At the Lean Kanban France 2014 conference Bjarte Bogsnes gave a keynote presentation about beyond budgeting. In his presentation he talked about the problems with traditional management and how transparency and self regulating management comes to the rescue, and the principles and practices of beyond budgeting.
Unless we manage performance, nothing will happen said Bjarte. We need more self regulating management. He mentioned two reasons for this:
- There is much more volatility and uncertainty where we have to deal with. Things have become more dynamic.
- Most people are well educated, they are competent people who want to be treated as adults.
Leadership needs to be value based, giving autonomy to people. We need more transparency said Bjarte. People can be feared to lose control, but with command and control you have the illusion of control.
Main purpose for a team is to manage themselves. There is a need for simpler, more dynamic and self regulating ways do actions. Teams must be enabled to decide for themselves, it is up to them to do it or not do actions. If ambitions are going in different directions, transparency can be used to visualize the differences.
The InfoQ news about Bjarte’s Agile 2014 closing keynote on beyond budgeting describes the case for chance, beyond budgeting principles and how Statoil translated strategies into actions.
A problem with traditional budgeting is that it can force us to make decisions too early and too high up. Our assumptions can be quickly outdated. This way of budgeting can prevent that value adding activities are done said Bjarte.
We need budgets for three purposes: Setting targets, forecasting and resource allocation. Problems occur when these purposes are combined into one metric, you will get a number with conflicting purposes said Bjarte. If the target is known, people will adjust their forecast to match that. If the number of resources that a manager gets depend on the forecast they will use the number to negotiate. Bjarte concluded that there have to be different numbers for the three purposes.
Why do many companies keep on doing budgeting in the same way? People sometimes don’t recognize the problems, they think that there are only minor disturbances. And if they recognize that it is a flawed process they might not know an alternative solution like beyond budgeting. Bjarte mentioned the beyond budgeting round table where people can find more information.
InfoQ did an interview with Bjarte about transparency, leadership and self regulating management and how Statoil uses this to get actions done.
InfoQ: You talked about how leadership should change to give authority to people. Can you explain how transparency can be used to support this change?
Bjarte: It is hard to be empowered if you are supposed to manage in the dark. Empowerment requires clarity on strategies and direction, clarity on how others are performing and who you can learn from. All this requires transparency, which also works as a self-regulating control mechanism, making it easier for control-concerned managers to delegate. There is a reason why thieves and crocks prefer to operate during the darkness of night
InfoQ: Can you elaborate why you think transparency can be a great way for managers to be in control?
Bjarte: Most leaders talk about empowerment and delegation of authority, but many are afraid as they fear they will lose control. The fear is strong and real, even if much of it is only an illusion of control. These managers need to understand that transparency is a great social control mechanism.
InfoQ: “Don't create a gap between what you say and what you do” you stated. What is it that makes this so important? How can you prevent the gap?
Bjarte: There are so many gaps between what is said and what is done. “Our company is nothing without you. You are so important, and we trust you so much”. But not that much... “Of course we need detailed travel budgets, if not who knows what will happen!”. Or “We, us together and team!”, but only individual bonuses.… Such gaps are poisonous, because what we do speak so much stronger then what we say. We need coherence between what is preached on values and leadership and what is practiced in our management processes.
InfoQ: You mentioned that we need more self-regulating management. Can you give some examples how this can work in organizations?
Bjarte: Self-regulation is required because our VUCA business environment (Volatility, Uncertainty, Complexity, Ambiguity) is no longer as manageable as it used to be, and because competent knowledge workers do not accept micromanagement. Support functions like Finance and HR need to understand that under these realities their ability to manage performance or develop people is quite limited compared to what the two functions like to believe. But this is not bad news, because there is so much both can do when it comes to creating conditions for real performance to take place.
Self-regulation is about creating a broad (but not boundary-less) framework which the organisation can operate within, allowing teams to continuously optimize using fresh, real-time information. The roundabout is about self-regulation, the traffic light is not.
Practical examples include defining performance in relative terms; doing well vs competition instead of hitting fixed targets. It can be about unit cost targets instead of absolute targets; you can spend more if you produce more. It can mean having the authority to adjust the course whenever needed without big annual stunts like annual planning and budgeting. Transparency is a self-regulating control mechanism.
In general, the more self-regulation is put in place, the less “corporate” needs to manage and intervene. The focus can be moved to monitoring progress and intervene only if and where needed.
InfoQ: My feeling is that self-regulating management and self-organizing teams could strengthen each other. What are your thoughts on this?
Bjarte: Absolutely, they are two sides of the same coin. Self-regulating management mechanisms makes it easier for executives to delegate, and also easier for self-organizing teams to operate.
InfoQ: At Statoil you use “Ambitions to Action” to do changes across the company. Can you explain how this works?
Bjarte: Ambition to Action is our management process, and has three purposes: Translate strategy, secure flexibility and activate our core values. It translates strategy into Strategic Objectives (where are we going), KPIs (how do we measure progress) and Actions (how do we get there). 1400 teams in Statoil have their own Ambition to Action, established by translating other relevant Ambition to Actions more than by having the content cascaded from above (another example of self-regulation). Teams have the authority to at any time change whatever they want on their own Ambition to Action when there is a need for it. Our only control mechanism is to say that big changes still require approval one level up, while small changes are only informed about. Teams decide among themselves what is big and what is small (again, self-regulation).
InfoQ: When you have self-regulating management and self-organizing teams, how can you ensure that actions that are done are sufficiently aligned across the organization?
Bjarte: The team above (at any level) has of course a responsibility to secure that the translation below is reasonably aligned. Also here, transparency plays a role. It is not possible to hide from peers with something totally misaligned.
InfoQ: Can you give some examples of Ambitions to Actions that have been done and the business value that Statoil got out of doing them?
Bjarte: All our business are expressed and executed through Ambition to Actions:
The fact that we keep performing financially well against peers, and also top, or rank very high on global indexes for sustainability, social responsibility and transparency is a strong indication that there is something right in how we manage ourselves.
