implementing_beyond_budgeting-_unlocking_the_performance_potential_by_bjarte_bogsnes_-_bjarne_bogsnes
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- | ====== Implementing Beyond Budgeting: Unlocking the Performance Potential - Bjarte Bogsnes ====== | + | ====== |
- | ====== | + | ====== |
- | [[https:// | + | In general I found this a very useful book as my experience has been that many agile implementations stumble when they start working more corporate or financial issues. Part of the reason is that it is easy for many to say "The agile stuff is for the IT or product development folks - it doesn' |
- | ====== Review | + | The book talks about the problems with traditional financial thinking |
- | In general I found this a very useful book as my experience has been that many agile implementations stumble when they start working more corporate or financial issues. Part of the reason is that it is easy for many to say "The agile stuff is for the IT or product development folks - it doesn' | + | ====== On Traditional Budgeting Approach ====== |
- | The book talks about the problems with traditional financial thinking and works to address some of those issues. Starting with an assumption that " | + | The assertion |
* "Weak links to strategy: as the strategy and the budget are developed in isolated processes, facilitated by different functions without much mutual respect and contact. | * "Weak links to strategy: as the strategy and the budget are developed in isolated processes, facilitated by different functions without much mutual respect and contact. | ||
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* A language ill-suited for performance evaluation: “Hitting the budget number” is a narrow and often meaningless way of defining performance." | * A language ill-suited for performance evaluation: “Hitting the budget number” is a narrow and often meaningless way of defining performance." | ||
+ | The reason this is the case is that the budget process serves goals: | ||
- | {{tag> | + | * Good targets |
+ | * Reliable forecasts | ||
+ | * An effective resource allocation | ||
+ | And these goals conflict with each other. For example, the sales manager knows that the forecast number will come back as a sales target, and maybe with a bonus attached? We shouldn' | ||
+ | |||
+ | What is needed is a radical change in thinking. One idea is to separate the 3 concerns above so that one does not drive the other. | ||
+ | |||
+ | In addition changes needed to be made "both in leadership beliefs and behaviors and in management processes. On the leadership side, we need to be more values-based than rules-based. This does not mean having no rules. It simply means that the stronger our values are, the fewer rules are typically needed. There also has to be more autonomy. Bringing all decisions nine floors up takes too long in a VUCA world and doesn' | ||
+ | |||
+ | Driving leadership principles: | ||
+ | |||
+ | * Purpose - Engage and inspire people around bold and noble causes, not around short-term financial targets. | ||
+ | * Values - Govern through shared values and sound judgment, not through detailed rules and regulations. | ||
+ | * Transparency - Make information open for self-regulation, | ||
+ | * Organization - Cultivate a strong sense of belonging and organize around agile and accountable teams; avoid hierarchical controls and bureaucracy. | ||
+ | * Autonomy - Trust people with freedom to act; don't punish everyone if someone should abuse it. | ||
+ | * Customers - Connect everyone' | ||
+ | |||
+ | Management Processes | ||
+ | |||
+ | * Rhythm - Organize management processes dynamically around business rhythms and events, not around the calendar year only. | ||
+ | * Targets - Set directional, | ||
+ | * Plans and forecasts - Make planning and forecasting lean and unbiased processes, not rigid and political exercises. | ||
+ | * Resource allocation - Foster a cost-conscious mindset and make resources available as needed, not through detailed annual budget allocations. | ||
+ | * Performance evaluation - Evaluate performance holistically and with peer feedback for learning and development, | ||
+ | * Rewards - Reward shared success against competition, | ||
+ | |||
+ | Based on these core ideas the book takes you through the journey a couple of organization took to revamp their processes. For example, the idea of investment allocation: " | ||
+ | |||
+ | - Small projects were treated more or less like operating costs, even if accounting-wise they classified as investments. | ||
+ | - Medium-size projects were decided case by case. The hurdle rate (the “interest” that future cash flows are reduced with because a dollar tomorrow is less valuable than a dollar today) was meant to be the lever to pull if we needed to take down the total investment level in this category. In practice, this mechanism was never used explicitly. When money was tight, there were simply fewer proposals coming forward. | ||
+ | - Major strategic projects had never been managed through annual budgets. These projects could be acquisitions, | ||
+ | |||
+ | ====== On Traditional Performance Evaluation ====== | ||
+ | |||
+ | In terms of performance evaluation, one of the problems with is that the process serves different and conflicting purposes, just like the budget does. These purposes are: | ||
+ | |||
+ | * Feedback and development | ||
+ | * Reward | ||
+ | * Legal documentation | ||
+ | |||
+ | Additional ideas on the problems: | ||
+ | |||
+ | * " | ||
+ | * Fifty years of research almost unanimously discounts individual bonus as an effective way of motivating and driving performance in knowledge organizations | ||
+ | * A bonus can undermine the interest in the job itself and reduce the value of the task it pays for, even though the intention is the opposite. | ||
+ | * You can kill interest by rewarding people for something they used to do without a reward because they thought it was fun, the story also reminds us that incentives do not create any lasting and sustainable change in behavior unless you keep paying up. | ||
+ | * David Sirota sees it like this: ”The main question for management is not how to motivate, but rather how management can be deterred from diminishing or even destroying motivation. | ||
+ | * By the way, if bonus is meant to motivate, how come the biggest dose is needed at the higher manager and executive levels? Is this where we find the most boring jobs? I just don't get it! | ||
+ | * Team or collective bonuses are very different, as they are designed with a different purpose: hindsight reward for shared success. Note: Individual bonus trying to push behavior. Group behavior looking back rewarding success | ||
+ | * Free riders are real. They exist in every company and in many teams. But they are still a small minority. Again, we cannot design our management processes based on minorities. | ||
+ | * The Institute of Leadership & Management (ILM) recently did a study on the use of bonuses in British companies. It seriously questioned the business value of the £37bn companies spend on bonus annually, as only 13% of respondents said the bonus made them work harder. Note: Numbers. Bonus don't work. And are expensive | ||
+ | * Tough times are used as an excuse for increasing bonus levels, to motivate executives for all the difficult decisions ahead. As if it isn't their job! | ||
+ | * A survey by the U.S. compensation and benefits consulting firm William M. Mercer sums it all up when concluding that “most merit or performance-based pay plans share two attributes; they absorb vast amounts of management time and resources, and they make everybody unhappy." | ||
+ | |||
+ | ====== Other Ideas ====== | ||
+ | |||
+ | On changing the process: "A key lesson learned came as quite a surprise to us: Don't design everything up front. The issues and challenges might pop up in the most unexpected areas. Design to 80 percent and jump, and sort out the issues as they occur" | ||
+ | |||
+ | On the " | ||
+ | |||
+ | On setting a strategy "So next time you listen to someone presenting their strategy, ask what they have said no to. If they can't answer, there is no strategy." | ||
+ | |||
+ | On characteristics of a good KPI "Do they measure progress toward strategic objectives? Do they measure real performance? | ||
+ | |||
+ | On comparing metrics "One thing must always be in place for benchmarking and league standings to work. They must be seen as fair and relevant. If this is not in place, forget it" and "One solution is “indirect benchmarking”: | ||
+ | |||
+ | On planning " | ||
+ | |||
+ | On forecasting "A forecast is not a promise, not something to deliver on. People using that expression have not understood the difference between a forecast and a target. Again, a forecast is what we think will happen, an expectation; | ||
+ | |||
+ | On traditional cost control " | ||
+ | |||
+ | On traditional reporting "We spend less time on number crunching and historical variance explanations." | ||
+ | |||
+ | On why innovation requires different thinking " | ||
+ | |||
+ | On process to get started "I have grouped it as follows: Create the case for change. Handle resistance. Design to 80 percent and jump. Keep the cost focus. Don't start with rolling forecasting only. Involve HR and Agile IT. You can't get rid of command and control through command and control. Do not become a fundamentalist." | ||
+ | |||
+ | On selling "I often recommend to start with the quality problem, with the separation of the three budget purposes, especially if the organization is dominated by engineers, finance people, and a lot of rational thinking and problem solving. The simple fact that an ambitious target cannot be the same number as a 50/50 expected outcome forecast has a mathematical ring to it. That a cost forecast that doubles as a request for resources seldom will be a good forecast is quite obvious and most people get it right away. Both are simple to explain and can be illustrated easily with concrete examples from actual budget and planning practices in the company. Remind people that separating and improving only can make things better, and that we are not stopping what the budget tried to do for us. Add on some calendar examples from the rhythm problem. The light will most likely go on, and people will see something they have always sensed but not fully understood." | ||
+ | |||
+ | “Formula for Change” created by David Gleicher and later refined by Kathie Dannemiller. It says little about sequence but highlights critical elements for change to take place. It reads as follows: | ||
+ | |||
+ | organizational_change = dissatisfaction x vision x first_steps | ||
+ | |||
+ | For organizational change to take place, there must be dissatisfaction with the current situation; there must be a vision of something better; and there must be some first tangible and credible steps toward it. The product of the three must be bigger than the resistance to change. If any of the three is low or zero, the resistance will normally be bigger and kill the change. | ||
+ | |||
+ | ====== Want to Know More? ====== | ||
+ | |||
+ | * [[https:// | ||
+ | |||
+ | {{tag> | ||
- | ~~LINKBACK~~ | ||
- | ~~DISCUSSION~~ |
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