BJARTE BOGSNES
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BJARTE BOGSNES
- 1. The End of Performance Management (as we know it) Bjarte Bogsnes Vice President - Performance Management Development Chairman - Beyond Budgeting Roundtable Europe 1
- 2. Outline ⢠The case for change - what is the problem? ⢠Beyond Budgeting - a solution ⢠The HR - Finance alliance 2
- 3. 3 Statoil in brief ⢠Turnover approx. 130 bn. USD ⢠23000 employees in 33 countries ⢠Worldâs largest operator in waters deeper than 100 metres ⢠Second largest gas exporter to Europe ⢠World leader of crude oil sales ⢠Listed in New York and Oslo Russia Arctic Current production of oil and gas US Gulf of Mexico South America West Africa North Africa Caspian Middle East North Sea & Norwegian Sea Canada East Africa Aus/Indo.
- 4. Managing traffic performance - one alternative Who is in control? Based on which information? 4
- 5. Managing traffic performance - another alternative Who is in control? Based on which information? 5
- 6. Which is most efficient? Which is most difficult? In which are values most important? 6
- 7. The world has changed - what about the way we lead and manage? Stable Dynamic People Business environment Traditional management âTheory Xâ âTheory Yâ 7
- 8. We must change both processes and leadership Stable Dynamic âTheory Xâ âTheory Yâ Leadership Processes No traditional budgeting Relative and directional goals Dynamic planning, forecasting and resource allocation Holistic performance evaluation Values based Autonomy Transparency Internal motivation Rigid, detailed and annual Rules-based micromanagement Centralised command and control Secrecy, sticks and carrots Beyond Budgeting 8
- 9. 9 Companies on a similar journey 9
- 10. The 12 Beyond Budgeting principles Š BBRT 2013 â All rights reserved | www.bbrt.org 10 Change in leadership Governance & transparency 1. Values â Bind people to a common cause; not to a central plan 2. Governance â Govern through shared values and sound judgement; not detailed rules and regulations 3. Transparency - Make information open and transparent; donât restrict and control it Accountable teams 4. Teams - Organize around a seamless network of accountable teams; not around centralized functions 5. Trust â Trust teams to regulate and improve their performance; donât micro-manage them 6. Accountability â Base accountability on holistic criteria and peer reviews; not on hierarchical relationships Change in processes Goals & rewards 7. Goals â Set ambitious medium-term goals; not short-term fixed targets 8. Rewards â Base rewards on relative performance; not on meeting fixed targets Planning & Controls 9. Planning - Make planning a continuous and inclusive process; not a top-down annual event 10. Coordination - Coordinate interactions dynamically; not through annual budgets and planning cycles 11. Resources - Make resources available as needed; not through annual budget allocations 12. Controls - Base controls on fast, frequent feedback; not on budget variances
- 11. Performance - a growing HR/ Finance interface 11 - Yesterday Today Tomorrow? Transactions Administration Business management HR FIN Transactions Administration People & leadership SHARED SERVICES People & leadership Performance management Performance Management Business management Transactions Administration Performance -people, leadership and business Transactions Administration
- 12. Questions or comments - now or later? Bjarte Bogsnes bjbo@statoil.com + 47 916 13 843 Twitter @bbogsnes Beyond Budgeting Round Table www.bbrt.org 12
- 13. 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) 13
- 15. Back-up 15 -
- 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 â what does success look like? ⢠Most important strategic change areas ⢠Medium term horizon How do we measure progress? ⢠Indicative measure of strategic delivery ⢠5-10 KPIs, shorter/ longer term targets What is my or our contribution? My Performance Goals â˘Delivery â˘Behaviour How do we get there? ⢠Concrete actions and expected outcome (forecast) ⢠Clear deadlines and accountabilities 16
- 17. Ambition to Action example Where are we going? âStrategic objectivesâ How do we measure progress? âKey Performance Indicatorsâ How do we get there? âActionsâ People & Organisation HSE Operations Market Finance 17
- 18. More than 1400 âAmbition to Actionâsâ across the company âŚ..and more 18
- 19. A broader performance language - from narrow measurement to a holistic assessment B e h a v i o u r Deliv ery Living the values ⢠Day-to day-observations ⢠360°/ 180°/ 90° surveys ⢠People survey Ambition to Action Pressure testing KPI results: 50/50 ⢠Deliver towards the strategic objectives? ⢠How ambitious KPI targets? ⢠Changed assumptions, with positive or negative effect? ⢠Agreed actions implemented, or corrective actions initiated as needed? ⢠Delivered results sustainable? â˘Development plan â˘Rewards 19
- 20. Towards a simpler, more dynamic and self-regulating Ambition to Action process More cost conscious - less ÂŤcost cuttingÂť More event driven - less calendar driven More translation - less cascading More relative - less absolute KPIs More transparency - less secrecy Simple is n o t the same as easy!
- 21. Beyond Budgeting - why itâs different and powerful Recipe Idea Elements only The whole Management agenda coverage Granularity Beyond Budgeting Many leadership theories Complexity theory Lean, Agile, Holocracy Balanced Scorecard Budgeting TQM, ABC etc⌠21
- 22. Potential for more consistency 22 - Team Transparency Dynamics Individual Secrecy Annual
- 23. Potential for further integration Our values, our leadership profile, the Ambition to Action process and People@Statoil are key building blocks in our performance approacg 23 Classification: Inte2r0n1a5l -10-29
- 24. The Statoil Performance Process (Draft) Strategic objectives & KPI targets People & leadership Actions â˘Delivery â˘Behaviour â˘Development Execution Results â˘Evaluation â˘Learning â˘Reward and recognition Strategy & ambitions Values What How Where are we going? How do we get there? How did we do? Who we are How we work Transparency - Team - Dynamics 2015- 10-29 24
- 25. Implementation advice ⢠Create problem understanding before talking solutions ⢠Whatâs the real risk â upside vs downside ⢠Design to 80% and jump ⢠A âpull-basedâ approach ⢠âOne war but a thousand battlesâ ⢠Involve HR ⢠Donât become a fundamentalist 25
- 26. 26 Improve Start of the Statoil journey - solving a serious budget conflict The budget purposes Separate âSame number â conflicting purposesâ âDifferent numbersâ ⢠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 Budget = â˘Target â˘Forecast â˘Resource allocation Step 1 Step 2 Target What we want to happen Forecast What we think will happen Resource allocation âEvent driven - not calendar drivenâ
- 27. Financial performance - as we define it 27 - Shareholder Return Return on Capital
- 28. Budget Not OK OK OK? OK? OK? OK? OK? The mindset requiredâŚ.. Is this really necessary? Do I have a budget for this? What is good enough? How much value is this creating? Is this within my execution framework? â cost conscious from the first penny 28
- 29. âŚ..and the tools available Traditional cost budget Absolute KPIs If no KPIs found Ambition level / burn rate Relative KPIs Unit cost input/output Unit cost vs peers EBIT RoACE (abs/rel) Strategic objectives or actions only Xx Xx Xx Xx Xx Xx Xx Xx 1003,4 ~1000 âUSD/bblâ âUSD/customerâ âUSD/employeeâ â1. quartileâ âBetter than averageâ Increasing autonomy and flexibility Bottom line focus only â A simplified and cost conscious way of workingâ âMore video - less travel â 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 Detailed and annual 29
- 30. Budget problems Often weak link to strategy Very time consuming Decisions made too early and often too high up Assumptions quickly outdated Can prevent value adding activities âAccordionâ forecasting horizon Often a bad yardstick for evaluating performance 30 - Irritating itches - or symptoms of a bigger problem?
Editor's Notes
- By studying major leading-edge companies that had âabandonedâ traditional budgeting, the BBRT was able to conclude that there is an alternative to traditional budgeting. There is, however, not just one standardized management model or solution; every journey is different. Accordingly, we promote a set of principles that lead to more dynamic processes and front-line accountability; they are our âcompassâ. Organizations that follow this approach transform their management model. Members draw on the experience of others, but what they do and how they do it is up to them.
- Ambition to Action translates our strategy into Strategic objectives â where are we going and what does success look like? Key Performance Indicators â how do we measure progress? Actions â how do we get there? Individual or team goals â 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.
- 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!
- (Monica 10 min) The IT solutions supporting these processes are in two separate tools. The solutions are based on internally tailor made platforms with limited user-friendliness that make people focus more on tool than the performance process
- We want a responsible, cost conscious and commercial organisation, where people ask different and better questions before making cost decisions A budget âceilingâ is effective in keeping cost down, but also in keeping them up. The ceiling is also a âfloorâ, 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 oppositeâŚ.. 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 âeasierâ 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 âburn rateâ â(in the range of 1000)â. This solves some, but not all of the budget problems, because we donât 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 âleague tableâ 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 âmenuâ 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.