Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap Hardcover – 1 Mar 2003
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"Beyond Budgeting is a must-read for anyone interested in seeing the future of performance management." -- Planning Perpectives, Issue #29, September 23, 2003
About the Author
Jeremy Hope is a Director of the Beyond Budgeting Roundtable, a not-for-profit collaborative that designs new performance management processes. He is a chartered accountant and a co-author of Transforming the Bottom Line and Competing in the Third Wave. He is a former venture capitalist and founder of several businesses. He lives in West Yorkshire, England.
Robin Fraser is a Principal at the Beyond Budgeting Roundtable. Formerly a management consulting partner in PricewaterhouseCoopers, Fraser has 30 years experience in business planning, performance improvement, and cost reduction. He lives in Surrey, England.
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Of special interest to me is what Hope and Fraser have to say about the differences between the fixed performance contract (FPC) and the relative improvement contract (RIC). For example, here are two of the six cited:
In terms of targets,
FPC: "Your [sales/profit] target is fixed at [$]"
RIC: "We trust you to maximize your profit potential to continuously improve against the agreed-upon benchmarked KPIs [key performance indicators] and to remain in the top [quartile] of your peer group."
In terms of resources,
FPC: "The agreed resources to support the capital and operating budgets are set out in the attached budget statements."
RIC: "You trust us to provide the resources you need when you need them. We trust you to keep within agreed KPI boundaries."
Note the references to "trust." Hope and Fraser insist (and I wholly agree) that there must be mutual trust between and among everyone involved when making a commitment to beyond budgeting principles. It is important to emphasize that Hope and Fraser did not write this book solely for CFOs. On the contrary, what they propose requires that all senior-level executives in a given organization understand and actively support the beyond budgeting principles. Although CFOs and heads of HR have responsibility for the implementation of strategy, more often than not, they are not centrally involved in the formulation of strategy. That is a serious mistake. Beyond budgeting initiatives will succeed only if a CFO can be trusted to make prudent and effective use of resources provided, and only if she or he trusts the given organization to make sufficient provision of them.
When this was written it was seen as the antidote to the endless budgeting cycle based on the 'prediction' fallacy and the ensuing corporate gaming they create.
All of us have said at one time or another this process (budgeting negotiation etc.) is a joke, but we all continue to play our part in maintaining the joke, playing the game, fighting for survival in a world created by the madness of the corporate budgeting processes.
Hope and Fraser have clearly demonstrated that the current process is not only wasteful in terms of human effort but downright detrimental the the enterprise, employees and customers. They go further and show us all a way out of the trap.
There is an alternative, but it needs study and it needs more companies other than the ones illustrated in the book to lead the way. Only then can we change the current paradigm where 'Accepted ideas are no longer competent and competent ideas are not yet acceptable'
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