More Related Content Similar to The Beyond Budgeting Principles Similar to The Beyond Budgeting Principles (20) More from Lean Enterprise Software and Systems Conference More from Lean Enterprise Software and Systems Conference (13) The Beyond Budgeting Principles2. “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
© BBRT 2012 – All rights reserved | www.bbrt.org 2
3. How do we see the organization?
OR
Empower & Adapt
Command & Control Self-organizing
Self-regulating
© BBRT 2012 – All rights reserved | www.bbrt.org 3
4. Empowered and Adaptive Organization
Regions, Brands/product groups, Customer
segments - each with P/L Account
Value center Customer
Strategy, Finance, HR, Value center Customer
Marketing & IT
Value center Customer
Support
Services Value center Customer
Teams Value center Customer More:
Value center Customer Clarity
Executive team Value center Customer Simplicity
Value center Customer
Freedom
Value center Customer
Teams are
Accountability
accountable for Value center Customer
customer Value center Transparency
outcomes Customer
Value center Customer
Teams are
Value center Customer
accountable for
relative Value center Customer
improvement
‘Value zone’
© BBRT 2012 – All rights reserved | www.bbrt.org 4
5. 12 Beyond Budgeting principles
Change in leadership Change in processes
Governance & transparency Goals & rewards
1. Values – Bind people to a common cause, not to a 7. Goals – Set ambitious medium-term goals; not short-
central plan term fixed targets
2. Governance – Govern through shared values and 8. Rewards – Base rewards on relative performance; not
sound judgement, not detailed rules and regulations on meeting fixed targets
3. Transparency - Make information open and Planning & Controls
transparent, don’t restrict and control it
9. Planning - Make planning a continuous and inclusive
Accountable teams process, not a top-down annual event
4. Teams - Organize around a seamless network of 10. Coordination - Coordinate interactions dynamically,
accountable teams, not around centralized functions not through annual budgets and planning cycles
5. Trust – Trust teams to regulate and improve their 11. Resources - Make resources available as needed,
performance; don’t micro-manage them not through annual budget allocations
6. Accountability – Base accountability on holistic 12. Controls - Base controls on fast, frequent feedback;,
criteria and peer reviews; not on hierarchical not on budget variances
relationships
© BBRT 2012 – All rights reserved | www.bbrt.org 5
6. 12 Beyond Budgeting Principles
• 1. Values • 4. Teams
• 2. Governance • 5. Trust
• 3. Transparency • 6. Accountability
Governance
Accountable
&
teams
transparency
Planning & Goals &
controls rewards
• 9. Planning • 7. Goals
• 10. Coordination • 8. Rewards
• 11. Resources
• 12. Controls
© BBRT 2012 – All rights reserved | www.bbrt.org 6
7. Govern
ance &
transpa
Principle #1 - Values
rency
Bind people to a common cause, not a central plan
© BBRT 2012 – All rights reserved | www.bbrt.org 7
8. Govern
ance &
transpa
rency
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 $b’s.
© BBRT 2012 – All rights reserved | www.bbrt.org 8
9. Govern
ance &
transpa
Principles # 3 - Transparency
rency
Make information open and transparent; don’t
restrict and control it
Beth Israel Deaconess Medical Center
© BBRT 2012 – All rights reserved | www.bbrt.org 9
10. Account
able
Principle #4 - Teams
teams
Organize around a seamless network of accountable
teams, not centralized functions
© BBRT 2012 – All rights reserved | www.bbrt.org 10
11. © BBRT 2012 – All rights reserved | www.bbrt.org 11
12. Some people say, “Give the
customers what they want.”. But
that’s not my approach. Our job is to
figure out what they’re going to want
before they do. I think Henry Ford
once said, “If I’d asked customers
what they wanted, they would have
told me, ‘A faster horse!’”. People
don’t know what they want until you
show it to them. That’s why I never
rely on market research. Our task is
to read things that are not yet on the
page.
Source: Isaacson, W. (2011) Steve Jobs. London: Little, Brown p334
12
13. Account
able
Principle #5 - Trust
teams
Trust teams to regulate and improve their own
performance; don’t micro-manage them
Houston New York
Seattle Los Angeles
Edmonton Chicago
Prof. William Ouchi
© BBRT 2012 – All rights reserved | www.bbrt.org 13
14. Account
able
Principle #6 - Accountability
teams
Base accountability on holistic criteria and peer
reviews, not on hierarchical relationships
© BBRT 2012 – All rights reserved | www.bbrt.org 14
15. Principle #7 - Goals Goals &
rewards
Set ambitious medium-term goals, not short-term
fixed targets
Svenska Handelsbanken
Alexander V Dokukin
© BBRT 2012 – All rights reserved | www.bbrt.org 15
16. Principle #8 - Rewards Goals &
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
© BBRT 2012 – All rights reserved | www.bbrt.org 16
17. What is your view on people? Goals &
rewards
Theory X? Theory Y?
Attitude
We dislike work, it’s boring We need to work and be interested
Direction
We must be forced or coerced We will direct ourselves to a target
Responsibility
We would rather be directed We will seek and accept responsibility
Motivation
We are motivated by money We are self- motivated
Creativity
Most of us have little creativity We are highly creative creatures
© BBRT 2012 – All rights reserved | www.bbrt.org
17
18. Principle #9 - Planning Plannin
g&
controls
Make planning a continuous and inclusive process,
not a top-down annual event
© BBRT 2012 – All rights reserved | www.bbrt.org 18
19. Principle #9 - Planning Plannin
g&
controls
© BBRT 2012 – All rights reserved | www.bbrt.org 19
20. Principe #10 - Coordination Plannin
g&
controls
Coordinate interactions dynamically, not through
annual budgets
Organizations don’t need a central coordinator and controller
“Make & Sell” “Sense & Respond”
Push Pull
© BBRT 2012 – All rights reserved | www.bbrt.org 20
21. Principle #11 - Resources Plannin
g&
controls
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
© BBRT 2012 – All rights reserved | www.bbrt.org 21
22. Principle #12 - Controls Plannin
g&
controls
Base controls on fast, frequent feedback, not on
budget variances
Reward great Set
performance Ambitions
Build Establish
Flexible Rolling
resource Forecast
allocation
© BBRT 2012 – All rights reserved | www.bbrt.org 22
23. Solving the budget conflict Plannin
g&
controls
The budget purposes
1. Separate 2. Improve
Target • Ambitious
What we want to • Relative KPIs where possible
happen • Holistic performance
Budget = evaluation
• Target Forecast • Unbiased – expected
What we think outcome
• Forecast will happen • Limited detail
• Resource • Dynamic – no annual
allocation Resource allocation
allocation • KPI targets, mandates,
decision gates & criteria
• Trend monitoring
“Same number – “Different numbers” “Event driven – not calendar
conflicting purposes” driven”
© BBRT 2012 – All rights reserved | www.bbrt.org 23
24. Stop forecasting to the wall Plannin
g&
controls
Year x Year x+1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
1st Review
2nd Review
3rd Review
4th Review
Annual
Forecast Actual Plan x+1
s
Make the annual plan the forecast
‘window’ that fits the fiscal year
© BBRT 2012 – All rights reserved | www.bbrt.org 24
25. Constantly managing performance gaps
Plannin
g&
controls
Net Profit
20% X
World Class “Gap”
benchmarks
Goals
10%
Baseline
2000 2001 2002 2003 2004 2005 2006 2007
Actuals Forecasts
Project initiatives Steady state changes
© BBRT 2012 – All rights reserved | www.bbrt.org 25
26. Design reports to fit on a page Plannin
g&
controls
Level Trends
Failure calls this week 90
# Calls % Failure
% Failure calls
75
Agent 1 270 60%
Agent 2 220 45% * *
Agent 3 280 62% 50
* * * *
Agent 4 300 40% * *
Moving
average
Agent 5 240 30%
25
Agent 6 190 70% Context
Agent 7 310 35% Best practice
0
Average 259 49%
Weeks
Analysis Action Plan
Despite previous actions, failure calls Goal: To reduce failure calls by 80% over
continue to run at unacceptable levels. 2 years
We need to urgently rethink how we
tackle these problems as our costs Action: To engage a lean consultant to
remain at far higher levels than best investigate the problem and
practice competitors recommend improvements
© BBRT 2012 – All rights reserved | www.bbrt.org 26
27. Ultimate goal – support corporate vision
Leadership values underpinned by management systems is critical
CEO Vision
•Empowered & Accountable teams
•Low costs
•Strategic execution
•Fast response Right CULTURE (ambition,
commitment, initiative, trust,
•Ethical behaviour
sharing, accountability)
CFO Vision
•Finance efficiency
•Capable people Right SYSTEMS (fast, open,
•Performance insights transparent, insightful,
•Right management systems collaborative)
© BBRT 2012 – All rights reserved | www.bbrt.org 27
28. “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
© BBRT 2012 – All rights reserved | www.bbrt.org 28
29. 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
© BBRT 2012 – All rights reserved | www.bbrt.org 29
30. 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
© BBRT 2012 – All rights reserved | www.bbrt.org 30
31. Organizations on this journey
Europe’s most
cost effective
universal bank
© BBRT 2012 – All rights reserved | www.bbrt.org 31
32. 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
Beyond Budgeting IS the Future of
Management
© BBRT 2012 - All rights reserved | www.bbrt.org 32
33. Dr. Peter Bunce
BBRT
First Floor 745 Ampress Lane
Lymington, Hampshire SO41 8LW, UK
Tel: +44 1590 679803
Email: peterbunce@bbrt.org
Diagnostic web site: www.bbrtdiagnostics.org
Leader’s Dilemma web site: www.leaders-dilemma.com
Main web site: www.bbrt.org
© BBRT 2012 – All rights reserved | www.bbrt.org 33