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September 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

• Beyond Budgeting - A management model whose time has come!
• BBRT announces a new global web site
• BBRT Upcoming events
• BBRT Member News
• BBRT Special Interest Group updates
• BBRT Research News

Jeremy Hope, BBRT Director

The past few weeks have been the most turbulent in living memory as the financial services industry has imploded and many countries are heading into recession. Commentators everywhere have blamed greedy corporate leaders, unprincipled hedge funds, inept regulators and passive governments. While all these actors in the tragedy are culpable in some way, 'dealing' with them with not get to the root of the problem. Others have placed the blame on ineffective risk management models and short-term incentives. This is nearer the mark but the real culprit is the management model itself. It is a systemic problem.

The annual budgeting and target setting processes lead to aggressive performance contracts that drive leaders and managers to "meet the numbers" at almost any cost to the business and the wider community. An alternative model is required that encourages managers to satisfy customers at the lowest cost rather than meet short-term targets in the pursuit of "shareholder value". Shareholder value should be a result rather than a target.

The proof of the pudding is in the eating. Just look at Toyota, Handelsbanken, ALDI, Whole Foods Markets, and Southwest Airlines. None has suffered like their peers. None are looking for government handouts. It is no coincidence that they operate with a different (Beyond Budgeting) management model. Their aim is to grow and endure over the longer term and they do this by building a great place to work, satisfying customer’s needs and providing a sound long-term growth investment for their shareholders.

They divide the organization up into hundreds of accountable teams; encourage 'stretch' performance by continuously comparing teams against peers and best practices rather than internally negotiated targets and reward all teams for performing better than peers; continuously adapt to change through rolling planning and forecasting processes; minimize resources by only providing what's necessary to run the business and fund the best current opportunities; and operate with transparent information systems that support value-based governance and provide essential checks and balances throughout the organization.

The credit crunch has done the world a favour by highlighting the consequences of the command and control model. Beyond Budgeting is on the march!

Join the BBRT today to explore Beyond Budgeting and share experiences with other organizations. Visit our web site at www.bbrt.org to learn more.

Over the past couple of months we have been busy upgrading our web site with a new look and feel and some new content, particularly in the Beyond Budgeting area. It now has a search function and a “breadcrumb trail” to show where you are in the site. We hope you like the new site; we would welcome your comments as these help us to make the site even more useful to you. Visit it at www.bbrt.org.

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
Ryebrook, NY, USA
Register

6 November 2008, BBRT Europe Members' meeting
MICentre, London, England

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 Hospital, Fort Worth, TX, USA

BBRT welcomes the following new members:

• Lucille Packard Children's Hospital
• Profisee

Utilities – The BBRT is scheduled to officially launch the Utilities Special Interest Group during a kick-off meeting on 15-16 October in Dallas, TX. The meeting, hosted by SAS, will feature case presentations from leading utilities companies including PPL and Oklahoma Gas & Electric in addition to a report from the APQC on the organization’s most recent research in the utilities industry. The first day of the meeting will include an introductory workshop on Beyond Budgeting that is open to all industries. Please visit www.bbrtna.org or email Kisty Fairchild at kisty@theplayergroup.com to learn more about this event or to register.

Public Sector – The BBRT Public Sector Interest Group will meet on 9 October in London, England. The meeting is focusing on the Beyond Budgeting journey in the Public Sector and developing the Guide to Implementing Beyond Budgeting in the Public Sector. For more information, please contact peterbunce@bbrt.org.

Healthcare – The BBRT Healthcare Interest Group will meet on 4-5 December in Fort Worth, TX. The meeting will be hosted by Cook Children’s Hospital, a BBRT member organization. The first day of the meeting will include a BBRT Introductory workshop that will be open to all industries. For more information, please contact Kisty Fairchild at kisty@theplayergroup.com

Beyond Budgeting Implementation Guide 2008

The BBRT recently celebrated its tenth anniversary. While this was a noteworthy milestone it also gave us pause for thought. How many organizations have truly embraced the Beyond Budgeting principles and transformed their performance management models? Not many is the answer. Many have made a start but few have gone the whole way. One of the reasons is that it is a daunting task. Another is that many leaders need to be involved. But perhaps the most difficult problem is that there is no clear roadmap to follow. We all acknowledge that every organization has a unique history and culture as well as different industry dynamics, structures and systems – that’s why we have been reluctant to provide a generic view of implementation. We also know it Beyond Budgeting is not a ‘quick fix’. The implementation journey can take years. The result of this “hands-off” approach has been that every implementation program has gone its own way and few have built a completely coherent model. We believe that after ten years observing the valiant efforts of many implementation teams that it is time to provide some generic guidelines.

In the early phase of Beyond Budgeting we divided the management model and the change process into two parts: ‘adaptive processes’ and ‘radical decentralization’. With hindsight this may have caused some misconceptions. Though we stressed the importance of maintaining coherence between all the principles and emphasized that implementing the principles was not a ‘pick and mix’ option, we still see too many instances of companies thinking that Beyond Budgeting is just about changing the budgeting process. Indeed, some of the cases outlined in the first book have failed to realize the full benefits because their focus was on processes which can easily be overturned by new leaders lacking in knowledge of and sympathy toward the recent changes.

Looking back we can now see seven common pitfalls of implementation:

1. Not holistic - Thinking that the purpose of the change is only to abandon budgeting rather than improving the whole performance management model.
2. Not engaged – Believing that the total transformation of the model can be driven by Finance (or any other function) alone and failing to engage wholeheartedly other members of the top team.
3. No vision - Just starting to implement something (e.g. rolling forecasts) without first building a robust case for change, and creating and communicating widely a clear vision of the whole model. If these are not done, the implementation will invariably run out of steam.
4. Wrong focus - Failing to realize that power must be transferred from the center to the front line. This cannot be achieved without creating many teams and transferring performance accountability to them. And this must precede any changes in management processes.
5. Not coherent – Thinking that devolving accountability can be achieved without eradicating fixed performance contracts.
6. Wrong style - Failing to see that the change process cannot be mandated from the corporate center. It can only be enabled and encouraged through a compelling vision.
7. Not continuing - Declaring ‘victory’ far too soon.

We have now addressed the challenge of providing a more detailed guide that hopefully avoids saying ‘there is only one way’ to implement Beyond Budgeting. Beyond Budgeting is a continuous journey of learning and adaptation – more a direction than a destination. Since the Beyond Budgeting book was published in 2003 we have evolved our thinking about implementation. For example, we no longer believe that there are two ‘steps’ (the ‘adaptive process’ step and the ‘radical decentralization’ step). We now believe that all 12 principles are an integrated and coherent set of guidelines that can’t be separated (though we recognize that they need ‘translating’ to fit the cultural context of each organization). In other words, to implement Beyond Budgeting effectively and truly change your performance management model, you need to embrace all the principles. But we also believe that moving from the concepts laid out in the 12 principles to practically implementing these principles can be hard. So the new Guide introduces a series of implementation, or change themes that enable a more focused implementation program.

Over the coming months we will be developing this guide with the help of the BBRT Members, bringing in all their experiences and ideas to make it richer and even more helpful to organizations.

If you want to be involved in this exciting development in BBRT, join the BBRT today. You will then get a copy of the first draft (or “strawman”) of the Guide and become involved in its development

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