1. business and industrial

Moving Beyond Budgeting
How to build an empowered and adaptive
organization
About the Speakers
Pierre Guillaume
Pierre has more than 25 years of experience as a management
consultant and specializes in cost management, advanced planning and
budgeting, and business strategy development. Pierre has been
responsible for cost, performance management, planning and budget
systems, and strategic information systems implementations for clients
in a variety of industries in the North America, Europe, and Asia.
Pierre is the President of Beyond EPS Advisors, a Dallas-based
consulting firm associated with the BBRT, which he co-formed after
leaving Capital One where he ran the cost budgeting, forecasting and
planning function. Prior to Capital One, Pierre was the North-East
Region Strategic Cost and Performance Management Practice leader
with Arthur Andersen.
Pierre ‘s work in the field of performance management has been
documented and recognized by a number of Harvard Business School
case studies. Pierre is a frequent speaker on advanced costing,
planning and business strategy. He has also taught accounting and
financial management at the Université de Paris and business strategy
at the Centre de Perfectionnement aux Affaires in Paris.
2
About the Speakers
David Bullinger
David brings extensive operations and strategy leadership skills to the
challenges of today’s business environment. Over the last 20 years, David
has achieved measurable results developing and leading efforts in processbased techniques, restructuring, profit and productivity enhancement,
process re-engineering, performance management, and business strategy
execution across a wide range of industries both domestically and
internationally.
David is a board member of both the MarketShare Group, a privately held
integrated advertising, consulting, and marketing-communications firm; and,
Oncore Technology, a next generation medical waste management firm.
David has served as interim Chief Operating Officer of Primedia Productions,
a division of Primedia, Inc. (a New York-based integrated media company),
guiding revenue increase through franchise expansion while streamlining
operations and enterprise integration resulting in millions of dollars of
savings. In addition to BBRT, David serves a founding partner of The Galt
Group, a Dallas-based strategy and operations management consulting firm.
He was formerly a Director in a brand and strategy consulting firm (now the
Mitchell Madison Group) serving client needs in the areas of business
design, strategy development and deployment, as well as performance
management and operations enhancement.
3
What is the Beyond Budgeting Round Table?
A
member-based network of organizations focused on
improving planning, forecasting and control, and
ultimately overall performance
 BBRT helps organizations implement global best
practices in planning and control
 Disseminates front-line implementation experience and
identifies the keys to success
 Continuously improves adaptive planning and control to
increase profits
4
The Story so far
2003
2009
2011
5
Why does it seem like everyone is discussing
Beyond Budgeting?
“Why you should ditch
your annual budget”
The Leader’s Dilemma Book 2011
“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
7
The Leaders Dilemma
TABLE OF CONTENTS
1. Principle #1- Values
Bind people to a common cause, not a central plan
2. Principle #2- Governance
Govern through shared values and sound judgment, not detailed rules and regulations
3. Principle #3- Transparency
Make information open and transparent; don’t restrict and control it
4. Principle #4- Teams
Organize around a seamless network of accountable teams, not centralized functions
5. Principle #5-Trust
Trust teams to regulate and improve their performance; don’t micro-manage them
6. Principle #6- Accountability
Base accountability on holistic criteria and peer reviews, not on hierarchical relationships
7. Principle #7- Goals
Set ambitious medium-term goals, not short-term fixed targets
8. Principle #8- Rewards
Base rewards on relative performance, not fixed targets
9. Principle #9- Planning
Make planning a continuous and inclusive process, not a top-down annual event
10. Principle #10- Coordination
Coordinate interactions dynamically, not through annual budgets
11. Principle #11- Resources
Make resources available just-in-time, not just-in-case
12. Principle #12- Controls
Base controls on fast, frequent feedback, not on budget variances
13. Implementation insights
14. Make Management Change your Legacy
8
What is the Beyond Budgeting Round Table?
1. Gain
awareness
• Website
• Articles/Books
• Conferences
BBRT
spreading
the word
• www.bbrt.org
• HBR article Feb. 2003
• ‘Beyond Budgeting’
book published
by HBSP 2003
• Conferences
• Public workshops
• Diagnostic tool at
www.project.bbrt.org.
2. Relate
concepts
• Public workshops
• Diagnostic tool
3. Make
the case
• In-house workshops
• Case for change
• Vision and plan
4. Implement
the model
5. Keep on
evolving it
• Refine processes
• Deepen devolution
• Design
• Processes
• Devolution
BBRT
membership
Advanced
Implementers
An international network for organizations,
who are evaluating and implementing
“beyond budgeting”, to (a) share experience,
and (b) sponsor research into issues of
common Interest to find
practical solutions.
A group for individuals with advanced
understanding and leadership roles to
share “beyond budgeting” experience
through mutual contribution.
Interest
groups
e.g. Processes, Devolution,
Tools, Country …
New members
Half-day meetings for
individuals in member
companies to introduce
them to BB concepts
Membership deliverables
• On joining, all cases since 1998
• Main and group meetings
• Research results
• BBRT international exchange
Other
member benefits
• Diagnostic/survey tool
• Support to get started
• Discounts on courses
9
Selected North America BBRT members
•
•
•
•
•
•
•
•
•
•
Adaptive Planning
Agility Consulting
Allstream
American Century Investments
Beyond EPS Advisors
Butler Health System
Cancer Treatment Centers of
America
Covanta Energy
DAI
Hollister
•
•
•
•
Holt CAT
IBM
JR Simplot
Kaiser Permanente
•
•
•
•
•
•
•
•
•
•
•
MD Anderson Cancer Center
Monongahela Valley Hospital,
Inc.
Mutual First Credit Union
NANA Management Services
The Player Group
Statoil
Susquehanna Health
UMass Memorial Healthcare
VHA
Wellspan
William Blair & Company
Does not include international BBRT members
10
Agenda
• Change Formula D x V x F > R
• D = Dissatisfaction with Budgeting
– The seven problems with the traditional budgeting process
• V = Vision the Change
– The 12 BBRT Principles
• F = First steps to Approaching Change
– Revolutionary vs. Evolutionary
– Case Studies
• R = Overcoming Resistance to Change: The Keys to Success
11
The formula for successful change
DxVxF>R
Where:
D = Dissatisfaction
V = Vision for change
F = Known first steps
R = Resistance to change
12
Agenda
• Change Formula D x V x F > R
• D = Dissatisfaction with Budgeting
– The seven problems with the traditional budgeting process
• V = Vision the Change
– The 12 BBRT Principles
• F = First steps to Approaching Change
– Revolutionary vs. Evolutionary
– Case Studies
• R = Overcoming Resistance to Change: The Keys to Success
13
What is the Budgeting Process?
Goals and
strategic guidelines
“Keeping
on track”
Set targets
Align incentives
Agree actions
Allocate resources
Coordinate plans
Budget
Fixed performance
Contract
•
Period [One year]
•
Target [Fixed]
•
Resources [Allocated]
•
Control [Monthly]
•
Rewards [Predetermined]
•
Agreed by [Negotiation]
•
Signed by [Mgr/Dir]
Control performance
14
How does the traditional budgeting process work?
 “You
know the drill….”
 “It’s an enervating exercise in minimalization.”
 “Why is this game played…”
15
D = Dissatisfaction
Seven Key Problems with Traditional Budgeting
1.
Budgets take too long to prepare (often making them out of date when
published)
2.
Budgets cost too much
3.
Budgeting is based on assumptions that are nearly always wrong
4.
Budgeting causes gaming that erodes the ethical foundation of the
company
5.
Budgeting triggers unnecessary spending
6.
Budgeting gives the illusion of control by robbing potential
7.
In the words of Jack Welch, “It [Budgeting] brings out the most
unproductive behaviors in an organization…”
(Jack Welch, “Winning,” p. 189)
16
1. Budgeting Takes too Long
 On
average it takes 4 months and 20-30% of senior executives
and financial managers’ time.
 Some
organizations take six to nine months.
17
2. Budgeting Costs too Much
 Hackett
Group found that organizations spend 25,000 man days
on budgeting and planning per $1 billion of revenue
 Many
managers believe the high costs in human resources,
systems support and senior management time provides little
value
18
How does your planning department spend their
time?
Financial Analyst Time
Providing valueadded analysis
23%
Collecting and
validating
the data
47%
Administering
the process
30%
SOURCE: APQC / BBRT Research
19
3. Budgeting is Based on Assumptions that are
Nearly Always Wrong
Forecasts
Mechanical switches
Actuals
Electronic
switches
Source: Jan Wallander, Budgeten – ett onödigt ont, 1994, p24
20
At what point do you expect your annual budget
targets to become obsolete?
Budget Target Life Span
80%
71%
70%
74%
64%
60%
50%
40%
32%
30%
Typical Year
20%
10%
8%
0%
Before the year
begins/ already
have
1 - 3 months into 4 - 6 months into 7 - 9 months into 10 - 12 month
the fiscal year
the fiscal year
the fiscal year into the fiscal year
CFO Magazine 2009
21
4. Budgeting causes gaming that erodes
your ethical foundations
The budgeting exercise is a game of liar’s
Poker…
…that destroys your ethical foundation
22
5. Budgets Trigger Unnecessary Spending
Creating a ceiling…
…and also a floor on
costs
23
6. Budgeting Gives the Illusion of Control…
POTENTIAL
Actual performance is predictable with a
tendency to come back to plan, but
below true potential as surplus
resources are held in reserve rather
than deployed as investment.
ESTIMATE
BUDGET
i.e.
commitment
ACTUAL
Actual results dip as a result of
underinvestment due to the
pressure to meet targets
…through sub-optimized performance
24
7. Budgeting “brings out the most unproductive
behaviors in an organization…
… from sandbagging to mediocrity”
Quote from - Jack Welch, “Winning”
25
Agenda
• Change Formula D x V x F > R
• D = Dissatisfaction with Budgeting
– The seven problems with the traditional budgeting process
• V = Vision the Change
– The 12 BBRT Principles
• F = First steps to Approaching Change
– Revolutionary vs. Evolutionary
– Case Studies
• R = Overcoming Resistance to Change: The Keys to Success
26
The Tortoise and the Hare
27
Predict & Control is unhinged from Reality
Reality
28
Command and Control Management Model
Management Control
Strategy
Alignment
Execution
Micromanagement
10-20% of costs
Targets,
budget
contracts
and
incentives
Balanced scorecards
KPI dashboards
CPM/BI Systems
ABC systems
CRM systems
EVA models
Risk models
Control
Accountable
for targets &
budgets
29
Pressures on Command & Control
Power from supply or
demand chain
Shorter life cycles of
products, strategies
& business models
Falling entry costs
into new markets
Innovation: anyone,
anywhere, anytime
30
More Compliance and Control is NOT the Answer
More… planners, target setters, inspectors, controllers, compliance officers,
internal auditors, risk managers, project teams, consultants, analysts and
advisers
Management Control
Strategy
Alignment
Execution
Micromanagement
10-20% of costs
Targets,
budget
contracts
and
incentives
Balanced scorecards
KPI dashboards
CPM/BI Systems
ABC systems
CRM systems
EVA models
Risk models
Control
Accountable
for targets &
budgets
31
Decline and Fall of Management Control
 ‘Shareholder
value’ became an obsession
 Aggressive targets and incentives encouraged the wrong
behavior
 Regulation and risk management has failed
 Central control is more difficult and expensive
 Trust has declined
 Employees are neither engaged nor empowered
32
Gary Hamel:
Challenging the Ideology of Management
Industrial revolution
Efficiency
Division of labor
Employees manufacture products and services
Managers manufacture control
Source: Hamel, G., (2012) What Matters Now. San Francisco, Jossey-Bass
33
We need new Metaphors for Management
 Organization are obedient machines
 Organization are adaptive systems
 Organizations are a collection of
replaceable parts (parts determine the
performance of the whole)
 Organizations are whole systems (the
whole system determines
performance)
 Organizations comprise of ‘cause-andeffect’ relationships that are
predictable
 Organizations are webs of
relationships that are unpredictable
 Organizations need central planning,
coordination and control
 Organizations are self-organizing and
self-regulating
 Change is integrative and adaptive
 Change is reactive and project-driven
34
Different Models Lead to Different Styles of Management
(CEO’s Vision)
Command and Control
Empower and Adapt
 Aim is to bind people to a plan
 Aim is to bind people to a cause
 Governance is based on rules and
regulations
 Governance is based on values and
judgment
 Information is bounded and restricted
 Information is unbounded and
transparent
 Natural organization form is
functional hierarchy
 Natural organization form is teambased network
 Teams are micro-managed
 Teams are trusted to make decisions
 Teams are accountable for narrow
targets
 Teams are accountable for holistic
success criteria
35
Different Models Lead to Different Styles of Management
(CFO’s Vision)
Command and Control
Empower and Adapt
 Goal is to meet a short-term fixed target
 Goal is to continuously improve relative
to peers
 People are rewarded based on meeting
short-term targets
 Teams are rewarded based on relative
improvement
 Strategy is an annual top-down event
 Strategy is a continuous and inclusive
process
 Plans are coordinated centrally through
annual planning cycles
 Plans are coordinated locally based on
dynamic interactions
 Resources are available just-in-case
 Resources are available just-in-time
 Control comes from centrally agreed
budgets
 Control comes from fast, frequent
feedback
36
Empowered and Adaptive Organization
 Regions, Brands/product groups, Customer
segments - each with P/L Account
Strategy, Finance, HR,
Marketing & IT
Support
Services
Teams
Executive team
Teams are
accountable for
customer
outcomes
Teams are
accountable for
relative
improvement
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
More:
Value center
Customer
Clarity
Value center
Customer
Simplicity
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
Value center
Customer
‘Value zone’
Freedom
Accountability
Transparency
37
Exemplars of the new vision
Beating the
competition 40 years
in a row
Europe’s most cost
effective universal
bank
38
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
central plan
7. Goals – Set ambitious medium-term goals; not shortterm fixed targets
2. Governance – Govern through shared values and
sound judgement, not detailed rules and regulations
8. Rewards – Base rewards on relative performance; not
on meeting fixed targets
3. Transparency - Make information open and
transparent, don’t restrict and control it
Planning & Controls
Accountable teams
9. Planning - Make planning a continuous and inclusive
process, not a top-down annual event
4. Teams - Organize around a seamless network of
accountable teams, not around centralized functions
10. Coordination - Coordinate interactions dynamically,
not through annual budgets and planning cycles
5. Trust – Trust teams to regulate and improve their
performance; don’t micro-manage them
11. Resources - Make resources available as needed,
not through annual budget allocations
6. Accountability – Base accountability on holistic
criteria and peer reviews; not on hierarchical
relationships
12. Controls - Base controls on fast, frequent feedback;,
not on budget variances
39
Principle #1 - Values
Bind people to a common cause, not a central plan
 Agree
a noble purpose above
and beyond shareholder value
 Establish clear and inviolate
values based on truth,
transparency and trust
 Use a written constitution if this
helps to clarify the issues
 Communicate values at every
opportunity
 Include “values” in the
performance evaluation system
 Place ethics before profit
 Promote a culture of love and
care
40
Principle #2 - Governance
Govern through shared values and sound judgment,
not detailed rules and regulations






“I’ve never had control and I never wanted it. Of you
create an environment where the people truly
partcipate, you don’t need control. They know what
needs to be done, and they do it.’ - Herb Kelleher,
Chairman Emeritus, Southwest Airlines


Build a diverse and empowered board.
Engage he board in risk management.
Understand the key drivers of risk.
Promote a culture of truth,
transparency and trust.
Define success in terms of continuous
relative improvement.
Appoint inspirational leaders who
empower rather than control.
Promote leaders from within.
Focus on the person, not the pay.
41
Principles # 3 - Transparency
Make information open and transparent; don’t
restrict and control it
 Make
It is hard to feel
empowered if your
manager has a lot of data
you don’t.
HCL CEO Vineet Nayar
information open and
transparent
 Publish the costs of everything
 Teach people to understand the
meaning of measures and reports
 Share bad news immediately
 Make hiding or manipulating
information and firing offence
 Ensure that data are clean and
accurate
 Operate with “one version of the
truth”
42
Principle #4 - Teams
Organize around a seamless network of accountable
teams, not centralized functions
Give teams real autonomy
over decision-making and
problem solving
 Turn the organization on its side to face
the customer.
 Create as many value centers as possible.
 Make the executive team accountable for
becoming effective resource managers.
 Make support services teams accountable
for becoming more efficient back-office
managers and more effective business
partners.
 Make value center teams accountable for
satisfying customer needs at the lowest
cost.
John Mackey, Co-CEO, Whole Foods Market on teams: “Work also can be a calling – ultimately,
this is what people strive for, as team members and employers: that as many people as possible
are engaged in work that feels like a calling.”
43
Principle #5 - Trust
Trust teams to regulate and improve their own
performance; don’t micro-manage them
 Provide strategic and operating
boundaries
 Provide trust and confidence for
empowerment to be “taken”
 Integrate information in the [level
work]
 Manage by exception
44
Principle #6 - Accountability
Base accountability on holistic criteria and peer
reviews, not on hierarchical relationships
 Ensure that accountability naturally flows
toward the customer
 Hold teams accountable for meeting their
agreed success criteria
 Use peer reviews to evaluate accountability
 Design jobs and projects to align flow and
accountability
 Ensure that accountability means full
transparency and disclosure
 Be wary about matrix management
45
Principle #7 - Goals
Set ambitious medium-term goals, not short-term
fixed targets
Alexander V Dokukin
 Abandon the obsession with
shareholder value
 Avoid giving specific earnings
promises to analysts and investors
 Set relative improvement goals
 Use peer comparison to challenge
and stretch, not judge and blame
 Be careful with league tables
 Balance competition and
cooperation
46
Principle #8 - Rewards
Base rewards on relative performance, not on fixed
targets
 Assume that people are motivated
by self-fulfilment, not financial
incentives
 Base rewards on team rather than
individuals
 Evaluate and reward team
performance “with hindsight”
 Give everyone a stake in success
 Be wary of share options and
restricted stock grants
 Take employee recognition seriously
Key Points
• Abandon the
negotiated budget
• Rethink performance
evaluation and
rewards
• Separate targets from
rewards
47
Principle #9 - Planning
Make planning a continuous and inclusive process,
not a top-down annual event
48
Principle #10 - Coordination
Coordinate interactions dynamically, not through
annual budgets
Organizations don’t need a central coordinator and controller
While American and European firms
were pursuing strategies based on
“economies of scale,” Toyota was
concentrating on “economies of
flow.”
 Design Coordination into the system
 Switch the management model from
“make-and-sell” (or build and plan) to
“sense-and-respond” (or build to
order).
 Use front-line teams and IT to improve
efficiency and responsiveness
 Use ad hoc agreements to enable realtime coordination
 Work in partnership with strategic
suppliers
Principle #11 - Resources
Make resources available just-in-time, not just-in-case
 Align investments with the best
current business opportunities
 Design and use a standardized
decision process
 Give teams more accountability for
cost management
 Use an internal market to enable
teams to acquire products and
services when needed
 Manage cost drivers rather than cost
centers
50
Principle #12 - Controls
Base controls on fast, frequent feedback, not on
budget variances
“We have a management model which is
very well-suited to dealing with turbulence
and rapid change. It enables us to act and
reprioritise quickly so that we can fend off
threats or seize opportunities. This is much
more difficult in a traditional «budget
world».
“One of the main principles in our Ambition
to action concept is that Statoil consists of
mature, professional and able people who
both can and want to accept responsibility.”
- Heige Lund, CEO, Statoil
 Enable each team to regulate its
performance
 Know your values and boundaries
 Know where you are, where you’re
going, why the trend is changing and
what action to take
 Turn dumb KPIs into intelligent analytics
 Know how you’re doing against peers,
best practices and market movements
 Know if your strategy is working
 Open up information to peer scrutiny
and review
 Maintain a healthy scepticism about
measurement
51
Agenda
• Change Formula D x V x F > R
• D = Dissatisfaction with Budgeting
– The seven problems with the traditional budgeting process
• V = Vision the Change
– The 12 BBRT Principles
• F = First steps to Approaching Change
– Revolutionary vs. Evolutionary
– Case Studies
• R = Overcoming Resistance to Change: The Keys to Success
52
The Revolutionary Approach
 Seen
in more early BBRT research.
 Most early European cases; Mature US examples
 Heavily influenced by organizations that had dramatically
different practices in planning and control.
 Case Examples
• Handelsbanken
• Ahlsell
• Statoil
• Guardian Industries
• SlimFast
53
The Evolutionary Approach
 Seen
in newer BBRT research.
 Mostly North American; newer implementations
 Adopts the Beyond Budgeting principles on a more gradual
approach while still utilizing some form of traditional budgeting
(until the budget goes away)
 Case Examples
• American Express
• Southwest Airlines
• Unilever
54
Statoil’s Approach:
A serious problem – and a solution
Separate
Target & Rewards
Planning and forecasting
Resource allocations
Measures and controls
Improve
Self-imposed
No fixed targets = stretch goals
Aim is to “be the best”
Rolling views
Continuous planning
Rolling forecasts
Fund best action plans
Draw-down central services
Cost ratios/benchmarks
Holistic measures
KPIs and trends
Relative performance
55
Unilever’s Journey of Evolutionary Change
DYNAMIC PERFORMANCE MANAGEMENT
Relative
LEVEL 4 ADAPTIVE SYSTEM
characterized by continuous improvement against peers and/or
the competition managed largely through a self regulating processes
Continuous
LEVEL 3 CONTINUOUS SYSTEM
characterized by continuously beating medium term goals derived from
strategy and corporate mission using rolling forecasts and trend analysis
LEVEL 2 TARGET BASED SYSTEM
characterized by decoupled targeting, planning and reward processes
using year on year measures to manage performance
Decouple
LEVEL 1 PLAN BASED SYSTEM
characterized by interlocking plans and targets negotiated on an
annual basis subject to ‘hit the numbers’ processes
CONTRACTUAL PERFORMANCE MANAGEMENT
56
Relative Goals Based on League Tables at
Handelsbanken
Bank to banks
(ROCE)
1. Bank A
31% Region to Regions
(ROCE)
2. Bank D
24%
3. Bank H
1. 20%
Region D
38%Branch to Branches
4. Bank C
2. 18%
Region J
27% (Cost/Income)
ACT Mgr to ACT Mgrs
5. Bank E
1. Branch
28%
3. 15%
Region I
20% D
6. Bank F
2. Branch
32% (Cost/Income)
4. 13%
Region B
17% J
1. Manager
D
24%
7. Bank B
3. Branch
37%
5. 12%
Region E
15% I
2. Manager
J
29%
8. Bank I
4. Branch
39%
6. 10%
Region F
12% B
3. Manager
I
35%
9. Bank G
5. Branch
41%
7. 8%
Region C
10% E
4. Manager
B
37%
10. Bank J
6. Branch
F
45%
8. 2%
Region H
7%
5. Manager
E
40%
7. Branch
C
54%
9. Region G
6%
6. Manager
F
45%
8. Branch
65%
10. Region A
(5%) H
Comparison To
7. Manager
C
55%
9. Branch G
72%
•
Peers
8. Manager
H
67%
10. Branch A
87%
•
Competitors
9. Manager G
78%
•
World Class
10. Manager A
99%
Benchmarks
57
Incentive Compensation:
Builds Collaborative Behavior throughout the Bank
Account Managers
Branch to Branches
(Cost/Income etc.) Branch Managers
1. Branch C
28%
Region to Regions
2. Branch H
32% (ROCE)
Regional Managers
3. Branch A
37%
1. Region D
38%Bank to Banks
4. Branch D
2. 39%
Region J
27% (ROCE)
5. Branch F
3. 41%
Region I
1. 20%
Bank A
31%
6. Branch E
45%
4. Region B
2. 17%
Bank D
24%
7. Branch J
54%
5. Region E
3. 15%
Bank H
20%
8. Branch B
65%
6. Region F
4. 12%
Bank C
18%
9. Branch I
72%
7. Region C
5. 10%
Bank E
15%
10. Branch G
87%
8. Region H
6. 7%
Bank F
13%
9. Region G
7. 6%
Bank B
12%
10. Region A
8. 5%
Bank I
10%
9. Bank G
8%
Source: Handelsbanken Management System
10. Bank J
2%
58
Use League Tables to Avoid the Pitfalls
Ahlsell: Using Relative Targets with 200 Self-Managed Teams
A Sales Unit
All Sales Units
“The Premier League”
Return on Sales Report
• Sales
100%
(Over 13%)
Less
• Direct material
• Stock losses/obsolete
= Gross margin
•
•
•
•
•
Rent
Staff
Bad debts
Depreciation
Interest on capital
= Net margin
• Return on Sales (ROS)
• Growth in profits
“The Qualifiers League”
(Under 13%)
• Return on Sales only
13%
59
American Express:
Transform to Continuous Planning
Targets
Aligned
Annual
Plan
Timely
Allocation of
Resources
Enablers:
• Finance/Business
Collaboration
Long
Range
Plan
Integrated
Decision
Support
Processes
• Robust Tools/
Technology
• Information
• External Visibility
• Application of
Six Sigma
Principles
Business
Strategy
Validation
Quarterly
Forecasts
Ongoing
Investment
Optimization
Decisioning
Monthly
Results
Review
Monthly
Risk/Opportunity
Flexibility
Assessment
Focus on
Future
Performance
of Company
Shareholder
Value
Optimization
Visibility to
improve/
adjust
strategy
formulation
and execution
60
tw telecom:
Rolling Forecasts
 Forecasts
of key metrics
would be completed quarterly
on a rolling basis
 Field units would forecast the
next two quarters’ metrics
 Finance will project an
additional 4 quarters from
trends
 Capital plans extend multiyear
Traditional
Budgets
Rolling
Forecasts
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Planning Efforts
Quarters forecasted by all
Forecast process – tw telecom
Quarters trended by Finance
61
Southwest Airlines
Adjust
Targets
Identify
Business
Trends
and
Changes
•
Align Planning resources around
the business
•
Establish a “rhythm” to the
process
• Allow flexibility to adjust
plans
• Push for action plans to drive
toward targets
•
Ensure technology facilitates the
process
• Planning systems enable the
process, not the other way
around
Revise
Forecasts
Analyze
Actual
Results
62
Southwest Airlines
VARIABILITY
HIGH
LOW
CRITICALITY
LOW
Economic
relevance
Variability
Speed of
response
Update
frequency
Forecast
horizon
Revenues
High
High
High
Daily
Quarter
Labor costs
High
Low
Medium
Twice monthly
Six months
Fuel costs
High
High
Medium
Weekly
Quarter
Maintenance
spending
Medium
Medium
Medium
Twice monthly
Six months
Advertising
spending
Medium
Medium
High
Monthly
Six months
Aircraft
ownership costs
Medium
Low
Low
Quarterly
Year
Airport rates and
charges
Medium
Medium
Low
Monthly
Six months
Other operating
Medium
Medium
Medium
Twice monthly
Quarter
LESS
FREQUENT
ROUTINE
UPDATE OR
BY EXCEPTION
INFREQUENT
UPDATE
ONLY IF
NECESSARY
HIGH
FREQUENT
ROUTINE
UPDATE
LESS
FREQUENT
ROUTINE
UPDATE
Agenda
• Change Formula D x V x F > R
• D = Dissatisfaction with Budgeting
– The seven problems with the traditional budgeting process
• V = Vision the Change
– The 12 BBRT Principles
• F = First steps to Approaching Change
– Revolutionary vs. Evolutionary
– Case Studies
• R = Overcoming Resistance to Change: The Keys to Success
64
Three Common Keys to Success
1. A move to continuous planning and adaptive controls
requires enlightened leadership.
65
Three Common Keys to Success
2. Commitment to change culture and behaviors as well as
processes.
“Out with the old and
in with the new”
“The hardest thing is not to
accept new ideas but to
abandon old ones”
66
What this Means for CEOs and Finance
“Command & Control”
“Strategic Support”
Negotiating targets
Challenging ambition
Agreeing contracts
Challenging planning
options and risks
Demanding adherence
to targets
Supporting continuous
improvement
Demanding explanations
of variances
Demanding explanations
of actions to improve
67
Three Common Keys to Success
3. Utilize fast, open information systems.
68
Borealis
From Variances
Cost code
Budget
Actual
To Trend Line Graphs
Variance
Quarterly
costs
($000’s)
60
Salaries
Office
Travel
80,000
85,000
(5,000)
40,000
42,000
(2,000)
30,000
31,000
(1,000)
54
30,000
42
(3,000)
$191,000
($11,000)
Explain variances and how will
we get back on track
Source: Borealis
Actual
Forecast
30
$180,000
TOTAL
33,000
Moving Average
Medium
12 months
-term
KPI
Target
48
36
Comms
Actual
quarterly
costs
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10
Explain if KPI (moving average of total
fixed cost) is “out of bounds”
69
What this Means in Practice

PLANNING:
Routinely forecast across a rolling horizon

INVESTMENT:
Continuously allocate resources

TARGETS
:
Set targets that will be meaningful over the medium-term

MEASURE:
Manage trends and incorporate external perspective

REWARDS:
Set incentives that support the right behavior

COORDINATE:
Maintain one set of numbers/assumptions within the Business Unit and with
the BU above
70
Make Management Change YOUR Legacy
Benefits
• Joining the BBRT shared learning
•
•
•
•
•
•
network
Access to accumulated and new
intellectual capital for in-house use
Access to online Implementation Guide
Attendance by individuals at any BBRT
general meetings worldwide
Attending ad hoc development
meetings
Free entry in the annual global
diagnostic and survey
Access to online Members’ Community
Fees
• Packages from $10,000 pa
Contact
• Peter Bunce – [email protected]
• Steve Player – [email protected]
71