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Some organizations have overcome these problems. They are now achieving superior performance relative to their peers. These are the lessons learned:
Organizations have tried long and hard to improve their management processes. They have experimented with a mix of stretch targets, financial incentives, rolling forecasts, potentially valuable decision support tools, greater use of technology, and in some cases empowerment. These have mostly been less effective than their users expected because the problem requires a far more fundamental solution.
A 'traditional' planning and budgeting process has an annual cycle that involves the preparation, negotiation, approval, and monitoring of detailed plans and budgets by department, business unit, division, and group - all consolidated into the 'master plan and budget' for the year ahead. The targets that are agreed become commitments between different organizational levels and are treated as 'fixed performance contracts' against which managers' performance is evaluated and incentive bonuses often paid. Actual performance is controlled throughout the year with reports that analyse variances against plan. Through its extensive case based research the Beyond Budgeting Round Table (BBRT) has identified the ‘fixed’ performance contract as the root cause of the problems listed above and a significant source of competitive disadvantage.
The ‘Fixed Performance Contract’ is a coherent part of the ‘Command and Control’ management model, widely used today but now outmoded. In a fast changing economy and under high competitive pressures, managers are driving the traditional approach well beyond its design limits, and the cracks are becoming evident. So why do we still engage in it? Because we have all grown up with it, we have until now failed to question its fundamentals, and we have lacked an alternative vision. What is needed is a radical rethink of the whole management model. The solution proposed by the BBRT is not merely the abolition of budgets and other fixed performance contracts (e.g. Balanced Scorecard ‘fixed’ commitments), but a coherent alternative management model based on the ‘Beyond Budgeting’ principles.
‘Beyond Budgeting’ is not another new tool, but an alternative to the ‘Command and Control’ philosophy on which most performance management systems are based. The solution is to evolve to an alternative management model with more adaptive management processes and greater devolution of authority. This alternative model is more in tune with today’s volatile marketplace; it enables superior value creation; and it works with, not against human nature. While the BBRT believes that its principles are universal, each organization must find its own way to adopt them, taking into account its strategy and circumstances. The first step is to look holistically at the current model and evaluate the case for change.
Step 1 – FREE ‘taster' - It's easy! You complete our 15-minute FREE diagnostic and read the short report that you receive immediately by email. LOGIN and try it now! You can also attend a public workshop and receive a report that benchmarks you against the other members of the workshop, as well as against the alternative model.
Step 2 – Case for change – This gives you a much more detailed evaluation of your case for change, and enough information to start designing alternative processes and building an implementation roadmap. It also enables you to test the ideas with your colleagues, and participate in a global survey in which you can benchmark your model against others in your sector, region and size group (in strict confidence ) and receive the results of IBM's annual global performance management research.
Step 3 – Roll-out – This will help you, when you are ready, to create a groundswell of support and roll the evaluation and discussion process out across their organization by running:
- Additional in-house workshops, which can be on a large scale (e.g. supporting in-company conferences or many small workshops across your company)
- In-company surveys.
These can be used to compare practices in different units across your group of companies. They can be tailored to your requirements in terms of the questions, analysis of results, text and layout of the reports, and the language in which they are written. Multiple languages may be used. Thus, users in different countries can access the same questionnaire and receive the same reports, but in their local language. This means that people deep within your company anywhere in the world can engage in the process.
IBM Business Consulting Services, a unit of IBM, is a BBRT member consulting firm and the global research sponsor publishing the IBM Annual Global Performance Management Report
