Budgetary decision-making in corporate organizations is a political process that must consider the consequences of the resource allocation to the various internal stakeholders affected. Most significantly, the flow of the decisions is determined by the decision maker’s perception of the availability of the resources and their adequacy concerning the company’s strategy. Consequently, organizations develop priority settings and financial needs of various departs and stakeholders. Additionally, companies may have formal and defined processes of resource allocation and budgetary procedures. However, the perception of the decision-maker has a significant influence on the determination of the priority areas and specifications. Thus, this study investigates the influential capacity of leadership and managerial positions in budgetary decision making. Mainly, the literature review evaluates a priori research that addresses the significance of perceived financial scarcity on research allocation in the contemporary organization.
The review of literature includes resources that are relevant to the topic, “The Effects of Perceived Financial Scarcity on Organizational Resource Allocation and Budgetary Expectations” The review was conducted from online databases, such as Ebscohost, Proquest and Google Scholar, using keywords drawn from the topic. The exact keywords used for the search included corporate decision-making, perceived financial scarcity, organizational resource allocation, budgetary expectations. The key terms were keyed in the search field using different BOOLEAN operators, such as AND and OR, to narrow down the search. Although many sources were obtained using the keywords, only the most relevant to the topic were selected. The abstract played a significant role in determining the sources that were relevant to the study. Therefore, after filtering for relevance, the researcher remained with only 17 sources that were directly related to the subject under study, and that could be used to inform the review of the literature. The sources for the review include journal articles and books with relevant information about the topic. The section includes a critical analysis of the identified sources, thematically presented to inform the topic, and also identify possible gaps that will be filled by the current research.
Stakeholder theory in corporate decision-making is the theory that informs the current study. Internal and external actors have different influences on the organization and can play a critical role in determining the decision-making process. The concept refers to any person or group that affect and are affected by the decisions made in organizations and the achievement of goals (Harrison & Wicks, 2013). From the corporate perspective, some of the individuals and groups have more influence than others and provide companies with a decision-making model, such as to serve their interests. Lenssen et al. (2010) propose the stakeholder model and analyzes the role of their concerns and perceptions in making corporate decisions. Stakeholder interests and perceptions are critical in the way leaders and managers direct and control their organizations. Instrumental stakeholder theory suggests that an organization should take into account the needs and perceptions of stakeholders with the potential to impact on the corporate value. Therefore, corporate decision-making should consider the views of the most influential stakeholders to gain their contribution to organizational success and the ability to achieve objectives. One of the most important group is the corporate executives who make key decisions and determine the direction of the company.
The stakeholder theory normally conceptualizes stakeholder’s dialogue strategically and focus on the need of the company, such as opportunity realization. The theoretical framework also focuses on the duties of stakeholders involved in the realization and pursuance of opportunities for the organization to succeed and achieve its objectives (Lenssen et al., 2010). Some stakeholders have a greater voice in corporate governance and decision-making compared to others. For example, corporate leaders play the most critical role in the direction a company takes because of their decision-making power. Therefore, the theory helps to unravel their role in making crucial decisions and how their perceptions, such as resource or financial scarcity, affect the allocation and budgetary expectations. They are one of the most powerful stakeholder groups and can determine the strategic direction, such as which business opportunities to prioritize and allocate resources, especially amid perceived scarcity.
The empirical analysis of the sources brings together the views of different authors, including those in agreement and those who contrast regarding the topic, effects of perceived financial scarcity on resource allocation and budgetary expectations in organizations. The section is organized into four key themes that achieve the objective of the study, corporate decision-making, perceived financial scarcity, impact on organizational resource allocation, and impact on budgetary expectations. The themes are drawn from the topic and the key terms used to generate sources for the study.
Corporate Decision-Making. Corporate decision-making is one of the most important activities in organizations since it determines their success or failure. The activity occurs at different levels in companies, either bottom-up or top-down. However, in most companies, top-down decision making is common because leaders in the higher levels in the hierarchy make critical decisions and pass them down for the implementation (Disterheft et al., 2012). Although theoretically, decision-making should be characterized by consensus, the same might fail to apply in real-life. Graham, Harvey, and Puri (2015) elucidate that most companies have power centers and groups that make the most critical decisions on behalf of everyone else. As a result, companies experience periodic restructurings due to the tendency to make decisions at the top that affects the operation of the entire firm. Modern corporations are engaged in conflicts due to a lack of consensus in the decision-making process and even regarding the direction the corporation ought to take.
Corporate decision-making is critical in organizations since it determines the strategic direction, including the allocation of resources to achieve corporate goals and objectives. Therefore, the ability to make smart decisions is at the core of corporate success, as well as the compass that guides corporate leaders to pursue growth opportunities and add value to the company’s shareholders (Hammond, Keeney, & Raiffa, 2015). Bergman et al. (2012) suggest that effective decision-making is what sets apart good leadership from failed ones since they make decisions that support the business to grow and improve their profitability. However, the authors also suggest that corporate decision-making has always been an inherently imperfect art. Leaders lack any concrete template or algorithm for all scenarios when making corporate decisions, which leaves room for leaders to use their perception, feelings, and attitudes when making cortical decisions for a company. Therefore, the perceived scarcity of finances is one of the skewed factors that could have an impact on decisions such as resource allocation and budgetary expectations.
Perceived Financial Scarcity. The literature on scarcity has always focused on the way different people react and make critical decisions. For example, most literature focuses on the way consumers react to or feel about scarce products and the way they interact with the scarce item (Gupta, & Gentry, 2016). Although the idea of scarcity in the topic relates to corporate decision-making, it operates from a similar perspective in that perceived scarcity determines how an individual makes the critical decision pertaining to the use of the scarce commodity. For example, it could play a role in decision-making regarding spending at a consumer level. An individual tends to spend sparingly when there is a perception of scarcity. The scarcity principle plays out in the decision-making process because it determines the tendency to interact with and use the scarce product or resource. According to Becker (2017), the principle is an economic theory, which suggests a limited supply of a product or resource amid high demand in the market, which causes an incongruity between demand and supply. Therefore, the environment affects the decision-making process when working with the scarce resource, including finances and materials.
In the corporate environment, leaders could be faced with an actual or perceived scarcity of finances due to numerous factors, such as negative market performance or financial crisis that affect sales revenue. However, the idea of perceived scarcity suggests that the variable could not be supported by real evidence of scarcity. In economic theory, Becker (2017) suggests that perceived scarcity plays out in an organization due to factors such as anticipated changes in the market. For example, the management could perceive critical changes in the market due to an impending financial crisis, which creates psychological reactions, including perceived financial scarcity. The perceived scarcity plays an important role in the evaluation of and attitude towards the scarce object, including finances. Perceived financial scarcity suggests a form of bias evident in corporate leadership. Kahneman, Lovallo, and Sibony (2011) suggest that biases affect reasoning in corporate settings. Notably, perception is subjective and might not be backed up by actual evidence of scarcity. It depends on what a person believes to be true even without proof of validity of the belief. For example, confirmation bias causes a person to ignore evidence contradicting their perceived ideas. Consequently, they use anchoring to weigh some pieces of information more heavily when deciding on behalf of the organization.
Impact on Organizational Resource Allocation. Perceived financial scarcity evidently plays a critical role in the allocation of resources since it creates a need to restrict spending to prevent a financial crisis in the future. Mhlanga and Sibanda (2013) use the case study of financial institutions in Zimbabwe to explain how perceived financial scarcity affects decisions related to resource allocation. The authors critique the financial strategies that financial institutions, such as banks, use to manage available funds appropriately and determine how they are used to achieve organizational objectives. The decision-making includes reinvestment priorities or distribution of any successive profits accrued. Bradley, Shepherd, and Wiklund (2011) add that during difficult financial times for organizations, critical decisions are necessary to provide a fighting chance to recover. From a similar perspective, leaders make major decisions when allocating finances to various functions and activities whenever they perceive a shortage of finances.
The effect of perceived financial scarcity on resource allocation in organizations is based on stakeholder theory and the source of value for the company. Mhlanga and Sibanda (2013) support the perspective by citing the corporate’s primary objective, which is to create and maximize shareholder value. The authors suggest that considering the objectives, managers, and leaders in organizations should implement different financial strategies throughout the life cycle of a firm. The decision-making process should be informed by the needs of the company to remain operations regardless of the level of finances and market performance. Matvos and Seru (2014) focus specifically on the resource allocation challenge or problem that occurs when the market is not performing optimally. During such periods, managers and leaders in companies are faced with the dilemma of allocating resources to different operations due to the perceived scarcity. For example, they could be conflicted as to whether to allocate the scarce resources to facilitate recovery or to manage human resources to ensure continuity. In most cases, the decision to allocate resources should be determined by the source of long-term shareholder value.
However, the actual impact of perceived financial scarcity in organizations on resource allocation is not as easy as it appears. Notably, researchers should understand that the variable is not an actual financial scarcity, but a biased or subjective belief or feeling of corporate leaders. Thus, the actual impact of the factor on the allocation of resources is also biased or subjective. For example, Meuris and Leana (2015) explore the most affected aspect of organizations amid a perceived scarcity of finances. Recent research findings indicate that human resource is the most affected whenever an organization strives to reduce budgetary allocations due to perceived scarcity of finances. Managers tend to reduce the number of employees or cut their salaries or wages whenever they perceive negative performance in the market. Matvos and Seru (2014) managers perceive their success in managing scarce resources as being dependent on their ability to reallocate resources internally to mitigate the effect of financial shocks. Consequently, they tend to spend in such a way that they avoid further financial troubles regardless of the fact that it is a perceived notion instead of reality.
Perceived financial scarcity definitely affects resource allocation within an organization. Matvos and Seru (2014) focus on the significance of effective resource allocation in determining macro outcomes in businesses. Since leaders are the ultimate decision-makers in organizations, their perception of scarcity affect the way resources are allocated and move throughout the organization. The authors further indicate that such decision-making regarding resource allocation is distorted towards what the leaders believe to be the most important function or activity of an organization. While appropriate decisions are always necessary to earn shareholder value, they are not always optimal when managers or leaders act on perceived feelings of scarcity instead of actual scarcity. For companies to succeed in their operations, leaders should become more proactive in making critical decisions and avoid bias or subjective judgment, which could lead to inadequate or flawed allocation of resources (Mhlanga & Sibanda, 2013). Generally, perceived financial scarcity affects the successful operation of organizations due to the impact on resource allocation.
Impact on Budgetary Expectations. Budgetary activities in organizations are greatly dependent on the availability of finances to meet various needs. The variable also relates to the allocation of finances to different items on an organization’s budget. Regardless of the nature of the corporation, the perceived scarcity of finances plays an important role in the budgeting process by leaders. Wicker and Breuer (2011) used the case study of non-profit sports clubs to explore the role of perceived financial scarcity on budgetary expectations. According to the authors, such organizations experience numerous challenges, including those related to networks, human resources, financial capabilities, and infrastructure. Given that the organizations are not created to make profits, they depend on sources of finances from donors, which are not always adequate to meet all their financial needs. As a result, the idea of financial scarcity in such organizations is more pronounced than in other settings.
Focusing on the Resource Dependency Theory, perceived financial scarcity plays a critical role in the budgeting process since it affects the decisions that leaders make in relation to their operations. For example, they can only budget and allocate finances perceived to be available to them. Notably, budgets are created based on expected financial income or revenue expected on a later date. Therefore, the perception of adequacy or inadequacy could play a vital role in the nature of the budget. Revisiting the non-profit environment, Wicker and Breuer (2011) suggest that leaders could make decisions on the budget depending on the expected income from donor agencies and individuals. Therefore, since scarce resources characterize the organizations, their budgetary expectations are constrained by the same because leaders seek to maximize whatever they receive from their sources. Therefore, the perception of scarcity plays out in the kind of budgeting decisions that leaders in such organizations make.
Economists explain the impact of perceived financial scarcity on resource allocation and budgetary expectations. Some focus on the idea of priority setting, which suggests the allocation of the available finances to items on the budget that leaders perceive as being a top priority (Peacock et al., 2010). For example, the management could be faced with conflicting needs, such as increasing talent and expanding to a new market. The decision depends on what the management considers a priority when they perceive financial resources as being limited or inadequate to meet all the needs. The idea relates to choice under perceived scarcity, which informs the type of decision that the management might make in such conditions. Joyce and Pattison (2010) use a similar theory to explain decision-making when budgeting in public organizations. The authors indicate that current operations in the public sector are dominated by large budget deficits, necessitating changes in decision-making regarding spending. Budgeting and decision-making in public organizations represent typical cases of perceived scarcity and the impact on resource allocation.
Notably, many companies in the modern environment are uncertain about economic performance in the coming years due to an impending recession and financial crisis resulting from events such as the COVID-19 outbreak. The crisis is a typical example of how perceived scarcity will affect resource allocation and budgeting (Mannelli, 2020). Although some companies are just beginning to experience the impact of the crisis, they evidently perceive financial shortages in the near future because of the economic impact of COVID-19. Therefore, as Mannelli (2020) suggests, for many companies, budgeting will no longer be business as usual. For example, firms might not consider allocating any finances to the recruitment of new human resources, unless in the essential sectors, such as healthcare. Although the budgets might recover in the future, perceived scarcity will continue to play a critical role in decisions that companies make regarding their budgets and resource allocation. The management in all organizations will be careful to determine the essential functions and activities to allocate scarce resources.
Although the current research literature reveals the effects of perceived financial scarcity on resource allocation and budgetary expectations in general, a limitation arises in the existence of such an impact in business organizations. For example, most of the searches using the key terms failed to provide specific research articles with information regarding the relationship between the variables in commercial organizations. Therefore, the research focused on the information regarding the impact of financial scarcity on various settings, such as public sector organizations and non-profit settings. Only a few of the reviewed articles and books have information specific to financial scarcity in business organizations and the impact on resource allocation and budgetary expectations. Another limitation focuses on real versus perceived financial scarcity. In most of the sources, especially in public sector organizations, the focus is on actual scarcity instead of perceived. Therefore, although they contained information to support the research, they lacked a real focus on the subject of the study.
Furthermore, available research on the effects of perceived financial scarcity on resource allocation and budgetary expectations did not focus on the study of all the variables together. For example, the review could not find any research article that connected all three variables (perceived financial scarcity, resource allocation, and budgetary expectations). Therefore, the researcher manipulated the key terms in different ways to get relevant information from the sources. Although the information is relevant, it is a collection of numerous bits and pieces from various sources to create a coherent review of the literature. As a result, more research is necessary to establish the relationship between the three variables. Furthermore, research should focus on the effects of perceived financial scarcity on resource allocation and budgetary expectations in business organizations to understand corporate decision-making in the modern world of business characterized by numerous uncertainties. Future research should also unravel the difference between real and perceived financial scarcity to determine how the latter affects resource allocation and budgetary expectations.
The literature review focuses on the effects of perceived financial scarcity on resource allocation and budgetary expectations in organizations. The sources for the study were obtained from various online databases, such as Ebscohost, Proquest, and Google Scholar. The search using keywords, corporate decision-making, perceived financial scarcity, resource allocation, and budgetary expectations, generated relevant sources from which 17 were selected for the review. The literature review is organized in four key themes with relevant information, corporate decision-making, perceived financial scarcity, impact on organizational resource allocation, and impact on budgetary expectations, to achieve the objectives of the study. The review includes the views of different authors regarding the topic under research. Although the sources contained relevant information, they lacked adequate focus on the effects of perceived financial scarcity on resource allocation and budgetary expectations in the business organization, which indicates the need for further research. Therefore, following the limitations in the current research, further study is necessary to bridge the gap, answer research questions, and achieve the stated objective. The review justifies the current research to fill the identified gaps.
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