We want a responsible, cost conscious and commercial organisation, where people ask different and better questions before making cost decisions A budget “ceiling” is effective in keeping cost down, but also in keeping them up. The ceiling is also a “floor”, because one might get less next year if under-spending . There is some flexibility during the year in a budget, but normally upwards only. Many ask for more money when assumptions change, few if any does the opposite….. A detailed cost budget is also comfortable for managers who dislike uncertainty and decision making, because most decisions are already made by someone above (what to do and how much it shall cost). So dynamic resource allocation is not necessarily “easier” for managers, but we believe its is much better. Such a different mind-set is necessary, but not sufficient. We also need a set of tools to help us. These are explained on the next slide.
(Note: slide show !) We have a number of alternative ways of managing other costs: Manage against a total ambition level or “burn rate” “(in the range of 1000)”. This solves some, but not all of the budget problems, because we don’t always know up front if 1000 is exactly the right level. This is solved by moving from absolute to relative KPIs; a unit cost target or comparing with others and set a ”league table” target. If a unit has a profit target, this is an indirect way of managing cost . You can spend more if you earn even more (good cost).. It is also possible to manage without costs KPIs, and address costs only through strategic objectives and/or actions. Remember that we in a addition always monitor actual cost trends. If these reveal irresponsible spending, we have not abdicated the right to intervene . But we do this only when and where needed, and not for everybody like in a traditional budget. Select from this ”menu” based on type of business and the actual situation in each unit. The further to the right, the higher the need for strong value s and a clear strategic direction.
Ambition to Action translates our strategy into Strategic objectives – where are we going and what does success look like? Key Performance Indicators – how do we measure progress? Actions – how do we get there? Individual or team goals – what is my or our contribution? Remember that KPIs are indicators only, they are not always able to tell the whole truth. That is why we have a holistic performance evaluation, where we look at much more than only measurement. Ambition to Action can and should be changed when needed, driven by events more than by the calendar. Big changes require approval, small changes require information only.
CFO Torgrim Reitan announces a new and longer term effort to build a stronger cost culture in Statoil. The purpose is to achieve sustainable effects. The strategy is to work on cost consciousness instead of running a traditional cost cutting program.
We have over the last years tried to make Ambition to Action even more relevant and useful for business teams across Statoil. The goal is an even simpler, self-regulating and efficient process This means. A more cost conscious culture - and less traditional cost cutting A more event driven and a less calendar driven rhythm More translation and less cascading More relative and less absolute KPIs In short, we want to give Ambition to Action back to the line!
Beyond Budgeting - a management model
for new business and people realities
Ambition to Action - the Statoil journey
Vice President - Performance Management Development
Chairman - Beyond Budgeting Roundtable Europe
• The case for change - what is the problem?
• The Beyond Budgeting principles
• The Statoil model - Ambition to action
Statoil in brief
• Turnover and market cap
approx. 90 bn. USD
North Sea & Norwegian Sea
• 22000 employees
in 36 countries
• World’s largest operator in
waters deeper than 100 metres
• Second largest gas exporter to
US Gulf of Mexico
• World leader of crude oil sales
• Listed in New York and Oslo
Current production of oil and gas
Fortune 500 ranking (2011)
Managing traffic performance - one alternative
Who is in control?
Based on which
Managing traffic performance
- another alternative
Who is in control?
Based on which
Which is most efficient?
Which is most difficult?
In which are values most important?
The world has changed what about the way we lead and manage?
We must change both processes and leadership
Relative and directional goals
Dynamic forecasting and
Holistic performance evaluation
Rigid, detailed and annual
Centralised command and
Secrecy, sticks and carrots
Companies on a similar journey
The Beyond Budgeting principles
Change in leadership
1. Values - Govern through a few clear values, goals and
boundaries, not detailed rules and budgets
7. Goals - Set relative goals for continuous improvement,
don’t negotiate fixed performance contracts
2. Performance - Create a high performance climate
based on relative success, not on meeting fixed targets
8. Rewards - Reward shared success based on relative
performance, not on meeting fixed targets
3. Transparency - Promote open information for self
management, don’t restrict it hierarchically
9. Planning - Make planning a continuous and inclusive
process, not a top-down annual event
4. Organization - Organize as a network of lean,
accountable teams, not around centralized functions
10. Coordination - Coordinate interactions dynamically,
not through annual planning cycles
5. Autonomy - Give teams the freedom and capability to
act; don’t micro-manage them
11. Resources - Make resources available as needed, not
through annual budget allocations
6. Customers - Focus everyone on improving customer
outcomes, not on hierarchical relationships
Change in processes
12. Controls - Base controls on relative indicators and
trends, not on variances against plan
Start of the Statoil journey
- solving a serious budget conflict
The budget purposes
What we want
What we think
“Same number –
• Inspiring & motivating
• Relative where possible
• Holistic performance evaluation
• Unbiased - expected outcome
• Limited detail
• Dynamic - no annual allocation
• KPI targets, mandates, decision
gates & decision criteria
• Trend monitoring
- not calendar driven”
Statoil financial performance - as we define it
Total Shareholder Return 2012
Return on Capital (RoACE) 2012
The mindset required…..
– cost conscious from the first penny
Do I have a
budget for this?
Is this really
What is good enough?
How much value is this
Is this within my execution
…..and the tools available
Ambition level /
Unit cost vs
If no KPIs found
or actions only
” A simplified and cost
conscious way of
“More video - less
”Reduce down-time at
all our facilities”
Select based on what works best in your business
Monitoring of actual development, intervention if needed only
Ambition to Action - purpose and process
• Translating strategy - from ambitions to actions
• Securing flexibility - room to act and perform
• Activating values and leadership principles
Where are we going
– what does success
How do we measure
How do we get
What is my or our
• Most important strategic
• Indicative measure of
My Performance Goals
• Medium term horizon
• 5-10 KPIs, shorter/
longer term targets
• Concrete actions and
• Clear deadlines and
Ambition to Action example
Where are we
How do we
More than 1400 ”Ambition to Actions”
across the company
Spending wisely - the CFO on cost culture
The CEO on Ambition to Action
A broader performance language
- from narrow measurement to a holistic assessment
Ambition to Action
Pressure testing KPI results:
• Development plan
• Deliver towards the strategic objectives?
• How ambitious KPI targets?
• Changed assumptions, with positive or
Living the values
• Agreed actions implemented, or corrective
actions initiated as needed?
• 360°/ 180°/ 90° surveys
• Delivered results sustainable?
• Day-to day-observations
• People survey
Towards a simpler, more dynamic and
self-regulating Ambition to Action process
More cost conscious
- less «cost cutting»
More event driven
- less calendar driven
- less cascading
- less absolute KPIs
- less secrecy
Simple is not the same as easy!
Questions or comments - now or later?
+ 47 916 13 843
Beyond Budgeting Round Table
Want to hear more?
The problems with traditional management
The Beyond Budgeting model
The Borealis case
The Statoil case
Out on Wiley (US)
Available from e.g. Amazon.co.uk
(Now available in Russian and Japanese)
Key principles - Ambition to Action
Do the right
thing in the
guided by the
your Ambition to
up is forward
evaluation is a
A target – what we want to happen
• Relative where possible
− Input/output or benchmarking
• Translation - not cascading
− Must all targets add up?
• Ambitious - without overstretching
− Remember Aristotle
− but not too SMART
*SMART: Specific, Measureable, Achievable, Realistic, Timebound
A forecast – what we think will happen
- whether we like what we see or not!
… not a promise,
not an application for resources
A forecast is a call to action
Get issues on the radar
screen early enough …
… to be able to take