the beyond budgeting principles

The Beyond Budgeting

Principles

Dr. Peter Bunce

Co-founder and Director, BBRT

BBRT 2012 All rights reserved | www.bbrt.org

1

BBRT 2012 All rights reserved | www.bbrt.org 2

In a dozen clear principles,

The Leader's Dilemma codifies

a rethink of the conventional

management model. The

book's approach should be

studied by any company

aiming to survive and thrive in

a transforming business

landscape

Vineet Nayar, CEO of HCL

Technologies and author of

Employees First, Customers Second

How do we see the organization?


OR

Command & Control Empower & Adapt

Self-organizing

Self-regulating

Empowered and Adaptive Organization


Executive team

Regions, Brands/product groups, Customer segments - each with P/L Account

Support Services Teams

Strategy, Finance, HR, Marketing & IT

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Value center

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Teams are accountable for relative improvement

Teams are accountable for customer outcomes

More:

Clarity

Simplicity

Freedom

Accountability

Transparency

Value zone

12 Beyond Budgeting principles


Change in leadership

Governance & transparency

1. Values Bind people to a common cause, not to a

central plan

2. Governance Govern through shared values and

sound judgement, not detailed rules and regulations

3. Transparency - Make information open and

transparent, dont restrict and control it

Accountable teams

4. Teams - Organize around a seamless network of

accountable teams, not around centralized functions

5. Trust Trust teams to regulate and improve their

performance; dont micro-manage them

6. Accountability Base accountability on holistic

criteria and peer reviews; not on hierarchical

relationships

Change in processes

Goals & rewards

7. Goals Set ambitious medium-term goals; not short-

term fixed targets

8. Rewards Base rewards on relative performance; not

on meeting fixed targets

Planning & Controls

9. Planning - Make planning a continuous and inclusive

process, not a top-down annual event

10. Coordination - Coordinate interactions dynamically,

not through annual budgets and planning cycles

11. Resources - Make resources available as needed,

not through annual budget allocations

12. Controls - Base controls on fast, frequent feedback;,

not on budget variances

12 Beyond Budgeting Principles


7. Goals

8. Rewards

9. Planning

10. Coordination

11. Resources 12. Controls

4. Teams

5. Trust

6. Accountability

1. Values

2. Governance

3. Transparency

Governance &

transparency

Accountable teams

Goals & rewards

Planning & controls

Principle #1 - Values


Bind people to a common cause, not a central plan


Principle #2 - Governance


Govern through shared values and sound judgement, not detailed rules and regulations

Sales culture significantly out balance with its systems and controls

Warnings by head of group regulatory risk rebuffed by CEO

Risk appetite far greater than recommended

CEO pushed to increase earnings in CDOs take more risk to earn more

2007 - $43b in mortgage-related assets no big losses looming

Risk management analysis too late losses of $bs.


Principles # 3 - Transparency


Make information open and transparent; dont restrict and control it

Beth Israel Deaconess Medical Center


Principle #4 - Teams


Organize around a seamless network of accountable teams, not centralized functions

Accountable

teams

12

Source: Isaacson, W. (2011) Steve Jobs. London: Little, Brown p334

Some people say, Give the customers what they want.. But thats not my approach. Our job is to figure out what theyre going to want before they do. I think Henry Ford once said, If Id asked customers what they wanted, they would have told me, A faster horse!. People dont know what they want until you show it to them. Thats why I never rely on market research. Our task is to read things that are not yet on the page.

Principle #5 - Trust


Trust teams to regulate and improve their own performance; dont micro-manage them

Accountable

teams

Prof. William Ouchi

Houston

Seattle

Edmonton

New York

Los Angeles

Chicago

Principle #6 - Accountability


Base accountability on holistic criteria and peer reviews, not on hierarchical relationships

Accountable

teams

Principle #7 - Goals


Set ambitious medium-term goals, not short-term fixed targets

Alexander V Dokukin

Svenska Handelsbanken

Goals & rewards

Principle #8 - Rewards


Base rewards on relative performance, not on fixed targets

Key Points Abandon the negotiated budget Rethink performance evaluation and rewards Separate targets from rewards

Goals & rewards

What is your view on people?


Theory X?

Attitude

Direction

Responsibility

Creativity

We dislike work, its boring We need to work and be interested

Theory Y?

We must be forced or coerced We will direct ourselves to a target

We would rather be directed We will seek and accept responsibility

We are motivated by money We are self- motivated

Most of us have little creativity We are highly creative creatures

Motivation

Goals & rewards

Principle #9 - Planning


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

Planning &

controls

Principle #9 - Planning


Planning &

controls

Principe #10 - Coordination


Coordinate interactions dynamically, not through annual budgets

Make & Sell Push

Sense & Respond Pull

Organizations dont need a central coordinator and controller

Planning &

controls

Principle #11 - Resources


Make resources available just-in-time, not just-in-case

All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes

Taiichi Ohno

Planning &

controls

Principle #12 - Controls


Base controls on fast, frequent feedback, not on budget variances

Planning &

controls

Reward great performance

Set Ambitions

Establish Rolling Forecast

Build Flexible resource allocation

Solving the budget conflict

23 BBRT 2012 All rights reserved | www.bbrt.org

The budget purposes

Target What we want to

happen

Ambitious

Relative KPIs where possible

Holistic performance

evaluation

Forecast What we think

will happen

Unbiased expected

outcome

Limited detail

Resource

allocation

Dynamic no annual

allocation

KPI targets, mandates,

decision gates & criteria

Trend monitoring

Same number

conflicting purposes

Different numbers Event driven not calendar

driven

1. Separate 2. Improve

Budget =

Target

Forecast

Resource

allocation

Planning &

controls

Stop forecasting to the wall


Actual

s

1st Review

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Annual Plan x+1

Year x Year x+1

2nd Review

3rd Review

4th Review

Forecast

Make the annual plan the forecast window that fits the fiscal year

Planning &

controls

Constantly managing performance gaps


2000 2001 2002 2003 2004 2005 2006 2007

Net Profit

20%

Forecasts Actuals

Baseline

Project initiatives Steady state changes

Goals

10%

World Class

benchmarks Gap

X

Planning &

controls

Design reports to fit on a page


Level

Analysis Action Plan

Goal: To reduce failure calls by 80% over 2 years

Action: To engage a lean consultant to investigate the problem and recommend improvements

Trends

0

25

50

75

90

* *

Weeks

* *

*

* * *

% Failure calls

Best practice

Despite previous actions, failure calls continue to run at unacceptable levels. We need to urgently rethink how we tackle these problems as our costs remain at far higher levels than best practice competitors

Failure calls this week

# Calls % Failure

Agent 1 270 60%

Agent 2 220 45%

Agent 3 280 62%

Agent 4 300 40%

Agent 5 240 30%

Agent 6 190 70%

Agent 7 310 35%

Average 259 49%

Moving average

Context

Planning &

controls

Ultimate goal support corporate vision


CEO Vision Empowered & Accountable teams

Low costs

Strategic execution

Fast response

Ethical behaviour

CFO Vision Finance efficiency

Capable people

Performance insights

Right management systems

Right CULTURE (ambition, commitment, initiative, trust, sharing, accountability)

Right SYSTEMS (fast, open, transparent, insightful, collaborative)

Leadership values underpinned by management systems is critical


I discovered that

the best

innovation is

sometimes the

company, the way

a company is

organized - Steve Jobs

Source: Isaacson, W. (2011) Steve Jobs. London: Little, Brown p334

7 tests of the new model

1. Is the model simple, low cost and relevant to its users?

2. Does it help to find and keep the right people?

3. Does it enable and encourage continuous innovation?

4. Does it drive operational excellence?

5. Does it lead to loyal and profitable customers?

6. Does it support good governance and ethical

behaviour?

7. Does it lead to sustained value creation


Implementation insights

Think like a revolutionary

Build an urgent case for change

Establish a guiding coalition

Create a compelling and coherent vision for change

Communicate the vision

Enable and encourage people to change

Look for quick wins

Work around resistors

Consolidate the gains and maintain momentum


Organizations on this journey


Europes most

cost effective

universal bank

http://www.parknicollet.com/

The BBRT today (www.bbrt.org)

Shared learning network

Over 50 members

Active implementers group

Access to all accumulated knowledge capital &

implementation guide + major diagnostic

Access to case studies, research papers and interviews

with CFOs

BBRT can provide courses and internal workshops

BBRT 2012 - All rights reserved | www.bbrt.org 32

Beyond Budgeting IS the Future of

Management


Dr. Peter Bunce BBRT

First Floor 745 Ampress Lane

Lymington, Hampshire SO41 8LW, UK

Tel: +44 1590 679803

Email: [email protected]

Diagnostic web site: www.bbrtdiagnostics.org

Leaders Dilemma web site: www.leaders-dilemma.com

Main web site: www.bbrt.org

the beyond budgeting principles

Documents