keynote (en): leading with flexible targets - beyond budgeting & the performance revolution,...
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Keynote presentation for several companies in Bergamo, Italy. Presented by Sergio Mascheretti (I.T.M. Consulenza) and Niels Pflaeging (BetaCodex NetworkTRANSCRIPT
Dr. Sergio Mascheretti e Niels Pflaeging
Leadership e obiettivi flessibili.
Beyond Budgeting: come rivoluzionare il sistema delle performance.
Come trasformare, orientare e gestire le aziende verso la creazione di valore
Venerdì 22 Gennaio 2010
Beyond Budgeting Introduction
>beyond budgetingtransformation network.
Presentazione
ITM Consulenza è lieta di organizzare nel territorio bergamasco, la prima tavola rotonda su un nuovo approccio di management conosciuto a livello internazionale come Beyond Budgeting.
A tal proposito il Dr. Sergio Mascheretti ha ritenuto fondamentale la collaborazione di uno dei fondatoridel movimento, Niels Pflaeging, con il quale presenterà a breve, il libro: Leadership e obiettivi flessibili – Beyond Budgeting: come rivoluzionare il sistema delle performance.
In più di un’occasione il Dr. Mascheretti si è trovato con ciascun partecipante a discutere di gestione, di strumenti, di processi organizzativi, di sistemi incentivanti, al fine di trasformare, orientare e rendere performante ciascuna organizzazione.
Questa tavola rotonda rappresenta un’occasione per cogliere nuovi stimoli di business management, cogliendo l’opportunità della presenza di uno speaker e management consultant di livello internazionale.
Elenco Aziende Partecipanti• Brembo• Radici• Percassi• Banca Popolare dell’Emilia Romagnia• Same
Beyond Budgeting Introduction
Dr. Sergio Mascheretti e Niels Pflaeging >beyond budgetingtransformation network.
© BBTN – All rights reservedWorkshop – Beyond Budgeting 3
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© BBTN – All rights reservedWorkshop – Beyond Budgeting 5From the film ‘Modern Times’ with Charlie Chaplin, 1936
Outlining the ‘industrial age’ model and its pitfalls
“command and control“
• Too centralized• Too inward-looking• Too little customer-oriented• Too bureaucratic• Too much focused on control• Too functionally divided• Too slow and time-consuming• Too de-motivating• …
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How markets govern organizations “from the outside in”
Periphery
Center
Market
Information Decision
Impulse
Command
Reaction
Centralist command and control “collapses“ in increasingly complex
environments
Source: Gerhard Wohland
>beyond budgetingtransformation network.
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Beyond Budgeting means:From hierarchy to network structure
• “Bosses” rule!• Top-down
command and control• Top management
is always in charge• Centralized leadership
• “The market” rules!• Outside-in
sense and respond• Front-line teams are always
in charge• Devolved leadership
Traditional model (centralized functional hierarchy)
New model (decentralized leadership network)
Changing leadership and structure
© BBTN – All rights reservedWorkshop – Beyond Budgeting 9
There is a “new” model, which is supported by science and practice
Sciences: Thought leaders(selected)
Practice: Industry leaders
(selected)
Henry MintzbergGary HamelJeremy HopeMichael HammerThomas JohnsonCharles Horngren…
Stafford BeerMargareth WheatleyNiklas LuhmannW. Edwards DemingKevin KellyRoss AshbyJoseph Bragdon…
Douglas McGregorChris ArgyrisJeffrey PfefferReinhard SprengerStephen CoveyHoward GardnerViktor Frankl…
Peter DruckerTom PetersCharles HandyJohn KotterPeter SengeThomas DavenportPeter Block…
Complexitytheories
Social sciences and
HR
Leadership & change
Strategy & Performance management
Industry
Retail
Services
Governments& NGOs
© BBTN – All rights reservedWorkshop – Beyond Budgeting 10
Centralized hierarchy,“command and control”
strategy
control
Fixedperformance
contracts
Decentralized network, “sense and respond“
Dynamic coordination
Relativeperformance
contracts
Dynamic processes
The old model is not aligned with today’s CSF and it does not support ‘Theory Y’.> We need a new
model to cope with complexity
> We must change the whole model!
From the old coherence to a new coherence
Fixed processes
Traditional model (supports efficiency) New model (supports complexity)
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There are two different ways of working on the model –evolution and transformation
Foundation Several decades oldTime scale: organization's age
Low degree of decentralization/ empowerment
Differentiationphase
Stagnationwithin the tayloristic model
Integration phase
High degree of decentralization/ empowerment
Sustaining and deepening of the decentralized model, through generations
Transformationthrough radical decentralization of decision-making
Pioneering phase
Bureaucratizationthrough growing hierarchy and functional differentiation
Evolutionwithin the decentralized model (culture of empowerment and trust)
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The 12 principles of the Beyond Budgeting model are in fact a full set of “design principles“ for the new organization type
Pro
cess
es
Goals andrewards
Planning and controls
Resources andcoordination
Lead
ersh
ip
Customers and responsibility
Performance and freedom
Governance and transparency
Goals related to continuous improvement
Rewards related to organization results
Continuous and inclusive planning
Compare performance against actuals
Resources “on demand”
Coordinate dynamic, market-like interactions
Customer/outside focus
Responsible teams (“cells”)
Performance culture, beat the market
Autonomy and responsibility
Clearly defined objectives and values
Open and shared information
Do this!
Fiscal year, fixed goals
Reward local, fixed goals
Top-down annual planning
Variations against fixed plans
Annual (budget) allocations
Departmentalization, hierarchy
Focus on the boss
Centralization, functional division
Inspired by the past, burocratic
Adherence to fixed plans
Impose objectives from above
Restricted information
Not that!Principles
6 “devolvedleadership” principles
6 “adaptive management processes” principles
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Fixed targets
Mostimportantcompetitor
(28%)Market(25%)
Plan(15%)
Actual(21%)
Target: absolute ROCE in % (here: 15%)
[expectedmarket Ø: 13%]
Plan
Comparison:Plan-Actual
Actual
Why traditional management with “fixed performance contracts“regularily fools us: We have lost control a long time ago…
• Interpretation within the plan-actual-comparison: Plan was outperformed by 6 percentage points > positive interpretation
• Better ROCE of the market average and the most important competitor remain unnoticed!
Relative, self-adjusting targets
Target: relative ROCE in % (to market)
Mostimportantcompetitor
(28%)Market(25%)
Target: „ROCE in % betterthan market
average”Actual(21%)
• Interpretation within actual-actual compa-rison: Performance was 4 percentage points below competition! > negative interpretation
• Absolute assumptions at the moment of planning don´t matter.
• Targets always remain updated and relevant!
[independent from expected
market Ø]
Target Actual
Comparison:Market-Actual
Source: Niels Pfläging
© BBTN – All rights reservedWorkshop – Beyond Budgeting 14
The case of a radically decentralized organization: Handelsbanken – an extraordinary leadership philosophy
ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share
Consistently – over a period of 30 years – one of the most successful banks in Europe, measured by almost all key performance indicators(e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)
The most important objective within Handelsbanken Group:“Higher Return on Equity than the average of comparable banks in the Nordic region and Europe.”
Made real through:• Radical decentralization,
which in turn leads to…• Best customer service• Lowest cost
Alexander V Dokukin
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Customers
600 branch managers(Profit Centers)
12 regional managers
(Invest Centers)
CEO,product firms,
treasury, IT etc.
Fast, open information
systems
Fast, open information
systems
Governance and transparencyFramework for decision making
with clear values, limits and relative targets, plus
transparency
Freedom and capability to act
“Winning“ culture, combined with the freedom and ability to
act
Customer intimacyA large network of self-managed teams with full responsibility for
customer results
Principles
How “radical decentralization“ is being reflected in the company´s organizational structure and decision-making
Leads to maximum customer satisfaction!
Source: BBRT
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Bank to bank Return on Equity (RoE)
1. Bank D 31%
2. Bank J 24%
3. Bank I 20%
4. Bank B 18%
5. Bank E 15%
6. Bank F 13%
7. Bank C 12%
8. Bank H 10%
9. Bank G 8%
10. Bank A (2%)
Bank to bank Return on Equity (RoE)
1. Bank D 31%
2. Bank J 24%
3. Bank I 20%
4. Bank B 18%
5. Bank E 15%
6. Bank F 13%
7. Bank C 12%
8. Bank H 10%
9. Bank G 8%
10. Bank A (2%)
Region to region Return on Assets(RoA)etc.
1. Region A 38%2. Region C 27%3. Region H 20%4. Region B 17%5. Region F 15%6. Region E 12%7. Region J 10%8. Region I 7%9. Region G 6%10. Region D (5%)
Region to region Return on Assets(RoA)etc.
1. Region A 38%2. Region C 27%3. Region H 20%4. Region B 17%5. Region F 15%6. Region E 12%7. Region J 10%8. Region I 7%9. Region G 6%10. Region D (5%)
Branch to branchCost/income ratio etc.
1. Branch J 28%2. Branch D 32%3. Branch E 37%4. Branch A 39%5. Branch I 41%6. Branch F 45%7. Branch C 54%8. Branch G 65%9. Branch H 72%10. Branch B 87%
Branch to branchCost/income ratio etc.
1. Branch J 28%2. Branch D 32%3. Branch E 37%4. Branch A 39%5. Branch I 41%6. Branch F 45%7. Branch C 54%8. Branch G 65%9. Branch H 72%10. Branch B 87%
Strategic „cascade”
Result & value contribution
Leads to lowest operational cost!
Relative target definition through “league tables“ (rankings) –instead of planned, fixed targets and internal negotiation
Relative targets and relative compensation
Continuous planning/control
“On demand“ flow of resources/
dynamic coordination
Principles
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Headquarters/Region
Headquarters/Region
Branches acquire resources through internal markets
Flexible coordination and resources “on demand“ -instead of allocations and budgets
Customer demand
Customer demand
Branches observe
customer demand
Resources (IT, HR etc.)
Resources (IT, HR etc.)
Branches decide over necessary resource levels
BranchBranch
Branches alone are responsible for efficient
use of resources
Leads to eradicating and avoiding waste!
Source: BBRT
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Virtuous circle
Creating a “virtuous circle”–a common factor among “Beyond Budgeting” pioneers
Better to do business with
4. Customer intimacy – Highest (independent) customer satisfaction scores in sector year-after-year; lowest customer complaints; monitors customer acquisitions/defections.
3. Operational excellence –Lowest costs of any bank in Europe; lowest bad debts; cost reduction culture; flat organization (half a head office person per branch versus five for rivals); internal market exerts constant pressure on central services.
2. Innovation – SHB voted joint best Internet bank in Europe in 2000; any competitive products and solutions are fed back from branches to product development.
Better to work for
1. Best people – SHB is first choice financial services company in Sweden for graduates; employee turnover is lowest in sector; challenge, personal responsibility and freedom to run their part of the business; group-wide profit sharing scheme.
Better to invest in
6. Sustainable value –Beats peer group every year on ROE and cost-to-income ratio; highest total shareholder return in sector; devolved adaptive organization is key driver of success.
Better for society
5. Ethical & social standards –Support the long term interests of the bank and society.
Text relates to Svenska Handelsbanken
© BBTN – All rights reservedWorkshop – Beyond Budgeting 19
Simple and relevant: creating reports without actual-plan-variances, fixed targets, or plans!
Trend with references
(A) Maximum
Curve with variance
KPI
(B) Gliding average
Time (Actuals)
Accouts/KPIs vs. Previous periods
lastmonth
Samemonth
lastyear
Samemonthprev..year
Ølast12
mnths
Ø12
prev.mnths
IndicatorsorGroups of accounts
Ranking (League table) ext./intern.
Company KPI
Competitor A 31%Competitor E 24%Competitor C 20%Us 18%Competitor B 13%Competitor D 12%Competitor G 10%Competitor F 8%
Regions KPI
Region G 7%Region E 7%Region B 6%Region F 4%Region A 3%Region D 3%Region C 1%Region H 0%
Trend with benchmark
Us
Competitor A
Time (Actuals)
KPI
Snapshot (static) with benchmarks
KPI 2
Us
Ourunit B
Our unit A
Compe-titor B
Compe-titor A
KPI 1
Trend with tolerance
Tolerance levels
Time (Actuals)
KPI
Us
© BBTN – All rights reservedWorkshop – Beyond Budgeting 20
1. Ending
3. Beginning2. Neutral Zone
To transform your organization from “command & control” to “decentralized network”, a double helix change is needed
3. Develop change
vision and strategy
4. Communi-
cate for under-
standing and buy-in
5. Empower all others
to act
6. Produce
short-term wins
7. Don't
let up!
8. Create a new culture
1.Create a sense of urgency
2. Pull
together a guiding coalition
Organizationalchange process
Individual
change process
References
Niels Pflaeging
Dr. Sergio Mascheretti
[email protected]. 035 212224
Dr. Sergio Mascheretti e Niels Pflaeging >beyond budgetingtransformation network.
>beyond budgetingtransformation network.
Beyond Budgeting Introduction