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August 2008

Thank you for your interest in BBRT. Welcome to the BBRT global newsletter, which is designed to keep you informed of developments in Beyond Budgeting and the BBRT. For further information visit our global web site at www.bbrt.org.

Table of contents

• BBRT Upcoming events
• BBRT Member News
• Call for speakers
• BBRT Research News
• Managing in an Economic Downturn
• Lean Accounting

17-18 September 2008, 2008 Lean Accounting Summit
Red Rock Resort, Las Vegas, NV, USA

9 October 2008, BBRT Public Sector Interest Group
Royal Institute of British Architects, London, England

15-16 October, BBRT Utilities Interest Group
SAS Institute, Dallas, Texas, USA

27-28 October 2008,BBRT North America Fall Members' Meeting/6th Annual BPM Summit
Greenwich, CT, USA
Register

6 November 2008, BBRT Europe Members' meeting

12 November 2008, BBRT Conference
Basel, Switzerland
Keynote presentations from: Dr. Reinhard Sprenger, Prof. Dr. Hans Wütrich (Universität der Bundeswehr) and Jeremy Hope (BBRT)
With speakers from Hilti, W.L. Gore, StatoilHydro, Globetrotter and Trisa

4-5 December 2008, BBRT Healthcare Interest Group
Cook Children's Healthcare, Fort Worth, TX, USA

BBRT welcomes the following new members:

• Adaptive Planning
• Mutual First Federal Credit Union

The BBRT is now accepting proposals to speak at the BBRT 8th Annual Conference (13-15 May 2009, San Francisco, CA, USA). We are looking for innovative case presentations in finance and planning. If you would like to be considered, please submit your proposal to Kisty Fairchild, BBRT Director of Marketing, by Wednesday, October 1, 2008

BBRT INSIGHTS research series

The following paper has been circulated to BBRT members in July:

How better sales analysis can help you grow the top-line

Abstract: Most firms are experienced (and some are adept) at controlling costs. But few have any clue about where their revenue growth comes from (beyond simple analyses of product lines and geographic markets). They need more knowledge of existing and potential channels of sales growth as well as customer churn. The impact of this knowledge on marketing and resource allocation could be profound. This paper looks at recent research in this area and how it can lead to a better understanding of how to grow the business profitably.

The BBRT INSIGHTS research papers are delivered to BBRT members on a regular basis. BBRT members can download the full papers from the BBRT Private Forum via the BBRT Web site at www.bbrt.org

• Is your organization being affected by the current World economic downturn?
• Do you find that executives and managers just want to clamp down harder on budgets and expenditure – doing more of the same?
• Do you still find that this is not enough to stem the tide of worsening results?

If so, you need to consider changing your management model – the way you manage the organization. You should investigate and implement the Beyond Budgeting adaptive management model.

To quote Albert Einstein “we can’t solve problems by using the same kind of thinking we used when we created them”. So we need different thinking, a different and more adaptive way of managing, one that enables us to look ahead and be more responsive, flexible and with greater agility to cope with the turbulence of global business today.

The Beyond Budgeting management model is an ‘innovation age’ model that addresses today’s conditions and recognizes that organizations should be seen as living systems where the whole is greater than the sum of the parts. It is often characterized by devolved decision making and uses adaptive, rather than fixed performance management processes. The 12 principles are the basis for a more adaptive and responsive way of managing. They are in two sections, leadership actions and management processes to support these leadership actions:

The benefits to your organization are:

• Faster response – Beyond Budgeting organizations operate with speed and simplicity. Simplicity comes from reducing complexity in the management process. This can best be achieved by giving front line people the scope to act immediately and decisively within clear principles, values and strategic boundaries. Operating within a flexible network is also important to enable people to respond quickly to customized requests by reconfiguring processes. But by making strategy an open, continuous and adaptive process is the key element in a fast response organization. It enables and organization to react to emerging threats and opportunities as they arise rather than being constrained by a fixed and outdated plan. Underlying all these approaches is the shredding of bureaucracy that still plagues most organizations.
• Innovative strategies – In Beyond Budgeting organizations, people work within an open and self-managed environment. Clear governance principles set the right climate and build the mutual trust needed to share knowledge and best practices. This is encouraged by moving away from incentives based on fixed performance targets locked into the budget (a formidable barrier to sharing and cooperation) to rewards based on performance relative to the peers.
• Lower costs – Only by seeing process as supplier-customer relationships will people respond to demands for improvement in quality and cost. And only by eradicating the mentality surrounding traditional budgets (which fix a floor and ceiling on costs) will people be motivated to question fixed costs and seek sustainable long term cost reductions. Operating mangers and front line people are able to base requests on resources as needed rather than viewing them as ‘entitlements’. Just asking the question, “does it add value to the customer?” often ensures that unnecessary work is eliminated.
• More loyal customers – Beyond Budgeting organizations place customer value needs at the centre of their strategy and adapt their processes to satisfying and even delighting them. Fast response to customer requests is vital. Thus front line people must have the authority to make quick decisions and manage their own bit of the business such that the overall organization becomes much more competitive than its competitors. These are all the attributes you need to succeed in the current economic downturn. Now is not the time to keep on doing the same old things, but the right time to take a different approach.

So don’t delay, investigate and implement the Beyond Budgeting principles and management model today. The BBRT and its team can help you every step of the way. Go to www.bbrt.org

BBRT will be represented at the Lean Accounting Summit on 17-18 September. This article by David Drickhamer gives a a short introduction to Lean Accounting with an example:

A Cut Above

People who have caught the lean fever tend to be gluttons for punishment. The folks at Buck Knives are no exception.
By David Drickhamer

In the past 12 months Buck Knives has reorganized operations into value streams, implemented a new ERP system, and transitioned from standard costing to lean accounting.

“Believe me, that’s not simple. And it’s not without its pain,” says Phyllis Best, CFO for Buck Knives. “When you have people who have been with the company for 30 years who are used to looking at standard cost statements, it’s pretty hard to make that transition to lean.”

In addition to these internal changes, the company also has had to cope with staffing challenges in Post Falls, Idaho, where the local unemployment rate is less than 3%. Well-known for its hunting knife heritage, Buck Knives built a new factory and headquarters and moved here less than three years ago. The family-owned knife company had been located in the outskirts of San Diego for decades. But after much soul searching, the owners came to grips with the fact that volatile energy prices, soaring workers’ compensation costs, and high labor rates were making it impossible to compete against a rising tide of cheaper imports. It was either move or die.

One of the benefits of the move to Idaho, according to Best, was that it reinvigorated the company’s lean transformation. While the California factory had work cells in assembly, those cells were surrounded by batches of inventory, and they fed product to a warehouse. With the help of consultant Brian Maskell — who company managers met in 2005 at the Lean Accounting Summit in Dearborn, Mich. — they have restructured operations into true value streams, allocated machines accordingly, and now build to order. They also separated out their high-volume, ship-within-three-days business with Wal-Mart, treating it as its own value stream, which couldn’t be handled on a pure pull basis.

The company’s new ERP system supports the new structure, reporting key financial measures including inventory levels, labor costs, and per-unit costs by value stream.

“When you use standard costing, you don’t see the actual cost. So much of it winds up in the balance sheet [that] you don’t have the visibility to it that you see if you wash it through the P&L first,” Best says. “We do defer some money out of the P&L and into the balance sheet if we make more than we sell, and we have to do that because we’re level loading for the Wal-Mart business. But we’re able to see that.”

As part of the transition to lean and lean accounting, Buck Knives has also embraced a new sales, operations, and financial planning (SOFP) process that has forced departments to work better together. It’s breaking down barriers, and has put the responsibility for inventory levels on sales, instead of operations. “We had a vision of lean for a long time.

We sort of had an idea where we needed to go, but we didn’t have a very clear roadmap. Now we do,” Best says. “We’re in kindergarten in this. But the management team here gets it and has that fire in the belly to make it happen. So we’ll get there.”

BBRT is an independent international shared learning network for all organizations that seek to improve their performance management through sharing information, past successes and implementation experiences. Our purpose is to help organizations introduce a new management model for the innovation age.

For more information, please visit www.bbrt.org, email Peter Bunce, or call +44 1590 679803, email Kisty Fairchild or call +1 214 239 0155