Social capital and the budgeting process

Abstract

This thesis arose out of a previous study of budgeting practices carried out at a not-for-profit church. This initial study had found that relationships played an important role in budgeting practices. Interviewees carried out their budgetary tasks in a cooperative, sometimes sacrificial manner. This relationship-based approach to budgeting was inconsistent with conventional approaches to budgeting. It became apparent that budgeting practices in this church could be explained by social capital theory, and that budgeting could be viewed as a social phenomenon.

I began to question whether considering budgeting as a social process might also apply to profit-orientated organisations. As part of this thesis, I approached two different for-profit organisations: an entertainment centre; and, a science testing laboratory. Along with the church examined previously, both of these organisations agreed to participate in this investigation into the social aspects of their budgeting processes.

An interpretive methodology was adopted to study budgeting practices from the viewpoint of managers. Social capital was a sensitising theoretical perspective, and was viewed as a ‘skeletal theory’; in particular, I was drawn to a model of social capital proposed by Nahapiet and Ghoshal (1998). Nahapiet and Ghoshal’s (1998) social capital framework was chosen as it was pertinent to examining the influence of social capital on the budgeting process. It came as a surprise to find that elements of Nahapiet and Ghoshal’s framework were in evidence in all three organisations. In the three case study organisations, budgeting was found to be a social process which can be explained by social capital theory.

In contrast to the beyond budgeting proponents, who claim budgeting is redundant, this thesis has found that the budgeting process constitutes an investment of managers’ time and energy, because it encourages and promotes social capital. The budgeting process brought managers together to work cooperatively towards a commonly understood goal. Budgeting encouraged social interaction and fostered relationship building. Organisational norms and values were reinforced. Despite the differences between the three organisations, the common feature was that the budgeting process encouraged and reinforced social capital.

This thesis has implications for other researchers. It provides a new insight into budgeting. It contributes to the qualitative budgeting literature by providing a contemporary view of the way social forces influence the budgeting process. It advances the literature on church budgeting. It adds to the social capital literature by adapting Nahapiet and Ghoshal’s (1998) framework of social capital to a context not previously studied – the budgeting process. There are implications for policymakers involved in setting budget-related policy in organisations, and for practitioners, as this thesis highlights the importance of the social side of the budgeting process.