BBRT - Beyond Budgeting Roundtable

What is a Beyond Budgeting Organization (BBO)?

There are increasing numbers of ‘beyond budgeting’ organizations. Some have been operating with this model for decades including:

• Japanese auto manufacturer Toyota
• U.S. steel maker Nucor Steel
• U.S. airline Southwest Airlines
• German retailer ALDI
• U.S. retailer Whole Foods Markets
• Swedish bank Svenska Handelsbanken
• U.S. company W.L. Gore
• Finnish company Nokia
• U.S. float glass maker Guardian Industries.

Most of these organizations are either at or near the top of their industry peer group rankings on a whole range of indicators from operating margins and shareholder returns to employee and customer satisfaction. And though they cover a range of industries, countries and cultures, their management models are remarkably similar.

Clear purpose

They all have a clear purpose that is greater than short-term shareholder value (though they create lots of that as well). They operate with simple structures, flat hierarchies and peer-to-peer networks. Everyone can see the same information at the same time. Front line teams are trusted to analyze and interpret information (that is totally transparent) and make decisions.

The management control bureaucracy has been dismantled as information is now integrated into the work of front line teams. There are no negotiated targets as everyone is striving to improve their performance relative to their peers or some other benchmark. They satisfy customers at the lowest cost and generate minimal waste. And accountability and rewards are shared around the whole organization. Everyone is in the same boat heading in the same direction.

Failure to understand and emulate success

Competitors have repeatedly tried and failed to understand and copy the success formulae of these organizations. In a recent IBM study, 65 percent of the world's top corporate CEOs declared that due to pressures from competitive and market forces, they plan to radically change their companies in the next two years. But most will repeat the same mistakes as before. They will focus on ‘fixing’ the parts rather than the whole. They will spend huge sums on project-driven change initiatives supported by tools and IT systems that will fizzle and then fade. Few will understand and copy what is truly innovative about these organizations – their management models.

Beyond budgeting organizations (BBO) have rejected McGregor’s Theory X and embraced Theory Y management principles. It is difficult to imagine how any business could succeed today without talented people and satisfied customers. And it is equally hard to imagine any CEO voting for Theory X. They all have visions of being ‘team-based’, ‘total quality’, ‘knowledge-driven’ and ‘customer focused’ organizations. The problem is that they have Theory Y leadership visions and Theory X management models.