Beyond Budgeting Case Study: Alnatura

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This course describes the management practices of German retailer Alnatura listed by Beyond-Budgeting-Principles and provides the first in the English language available publication on the management …

This course describes the management practices of German retailer Alnatura listed by Beyond-Budgeting-Principles and provides the first in the English language available publication on the management practices of Alnatura. For better understanding it is essential to have a basic understanding of Beyond-Budgeting and our recent Course “Dialog-based leadership”.

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  • 1. Outperformance International Center for Alnatura. The German Whole Foods Market. Page 1
  • 2. Beyond Budgeting Case Study Alnatura Introduction to the Case Stuy Alnatura was in December 2008 by as identified as a Beyond Budgeting pioneer (and also as Management Innovator / Management 2.0 organization). The following research describes both confirmed as also pending and unconfirmed Beyond Budgeting principles. Further the introduction of the Value Creation Calculation of Alnatura is described. Table of Contents Short company overview...................................................................................................................................3 Beyond-Budgeting-Principles confirmed by secondary resources....................................................................4 Alnatura's Value Creation Calculation ..............................................................................................................5 Beyond-Budgeting-Principles not complete in accordance with Beyond Budgeting.........................................6 Beyond-Budgeting-Principles to be evaluated within further primary research.................................................6 References.......................................................................................................................................................7 Version 1.1: June 2009 (Version 1.0: December 2008) Page 2
  • 3. Short company overview Alnatura is Germany's market leading biological and natural product supermarket chain. Founded by Dr. Goetz E. Rehn in 1984, Alnatura comprises 47 branches in mainly Southwest Germany, has a turnover of about 304 million € (2008) and 1200 (2008) employees. Alnatura products comprise the self-created brand “Alnatura”, to which currently belong more than 870 products that are not only sold within the own branch network, but also by about 1200 retail partners e.g. like dm drogeriemarkt. Dr. Goetz E. Rehn was awarded in 2005 by Ernst & Young Germany as “Entrepreneur of the year” and is today professor at the University of Alanus near Bonn. Further Alnatura was awarded in 2005 also as the winner of the “Sustainable medium-sized business 2004”. After 2000 Alnatura transformed with the experience of dm drogeriemarkt's Value Creation Calculation and dialog-based leadership style. Very interestingly is to note, that since this transformation Alnatura increased its employer image, because new applicants apply due to the high autonomy and entrepreneurship they can experience. E.g. job descriptions state that Alnatura offers: “Work with a meaning. The possibility to develop your fun on the job and your abilities. Short decision ways and direct communication.” Page 3
  • 4. Beyond-Budgeting-Principles confirmed by secondary resources Alnatura matches to our research the following Beyond-Budgeting-Principles by using secondary research (s. resources) • Customers (both internally and externally) • Values (these include the three core values of holistically thinking and acting, customer-focused action and self-responsibility) • Transparency (derived through the Value Creation Calculation) • Autonomy (each branch decides on resource allocation, external services, branch marketing and products, but assortment, the placement of goods, prices and central marketing are obligated by internal central policies to the branches to ensure the same customer experience in each branch, further branch employees were over strained with marketing activities) • Responsibility • Organization (in 2002 each branch or central department (the “cells”) decided on own products and services within the Value Creation Calculation project) • Targets and Controls (no fixed company wide goals, relative comparisons by branch cells) • Coordination • Resources Furthermore Alnatura introduced the same Value Creation Calculation of dm drogeriemarkt in 2003, uses dm drogeriemarkt's dialog-based leadership style, puts both customers and employees first, takes humans as trustable persons in accordance with Theory Y and its values are based upon the anthropology of Rudolf Steiner like dm drogeriemarkt. Further in accordance with the dm drogeriemarkt's knowledge sharing marketplaces, branch managers at Alnatura seek advice by their peer branch managers. Also like dm drogeriemarkt Alnatura's aim is not to make profits. These show only according to Rehm if the organization was economically successful at the end of a period. Page 4
  • 5. Alnatura's Value Creation Calculation The Value Creation Calculation project was started in 2002 and introduced in 2003. In 2002 each branch and central department was invited by the project group both to set their own products and services as also to price them. This process took over a year and caused at the beginning only additional work and no benefits, because the Value Creation Calculation cannot itself as an instrument replace traditional financial accounting and internal cost calculations. In mid-year 2003 the Value Creation Calculation was introduced to all employees by the metaphor of a chocolate bar by two leaders: “”Imagine this chocolate bar as the complete turnover of your branch.” said they, broke the first two bars and explained: “Then these 8 bars are the sum of your advance performance, which you buy from other companies.” Bar by bar, piece for piece they broke the chocolate bar until the own performance of the branch in the form of several left bars. But these also divided moreover in “performances”: for employee renumeration, taxes, reserves and for investments, the profit. The expression “costs” was never mentioned until the chocolate bar completely was separated into “performances”.” The single value reports at Alnatura are derived from the central data warehouse in Excel sheets. In general all branch cell information can be accessed by all employees. Information regarding central service cell like IT or people management can only be accessed by branch managers and relevant cell staff. In practice the Value Creation Calculation is mostly used by leaders e.g. to compare relatively different branch cell KPIs, but not by sales persons or cashiers. As already stated at firstly the Value Creation Calculation at Alnatura only led to additional work without any benefits. But this changed dramatically. With the use of the Value Creation Calculation unnecessary internal and external services were made clear. E.g. an external detective to cover theft issues was fired because the Value Creation Calculation made clear that the expenses for the detective were higher than the theft wares according to the inventory. Further the employees used to inventory to identify often stolen goods and to develop own measures to prevent theft of them. Also the attitudes towards “cost management” have changed with the Value Creation Calculation. A former area manager nowadays uses the Value Creation Calculation not to cut costs, but to find ways to improve the products that the customers buys again. Page 5
  • 6. With the realization of the Value Creation Calculation it was discussed by the steering committee of Alnatura about possible risks when freely available information is passed to competitors. In accordance with Theory Y Alnatura trusts its employees and until now no case occurred where information left the organization. Beyond-Budgeting-Principles not complete in accordance with Beyond Budgeting The reward system of Alnatura in not completely in accordance with the Beyond-Budgeting-Principle Rewards. Notable is, that the bonuses are not linked to predefined fixed performance contracts, but are based on actual performance afterwards and mechanisms are in place to prevent short term thinking and foster long-term investments. The bonus itself is only paid to branch managers and depends on the relation of actual branch turnover and employee renumeration. To avoid short term thinking each branch is obligated to host several employees with specific advanced trainings and to hire only permanent staff (and therefore to avoid Germany's famous 400 € jobs). Beyond-Budgeting-Principles to be evaluated within further primary research Due to the fact, that Alnatura is closely linked to German Beyond-Budgeting-Pioneer dm drogeriemarkt with reference to the Value Creation Calculation (which is capable of supporting all original 12 principles), the personal contact to dm drogeriemarkt's long-year founder and CEO Goetz Werner, the same leadership philosophy of the dialog-based leadership style and the same company philosophy of Rudolf Steiner, it is assumed that all other original Beyond-Budgeting-Principles are also met, but this has to evaluated within a primary research project we are currently executing. Pending principles are • Planning Page 6
  • 7. References • Irle, Matthias: “Zahlen, bitte!”, in BrandEins, 09/2008 (main reference) • Alnatura Homepage: www.alnatura.de , accessed 7th June 2009 (all sub pages and listed pod casts and articles up to 7th December 2008) • German Wikipedia: http://de.wikipedia.org/wiki/Alnatura, accessed 7th December 2008 • Pictures: Alnatura: http://www.alnatura.de/de/pressebilder License This paper except the logos and except the pictures is licensed under a Creative Commons BY-SA License. Credit: quot;International Center for Outperformance (www.intco.org): Alnaturaquot; within the reference list Page 7