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Bjarte Bogsnes about Beyond Budgeting at ALE2011
1. Beyond Budgeting – a new management model for new business realities Bjarte Bogsnes Vice President - Performance Management Development Chairman - Beyond Budgeting Round Table Europe
8. Which is most difficult ? In which are values most important? Which is most efficient ?
9. The world has changed – what about the way we lead and manage? People Business environment Traditional management “ Theory Y” “ Theory X” Dynamic Stable
10. We must address both processes and leadership Leadership Processes Beyond Budgeting “ Theory Y” “ Theory X” Dynamic Stable Relative and directional goals Dynamic planning, forecasting and resource allocation Holistic performance evaluation Rigid, detailed and annual Rules-based micromanagement Centralised command and control Secrecy, sticks and carrots Values based Autonomy Transparency Internal motivation
11. Companies on a similar journey Classification: Internal 2010-09-10 ” I have been waiting for this for 20 years” (CEO) (Main Norwegian cases) (Some international cases) Europe’s most cost effective universal bank Beating the competition 40 years in a row
12. The Beyond Budgeting principles 12. Controls - Base controls on relative indicators and trends, not on variances against plan 6. Customers - Focus everyone on improving customer outcomes, not on hierarchical relationships 11. Resources - Make resources available as needed, not through annual budget allocations 5. Autonomy - Give teams the freedom and capability to act; don’t micro-manage them 10. Coordination - Coordinate interactions dynamically, not through annual planning cycles 4. Organization - Organize as a network of lean, accountable teams, not around centralized functions 9. Planning - Make planning a continuous and inclusive process, not a top-down annual event 3. Transparency - Promote open information for self management, don’t restrict it hierarchically 8. Rewards - Reward shared success based on relative performance, not on meeting fixed targets 2. Performance - Create a high performance climate based on relative success, not on meeting fixed targets 7. Goals - Set relative goals for continuous improvement, don’t negotiate fixed performance contracts 1. Values - Govern through a few clear values, goals and boundaries, not detailed rules and budgets Change in processes Change in leadership
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14. Key principles – Ambition to action Performance is ultimately about performing better than those we compare ourselves with 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
17. Ambition to action example Where are we going? ” Strategic objectives” How do we measure progress? ” Key Performance Indicators” How do we get there? ” Actions” Finance Market Operations HSE People & Org.
18. Ambition to action - one size does not fit all Global Local Temporary Continuous
19. More than 1100 ”Ambition to actions” across the company … ..and more
27. A forecast – what we think will happen … not a promise, not an application for resources - whether we like what we see or not!
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31. Dynamic resource allocation – the menu Traditional cost budget Ambition level / burn rate Relative KPIs Unit cost input/output Unit cost vs peers EBIT RoACE (abs/rel) Strategic objectives or actions only Absolute KPIs No KPIs Xx Xx Xx Xx Xx Xx Xx Xx 1000 1000 ” USD/bbl” ” USD/customer” ” USD/employee” ” 1. quartile” ” Above average” Increasing freedom and flexibility Bottom line focus only ” Cost effective and competitive operations” ” More video – less travel” ” Reduce consultancy spending” 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
Editor's Notes
(NB Slide show!) Let’s move from mindset to some of the new tools we have available. On a scale towards more freedom and responsibility, traditional budgeting lies to the far left. One step is to drop the details and manage against a total cost figure only, although this still is close to a traditional budget The next step is to move from absolute to relative KPIs, either by setting unit costs targets, or by comparing own units costs with others and setting a ”league table position” target instead. Costs can be managed even more indirectly. If a unit has a profit target only, it cannot spend unlimited if the costs do not bring in additional income. It is also possible to manage without costs KPIs, and address costs only through strategic objectives and/or actions. It is recommended to select from this ”menu” based on type of business and the actual situation in each unit. The further to the right, the higher need for a strong value foundation and a clear strategic direction. Remember that we in a addition always monitor the cost trend through actual costs and forecasts. If the trend reveals irresponsible spending, we have not abdicated the right to intervene and bring such managers all the way back to the left of the scale if necessary. But we do this only when and where needed, and not for everybody like in a traditional budget..
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