beyond
             budgeting


                      >
             transformation
             network.
                ...
beyond
                budgeting


                         >
                transformation
                network.
    ...
Workshop – Beyond Budgeting   3   © BBTN – All rights reserved
Workshop – Beyond Budgeting   4   © BBTN – All rights reserved
Outlining the ‘industrial age’ model and its pitfalls



                              “command and control“




         ...
How markets govern organizations “from the outside in”




                                                  Periphery
   ...
Beyond Budgeting means:
From hierarchy to network structure
   beyond
   budgeting


                    >
   transformati...
There is a “new” model, which is supported
by science and practice

Sciences:                                             ...
From the old coherence to a new coherence


 Traditional model (supports efficiency)            New model (supports comple...
There are two different ways of working on the model –
evolution and transformation


                                    ...
The 12 principles of the Beyond Budgeting model are in fact a full set of
“design principles“ for the new organization typ...
Why traditional management with “fixed performance contracts“
regularily fools us: We have lost control a long time ago…

...
The case of a radically decentralized organization: Handelsbanken – an
extraordinary leadership philosophy




           ...
How “radical decentralization“ is being reflected in the company´s
organizational structure and decision-making



       ...
Relative target definition through “league tables“ (rankings) –
instead of planned, fixed targets and internal negotiation...
Flexible coordination and resources “on demand“ -
instead of allocations and budgets




                                 ...
Creating a “virtuous circle”–
a common factor among “Beyond Budgeting” pioneers

                                         ...
Simple and relevant: creating reports without actual-plan-variances, fixed
  targets, or plans!


                        ...
To transform your organization from “command & control” to “decentralized
network”, a double helix change is needed



Org...
beyond
             budgeting


                      >
             transformation
             network.
                ...
Keynote (EN): Leading with Flexible Targets - Beyond Budgeting & the performance revolution, Bergamo/Italy, organized by I...
Upcoming SlideShare
Loading in …5
×

Keynote (EN): Leading with Flexible Targets - Beyond Budgeting & the performance revolution, Bergamo/Italy, organized by I.T.M. Consulenza

1,252 views
1,160 views

Published on

Keynote presentation for several companies in Bergamo, Italy.
Presented by Sergio Mascheretti (I.T.M. Consulenza) and Niels Pflaeging (BetaCodex Network

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,252
On SlideShare
0
From Embeds
0
Number of Embeds
6
Actions
Shares
0
Downloads
20
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Keynote (EN): Leading with Flexible Targets - Beyond Budgeting & the performance revolution, Bergamo/Italy, organized by I.T.M. Consulenza

  1. 1. beyond budgeting > transformation network. Dr. Sergio Mascheretti e Niels Pflaeging Leadership e obiettivi flessibili. Beyond Budgeting: come rivoluzionare il sistema delle performance. Come trasformare, orientare e gestire le aziende verso la creazione di valore Venerdì 22 Gennaio 2010 Beyond Budgeting Introduction
  2. 2. beyond budgeting > transformation network. Dr. Sergio Mascheretti e Niels Pflaeging Presentazione ITM Consulenza è lieta di organizzare nel territorio bergamasco, la prima tavola rotonda su un nuovo approccio di management conosciuto a livello internazionale come Beyond Budgeting. A tal proposito il Dr. Sergio Mascheretti ha ritenuto fondamentale la collaborazione di uno dei fondatori del movimento, Niels Pflaeging, con il quale presenterà a breve, il libro: Leadership e obiettivi flessibili – Beyond Budgeting: come rivoluzionare il sistema delle performance. In più di un’occasione il Dr. Mascheretti si è trovato con ciascun partecipante a discutere di gestione, di strumenti, di processi organizzativi, di sistemi incentivanti, al fine di trasformare, orientare e rendere performante ciascuna organizzazione. Questa tavola rotonda rappresenta un’occasione per cogliere nuovi stimoli di business management, cogliendo l’opportunità della presenza di uno speaker e management consultant di livello internazionale. Elenco Aziende Partecipanti • Brembo • Radici • Percassi • Banca Popolare dell’Emilia Romagnia • Same Beyond Budgeting Introduction
  3. 3. Workshop – Beyond Budgeting 3 © BBTN – All rights reserved
  4. 4. Workshop – Beyond Budgeting 4 © BBTN – All rights reserved
  5. 5. Outlining the ‘industrial age’ model and its pitfalls “command and control“ • Too centralized • Too inward-looking • Too little customer-oriented • Too bureaucratic • Too much focused on control • Too functionally divided • Too slow and time-consuming • Too de-motivating • … film ‘Modern Times’ with Charlie Chaplin, 1936 From the Workshop – Beyond Budgeting 5 © BBTN – All rights reserved
  6. 6. How markets govern organizations “from the outside in” Periphery Mar ke t Center Information Decision Command Centralist command and Impulse control “collapses“ in Reaction increasingly complex environments Source: Gerhard Wohland Workshop – Beyond Budgeting 7 © BBTN – All rights reserved
  7. 7. Beyond Budgeting means: From hierarchy to network structure beyond budgeting > transformation network. model Traditional New model (centralized functional hierarchy) (decentralized leadership network) Changing leadership and structure • “Bosses” rule! • “The market” rules! • Top-down • Outside-in command and control sense and respond • Top management • Front-line teams are always is always in charge in charge • Centralized leadership • Devolved leadership Seminar – Beyond Budgeting 8 © BBTN – All rights reserved
  8. 8. There is a “new” model, which is supported by science and practice Sciences: Practice: Stafford Beer Thought leaders Margareth Wheatley Industry leaders (selected) Niklas Luhmann (selected) W. Edwards Deming Kevin Kelly Ross Ashby Joseph Bragdon … Douglas McGregor Chris Argyris Complexity Jeffrey Pfeffer Reinhard Sprenger theories Industry Stephen Covey Howard Gardner Social Viktor Frankl … sciences and Retail HR Peter Drucker Tom Peters Leadership & Services Charles Handy change John Kotter Peter Senge Thomas Davenport Strategy & Governments Peter Block Performance & NGOs … management Henry Mintzberg Gary Hamel Jeremy Hope Michael Hammer Thomas Johnson Charles Horngren Workshop – Beyond Budgeting … 9 © BBTN – All rights reserved
  9. 9. From the old coherence to a new coherence Traditional model (supports efficiency) New model (supports complexity) Centralized Decentralized hierarchy, network, “command “sense and control” and respond“ The old model is not aligned with today’s CSF and it does not support ‘Theory Y’. > We need a new Relative strategy model to cope with performance complexity contracts > We must change Fixed the whole model! performance contracts Dynamic coordination Fixed Dynamic processes processes control Workshop – Beyond Budgeting 10 © BBTN – All rights reserved
  10. 10. There are two different ways of working on the model – evolution and transformation Sustaining and deepening of the Integration decentralized model, Evolution phase through generations within the decentralized model (culture of Transformation empowerment and trust) through radical decentralization of decision-making Differentiation Stagnation phase within the tayloristic model Low degree of decentralization/ Bureaucratization empowerment through growing hierarchy and functional differentiation Pioneering phase High degree of decentralization/ empowerment Foundation Time scale: organization's age Several decades old Workshop – Beyond Budgeting 11 © BBTN – All rights reserved
  11. 11. The 12 principles of the Beyond Budgeting model are in fact a full set of “design principles“ for the new organization type Principles Do this! Not that! Customers and Customer/outside focus Focus on the boss responsibility Responsible teams (“cells”) Centralization, functional division Leadership Performance and Performance culture, beat the market Inspired by the past, burocratic 6 “devolved freedom Autonomy and responsibility Adherence to fixed plans leadership” principles Governance and Clearly defined objectives and values Impose objectives from above transparency Open and shared information Restricted information Goals and Goals related to continuous improvement Fiscal year, fixed goals rewards Rewards related to organization results Reward local, fixed goals Processes 6 “adaptive management Planning and Continuous and inclusive planning Top-down annual planning processes” principles controls Compare performance against actuals Variations against fixed plans Resources and Resources “on demand” Annual (budget) allocations coordination Coordinate dynamic, market-like interactions Departmentalization, hierarchy Workshop – Beyond Budgeting 12 © BBTN – All rights reserved
  12. 12. Why traditional management with “fixed performance contracts“ regularily fools us: We have lost control a long time ago… Fixed targets Relative, self-adjusting targets Target: absolute ROCE in % (here: 15%) Target: relative ROCE in % (to market) Plan Actual Target Actual Comparison: Comparison: Market-Actual Plan-Actual Most Target: „ROCE Most important in % better important Market competitor than market Market competitor (25%) (28%) average” (25%) (28%) Actual Actual Plan (21%) (21%) (15%) [independent [expected from expected market Ø: 13%] market Ø] • Interpretation within the plan-actual- • Interpretation within actual-actual compa- comparison: Plan was outperformed by 6 rison: Performance was 4 percentage points percentage points > positive interpretation below competition! > negative interpretation • Better ROCE of the market average and the • Absolute assumptions at the moment of most important competitor remain unnoticed! planning don´t matter. • Targets always remain updated and relevant! Workshop –Niels Pfläging Source: Beyond Budgeting 13 © BBTN – All rights reserved
  13. 13. The case of a radically decentralized organization: Handelsbanken – an extraordinary leadership philosophy The most important objective within Handelsbanken Group: “Higher Return on Equity than the average of comparable banks in the Nordic region and Europe.” Made real through: • Radical decentralization, which in turn leads to… • Best customer service • Lowest cost Alexander V Dokukin Consistently – over a period of 30 years – one of the most successful banks in Europe, measured by almost all key performance indicators (e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …) ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share Workshop – Beyond Budgeting 14 © BBTN – All rights reserved
  14. 14. How “radical decentralization“ is being reflected in the company´s organizational structure and decision-making Principles Customers Customer intimacy A large network of self-managed 600 branch managers teams with full responsibility for (Profit Centers) customer results Freedom and capability to act 12 regional managers Fast, open Fast, open “Winning“ culture, combined (Invest Centers) information information with the freedom and ability to systems systems act Governance and transparency Framework for decision making CEO, with clear values, limits and product firms, treasury, IT etc. relative targets, plus transparency Leads to maximum customer satisfaction! Workshop – Beyond Budgeting Source: BBRT 15 © BBTN – All rights reserved
  15. 15. Relative target definition through “league tables“ (rankings) – instead of planned, fixed targets and internal negotiation Strategic „cascade” Bank to bank Bank to bank Return on Equity (RoE) Return on Equity (RoE) Region to region Principles Region to region Return on Assets(RoA)etc. 1. Bank D 31% Return on Assets(RoA)etc. 1. Bank D 31% Branch to branch 2. Bank JJ 24%1. 2. Bank Branch to branch 24%1. Region A 38% Cost/income ratio etc. Region A 38% Cost/income ratio etc. 3. Bank I I 20%2. 3. Bank 20%2. Region CC 27% Relative targets and Region 27% relative compensation 4. Bank BB 18%3. 4. Bank 18%3. Region H 20%1. Region H 20%1. Branch JJ 28% Branch 28% 5. Bank EE 15%4. 5. Bank 15%4. Region B 17%2. Region B 17%2. Branch D 32% Branch D 32% Continuous 6. Bank FF 13%5. 6. Bank 13%5. Region FF 15% 3. Region 15%3. Branch EE 37% Branch 37% 7. Bank CC 12%6. Region EE 12%4. 12%4. Branch A 39% Branch A 39% planning/control 7. Bank 12%6. Region 8. Bank H 10%7. 5. Region JJ 10% 5. Branch I I 41% Branch 41% 8. Bank H 10%7. Region 10% 9. Bank GG 8% 8. Region I I 7% 6. 7% 6. Branch FF 45% Branch 45% “On demand“ flow of 9. Bank 8% 8. Region 10. Bank AA (2%)9. 10. Bank (2%) 9. Region G 6% 7. Region G 6% 7. Branch CC 54% Branch 54% resources/ 10. Region D (5%) 8. 10. Region D (5%) 8. Branch G 65% Branch G 65% dynamic coordination 9. 9. Branch H 72% Branch H 72% 10. Branch B 87% 10. Branch B 87% Result & value contribution Leads to lowest operational cost! Workshop – Beyond Budgeting 16 © BBTN – All rights reserved
  16. 16. Flexible coordination and resources “on demand“ - instead of allocations and budgets Headquarters/ Headquarters/ Region Region Branches acquire resources through internal markets Resources Resources Customer Customer Branch Branch (IT, HR etc.) (IT, HR etc.) demand demand Branches decide Branches alone are Branches over necessary responsible for efficient observe resource levels use of resources customer demand Leads to eradicating and avoiding waste! Source: BBRT Workshop – Beyond Budgeting 17 © BBTN – All rights reserved
  17. 17. Creating a “virtuous circle”– a common factor among “Beyond Budgeting” pioneers Better to invest in Better for society Better to do business with 6. Sustainable value – 5. Ethical & social standards – Beats peer group every year 4. Customer intimacy – Highest Support the long term interests of on ROE and cost-to-income (independent) customer satisfaction the bank and society. ratio; highest total scores in sector year-after-year; shareholder return in sector; lowest customer complaints; devolved adaptive monitors customer organization is key driver of acquisitions/defections. success. 3. Operational excellence – Lowest costs of any bank in Europe; lowest bad debts; cost reduction Better to work for culture; flat organization (half a 1. Best people – SHB is first head office person per branch choice financial services versus five for rivals); internal company in Sweden for market exerts constant pressure on graduates; employee central services. turnover is lowest in sector; 2. Innovation – SHB voted joint challenge, personal responsibility and freedom to best Internet bank in Europe in run their part of the 2000; any competitive products Virtuous circle business; group-wide profit and solutions are fed back from sharing scheme. branches to product development. Text relates to Svenska Handelsbanken Workshop – Beyond Budgeting 18 © BBTN – All rights reserved
  18. 18. Simple and relevant: creating reports without actual-plan-variances, fixed targets, or plans! last Same Same Ø Ø Company KPI Regions KPI Compe- month month month last 12 titor A last prev.. 12 prev. Competitor A 31% Region G 7% year year mnths mnths Our Competitor E 24% Region E 7% unit A Competitor C 20% Region B 6% KPI 2 Us 18% Region F 4% Compe- Competitor B 13% Region A 3% titor B Indicators Us Competitor D 12% Region D 3% or Our Groups of accounts Competitor G 10% Region C 1% unit B Competitor F 8% Region H 0% KPI 1 Ranking (League table) ext./intern. Snapshot (static) with benchmarks Accouts/KPIs vs. Previous periods (A) Maximum Tolerance levels Us (B) Gliding average KPI KPI KPI Us Competitor A Curve with variance Time (Actuals) Time (Actuals) Time (Actuals) Trend with tolerance Trend with benchmark Trend with references Workshop – Beyond Budgeting 19 © BBTN – All rights reserved
  19. 19. To transform your organization from “command & control” to “decentralized network”, a double helix change is needed Organizati onal change pr ocess 3. Beginning 2. Neutral Zone 1. 2. 3. 4. Create a Pull 5. 6. Develop Communi- 7. 8. sense of together a Empower Produce change cate for Don't Create urgency guiding under- all others short-term vision and let a new coalition standing to act wins strategy up! culture and buy-in References 1. Ending ual Individ rocess ep chang Workshop – Beyond Budgeting 20 © BBTN – All rights reserved
  20. 20. beyond budgeting > transformation network. Dr. Sergio Mascheretti e Niels Pflaeging Niels Pflaeging niels@bbtn.org beyond budgeting www.bbtn.org > transformation network. www.metamanagementgroup.com Dr. Sergio Mascheretti s.mascheretti@itmconsulenza.it www.itmconsulenza.it Tel. 035 212224 Beyond Budgeting Introduction

×