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Tuesday, October 30, 2012

The essence of Beyond Budgeting

I hear more and more fuzz about Beyond Budgeting.  Time to make up my own mind :-)

Is Beyond Budgeting the answer to a complex problem?
That's an interesting question; so here's my quest for an answer:

To get an interesting view on Beyond Budgeting I want to answer the following questions:
- Why is it called Beyond Budgeting?
- What's the problem it tries to fix?
- Where does Beyond Budgeting comes from?
- What's the essence of Beyond Budgeting?
- How easy can I start with Beyond Budgeting?

1.  Why is it called Beyond Budgeting?
Budgeting is considered one of the key instruments that determine the 'command & control' management style often used these days.   'Budgeting' is used metaphorically here, and Beyond Budgeting refers to a management model that goes further than the current, conservative, management models.   It's not just beyond budgeting, but also beyond targeting, beyond central management, beyond Command and Control...
From my point of view, they could have easily chosen a different name like 'continuous budgeting' or 'beyond command and control' or 'Collaborative management' or 'Trust driven organisations' or...

Off course, you say, they could have given it a different name, that goes for everything.
True, but in this case, I believe it's important to see some other potential names because it took me quite a while to understand the essence of Beyond Budgeting and I can conclude no different than to conclude that it's not about going beyond budgeting.   It's much more than that.

So then, why is it called Beyond Budgeting?
In de late 1990 customers all over the world became rapidly more and more demanding.  Change is happening faster every day, and many companies struggle with the rigidity of their budgeting processes.  From this frustration an organisation is born; the Beyond Budgeting Round Table (BBRT) who sets off to find steering mechanisms that could replace budgeting and help to make organizations more adaptive to change. But its members quickly realized that the answer was not about fixing a few problems. It required a new way of thinking about management. It meant designing a new coherent management model.     So they came up with a complete paradigm shift, but kept the name Beyond Budgeting :-)

2. What's the problem it tries to fix?
The problem here is not just budgeting, but the mindset and behaviour that goes with budgeting.  The real problem in this context is the 'command and control'-paradigm. Command and Control originates in the military and uses hierarchical command to gain absolute control.  As Tim Prosser puts it in his blog "when one must make 18-year-old soldiers charge, firing their weapons, across a mine field there might be a place for Command and Control. I know of no business that operates in circumstances even remotely analogous to this."  
In a business context there is no need of such rigid command and control.  Big command and control organisations excel in solving one big complex problem in an efficient way.  More and more, to survive, organisations have to excel in adapting to the market, swiftly responding to an opportunity,...  This is no longer one big complex problem.  The new challenge is to deal with an infinite amount of small complex problems. 
When young talented employees are treated as if they were soldiers, with fear, punishment and (external) reward as key motivators, a lot of knowledge, creativity and business potential is lost.
Instruments like budgeting, micro-management and hierarchical organisation structures all belong to a world that no longer exists, and are part of a problem that needs to be fixed. 

3.  Where does Beyond Budgeting comes from?
As mentioned above, Beyond Budgeting originates at the BBRT.
The BBRT has analysed multiple companies that operate completely or almost without budgets.

One of the founding examples is Svenska Handelsbanken. A Swedish bank with branches all over Northern Europe and in Great Britain. They have had no budgets, no absolute targets, and no fixed plans since 1970. Nevertheless, it is one of the most successful banks in Europe.

The outcome of this analysis is the 12 Beyond Budgeting principles.

4. What’s the essence of Beyond Budgeting?
Beyond Budgeting is a simple management model consisting of 12 principles.  By implementing these 12 principles in your organisation, Beyond Budgeting promises you more flexibility with less overhead.  This set of principles is to be applied as a whole.  You can't pick a few of them and then hope for the best.
  • Leadership principles
    • Bind people to a common cause; not a central plan
    • Govern through shared values and sound judgement; not detailed rules and regulations
    • Make information open and transparent; don't restrict and control it
    • Organize around a seamless network of accountable teams; not centralized functions
    • Trust teams to regulate their performance; don't micro-manage them
    • Base accountability on holistic criteria and peer reviews; not on hierarchical relationships
  • Process principles
    •  Set ambitious medium-term goals, not short-term fixed targets
    • Base rewards on relative performance; not on meeting fixed targets
    • Make planning a continuous and inclusive process; not a top-down annual event
    • Coordinate interactions dynamically; not through annual budgets
    • Make resources available just-in-time; not just-in-case
    • Base controls on fast, frequent feedback; not budget variances
To summarize, the essence of Beyond Budgeting is to work in small value-adding teams with a clear responsibility, in a value driven culture and with a strong focus on the whole (and not just some part of it) knowing that this system changes every day and everyone will have to act according to this change.   

5. Can I start Beyond Budgeting tomorrow?
 You could, I guess.  Read the 12 principles, understand them and implement them. It's as easy as that.  But!  It requires a lot of change.  And it's not just any change; the change towards Beyond Budgeting is a cultural change.  And that's not that easy.   So my guess is that you can start believing right now, but that it will take you some time before you can start implementing.  And after that, it'll take you some more time to make it work.

Conclusion: Does Beyond Budgeting fix the problem?
Hm....  I don't think so.  Beyond Budgeting doesn't fix anything.  It's a model, containing 12 principles that give you an alternative for standard management approaches.
It's kind of like the Agile Manifesto; Agile presents you, like Beyond Budgeting, a glimpse of how the world could be.  It inspires you!  It gives you a sensible alternative!  And maybe it motivates you to change your organisation into a better place.
In the end, as always, it comes down to 2 things: Faith and your ability to successfully change your way of working.
Personally, I like its principles and I believe many organisations would outperform their competitors if they would implement the grand idea of Beyond Budgeting.
Although I have to admit that I'm still puzzling with what’s so different between Beyond Budgeting, Agile and Lean.  It kind’a feels all the same to me.
What I’m I missing here?   Subject for a sequel blog or a comment from you …
I’m open to everything.

Some sources are worth mentioning because they give an interesting read:

1 comment:

  1. Hi Geert,

    Good to hear from you!! Knowing you AND your More Agile question pops up.

    When can we review your Beyond Beyond Budgeting principles? ;-)

    Gr. Rini