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Beyond Budgeting - the Statoil
     implementation

     Bjarte Bogsnes
     Vice President - Performance Management Development
     Chairman - Beyond Budgeting Round table Europe
1-
Statoil in brief
     • Turnover and market cap                                                                Arctic
       approx. 75 bn. USD
                                                                North Sea & Norwegian Sea
     • 20.000 employees
       in 34 countries                                                                                  Russia

     • World’s largest operator in                           Canada
       waters deeper than 100 metres                                                                   Caspian
     • Second largest gas exporter to                                 North Africa
       Europe                            US Gulf of Mexico
                                                                                                        Middle East
     • World leader of crude oil sales
     • Listed in New York and Oslo                   South America
                                                                                       West Africa




                                                                                              Current production of oil and gas




2-
Fortune 500 ranking (2011)
         Social responsibility    Innovation




3-
The Beyond Budgeting principles

       Change in leadership                                         Change in processes

       1. Values - Govern through a few clear values, goals and     7. Goals - Set relative goals for continuous improvement,
          boundaries, not detailed rules and budgets                   don’t negotiate fixed performance contracts

       2. Performance - Create a high performance climate           8. Rewards - Reward shared success based on relative
          based on relative success, not on meeting fixed targets      performance, not on meeting fixed targets

       3. Transparency - Promote open information for self          9. Planning - Make planning a continuous and inclusive
          management, don’t restrict it hierarchically                 process, not a top-down annual event

       4. Organization - Organize as a network of lean,             10. Coordination - Coordinate interactions dynamically, not
          accountable teams, not around centralized functions         through annual planning cycles

       5. Autonomy - Give teams the freedom and capability to       11. Resources - Make resources available as needed, not
          act; don’t micro-manage them                                through annual budget allocations

       6. Customers - Focus everyone on improving customer          12. Controls - Base controls on relative indicators and
          outcomes, not on hierarchical relationships                 trends, not on variances against plan




4 - Classification: Internal   2011-08-15
Start of the Statoil journey
     - solving a serious budget conflict
                                        Step 1                     Step 2

     The budget purposes             Separate                    Improve

                                                        • Ambitious
                                        Target          • Relative KPIs where possible
                                        What we want    • Holistic performance evaluation
       Budget =                         to happen

       •Target                                          • Unbiased - expected outcome
                                        Forecast        • Limited detail
       •Forecast                        What we think
                                        will happen     • Dynamic - no annual allocation
       •Resource allocation
                                                        • KPI targets, mandates, decision
                                        Resource          gates & decision criteria
                                        allocation      • Trend monitoring


       “Same number –                                       “Event driven
       conflicting purposes”   ”Different numbers”          - not calendar driven”


5-
Key principles – Ambition to Action

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




6-
Statoil financial performance - as we define it

    Total shareholder return 2011   Return on capital (ROCE) 2011
Key principles – Ambition to Action

     Performance is     Do the right        Within this
     ultimately about   thing in the        framework,
     performing         actual situation,   resources are
     better than        guided by the       made available
     those we           Statoil Book,       or allocated
     compare            your Ambition to    case-by-case
     ourselves with     action, decision
                        criteria &
                        authorities and
                        sound business
                        judgement




8-
Spending wisely - the CFO on cost culture




                               Classification:
9                                 Internal
                                2011-11-24
Key principles – Ambition to Action

       Performance is     Do the right        Within this      Business follow   Performance
       ultimately about   thing in the        framework,       up is forward     evaluation is a
       performing         actual situation,   resources are    looking and       holistic
       better than        guided by the       made available   action oriented   assessment of
       those we           Statoil Book,       or allocated                       delivery and
       compare            your Ambition to    case-by-case                       behaviour
       ourselves with     action, decision
                          criteria &
                          authorities and
                          sound business
                          judgement




10 -
The CEO on Ambition to Action




11 -
Ambition to Action - purpose and process
       • Translating strategy - from ambitions to actions
       • Securing flexibility - room to act and perform
       • Activating values and leadership principles

         Strategic                                                   Actions &                  Individual
         objectives                        KPIs                      forecasts                   or team
                                                                                                  goals

       Where are we going –         How do we measure         How do we get            What is my or our
       what does success            progress?                 there?                   contribution?
       look like?
       • Most important strategic   • Indicative measure of   • Concrete actions and   My Performance Goals
         change areas                 strategic delivery        expected delivery      • Delivery
       • Medium term horizon        • 10-12 KPI’s, shorter/     (forecast)
                                                                                       • Behaviour
                                      longer term targets     • Clear deadlines and
                                                                accountabilities



12 -
Ambition to Action example

 People &
Organisation
               Where are we
                                             How do
                 going?
                                             we get
   HSE
                ”Strategic                   there?
                objectives”   How do we
                               measure       ”Actions”
 Operations
                              progress?

  Market
                                  ”Key
                              Performance
                               Indicators”
   Finance
More than 1600 ”Ambition to Action’s”
       across the company




                         …..and more




14 -
Towards a simpler, more dynamic and self-
  regulating Ambition to Action process


                   More cost conscious
                    - less «cost cutting»
                   More event driven
                    - less calendar driven
                   More translation
                    - less cascading
                   More relative
                    - less absolute KPIs




      ”Giving Ambition to Action back to the line”

                                             Classificati
                                             on: Internal
                                             2011-09-07
Implementation advice

       • Create problem understanding before talking solutions
       • What’s the real risk – upside vs downside
       • Design to 80% and jump
       • A ”pull-based” approach
       • ”One war but a thousand battles”
       • Don’t become a fundamentalist




 Classif
ication:
Interna
Questions or comments - now or later?
       Bjarte Bogsnes
       bjbo@statoil.com
       + 47 916 13 843
       Twitter @bbogsnes


       Beyond Budgeting Round Table
       www.bbrt.org


17 -
Want to hear more?
       1.   The problems with traditional management
       2.   The Beyond Budgeting model
       3.   The Borealis case
       4.   The Statoil case
       5.   Implementation advice


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

       (Now available in Russian and Japanese)




18 -

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Implementing Statoil’s Ambition to Action management model

  • 1. Beyond Budgeting - the Statoil implementation Bjarte Bogsnes Vice President - Performance Management Development Chairman - Beyond Budgeting Round table Europe 1-
  • 2. Statoil in brief • Turnover and market cap Arctic approx. 75 bn. USD North Sea & Norwegian Sea • 20.000 employees in 34 countries Russia • World’s largest operator in Canada waters deeper than 100 metres Caspian • Second largest gas exporter to North Africa Europe US Gulf of Mexico Middle East • World leader of crude oil sales • Listed in New York and Oslo South America West Africa Current production of oil and gas 2-
  • 3. Fortune 500 ranking (2011) Social responsibility Innovation 3-
  • 4. The Beyond Budgeting principles Change in leadership Change in processes 1. Values - Govern through a few clear values, goals and 7. Goals - Set relative goals for continuous improvement, boundaries, not detailed rules and budgets don’t negotiate fixed performance contracts 2. Performance - Create a high performance climate 8. Rewards - Reward shared success based on relative based on relative success, not on meeting fixed targets performance, not on meeting fixed targets 3. Transparency - Promote open information for self 9. Planning - Make planning a continuous and inclusive management, don’t restrict it hierarchically process, not a top-down annual event 4. Organization - Organize as a network of lean, 10. Coordination - Coordinate interactions dynamically, not accountable teams, not around centralized functions through annual planning cycles 5. Autonomy - Give teams the freedom and capability to 11. Resources - Make resources available as needed, not act; don’t micro-manage them through annual budget allocations 6. Customers - Focus everyone on improving customer 12. Controls - Base controls on relative indicators and outcomes, not on hierarchical relationships trends, not on variances against plan 4 - Classification: Internal 2011-08-15
  • 5. Start of the Statoil journey - solving a serious budget conflict Step 1 Step 2 The budget purposes Separate Improve • Ambitious Target • Relative KPIs where possible What we want • Holistic performance evaluation Budget = to happen •Target • Unbiased - expected outcome Forecast • Limited detail •Forecast What we think will happen • Dynamic - no annual allocation •Resource allocation • KPI targets, mandates, decision Resource gates & decision criteria allocation • Trend monitoring “Same number – “Event driven conflicting purposes” ”Different numbers” - not calendar driven” 5-
  • 6. Key principles – Ambition to Action Performance is ultimately about performing better than those we compare ourselves with 6-
  • 7. Statoil financial performance - as we define it Total shareholder return 2011 Return on capital (ROCE) 2011
  • 8. Key principles – Ambition to Action Performance is Do the right Within this ultimately about thing in the framework, performing actual situation, resources are better than guided by the made available those we Statoil Book, or allocated compare your Ambition to case-by-case ourselves with action, decision criteria & authorities and sound business judgement 8-
  • 9. Spending wisely - the CFO on cost culture Classification: 9 Internal 2011-11-24
  • 10. Key principles – Ambition to Action Performance is Do the right Within this Business follow Performance ultimately about thing in the framework, up is forward evaluation is a performing actual situation, resources are looking and holistic better than guided by the made available action oriented assessment of those we Statoil Book, or allocated delivery and compare your Ambition to case-by-case behaviour ourselves with action, decision criteria & authorities and sound business judgement 10 -
  • 11. The CEO on Ambition to Action 11 -
  • 12. Ambition to Action - purpose and process • Translating strategy - from ambitions to actions • Securing flexibility - room to act and perform • Activating values and leadership principles Strategic Actions & Individual objectives KPIs forecasts or team goals Where are we going – How do we measure How do we get What is my or our what does success progress? there? contribution? look like? • Most important strategic • Indicative measure of • Concrete actions and My Performance Goals change areas strategic delivery expected delivery • Delivery • Medium term horizon • 10-12 KPI’s, shorter/ (forecast) • Behaviour longer term targets • Clear deadlines and accountabilities 12 -
  • 13. Ambition to Action example People & Organisation Where are we How do going? we get HSE ”Strategic there? objectives” How do we measure ”Actions” Operations progress? Market ”Key Performance Indicators” Finance
  • 14. More than 1600 ”Ambition to Action’s” across the company …..and more 14 -
  • 15. Towards a simpler, more dynamic and self- regulating Ambition to Action process More cost conscious - less «cost cutting» More event driven - less calendar driven More translation - less cascading More relative - less absolute KPIs ”Giving Ambition to Action back to the line” Classificati on: Internal 2011-09-07
  • 16. Implementation advice • Create problem understanding before talking solutions • What’s the real risk – upside vs downside • Design to 80% and jump • A ”pull-based” approach • ”One war but a thousand battles” • Don’t become a fundamentalist Classif ication: Interna
  • 17. Questions or comments - now or later? Bjarte Bogsnes bjbo@statoil.com + 47 916 13 843 Twitter @bbogsnes Beyond Budgeting Round Table www.bbrt.org 17 -
  • 18. Want to hear more? 1. The problems with traditional management 2. The Beyond Budgeting model 3. The Borealis case 4. The Statoil case 5. Implementation advice Out on Wiley (US) Available from e.g. Amazon.co.uk (Now available in Russian and Japanese) 18 -