Create an Ad Hoc Leadership Circle to Generate New Ideas


leadership-circle

When leaders need innovative ideas to grow their company, they often turn to their direct reports for guidance. But this group, by design, represents the current operating units and functions, which often have a status quo to defend.

So when you need creative thinking, try forming a leadership circle, a diverse, ad hoc team of 15–18 people from throughout the company who can work together for about six months.

The circle should focus on the future, not the past, and healthy debate should be encouraged. Within the circle, each member should hold equal status and should not feel that he or she is being asked to represent the point of view of accounting, sales, shipping, or whatever their home department is.

Most important, whatever ideas come out of a leadership circle should be handled in the same way they were generated: They should be rigorously and systematically discussed, debated, and explored.

Adapted from “To Seize the Future, Create a Leadership Circle,” by Joseph Pistrui

leadership-circle

Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

Successful Business Transformation


9 implementation principles that will guide you toward a successful transformation:

The problems facing every company are different. They largely depend on history, culture, capabilities, and information technology. However, the importance of vision and communication cannot be overestimated.


Therefore …

A clear vision of the tasks ahead and good communication skills will enable you to navigate around the most difficult obstacles and prevent the organization sliding back into its old habits. The following principles will guide you toward a successful transformation:

  1. Think like a revolutionary

  2. Build an urgent case for change and convince the board

  3. Establish a ‘guiding coalition’

  4. Create a compelling and coherent vision for change

  5. Communicate the vision

  6. Enable and encourage people to change

  7. Look for quick wins

  8. Work around the resistors

  9. Consolidate the gains and maintain the momentum

Ed: These are principals that form the core of my friends at the Beyond Budgeting Institute – bbrt.org – and form the business model of such diverse companies as AstraZeneca, Arla, Danfoss, Handelsbanken, HILTI, Lego, MAERSK, Michelin, Sodexo, SKF, Timpson, Volvo and many more.

But getting back to point number 2,

because it is crucial to discuss how we sell the case for change to the people that matter.

Who are the key ‘influencers’ that you need to convince?

In most companies, the two primary persons to convince will be the CEO and CFO. However, it is of great importance to engage the whole organization. I will get back to that later.

While the case for change might appear to be compelling to you, it can seem too vague and “in the future” for others.

Hard-pressed managers need more organizational change like a hold-in-the-head. Therefore, the reasons must be compelling and the case well prepared and presented.


So how do we convince key influencers?

Ask yourself the following questions:

  1. What will it involve?

  2. What are the costs and benefits?

  3. Which parts of the business are affected?

  4. Is this the only option?

  5. What evidence do we have that it will work?

  6. What are the risks?

  7. How long will it take?

  8. How will we know if we have succeeded or failed?

Addressing them objectively will strengthen your credibility and increase your chances of success even though these questions are difficult to answer. 


Remember …

One common pitfall of implementation is believing that the total transformation of the model can be driven by finance (or any other one function) alone, and failing to engage other parts of organization such as Human Resources or members of the management team.

Author: Anders Olesen – Director, Beyond Budgeting Institute.  E-Mail: info@bbrt.org

transformation

Curated by Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

 

Experiential Discovery Learning


A guest post from Alan Matcham

Partner in Accelerance – Leadership for Business Performance

Bridging the knowing-doing gap

knowledge-2

Knowing is not the problem

Organisations are full of intellectually bright executives who have no trouble articulating a good game. Consequentially they produce an endless array of professional looking, well intentioned strategic plans, presentations, action lists, commitment statements and meeting minutes. The problem is that most, if not all, of these well intentioned initiatives fail to deliver on the majority of what they set out to achieve. This is known as; “The Knowing-Doing Gap.” The difference between what you know needs doing and what actually gets done.

Jeff Pfeffer the renowned Professor of Organisational Behaviour at Stanford Graduate School of Business and co-author of “The Knowing – Doing Gap” states it very clearly, “If you know by doing, there is no gap between what you know and what you do.”

Working with Executives over many years I have found there to be two constants in any effective learning or transformational experience. The first is the power of discovery and the second is the power of doing. Combined, these approaches have a significant impact in translating new insights into positive action. They are also inextricably linked because to discover you need to do and to do you need to discover.

This has huge implications for anyone involved in Executive Development. Designing interventions that make executives intellectually richer with more content, more concepts, more models, more theories and more plans runs the risk of fuelling the knowing-doing gap. On the other hand if you design interventions that are grounded in real business issues and learning by doing then the change that is sought will more likely be achieved.

Discovery & Doing

At its heart discovery is learning from the unorthodox and the unusual and appreciating there is learning in everything. It is about taking time to “walk in other worlds”, to get your hands dirty, to ask great questions, to let go, to see, to feel and to experience new, different and challenging perspectives and ways of doing things. In doing so the aim is to bring new and fresh insights to address an increasing array of highly complex and adaptive business challenges related to change, innovation, creativity, agility, collaboration and transformation

Organisations seeking to create a cadre of executives who will lead change, build a more innovative culture or transform their organisation in some fundamental way will not do so by seeking inspiration or insight from people in the same industry, with the same world view or with the same basic DNA. That approach inevitably leads to sameness not difference.

I go to a meeting with a group of managers who attended the programme. Met them earlier where they fired questions at me. Thought initially this programme was a bit weird.

What do visits to Salvation Army, eating in the dark with blind people and talking to researchers from Shell have to do with leading better in the bank? I was mistaken.

Entering and discovering a completely different world and to hear how motivated others are, how they take responsibility and innovate is an inspiration to think about your own role.

During the meeting today, I hear how participants take initiatives to break through their own ways of doing and realise concrete improvements. What triggers me most is that they do not talk about what others should do better, but what they themselves can do differently and better.”

Genuine quote

Chairman of a major European Bank – 2012

How and what to discover?

If you believe, as I do, that the ultimate aim of executive education is to help people think things through for themselves and their unique context then discovery should be at the core of any learning strategy. The role of the expert facilitator or programme director is to create the context within which discovery learning is optimised. This is achieved by encouraging a set of skills and behaviours which:

  • Develop curiosity

  • Develop the ability to ask great questions

  • Engage all the senses

  • Learn how to learn and find learning in everything.

  • Observe the world through different lenses

  • Experience and feel new or different emotions

  • Try new things through experimentation and testing

In my experience the most effective discovery experiences have tended to follow certain basic steps which are outlined below. Each step requires significant attention but perhaps none more than the actual execution of the experience itself. It is crucial that all participants play an active role and are fully engaged.

Over the years I have led many discovery experiences. Below are a few examples of what is possible and the learning that is available. All are based on genuine examples where the discovery experience has been tailored to specific learning objectives to help resolve specific business challenges.

The Discovery experience

The Learning

The Business Challenge or Issue

Junior school in rural China

Challenging the traditional system of learning

Culture change

Salvation Army in Holland

A cause worth serving, humility and compassion

Employee engagement.

Blind Community in Hong Kong

Overcoming adversity and working with all your senses

Collaboration, resilience and communication.

Creating and reciting poetry in Singapore

Everyone has capability and talent. Building leadership confidence

Effective communication and meaning making.

Playing Jazz and Blues in Chicago

Creativity and team work as well as fun

Interdependencies and team work. Joy in work.

Prisoner reform group in Holland

Changing deep seated behaviours and potential in everyone

Behavioural change and business transformation.

Monastery and meditation in Europe

How to reflect and be in the moment. Self awareness

Finding time to think and reflect rather than just do.

High end restaurant in Vietnam

Discipline, clarity of role, all one team and client insight.

Customer intimacy

Children’s charity for those out of mainstream education in UK

Engagement, trust, compassion and meaning

Personal and team transformation

In conclusion

Knowing is not enough and knowing more is not enough, the translation into doing is everything if meaningful change is to be achieved. Doing and knowing should not be mutually exclusive and the most effective executive programmes understand this and design in these critical attributes.

About the author:

Alan Matcham (alan.matcham@btinternet.com): Is an internationally experienced executive development programme director, facilitator and educator. A passion for making work fit for people and people fit for work. His expertise is focused on Leadership and Management transformation, working to release the untapped potential in all employees. He has a record of enabling public and private sector organisations rise to the complex challenges of the 21st century.

Curated by Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

Reward Your Team for Learning


Many jobs require people to continually develop new skills. As a manager, you should be less worried with what people know and more concerned about whether they’re able to learn.

But it’s not enough to hire curious, adaptable people; you also have to reward them for learning. When your employees have increased their knowledge and their value to the company, provide them with new and challenging opportunities.

  • Promote people only when they’ve acquired sufficient expertise in other jobs in the organization, not just their own. Or you could give awards for individuals who organize events or activities to promote learnability in the company (running internal conferences, bringing external speakers, or circulating information that nurtures people’s curiosity).

  • Reward simpler habits, too, like writing a blog, sharing articles on social media, or recommending books and movies.

Adapted from “It’s the Company’s Job to Help Employees Learn,” by Tomas Chamorro-Premuzic and Mara Swan

reward-3

Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

 

Knowing if Executive Education really works


A guest post co-authored by Alan Matcham and Tim Coburn who are partners at Accelerance.co. Developing leaders who drive business performance using advanced and engaging learning principles.

Introduction

The holy grail of most organisations offering executive education interventions is knowing and justifying if they really work. Reflecting on what traditionally happens this paper sets out to propose a more imaginative and relevant way of tracking the success (or not) of executive education interventions. We suggest the focus needs to be more on what is learnt not how people feel and more in tune with the means of design not just the ends.

A recent McKinsey report; “Why Leadership Development Programmes Fail”, highlighted the following research findings:

  • US companies spend almost $14 billion annually on leadership development.
  • Customised leadership development offerings from top business schools can reach $150,000 a person.
  • 500 executives ranked their top three human-capital priorities; leadership development was included as both a current and a future priority.
  • Only 7 percent of senior managers polled by a UK business school think that their companies develop global leaders effectively
  • Around 30 percent of US companies admit they lack enough leaders with the right capabilities.

Professor Jeff Pfeffer of Stanford University in his article; “Getting beyond the BS of leadership literature”, states the US spend could actually be as much as $50bn. He goes on to say that;”Leaders aren’t doing a good job for themselves or their workplaces, and things don’t seem to be improving.”

From this evidence, a conscientious Leadership Development professional may be perfectly entitled to conclude that investing in Leadership Development Programmes and interventions is an expensive waste of time and money with questionable returns.

The counter argument is that whilst the cost of Executive Education may appear high, the cost of Executive ignorance is significantly higher. That doesn’t however negate the need for the pursuit of more helpful, relevant and accurate measures of success.

In his article; “The Corporate Leadership Landscape”, Tim Coburn highlights the complex contextual environment today’s Executives have to operate in. There is no doubt they live in a world where the shelf life of knowledge is getting shorter and shorter and the need to learn continuously is a must, not a nice to have. If Executives are to remain valuable and valued resourceful humans, they need to focus on the complex not the repetitive, the unknown not the known, and increasingly on the future not today because “today” is being standardised, outsourced, automated and digitised.

From the evidence, a conscientious Leadership Development professional may be perfectly entitled to conclude that investing in Leadership Development Programmes and interventions is an expensive waste of time and money with questionable returns.

Whichever report you choose to read there is little doubt that Executive Development is crucially important. The growing dilemma facing all those responsible for Executive Development is how do we know if our investment will provide the value and returns we seek? The answer of course is that there is no simple answer! Having said that we would like to show that there are many surrogates which can help point the way and, when taken in the round, provide strong evidence for progress.

The Purpose of Executive Education

Given the challenges faced by the leaders of today’s companies, we believe the sole purpose of executive education should be to enable executives to learn and learn how to learn, and in doing so apply that to improving themselves and their organisations.

For individual leaders, the ability to learn has already been identified as the strongest factor in determining their potential to succeed. And for organisations, the ability to adapt and change has become so obviously critical to their survival.

The Traditional Approach

The most widely used method of measuring the effectiveness of Executive Education Programmes, is the classic “Happy Sheet”, or delegate feedback form. These are designed to gather feedback on the quality of content, speakers, learning experiences, the venue and administrative support. Using a combination of closed (rating scale) and open questions, delegates are asked to evaluate and report on their experience.

The fundamental design flaw and perhaps unintended consequence of this sort of measurement mechanism is that it invariably forces Executives to make one dimensional judgements of; good/bad, yes/no, like/don’t like and not make more valuable self-reflections on their own learning experience and feelings.

If the purpose of executive education is to create people with the ability to learn how to learn then reinforcing such a judgemental approach is damaging and counterproductive to that aim.

The evaluation of a delegates learning experience is crucial but in doing so, we should be asking questions with a known correlation to an improvement of thinking and behaviour in job performance, like some of those identified by ABDI’s research:

  • Were the personal and collective objectives achieved? (effectiveness)

  • Was the content relevant to your role? (relevance)

  • Do you have an implementable action plan to apply your new insights? (action plan)

  • Were you challenged and supported in relation to your individual and collective assumptions? (insights)

  • Would you recommend this programme to colleagues? (willingness to recommend)

As useful as these questions are however, we believe they only go part of the way in addressing the real purpose of executive education.

A Different Perspective

Given the emphasis on learning – as well as the emphasis on improving performance – knowing if Executive Education Programmes work becomes a function of both means and ends. By means we refer to the underpinning pedagogical and design principles and processes of any intervention. The way a programme is designed will dictate whether ‘learning to learn’ and ‘improving yourself and your organisation’ actually happens.

The design principles we believe in ensure we address the purpose of executive education as we see it. In doing so, they also provide an alternative set of measurement criteria that can be used for evaluating impact. These principles include:

  • The importance of working on real issues – identifying real business challenges allows teams to anchor their learning in “doing” and to produce outputs that may be adopted in the business. The goal is to apply new insights and learning in the creation and delivery of well structured projects with clear measures of success that will change the business.

Measure: The number and quality of projects worked on. Also did the programme help to address and resolve real business issues effectively with imaginative solutions based on new insights?

  • Co creation and the involvement of senior leaders/sponsors in the design and delivery – this facilitates a significant degree of ownership and intimacy with the programme and its delegates allowing line manager and sponsors to see change in behaviour and thinking over time.

Measure: Were senior leaders engaged and involved in shaping the programme? How were their needs and perspectives considered? How were senior leaders and sponsors supporting delegates before, during and after the intervention? What changes did sponsors see in delegates?

  • Live testing and experimentation – the translation of insight and ideas into action under experimental conditions is not only a way of understanding if new ideas will work but also another reference point for “ends” and the number of ideas generated, experiments undertaken and new ideas implemented.

Measure: Did the programme include live testing and experimentation? How many experiments, new ideas or new ways of working were tested as a result of the programme?

  • Emotional engagement and reflection – Effective learning is a function of the level of both intellectual as well as emotional engagement. Facilitating interventions such as learning sets allows the delegates to connect at both an intellectual and deeply emotional level. Peer to peer interaction identifies reference points of change from the moment the learning sets start to the moment they finish. Providing ample time for reflection also allows delegates to record their thoughts, feelings, impressions and emotions before a programme starts and again at the end. This can be captured using interview techniques or video recordings.

Measure: Did the programme allow the development of learning relationships that enabled the development of thoughts and feelings as part of the learning journey? Were qualitative observations captured before, during and after the intervention to assess “shift”?

  • Asking and enquiring, not telling – programmes designed to actively engage delegates in the learning process and not transmit knowledge have the opportunity to both see engagement in action and also measure levels of engagement throughout the intervention.

Measure: Did the programme encourage and enable inquiry-led learning driven by participant curiosity? How did that process work (for the delegates) and how did the quality of questioning change individually and collectively over the life of the intervention and beyond? How did the proportion of time shift over the life of the intervention from “transmit” to “converse”?

  • Creating “thirsty learners” – programmes that help delegates learn how to learn have a greater probability of getting feedback from line managers and colleagues in both a formal or informal context. Delegates who are comfortable actively seeking feedback as part of a learning process receive more insight in regard to their own performance.

Measure: Did the programme enable the improvement of your ability to learn that you will be able to transfer and apply in your job? What was the level of active feedback seeking during and post the intervention?

  • Moving away from your comfort zone – delegates invariably learn more from what is unusual or unorthodox to them compared to staying with the familiar. This can be both an extremely rewarding but also very uncomfortable experience (hence the view we hold of avoiding questions which reference a good/bad experience). Learning through discovery and exploring new perspectives is one of the most powerful ways of helping leaders reframe their views.

Measure: identifying the specific insights that came from any discovery experience. How many new insights were generated? How relevant might they be to helping move forward your personal and business challenges?

In Conclusion

The list of design principles referenced is by no means exhaustive and is only a sample of those we use to construct and deliver our work. When executive education is designed with principles like these, traditional “happy sheet” questions become less helpful when seeking to find out if a programme has achieved its real purpose. Given the importance of Executive Development to the future of every business it’s important we move away from simplistic and often misleading measurement methods and adopt a more holistic view of what can be measured based on more enlightened design principles and practices.

education-4

 

About the authors: 

Alan Matcham – Alan’s passion is to make work fit for people and people fit for work. His experience is focused on Leadership and Management transformation and working to release the untapped potential in all employees.

Tim Coburn – Tim has a special interest in the learning process particularly the way leaders use language, conversation and stories to engage and motivate teams to improve corporate performance. His career has included global culture change roles with the BBC, Motorola, Rolls-Royce and Serco PLC.

Curated by Trevor Lee

International Resourcing Director

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

Good Listeners Ask Good Questions


 

Some people equate good listening with sitting silently, nodding, making eye contact, and, when the speaker is done, paraphrasing what you heard.

But these things are only part of what makes someone feel that you heard them.

The best listeners go deeper by trying to understand the substance of what the other person is saying. Doing this requires that you ask questions to clarify your understanding and push the other person to better articulate their position, examine any assumptions they’re making, and see the issues in new light. You should also try to empathize with and validate any emotions the speaker is conveying.

Once you’ve made sure the person feels supported, you can offer some thoughts and ideas about the topic that could be useful to the other person.

Just be careful not to high-jack the conversation so that you or your agenda becomes the subject of the discussion.

Adapted from “What Great Listeners Actually Do,” by Jack Zenger and Joseph Folkman

Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee

 

The Case for Moving Beyond Traditional Budgeting


A guest post:

The budgeting process can be laborious and it may also fail to give you the results you need. In this paper Anders Olesen explains how you can move beyond budgeting – and provides case studies.

The budget is generally regarded as an indispensable management tool. The process typically provides a detailed plan for the first year in the company’s strategic plan. The budget produces targets for the coming year, a financial forecast, and an allocation of resources. The thorough process ensures coordination throughout the entire company. The budget provides management with a “stick in the ground” and a sense of control.

In this paper, I would like to demonstrate that it is possible to achieve all of the above with fewer resources and with higher quality than is possible in a traditional budget process. One of the tricks is to separate the all-inclusive budget process into several separate sub-processes.

When combining such new processes with appropriate leadership principles to form a coherent man­agement model, it is possible to unlock the organization’s full performance potential. This is what we call Beyond Budgeting.

Conflicting purposes

When asking companies about the reasons for budgeting, they almost invariably mention the follow­ing purposes of the budget:

Target setting

  1. The budget sets targets in line with the corporate strategy.

  2. Targets are broken down by division, BU, region, team, etc.; thus enabling everyone to see how they contribute to the corporate strategy.

  3. Targets are used for the annual bonus plan.

Forecasting

  1. The budget provides a financial plan for the coming year.

  2. Such financial plan – including P&L, balance sheet and cash flow – is often required by shareholders and lenders.

Resource allocation

  1. The budget provides managers with the allowed maximum spending; in monetary terms and often also in terms of headcount.

The budget is thus supposed to do many important things for us. Most will agree that the above mentioned purposes must be addressed in order to manage a company and stay in control.

A key problem with the budget process, however, lies exactly in these purposes: they are all impor­tant, but they are different and even conflicting in nature.

There is for example an inherent conflict between target setting and forecasting:

  1. A target is what you want to happen.

  2. A forecast is what you think will happen.

A target should be ambitious; it should provide direction and inspiration for the organization to reach the desired outcome.

On the other hand, a forecast should show the expected outcome. It should provide decision makers with information about where the company is heading, whether they like what they see or not. To enhance the quality of decisions, such information must be unbiased and sufficient (without drowning in details).

When combining conflicting purposes in ONE process, it is impossible to solve all of the purposes equally good. Accordingly, the traditional budget process is by default flawed.

This insight leads to the natural conclusion that the budget process should be separated into different sub-processes that are directed at each of the important purposes, as illustrated below:

There are more problems with budgeting than the inherent conflict between target setting and forecasting; some of these are reviewed in the following.

Fortunately, experience shows that when companies separate their budget process into sub-process­es this also makes it easier to address the other budget problems.

Problems with traditional budgeting

Most leaders know that the budget process has its problems; I have yet to meet anyone who claims the opposite.

Multiple studies show, for example, that the validity of the budget is relatively short. Typically, some 20- 30 % of the companies interviewed will answer that the budget is obsolete even before the budget year begins. And very often, some 60-70 % will answer that this happens during the first half of the year.

The level of waste as expressed by these figures is horrifying; where else is such waste accepted year after year?

Some of the typical problems with budgets are that:

  • the link to strategy is often weak;

  • they are very time-consuming

  • decisions are made too early and at too senior a level;

  • assumptions are quickly outdated;

  • they can prevent value-adding activities;

  • they create an ‘accordion’ forecasting horizon; and

  • they are often a bad yardstick for evaluating performance.

Often weak link to strategy

The budget is supposed to be the detailed plan for year one in the strategy period. However, expe­rience shows that very little of the budget work has anything to do with strategy. Very quickly, the budget process is reduced to a fight for less ambitious targets and more resources. This has much to do with the relatively short (one year) budget horizon and is often due to the link to bonuses.

Decisions made too early and at too senior a level

Many decisions are made during the budget process: prioritization of resources, for example. Due to the nature of the traditional budget process, we very often find that people high up in the hierarchy and far away from the situation settle disputes over resources. This can affect the quality of decisions negatively.

This means that companies – simply because of an internal process – force themselves to take deci­sions much earlier than necessary. And since the best decisions are made with the latest information at hand (i.e. as late as possible) this too means that the quality of decisions will suffer.

Prevents value adding activities

When considering an expense or investment, this question is too often asked in budget environments: “Is it included in the budget?” If so: go ahead. If not: no go – wait for next year’s budget.

During the year, new and unexpected threats and opportunities will appear; things that were not – and could not – be foreseen when preparing the budget.

Despite all good intentions in the budget process, sticking to the budget will inevitably lead to a less than optimal use of resources simply because it is impossible to foresee what will happen.

Accordion” forecasting horizon

Logically, one should think that a company’s forecasting (or planning) horizon was determined by the nature of the company’s industry and that it, accordingly, would be relatively stable over time.

However, in a normal budget environment, the forecasting horizon lasts to the end of the budget year. This means that the forecasting horizon – and hence, the focus of the organization – will vary signif­icantly during the year: from roughly 3 to 15 months. This is purely driven by the financial year-end focus and has nothing to do with the underlying business needs.

A bad yardstick for evaluating performance

In a budget environment, you are a success if you reach your budget, and this often comes with a bo­nus. On the face of it, this sounds fine, but it has several negative side effects:

  1. rational managers will fight for relatively unambitious targets; thus increasing their chances for personal success;

  2. since conditions (and budget assumptions) always change during the year (currencies, oil prices, interest rates, etc.), it can be impossible to determine what success will look like beforehand;

  3. even if the cost budget is met, this is no guarantee for the most optimal use of resources. Some parts of the organization could probably have managed with less, and others may have under-spent and missed opportunities;

  4. even if the revenue budget is met, this is no proof of success; maybe the competitors did even bet­ter and the market share came down.

Why most companies still budget

Very few disagree that the budget has the above-mentioned problems, yet most companies continue to prepare annual budgets. Why is this? Well, we can only find two explanations; either:

  1. Managers do not know what to do instead – what is the alternative?, or

  2. Managers consider the problems too small to justify a change

In the former case, the good news is that an alternative exists – as explained in this paper.

Concerning the latter, we disagree that the problems are too small to justify change. The budget is meant to support and enhance performance but is actually doing the opposite, and when the budget is more of a barrier than a support for good performance then the problem is indeed very serious and worth changing.

Will performance suffer without the traditional budget?

No – quite the contrary. It is our experience that the separation of the budget process into sub-pro­cesses has a positive impact on an organization’s performance. Simply by changing the process, you will achieve better and more meaningful targets, more relevant and timely financial forecasts and an improved use of resources… with less effort.

The largest Norwegian business school recently conducted a research project within the Norwegian banking industry. The purpose was to identify relationships (if any) between financial performance and management tools applied by Norwegian banks. For most of the analysed tools, the researchers could not prove a significant link between tool and performance. However, concerning the budget, the study had a remarkable result: the financial performance (measured over a long period) of the banks without traditional budgets was significantly better than that of the other banks.

The Beyond Budgeting principles

One of the great advantages of separating the budget process into sub-processes for target-setting, forecasting, and resource allocation is that this opens up for significant process improvements; improvements that are impossible to achieve with one common budget process.

When you address the target-setting process, for example, and start thinking about how to design the optimal process, new and interesting ideas – that were unthinkable in the one-process-environ­ment – will appear: What is actually the purpose of the target? How is this best achieved? What kind of targets should we have? How about non-financial and relative targets? Must there be a date linked to every target? Who sets the targets? How often?

Another significant advantage is that the new processes invite to and can facilitate the implementa­tion of leadership practices that can further enhance performance improvement. Accordingly, and based on the practical findings of our network, we have developed the Beyond Budgeting Principles – see box – that address both the processes and the leadership aspect.

The focus of this paper is on the process side. However, organizations must address the leadership aspects as well. For employee motivation as well as management credibility, it is crucial that management processes and leadership principles are aligned.

12 LEADERSHIP PRINCIPLES

          Governance and Transparency

1. Values – Bind people to a common cause; not a central plan

2. Governance – Govern through shared values and sound judgement; not detailed rules and regulations

3. Transparency – Make information open and transparent; don’t restrict and control it

          Accountable Teams

4. Teams – Organise around a network of accountable teams; not centralised functions

5. Trust – Trust teams to regulate and improve their performance; don’t micro-manage them

6. Accountability – Base accountability on holistic criteria and peer reviews; not on hierarchical relationships

          Goals and Rewards

7. Goals – Set ambitious medium-term goals; not short-term negotiated targets

8. Rewards – Base rewards on relative per formance; not fixed targets

          Planning and Controls

9. Planning – Make planning a continuous and inclusive process; not a top-down annual event

10. Coordination – Coordinate interactions dynamically; not through annual budgets

11. Resources – Make resources available just-in-time; not just-in-case

12. Controls – Base controls on fast, frequent feedback; not on budget variances

Some practical examples

To illustrate how the separation of budget processes can work in practice, you will find some examples in the following. The examples are from successful – but very different – companies that have combined their management processes with strong leadership principles to form coherent management models.

As you will see, the specific solutions and processes adopted vary between the companies. There are, however, also several similarities:

  1. The companies place great emphasis on values and purpose (ref. principle 1 and 2) and transparency (principle 3).

  2. Some of the companies are organized as decentralised teams (principle 4 and 5); and others have implemented the new processes as part of an effort to increase the responsibility and accountabil­ity BU’s.

  3. Several of the mentioned companies have introduced profit sharing schemes instead of individual targets and bonuses (principle 7 and 8).

CASE STUDY – Alfa Laval

Alfa Laval is listed on the Stockholm Stock Exchange and is a leading global supplier of products and solutions for heat transfer, separation, and fluid handling. 2014 revenues stood at approx. GBP 2.6 billion. The company has about 18,000 employees and activities in 100 countries.

In 1998, Alfa Laval abandoned traditional budgets and introduced a new system of financial management whereby each of the budget purposes are handled in separate sub-processes.

The reasons for the change was very similar to that of other companies: conflicting purposes inherent in the traditional budget process, budget outdated early in the year due to inevitable changes in budget assumptions, too much time and energy spent on irrelevant details, weak link between planning horizon and the business cycle, etc.

In addition, the old budget process delayed the decision and implementation of important business initiatives as many of these were not foreseen when preparing the budget (principle 9-11).

Over the latest ten years (i.e. including the recent financial crises), Alfa Laval’s EBITDA-margin has been in the 15-22 % range; which is extremely good for its industry. One of the key elements behind this strong performance is a drive for continuous improvement (principle 2 and 6).

CASE STUDY – Statoil

Statoil is an international energy company with approximately 23,000 employees worldwide and operations in 36 countries. Headquartered in Norway, Statoil is listed on the New York and Oslo stock exchanges.

Ten years ago, Statoil decided to go beyond budgeting and they have since then developed its coherent management model also referred to as “Ambition to Action”.

Each division/BU/team has its own “Ambition to Action”; Statoil’s version of a balanced scorecard. All of these are transparent to everyone in the company, and teams can anytime during the year change their own targets, KPI’s, priorities, etc. (principle 3-6 and 9-10).

Like Handelsbanken, Statoil measures its success relative to its peers. Accordingly, they have two corporate financial targets: above average on Total Shareholder Return, and first quartile Return on Capital (principle 6-7).

Statoil has developed a dynamic forecasting model, which asks units to update their forecasts when something significant has changed (principle 9-10).

The company practices a dynamic resource allocation process (principle 11), whereby new projects can be proposed at any time, and are approved or rejected dynamically based on project quality and on financial capacity available from the dynamic forecasting.

Another key principle in Statoil’s model is a holistic performance evaluation (principle 6 and 8), which includes “pressure-testing” of measured KPI performance before any conclusions are drawn, as they see KPI’s as “Indicators” only. This involves applying hindsight insights, and using information not picked up through measurement. Values and how results are achieved are also emphasized, and counts 50 % in the final evaluation.

CASE STUDY – Handelsbanken

Handelsbanken is a full-service bank with nationwide branch networks in Sweden, the UK, Denmark, Finland, Norway, and the Netherlands. Listed on the Stockholm stock exchange, Handelsbanken has more than 11,000 employees in 25 countries.

Handelsbanken has one financial target: to achieve a shareholder return that is above the average of its peers. This target has remained unchanged for 42 years; i.e. the bank spends no time on target setting. The bank has reached this target every year since it was established.

In the same 42-year period, the bank has not prepared annual budgets and it does not even prepare financial forecasts. Yet it remains in full control and it is the most cost-effective listed full-service bank in Europe. Based on five different financial measures, including financial strength, the ability to manage risk and cost efficiency, Bloomberg recently ranked Handelsbanken as the strongest bank in Europe. During the recent financial crisis, the bank did not need help from governments or shareholders; contrary to almost all other banks in Europe.

Handelsbanken is a prime example of a company that has also addressed the leadership principles. A key component of the bank’s successful and coherent management model is a highly decentralised organizational structure and a high level of transparency; the latter also enables fast and frequent feedback (principle 12).

CASE STUDY – Mainfreight

Mainfreight is a global supply chain business headquartered in Auckland, New Zealand and it is listed on the New Zealand stock exchange. The company currently has more than 240 branches around the world. In 2014, it generated NZD 1.9 billion in revenues and it employs almost 6,000 team members.

Mainfreight’s success is underpinned by its unique performance management system. This supports a strong can-do attitude (principle 1 and 2) and excludes traditional budgets. As Mainfreight expands, it removes budgets from the companies it acquires and introduces its own performance management system.

One of its key principles is to avoid centralized control processes, budgets, and bureaucracy (principle 3-6). These are regarded as ineffective and time-consuming and take managers’ attention away from the business. To illustrate this, here is a quote from Mainfreight’s latest Annual Report: “As we grow our global business we continue to resist bureaucracy and corporate bull$#@t! It is a credit to our team of 5,771 people that we still think and act like a startup.”

CASE STUDY – The Maersk Group

The Maersk Group is a worldwide conglomerate and operates in some 130 countries with a workforce of more than 89,000 employees. The annual revenue is approx. USD 48 billion (2014).

With the objective of creating a stronger link between strategy and action, Maersk has implemented a new management model based on the following design criteria: visibility, agility, control, and simplicity. A key element of the new management process is the separation of processes for target setting, forecasting, and resource allocation (principle 7, 9, 10 and 11). This has resulted in significantly improved sub-processes for each of these very important planning elements.

They also now have a more holistic view on value creation (principle 6) which is now evaluated against internal as well as external benchmarks.

Rolling forecasts combined with a new performance review process have improved Maersk’s ability to react to rapidly changing market conditions.

CASE STUDY – Coloplast

Coloplast develops products and services that make life easier for people with very personal and private medical conditions. Their business includes ostomy care, urology and continence care, and wound and skin care. Coloplast operates globally, employing more than 9,000 people.

In 2009, following a year with four downward adjustments to the stock market, management realized that changes were needed. Coloplast wanted a new process to support its very ambitious performance improvements. This meant a farewell to the traditional budget and the introduction of new sub-processes: target setting, rolling forecasts, and a flexible resource allocation.

The new processes have helped Coloplast reach more ambitious targets, and provided the company with more agility. The absence of cost budgets has actually helped increase cost consciousness (principle 11). Financially Coloplast is now outperforming its peers. The EBIT margin, which stood at 12 % in 2008, was five years later at 32 %; far ahead of its peers.

CASE STUDY – Timpson

Timpson is a retail service business with more than 1,300 outlets in UK and Ireland. Timpson offers shoe repairs, key cutting, engraving, watch repairs, dry cleaning and mobile phone repairs – its biggest service is photo processing.

Timpson applies a unique management model where the people who front the customers are the ones that run the business – everyone else (without exception) is there to help them do their job. This is what Timpson calls Upside Down Management.

There is no headquarter; a small team supporting their colleagues in the shops provides central services.

Timpson “does not waste time trying to predict the future”, as John Timpson (the company’s chairman) writes on his blog; i.e. the company is not managed through budgets; they actually don’t even prepare targets or forecasts – and they manage very well.

Timpson often features on the Best Workplace lists in the UK and across Europe, which has very much to do with its leadership (principle 1-6).

Getting started / next step: For more information or help to get started, please feel free to contact the Beyond Budgeting Institute.  bbrt.org

I hope that this paper has demonstrated the benefits of separating the traditional budget process into sub-processes. Hereby, the quality of the company’s planning efforts can be significantly improved with the same or even with fewer resources.

To achieve the full performance potential of the organization, it must also address its leadership processes. The true strength lies in the combination of the two, thus forming a coherent management model.

For established organizations to get started on a Beyond Budgeting journey, we generally recommend to start with a separation of the budget process, and to address the leadership principles subsequently.

Definition: In this article, the word “budget” refers to the corporate budget that is prepared through an annual corporate-wide process, not the personal budget or a project budget or any other variety of that which generally refers to planned income and expenses.

Anders Olesen is Director at Beyond Budgeting Institute

http://www.bbrt.org         e-mail: aolesen@bbrt.org

Curated by: Trevor Lee

tblee@ceo-worldwide.com

http://www.ceo-worldwide.com

@trevorblee