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Planning PerspectivesBeyond Budgeting is a must-read for anyone interested in seeing the future of performance management.
— Issue #29, September 23, 2003
The traditional annual budgeting process—characterized by fixed targets and performance incentives—is time consuming, overcentralized, and outdated. Worse, it often causes dysfunctional and unethical managerial behavior. Based on an intensive, international study into pioneering companies, Beyond Budgeting offers an alternative, coherent management model that overcomes the limitations of traditional budgeting. Focused around achieving sustained improvement relative to competitors, it provides a guiding framework for managing in the twenty-first century.
In Beyond Budgeting, Jeremy Hope and Robin Fraser, directors of the Beyond Budgeting Round Table, present an alternative management model that enables companies to manage performance through processes specifically tailored to today's volatile marketplace. Based on the decision-making needs of front-line managers, this model lets you take advantage of two major opportunities. The authors write that your company can create a set of adaptive management processes that replace centrally controlled, predetermined goals with self-regulating, relative competitive benchmarks, and transfer the power and decision-making authority from the center of the organization to the front line.
The authors point out that everyone has an opinion about budgets. CEOs like the warm feeling they get when they see the year-end profit forecasts, but they might be anxious about the reliability of the assumptions and the firm's ability to respond to change. CFOs like the way they are able to tie operating managers to fixed performance contracts, but they also know that the process takes too long and adds little value. Operating managers like "knowing where they stand," but they are also concerned about the time wasted and that fixed performance contracts lead to decision paralysis and cosmetic accounting rather than decisive action and ethical reporting.
According to the authors, the consensus in American business circles is that the budgeting process isn't all it could be. Dissatisfaction is rampant. There are three main reasons for this:
One problem with this management method is that it may lead to fraud. When senior executives and operating managers commit to overly aggressive targets, they may fudge the numbers to meet them.
The authors point out that there are organizations that have eliminated the annual cycle of preparing, submitting, negotiating and agreeing on a budget by department, function, business unit, division or even the whole organization. The result has been to save months of work. The budget no longer represents an annual fixed performance contract that defines what subordinated must deliver or how resources are allocated or what business units must make and sell. The authors write that the budget no longer determines how the performance of those units and their people will be evaluated and rewarded.
The essence of the adaptive and decentralized management model, the authors write, is that by giving capable and committed people the authority to make fast decisions in their local markets, they will act responsibly, respond appropriately to the threats and opportunities confronting them, and with an eye on competitive performance, deliver consistent results. The focus of the model has moved from central to local control. This means that it is the local team that engages in planning and execution. The authors point out that they are the ones in touch with customer needs and the ones who have the freedom and capability to act. Copyright © 2003 Soundview Executive Book Summaries
|Introduction: Toward a New General Management Model|
|Pt. I||The Promise of Beyond Budgeting|
|Ch. 1||The Annual Performance Trap||3|
|Ch. 2||Breaking Free||19|
|Pt. II||The Adaptive Process Opportunity: Enabling Managers to Focus on Continuous Value Creation|
|Ch. 3||How Three Organizations Introduced Adaptive Processes||47|
|Ch. 4||Principles of Adaptive Processes||69|
|Ch. 5||Insights into Implementation||95|
|Pt. III||The Radical Decentralization Opportunity: Enabling Leaders to Create a High Performance Organization|
|Ch. 6||How Three Organizations Removed the Barriers to Change||119|
|Ch. 7||Principles of Radical Decentralization||143|
|Ch. 8||Insights into Changing Centralized Mind-Sets||161|
|Pt. IV||Realizing the Full Promise of Beyond Budgeting|
|Ch. 9||The Roles of Systems and Tools||177|
|Ch. 10||The Vision of a Management Model Fit for the Twenty-First Century||197|
|About the Authors||231|