keynote: beyond budgeting

1 -

Beyond Budgeting – a new management model for new business realities

The Statoil implementation journey

Bjarte BogsnesVice President - Performance Management DevelopmentChairman - Beyond Budgeting Round Table Europe

2 -

Outline

• The case for change - what is the problem?

• The Beyond Budgeting principles

• The Statoil model - Ambition to action

• Next steps

3 -

Statoil in brief

• Turnover and market cap approx. 75 bn. USD

• 20.000 employees in 34 countries

• World’s largest operator in waters deeper than 100 metres

• Second largest gas exporter to Europe

• World leader of crude oil sales

• Listed in New York and Oslo

Current production of oil and gas

US Gulf of Mexico

South America

West Africa

North Africa

Caspian

Middle East

Russia

Arctic

North Sea & Norwegian Sea

Canada

4 -

Fortune 500 ranking (2011)

Social responsibility Innovation

5 -

-1 % 4 % 9 % 14 % 19 %

Anad arko

R ep so l

C o no co P

S hell

Eni

D evo n

O ccid ental

Encana

C hevro n

B P

To tal

Petro b ras

B G

S tato il

Exxo nM

0 % 5 % 10 % 15 % 20 % 25 %

Encana

Anad ark

R ep so l

Petro b ra

C o no co P

D evo n

Eni

O ccid ent

S hell

B G

To tal

S tato il

B P

C hevro n

Exxo nM

Statoil financial performance – as we define it

RoACE – 2010

* Peer group: Anadarko, BG, BP, Chevron, ConocoPhillips, Devon, Encana, Eni, ExxonMobil, Lukoil, Occidental, Petrobras, Repsol, Shell, Statoil, Total.

Source: Barclays Capital

RoACE – 2009

Target

Target

-25 % -15 % -5 % 5 % 15 % 25 % 35 %

B P

Petro b ras

To tal

Eni

Encana

S tato il

Luko il

R ep so l

D evo n

Exxo nM

B G

S hell

O ccid ental

Anad arko

C hevro n

C o no co P

Total shareholder return 2010

Target

-15 % 10 % 35 % 60 % 85 % 110 %

Exxo nM

C o no co

C hevro n

D evo n

Eni

S hell

To tal

B G

Encana

B P

R ep so l

O ccid en

S tato il

Anad ark

Luko il

Petro b r

Target

Total shareholder return 2009

6 -

Managing traffic performance - one alternative

Based on which information?

Who is in control?

7 -

Based on which information?

Who is in control?

Managing traffic performance - another alternative

8 -

Which is most difficult?

In which are values most important?

Which is most efficient?

9 -

People

Business environment

Traditional management

The world has changed – what about the way we lead and manage?

“Theory Y”“Theory X”

Dyn

amic

Sta

ble

10 -

We must address both processes and leadership

Leadership

Processes

Beyond Budgeting

“Theory Y”“Theory X”

Dyn

amic

Sta

ble

Relative and directional goals

Dynamic planning, forecasting and resource allocation

Holistic performance evaluation

Rigid, detailed and annual

Rules-based micromanagement

Centralised command and control

Secrecy, sticks and carrots

Values based

Autonomy

Transparency

Internal motivation

11 -Classification: Internal 2010-09-10

Companies on a similar journey

”I have been waiting for this for 20 years”

(CEO)

(Main Norwegian cases) (Some international cases)

Europe’s most cost effective universal

bank

Beating the competition 40 years

in a row

12 -

The Beyond Budgeting principles

Change in leadership Change in processes

1. Values - Govern through a few clear values, goals and boundaries, not detailed rules and budgets

7. Goals - Set relative goals for continuous improvement, don’t negotiate fixed performance contracts

2. Performance - Create a high performance climate based on relative success, not on meeting fixed targets

8. Rewards - Reward shared success based on relative performance, not on meeting fixed targets

3. Transparency - Promote open information for self management, don’t restrict it hierarchically

9. Planning - Make planning a continuous and inclusive process, not a top-down annual event

4. Organization - Organize as a network of lean, accountable teams, not around centralized functions

10. Coordination - Coordinate interactions dynamically, not through annual planning cycles

5. Autonomy - Give teams the freedom and capability to act; don’t micro-manage them

11. Resources - Make resources available as needed, not through annual budget allocations

6. Customers - Focus everyone on improving customer outcomes, not on hierarchical relationships

12. Controls - Base controls on relative indicators and trends, not on variances against plan

13 -

Improve

“Same number –conflicting purposes” ”Different numbers”

• Unbiased - expected outcome • Limited detail

• Ambitious • Relative KPIs where possible• Holistic performance evaluation

• Dynamic - no annual allocation• KPI targets, mandates, decision

gates & decision criteria • Trend monitoring

Start of the Statoil journey- solving a serious budget conflict

Budget =

•Target

•Forecast

•Resource allocation

Step 1 Step 2

Target

Forecast

Resource allocation

The budget purposes Separate

“Event driven - not calendar driven”

14 -

Performance is ultimately about performing better than those we compare ourselves with

Key principles – Ambition to action

Do the right thing in the actual situation, guided by the Statoil Book, your Ambition to action, decision criteria & authorities and sound business judgement

Within this framework, resources are made available or allocated case-by-case

Business follow up is forward looking and action oriented

Performance evaluation is a holistic assessment of delivery and behaviour

15 -

The CEO on Ambition to action

16 -

Ambition to action - a process which balances …

… alignment – from strategy to people

… with flexibility and freedom

Strategic objectives KPIs

Actions & forecasts

Individualgoals

Where are we going – what does success look like?• Most important strategic

change areas

• Medium term horizon

How do we measure progress?

• Indicative measure of strategic delivery

• 10-12 KPI’s, annual/ longer term targets

What is my contribution?

• My Performance goals (MPG)

• Delivery

• Behaviour

How do we get there?

• Concrete actions and expected delivery (forecast)

• Clear deadlines and accountabilities

17 -

Ambition to action example

Where are we going?

”Strategic objectives”

How do we measure

progress?

”Key Performance Indicators”

How do we get there?

”Actions”

18 -

More than 1100 ”Ambition to actions” across the company

…..and more

19 -

A new performance language- from narrow measurement to a holistic assessment

B e h a v i o u r

Delivery

Living the values

• Day-to day-observations

• 360°/ 180°/ 90° surveys

• People survey

50/50Pressure testing KPI results:

• Deliver towards the strategic objectives?

• How ambitious KPI targets?

• Changed assumptions, with positive or negative effect?

• Agreed actions implemented, or corrective actions initiated as needed?

• Delivered results sustainable?

Ambition to action

• Development plan

• Rewards

20 -

The journey continues ...

21 -

The controller and the fisherman ...

22 -

Ambition to action – new principlesFrom calendar-driven to business-driven

No annual versions

• Update when necessary, triggered by external or internal events (“big for you”)

Simple change and coordination controls

• Seek approval if big, inform if small. Inform other affected units

People@statoil

• No change, review status on dynamic Ambition to action

Varying time horizons

• Target and forecast horizons reflecting urgency and lead times

23 -

Questions or comments – now or later?

Bjarte Bogsnesbjbo@statoil.com

+ 47 916 13 843

Beyond Budgeting Round Tablewww.bbrt.org

24 -

2. The problems with traditional management

3. The Beyond Budgeting model

4. The Borealis case

5. The Statoil case

6. Implementation advice

Out on Wiley (US) 2009Available from Amazon.co.uk

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