2015-03-29 Beyond Budgeting from Command-and-Control to Empower and Adapt 25 March 2015 Knut Fahlén © Ekan AB Short facts about Ekan • Independent Management consultants • Founded in 1985 • 40+ Management consultants • Offices in Göteborg and Stockholm • Official representative for Beyond Budgeting Institute in Sweden © ekan AB 1 2015-03-29 We help businesses develop and evolve within their reality © ekan AB Available resources Goal BUDGET Spending plan Guideline Forecast Allocated funds Business plan © ekan AB 2 2015-03-29 Five Budgeting myths.. 1. 2. 3. 4. 5. No Budget Good Performance No individual Bonus More Detail Need to Know = Chaos and Overspend = Hitting the Budget Numbers = No performance = More Quality = Enough to Know © ekan AB The process The budget • Target • Forecast • Resource allocation Same number – conflicting purposes 1. Separate 2. Improve Target What we want to happen • Ambitious • Relative where possible • Holistic performance evaluation Forecast What we think will happen • Unbiased – the expected outcome • Limited details Resource allocation Based on RoI • Dynamic – no annual allocation • Mandates, decisions, criteria • Trend monitoring Different numbers Event driven – not always annully © ekan AB 6 3 2015-03-29 © ekan AB An inherent conflict Power balance The fiscal year Administrative task Cost control & variance analysis Co-ordination © ekan AB 4 2015-03-29 0% © ekan AB Uncertainty Economy Volatility Uncertainty Complexity Ambiguity Globalization Market shift (De-)regulations Competition 4 arguments for going Beyond Budgeting Technology Digitization Transparency Speed of change Demography Generation shift Globalization Demographic shifts Lack of talents © ekan AB 5 2015-03-29 Beyond Budgeting is about Management innovation I N N O V A T I O N Management Innovation Industry transformation Business Model Products and services Operational excellence SUSTAINABILITY Based on ”Potential for long term advantage”, J. Birkinshaw © ekan AB Kaiser Permanente NORS Spotify AVIVA Health care Automotive retailer Music / Media Incurance Lego HOLT Cat Coloplast Össur Toys Automotive Healthcare High Tech Morning Star Statoil Handelsbanken Arla Foods © ekan AB Food processing Oil industry Bank / Finance Food / Diary 6 2015-03-29 Beyond Budgeting is about creating AGILE & VALUE BASED Organizations © ekan AB Organizations and leadership Management control system & -process Organization Leadership Motivation and incentives Target setting       Responsibility Culture Trust Transparency Values Coordination Forecasting Decision & resource allocation © ekan AB 7 2015-03-29 Create a link between Resource allocation and the Decision process © ekan AB Strategic decisions Crossroads & investments WHO? HOW? WHEN? Responce handling Proactivte and/or reactive Non Decisions ”Business as usual” © ekan AB 8 2015-03-29 Decentralize and put the customer in focus © ekan AB • Focus on leadership and organization • From function oriented to customer oriented • Changed work design, roles and measures (employee turnover etc) • From competition to collaboration – group bonuses • “From making things to providing service” © ekan AB 9 2015-03-29 • Building a value-based organization • Working with behavior, leadership style and roles • Working with trends, rolling forecasts • No “noice” between strategy and operations • More focus on actions and making the profit, than being aligned with a yearly plan. © ekan AB Ambition Autonomy Making bad decisions Making good decisions Doubt about role and direction Understanding role and direction x x x x x x Passive, waiting x for tasks Making no decisions No freedom Can, but do not dare to take decisions © ekan AB 10 2015-03-29 Rolling forecast, follow-ups and relative targets © ekan AB • Budget was not in line with reality. • Worked with finding ”Key Value Drivers” • Relative KPIs and “Performance League” – market share, gross margin, indirect costs/sales and service sales/Number of trucks sold • Rolling forecast – and using trends to monitor progress • Separation between ambitions and forecast © ekan AB 11 2015-03-29 Problems & Challenges Budget next year = budget this year + forecast next year If you are good at forecasting, and spend all you got, You will (with high probability) Receive all you ask for the following year. • • • Volatil business environment Targets obsolete before the year begun No incentives to spend less © ekan AB Contact details Knut Fahlén knut.fahlen@ekan.com +46 (0)31-761 60 10, +46 (0)734-424771 www.ekan.com www.bbrt.org © ekan AB 12