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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 welcomes the following new members:
BBRT Members’ Meeting, 6 November 2008 – The focal point of the meeting was the first draft of BBRT’s new Guide to Implementing Beyond Budgeting. The whole afternoon was devoted to discussing and developing the Guide, kicked off by a presentation from Jeremy Hope. Prior to this the large gathering of over 40 members and guests head about ongoing implementations in Telenor and in some North American BBRT members. The BBRT Members and Team will continue to develop the Guide over the coming months. Join the BBRT if you want to be part of this very exciting development and to receive early benefits. Contact Peter Bunce, Steve Player or Franz Röösli.
International Beyond Budgeting Forum, 12 November 2008 – Over 100 people participated in this event organized in Basel, Switzerland by Franz Röösli, BBRT Director DACH. The presentations from Hilti, Globetrotter, StatoilHydro, Trisa, WL.L Gore, Prof. Wütrich and Dr. Sprenger were well received and showed that many organizations are making significant changes in the way they manage their businesses. They promoted some lively discussions and increased awareness and interest in the BBRT.
BBRT INSIGHTS research series
The following paper has been circulated to BBRT members in October:
Why Customer Relationship Management (CRM) systems are the problem, not the solution
Abstract: Large organizations worldwide have spent billions on CRM systems over the past decade or so on the assumption that knowing more about customer behaviour will help them to increase loyalty and profitability. But too many of these systems have delivered disappointing results (many have become glorified customer databases). This paper looks at the reasons for these failures and discussed how managers can learn from them.
How to identify your unprofitable customers and what you can do about them
Abstract: Most marketing and finance managers suspect that many customers are unprofitable after applying all the ‘below the line’ costs of serving and supporting them but they don’t know who they are. If sales and marketing people did know this information it would change their work dramatically and make a huge difference to the bottom line. This paper looks at these issues and suggests that managers can use some simple techniques to gain a better understanding of these problems and what can be done about them.
BBRT members can download the full papers from the BBRT Members' Community (formerly Private Forum) at www.bbrt.org/online. Join the BBRT to obtain this and previous papers – contact Peter Bunce at peterbunce@bbrt.org.
An article in December 2008 edition of The McKinsey Quarterly* noted that “the range of possible futures confronting business are great. Companies that nurture flexibility, awareness and resiliency are more likely to survive the crisis and even prosper”.
BBRT has been advocating this for ten years through the Beyond Budgeting principles and management model. The authors go on to state that “The assumptions used for budgeting and business planning are often modest variations on baseline projections whose major assumptions often are not presented explicitly. Many such budgets and plans are soon overtaken by events. In good times, that matters little … But these are not normal times: the range of potential outcomes – the uncertainty surrounding the global credit crisis and the global recession – is so large that many companies may not survive.”
Most organizations acted immediately when the credit markets froze in late 2008. But the article notes that while prudent, the actions taken probably won’t produce the short-term earnings that analysts expect. The authors believe that “It’s time they [organizations] abandoned the idea that they can reliably deliver predictable earnings. Quarterly performance is no longer the objective, which must now be to ensure the long-term survival and health of the enterprise.”
The authors make a final telling point that “A crisis is a chance to break ingrained structures and behaviors that sap the productivity and effectiveness of many organizations. Such moves aren’t a short-term crisis response – they often take a year or more to pay dividends – but are valuable in any scenario and could help a company survive if hard times persist… This may, for example, be the time to destroy the vertical organizational structure, retrofitted with ad hoc and matrix overlays that encumber companies large and small.”
So McKinsey are making the same points that BBRT has been making for ten years; as world becomes more turbulent, just doing the same even harder won’t work, you have to change the management model to one that nurtures flexibility, awareness and resiliency – the Beyond Budgeting model.
*To read the full article go to: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Leading_through_uncertainty_2263
You will need to register to read it, but registration is free and the articles are very interesting.
By Marc Hodak
Jack Welch retired with few complaints. But while he was still CEO of GE, he had a particular peeve regarding the annual planning process: “Making a budget is an exercise in minimization. You’re always getting the lowest out of people, because everyone is negotiating to get the lowest number.”
Welch was deeply frustrated by what he considered puzzling behavior: each fall, he would witness highly talented, Type-A, “can do” personalities suddenly, temporarily transform into world-class excuse-mongers, passionately defending modest projections of mediocre performance.
Underlying this apparently paradoxical behavior is missing an element in how companies think about planning and budgeting. Most companies think of effective planning as centered on accurate forecasting and powerful analysis yielding compelling insights. They believe that if they can better predict the future, and better model their organizational responses to alternative scenarios, they can better allocate their resources to position themselves to take advantage of opportunities. Companies invest a lot of time, energy, and funds on various analytical methods, or systems that enable them to gather more and better data, and crunch it more thoroughly and usefully. They try to update their plans to stay more current with changing conditions, even going to rolling plans.
But Welch’s complaint wasn’t with the quality of his units’ forecasts, or the relevance of old plans to changing conditions. Welch’s complaint was that he was being sandbagged in the planning process itself. There is no analytical solution to this problem because its root cause is not informational deficiency, but informational asymmetry. Senior managers hold the purse strings, and the expectations of their boards and investors. Business unit managers hold the information needed to intelligently plan, and their boss’s expectations, which they can significantly manage using their superior information. Neither side can have what the other has ... more
BBRT Note
BBRT’s Beyond Budgeting principles advocate moving away from individual incentives based on fixed targets to team and/or company rewards based on relative improvement against competitors and the market with hindsight (after the fact). This is continuous and relentless as although the basis of the reward calculation is known, the actual amount can only be calculated after the event; there is no cap and hence no slacking off.
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
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