CHAPTER
ONE
INTRODUCTION
1.1
Background to the study
Traditional budgeting has been criticized for a long
time now for its inadequacy as a means of management control. Criticisms
concerning its inadequate practices in a changing business environment emerged
as early as the mid 1980’s with Johnson and Kaplan (1987) seminal book Relevance
Lost.
We could also note from
the work of Allen (1998) who stated that the rapid changes in today’s business
environment renders a rigid approach to budgetary control obsolete. It is no
longer helpful, in his opinion, to compare actual results to that forecasted
anything up to 15 months previously. He argues that amongst the requirements of
a more appropriate system, would be the building in of accountability to
explain the differences between actual and planned performance. This demands a
more immediate time frame of information reporting. Thus, there is a need to integrate
strategic management and budgeting. We could point out the works of C. Adams et
al (2003) to this regard.
These authors conceptualized that to be effective,
budgets must be aligned with the organization’s strategies, appropriate
strategic planning, and performance management processes introduced, and must
involve processes that are value based, consequential and continuous.
The work of Tim Blumentritt (2006) could be viewed
as further contributions to the above stand point as he recognizes the need for
organizations to integrate strategic management and budgeting. What seems
rather unfortunate according to Tim Blumentritt (2006) is the fact that most
organizations still treat the budgeting and strategic management processes
separately and also, a significant portion of small- and medium-sized
enterprises do not engage in strategic planning (Tim Blumentritt 2006, p.74).
Hence, the reason for this research work which is to
investigate the question; “what is the budgeting practice in Nigerian
manufacturing company?” The motivation for this study also comes from the work
of Herath and Indriani (2007) who investigated on the “roles of Budgetary
Control System (BCS) as a component of the Management Control System (MCS) in
creating and sustaining competitive advantage” and came up with a positive
conclusion.
They concluded that though BCS could play a leading
role in establishing an efficient MCS for creating a sustainable competitive
advantage, budgeting will not function in isolation (p.79). “Instead, it can be
used more effectively by strategically joining it with emerging strategic
oriented knowledge enterprise” (Herath and Indriani, 2007, p.79).
We intend to
investigate the budgetary control practice of GUINNESS Nigeria Plc a
manufacturing company and make suggestions of what seems to be the best
practice based on literatures, articles and emperics.
Our choice for Guinness Nigeria Plc is related to
the fact that it is a manufacturing company in a very competitive industry and
lots of challenges faces Nigerian manufacturing companies as they struggle with
economic depression and high inflation resulting from the IMF/World Bank led
structural adjustment plan (SAP) implemented by the Nigerian government. These
programs were initiated to promote the liberalization of the domestic economy,
operations efficiency, productivity growth, privately owned enterprises
development, economic growth, trade and investment. The economic liberalization
policies have nurtured an open economy and have minimized the hurdles that the
manufacturing companies need to clear in order to obtain raw materials and
inputs, and other resources for productive activities. However, it has created
an unprecedented change in their business environment through increased
competition both in the domestic market and from imports into the country.
Thus, manufacturing companies need to develop and implement a well-conceived
strategic plan in order to be competitive in the business environment.
We will present a
Management Control System model at the end of the research work. The logic
behind this model is the need to integrate in a management framework strategic
management and budgeting within the Manufacturing Industry. We believe that a
management framework built on this principle will be a source of creating and
sustaining competitive advantage which is translated as high performance. Thus,
we will present a model including five dimensions.
However this paper will be presented as follows;
chapter 1 covers the introduction, chapter 2 deals with literature review,
chapter 3 treats the research method, chapter 4 deals with empirical data,
chapter 5 will be the analysis and chapter 6 conclusions, findings and further
research.
1.2 The Purpose And Objective Of The
Study
The aim of this study is to investigate the
management control practice (budget being the tool for management control) in
Guinness Nigeria Plc and to suggest what seems to us the most appropriate
practice based on findings from literatures and empirics. As stated in the
introduction, there is a need for manufacturing companies in Nigeria to develop
and implement a well-conceived strategic plan in order to be competitive in the
business environment. Budgeting could be used to verify that the company is on
the trajectory for reaching the strategic breakthroughs as it is set as the
year one of the strategic plan (long-termplan). We will
present a model at the end of the study to show how better a management control
could look like in our opinion.
1.3
Target Groups
The target groups of our thesis are managers,
business practitioners and scholars in the field of business management. This
will enhance a deeper knowledge about how better a management control could be
if it’s essential tools are well integrated.
1.4
Limitation Of The Study
The study is limited to
Guinness Nigeria Plc. Benin City and if they are applying the concepts of
budgeting in their operations and how well. As the organization under
consideration is a manufacturing firm having to contend with competitors, we
cannot justify the credibility of all information to be used for the study.
1.5
Background Of The Company
The firm Guinness Nigeria Plc came into existence in
year 1950 with the sole aim of importing and distributing Guinness stout from
Dublin for eventual sales in Nigeria. Due to the success of the product in the
country it gave rise to a decision to establish a small brewery in the year
1962.The foundation stone of Guinness was laid at Ikeja on the 31st January
1962, by Arthur Benjamin Francis Guinness (Lord Elveden) now the Earl of Irish
to which titles he succeeded on his grandfather’s death until 1967 in active
services during the 2nd world war. Bringing the total of the Guinness stout
Brewery to three in the whole world, Guinness decided in conjunction with UAC
to build a Brewery costing 2.4 million naira at ikeja.
In 1965,Guinness Nigeria limited became a public
company and was one of the first companies to be quoted in Nigeria stock
exchange with shares being offered to Nigerian shareholders, 1200 Nigerian held
20% of the equity. The historical Guinness stout Brewery is located at OBA
AKRAN in ikeja, Lagos.
In 1971, a decision was taken to build a new Brewery
at Benin at a cost 12million to brewery larger beer, this was the biggest
brewery ever built in Nigeria. Guinness established an eye clinic at Kaduna and
later developed it into a hospital with opthalmogical unit in 1972.
In 1974, 4,000,000 more shares were sold to Nigerians,
thus a total of 40% of equity was in the hands of 14,000 Nigerian shareholders.
The Benin Brewery was commissioned and later lunched in the market in 1975,
work began on expansion programme to the Harp lager brewery at Benin at a cost
of 3million naira designed to increase capacity by 40%.
In 1978, 4,200,000 shares were sold to Nigerians.
Nigeria Equity participation is now 60 %( 51,000 shareholders) and overseas
40%.
In 1980, a decision was taken to build a new larger
beer brewery at Ogba in Lagos at a cost of 57 million naira and this commenced
production of harp beer in 1982.
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(Chapter One to Chapter Five), visit www.researchshelf.com
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