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    In this article, the author examines the need for finding common ground between strategy management and operations management. While strategy management seeks to make strategy relevant to employee’s day-to-day responsibilities, operations management seeks strategic context for implementation and improvement projects. The author presents a performance management framework that describes the common ground.

    The author points out that the lack of connect between strategic performance and operational performance leads to issues such as lack of alignment, misallocation of resources, short-term focus, and a failure to perceive risk, among other things. 

    Moving on, the author demonstrates how methodologies such as the Balanced Scorecard and Lean Six Sigma can potentially create the common ground between strategic and operational performance management. What organizations need is a framework that makes this intersection possible.

    The author presents one possible solution, which is in consonance with the needs of strategy management and operation management practices such as the four-stage Deming improvement cycle of Plan-Do-Check-Act. The author goes on to provide a detailed elaboration of how, at every stage, it is possible to create strategic and operational components, with related perspectives, tools, and techniques. By viewing the management of performance as a system with strategic and operational components, the author concludes, this framework is offers a unifying foundation for an organization’s performance management needs.

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    In this article, Bjarte Bogsnes – member of the EPM Review Editorial Board and a leading practitioner-thinker of the Beyond Budgeting philosophy – first scrutinizes the five myths most commonly held about ‘Beyond Budgeting’ and then proceeds to throw light on what the approach actually means for enterprise performance management.

    As a concept, Beyond Budgeting has its roots and origins well back in time. However, as a management model, it is just a decade old. Consequently, the concept has not reached a stage where clear and consistent understanding can be safely expected. In fact, a number of myths and misunderstandings have developed about Beyond Budgeting.

    The author says the five most common myths about Beyond Budgeting are:

    1. It is only about removing budgets
    2. It is only about rolling forecasts
    3. It is only for rich companies
    4. It means losing control
    5. It only works in Scandinavia

     Drawing from his rich experience, the author examines each one of the myths to reveal the realities and insights from the world of business and organization that have influenced the evolution of the Beyond Budgeting concept.

    In the concluding section, the author shares with readers the 12 principles that actually constitute Beyond Budgeting and make it a powerful management approach for unlocking the performance potential of any organization.  

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    This interview is part of a series in which experts respond to questions about some of the persistent issues facing leaders, as they seek to create an adaptive enterprise and achieve new levels of performance. This round features Peter Ryan, Corporate Performance Manager, Christchurch City Council, New Zealand.

    The interview focuses on the connection between an adaptive organization and the conventional budgeting process which drives performance planning and performance management. Issues covered include the definition of an adaptive organization; strengths and weaknesses of conventional budgeting; budgeting concept as an annual performance contract; how managers view budgeting; and the effectiveness of budgeting in goal setting, performance evaluation and reward. The interview also seeks to discover what the favored alternative frameworks are, and why leaders are unable to move to new models. It also identifies cultural barriers in transforming the conventional budgeting process. Finally, it seeks a prediction on how adaptive organizations will evolve.

    In response, Peter Ryan identifies an adaptive organization as being structured around desired outcomes in terms of effects. Dwelling on budgeting, he believes it has two fundamental flaws – an excessive focus on efficiency and the problem of base budget creeping. Addressing the context of the public sector, Peter Ryan does not find conventional budgeting effective or useful as a performance contract, a goal setting mechanism, for resource allocation or performance evaluation and reward. Peter Ryan then talks about zero-based budgeting as an alternative. He also recommends that organizations start defining performance in terms of outcomes and looking at joint accountabilities and incentives. Finally, he believes that this focus on delivering clearly defined outcomes will define an adaptive organization, whose budget will be fluid and people will be better integrated. It will not operate on the boom/bust cycle or the oscillating universe cycle.

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    This interview is part of a series in which experts respond to questions about some of the persistent issues facing leaders, as they seek to create an adaptive enterprise and achieve new levels of performance. This round features John McMahan, Senior Business Advisor, The Hackett Group.

    The interview focuses on budgeting. Issues covered include the definition of an adaptive organization; strengths and weaknesses of the conventional budgeting process; an examination of budgeting as an annual performance contract; the opinions of finance managers and line managers regarding budgeting; effectiveness of budgeting in goal setting, performance evaluation and reward; reasons why leaders don’t move to new models, even when aware of the shortcomings of the traditional budget; whether organizations are really changing their approach to budgeting; alternative frameworks. It also critically examines the relevance of annual targets for communicating financial projections and ongoing projections to the investment community.

    In response, John McMahan states that budgeting marshals the resources of the organization in a similar direction but is time consuming, doesn’t match the speed of change and amount of business volatility and is dissociated from organizations’ strategic objectives. He also believes that the conventional budget is a poor performance contract, lacks flexibility, loses value over the time horizon and even becomes an impediment, and is not very effective for planning, goal setting, resource allocation, performance evaluation and reward.

    John McMahan says that organizations today want to better predict and understand events and act fast. To make this happen, they are experimenting with ideas like rolling forecasts. At the same time, organizations face a great challenge in developing a new performance contract that delivers better results than conventional budgeting.    

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    This interview is part of a series in which experts respond to questions about some of the persistent issues facing leaders, as they seek to create an adaptive enterprise and achieve new levels of performance. This round features Jeremy Hope, Research Director, Beyond Budgeting Round Table.

    The interview focuses on budgeting. Issues covered include the definition of an adaptive organization; strengths and weaknesses of the conventional budgeting process; an examination of budgeting as an annual performance contract; the opinions of finance managers and line managers regarding budgeting; effectiveness of budgeting in goal setting, performance evaluation and reward; and reasons why leaders don’t move to new models, even when aware of the shortcomings of the traditional budget. It also identifies major cultural barriers for transforming the conventional budgeting process and critically examines the relevance of annual targets for communicating financial projections and ongoing projections to the investment community. The interview concludes with Jeremy Hope’s take on the shape the adaptive organization will take in the next few years.

    In response, Jeremy Hope believes the chief characteristic of the adaptive organization is one that it is pulled by the customer rather than pushed by the plan. He believes budgeting is a coherent performance management model whose greatest weakness is that it is built around the notion of central control. This notion is being replaced by a move towards more devolved, more flexible, more organic, more natural systems. The conventional budget brings with it a lot of rigidity, lacks integration with strategy, adversely influences behavior, stifles innovation, promotes ‘short-termism’ in performance, and is ineffective for planning, goal setting and resource allocation. In some ways, Jeremy Hope believes, the failures of the budget as a performance management model are reasons for the Balanced Scorecard’s success. Jeremy Hope believes that cause and effect isn’t a model that represents reality. As a culture, lean thinking clashes with conventional budgeting. When lean thinking and beyond budgeting come together, he believes organizations will have an unstoppable formula for change.

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    This interview is part of a series in which experts respond to questions about some of the persistent issues facing leaders, as they seek to create an adaptive enterprise and achieve new levels of performance. This round features Dr. Fritz Roemer, Senior Business Advisor, The Hackett Group.

    The interview focuses on budgeting. Issues covered include the definition of an adaptive organization; the strengths and weaknesses of the conventional budgeting process; an examination of the budgeting concept as an annual performance contract; the opinions of finance managers and line managers regarding the budgeting approach; and the effectiveness of budgeting in goal setting, performance evaluation and reward. The interview also seeks to discover why leaders are unable to move to new models, even though they appreciate the shortcomings of the traditional budget. It also identifies the major cultural barriers for transforming the conventional budgeting process.

    In response, Dr. Fritz Roemer identifies proactivity as the chief characteristic of the adaptive organization. Dwelling on the new trends, he believes Beyond Budgeting is not really a trend and only does a very good job of pointing out the faults of the traditional budgeting approach. He is also clear that the budget is not just a tool but a culture and hence, it is the most difficult process to change in any organization. The traditional budget serves as a stick in the ground but suffers from a lot of critical shortcomings. He believes organizations should redesign the budgeting process by adopting a top-down approach instead of the present bottom-up approach. Moving on, he believes the budgeting process can be made a lean process that consumes far less organizational time and resources. Organizations should add a strong forecasting process, which offers numerous advantages. Dr. Roemer does not find conventional budgeting very useful for resource allocation or performance evaluation and reward. Dr. Roemer believes that adaptive organizations will take a strong interest in actually de-emphasizing the budget.

Published in Interviews

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    This interview is part of a series in which experts respond to questions about some of the persistent issues facing leaders, as they seek to create an adaptive enterprise and achieve new levels of performance.

    This interview features Jonathan Chocqueel-Mangan, a UK-based Partner with Heidrick and Struggles, the world's premier provider of senior-level executive search and leadership consulting services. Jonathan was previously an Executive Vice President for the Balanced Scorecard Collaborative. Here, James Creelman, Jonathan’s co-author for the Business Intelligence, UK report ‘Reinventing Planning and Budgeting for the Adaptive Enterprise’, asks the questions.

    The interview focuses on budgeting. Issues covered include the definition of an adaptive organization; the strengths and weaknesses of the conventional budgeting process; an examination of the budgeting concept as an annual performance contract; the opinions of finance managers and line managers regarding the budgeting approach; and the effectiveness of budgeting in goal setting, performance evaluation and reward. The interview also seeks to discover why leaders are unable to move to new models, even though they appreciate the shortcomings of the traditional budget. It also identifies the major cultural barriers for transforming the conventional budgeting process and tries to anticipate the shape of the adaptive organization three years down the line.

    In response, Jonathan Chocqueel-Mangan provides a definition of the adaptive organization that throws light on nuanced aspects of the concept. Dwelling on the conventional budgeting process, he sees no main strength for the conventional budgeting process, discusses critical weaknesses that affect actual performance and the management of performance, believes the annual cycle is very arbitrary for performance management, points out the difficulties caused by the shortcomings of the budget as a tool for goal setting and performance evaluation and reward, and the adverse behavior it promotes. In reflecting on these dimensions, Jonathan Chocqueel-Mangan offers enlightening perspectives that organizations can use to bring about a conscious change in the way they see and use budgeting. Such a change also helps organizations go a long way in becoming adaptive enterprises. 

Published in Interviews