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Beyond Budgeting: The Leader's Dilemma


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How does the way we manage need to change to meet today’s challenges? The traditional “command and control” management model was never perfect. In an industrial age when suppliers could sell all their output to eager customers, business leaders could “plan and control” their way to the future. This model was already in trouble in the 1990s as customer loyalty collapsed in the wake of globalization, privatization and the Internet revolution. These increasing levels of uncertainty are here to stay.

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Beyond Budgeting: The Leader's Dilemma

  1. 1. © BBRT 2011 - All rights reserved | 1 The Leader’s Dilemma How to build an empowered and adaptive organization without losing control Dr. Peter Bunce Co-founder, BBRT Presentation to LESS 2011 Stockholm, Sweden, 1 November 2011
  2. 2. © BBRT 2011 - All rights reserved | 2 The story so far
  3. 3. © BBRT 2011 - All rights reserved | 3 The Leader’s Dilemma book 2011 “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
  4. 4. © BBRT 2011 - All rights reserved | 4 Leadership & management “Leadership: The capacity and will to rally people to a common purpose together with the character that inspires confidence and trust” Field Marshall Lord Montgomery of Alamein “Imagine you had a way of managing that generates initiatives among everyone in the organization to adapt, improve and keep the organization moving forward.” Source: Rother, M. Toyota Kata, Mc Graw Hill, New York
  5. 5. © BBRT 2011 - All rights reserved | 5 The Tortoise and the Hare
  6. 6. © BBRT 2011 - All rights reserved | 6 Command and Control Management Model Management Control Micro- Strategy 10-20% of costs management Targets, Balanced scorecards budget ABC systems Control Alignment contracts KPI dashboards CRM systems and CPM/BI Systems incentives EVA models Risk models Execution Accountable for targets & budgets
  7. 7. © BBRT 2011 - All rights reserved | 7 More compliance and control is NOT the answer More… planners, target setters, inspectors, controllers, compliance officers, internal auditors, risk managers, project teams, consultants, analysts and advisers Management Control Micro- Strategy 10-20% of costs management Targets, Balanced scorecards budget ABC systems Control Alignment KPI dashboards contracts CRM systems and CPM/BI Systems EVA models incentives Risk models Execution Accountable for targets & budgets
  8. 8. © BBRT 2011 - All rights reserved | 8 Decline and fall of management control  ‘Shareholder value’ became an obsession  Aggressive targets and incentives encouraged the wrong behavior  Regulation and risk management has failed  Central control is more difficult and expensive  Trust has declined  Employees are neither engaged nor empowered
  9. 9. © BBRT 2011 - All rights reserved | 9 We need new metaphors for management  Organization are obedient machines  Organization are adaptive systems  Organizations are a collection of  Organizations are whole systems (the replaceable parts (parts determine the whole system determines performance of the whole) performance)  Organizations comprise of ‘cause-and-  Organizations are webs of effect’ relationships that are relationships that are unpredictable predictable  Organizations are self-organizing and  Organizations need central planning, self-regulating coordination and control  Change is integrative and adaptive  Change is reactive and project-driven
  10. 10. © BBRT 2011 - All rights reserved | 10 Empowered and Adaptive Organization  Regions, Brands/product groups, Customer segments - each with P/L Account Strategy, Finance, HR, Value center Customer Marketing, Production Value center Customer & IT Value center Customer Support Services Value center Customer Teams Value center Customer More: Value center Customer Clarity Executive 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
  11. 11. © BBRT 2011 - All rights reserved | 11 Organizations on the journey Beating the Europe’s most cost competition 40 years effective universal in a row bank”I have been waitingfor this for 20 years”(CEO)
  12. 12. © BBRT 2011 - All rights reserved | 12 They have broken free Separate Improve Self-imposed Target & Rewards No fixed targets = stretch goals Aim is to “be the best” Rolling views Planning and forecasting Continuous planning Rolling forecasts Fund best action plans Resource allocations Draw-down central services Cost ratios/benchmarks Holistic measures Measures and controls KPIs and trends Relative performance
  13. 13. © BBRT 2011 - All rights reserved | 13 12 Beyond Budgeting principles Change in leadership Change in processes Governance & transparency Goals & rewards 1. Values – Bind people to a common cause, not to a 7. Goals – Set ambitious medium-term goals; not short- central plan term fixed targets 2. Governance – Govern through shared values and 8. Rewards – Base rewards on relative performance; not sound judgement, not detailed rules and regulations on meeting fixed targets 3. Transparency - Make information open and 9. Planning - Make planning a continuous and inclusive transparent, don’t restrict and control it process, not a top-down annual event Accountable teams Planning & Controls 4. Teams - Organize around a seamless network of 10. Coordination - Coordinate interactions dynamically, accountable teams, not around centralized functions not through annual budgets and planning cycles 5. 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 allocations 6. 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
  14. 14. © BBRT 2011 - All rights reserved | 14 Build information systems around three teams • Tools empower rather than control (inc KPI • KPI dashboards and dashboards, balanced scorecards, rolling benchmarking help to drive forecasts, EVA & ABC models help to drive continuous improvement improvement) Support BI Value center Customer • All tools and Services Value center Customer controls are Teams Value center Customer embedded in a web-based Value center Customer enterprise-wide Executive team Integrated, enterprise-wide Value center Customer corporate Information systems Value center Customer performance Value center management• Integrated Customer system systems enable Value center Customer 24/7 Value center Analytics Customer monitoring Value center Customer
  15. 15. © BBRT 2011 - All rights reserved | 15 Controls based on relative indicators  Use KPI dashboards to know where you are today  Use rolling forecasts and trends to know where you’re going in the near-term  Use benchmarks to know how you’re doing against peers and best practices  Use appropriate metrics to know if your strategy is working  Disconnect measures from fixed targets  Teach people to understand the meaning of measures  See measures as patterns, trends and abnormalities
  16. 16. © BBRT 2011 - All rights reserved | 16 Design reports to fit on a page with trends and forecasts 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 Plan Despite previous actions, failure calls Goal: To reduce failure calls by 80% over continue to run at unacceptable levels. 2 years We need to urgently rethink how we tackle these problems as our costs Action: To engage a lean consultant to remain at far higher levels than best investigate the problem and practice competitors recommend improvements
  17. 17. © BBRT 2011 - All rights reserved | 17 Stop forecasting to the wall Year x Year x+1 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1st Review 2nd Review 3rd Review 4th Review Annual Forecast Actuals Plan x+1 Make the annual plan the forecast ‘window’ that fits the fiscal year
  18. 18. © BBRT 2011 - All rights reserved | 18 Emerging organization uses Web 2.0 principles  Everyone has a voice  Capability counts for more than credentials and titles  Commitment is voluntary  Power is granted from below  Authority is fluid and contingent on value-added  The only hierarchies are “natural” hierarchies  Communities are self-defining  Individuals are richly empowered with information  Just about everything is decentralized  Ideas compete on an equal footing  Resources are free to follow opportunities  Decisions are peer-based Gary Hamel The Future of Management Harvard Business School Press, Boston, 2007, 253-254
  19. 19. © BBRT 2011 - All rights reserved | 19 Hamel’s Hierarchy of Innovation Impact on business value Management 40% Strategy 30% Process 20% Product 10%
  20. 20. © BBRT 2011 - All rights reserved | 20 Management innovation is the next big idea
  21. 21. © BBRT 2011 - All rights reserved | 21 Ultimate goal – support corporate vision Leadership 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)
  22. 22. © BBRT 2011 - All rights reserved | 22 The Wall of Excuses The auditors won’t like it Group will feel The regulators will object threatened We have too many other priorities We can’t do the ROI We don’t have enough time/money/staff I can’t sell the idea to the board It’s too much work We’re too busy It’s too risky It will take too long It’s not my responsibility It won’t work in our culture We tried it before and Our systems it didn’t work can’t handle it The bosses won’t like it We don’t need to change
  23. 23. © BBRT 2011 - All rights reserved | 23 The Beyond Budgeting Round Table (  Packages now only £6,000 to join for first year  Access to all accumulated knowledge capital + major diagnostic  Learn about cutting-edge performance management best practices  Access to case studies, research papers and interviews with CFOs  Access to online BBRT Beyond Budgeting Implementation Guide  BBRT can provide courses and internal workshops
  24. 24. © BBRT 2011 - All rights reserved | 24 Dr. Peter Bunce BBRT First Floor 745 Ampress Lane Lymington, Hampshire SO41 8LW, UK Tel: +44 1590 679803 Email: Diagnostic web site: Leader’s Dilemma web site: Main web site: