The Human Side of Beyond Budgeting Paris 21june2016 Final

The human impacts of a Beyond
Budgeting journey
Paris, 21 June 2016
© BBRT 2016 – All rights reserved | www.bbrt.org 1

Content
• WHY should we bother?
• WHAT is Beyond Budgeting?

– With aspects on performance evaluation and bonus
• HOW do we introduce it?

Gallup:
‘State of the Global Workplace’ report, 2013
• Answers categorized as: Engaged – Not Engaged – Actively disengaged
• Worldwide, actively disengaged workers continue to outnumber engaged
workers at a rate of nearly 2-to-1.
• Worldwide, 13% of Employees Are Engaged at Work
• The vast majority of employed people are “not engaged” or “actively
disengaged”, i.e. emotionally disconnected from their workplaces and less likely
to be productive.
Gary Hamel: “The shame of management”
Indeed – but also a huge potential

Why do we see this problem almost
everywhere?
If you are not fully engaged at work:
• What is wrong?
• What are you missing?
• What should change?

A key problem:
The ‘command & control’ mindset
• Top-down hierarchies
• Separation of decision-making and work
• Performance culture = Targets combined with ‘sticks and carrots’
• Decision making based on targets, standards, budgets
• Standardization and centralization
• Managers are expected to manage people and budgets
• Micro-management
• Disconnect between what is said and done
• Focus on serving shareholders instead of customers
• Organisations are seen as machines – not organisms

What creates engagement & motivation?
- Purpose
- Mastery
- Autonomy
-
-
-
-
- Compensation
-
-
What is Management Innovation?
“Exploring news ways of leading and managing in

knowledge organisations operating in dynamic
and competitive business environments”
(Not management of innovation….)

The innovation paradox
Technology Management
innovation Leading edge! innovation
- a very crowded Uniqueness! - not yet a crowded
place place
Forefront!
What’s best practice?

Great! Scary!
Let’s call the consultants!
Same purpose: Better performance!

Content


What is Beyond Budgeting?
 It’s about Management Innovation; away from ‘command-and-control’
toward a management model that is more agile and human.
 Because: Innovative management models represent a sustainable

competitive advantage.
 It is about people: Liberating them from bureaucracy and control

systems; trusting them with information and autonomy to act.
 It’s about enabling performance: Creating conditions for great

performance to take place.

Managing traffic performance
– one alternative
Who is in control?
Based on which
information?

Managing traffic performance
– another alternative
Who is in control?
Based on which
information?

Which is most efficient?
Which is most difficult?
Where are values most important?

The world has changed
– what about the way we lead and manage?
Business environment
Dynamic
Traditional
Stable
management
”Theory X” ”Theory Y” People

We must change both processes and leadership
Processes
No traditional detailed budgets Beyond Budgeting

Relative and directional goals
Dynamic
- more agile
Dynamic planning, forecasting - more human
and resource allocation
Holistic performance evaluation
Rigid, detailed and annual Values based

Rules-based micro management
Stable
Autonomy
Centralised command and control Transparency
Secrecy, sticks and carrots Internal motivation
”Theory X” ”Theory Y” Leadership

The 12 Beyond Budgeting Principles
- from command & control to empower & adapt
Leadership principles Management processes

1. Purpose - Engage and inspire people around bold and noble 7. Rhythm - Organise management processes dynamically around
causes; not around short-term financial targets business rhythms and events; not around the calendar year
only
2. Values - Govern through shared values and sound judgement; 8. Targets - Set directional, ambitious and relative goals; avoid
not through detailed rules and regulations fixed and cascaded targets
3. Transparency - Make information open for self-regulation, 9. Plans and forecasts - Make planning and forecasting lean and
innovation, learning and control; don’t restrict it unbiased processes; not rigid and political exercises
4. Organisation – Cultivate a strong sense of belonging and 10. Resource allocation - Foster a cost conscious mind-set and
organise around accountable teams; avoid hierarchical control make resources available as needed; not through detailed
and bureaucracy annual budget allocations
5. Autonomy - Trust people with freedom to act; don’t punish 11. Performance evaluation - Evaluate performance holistically
everyone if someone should abuse it and with peer feedback for learning and development; not
based on measurement only and not for rewards only
6. Customers - Connect everyone’s work with customer needs; 12. Rewards - Reward shared success against competition; not
avoid conflicts of interest against fixed performance contracts

Does your company manage performance
through annual targets and budgets?
If so,
• Why (do you think) is this done?
• What are your experiences?

• Does it improve engagement & motivation? Why?
• Does it improve performance? Why?

Many plausible reasons for budgeting
• Setting ambitious targets
• Financial forecast for the budget period (P&L, balance sheet, cash flow)
• Allocating resources (expenses, investments, head count)
• A tool for planning and coordination
• The budget is a management tool; it helps the manager to manage his business
• A tool for communicating expectations etc.
• A tool for planning; ensuring alignment
• A tool for control; it provides a benchmark to compare against
• A tool and reference point for bonus schemes
• It forces all units to reflect on its financial performance and results

Problems with traditional budgeting
Very time consuming
Assumptions quickly outdated
Stimulates unethical behaviours
Creates illusions of control
Often weak link to strategy
Decisions made too early and often too high up
Can prevent value adding activities
“Accordion” forecasting horizon
Often a bad yardstick for evaluating performance
Irritating itches - or symptoms of a bigger problem?

Solving the budget conflict
The budget 1. Separate 2. Improve

purposes • Inspiring & stretching
Target
What we want • VUCA robust
to happen • Holistic performance evaluation
• Target
Forecast • Unbiased - expected outcome
• Forecast What we think • Limited detail
will happen
• Resource allocation
Resource • Dynamic - no detailed allocation
allocation • KPI targets, mandates, decision
What it takes gates and decision criteria
to make it happen • Trend monitoring
Same number - conflicting purposes Different numbers Event driven - not calendar driven
Source: Bjarte Bogsnes

Resource allocation - the mindset required…..
- cost conscious from the first penny
Do I have a Is this the right

budget for this? thing to do?
Is this really necessary?

Does it support our
Not OK strategy?
OK?
Budget Is it within decision
OK?
criteria & decision
authority? OK?
OK
Can we justify it? OK?
OK?

Tools available for operating expenses
Traditional
cost budget Absolute KPIs Relative KPIs If no KPIs found
Detailed Ambition level / Unit cost Unit cost vs. Bottom line Strategic objectives or
and annual burn rate input/output Increasing
peers focus only actions only autonomy and
flexibility
Xx
Xx
” A simplified and cost
Xx conscious way of working”
Xx ”USD/product” EBIT
”1. quartile” “More video - less travel
Xx Increasing
Xx ”USD/customer” ROCE ”
”Better than need for strong
Xx
Xx ”USD/employee” average” (abs/rel) ”Reduce down-time at all values and
our facilities” clear direction
1003,4 ~ 1000
Select based on what works best in your business

Monitoring of actual development, intervention if needed only

Companies on a similar journey

Content


Performance evaluation;
- one process with three different purposes
Purposes 1. Separate 2. Improve
Development • Teachable moments

Learning and growing • Build on strengths
Evaluation used for
• Development
Reward • Common - or peer based
• Reward Merit and bonus • Spot bonuses
• Legal documentation
Legal
Documentation of (bad) • Formal feedback when needed only
performance
One process – conflicting purposes Event driven, not calendar

Drop (or simplify) rating
driven where possible

Why a holistic delivery evaluation?
KPIs are Always wiser in

Fixed targets Create comfort
indicators, does hindsight,
struggle in a around ambitious
not always tell always more
dynamic world targets
the full story information
”
© BBRT 2016 – All rights reserved | www.bbrt.org
Not everything that counts can be counted, and
not everything that can be counted counts
Albert Einstein
26
A broader performance language – from narrow
measurement to a holistic assessment
Ambition to Action
D
e
• Development plan
l • Rewards
i
v
e
r
y
Pressure testing KPI results: Behaviour
• Deliver towards the strategic objectives? 50/50
• How ambitious KPI targets?
Living the values
• Changed assumptions, with positive or negative effect?
• Day-to day-observations
• Agreed actions implemented, or corrective actions
• 360°/ 180°/ 90° surveys
initiated as needed?
• People survey
• Delivered results sustainable?
Source: Statoil

Questions re. bonus
• Why do we need financial incentives on top of base salary?
– What are the underlying assumptions?
• Individual and collective bonus systems – same or different

purposes? / impact?
• If you have individual bonuses in your company;

– How well do they work?
– How do they influence behaviour?
– Benefits / disadvantages
• How else to honor great performance?

Why do
organisations on
average change
their bonus system
every second
year?
Source: Alfie Kohn – Punished by rewards
© BBRT 2016 – All rights reserved | www.bbrt.org

29
How individual is really performance in business today?
Isn’t the Lone Ranger something of the past?

The two reasons for bonuses are not related!
Recruit
Motivate
and retain
Yes, but is bonus Well, is this really

the only option? true?

Bonus and motivation - above and below
Bonus
+ Motivated (?)
- Not motivated
---
---
No bonus ---
---
---
Total
--- ---
---
Irritated motivation?
--- --- ---
--- ---
--- ---
--- ---
--- ---

Bonus and motivation - above and below
If bonus is good for motivation….

Bonus
+
- ….how come executives need the
---
---
biggest dose?
---
---
---
--- ---
---
--- --- ---
---
….are these the most boring jobs?
--- ---
---
--- ---
--- ---

Internal and external motivation
Autonomy, purpose, mastery Individual bonus

Internal motivation – from the job itself External motivation

Beliefs vs. research
The Belief: + = Increased

motivation
The Research: + = Decreased

motivation
Why?
Do this … … get that
Shifts focus - from task to reward.
Devaluates the task.

Content


Start of the Statoil journey
- solving a serious budget conflict
Step 1 Step 2
The budget purposes Separate Improve
Target • Inspiring & stretching

What we want • VUCA robust
Budget = to happen
• Holistic performance evaluation
•Target Forecast
• Unbiased - expected outcome
What we think
•Forecast will happen
• Limited detail
•Resource allocation
Resource • No detailed annual pre-allocation
allocation • KPI targets, decision authorities,
gates and criteria
What it takes to
make it happen • Trend monitoring
Same number for Different numbers Event driven, not calendar

conflicting purposes driven
37
Statoil’s implementation advice
• Create problem understanding before talking solutions
• What’s the real risk - upside vs downside
• Design to 80% and jump
• You can’t get rid of “command and control” through command and control
• Careful if starting with rolling forecasting
• Keep the cost focus
• Involve HR and Agile IT
• Don’t become a fundamentalist

More thoughts on implementation
(especially for ‘brown-field’ companies)
• Agree that it is morally wrong that only 13%* of the workforce is engaged at work
• This is also a massive productivity potential
• Confront leaders with evidence
• External: Data and cases (role models)
• Internal: Understand problems created by current system and processes
• Establish a change platform – not a change program (or a traditional project)
• Create possibilities for open discussions about new ways of working – more like “hackathons” less
like traditional “change management”
• Experiment with pilots – get confidence before going full-scale
• Create opportunities for skeptics to grow into new roles – coach and support them
• Be patient
* Global average according to Gallup’s ‘State of the Global Workplace’ report (2013)

While dismantling bureaucracy is, by definition, a
revolutionary goal, it is best accomplished through
evolutionary means.
Individuals need time to discover, adapt and test

alternatives to the bureaucratic status quo.
Gary Hamel and Michele Zanini (March 2016)
40
Impact of Management Innovation the Beyond
Budgeting way
• Faster and better decisions – more agility
• Higher productivity – less waste
• More simple processes – less bureaucracy
• More innovative workplace
• Happier customers
• More competitive company
• Better and more sustainable financial performance
• Higher degree of motivation and engagement

More on Beyond Budgeting
BBRT members’ Knowledge Base
• Case Reports
• Research Papers
• Articles (HBR, FT, etc.)
• And much more
Books
• Beyond Budgeting (Hope & Fraser, 2003)
• Reinventing the CFO (Hope, 2006)
• Implementing Beyond Budgeting (Bogsnes, 2009)
• Future Ready (Morlidge & Player, 2010)
• The Leader’s Dilemma (Hope, Bunce & Röösli, 2011)
• Beyond Performance Management (Hope & Player, 2012)

Thank you for listening!
• More information: www.bbrt.org
• Anders Olesen: aolesen@bbrt.org

+45 2510 2200

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The human impacts of a Beyond

Paris, 21 June 2016

© BBRT 2016 – All rights reserved | www.bbrt.org 1

• WHY should we bother?

• WHAT is Beyond Budgeting?

• HOW do we introduce it?

© BBRT 2016 – All rights reserved | www.bbrt.org 2

Gary Hamel: “The shame of management”

Indeed – but also a huge potential

© BBRT 2016 – All rights reserved | www.bbrt.org 3

© BBRT 2016 – All rights reserved | www.bbrt.org 4

© BBRT 2016 – All rights reserved | www.bbrt.org 5

“Exploring news ways of leading and managing in

(Not management of innovation….)

What’s best practice?

Same purpose: Better performance!

© BBRT 2016 – All rights reserved | www.bbrt.org 8

• WHY should we bother?

• WHAT is Beyond Budgeting?

• HOW do we introduce it?

© BBRT 2016 – All rights reserved | www.bbrt.org 9

 Because: Innovative management models represent a sustainable

 It is about people: Liberating them from bureaucracy and control

 It’s about enabling performance: Creating conditions for great

© BBRT 2016 – All rights reserved | www.bbrt.org 10

© BBRT 2016 – All rights reserved | www.bbrt.org 11

© BBRT 2016 – All rights reserved | www.bbrt.org 12

Where are values most important?

© BBRT 2016 – All rights reserved | www.bbrt.org 13

”Theory X” ”Theory Y” People

© BBRT 2016 – All rights reserved | www.bbrt.org 14

No traditional detailed budgets Beyond Budgeting

Rigid, detailed and annual Values based

”Theory X” ”Theory Y” Leadership

© BBRT 2015 – All rights reserved | www.bbrt.org 15

Leadership principles Management processes

© BBRT 2016 – All rights reserved | www.bbrt.org 16

• Why (do you think) is this done?

• What are your experiences?

© BBRT 2016 – All rights reserved | www.bbrt.org 17

© BBRT 2016 – All rights reserved | www.bbrt.org 18

Irritating itches - or symptoms of a bigger problem?

The budget 1. Separate 2. Improve

Source: Bjarte Bogsnes

Do I have a Is this the right

Is this really necessary?

© BBRT 2016 – All rights reserved | www.bbrt.org 21

Select based on what works best in your business

© BBRT 2016 – All rights reserved | www.bbrt.org 22

© BBRT 2016 – All rights reserved | www.bbrt.org 23

• WHY should we bother?

• WHAT is Beyond Budgeting?

• HOW do we introduce it?

© BBRT 2016 – All rights reserved | www.bbrt.org 24

Development • Teachable moments

One process – conflicting purposes Event driven, not calendar

© BBRT 2016 – All rights reserved | www.bbrt.org 25

KPIs are Always wiser in

© BBRT 2016 – All rights reserved | www.bbrt.org 27

• Individual and collective bonus systems – same or different

• If you have individual bonuses in your company;

• How else to honor great performance?

© BBRT 2016 – All rights reserved | www.bbrt.org 28