The Beyond Budgeting Principles
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The Beyond Budgeting Principles

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The Beyond Budgeting Principles The Beyond Budgeting Principles Presentation Transcript

  • 1The Beyond BudgetingPrinciplesDr. Peter BunceCo-founder and Director, BBRT © BBRT 2012 – All rights reserved | www.bbrt.org
  • “In a dozen clear principles, The Leaders Dilemma codifies a rethink of the conventional management model. The books 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
  • How do we see the organization? OR Empower & AdaptCommand & Control Self-organizing Self-regulating© BBRT 2012 – All rights reserved | www.bbrt.org 3
  • 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 ClarityExecutive 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
  • 12 Beyond Budgeting principlesChange in leadership Change in processesGovernance & transparency Goals & rewards1. Values – Bind people to a common cause, not to a 7. Goals – Set ambitious medium-term goals; not short- central plan term fixed targets2. Governance – Govern through shared values and 8. Rewards – Base rewards on relative performance; not sound judgement, not detailed rules and regulations on meeting fixed targets3. Transparency - Make information open and Planning & Controls transparent, don’t restrict and control it 9. Planning - Make planning a continuous and inclusiveAccountable teams process, not a top-down annual event4. Teams - Organize around a seamless network of 10. Coordination - Coordinate interactions dynamically, accountable teams, not around centralized functions not through annual budgets and planning cycles5. 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 allocations6. 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
  • 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
  • Govern ance & transpaPrinciple #1 - Values rencyBind people to a common cause, not a central plan © BBRT 2012 – All rights reserved | www.bbrt.org 7
  • Govern ance & transpa rencyPrinciple #2 - GovernanceGovern 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
  • Govern ance & transpaPrinciples # 3 - Transparency rencyMake information open and transparent; don’trestrict and control itBeth Israel Deaconess Medical Center © BBRT 2012 – All rights reserved | www.bbrt.org 9
  • Account ablePrinciple #4 - Teams teamsOrganize around a seamless network of accountableteams, not centralized functions © BBRT 2012 – All rights reserved | www.bbrt.org 10
  • © BBRT 2012 – All rights reserved | www.bbrt.org 11
  • 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
  • Account ablePrinciple #5 - Trust teamsTrust teams to regulate and improve their ownperformance; 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
  • Account ablePrinciple #6 - Accountability teamsBase accountability on holistic criteria and peerreviews, not on hierarchical relationships © BBRT 2012 – All rights reserved | www.bbrt.org 14
  • Principle #7 - Goals Goals & rewardsSet ambitious medium-term goals, not short-termfixed targetsSvenska Handelsbanken Alexander V Dokukin © BBRT 2012 – All rights reserved | www.bbrt.org 15
  • Principle #8 - Rewards Goals & rewardsBase rewards on relative performance, not on fixedtargetsKey Points Abandon the negotiated budget Rethink performance evaluation and rewards Separate targets from rewards © BBRT 2012 – All rights reserved | www.bbrt.org 16
  • What is your view on people? Goals & rewards Theory X? Theory Y? AttitudeWe dislike work, it’s boring We need to work and be interested DirectionWe must be forced or coerced We will direct ourselves to a target ResponsibilityWe would rather be directed We will seek and accept responsibility MotivationWe are motivated by money We are self- motivated CreativityMost of us have little creativity We are highly creative creatures© BBRT 2012 – All rights reserved | www.bbrt.org 17
  • Principle #9 - Planning Plannin g& controlsMake planning a continuous and inclusive process,not a top-down annual event © BBRT 2012 – All rights reserved | www.bbrt.org 18
  • Principle #9 - Planning Plannin g& controls © BBRT 2012 – All rights reserved | www.bbrt.org 19
  • Principe #10 - Coordination Plannin g& controlsCoordinate interactions dynamically, not throughannual 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
  • Principle #11 - Resources Plannin g& controlsMake 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
  • Principle #12 - Controls Plannin g& controlsBase controls on fast, frequent feedback, not onbudget variances Reward great Set performance Ambitions Build Establish Flexible Rolling resource Forecast allocation © BBRT 2012 – All rights reserved | www.bbrt.org 22
  • Solving the budget conflict Plannin g& controlsThe budget purposes 1. Separate 2. Improve Target • Ambitious What we want to • Relative KPIs where possible happen • Holistic performanceBudget = 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 calendarconflicting purposes” driven” © BBRT 2012 – All rights reserved | www.bbrt.org 23
  • 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
  • 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
  • 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 PlanDespite previous actions, failure calls Goal: To reduce failure calls by 80% overcontinue to run at unacceptable levels. 2 yearsWe need to urgently rethink how wetackle these problems as our costs Action: To engage a lean consultant toremain at far higher levels than best investigate the problem andpractice competitors recommend improvements © BBRT 2012 – All rights reserved | www.bbrt.org 26
  • Ultimate goal – support corporate visionLeadership 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
  • “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
  • 7 tests of the new model1. 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
  • 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
  • Organizations on this journey Europe’s most cost effective universal bank © BBRT 2012 – All rights reserved | www.bbrt.org 31
  • 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
  • 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.orgLeader’s Dilemma web site: www.leaders-dilemma.com Main web site: www.bbrt.org © BBRT 2012 – All rights reserved | www.bbrt.org 33