Bjarte Bogsnes, Vice President Performance Management Development at Statoil - Beyond Budgeting - A management model for new business and people realities; the Statoil implementation journey
Bjarte Bogsnes, Vice President Performance Management Development at Statoil - Beyond Budgeting - A management model for new business and people realities; the Statoil implementation journey spoke at the CFO Event UK 2013
Beyond Budgeting offers a proven and coherent alternative to serious problem in management today. The main purpose is not to get rid of budgets, but to take reality seriously, both the world around us and people in the organisation. The three different (and often conflicting) budget purposes of target setting, forecasting and resource allocation are not abolished, but separated and improved in ways not possible when all three are crammed into one annual set of budget numbers.
Beyond Budgeting offers a proven and coherent alternative to serious problem in management today. The main purpose is not to get rid of budgets, but to take reality seriously, both the world around us and people in the organisation. The three different (and often conflicting) budget purposes of target setting, forecasting and resource allocation are not abolished, but separated and improved in ways not possible when all three are crammed into one annual set of budget numbers.
Extending business performance within the organisation - The role of FinanceMehdi J. Alaoui
Finance dpt and particularly the CFO has a key role to play in the business performance implementation:
- Performance Management needs a frame: Process Management
- Momentum must be led by top management: Lead by example
- All the company need to be aligned: Integrated performance management systems rely on a comprehensive,
- Involvement and commitment of People is a key success factor
- Integrated set of Key Performance Indicators (KPIs) that manage performance throughout and across all levels of an organization
- Continuous improvement by increasing understanding of the core issues driving the performance
- Company must be leaner to be stronger and faster
Best Practices in Financial Planning and Analysis | 2013 Business Analytics S...Cartegraph
Loras College is proud to present our annual Business Analytics Symposium on March 27, 2014 at the Grand River Center in Dubuque, IA. Industry experts will share their insights about the evolving field of business analytics opportunities. Learn about everything from best practices when analyzing data to the importance and benefits of building a culture of analytics within your organization.
To learn more, secure your seat or to take advantage of group discounts visit www.loras.edu/bigdata.
When Agile teams begin to deliver products incrementally, new opportunities open up at the portfolio level, delivering strategic business value. However, the traditional approach to portfolio management — which depends upon long-range forecasting and fixed financial controls — breaks down as business environments grow more complex, leaving portfolio managers ill-equipped to reap the potential benefits of their Agile programs.
In this interactive session at Agile2014, SolutionsIQ Managing Director John Rudd introduced tools that help portfolio managers not only survive but thrive under conditions of high business uncertainty. Participants took part in facilitated team-based exercises which helped them gain an understanding of common financial language, real options analysis, the dynamic business case, and how to use risk profiles to determine which financial controls best fit different classes of investments.
Better Project Selection using Hoshin Planning and Balanced ScorecardsGrant Crow
Picking the right projects is key to maximizing the impact of an investment in lean six sigma. This presentation looks at how to combine best practices such as Hoshin Planning and Balanced Scorecards with Operational Excellence to create an improvement system that ensures that projects align with business objectives and drive execution of the desired results.
At the beginning of a six sigma journey, many companies choose projects driven by local agendas and problems. The focus tends to be tactical. This however can be a common trap. The company has invested in training of belts, staffing the function etc and the projects acted upon are tactical. This can lead to senior executives losing interest in six sigma as they are not seeing the link into their own strategic objectives.
So leaders need to be very clear in their articulation of what they are trying to achieve together with the assumptions behind this. The Hoshin X matrix concept is a very powerful tool to facilitate this and is used to capture and cascade goals and then enable tight alignment of initiatives to these goals. Once this has taken place, regular reviews need to take place and these are facilitated by bowling charts.These charts help the team to stay focused on the critical things even when day to day business tries to distract them.
Hoshin is really a systematic to get everybody focused on the achievement of clear objectives. The first step requires deciding on 3 - 5 medium term breakthrough objectives. We emphasize breakthrough as these objectives should not be business as usual. These are then converted into annual breakthrough objectives and in turn, these are cascaded either directly into supporting initiatives and projects or annual improvement priorities which are supported by projects. The process creates a red thread from the medium term objectives all the way down to the actions required to deliver on them, the responsible people and the KPI's (both leading and lagging) that will be used to measure progress.
Management Reporting and Innovation - IPA Conference 2015Chris Catto
Management Reporting that Drives Innovation and Entrepreneurship. IPA NSW Conference Presentation on how Management Reporting can be a catalyst for innovation.
Delivering Value with Financial Performance: Leading FP&A Practices of High-G...Proformative, Inc.
The FP&A organization along with the rest of finance is undergoing a transformation, with increasing responsibilities and their accompanying challenges, all of which have to be undertaken with limited resources. FP&A leaders, like their peers in other finance groups, are being asked to elevate their focus and extend their reach across the organization, while still delivering on traditional blocking and tackling activities. Hear from FP&A leaders who have created significant company value while navigating high growth business environments. Learn how best practices – on KPIs, planning cycles, rolling forecasts, and other techniques – have enabled high performance, both for their functions and for their overall business.
Speakers: Eileen Tobias, Sr. Director of FP&A, NetSuite
Eric Zimmerman, Manager of Financial Planning and Analysis, Infusionsoft
Presentation delivered at ProformaTECH 2014 - http://www.proformatech.com
Track: Operational Advantage | Session: 4
Many organisations struggle to react fast when the world changes, as they often rely on top-down processes and long term strategy plans. Organisations need to reimagine how they do strategy if they want to keep up in times of uncertainty and be fit for the future.
Building an agile strategy calls for more than organisational refinements, procedural adjustments and new tools. Challenging the status quo and igniting a discussion about new ways of strategising is the way forward.
2. ICV Kongres controllera, Bjarte Bogsnes, Vice President Performance Manage...Menadžment Centar Beograd
Bjarte je glavni controller norveške naftne kompanije STATOIL, koja je 30 puta veća od NIS a.d. Bjarte je pričao o konceptu Beyond Budgeting. Koncept Beyond Budgeting podrazumeva da kompanija nema proces budžetiranja. To znači da oni nemaju fiksne planove i da ne postoji proces izrade budžeta koji obično počinje u septembru i završava se u decembru
Extending business performance within the organisation - The role of FinanceMehdi J. Alaoui
Finance dpt and particularly the CFO has a key role to play in the business performance implementation:
- Performance Management needs a frame: Process Management
- Momentum must be led by top management: Lead by example
- All the company need to be aligned: Integrated performance management systems rely on a comprehensive,
- Involvement and commitment of People is a key success factor
- Integrated set of Key Performance Indicators (KPIs) that manage performance throughout and across all levels of an organization
- Continuous improvement by increasing understanding of the core issues driving the performance
- Company must be leaner to be stronger and faster
Best Practices in Financial Planning and Analysis | 2013 Business Analytics S...Cartegraph
Loras College is proud to present our annual Business Analytics Symposium on March 27, 2014 at the Grand River Center in Dubuque, IA. Industry experts will share their insights about the evolving field of business analytics opportunities. Learn about everything from best practices when analyzing data to the importance and benefits of building a culture of analytics within your organization.
To learn more, secure your seat or to take advantage of group discounts visit www.loras.edu/bigdata.
When Agile teams begin to deliver products incrementally, new opportunities open up at the portfolio level, delivering strategic business value. However, the traditional approach to portfolio management — which depends upon long-range forecasting and fixed financial controls — breaks down as business environments grow more complex, leaving portfolio managers ill-equipped to reap the potential benefits of their Agile programs.
In this interactive session at Agile2014, SolutionsIQ Managing Director John Rudd introduced tools that help portfolio managers not only survive but thrive under conditions of high business uncertainty. Participants took part in facilitated team-based exercises which helped them gain an understanding of common financial language, real options analysis, the dynamic business case, and how to use risk profiles to determine which financial controls best fit different classes of investments.
Better Project Selection using Hoshin Planning and Balanced ScorecardsGrant Crow
Picking the right projects is key to maximizing the impact of an investment in lean six sigma. This presentation looks at how to combine best practices such as Hoshin Planning and Balanced Scorecards with Operational Excellence to create an improvement system that ensures that projects align with business objectives and drive execution of the desired results.
At the beginning of a six sigma journey, many companies choose projects driven by local agendas and problems. The focus tends to be tactical. This however can be a common trap. The company has invested in training of belts, staffing the function etc and the projects acted upon are tactical. This can lead to senior executives losing interest in six sigma as they are not seeing the link into their own strategic objectives.
So leaders need to be very clear in their articulation of what they are trying to achieve together with the assumptions behind this. The Hoshin X matrix concept is a very powerful tool to facilitate this and is used to capture and cascade goals and then enable tight alignment of initiatives to these goals. Once this has taken place, regular reviews need to take place and these are facilitated by bowling charts.These charts help the team to stay focused on the critical things even when day to day business tries to distract them.
Hoshin is really a systematic to get everybody focused on the achievement of clear objectives. The first step requires deciding on 3 - 5 medium term breakthrough objectives. We emphasize breakthrough as these objectives should not be business as usual. These are then converted into annual breakthrough objectives and in turn, these are cascaded either directly into supporting initiatives and projects or annual improvement priorities which are supported by projects. The process creates a red thread from the medium term objectives all the way down to the actions required to deliver on them, the responsible people and the KPI's (both leading and lagging) that will be used to measure progress.
Management Reporting and Innovation - IPA Conference 2015Chris Catto
Management Reporting that Drives Innovation and Entrepreneurship. IPA NSW Conference Presentation on how Management Reporting can be a catalyst for innovation.
Delivering Value with Financial Performance: Leading FP&A Practices of High-G...Proformative, Inc.
The FP&A organization along with the rest of finance is undergoing a transformation, with increasing responsibilities and their accompanying challenges, all of which have to be undertaken with limited resources. FP&A leaders, like their peers in other finance groups, are being asked to elevate their focus and extend their reach across the organization, while still delivering on traditional blocking and tackling activities. Hear from FP&A leaders who have created significant company value while navigating high growth business environments. Learn how best practices – on KPIs, planning cycles, rolling forecasts, and other techniques – have enabled high performance, both for their functions and for their overall business.
Speakers: Eileen Tobias, Sr. Director of FP&A, NetSuite
Eric Zimmerman, Manager of Financial Planning and Analysis, Infusionsoft
Presentation delivered at ProformaTECH 2014 - http://www.proformatech.com
Track: Operational Advantage | Session: 4
Many organisations struggle to react fast when the world changes, as they often rely on top-down processes and long term strategy plans. Organisations need to reimagine how they do strategy if they want to keep up in times of uncertainty and be fit for the future.
Building an agile strategy calls for more than organisational refinements, procedural adjustments and new tools. Challenging the status quo and igniting a discussion about new ways of strategising is the way forward.
Similar to Bjarte Bogsnes, Vice President Performance Management Development at Statoil - Beyond Budgeting - A management model for new business and people realities; the Statoil implementation journey
2. ICV Kongres controllera, Bjarte Bogsnes, Vice President Performance Manage...Menadžment Centar Beograd
Bjarte je glavni controller norveške naftne kompanije STATOIL, koja je 30 puta veća od NIS a.d. Bjarte je pričao o konceptu Beyond Budgeting. Koncept Beyond Budgeting podrazumeva da kompanija nema proces budžetiranja. To znači da oni nemaju fiksne planove i da ne postoji proces izrade budžeta koji obično počinje u septembru i završava se u decembru
What ISO Management Systems can learn from Balanced Scorecard?PECB
Balanced Scorecard is a Strategy Management System developed by Professors Kaplan and Norton. It is probably the most comprehensive system/tool in the modern world. It allows an organization balance its Strategy across 4 perspectives (Financial, Customer, Internal Process and Learning and Growth Perspectives). It further lets an organization break down each of these 4 perspectives based on 4 criteria which are Objectives, Measures, Target and Initiatives. There is a lot that ISO Implementers and Auditors need to learn from a Balanced Scorecard that will help in better delivering ISO engagements. This webinar will take a critical look at what is Balanced Scorecard and what ISO Consultants need to know to about it.
Main points covered:
• What is a Balance Scorecard?
• How Balance Scorecard allows organization to balance its Strategy across 4 perspectives (Financial, Customer, Internal Process and Learning and Growth Perspectives)
• How an organization breaks down each 4 perspective based on 4 criteria (Objectives, Measures, Target and Initiatives)
Presenter:
This webinar was presented by Orlando Olumide Odejide, who is the Chief Trainer for Training Heights Limited. Orlando is an experienced Enterprise Architect and Programme Director working on various technology solutions including SharePoint, SQL Server, Oracle, SAP, Odoo and Qlikview Technologies for clients in the Financial Services, Government and Manufacturing Sectors.
Link of the recorded session published on YouTube: https://youtu.be/XPPj9XhXl0s
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To view recording: https://youtu.be/4RQF-oUMgcw or watch the video at end of the slide
This webinar is designed as a practical guide to using the Balanced Scorecard.
The Balanced Scorecard is a system used extensively in business and industry, government, and non-profit organisations worldwide to align business activities to the vision and strategy of the organisation, improve internal and external communications, and monitor organisation
performance against strategic goals.
The Balanced Scorecard was originated by Drs Robert Kaplan (Harvard Business School) and David Norton as a framework to help managers consider both financial and non-financial aspects of their business and design performance metrics around them.
While the phrase Balanced Scorecard was coined in the early 1990s, the roots of this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the Tableau
de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century.
About the Presenter:
Ian has over 30 years of business experience ranging from senior management positions, in such companies as Ericsson to founding and selling his own companies. Ian designs and delivers training programmes globally with particular attention to the GCC nations. He works in many
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The Balanced scorecard is a management system that enables organizations to clarify their vision and strategy and translate them into action.
Provides an organization with feedback of both the internal business processes and external outcomes, which allows for continuous improvement of strategic performance and results.
Nerve center of an enterprise
The term “scorecard” signifies quantified performance measures and “balanced” signifies the system is balanced between:
Short-term and long term objectives
Financial and non-financial measures
Lagging and leading indicators
Internal and external performance perspectives
The concept of the balanced scorecard was first touted in the Harvard Business Review in 1992 in a paper written by Robert S Kaplan and David P Norton.
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The balanced scorecard is centered on four performance metrics or perspectives:
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Internal processes
Financial
Learning and growth
When implemented properly, each one of these perspectives contains four subparts consisting of
Objectives
Measures
Targets
Initiatives
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Bjarte Bogsnes, Vice President Performance Management Development at Statoil - Beyond Budgeting - A management model for new business and people realities; the Statoil implementation journey
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. Statoil in brief
• Turnover and market cap
approx. 130 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
6. Which is most efficient?
Which is most difficult?
In which are values most important?
7. The world has changed what about the way we lead and manage?
Stable
Dynamic
Business
environment
Traditional
management
”Theory X”
7-
”Theory Y”
People
8. 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
9. 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
9-
Change in processes
12. Controls - Base controls on relative indicators and
trends, not on variances against plan
14. 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
15. 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”
16. More than 1400 ”Ambition to Actions”
across the company
…..and more
17. 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
18. 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!
19. Questions or comments - now or later?
Bjarte Bogsnes
bjbo@statoil.com
+ 47 91 61 38 43
@bbogsnes
Beyond Budgeting Round Table
www.bbrt.org
20. 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)
22. 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?
23. …..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
25. Key principles - Ambition to Action
Performance is
ultimately about
performing
better than
those we
compare
ourselves with
25 -
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
26. 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
27. A forecast – what we think will happen
- whether we like what we see or not!
… not a promise,
not an application for resources
28. A forecast is a call to action
Get issues on the radar
screen early enough …
… to be able to take
corrective actions
Editor's Notes
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.
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.
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!
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.