Well I could start with a confession, I’m not an IT guy, I’m a finance guy by education and background, but also I spend some years working in Human Resources which is actually highly relevant for what I do and I even had a short IT career in the late 80’s I was heading up a project implemented a new accounting system in Statoil,and I was coming from the user side heading up this and we were fighting IT for half a year on how to run this because it was a great system we were implementing that you could really model and we knew how we wanted to do this and we didn’t have a word for what we wanted to do, but we had a word for what we didn’t want, and I recall we called it “Waterfall” and we won after all, and looking back, what we did in that short IT career was some kind of Agile even if it didn’t have a name, but that was such a tough experience that I said: “Never again”. So now I work a Norwegian oil company called Statoil which has global operations also here in the US and I’m heading up the implementation of Beyond Budgeting at Statoil.
That is a good question, what I want to do here as maybe the only finance person at the venue, but I think I’m not here because of my short IT career, I think I’m here because there is a lot of similarities between Agile and Beyond Budgeting and I would argue that, we can be as Agile as we want in our Software Development environment but at one level we are going to hit the big system, and if that big system is constructed around very different principles, then there is a problem, big problem. I think many Agile people have experiencedthat, they kind of, they hit this ceiling and I would actually position Beyond Budgeting as Agile on enterprise level, even if we are using different kind of labels and then words to describe what we are doing it is about Agile at enterprise level.
Todd: So now maybe give us an example of how Traditional Budgeting works and why that may cause problems in an Agile Environment and a little bit about what Beyond Budgeting is.
I think the problem is not just Traditional Budgeting, the problem is Traditional Management of which Budgeting is a part, but I mean this goes much broader than only budgets and the problem with Traditional Management is that, it is about centralized command and control, it is about lack of trust, there is a lot of Micromanagement and lack of transparency and a lot of other things and maybe this was something that worked well 100 years ago when Budgeting for instance was invented, and maybe it worked well even 50 years ago, but not anymore, I mean things have changed not just the much more dynamic and unpredictable business environment, we are surrounded by, but also something has happened with employees, I mean we are becoming these knowledge organizations that we have been talking about for so long and so for that reason we need management models that take not just our business reality seriously but also people seriously.
Todd: And so what sort of structures are in place, the management structures that are there that of course include Budgeting that tend to cause friction or cause problems that tell us there is a problem that needs to go away.
Well that’s a long list, I mean you could start with all the illusions of control that you find in this that the illusion that you can set in the year before and decide everything and plan everything down to the smallest detail and kind of make that the answer of what will happen next year and what you’re supposed to do next year, and again that works well in a stable, quiet world, but I mean that’s one problem. The other problem is all the Micromanagement of people that don’t want to be micromanaged and don’t need to be micromanaged, so autonomy and trust are key issues in Beyond Budgeting. And again if I look at the Agile Manifesto, I find the spirit of that really kind of resembles very well with the spirit of this so called Beyond Budgeting principles and there are 12 of those.
Todd: Maybe tell us a little bit about the origins of the Beyond Budgeting and maybe a little bit about those principles.
Beyond Budgeting is kind of grass-roots revolution or rebellion, it was not something that came from Academia, although Academia is very interested these days, it did not come from the consulting world, although the consulting business is very interested, so this was actually companies out there realizing that there was something wrong with Traditional Management and daring to try out something else without having any recipe to follow, without any management books or whatever, and the pioneer here is a Swedish Bank called Handelsbanken, they actually kicked out the Budgeting already in 1970 and they've been doing great since, but it wasn’t before the 1990s that more companies started to do this stuff, but in an uncoordinated way, and I was working for a company called Borealis at that time, we kicked out the Budget in 1995, we haven’t heard about any other companies that had done this when we did it but we had an opening to do it.
Then there were two English guys, researchers, authors, Jeremy Hope, Robin Fraser, they discovered that something is happening out there, so they went out and interviewed many of these companies including Borealis, also Handelsbanken,and also companies here in the US, and they discovered that although it wasn't similar what was happening here, there was a lot of commonalities both regarding what these companies were rebelling against and what they were trying to do instead. And based on these commonalities Hope and Fraser they formulated 12 Beyond Budgeting principles and also gave the name Beyond Budgeting, right or wrong, I mean it is actually a misleading name, but at least you get some attention, it does provoke people a bit, so that’s the origins.
Well if you heard Diana’s Keynote this morning, she talked about the kind of people being in great jobs and loving, what they do and having a purpose, and I heard her talking about Beyond Budgeting type of companies, organizations where you’ve kind of taken, you’ve been scaling Agile but not in the, maybe by using other, again phrases and things to make it happen, then just taking Agile on developing level and scaling it. But those companies are wonderful places to work where people really can rerealize their full potential and they are doing great financially, I mean that is the common pattern among these companies. There is actually a study done on looking at banks with or without budgets and it was a clear conclusion that banks without budgets are more profitable than banks with budgets.
Well, let me first clarify that, when I talk about budgets I’m talking about the annual detailed operational budget, admin budget, investment budgets, I’m not necessarily talking about project budgets because there is a difference between the two, and the problem with that way of, the traditional way of budgeting is that first of all you are making decisions too early, you are making decisions very often too high up into organization and very often you are making decisions with the wrong mindset, do I have a budget for this, then it’s ok and if I don’t then it’s not ok. So there is also something with the whole mentality of when it comes to cost budgets that, I mean how do you, I mean what you are after on the cost side, is an optimal use of our scarce resources and if you are only trying to achieve that through these mechanical command and control top down processes, you are bound to fail because unless it is in the mindset, in the culture that people are cost conscious, they are thinking about cost and value when they make decisions, they are spending company money like it was their own money.
If you have that culture you don’t need all these control mechanisms, so I think that a lot of these control mechanisms that you find in Traditional Management and Budgeting, they are there to compensate for the lack of culture and the lack of the behavior you need, and of course it’s much easier to implement control systems not to try to build that positive culture, and very often unfortunately executives, they kind of, they go for the easy things because everything around leadership is more difficult.
5. You mention that project budgets are kind of different, why is that?
Well it is different, I mean they can also be a problem, don’t misunderstand me but at least when you decide to spend money on a project, if you can do it at the right time so you are not forced to kind of decide in the full year before, you can do it when you have sufficient information about that project and you can do it when you have an updated view, do we have the capacity to do this people and money and so on. But of course, so that is better than the kind of annual thing where everything is done in the fall, but at the same time if you are blindly sticking to project cost budgets when it is obvious that, the right thing to do would be to spend more or cost or time. Of course then you need that flexibility to make sure that it’s value that you are optimizing on, not cost, not time.
I think that most executive teams, they know that this is a flawed process, I have yet to meet, well I guess I met a few who are happy with the process but most complain, they aren’t happy, so then you can ask them why is nothing or why is not enough happening, and I think the reason has been that they haven’t seen an alternative. We know it’s a flawed process but I mean what should we do instead, and this is where Beyond Budgeting is coming in, because Beyond Budgeting is offering an alternative and not just the theory but it’s a tested solid practical way of, alternative way of doing this. So more and more companies are discovering that and they are embarking on this journey and the interest around Beyond Budgeting is exploding.
Well I would recommend people to start with checking up with something called the Beyond Budgeting Round Table, the BBRT, which is a global network of organizations interested in this, either on the journey or interested in getting started, it’s not a big commercial machine, I mean we are a bunch of genuine enthusiasts around this and that is a great place to learn, to get started. And there are also books to read, the first book written was written by Hope and Fraser simply called Beyond Budgeting, it came out on Harvard Business Press in 2003. That book was actually updated some years later with a different title called The Leaders Dilemma and that is the dilemma between how can you empower people and kind of without losing control as the dilemma that many leaders see. And if I may, I've also written a book about my almost 20 year long journey around this, it's called the Implementing Beyond Budgeting and I was writing about my own experiences, first of what we did in Borealis and the mid-90s this and later what we did when we started out in Statoil in 2005.
I hope they will understand that Beyond Budgeting is not a finance thing that it is much broader and that there are clear links and similarities between Agile and Beyond Budgeting, and that as many as possible see that if we can join forces in our organizations we become stronger, we can help each other. I would argue that Agile needs Beyond Budgeting and also Beyond Budgeting needs Agile, I mean the more we can, we are fighting the same enemy, but from different places and with different kind of labels but it is the same enemy of the old stupid traditional management, and if we can join forces we will be stronger, so that’s what I hope people will leave the keynotes with
9. And so then post keynote, what’s next with you?
Well I feel like, sometimes I feel like Bob Dylan on this never ending tour because that is basically what it is. These days, there is an enormous interest for Beyond Budgeting globally not just in the Agile Environment but, so I do spend a quite a lot of time on that, on doing some writing and maybe there will be another book one day, but again I was thinking back to Diana’s Keynote, when she asked are you in your dream job right now, I mean my hand went up, I’m loving every day of it.
Well they could actually again back to the round table, they could actually take content, we have a round table in North America as well, so if they check out www.BBRT.org they will find a way to the North American League, and beyond that send me a mail, give me a call and I will kind of route people to whatever they need to be routed to and in some cases maybe I can help out myself as well.
Todd: All right, thank you very much for doing this!
Thank you!