You cannot give up the budget without giving people something else, and the something else is trust. The annual budget is, among other things, a trust substitute: a way for the center to constrain thousands of decisions it does not make and cannot see, by pre-approving them in aggregate a year ahead. Remove that scaffolding and someone closer to the work must be trusted to decide as the year unfolds. This is why Beyond Budgeting and organizational trust rise together. One is the management system, the other is the precondition, and neither survives long without the other.
The relationship runs in both directions. Trust makes it safe to drop the budget; dropping the budget forces the organization to build the trust it was previously borrowing from the ritual.
Trust as the precondition
The link between trust and decentralization is not a slogan; it is measurable across economies. Bloom, Sadun and Van Reenen, in a study of roughly 4,000 medium-sized firms across the US, Europe and Asia, found that companies based in high-trust regions decentralize decision authority significantly more, delegating investment, hiring, and production decisions to local managers. Their causal analysis traced a chain from trust to decentralization to larger, more productive firms, because the chief executive stops being the bottleneck through which every decision must pass. Trust, rule of law, and related factors explained roughly four-fifths of the cross-country variation in how firms organize. Low-trust organizations centralize; high-trust ones push decisions down. The budget is one of the instruments of centralization, and letting go of it requires the trust that lets everything else decentralize too.
Trust also pays inside the firm, not only across borders. The management literature has long tied trust in leadership to performance, citizenship behavior, and retention. Where people believe the organization will act in good faith, they take the interpersonal and operational risks that decentralized decision-making requires. Without that belief, they wait for the budget, the sign-off, the cover of a pre-approved number.
There is a harder version of this that organizations rarely confront. The budget is not only a control; it is a way of not having to decide whom to trust. By constraining everyone equally in advance, it spares leaders the uncomfortable work of judging which managers have earned discretion and which have not. Dropping the budget forces that judgment into the open. It replaces a blanket, impersonal constraint with a set of specific, personal bets on people, which is harder to make and easier to get wrong, and which is exactly why low-trust organizations cling to the ritual.
What replaces the budget
When budgets go, the replacement is not chaos but a different, trust-based control system. Matějka, Merchant and O'Grady (2021), comparing 80 Beyond Budgeting adopters with 121 non-adopters, found that adopters use more decentralization, more flexible resource allocation without a fixed calendar, relative rather than absolute targets, and weaker individual incentives. Each of those is a bet on people. Flexible allocation trusts managers to spend when the opportunity appears rather than when the calendar permits. Relative targets trust them to compete against reality rather than a negotiated line. Weak individual incentives trust them to do good work without a number dangling in front of them.
That control does not disappear was the central finding of the field research: abandoning budgets creates new control mechanisms and reshapes the relationship between the center and the divisions. But those mechanisms run on transparency and trust rather than pre-approval.
Semco made the trust explicit and mutual, and it made the books the proof. As Semler has told it, during Brazil's 1990 crisis the company put the numbers on the wall and let the workers decide, accepting a salary cut in exchange for control over spending and a larger share of the profit on the recovery. The recovery came. His line captured the logic: "Families don't open the books. Companies that respect you do." Open books are trust made legible. They are also what makes a budget-free system controllable, because if everyone can see the numbers, no one needs a pre-approved plan to keep spending honest.
That is why the two ideas rise together and fall together. A company that keeps its budget because it does not trust its people is being consistent. A company that drops the budget without building trust has merely removed a control and installed nothing, and it will reinvent the budget within two years, under a new name, the moment something goes wrong. Beyond Budgeting is not a finance technique that happens to require trust. It is trust, expressed as a management system.
Sources
- Bloom, Sadun & Van Reenen (2012). The Organization of Firms Across Countries (~4,000 firms). High-trust regions decentralize more; trust raises decentralization, which raises firm size and productivity. https://www.nber.org/digest/dec09/international-differences-decentralization-and-productivity
- Matějka, Merchant & O'Grady (2021). An Empirical Investigation of Beyond Budgeting Practices (80 adopters vs 121 non-adopters). Adopters use more decentralization, flexible allocation, relative targets, and weaker individual incentives. https://doi.org/10.2308/JMAR-19-010
- Østergren & Stensaker (2011). Management control without budgets: a field study of Beyond Budgeting in practice. Removing budgets does not remove control; new, transparency-based mechanisms emerge. https://www.tandfonline.com/doi/abs/10.1080/09638180903487842
- Dirks & Ferrin (2002). Trust in Leadership: Meta-Analytic Findings (k=106). Trust in leadership is linked to performance, citizenship behavior, satisfaction, and lower turnover intentions. https://ink.library.smu.edu.sg/lkcsb_research/675/