Keynote (EN): Leading with Flexible Targets - Beyond Budgeting & the performance revolution,...

Dr. Sergio Mascheretti e Niels Pflaeging

Leadership e obiettivi flessibili.

Beyond Budgeting: come rivoluzionare il sistema delle performance.

Come trasformare, orientare e gestire le aziende verso la creazione di valore

Venerdì 22 Gennaio 2010

Beyond Budgeting Introduction

>beyond budgetingtransformation network.

Presentazione

ITM Consulenza è lieta di organizzare nel territorio bergamasco, la prima tavola rotonda su un nuovo approccio di management conosciuto a livello internazionale come Beyond Budgeting.

A tal proposito il Dr. Sergio Mascheretti ha ritenuto fondamentale la collaborazione di uno dei fondatoridel movimento, Niels Pflaeging, con il quale presenterà a breve, il libro: Leadership e obiettivi flessibili – Beyond Budgeting: come rivoluzionare il sistema delle performance.

In più di un’occasione il Dr. Mascheretti si è trovato con ciascun partecipante a discutere di gestione, di strumenti, di processi organizzativi, di sistemi incentivanti, al fine di trasformare, orientare e rendere performante ciascuna organizzazione.

Questa tavola rotonda rappresenta un’occasione per cogliere nuovi stimoli di business management, cogliendo l’opportunità della presenza di uno speaker e management consultant di livello internazionale.

Elenco Aziende Partecipanti• Brembo• Radici• Percassi• Banca Popolare dell’Emilia Romagnia• Same


Dr. Sergio Mascheretti e Niels Pflaeging >beyond budgetingtransformation network.

© BBTN – All rights reservedWorkshop – Beyond Budgeting 5From the film ‘Modern Times’ with Charlie Chaplin, 1936

Outlining the ‘industrial age’ model and its pitfalls

“command and control“

• Too centralized• Too inward-looking• Too little customer-oriented• Too bureaucratic• Too much focused on control• Too functionally divided• Too slow and time-consuming• Too de-motivating• …


How markets govern organizations “from the outside in”

Periphery

Center

Market

Information Decision

Impulse

Command

Reaction

Centralist command and control “collapses“ in increasingly complex

environments

Source: Gerhard Wohland


© BBTN – All rights reservedSeminar – Beyond Budgeting 8

Beyond Budgeting means:From hierarchy to network structure

• “Bosses” rule!• Top-down

command and control• Top management

is always in charge• Centralized leadership

• “The market” rules!• Outside-in

sense and respond• Front-line teams are always

in charge• Devolved leadership

Traditional model (centralized functional hierarchy)

New model (decentralized leadership network)

Changing leadership and structure


There is a “new” model, which is supported by science and practice

Sciences: Thought leaders(selected)

Practice: Industry leaders

(selected)

Henry MintzbergGary HamelJeremy HopeMichael HammerThomas JohnsonCharles Horngren…

Stafford BeerMargareth WheatleyNiklas LuhmannW. Edwards DemingKevin KellyRoss AshbyJoseph Bragdon…

Douglas McGregorChris ArgyrisJeffrey PfefferReinhard SprengerStephen CoveyHoward GardnerViktor Frankl…

Peter DruckerTom PetersCharles HandyJohn KotterPeter SengeThomas DavenportPeter Block…

Complexitytheories

Social sciences and

HR

Leadership & change

Strategy & Performance management

Industry

Retail

Services

Governments& NGOs


Centralized hierarchy,“command and control”

strategy

control

Fixedperformance

contracts

Decentralized network, “sense and respond“

Dynamic coordination

Relativeperformance

contracts

Dynamic processes

The old model is not aligned with today’s CSF and it does not support ‘Theory Y’.> We need a new

model to cope with complexity

> We must change the whole model!

From the old coherence to a new coherence

Fixed processes

Traditional model (supports efficiency) New model (supports complexity)


There are two different ways of working on the model –evolution and transformation

Foundation Several decades oldTime scale: organization's age

Low degree of decentralization/ empowerment

Differentiationphase

Stagnationwithin the tayloristic model

Integration phase

High degree of decentralization/ empowerment

Sustaining and deepening of the decentralized model, through generations

Transformationthrough radical decentralization of decision-making

Pioneering phase

Bureaucratizationthrough growing hierarchy and functional differentiation

Evolutionwithin the decentralized model (culture of empowerment and trust)


The 12 principles of the Beyond Budgeting model are in fact a full set of “design principles“ for the new organization type

Pro

cess

es

Goals andrewards

Planning and controls

Resources andcoordination

Lead

ersh

ip

Customers and responsibility

Performance and freedom

Governance and transparency

Goals related to continuous improvement

Rewards related to organization results

Continuous and inclusive planning

Compare performance against actuals

Resources “on demand”

Coordinate dynamic, market-like interactions

Customer/outside focus

Responsible teams (“cells”)

Performance culture, beat the market

Autonomy and responsibility

Clearly defined objectives and values

Open and shared information

Do this!

Fiscal year, fixed goals

Reward local, fixed goals

Top-down annual planning

Variations against fixed plans

Annual (budget) allocations

Departmentalization, hierarchy

Focus on the boss

Centralization, functional division

Inspired by the past, burocratic

Adherence to fixed plans

Impose objectives from above

Restricted information

Not that!Principles

6 “devolvedleadership” principles

6 “adaptive management processes” principles


Fixed targets

Mostimportantcompetitor

(28%)Market(25%)

Plan(15%)

Actual(21%)

Target: absolute ROCE in % (here: 15%)

[expectedmarket Ø: 13%]

Plan

Comparison:Plan-Actual

Actual

Why traditional management with “fixed performance contracts“regularily fools us: We have lost control a long time ago…

• Interpretation within the plan-actual-comparison: Plan was outperformed by 6 percentage points > positive interpretation

• Better ROCE of the market average and the most important competitor remain unnoticed!

Relative, self-adjusting targets

Target: relative ROCE in % (to market)

Mostimportantcompetitor

(28%)Market(25%)

Target: „ROCE in % betterthan market

average”Actual(21%)

• Interpretation within actual-actual compa-rison: Performance was 4 percentage points below competition! > negative interpretation

• Absolute assumptions at the moment of planning don´t matter.

• Targets always remain updated and relevant!

[independent from expected

market Ø]

Target Actual

Comparison:Market-Actual

Source: Niels Pfläging


The case of a radically decentralized organization: Handelsbanken – an extraordinary leadership philosophy

ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share

Consistently – over a period of 30 years – one of the most successful banks in Europe, measured by almost all key performance indicators(e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)

The most important objective within Handelsbanken Group:“Higher Return on Equity than the average of comparable banks in the Nordic region and Europe.”

Made real through:• Radical decentralization,

which in turn leads to…• Best customer service• Lowest cost

Alexander V Dokukin


Customers

600 branch managers(Profit Centers)

12 regional managers

(Invest Centers)

CEO,product firms,

treasury, IT etc.

Fast, open information

systems

Fast, open information

systems

Governance and transparencyFramework for decision making

with clear values, limits and relative targets, plus

transparency

Freedom and capability to act

“Winning“ culture, combined with the freedom and ability to

act

Customer intimacyA large network of self-managed teams with full responsibility for

customer results

Principles

How “radical decentralization“ is being reflected in the company´s organizational structure and decision-making

Leads to maximum customer satisfaction!

Source: BBRT


Bank to bank Return on Equity (RoE)

1. Bank D 31%

2. Bank J 24%

3. Bank I 20%

4. Bank B 18%

5. Bank E 15%

6. Bank F 13%

7. Bank C 12%

8. Bank H 10%

9. Bank G 8%

10. Bank A (2%)

Bank to bank Return on Equity (RoE)

1. Bank D 31%

2. Bank J 24%

3. Bank I 20%

4. Bank B 18%

5. Bank E 15%

6. Bank F 13%

7. Bank C 12%

8. Bank H 10%

9. Bank G 8%

10. Bank A (2%)

Region to region Return on Assets(RoA)etc.

1. Region A 38%2. Region C 27%3. Region H 20%4. Region B 17%5. Region F 15%6. Region E 12%7. Region J 10%8. Region I 7%9. Region G 6%10. Region D (5%)

Region to region Return on Assets(RoA)etc.

1. Region A 38%2. Region C 27%3. Region H 20%4. Region B 17%5. Region F 15%6. Region E 12%7. Region J 10%8. Region I 7%9. Region G 6%10. Region D (5%)

Branch to branchCost/income ratio etc.

1. Branch J 28%2. Branch D 32%3. Branch E 37%4. Branch A 39%5. Branch I 41%6. Branch F 45%7. Branch C 54%8. Branch G 65%9. Branch H 72%10. Branch B 87%

Branch to branchCost/income ratio etc.

1. Branch J 28%2. Branch D 32%3. Branch E 37%4. Branch A 39%5. Branch I 41%6. Branch F 45%7. Branch C 54%8. Branch G 65%9. Branch H 72%10. Branch B 87%

Strategic „cascade”

Result & value contribution

Leads to lowest operational cost!

Relative target definition through “league tables“ (rankings) –instead of planned, fixed targets and internal negotiation

Relative targets and relative compensation

Continuous planning/control

“On demand“ flow of resources/

dynamic coordination

Principles


Headquarters/Region

Headquarters/Region

Branches acquire resources through internal markets

Flexible coordination and resources “on demand“ -instead of allocations and budgets

Customer demand

Customer demand

Branches observe

customer demand

Resources (IT, HR etc.)

Resources (IT, HR etc.)

Branches decide over necessary resource levels

BranchBranch

Branches alone are responsible for efficient

use of resources

Leads to eradicating and avoiding waste!

Source: BBRT


Virtuous circle

Creating a “virtuous circle”–a common factor among “Beyond Budgeting” pioneers

Better to do business with

4. Customer intimacy – Highest (independent) customer satisfaction scores in sector year-after-year; lowest customer complaints; monitors customer acquisitions/defections.

3. Operational excellence –Lowest costs of any bank in Europe; lowest bad debts; cost reduction culture; flat organization (half a head office person per branch versus five for rivals); internal market exerts constant pressure on central services.

2. Innovation – SHB voted joint best Internet bank in Europe in 2000; any competitive products and solutions are fed back from branches to product development.

Better to work for

1. Best people – SHB is first choice financial services company in Sweden for graduates; employee turnover is lowest in sector; challenge, personal responsibility and freedom to run their part of the business; group-wide profit sharing scheme.

Better to invest in

6. Sustainable value –Beats peer group every year on ROE and cost-to-income ratio; highest total shareholder return in sector; devolved adaptive organization is key driver of success.

Better for society

5. Ethical & social standards –Support the long term interests of the bank and society.

Text relates to Svenska Handelsbanken


Simple and relevant: creating reports without actual-plan-variances, fixed targets, or plans!

Trend with references

(A) Maximum

Curve with variance

KPI

(B) Gliding average

Time (Actuals)

Accouts/KPIs vs. Previous periods

lastmonth

Samemonth

lastyear

Samemonthprev..year

Ølast12

mnths

Ø12

prev.mnths

IndicatorsorGroups of accounts

Ranking (League table) ext./intern.

Company KPI

Competitor A 31%Competitor E 24%Competitor C 20%Us 18%Competitor B 13%Competitor D 12%Competitor G 10%Competitor F 8%

Regions KPI

Region G 7%Region E 7%Region B 6%Region F 4%Region A 3%Region D 3%Region C 1%Region H 0%

Trend with benchmark

Us

Competitor A

Time (Actuals)

KPI

Snapshot (static) with benchmarks

KPI 2

Us

Ourunit B

Our unit A

Compe-titor B

Compe-titor A

KPI 1

Trend with tolerance

Tolerance levels

Time (Actuals)

KPI

Us


1. Ending

3. Beginning2. Neutral Zone

To transform your organization from “command & control” to “decentralized network”, a double helix change is needed

3. Develop change

vision and strategy

4. Communi-

cate for under-

standing and buy-in

5. Empower all others

to act

6. Produce

short-term wins

7. Don't

let up!

8. Create a new culture

1.Create a sense of urgency

2. Pull

together a guiding coalition

Organizationalchange process

Individual

change process

References

Niels Pflaeging

[email protected]

Dr. Sergio Mascheretti

[email protected]. 035 212224

Dr. Sergio Mascheretti e Niels Pflaeging >beyond budgetingtransformation network.



Keynote (EN): Leading with Flexible Targets - Beyond Budgeting & the performance revolution,...

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