Documents/BBRT

What are the Beyond Budgeting principles?

Strategic_Plan

Publication: 2012-11-03

Source: http://www.bbrt.org/beyond-budgeting/bb-principles.html

For the past 12 years we have been studying organizations that have abandoned command and control and looked at the common principles they have adopted. This model is derived from the ‘best of best practices’ of leading-edge organizations and consists of 12 principles that redefine the management model. The first six “leadership” principles provide a framework for the devolution of responsibility to front line teams thus enabling them to respond quickly to emerging events and making them accountable for continuously improving (internal and external) customer outcomes and relative performance. The second six “process” principles support a more adaptive set of performance management systems that enable front line teams to be more responsive to the competitive environment and to customer needs. These principles represent a holistic model (not a menu of options) but different organizations will place different emphases on different elements at different times.

What is the problem? Few managers enjoy radical change, so what are the compelling reasons why you should take Beyond Budgeting seriously? Bear in mind that we use the word ‘budgeting’ as an alternative term for ‘command and control’ management. Budgeting was designed to enable senior executives to command and control the organization from the corporate center. [For more information, see http://www.bbrt.org/beyond-budgeting/bb-problem.html] What is the vison for change? We believe that by replacing the command and control model with a Beyond Budgeting alternative (that is, an Empowered and Adaptive Organization), leaders can, over time, overcome these problems. [For more information, see http://www.bbrt.org/beyond-budgeting/bb-vision.html]

Submitter:

Name:Owen Ambur

Email:Owen.Ambur@verizon.net

Organization:

Name:Beyond Budgeting Roundtable

Acronym:BBRT

Stakeholder(s):

  • AhlsellDIY Retail, Sweden

  • American ExpressFinancial Services, USA

  • Beth Israel Deaconess Medical CenterHealth Care, USA

  • ColoplastMedical products, Denmark

  • dm drogerie-marktDrug retail, Germany

  • Egon Zehnder InernationalExecutive recruitment, Switzerland

  • W.L. Gore & AssociatesMulti-products manufacture, USA

  • GoogleInternet search, USA

  • Guardian IndustriesFloat glass manufacture, USA

  • HandelsbankenUniversal bank, Sweden -- A World Class financial services model: Like Toyota, Handelsbanken has been consistently profitable for over 30 years. It is also consistently top of independent customer satisfaction ratings in Sweden and the UK and has the lowest number of customer complaints. It is consistently one of the most cost efficient banks in the world with a cost-to-income ratio of around 40 percent (compared with 60-80 percent for most of its rivals). Its profits even increased in 2008 when other banks were suffering huge falls and it has come through the credit crunch relatively unscathed (it was the only Swedish bank not to require Government support). The focus is on continuously improving performance and meeting customers’ needs. There is no fixed performance contract to worry about. The pressure comes from not letting down the team you are in or the regional group you are part of. Branches are profit centres and have considerable decision-making authority. Goals are self-imposed by branch teams aimed at improving against peers. But these are not communicated to a higher authority - they are not a contract. There are no top-down targets. Planning takes place at the branch level, usually at six-to-twelve week intervals according to the needs of the branch. There are only a few metrics that tell managers how they are performing (return-on-equity and cost/income ratio at group and regional levels and cost/income ratio and profit per employee at branch level). Information is fast and open. Peer comparisons are used to spur improvement. Resources are made available through an internal market that enables branches to access them at any time. This approach drastically reduces waste and costs.

  • HCL TechnologiesIT Services, India

  • HiltiBuilding products, Liechtenstein

  • John Lewis PartnershipRetail, UK

  • Leyland TrucksTruck manufacture, UK

  • Nucor SteelSteel maker, USA

  • Southwest AirlinesAirline, USA -- A World Class airline model: Southwest is an icon of Corporate America. It has been consistently profitable for over 30 years and is regularly top of independent customer satisfaction ratings. It is also the most cost efficient airline and has the highest shareholder returns of its peer group. It has been voted one of best “corporate citizens” in America. The focus is on continuously improving performance and meeting customers’ needs. Service is a “way of life” rather than a technique. Targets are set by each team within broad-based parameters and expectations. This enables innovative thinking and builds ownership and commitment at the local level. Benchmarks (such as cost per available seat mile) and other key indicators are widely shared. Planning takes place at the front line. It is a continuous process based on 12-month rolling forecasts and quarterly plans within a clear strategic framework. Managers have fast, relevant information within one unified reporting and open information system. Resources are made available monthly and quarterly based on rolling forecasts. Action plans can be approved at any time through the year and implemented immediately.

  • StatoilOil & Gas, Norway

  • Sydney WaterWater utility, Australia

  • Telekom MalaysiaTelecommunications, Malaysia

  • TelenorTelecommunications, Norway

  • ToyotaCar manufacture, Japan -- A World Class manufacturing model: Despite incurring its first loss in many decades (not even Toyota can make a profit when the market suddenly collapses by over 30 percent) Toyota remains the best managed manufacturing company in the world. Its Toyota Production System is legendary and spawned the lean manufacturing movement. The management focus is on continuously improving systems and meeting internal and external customers’ needs. Everyone has a voice and is expected to contribute to the continuous improvement of their work. Medium-term operational goals aimed at best practice are set at every level. Planning takes place at the plant/team level and happens monthly within a clear strategic framework (12 month rolling forecasts support capacity planning). Knowledge about current performance is visual and immediate (e.g. throughput, downtime, inventory levels). Resources are made available just-in-time to meet each customer order. There are no fixed targets, no annual budget contracts and people are trusted with information to make the right decisions.

  • Whole Foods MarketNatural foods retailer, USA