The Beyond Budgeting Principles

1

The Beyond Budgeting
Principles
Dr. Peter Bunce
Co-founder and Director, BBRT

© BBRT 2012 – All rights reserved | www.bbrt.org

“In a dozen clear principles,
The Leader's Dilemma codifies
a rethink of the conventional
management model. The
book's 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

© BBRT 2012 – All rights reserved | www.bbrt.org 2

How do we see the organization?

OR

Empower & Adapt
Command & Control Self-organizing
Self-regulating

Empowered and Adaptive Organization

 Regions, Brands/product groups, Customer
segments - each with P/L Account
Value center Customer
Strategy, Finance, HR, Value center Customer
Marketing & IT
Support
Services Value center Customer
Teams Value center Customer More:
Value center Customer Clarity
Executive team Value center Customer Simplicity
Freedom
Teams are
Accountability
accountable for Value center Customer
customer Value center Transparency
outcomes Customer
Teams are
accountable for
relative Value center Customer
improvement
‘Value zone’

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 Planning & Controls
transparent, don’t restrict and control it
9. Planning - Make planning a continuous and inclusive
Accountable teams process, not a top-down annual event
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

12 Beyond Budgeting Principles

• 1. Values • 4. Teams
• 2. Governance • 5. Trust
• 3. Transparency • 6. Accountability

Governance
Accountable
&
teams
transparency

Planning & Goals &
controls rewards

• 9. Planning • 7. Goals
• 10. Coordination • 8. Rewards
• 11. Resources
• 12. Controls


Govern
ance &
transpa

Principle #1 - Values
rency

Bind people to a common cause, not a central plan


Govern
ance &
transpa
rency

Principle #2 - Governance

Govern through shared values and sound judgement,
not detailed rules and regulations

 Sales culture significantly out balance with its systems
and controls
 Warnings by head of group regulatory risk rebuffed by
CEO
 “Risk appetite” far greater than recommended

 CEO pushed to increase earnings in CDOs – “take more
risk to earn more”
 2007 - $43b in mortgage-related assets – no big losses
looming
 Risk management analysis too late – losses of $b’s.


Govern
ance &
transpa

Principles # 3 - Transparency
rency

Make information open and transparent; don’t
restrict and control it

Beth Israel Deaconess Medical Center


Account
able

Principle #4 - Teams
teams

Organize around a seamless network of accountable
teams, not centralized functions


Some people say, “Give the
customers what they want.”. But
that’s not my approach. Our job is to
figure out what they’re going to want
before they do. I think Henry Ford
once said, “If I’d asked customers
what they wanted, they would have
told me, ‘A faster horse!’”. People
don’t know what they want until you
show it to them. That’s why I never
rely on market research. Our task is
to read things that are not yet on the
page.

Source: Isaacson, W. (2011) Steve Jobs. London: Little, Brown p334
12

Account
able

Principle #5 - Trust
teams

Trust teams to regulate and improve their own
performance; don’t micro-manage them

Houston New York
Seattle Los Angeles
Edmonton Chicago

Prof. William Ouchi


Account
able

Principle #6 - Accountability
teams

Base accountability on holistic criteria and peer
reviews, not on hierarchical relationships


Principle #7 - Goals Goals &
rewards

Set ambitious medium-term goals, not short-term
fixed targets

Svenska Handelsbanken

Alexander V Dokukin


Principle #8 - Rewards Goals &
rewards

Base rewards on relative performance, not on fixed
targets

Key Points
 Abandon the negotiated budget
 Rethink performance evaluation and rewards
 Separate targets from rewards


What is your view on people? Goals &
rewards

Theory X? Theory Y?
Attitude
We dislike work, it’s boring We need to work and be interested
Direction
We must be forced or coerced We will direct ourselves to a target
Responsibility
We would rather be directed We will seek and accept responsibility
Motivation
We are motivated by money We are self- motivated
Creativity
Most of us have little creativity We are highly creative creatures
© BBRT 2012 – All rights reserved | www.bbrt.org
17

Principle #9 - Planning Plannin
g&
controls

Make planning a continuous and inclusive process,
not a top-down annual event


Principle #9 - Planning Plannin
g&
controls


Principe #10 - Coordination Plannin
g&
controls

Coordinate interactions dynamically, not through
annual budgets

Organizations don’t need a central coordinator and controller
“Make & Sell” “Sense & Respond”
Push Pull


Principle #11 - Resources Plannin
g&
controls

Make resources available just-in-time, not just-in-case
“All we are doing is looking at the time line from
the moment the customer gives us an order to
the point when we collect the cash. And we are
reducing that time line by removing the non-
value-added wastes”
Taiichi Ohno


Principle #12 - Controls Plannin
g&
controls

Base controls on fast, frequent feedback, not on
budget variances

Reward great Set
performance Ambitions

Build Establish
Flexible Rolling
resource Forecast
allocation


Solving the budget conflict Plannin
g&
controls

The budget purposes
1. Separate 2. Improve

Target • Ambitious
What we want to • Relative KPIs where possible
happen • Holistic performance
Budget = evaluation
• Target Forecast • Unbiased – expected
What we think outcome
• Forecast will happen • Limited detail

• Resource • Dynamic – no annual
allocation Resource allocation
allocation • KPI targets, mandates,
decision gates & criteria
• Trend monitoring
“Same number – “Different numbers” “Event driven – not calendar
conflicting purposes” driven”


Stop forecasting to the wall Plannin
g&
controls

Year x Year x+1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

1st Review

2nd Review

3rd Review

4th Review

Annual
Forecast Actual Plan x+1
s

Make the annual plan the forecast
‘window’ that fits the fiscal year

Constantly managing performance gaps
Plannin
g&
controls

Net Profit
20% X
World Class “Gap”
benchmarks
Goals
10%
Baseline

2000 2001 2002 2003 2004 2005 2006 2007
Actuals Forecasts
Project initiatives Steady state changes


Design reports to fit on a page Plannin
g&
controls

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

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)


“I discovered that
the best
innovation is
sometimes the
company, the way
a company is
organized”
- Steve Jobs

Source: Isaacson, W. (2011) Steve Jobs. London: Little, Brown p334


7 tests of the new model

1. Is the model simple, low cost and relevant to its users?
2. Does it help to find and keep the right people?
3. Does it enable and encourage continuous innovation?
4. Does it drive operational excellence?
5. Does it lead to loyal and profitable customers?
6. Does it support good governance and ethical
behaviour?
7. Does it lead to sustained value creation


Implementation insights

 Think like a revolutionary
 Build an urgent case for change
 Establish a “guiding coalition”
 Create a compelling and coherent vision for change
 Communicate the vision
 Enable and encourage people to change
 Look for quick wins
 Work around resistors
 Consolidate the gains and maintain momentum


Organizations on this journey
Europe’s most
cost effective
universal bank


The BBRT today (www.bbrt.org)

 Shared learning network
 Over 50 members
 Active implementers group
 Access to all accumulated knowledge capital &
implementation guide + major diagnostic
 Access to case studies, research papers and interviews
with CFOs
 BBRT can provide courses and internal workshops
Beyond Budgeting IS the Future of
Management
© BBRT 2012 - All rights reserved | www.bbrt.org 32

Dr. Peter Bunce
BBRT
First Floor 745 Ampress Lane
Lymington, Hampshire SO41 8LW, UK
Tel: +44 1590 679803
Email: peterbunce@bbrt.org
Diagnostic web site: www.bbrtdiagnostics.org
Leader’s Dilemma web site: www.leaders-dilemma.com
Main web site: www.bbrt.org


The Beyond Budgeting Principles

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