A fixed target has a hidden message. Once a manager has negotiated the number they will be judged against, they know precisely how much effort is enough, and precisely when they can stop looking outside the building. Beat the number by a comfortable margin and the smart move is to bank the slack, not to push. The budget, in this reading, is not a stretch device at all. It is a contract for a defined amount of comfort. The most interesting strand of Beyond Budgeting research is about what happens to human attention when you take that contract away.
The comfort of a number you can hit
Bourmistrov and Kaarboe (2013) gave this dynamic its name. Studying two multinationals that replaced fixed budget targets with relative, outside-in targets, they described managers moving from what they called a comfort zone into a stretch zone. Inside the comfort zone of a fixed budget, the manager's world is bounded by an internal figure agreed months ago. Meet it and you are safe. There is little reason to watch competitors closely, because they are not the yardstick. There is little reason to update your thinking, because the target does not move. The budget, meant to drive performance, quietly licenses coasting the moment the number is in reach.
Move to a relative target and the floor disappears. Now you are measured against how your peers and rivals actually perform this year, a benchmark that no one can negotiate in advance and that keeps shifting as the market does. Bourmistrov and Kaarboe found this pushed managers into more interaction with their environment, more negotiation, and more learning. You cannot lock in comfort against a moving standard, because there is no fixed number to beat, only a live comparison you have to keep winning.
Why relative targets are harder to game
The comfort zone has a twin problem: gaming. A fixed internal target is set in a negotiation, and negotiations reward whoever argues down the number. Libby and Lindsay (2010), surveying North American budgeting practice, found budgets doing double duty as both motivator and evaluation yardstick, a combination that pushes managers to seek achievable targets rather than ambitious ones, since the same number that is supposed to stretch you is also the one you will be punished for missing. The rational response is to negotiate for slack, which is the comfort zone installed by design.
A relative target is far harder to lobby down, because it is not set by argument. It is set by what competitors and peer units actually deliver. Handelsbanken understood this decades ago. Lindsay and Libby (2007) describe how the bank, after abandoning budgets around 1970, held branches accountable against each other and against rival banks rather than against a negotiated plan. There was no soft internal number to hide behind, and no productive way to sandbag, because the standard was the live performance of your peers. The relative yardstick did the disciplinary work the budget was supposed to do, without the built-in incentive to lowball.
The catch, and the practical read
Relative targets are not a free upgrade. Matejka, Merchant and O'Grady (2021), comparing 80 Beyond Budgeting adopters with 121 non-adopters across a survey of 201 organizations, found that adopters do lean distinctively on relative targets, but also that many struggle to fully abandon fixed financial targets for decisions and appraisal. Relative measurement demands trustworthy peer data, credible benchmarks, and managers willing to be judged by a standard they cannot see in advance. That is genuinely uncomfortable, which is the point and also the obstacle.
For a leadership team, the choice is sharper than the usual budget debate suggests. A fixed target buys predictability and quiet, and pays for it with coasting and sandbagging. A relative target buys attention and learning, and pays for it with ambiguity and the demand for better comparative data. In a decade when the competitive frontier moves fast, the comfort of a number you agreed last autumn is an expensive thing to keep buying. The organizations that grow are usually the ones that made their people slightly, permanently uncomfortable, by refusing to tell them in advance exactly how little would be enough.
Sources
- Bourmistrov, A. & Kaarboe, K. (2013). From comfort to stretch zones: A field study of two multinational companies applying beyond budgeting ideas. Names the shift from the budget comfort zone to a stretch zone when fixed targets are replaced by relative ones, linking it to more attention and learning. https://doi.org/10.1016/j.mar.2013.04.001
- Libby, T. & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Finds budgets serve as both motivator and evaluation yardstick, creating pressure to negotiate achievable rather than ambitious targets. https://bpb-us-w2.wpmucdn.com/u.osu.edu/dist/8/36875/files/2016/12/Libby-Lindsay_budgeting_survey-17bvsph.pdf
- Lindsay, R. M. & Libby, T. (2007). Svenska Handelsbanken: Controlling a Radically Decentralized Organization without Budgets. Shows relative, peer-based accountability replacing negotiated budget targets, removing the room to sandbag. https://www.researchgate.net/publication/247875136_Svenska_Handelsbanken_Controlling_a_Radically_Decentralized_Organization_without_Budgets
- Matejka, M., Merchant, K. A. & O'Grady, W. (2021). An Empirical Investigation of Beyond Budgeting Practices. Finds adopters distinctively use relative targets yet often struggle to abandon fixed financial targets, showing both the value and the difficulty of the shift. https://doi.org/10.2308/JMAR-19-010