the yardstick budget, which may not be

score

and

subject to frequent revisions. Flexible

exploitation and the differences with thebudgeting also differs from the looseotherstatisticallybudget pattern, which may not emphasize

significant. By contrast, strategic budge-

interactive budgeting in the concurrent

ting had the highest mean scores forstage. In addition, the findings indicate a

explorationarelatively weak performance-reward link,statistically significant difference in theresembling the “Japanese-style” budge-

meanting patterns with prior and concurrentthemultipleforcomparisonsbothpatterns

andscoresof

exploration
were

exploitation, withofexploration

when

compared with flexible budgeting.

sectionpresents

budgetbudgeting,incontrol, as noted in Lee et al. (2012).

(5) Discussion
This

in

the

Furthermore,

frequentbudgetaryrevisionsthatbudgetary

imply

the

targets are not challenging.

implications of the results in the context

Second,strategic

budgetingisof the two research questions posed insimilar to Sponem and Lambert’s (2016)

andemployeeof an independence test (chi-square test)

numbers ( F -value (2,231) = .255, p -value(χ 2-value (62) = 73.456, p-value = .151)= .775) revealed no statistical differenceindicated no significant relationship withinthe clusters.

averageconsolidated

organizational

size

betweentheclusters. As for industry type, the results
11Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

interactive budget and poor budgeting isinvestigate

how

these

patterns

aresimilar to what the authors term an

related to organizational learning inindicative budget. Strategic budgeting

terms of exploration and exploitation.

prioritizes not only prior and concurrent

First,

themeancontrol but also posterior control, while

exploration

andexploitationloose budgeting may not be used forsignificantly lower for poor budgeting

control purposes. Both differ from thethan the other patterns. Under any ofcharacteristics

these

of

“Japanese-style”

scoresorganizational

for
were

learningbudgeting, as has been noted in theorientations, emphases on prior andliterature.

theconcurrent budgetary control by creating

characteristics of strategic budgeting,refined budgets and both regular andwhere targets are fixed and relatively

irregular discussions will be effective.

Furthermore,difficult,differinteractive

frombudget,thoseofsuggestingan

Second, a comparison of flexible

that

and

strategic

budgetingchallenging targets can be maintained. 14

significantly

higherFinally, Sponem and Lambert’s

explorationfor(2016)

coercive

fundamentallybudget,emphasizes

whichposterior

Previous

studiescertainbudgetingtherevealed

a

score

for

mean
latterhave

pattern.

impliedthatcharacteristics

cancontrol, was not perceivable in the results.

effectively increase exploration, such as

In fact, about 80% of the companies

maintaining challenging targets (Horii,

reportedstrategic

2015), using the budget as an ICS

budgeting. Thus, it can be concluded that

(Bedford, 2015), and strengthening the“Japanese-style”

commonly

performance-reward link (Yoshida et al.,prioritizes prior and concurrent control.

2015). In contrast to studies highlighting

Nevertheless, the two groups can be

the influence of individual characteristics

defined on the basis of the importance(Bedford, 2015; Horii, 2015; Yoshida et al.,placed on “Allocation of specific targets to2015), this study showed a relationshipindividuals”

between exploration and the strategic

using

and

flexibleorbudgeting“Performance-rewardlink” (i.e., whether posterior control isbudgetingemphasized).

various characteristics. In terms of an

Next,

which

combines

comparison

of

poor

interactive budget, Sponem and Lambertthebudgeting(2016) argue that by placing importancepatterns and of flexible budgeting withon prior and concurrent control, budget-

strategic budgeting will allow us to

based

However, as shown in Appendix Table
4, even though the scores are relatively
higher than those for other patterns, it isnotable that “Challenging performancetargets” and “No changes in budgetary
targets” returned an average value ofapproximately four on a seven-point scale.

budgetingapattern,

with

other

14

12

performance

evaluation

andJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

rewards as a form of posterior control cantargets”, “Strategic budget formulation”,

be appropriate. Thus, it can be said thatand “No changes in budgetary targets”.

Japanesecompanies

strategic

Second, given the differences inbudgeting maintain challenging targets,the abovementioned budgeting charac-

combine budgetary characteristics, andteristic variables and other aspects, thearemethod adopted in this study was not theorientedusing

towardexploratoryorganizational learning.

same as that used in Sponem andLambert (2016). Thus, it is possible that

(6) Conclusions

the analysis results are attributable toDrawing on Sponem and Lambert’scontext differences between Japan and(2016) typology of budgeting in French

Francecompanies, this study conducted a similar

analyticalanalysisshouldusing

theresults

of

a

or

to

the

use

of

different

methods.

Futureresearch

considerconducting

anquestionnaire survey administered tointernational comparative study using

companies listed on the First Section of

the same methods.

the Tokyo Stock Exchange. According toThird, the relationship between

the results, the budgeting practices ofthegeneralbecompanies and organizational learning inclassified into three patterns: flexible,

terms of exploration and exploitation canstrategic, and poor budgeting. Thesebe considered as an implied relationship.

patterns differ from the characteristics ofAn“Japanese-style” budgeting noted in thenecessary to examine the relationships

literature. Furthermore, the results on

with

the

technology, environment, and strategy.

Japanese

relationshipcompanies

with

can

organizational

budgetingin-depthother

patterns

analysiscontextofis,factors

Japanese

therefore,
such

as

learning in terms of exploration and

Finally, to classify the budgeting

exploitation showed that of the threepatterns of general Japanese companies,

patterns, strategic budgeting displayed aan analysis targeting all companies listed

particular tendency toward exploration.

on the First Section of the Tokyo Stock

Despiteits

contributions,thisExchange (including many traditional

study is not free from limitations.
First,
extantdespiteliterature,

characteristic

major companies) without industry-basedreferencing
therestrictions was considered appropriate.

budgeting

As discussed in Section (4), no difference

in

the

was found across organizational size andsubjecttoindustry for the three patterns. However,reliability or validity issues. In particular,

it is possible that the results could differ

it is necessary to develop a scale with

if the analysis focused on small- andhigher levels of reliability and validity formedium-sized enterprises or industries

the constructs “Challenging performanceinclustervariables

theanalysis

may

used
be

13

rapidlychanging

environments.

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Future studies might consider limiting

Cluster Analysis. Communications intheir analyses to specific organizational

Statistics , 3(1), 1-27.

scales or industries.

Fukuda, Junji (2015). Soshiki Gakusyuu
to MCS tono Kankei: Shitsumonhyou

Acknowledgements

Chousano

Bunseki

Kekka

yori

The data used in this study were

(Organization Learning and MCS: A

compiled through a collaborative survey

Mail Survey). The Hosei Journal of

conducted by Professor Eisuke Yoshida

Business , 52(1), 43-57.

(Keio University) and research colleagues.

Hansen, Stephan C., David T. Otley andConsent was provided by all participants

Wim

to use the survey results to develop thePractice Developments in Budgeting:study. In particular, Professor YoshidaAnprovided valuable feedback. The author is

Perspective. Journal of Management

deeply grateful.

Accounting Research , 15, 95-116.

This study was supported by JSPS

A.

Van

der

Overview

Stede.
and(2003).

Research

Hansen, Stephan C. and Wim A. Van der

KAKENHI Grant Number JP26780250.

Stede. (2004). Multiple Facets ofBudgeting: An Exploratory Analysis.

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16

Industries:

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 1. Results of the exploratory factor analysis on budgeting characteristics (n = 234)
Degree of
Questionnaire Item

Mean

Std. Dev.

Assignment of

Budgetary

Interactive

Specific

Sophisticatio

BudgetingTargets tonIndividuals

Processes and procedures related to budget and operations are clear

5.31

1.19

.87

−.12

−.07

Budgetary plans (e.g., sales, profit, and cost price [costs]) are set to a finely detailed level

5.34

1.13

.84

−.11

.00

Middle managers are sufficiently involved in the process of setting budgetary targets

5.19

1.30

.64

.21

.04

Middle managers are sufficiently involved in the process of setting business targets

5.19

1.28

.57

.10

−.07

4.38

1.25

.52

.23

.13

5.32

1.29

−.12

1.05

−.00

5.34

1.29

.03

.84

−.08

Implementation plans are continuously revised to enable responses to situation changes

4.93

1.34

.18

.46

.06

Specific business targets are assigned to individuals

4.34

1.54

−.01

.00

.97

Specific budgetary targets are assigned to individuals

3.84

1.70

−.05

−.05

.70

Business plans (e.g., delivery date, specifications, and quality [new product development
and sales]) are set to a finely detailed level
When initial budgetary targets and actual results diverge, upper management of thebusiness unit and middle managers engage in discussions
Upper management of the business unit receives regular reports on the budget
implementation process and has regular discussions with middle managers

Degree of Budgetary
Sophistication
Factor Correlation

Interactive Budgeting
Assignment of SpecificTargets to Individuals

1
.57

1

.45

.33

1

Note 1: A factor analysis was conducted using a principal factor method with promax rotation. Factor loadings of 0.4 and higher are rend ered in bold.
Note 2: There was a marginal difference in the questionnaire for the manufacturing and non-manufacturing industries. The items specific to non-manufacturing industries
are presented in square brackets.

17

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 2. Descriptive statistics for budgeting characteristic variables (n = 234)
No. ofQuestionnaire

Minimum

Maximum

Mean

Std. Dev.

Cronbach’s α

5

2

7

5.08

.97

.85

1

1

7

3.55

1.39

N/A

1

1

7

3.82

1.40

N/A

1

1

7

3.51

1.80

N/A

3

2

7

5.20

1.13

.83

2

1

7

4.09

1.47

.74

4

1

7

3.98

1.12

.90

Items
Degreeofbudgetarysophistication
Challenging

performancetargets
Strategic

budgetformulation
No changes to budgetary
targets
Interactive budgeting
Allocationofspecific

targets to individuals
Performance-reward link

Note: For “Challenging performance targets” and “No changes to budgetary targets” , participants were asked to respondto the statements “Performance targets are set at a challenging level that cannot be easily achieved” and “Initialbudgetary targets are not changed, regardless of changes in the situation”. Their responses were measured on a seven point scale, ranging from 1 = “Not at all” to 7 = “Totally”. For “Strategic budget formulation”, respondents were asked“How is the budget formulated?” Their responses were measured on a seven-point scale, ranging from 1 = “The budget isformulated by adding an amount for new ventures to the previous year ’s results” to 7 = “Resources are selectively allocatedfrom a strategic viewpoint to achieve management strategy” .

18

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 3. Results of the exploratory factor analysis on exploration and exploitation (n = 234)
Questionnaire Item
Employees are encouraged to act innovatively and not be risk
averseImportance is placed on new market entry and breaking new
groundDevelopment of new technologies and products [new products andservices] is prioritized in resource allocation
Kaizen activity is conducted on a daily basis/continuously

Mean

Std. Dev.

Exploration

Exploitation

4.12

1.42

.81

.01

3.75

1.30

.61

-.05

4.11

1.34

.60

.06

4.74

1.23

.01

.79

4.33

1.11

−.01

.77

Employees are independently oriented toward the simultaneousachievement of multiple targets, such as cost price [costs], quality,and functionality
Factor Correlation

Exploration

1

Exploitation

.52

1

.71

.75

Cronbach’s αNote 1: A factor analysis was conducted using a principal factor method with promax rotation. Factor loadings of 0.4 andhigher are rendered in bold.
Note 2: There was a marginal difference in the questionnaire items for manufacturing and non-manufacturing industries.
The items specific to non-manufacturing industries are presented in square brackets.
Note 3: The questionnaire items were measured on a seven -point scale, ranging from 1 = “Not at all” to 7 = “Totally”.
Note 4: “Importance placed on increasing satisfaction levels of existing customers rather than new customers” did notload heavily on either factor and, thus, was excluded from the analysis.

19

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 4. Results of the analysis on Japanese companies’ budgeting patterns
C1

C2

C3

Flexible

Strategic

Poor

Budgeting

Budgeting

Budgeting

5.23

5.54

3.20

ANOVA

MCP
(Tukey-Kramer

F -Stat.

Significance

3.88

79.66

.000

C2 > C1 > C3

3.95

3.45

7.39

.001

C2 > C1

4.09

3.99

2.96

12.46

.000

C1, C2 > C3

2.87

4.01

3.77

10.79

.000

C2, C3 > C1

5.46

5.62

3.82

70.59

.000

C2, C1 > C3

3.23

5.35

3.22

116.32.000

C2 > C1, C3

Performance-reward link

3.91

4.34

3.41

11.9

.000

C2 > C1 > C3

n

92

95

47

Degreeofbudgetarysophistication
Challenging performancetargets
Strategic

budgetformulation
No changes to budgetary
targets
Interactive budgeting
Allocationofspecific

targets to individuals

Note: The lowest values are underlined and the highest are rendered in bold.

20

Method)Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 5. Results of the analysis on relationship with exploration and exploitation(n = 234)
MCP

ANOVA

C1

C2

Flexible

Strategic

Budgeting

BudgetingExploration

3.95

4.34

3.38

13.77

.000

Exploitation

4.56

4.87

3.81

18.20

.000

C3
Poor Budgeting(Tukey-F -Stat.

SignificanceKramerMethod)C2 > C1 >C3
C2, C1 > C3

Note: The lowest values are underlined and the highest are rendered in bold.

(Received: August 31, 2018)(Accepted: October 23, 2018)21