Bjarte Bogsnes on Beyond Budgeting

1. Hi my name is Craig Smith, I’m an Agile editor at InfoQ and it’s my pleasure to be sitting here with Bjarte Bogsnes. How are you doing Bjarte?

Fine thank you.

Craig: So for those who don’t know Bjarte, we’re here at the Agile Australia 2013 conference here in Sydney, Bjarte is from Norway?

Right.

Craig: And we have a number of international speakers keynoting for us at the Agile conference so along with Mary Poppendieck, we have Ryan Martens from Rally and also Dave Snowden from the Cynefin. But it’s my great pleasure to be talking to you Bjarte. And your keynote is on Beyond Budgeting and that’s really your contribution to the community I guess right?

Right.

2. So it kind of stems out from a book and we’ll get into that in a little bit. But what’s your background how did you get into this whole Beyond Budgeting type thing? Before we kind of even get into what it’s all about?

Well I am actually a finance guy by education and background but I’ve also spent some years working in HR, human resources. Heading up an HR function, which was actually a wake-up call for me when it comes to the whole topic of leadership and management. I also had a very short IT career as heading up an IT project back in the late 80’s - never again! We were trying to run this as an Agile project but that was not that popular in those days. But actually we won and looking back at how we did it, I think it was done in a Scrum way but we didn’t have a word for it. But I’m a finance guy. And I’ve had the opportunity to work with and for some great people, including some great CEOs, CFOs and I’ve actually had a chance to work with and implement beyond budgeting twice. First time in 1995 and second time around ten years later in Statoil, the company I work for now, in 2005.

3. For those who don’t know what Beyond Budgeting is, because that’s what we are really here to talk about, and you do have a book that obviously people can go to the “Implementing Beyond Budgeting - Unlocking The Performance Potential” which is an awesome read and I really suggest people after watching this go read it. But what’s the nutshell? What does Beyond Budgeting mean?

I understand that you ask, and it is a good question, because actually “Beyond Budgeting” is a bit misleading as a name. The purpose is actually not to get rid of budgets. The purpose is to create organizations which are more Agile and more human and in order to do that we need to change traditional management. In order to change traditional management you need to change the budgeting process and the budgeting mindset because that’s at the core of traditional management. So that’s where the name is coming from, but I would argue that there are companies out there with budgets who are more Beyond Budgeting than the other way around. So in a way I mean this is Agile on an enterprise level. That’s one way of putting it.

4. And I think what you highlighted there is that as much as you come from a financial background but having read through your work before it’s very much about management and leadership change probably even more so than financial?

Absolutely. I would argue that the financial part of Beyond Budgeting is a piece of cake, that’s the easy part. The big part, the important part, the challenging part is everything that has to do with people and leadership and changing these old outdated ways of thinking about this important topic.

5. So there are some key parts to Beyond Budgeting. Can you give us a bit of an overview about really what those key parts of the idea is?

I think what makes Beyond Budgeting quite unique as to management concept out there is that first of all it’s trying to address the totality of this big topic of leadership and management. A lot of the stuff out there is great stuff, but it is only addressing parts of it. And you need to have something that is coherent across all elements of a management model. That is what Beyond Budgeting is trying to do. .

The other thing is that Beyond Budgeting is not the recipe. It is more of an idea, a philosophy, some guiding principles. A lot of the stuff out there is very kind of prescriptive, a recipe, kind of “do this, do that” and I think this is what makes Beyond Budgeting big, very powerful when it works but also challenging to implement. So you need to address both leadership and management processes and there are some important leadership principles around autonomy, around transparency around what really motivates people and there are management process recommendations that kind of underpins and supports these ways of thinking leadership because I think the problem in many organizations today is that great stuff is said and written about people. And very often it’s kind of heartfelt and the CEO mean it but it doesn’t help to have these theory Y leadership visions if you have theory X management processes because then you create gaps between what is said, and what is done and the words do not become credible. .

So I think Beyond Budgeting is trying to close these gaps in companies. For some this journey is about changing their management processes to the great leadership principles, for some it is about changing both leadership principles and management processes. But I think it is important that what beyond budgeting should mean in your organization depends on what kind of business you are in, what kind of history you have, what kind of culture you have. So again this is not the recipe and I think that’s the way it should be. .

I don’t like management recipes because in the management recipe somebody has done all the thinking for you. Your only job is to implement other peoples thinking and I find that quite boring but also quite dangerous, because you have to kind of adapt it to and understand what does this mean for us, and not to just be on auto pilot and kind of tick the boxes.

6. […] If we’re talking about actually changing leadership or management, have you caught on to the fact that maybe to make that change you’ve got to find something that people care about and finance is just something that they care about that’s actually enough of a problem that, that’s where the hook is? Is that what kind of makes it successful when you do make change in this area?

Craig’s full question: And I guess that is something that, having read through your material that actually kind of comes out I think in the way that you described it, because there is a sense of I suspect that people could read the book and go ”Okay but now what?” So I guess that is by design in what you say. You mentioned that this was about financial but it’s about management change. If we’re talking about actually changing leadership or management, have you caught on to the fact that maybe to make that change you’ve got to find something that people care about and finance is just something that they care about that’s actually enough of a problem that, that’s where the hook is? Is that what kind of makes it successful when you do make change in this area?

I think that the change process, all the change stuff you need to do on a Beyond Budgeting journey is maybe not that unique as such. It is a bit of a, call it classical change management. First of all there has to be a case for change. There has to be an understanding that there is a serious problem with the stuff we do today. And very often there isn’t a good enough case for change. I don’t think I’ve met anyone who is entirely happy with the budgeting process and the budgeting mindset, but for some people they see the problem as being too much work involved and some say it prevents them from doing sensible stuff. Some people say that the assumptions are outdated too early and some people say it’s a bad yard stick for measuring performance and I would agree with all of that but those are just kind of symptoms on a more serious underlying disease.

They are more kind of irritating scratches. This is a symptom of a serious disease called traditional management and it has become a disease because it is an outdated technology. It is a hundred year old technology that needs reinvention. We need management invention and I think that helping people to understand and grasp that case for change is important and the better job you do on that, the easier is the implementation afterwards. It’s so tempting if you get fascinated by this stuff to simply jump into the “Hey guys, this is what we have to do“ to people who haven’t understood that there is a problem. So work on the case for change, if you don’t have it, create it.

7. So how do you identify that you have a problem? Because I guess there’s two schools of thought. There’s one, a lot of people just don’t like their budgeting process as it stands right now, the traditional budgeting process. But I suspect there’s also people who kind of go “But that’s the only way to do it and we don’t know any other way.” So what’s kind of the impetus? How do people realize that there is a reason for change?

I think you’re right, again most people are unhappy with the budgeting process but many struggle with finding what’s the alternative. They don’t see an alternative, and this is where Beyond Budgeting comes in kind of offering a very tangible and proven alternative. I mean because there are companies out there who have operated in this way for forty years, extremely successful. So this is not kind of untested technology in the beta version, it’s really proven concepts and I think it helps to read about what other companies have done to understand the thinking behind, not copy them, but understand “Is there something we can be inspired by?” And then there’s also some very tangible tips and advices in Beyond Budgeting about how to fix the kind of the more specific concrete budget problem through getting people to understand that a traditional budget has three different purposes. We do it for target setting purposes, we do it for forecasting purposes, we do it for resource allocation purposes. And the comforting news for people who are a bit scared of this stuff is that you can continue to do all those three things but in three different processes, where you can by separating these things, letting this become different numbers, done on different timings, different time horizons, you can create more sensible target setting processes that really motivates and inspires people. You can create leaner, better, less polluted forecasting processes. And you can find more intelligent and value adding ways to managing cost than what you do in a traditional budget. So this is not just kind of fluffy words, it is backed up with very tangible ways of solving tangible problems.

8. […] So where’s this really targeted at? Who are the people that actually have to champion, who have to take this idea and push it forward in an organization?

Craig’s full question: So I guess one of the reasons you’re keynoting here at an Agile conference and I guess it’s one of these things that I suspect (and correct me if I’m wrong) when you wrote this book, you didn’t write this for an Agile audience, you come from a financial background. It’s one of those things that I think that the Agile community has gone “yes we have that problem.” But I suspect that Agile Coaches and Agile implementers aren’t the real audience for this. They just tend to resonate with it. So where’s this really targeted at? Who are the people that actually have to champion, who have to take this idea and push it forward in an organization?

Well I would absolutely include the Agile community into the audience of this group, but certainly not the Agile audience alone. I would argue that this is relevant for everybody who is interested in these important topics of leadership and management. So in addition to the Agile community, well that would include HR, human resources, it would of course include finance, it would include executive managers, and everybody else who is interested in this. And I really appreciate that this book has kind of resonated outside the financial area. And without wanting to offend my finance colleagues, I often find that the Agile community kind of understands what this is all about and the depth of Beyond Budgeting even better than financial people because they think it’s only about rolling forecasts.

And so I think that’s great. And I think we need each other, I think the Agile community needs Beyond Budgeting because you can be as Agile as you want on your projects, and your development activity, but at one level you’re going to hit a big system and if that is constructed on very different principles, you’re in deep trouble. And this is where we can kind of meet. Also Beyond Budgeting, you need the Agile community to be kind of part of that bottom of the revolution of challenging traditional management from the trenches and the frontlines of organizations. I think the top management in organizations need to be much more challenged on the stuff they are doing, and here the Agile community can play a unique role together with many other functions.

9. So if I read the book or I listen to your talk and I go “That’s what my organization needs to do”, where do I start? Who is the best change agent and who do I really need to get on board to make this happen because I suspect there’s lots of people who like the idea but would go “I possibly can’t do that, my finance people won’t even talk to me about this.”

Well if someone wants to start on this journey, I would first of all, if you’re based in Europe, in the U.S., I would try to kind of check-up the Beyond Budgeting Round Table where you find a lot of like-minded people who have kind of been through exactly the same issues, it’s a great network for learning. But when it comes to who should start this in an organization, I don’t think there’s kind of one single answer. No doubt that the best is that this is coming initially from the CEO himself or herself. And I’ve been working with companies where that is the case and it’s fantastic. CEOs, bright CEOs they understand it all, that want it all from day one. Unfortunately, that will always be the exception, not the rule, at least for now. So what’s the new alternative? It shouldn’t be to give up but then find other pockets of resistance where you can start. And if you think about it, most revolutions they are not starting at top, right, they start out in the …. And of course, we might think about finance as a natural place to start. That’s the kind of, they are sitting on the budgeting process but in one way the HR function could also be an equally natural place and maybe also the Agile community. But I think at one point in time you need to have the finance guys on board because you also need to change the budgeting process.

10. So you can start, if that’s kind of not the place you’re starting from if you’re an Agile practitioner who will mostly be the people who’d be watching this video today, you can start by educating people, I guess. Is that kind of the right way of going? And I assume you can get a lot of the principles kind of knocked off and head in the right direction before you then can go back and prove to the financial people that we need to change. Is that?

Yes, I mean educating I think at the initial stage is to create an interest and kind of form alliances and kind of be hungry to learn from what others have done and so on. And then try to again join forces with as many as possible and try to challenge and challenge upwards. And I think that one argument I often recommend people to use is around the risk of this stuff. Because there are people, finance people, CFOs, CEOs who kind of, they are a bit intrigued, but they are afraid of losing control and they think the risk in this is not working.

And my advice is to not challenge them on that but simply accept that scenario that it doesn’t work. But then ask them to accept your scenario that this actually might work and you can point to a number of companies where this has worked. And if you have this acceptance of two scenarios: chaos doesn’t work, works. Then take a look at the actual risks around each of these. I mean if the chaos scenario doesn’t work should kick in, what’s the real risk? I mean companies can go back to the old stuff overnight. Not a single soul will have forgotten how to budget. Compare that minimal downside risk, to this huge upside potential if this stuff is working. I mean it’s an extremely compelling risk case.

11. So the Agile community I think, most people I know they hear about this and they embrace it with both arms and run back into the organization and go ”This is what we need to do.” But the financial community has been, at least from my perspective, a little slow to pick up on this. Why do you think that is? Is it because it is such a different way of thinking?

One reason is that well since finance is only this process, I mean this is kind of a little bit defensive right? You don’t like things to be attacked, your own stuff to be attacked - that’s one issue. Another issue is that, a lot of finance people working with performance management, actually a phrase I don’t like, but they work for performance management. They are bringing their accounting mindsets with them into performance management. And that’s actually a big problem because I mean then they want certainty, they want kind of all the numbers has to add up, there should be precision and it should be correct and all this stuff. And that’s fine if you’re doing accounting looking backwards because looking backwards into the past which accounting is about, describing what has happened, there is no uncertainty.

The moment you start to look forward and start to do things to influence what might happen, there is some certainty. And a lot of people, accounting people I think they kind of struggle with that, they don’t like uncertainty. It’s kind of messing up and then you don’t have the right answer. And what I think the Agile community is much more kind of, that’s basically what they do for a living right. So they embrace this uncertainty to a much higher degree than the finance communities do.

12. And HR the same? Because this is as much to do, as you mentioned, it’s about management, which we’ve talked about, finance, but at some point the traditional lines of management and structure change too, right?

Yes and again I mean there are great HR people out there who really understand this and really embrace it and we are working closely with HR in our company to make this happen. But unfortunately I find a number of HR communities who are also stuck in the past, maybe for different reasons than the finance guys but I often provoke my finance and HR colleagues by saying that I think it is as difficult for finance to manage performance as it is for HR to develop people right? They both live in this illusion that they can manage and develop. I think their ability to do that is actually quite limited but there is a lot of great stuff these functions can do when it comes to creating conditions for performance to take place, for people to develop. But that takes a different mindset and that’s why you can’t think in performance management terms. “If I don’t manage you there will be no performance. If I don’t give you a target there won’t be a performance.” These are the kind of the stuff that we need to get out of, finance and HR.

13. Is it hard then to, I mean the title of it lends itself to finance, but because it is a management and as much management as HR, do you find then that people resist it because they go “Oh, that’s about budgeting, that’s their job?”

No, it’s a good point. And trust me we’ve had many discussions in the community about should we change this name or not.

14. So what kind of things would you change it to? Like what type of names would you throw around?

Well actually we had a number of alternatives. But it’s a, I think the problem is that all of them kind of tend to be a bit bland, they’re not kind of, they don’t make people tick. I mean the benefit will be Beyond Budgeting, it does provoke a bit. We could call this dynamic management.

15. It would just be another lost management technique right?

Yes, that’s right, so I think what we are looking for is to kind of tag line, a subtitle that in a few words could explain this more about adaptive empowered organizations and so on. So we’ll probably stick with the name for a few more years and then we’ll see.

16. So I guess you say the name is provocative, is that because it hits at the heart of where most people really feel that pain? Is that, because as soon as you say “budgeting” usually people go “Aargh!”

I mean in one way the numbers first of all it does focus people too much on the budget which is wrong but also it does provoke because it’s a bit unthinkable. Well okay if this is budgets, it’s impossible to manage without budgets so again you do tease people and you get a bit of attention and on the balance maybe that name still should live forever. But you know what might happen is that stuff is bubbling now in all kinds of areas. You’ve got the Agile community, you’ve got the Complexity Theory, you’ve got the Lean movement, you’ve got Beyond Budgeting. I mean something is happening out there and my dream is that in a way these kind of pockets of resistance one day will kind of really find each other and become an even more powerful force in this revolution that we need within traditional management.

17. […] What’s the uptake? And what’s the future look like from your opinion?

Craig’s full question: And I think something I was just saying to another person just recently, whatever we like about the Agile community is that yes we have this manifesto that we all aspire to and all the things that go around that but what I really like is this umbrella of other ideas that have come under it, like Complexity Thinking, like the work that you’ve been doing. You take some of the other things, people like Seth Godin,Dan Pink and his “Mastery” all fit under that. It’s really inspiring to me that someone like yourself who may not even had us in mind when you did it, we found the thing and went “that’s what we want to strive for!” What’s the uptake really like? It’s something, here in Australia, it’s been awesome having you out here and something sort of a dream being an advisor of this conference to have you out to spread this message. But back over, particularly in Europe, which you associate with but also in North America which are the two big markets, how are people reacting to this? It’s been out now in the wild for what, five, six years? At least through the publish of the book it has obviously been around longer. What’s the uptake? And what’s the future look like from your opinion?

Actually it has been around a bit longer on the first Beyond Budgeting book by Jeremy Hope, Robin Fraser who kind of initiated all of this back in the late 90s. So yes, we are some years down the road but I recall I mean going back to 1995, when I was involved in my first Beyond Budgeting project, we kicked out the budgeting in a company called Borealis and I was, I thought this is so brilliant, this is so obvious, this has to be within in a couple of years, this will be the new way of managing the corporate Europe, and the corporate American and whatever and of course that didn’t happen. It has taken much longer time. But now something is happening, I mean I must include a KPI here without a target just as an indication, is the number of conferences and companies I’m invited to and this is exploding. Membership in the Beyond Budgeting Round Table is really increasing.

So I feel that we are approaching some kind of tipping point here and when we are invited even to talk to the top leadership teams in a leadership team in GE because they’re curious about Beyond Budgeting, that’s something is happening here. But as I indicated earlier, this is broader, more complex than just a lot of the more isolated management techniques out there because this addresses the totality and it is not a recipe. So it requires more thinking, more maturity, in order to kind of do this, you can’t just tick the boxes, read a book and then do it. It takes longer time but when you get this change I think it’s going to be a massive sustainable change. So I am very optimistic about the future, I am convinced that in twenty years time, fifteen maybe, we will all smile a bit about how stuff were done in companies in back in 2013 - read my lips.

18. Excellent. I certainly hope it’s like that. So what can the Agile community then do to help spread the message? I mean obviously you say things are on the improve, and speaking at conferences like this is awesome, but me as someone who as an Agile practitioner, but also someone who has some standing in the community, what can I do to help now spread this message? What’s the best thing that we can do as a community to help?

I think the best thing we can do as communities for each other is to talk about each other. I mean I’m talking a lot about the Agile community and all the exciting stuff that’s happening when I’m talking to finance audiences and it helps if you guys are doing the same. It certainly helps that people like me are invited to these conferences. It helps that Mary in her keynote kind of mentioned Beyond Budgeting companies and so on, so that’s one thing that we can do. Internally, in our organizations, what we can do is you guys you should challenge finance people more than what you are doing today and by reading a bit about Beyond Budgeting. You can actually explain to the finance people what can replace the budget, you can kind of help them on this journey. And I think that you are in a position to do a better job on that than what a finance guy in a company can do to kind of help you on your Agile journey unfortunately.

19. And do you think that’s because Agile is around about often making organizational change anyway? Is that why that helps because they’ve already got that momentum for change as opposed to finance which is maybe stuck in its traditional ways?

Yes it’s hard to say exactly what the reasons are but, again of course I’m a bit stereotyping here because I mean there are a lot of great finance people out there who really understand this and there’s a lot of great HR people as well, so again I think that …

20. I think my question was, is there a reason the Agile community can help because they’re already in that, you know they’re changing the mindset of organizations?

Up and running, yes. Now that’s a good point. I think you have in many organizations, very interesting stuff is happening on Agile and you’re getting experience, but nothing is happening on the finance side. So in one way I think that you are right, that you are kind of ahead of the game in many organizations. But I think still a lot of finance people struggle to understand what is this Agile stuff and it kind of sounds very fuzzy. One thing you can do as well is to kind of explain to finance people why your stuff is great, why there’s a problem with the old way and why this is better. And maybe by understanding that, you can help them to kind of replicate this onto their own processes because there is so many similarities with the problems with traditional development and traditional management at the enterprise level and there are so many similarities in the solutions that we have found. So this is basically two sides of the equation, we are simply coming from different places.

21. Excellent. So hopefully this has inspired some people to go and find out some more about this so obviously the book if people want to go and find out more they can pick up your book which is “Implementing Beyond Budgeting - Unlocking The Performance Potential”. Any other sources that can supplement that the direction of?

Absolutely. The original Beyond Budgeting book came out in 2003, Jeremy Hope, Robin Fraser simply called “Beyond Budgeting”. If you’re more specifically interested in the forecasting area there’s a great book called “Future Ready” written by Steve Player, Steve Morlidge. If you want an update on the 2003 Beyond Budgeting book, there was a book that came out a couple of years ago by almost the same authors called “The Leadership Dilemma - How To Empower The Organization Without Losing Control”. It’s a great update on the whole Beyond Budgeting concept. Absolutely, there are, I think there’s enough books out there as such. Even if it, there are much more books written within the Agile area. But I don’t think we can kind of say that “well we are of stuck because not enough is written”.

22. And the Beyond Budgeting Round Tables as well?

That is as I mentioned a great place for meeting peers and being inspired, learn and we meet regularly both in Europe and in the U.S. and unfortunately we don’t have a round table here in Australia but it is something, I’m sure it will come and we are looking for people to help us make that happen and again and these round table meetings it’s not kind of the fancy conference stuff where you get all these sunshine stories and we’re so perfect and everything is implemented. It’s just as important for us to share what we struggle with, what we fail with, I mean the level of trust and transparency is very big here. So for us at Statoil it’s been a big help to be a part of this round table. So if anyone is around when we are having our meetings, anyone is welcome as a guest to kind of check out this without any commitments. So check out the websites, send me a mail, whatever and we’ll get you on board.

Craig: Excellent. I appreciate your time and hopefully that’s inspired some people to start thinking differently about management and about finance and looking into Beyond Budgeting some more. Thanks Bjarte.

Thank you.