Beyond Budgeting: Revolution or Revulsion?

How would you feel if your company abolished budgeting? Many would jump for joy at not having to submit to this annual pain any more. Abandoning the annual budget is exactly what the Beyond Budgeting Roundtable (BBR) has recommended companies to do.

The BBR defines”budgeting” more broadly than just the process of creating annual financial estimates. “Budgeting” is defined as the main tool of control that is used by traditional “command & control management”. Because Beyond Budgeting seeks to change traditional management, removing the budget process is the key action in this process.

The Beyond Budgeting model of management rotates the typical org chart 90 degrees counter-clockwise, putting senior management on the far left, and the customers on the far right, per the figure below (from http://www.bbrt.org/beyond-budgeting/bb-vision.html).

Article Beyond Budgeting Org Chart

The aim in this change is to put the focus on providing value to the customer. It proposes to move some support functions (typical cost centres like operations, accounting, etc) to within the Value Centres, closer to the customer. This creates more direct costs and less allocated costs in the organization, and increases customer-facing focus for the whole organization.

More generally Beyond Budgeting proposes to link up the effort across the organization with common guidelines rather than piles of rules, allowing judgement and common sense at the “front lines”. It promotes development of real-time KPIs which will serve as the barometers for success, and puts the direct responsibility for faster and more relevant responses on those front-lines.

So why has Beyond Budgeting transformed our world?

Even Beyond Budgeting proponents admit that this is not a quick or easy change: current management needs to embrace this change and be willing to invest in the process. That is a tall order for management which has achieved their individual success around the traditional model. It is equally difficult for those who may support such a project but who may see such support as ‘career limiting’.

Beyond Budgeting also requires a significant investment in technology in order to allow forecast modelling information to be collected from the decentralized (and possibly far-flung) Value Centres, and to be fed back as KPIs against the actual results.

But there are compelling reasons to look at organizational change. The changing nature of the workforce/workplace; increased volatility in economies, and even volatility in the weather all have huge direct and indirect impacts on business outcomes. If there is growing volatility in the outside forces on business, it may make sense to look at adapting the inside forces to meet that volatility.

However the language around the Beyond Budgeting model is a little off-putting and overly-euphoric.

The Beyond Budgeting website claims that this process is “…about releasing people from the burdens of stifling bureaucracy and suffocating control systems…”; another site claims that the “dead hand of command and control” de-motivates employees and kills innovation, and there are articles in support of Beyond Budgeting which refer to the traditional budget as “figures of hate” (http://www.thefreelibrary.com/Figures+of+hate.-a078965363).

Them’s fightin’ words!

Traditional management has been adapting: many companies use more democratic, outward facing strategies, such as a rolling forecast, which starts its life as the budget; numeric and non-numeric goals, and personal professional goals all of which are intended to guide people to some common strategic objective. These strategies most often work together to advance customer value, though often not perfectly.

As a manager or as a volunteer, you may have noticed how poorly many organizations have been and continue to be run – the argument that we need to improve management is not at issue! Yet solutions to this problem which are brought to the table with trumpet blasts and rhetoric proclaiming its arrival as necessary and revolutionary should alert the skeptics in all of us.

Yet there is value in considering change: management structures tend breed bureaucracy over time, and bureaucracy tends to get in the way of innovation. A little revolution now and again – whether planned, like Beyond Budgeting, or unplanned, like a financial crisis – cleans out the cobwebs and allows new ideas to bubble up.

There is value in decentralizing decision making and trusting the people you hire to understand their role and exercise good judgement. Equally, formal budgeting is a process that recognizes scarce resources as an important variable in running a business.

In short, no matter what the management model the need for good management is critical to success. Beyond Budgeting is big change, and that may be what is needed, but it is not an easy step. How would you know if it is for your company? Good management looks to the company, its people, the market and prevailing conditions and makes changes as required. Start there.

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