Companies find themselves in a VUCA world
The business world is changing rapidly. Organisations find themselves in a VUCA world again and they are increasingly confronted with unforeseen events. Trends, customers and competition are becoming more and more unpredictable.
In order to remain competitive, there must be a change of attitude. Increased agility is required. It is becoming vital and ever more pressing that organisations move away from classic top-down thinking (which is very cumbersome and slow) towards principles of self-organisation with empowered employees.
In this respect, managers must become more flexible, more agile and above all more resilient. The focus shifts to resilience as an ability. Managers must be able to overcome crises and use these as grounds for further developments by drawing on personal and social resources.
Classic budget management is outdated
The era of classic budgeting has very clearly run its course. Budgets are financial plans, which simultaneously serve as target ranges for multiple periods in advance. This results in very long and rigid planning cycles. This goal-plan dual nature presents numerous problems in today’s world:
- Budget planning in the classic sense is far too long-winded and laborious. It is often a plan that is already obsolete by the time it has been prepared.
- In case of doubt, teams are oriented to quantities and targets which are no longer current and they are therefore misguided.
- With regard to target-actual variances, there is a danger of sliding into self-management, which takes up valuable time and does not allow managers to make decisions, which are no longer market-oriented at all.
- Budgets are often unnecessarily exhausted in order to secure money for the next periods.
New methods are required. Advanced Budgeting, Better Budgeting or Beyond Budgeting holistically evaluate the management and organisational structure and they are not purely financially focused.
The management and organisational principles of the Beyond Budgeting approach
The Beyond Budgeting approach stipulates that the management is more focused on customers and employees and this takes centre stage. 6 points must be observed:
- Values: The company values must be clearly defined. Shifting away from detailed regulations towards a shared vision.
- Accountability: The accountability of all employees must be strengthened, so that they are able to think entrepreneurially and then act.
- Autonomy: The teams must be given freedom to act. Shifting away from rigidly planned, long-term target agreement towards result orientation.
- Organisation: Centralised organisations are steadily being replaced by a streamlined network of teams responsible for performance.
- Customers: The customer is the primary focus. All teams are focused on their customers. Hierarchy and power relations become obsolete as a result.
- Transparency: Silo mentality and power through knowledge no longer exist. Information must be made accessible throughout the company for the purpose of self-organisation.
Beyond Budgeting requires new management processes
In addition to a clear organisation of self-determination, the leadership and management understanding in agile companies must also change.
- Targets: There are no long-term targets oriented to plans. They are replaced by short-term, relative milestones for continuous improvement.
- Rewards: Lone wolves are no longer rewarded with bonuses. By contrast, collective success is rewarded in a team achievement.
- Planning: Planning is no longer an annual top-down event. A continuous, integrated process is introduced, in which all are involved.
- Resources: No annual allocation. Resources are provided in time when they are required and requested by the team.
- Coordination: Cooperation is coordinated dynamically and market-oriented.
- Monitoring: Budgets are no longer the holy grail. Monitoring based on relative benchmarks, trends and target-actual comparison.
Against this background, it is clear that Beyond Budgeting requires a new management understanding and managers must educate themselves accordingly.
Mindset and self-conception as a new guiding culture
Agile change processes according to Beyond Budgeting always originate in the heads of the acting persons. Traditional thinking is no longer up-to-date and it is time for a rethink. Not only in the teams, but above all in the management. The shift and redistribution of power and control must be internalised and lived. For this reason, it is particularly important to fill key positions with the right people.