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How does the way we manage need to change to meet today’s challenges? The traditional “command and control” management model was never perfect. In an industrial age when suppliers could sell all their output to eager customers, business leaders could “plan and control” their way to the future. This model was already in trouble in the 1990s as customer loyalty collapsed in the wake of globalization, privatization and the Internet revolution. These increasing levels of uncertainty are here to stay.
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© BBRT 2011 - All rights reserved | www.bbrt.org 1
The Leader’s DilemmaHow to build an empowered and adaptive organization without losing control
Dr. Peter BunceCo-founder, BBRTPresentation to LESS 2011Stockholm, Sweden, 1 November 2011
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The story so far
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The Leader’s Dilemma book 2011
“In a dozen clear principles, The Leader's Dilemma codifies a rethink of the conventional management model. The book's approach should be studied by any company aiming to survive and thrive in a transforming business landscape”
Vineet Nayar, CEO of HCL Technologies and author of Employees First, Customers Second
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Leadership & management
“Leadership: The capacity and will to rally people to a common purpose together with the character that inspires confidence and trust”
Field Marshall Lord Montgomery of Alamein
“Imagine you had a way of managing that generates initiatives among everyone in the organization to adapt, improve and keep the organization moving forward.”
Source: Rother, M. Toyota Kata, Mc Graw Hill, New York
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The Tortoise and the Hare
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Command and Control Management Model
Targets, budget
contractsand
incentives
Balanced scorecardsKPI dashboardsCPM/BI Systems
ABC systemsCRM systemsEVA modelsRisk models
Management Control
10-20% of costsStrategy
Alignment
Execution
Micro-management
Control
Accountable for targets &
budgets
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More compliance and control is NOT the answerMore… planners, target setters, inspectors, controllers, compliance officers, internal auditors, risk managers, project teams, consultants, analysts and
advisers
Targets, budget
contractsand
incentives
Balanced scorecardsKPI dashboardsCPM/BI Systems
ABC systemsCRM systemsEVA modelsRisk models
Management Control
10-20% of costsStrategy
Alignment
Execution
Micro-management
Control
Accountable for targets &
budgets
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Decline and fall of management control‘Shareholder value’ became an obsession Aggressive targets and incentives encouraged the wrong
behavior Regulation and risk management has failed Central control is more difficult and expensive Trust has declined Employees are neither engaged nor empowered
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We need new metaphors for management
Organization are obedient machines
Organizations are a collection of replaceable parts (parts determine the performance of the whole)
Organizations comprise of ‘cause-and-effect’ relationships that are predictable
Organizations need central planning, coordination and control
Change is reactive and project-driven
Organization are adaptive systems
Organizations are whole systems (the whole system determines performance)
Organizations are webs of relationships that are unpredictable
Organizations are self-organizing and self-regulating
Change is integrative and adaptive
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Empowered and Adaptive Organization
Executive team
Regions, Brands/product groups, Customer segments - each with P/L Account
Support Services Teams
Strategy, Finance, HR, Marketing, Production & IT
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Teams are accountable for relative improvement
Teams are accountable for customer outcomes
More:
Clarity
Simplicity
Freedom
Accountability
Transparency
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Organizations on the journey
”I have been waiting for this for 20 years” (CEO)
Europe’s most cost effective universal bank
Beating the competition 40 years in a row
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They have broken free
Target & RewardsSelf-imposedNo fixed targets = stretch goalsAim is to “be the best”
Planning and forecastingRolling viewsContinuous planningRolling forecasts
Resource allocationsFund best action plansDraw-down central servicesCost ratios/benchmarks
Measures and controlsHolistic measuresKPIs and trendsRelative performance
Separate Improve
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12 Beyond Budgeting principles
Change in leadership Change in processes
Governance & transparency Goals & rewards
1. Values – Bind people to a common cause, not to a central plan
7. Goals – Set ambitious medium-term goals; not short-term fixed targets
2. Governance – Govern through shared values and sound judgement, not detailed rules and regulations
8. Rewards – Base rewards on relative performance; not on meeting fixed targets
3. Transparency - Make information open and transparent, don’t restrict and control it
9. Planning - Make planning a continuous and inclusive process, not a top-down annual event
Accountable teams Planning & Controls
4. Teams - Organize around a seamless network of accountable teams, not around centralized functions
10. Coordination - Coordinate interactions dynamically, not through annual budgets and planning cycles
5. Trust – Trust teams to regulate and improve their performance; don’t micro-manage them
11. Resources - Make resources available as needed, not through annual budget allocations
6. Accountability – Base accountability on holistic criteria and peer reviews; not on hierarchical relationships
12. Controls - Base controls on fast, frequent feedback;, not on budget variances
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Build information systems around three teams
Executive team
• Tools empower rather than control (inc KPI dashboards, balanced scorecards, rolling forecasts, EVA & ABC models help to drive improvement)
Support Services Teams
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
Value center
• KPI dashboards and benchmarking help to drive continuous improvement
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
Customer
• All tools and controls are embedded in a web-based enterprise-wide corporate performance management system• Integrated
systems enable 24/7 monitoring
Integrated, enterprise-wideInformation systems
BI
Analytics
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Controls based on relative indicatorsUse KPI dashboards to know where you are todayUse rolling forecasts and trends to know where
you’re going in the near-termUse benchmarks to know how you’re doing
against peers and best practicesUse appropriate metrics to know if your strategy
is workingDisconnect measures from fixed targetsTeach people to understand the meaning of
measuresSee measures as patterns, trends and
abnormalities
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Design reports to fit on a page with trends and forecasts
Level
Analysis Action PlanGoal: To reduce failure calls by 80% over 2 years
Action: To engage a lean consultant to investigate the problem and recommend improvements
Trends
0
25
50
75
90
* *
Weeks
**
*** *
% Failure calls
Best practice
Despite previous actions, failure calls continue to run at unacceptable levels. We need to urgently rethink how we tackle these problems as our costs remain at far higher levels than best practice competitors
Failure calls this week
# Calls % Failure
Agent 1 270 60%
Agent 2 220 45%
Agent 3 280 62%
Agent 4 300 40%
Agent 5 240 30%
Agent 6 190 70%
Agent 7 310 35%
Average 259 49%
Moving average
Context
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Stop forecasting to the wall
Actuals
1st Review
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Annual Plan x+1
Year x Year x+1
2nd Review
3rd Review
4th Review
Forecast
Make the annual plan the forecast ‘window’ that fits the fiscal year
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Emerging organization uses Web 2.0 principles
Everyone has a voiceCapability counts for more than credentials and
titlesCommitment is voluntaryPower is granted from belowAuthority is fluid and contingent on value-addedThe only hierarchies are “natural” hierarchiesCommunities are self-defining Individuals are richly empowered with informationJust about everything is decentralized Ideas compete on an equal footingResources are free to follow opportunities Decisions are peer-based Gary Hamel The Future of Management Harvard Business School Press, Boston, 2007, 253-254
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Hamel’s Hierarchy of Innovation
Product
Process
Strategy
Management
10%
20%
30%
40%
Impact on business value
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Management innovation is the next big idea
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Ultimate goal – support corporate vision
CEO Vision•Empowered & Accountable teams•Low costs•Strategic execution•Fast response•Ethical behaviour
CFO Vision•Finance efficiency•Capable people•Performance insights•Right management systems
Right CULTURE (ambition, commitment, initiative, trust, sharing, accountability)
Right SYSTEMS (fast, open, transparent, insightful, collaborative)
Leadership values underpinned by management systems is critical
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The Wall of Excuses
We’re too busy
We don’t have enough time/money/staff
It’s too much work
It’s too risky
It’s not my responsibility
We tried it before and it didn’t work
The bosses won’t like it
The auditors won’t like it
The regulators will object
I can’t sell the idea to the board
We have too many other priorities
It won’t work in our cultureOur systems can’t handle it
We don’t need to change
Group will feel threatened
We can’t do the ROI
It will take too long
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The Beyond Budgeting Round Table (www.bbrt.org)
Packages now only £6,000 to join for first yearAccess to all accumulated knowledge capital + major diagnosticLearn about cutting-edge performance management best
practicesAccess to case studies, research papers and interviews with CFOsAccess to online BBRT Beyond Budgeting Implementation GuideBBRT can provide courses and internal workshops
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Dr. Peter BunceBBRT
First Floor 745 Ampress LaneLymington, Hampshire SO41 8LW, UK
Tel: +44 1590 679803Email: [email protected]
Diagnostic web site: www.bbrtdiagnostics.orgLeader’s Dilemma web site: www.leaders-dilemma.com
Main web site: www.bbrt.org
