BBRT - Beyond Budgeting Roundtable This page contains an archive of news items that have appeared on the BBRT Home Page since 11 December 2009.
6 December 2011
Taking reality seriously - towards a more self-regulating management model at Statoil
The Management Information Exchange (MIX) has a section devoted to “stories”, which are real-world case studies of management innovation.
Recently Bjarte Bogsnes, Vice President of Performance Managemtn DEvelopment at Statoil and chairman of the BBRT has sumbitted a story to MIX about Statoil's developments towards a self-regulating management model. Here are some quotes from the story by the CFO and CEO of Statoil:
- CFO Torgrim Reitan: "We could easily put in place a cost program instructing all business areas to reduce costs by a given number. However, I believe such a measure would work against our efforts to build a cost-conscious culture. If we want to become more fit, a crash diet does not work. It takes a change of lifestyle. I believe Statoil is made up of competent, responsible and commercially oriented people who will make the right cost decisions. This means always working hard to reduce bad cost, while protecting good cost. You know better than me what these are and where they are".
- CEO Helge Lund: "We have a management model which is very well-suited to daling with turbulence and rapid chnage. It enables us to act and re-prioritize quickly so that we can fend off threats or seize opportunities. This is much more difficult in a traditional 'budget world'."
To read the full story and comment on it: http://www.managementexchange.com/story/taking-reality-seriously-towards-more-self-regulating-management-model-statoil
11 July 2011
Wisdom of Crowds to Empower Beyond Budgeting
The Management Information Exchange (MIX) has a section devoted to “hacks”. These are boundary-pushing proposals for changing the way organizations work and leaders lead – from setting strategy to allocating resources to designing work to rewarding and compensating individuals. These are not case studies, but radical ideas and proposals.
Recently Michael Gebauer, General Manager at Cardiac Research GmbH and Franz Röösli, BBRT Director DACH submitted a hack on “Wisdom of Crowds to Empower Beyond Budgeting”. We already know that the abandoning of fixed budgets makes organizations more effective. But the new kind of planning required is always dependent on recent forecasts. Wisdom of Crowds with its “tool” prediction markets can provide these data and render the Beyond Budgeting approach even more attractive. In the article Gebauer and Röösli present an alternative, a new and flexible system of controlling with a combination of Beyond Budgeting and information markets.
To read the full hack go to: http://www.managementexchange.com/hack/better-information-better-management?utm_source=MIX+Fix&utm_campaign=87ef89583e-MIX_Fix_Mar_11_2011&utm_medium=email
21 June 2011
Beyond Budgeting in Denmark
Børsen, the Danish equivalent to the "Financial Times" had an article on 13 May 2011 about Beyond Budgeting and the Arla Foods and Coloplast cases, including interviews with both Lene Skole, Colplast CFO and Arla Foods CFO Frederik Lotz.
The article, in Danish can be downloaded by clicking this link:
CFO'en skal af med spædetrøjen.
Our Danish, Norwegian and Swedish follows and anyone else who speaks Dansih will be be able to read it.
13 April 2011
Enriching a Few at the Expense of the Many
In an article in The New York Times on 9 April Gretchen Morgensen features the views of Albert Meyer, a money manager with Bastiat Capital in Plano, Texas. Mr. Mayer, who has a background in forensic accounting, sees high pay as a sign that companies are not putting shareholders first. His research indicates that Executive pay is not only a sign of how a company views its duties to shareholders, Mr. Meyer says, but it is also a crucial tyre to kick when making investment decisions. “When compensation is excessive, that should be a red flag, does the company exist for the benefit of shareholders or insiders?”
Mr. Meyer’s favorite pay-and-performance comparison pits Statoil [a BBRT Member organization] against ExxonMobil. Statoil, which is two-thirds owned by the Norwegian government, pays its top executives a small fraction of what ExxonMobil pays its leaders. But Statoil’s share price has outperformed Exxon’s since the Norwegian company went public in October 2001. Through March, its stock climbed 22.3 percent a year, on average, Mr. Meyer notes. During the same period, Exxon’s shares rose an average of 11.4 percent annually, while the Standard & Poor’s 500-stock index returned 1.67 percent, annualized.
According to regulatory filings, Statoil paid Helge Lund, its chief executive, 11.5 million Norwegian krone in 2010 (roughly $1.8 million at the exchange rate last year). There were no stock options in the mix, but Mr. Lund was required to use part of his cash pay to buy shares in the company and to hold onto them for at least three years. By comparison, Rex W. Tillerson, the chief executive of ExxonMobil, received $21.7 million in salary, bonus and stock awards in 2009, the most recent pay figures available from the company. Mr. Tillerson’s pay is more than double the combined $8.3 million that Statoil paid its nine top executives in 2010. Other aspects of Statoil’s governance also appeal to Mr. Meyer.
He also rejects the argument that sky-high pay is necessary to attract talented managers. “Look at some of the pay at the companies my fund owns,” he says. “They prove that you don’t have to pay nosebleed compensation to attract good people.”
To read the full article click on The New York Times
26 January 2011
UK Government Moving Towards Decentralization?
The UK Coalition Government has just launched its Decentralisation and Localism Bill. To help with understanding they have launched a guide. This guide makes the case for a radical shift from the centralised state to local communities and describes the six essential actions required to deliver decentralisation down through every level of government to every citizen. In particular, its focuses on the Localism Bill which will provide the legislation for change. The six essential actions are:
- Lift the burden of bureaucracy – by removing the cost and control of unnecessary red tape and regulation, whose effect is to restrict local action
- Empower communities to do things their way – by creating rights for people to get involve with, and direct the development of, their communities
- Increase local control of public finance – so that more of the decisions over how public money is spent and raised can be taken within communities
- Diversify the supply of public services – by ending public sector monopolies, ensuring a level playing field for all suppliers, giving people more choice and a better standard of service
- Open up government to public scrutiny – by releasing government information into the public domain, so that people can know how their money is spent, how it is used and ot what effect
- Strengthen accountability to local people – by giving every citizen the power to change the services provided to them through participation, choice or the ballot box
This is not a million miles away from the message that BBRT has been spreading for the past 13 years. But as we all know it will take a lot more than just Acts of Parliament and Essential Guides to changes decades (even centuries) of top-down hierarchical command and control to the a world of empowerment and adaptability. Above all in the public sector it will take trust and a mindset change as many people in Government have no idea about how to operate in this brave new world. They are used to tight budgets and fixed targets. If the UK Government can make this happen, much waste will be cut out and the Holy Grail of ‘efficiency savings’ might be finally realized.
To download a copy of the guide go to: http://www.communities.gov.uk/publications/localgovernment/decentralisationguide
28 September 2010
HCL: Employees First, Customers Second
In his recent blog Gary Hamel has brought to our attention the fascinating story of HCL, an Indian IT Consultancy. He describes how the CEO, Vineet Nayar has completely turned the conventional management pyramid upside down in a very similar manner to Handelsbanken. At the end of his blog Gary comments that “It really is possible to change the management DNA in a large, established company—and this is where Vineet’s book really shines. It not only covers the what of management innovation, but also provides deep insights into the how. When you dig into “Employees First” you’ll learn that it’s possible to reinvent management without blowing up the existing management system, without having a detailed master plan at the outset and without taking inordinate risks.”
You can read the whole of Gary Hamel’s blog by going to: http://blogs.wsj.com/management/2010/07/06/hcl-extreme-management-makeover/ [accessed on 23 September 2010]
24 June 2010
What went wrong with Toyota? - According to Prof. Tom Johnson
In a recent article on the Lean Edge web site (http://theleanedge.org) Prof. Tom Johnson, co-author of “Profit Beyond Measure”, wrote a brilliant article about what may have gone wrong at Toyota. In his article “Financial results such as revenue, cost and profit are by-products of well-run human focused-processes”, he postulates that in his opinion the cause of Toyota’s crisis is found in its very recent surrender to Wall Street pressure to grow continuously, as virtually all large publicly-traded American businesses have attempted to do for the past 30 years or more. This includes those that pursue “lean” practices.
He maintains that the flaw in this finance-oriented growth strategy is the belief that profitability improves by taking steps aimed at increasing revenue and cutting costs. Prof. Johnson queries the approach taken by most Western companies to “lean” and the way that they have implemented it. Fundamental to this is differences between Western and Toyota management practices, particularly in the way each group thinks about “cost”. He concludes the article by saying “This is why for years and years I have said that management accounting (and its lean counterpart “lean accounting” is a meaningless concept – an oxymoron in fact. You can use accounting quantities to describe, but never to explain, understand or control.”
To read the full article (it's excellent) go to: http://theleanedge.org/?p=462
13 May 2010
Future Ready - how to master business forecasting
Rolling forecast are often at the heart of the new "control" system in Beyond Budgeting implementations. Yet many managers ahve little knowledge about good forecasting practice and how to make it a truly effective management tool. Steve Morlidge and Steve Player have written a book "Future Ready - how to master business forecasting" that does just that.
Watch a video of Steve Morlidge discussing this new book (http://www.youtube.com/watch?v=tk_GNveXIIo)
30 March 2010
The Toyota crisis and Beyond Budgeting
Toyota is an exemplar case for BBRT, however, the recent crisis at
Toyota may cause you to wonder if it is still an exemplar and if so why.
Firstly, Jim Collins points out in his new book “How the Mighty Fall”[1],
companies grow great by doing things very well and having great
principles, but they can fail by not sustaining this and going for other
objectives that are not part of their ethos. In Toyota’s case it means
that there is nothing intrinsically wrong with the Toyota Way or the
Toyota Production System, it’s just that they failed to follow this in a
dash for growth
The Lean Institute has recently made us aware that in his latest Lean
Management Column John Shook continues to explore Toyota’s quality crisis
in an in-depth conversation with author and Professor Takahiro Fujimoto of
the Manufacturing Management Research Center, University of Tokyo.
Fujimoto is a long-time Toyota observer who conducted research at Harvard
Business School with Kim Clark on Toyota’s product development system.
John Shook used to work for Toyota in Japan.
In this interview Prof. Fujimoto states that “if there is one primary
reason for the crisis, it is that this overwhelming complexity exceeded
Toyota’s organization capability.”
The interview is well worth reading and you can do this at:
http://www.lean.org/shook/. Look
for “Toyota Troubles: Fighting the Demons of Complexity”
It also appears that Toyota became arrogant about its fabled quality and
believed that they couldn’t have any quality issues. They also seem to
have switched from just focusing on the customer to striving to be the
largest car maker in the world, and look where that got GM! Even before
the crisis at Toyota, Akio Toyoda, the new CEO was trying to shake things
up by telling the staff that Toyota was already at stage 4: grasping for
salvation in Jim Collins’ five stages of decline. The recent crisis
underlines this.
There are many lessons we can all learn from Toyota, both past and
present, but clear one is that trying to be the biggest or the largest can
be a fool’s game. The only thing that matters is focusing on the customers
to ensure that your return on equity (or profit) is the best it can be and
higher than your competitors, then you stand a better chance of a
sustainable future.
[1] Collins, J. (2009) How the Mighty Fall and
why some companies never give in. Random House Business Books, London