© Ekan AB
Beyond Budgeting30th May 2014
Rikard Olsson
Ekan AB
© Ekan AB
1905
© Ekan AB
© Ekan AB
© ekan AB© ekan AB
Short facts about Ekan
• Originating in Scandinavian management
through a research foundation at the School
of Business, Economics and Law at
University of Gothenburg
• Founded in 1985
• Around 40 Management consultants
• Offices in Göteborg and Stockholm
• Official representative for Beyond Budgeting
Institute in Sweden
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We help businesses to develop and evolve within their reality
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”The whole problem with the world is that
fools and fanatics are always so certain of
themselves, and wiser people so full of
doubts”
Bertrand Russell
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"The most important thing we can do is to ensure that our
companies can handle an uncertain future. To hold on
and predict how it will go - that is as long as it is wide.
We plan that it will be iffy for a while, and then you have
to simply make sure to have your foot on both the gas and
brake so that you can capture opportunities if it get
better or do anything if it gets worse "
Börje Ekholm - VD Investor, Dagens Industri 2013-03-16
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The reality
Rapid technological progress
Global competition and market complexity
New business models - Knowledge-intensive industries
and growing service content
Money cheaper - but inaccessible
Advanced IT environments and Big Data
Generational Change and Talent Management
Transparency, ethics, CSR
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Manage performance
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How to manage trafficperformance? What is good
performance?
Safe and efficient traffic flow
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Managing traffic performance - one alternative
Who is in control?
Based on which
information?
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Managing traffic performance - another alternative
13
Who is in control?
Based on which
information?
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Which is most difficult?
Which is most efficient?
In which are values most important?
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Do we need Management
Innovation?
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What about the way we lead and manage?
16
Sta
ble
Dynam
ic
People
Business environment
”Theory X” ”Theory Y”
Traditional
management
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Sta
ble
Dynam
ic
Leadership
Processes
”Theory X” ”Theory Y”
Traditional management
Beyond budgeting
Values based. Autonomy, Transparency
No traditional budgeting, 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
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What’s a budget?
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Source: Google
Spending
plan
Forecast
Targets
Available
means
Allocated
funds
Mechanical
update
Framework &
guidelines
Operational
plan
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“…two out of three finance executives expect
their 2009 budgets to be obsolete within the
first 6 months of the year, while 28 percent of
finance executives reported that their budgets
were obsolete even before 2009 began.”
Källa: Business Finance May/June 2009
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Five Budgeting myths..
1. No Budget = Chaos and Overspend
2. Good Performance = Hitting the Budget Numbers
3. No individual Bonus = No performance
4. More Detail = More Quality
5. Need to Know = Enough to Know
© ekan AB© ekan AB
A good performance?
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
© ekan AB
Five Budgeting myths..
1. No Budget = Chaos and Overspend
2. Good Performance = Hitting the Budget Numbers
3. No individual Bonus = No performance
4. More Detail = More Quality
5. Need to Know = Enough to Know
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..and the Budget conflict?
• A target?
• A forecast?
• A tool for resource allocation?
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Solving the budget conflict?
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1. Separate
Target
What we want to
happen
Forecast
What we think
will happen
Resource
allocation
Based on RoI
Different
numbers
2. Improve
• Ambitious
• Relative where possible
• Holistic performance evaluation
• Unbiased – the expected
outcome
• Limited details
• Dynamic – no annual allocation
• Mandates, decisions, criteria
• Trend monitoring
Event driven – not always annully
• Target
• Forecast
• Resource
allocation
Same number – conflicting
purposes
The budget
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Beyond Budgeting
Planning & Control
Forecasts
Targets
Resourceallocation
Leadership
Leadership & management
model
Organization & management environment
Motivation & incentives
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The Statoil case
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Statoil in brief
• Turnover approx. 130 bn. USD
• 23000 employees in 33 countries
• World’s largest operator in waters deeper than 100 metres
• Second largest gas exporter to Europe
• World leader of crude oil sales
• Listed in New York and Oslo
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Fortune 500 ranking (2011)
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Social responsibility Innovation
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Financial performance - as we define it
31
Total Shareholder Return 2012 Return on Capital (RoACE) 2012
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Ambition to Action - purpose and process
32
• Translating strategy - from ambitions to actions
• Securing flexibility - room to act and perform
• Activating values and leadership principles
Strategic objectives KPIs
Actions & forecasts
Individual or teamgoals
Where are we going –
what does success
look like?
• Most important strategic
change areas
• Medium term horizon
How do we measure
progress?
• Indicative measure of
strategic delivery
• 5-10 KPIs, shorter/ longer
term targets
What is my or our
contribution?
My Performance Goals
• Delivery
• Behaviour
How do we get
there?
• Concrete actions and
expected outcome
(forecast)
• Clear deadlines and
accountabilities
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Ambition to Action example
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Where are we
going?
”Strategic
objectives”How do we
measure
progress?
”Key
Performance
Indicators”
How do
we get
there?
”Actions”
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More than 1400 ”Ambition to Action’s”across the company
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…..and more
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A broader performance language- from narrow measurement to a holistic assessment
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B e h a v i o u r
D
e
l
i
v
e
r
y
Living the values• Day-to day-observations
• 360°/ 180°/ 90° surveys
• People survey
50/50Pressure testing KPI results:• Deliver towards the strategic objectives?
• How ambitious KPI targets?
• Changed assumptions, with positive or
negative effect?
• Agreed actions implemented, or corrective
actions initiated as needed?
• Delivered results sustainable?
Ambition to Action
• Development plan
• Rewards
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Towards a simpler, more dynamic and self-regulating process
More cost conscious - less «cost cutting»
More event drive - less calendar driven
More translation - less cascading
More relative - less absolute KPIs
More transparency - less secrecy
Simple is not the same as easy!
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The CEO on Ambition to Action
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Companies on a similar journey
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• Decentralised organisation – with the
branch and its customers in focus
• Profit charing (Oktagonen) rather than
individual bonuses
• Relative KPIs – Cost/Income ratio by
branch and Return on Equity in relation to
peers
© ekan AB© ekan AB
• Focus on leadership and organization
• From function oriented to customer
oriented
• Changed work design, roles and
measures (employee turnover etc)
• From competition to collaboration –
group bonuses
• “From making things to providing
service”
© ekan AB© ekan AB
• Relative KPIs and “Performance League” –
market share, gross margin, indirect
costs/sales and service sales/Number of
trucks sold
• Rolling forecast – and using trends to
monitor progress
• Separation between ambitions and forecast
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Implementation advice
• Create problem understanding before
talking solutions
• What’s the real risk – upside vs
downside
• Design to 80% and jump
• A ”pull-based” approach
• ”One war but a thousand battles”
• Involve HR
• Don’t become a fundamentalist
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The BBI is an international shared learning network of member
organizations with a common interest in transforming their
performance management models to enable sustained,
superior performance.
BBI helps organizations learn from world-wide best practice studies
and encourages them to share information, past successes and
implementation experiences to move beyond command and
control.
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Back-up
46
-
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Budget
OK
Not
OK
OK?
OK?
OK?
OK?
OK?
The mindset required – cost conscious from the first penny
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Is this really
necessary?
Do I have a
budget for this?
What is good enough?
How much value is this
creating?
Is this within my execution
framework?
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…..and the tools available
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Traditional cost
budget
Ambition level /
burn rate
Relative KPIs
Unit cost
input/outputUnit cost vs
peers
EBIT
RoACE
(abs/rel)
Strategic objectives
or actions only
Absolute
KPIsIf no KPIs found
Xx
Xx
Xx
Xx
Xx
Xx
Xx
Xx
1003,4 ~1000
”USD/bbl”
”USD/customer”
”USD/employee”
”1. quartile”
”Better than
average”
Increasing
autonomy
and flexibility
Bottom line
focus only
” A simplified and cost
conscious way of
working”
“More video - less
travel ”
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
Detailed and
annual