In today’s complex digital era, CEOs need to lead and manage their team and business in an agile and responsive way in order to succeed.
To do so, many captains of industry have turned to the Beyond Budgeting model. This isn’t a prescriptive list of hard-and-fast rules or a one-size-fits-all roadmap, but rather a set of guiding principles that, when followed, lead to an entirely different management style—one that can harness the full power of a company’s people, IT systems and tools.
The principles of Beyond Budgeting
Developed by Jeremy Hope and Robin Fraser and detailed in their book Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap, the Beyond Budgeting model is based on a set of 12 principles that CEOs can turn to as a guide. Six of the principles address the leadership style that agile, responsive CEOs should adopt. Instead of leading from the top down through control and commands, you will learn to lead through mutual trust. To do so, you need to have a bold and noble purpose that engages and inspires your team, rather than fixating on short-term financial targets. You should also govern using a set of values that is shared throughout the company, replacing the need to govern with a set of rules. Transparency is paramount; information must be shared so that managers can learn, innovate and be given the autonomy they need to make informed decisions in real time. At all times, the customer should remain the focal point—everyone’s efforts within the company should contribute to meeting customer needs.
The next six principles address management processes that allow you to align all systems, processes and procedures with your agile and responsive leadership style and provide your managers with up-to-the-minute, high-quality information that empowers them to make fast, informed decisions based on ever-changing markets and customer needs. A major shift is that you should now manage all processes dynamically, based on the ebb and flow of business events instead of the calendar year.
Targets, previously handed out as a set of commands from above, should now be based on ambitious external benchmarks. Performance should not assess whether targets are met, but holistic relative improvement. Rewards should be team- rather than individual-based, fostering a spirit of collaboration versus competition between coworkers. Instead of target-based bonuses, employee salaries should be raised because the company is performing well, not because a target has been met at any cost. Plans and forecasts should be streamlined to become lean, while resources should be allocated as they are needed, not through an annual budgeting process.
Avoiding the rolling forecast trap
Many CEOs who feel they cannot make such a radical shift all at once often start by implementing a rolling forecast. This is a good place to start, but problems occur if the rolling forecast becomes the end point. Why? Because the change must be coherent. Simply adding new tools and technology—like a rolling forecast—to an old system can set you up for failure. The change must be global. Sticking to an old management style with a new system rarely leads to success.
The important thing is for a company to use the rolling forecast to be dynamic, responsive and agile, putting up-to-date information in the hands of those who need it and giving them the power to make smart decisions in real time based on that information.
If you simply swap your traditional budgeting process for a rolling forecast and use it to set targets and allocate resources without changing your leadership style and management processes, then you’re essentially swapping a traditional budgeting process for a rolling budgeting process. But your company has not become dynamic, responsive or agile. Do not fall into this trap!
Harnessing the power
Instead, make a holistic change based on the 12 principles of the Beyond Budgeting model, while implementing smart systems and tools to allow your managers to make informed decisions based on the ever-changing information they receive from your smart rolling forecast rather than blindly focusing on targets that were set months ago.
Remember, using a smart rolling forecast like you would a traditional budget defeats its very purpose. To lead and manage an agile company, your leadership style and management processes must all be aligned.
To learn more about how AZUR Group can be your partner in making your company more agile, visit our website.