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Agileee 2013: Bjarte Bogsnes "Beyond Budgeting – a management model for new business and people realities –  the Statoil implementation journey"
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Agileee 2013: Bjarte Bogsnes "Beyond Budgeting – a management model for new business and people realities – the Statoil implementation journey"

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  • 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!

Transcript

  • 1. Beyond Budgeting - a management model for new business and people realities Ambition to Action - the Statoil journey Bjarte Bogsnes Vice President - Performance Management Development Chairman - Beyond Budgeting Roundtable Europe
  • 2. Outline • The case for change - what is the problem? • The Beyond Budgeting principles • The Statoil model - Ambition to action -
  • 3. Statoil in brief • Turnover and market cap approx. 90 bn. USD Arctic North Sea & Norwegian Sea • 22000 employees in 36 countries Russia • World’s largest operator in waters deeper than 100 metres • Second largest gas exporter to Europe Canada Caspian North Africa US Gulf of Mexico Middle East • World leader of crude oil sales • Listed in New York and Oslo Aus/Indo. South America West Africa East Africa Current production of oil and gas
  • 4. Fortune 500 ranking (2011) Social responsibility Innovation
  • 5. Managing traffic performance - one alternative Who is in control? Based on which information?
  • 6. Managing traffic performance - another alternative Who is in control? Based on which information?
  • 7. Which is most efficient? Which is most difficult? In which are values most important?
  • 8. The world has changed what about the way we lead and manage? Stable Dynamic Business environment Traditional management ”Theory X” 8- ”Theory Y” People
  • 9. We must change both processes and leadership Dynamic Processes Relative and directional goals Dynamic forecasting and resource allocation Holistic performance evaluation Stable Rigid, detailed and annual Rules-based micromanagement Centralised command and control Secrecy, sticks and carrots ”Theory X” Beyond Budgeting Values based Autonomy Transparency Internal motivation ”Theory Y” Leadership
  • 10. 10 Companies on a similar journey
  • 11. 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 11 - Change in processes 12. Controls - Base controls on relative indicators and trends, not on variances against plan
  • 12. Start of the Statoil journey - solving a serious budget conflict Step 1 The budget purposes Step 2 Separate Improve Target Budget = •Target •Forecast •Resource allocation What we want to happen Forecast What we think will happen Resource allocation “Same number – conflicting purposes” 12 - ”Different numbers” • 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 “Event driven - not calendar driven”
  • 13. Statoil financial performance - as we define it Total Shareholder Return 2012 13 - Return on Capital (RoACE) 2012
  • 14. The mindset required….. – cost conscious from the first penny Do I have a budget for this? Is this really necessary? What is good enough? How much value is this creating? Budget Not OK Is this within my execution framework? OK? OK OK? OK? OK? OK?
  • 15. …..and the tools available Traditional cost budget Absolute KPIs Detailed and annual Ambition level / burn rate Relative KPIs Unit cost input/output Unit cost vs peers If no KPIs found Bottom line focus only Strategic objectives or actions only Increasing autonomy and flexibility Xx Xx Xx ”USD/bbl” Xx Xx ”USD/customer” Xx Xx ”USD/employee” Xx 1003,4 ~1000 ”1. quartile” ”Better than average” EBIT RoACE (abs/rel) ” A simplified and cost conscious way of working” “More video - less travel ” ”Reduce down-time at all our facilities” Select based on what works best in your business Monitoring of actual development, intervention if needed only Increasing need for strong values and clear direction
  • 16. 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 objectives KPIs Actions & forecasts Individual or team goals Where are we going – what does success look like? How do we measure progress? How do we get there? What is my or our contribution? • Most important strategic change areas • Indicative measure of strategic delivery My Performance Goals • Medium term horizon • 5-10 KPIs, shorter/ longer term targets • Concrete actions and expected outcome (forecast) • Clear deadlines and accountabilities •Delivery •Behaviour
  • 17. Ambition to Action example People & Organisation HSE Operations Market Finance Where are we going? ”Strategic objectives” How do we measure progress? ”Key Performance Indicators” How do we get there? ”Actions”
  • 18. More than 1400 ”Ambition to Actions” across the company …..and more
  • 19. Spending wisely - the CFO on cost culture 19
  • 20. The CEO on Ambition to Action 20 -
  • 21. A broader performance language - from narrow measurement to a holistic assessment Ambition to Action Pressure testing KPI results: D e l i v e r y 50/50 • Development plan • Rewards Behaviour • Deliver towards the strategic objectives? • How ambitious KPI targets? • Changed assumptions, with positive or negative effect? 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
  • 22. 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 More transparency - less secrecy Simple is not the same as easy!
  • 23. Questions or comments - now or later? Bjarte Bogsnes bjbo@statoil.com + 47 916 13 843 Twitter @bbogsnes Beyond Budgeting Round Table www.bbrt.org
  • 24. 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)
  • 25. Backup
  • 26. Key principles - Ambition to Action Performance is ultimately about performing better than those we compare ourselves with 26 - Do the right thing in the actual situation, guided by the Statoil Book, your Ambition to action, decision criteria & authorities and sound business judgement Within this framework, resources are made available or allocated case-by-case Business follow up is forward looking and action oriented Performance evaluation is a holistic assessment of delivery and behaviour
  • 27. 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 • SMART* − but not too SMART *SMART: Specific, Measureable, Achievable, Realistic, Timebound
  • 28. A forecast – what we think will happen - whether we like what we see or not! … not a promise, not an application for resources
  • 29. A forecast is a call to action Get issues on the radar screen early enough … … to be able to take corrective actions