Managing budget emphasis through the explicit design of conditional budgetary slack

Budgetary slack plays an important role in the functioning of budgets in organizations. While theory has found negative as well as positive elements associated with its presence, the empirical literature has interpreted it as being dysfunctional to organizations. In this paper, we present empirical evidence on how a company purposefully budgeted additional financial resources with a motivation intention (Lukka. Budgetary biasing in organizations: Theoretical framework and empirical evidence. Accounting, Organizations and Society 13 (1998) 281-302) to facilitate the managers' task in achieving the goals of the company. Using quantitative and qualitative data from four logistic sites of a disk drive manufacturer for 24 months, we examine how the company accepted more slack as the demand on business processes increased and goals other than budget targets--in particular, service quality--became harder to achieve. By allowing this practice, headquarters made it clear to local managers that product quality and service were at least as important as meeting budget objectives. We also find that not only was budgetary slack purposefully built during the budgeting process but also in the budgeting system itself through the underlying cost accounting assumptions. The results of this paper provide empirical evidence on the positive aspects of budgetary slack and on the role of cost accounting models used in the budgeting system to facilitate managerial work.