To better understand the concept of Beyond Budgeting, we briefly look at the
history of budgeting and why organizations have redesigned the budget process. The
chapter then moves on to introduce Beyond Budgeting.
The History of Budgeting
Traditional budgeting began in the 1920’s as a way for large companies, such as
General Motors and Dupont, to manage costs and cash flow. It was rooted in a command
and control management model, the prevailing management theory of that time. The
model was developed during a time when the environment was stable, when plans were
certain for a long period of time. The intention of the budget was good; it provided a
financial road map of where the organization was, where it wanted to go, and how it
could get there. In the 1960’s budgets became an avenue for fixed performance contracts.
In addition to managing costs and cash flow, they became a basis for setting fixed targets
against which performance was evaluated and rewarded.
Missionary organizations have followed the business world when setting up
structures. Thus the budgeting system also became a way to manage costs and cash flow
within organizations such as SIL.
In recent years organizations have become dissatisfied with their planning and
budgeting systems. Research has shown that many companies are interested in re-
designing their system.
Budgets 15
Why Organizations are Dissatisfied with the Traditional Budgeting System
Why have organizations become dissatisfied with the traditional budgeting
system? Listed below, from several different references, are a number of reasons for this:
1. The traditional budget is usually developed annually and can be outdated very quickly,
often by the start of the fiscal year.
2. The traditional budget is focused only on the short term in that it is ‘finished’ at the end
of the fiscal year. As an organization nears the end of one fiscal year, the plans for next
fiscal year are uncertain until the budget for that year has been approved.
3. The traditional budget looks at past performance rather than helping to look to the future.
As a result managers are tied to the past and can miss out on potential opportunities.
4. The traditional budget is inflexible in allocating resources. New opportunities may be
missed because resources have already been allocated.
5. The traditional budget process can build silos. In other words, departmental barriers are
reinforced rather than encouraging the sharing of resources.
6. The traditional budget gets in the way of programs and tools that the organization is
implementing.
7. The traditional budget requires a stable environment so it is often a barrier to change. It
was not designed for a fast changing, highly competitive market. As a result companies
react slowly to change and managers are discouraged to think creatively.
8. The traditional budget is based on internal politics rather than strategy. Often this
produces the wrong behaviour i.e. it becomes a game on how to beat the system. In his
article Juergen Daum (July 2003) quotes Jack Welch as saying, “It is an exercise in
minimalization.”
Budgets 16
9. The traditional budget is a function that is not connected with the strategy. Often the
budget and planning processes are done separately. In many cases the budget becomes
the target to achieve rather than the strategic plan.
10. The traditional budget is dependent on a top-down management system. If organizations
want to change their management structure, the traditional budget inhibits that change.
11. The traditional budget does not necessarily focus on performance. There are key
performance indicators, financial and non-financial, not in the budget that can provide
leaders with information on how well things are going.
12. The traditional budget tends to be time consuming (can use up to 20% of an executive’s
time) and is costly to put together. The value obtained, given the time and cost, is
minimal.
What is Beyond Budgeting
The name, Beyond Budgeting, seems to imply concern only with the financial
aspect of the business. However Beyond Budgeting is more that just a budgeting
function. It is a total management philosophy. There are two elements – the first is
adaptive management processes which replace the traditional budget. This element
operates on the basis that the organization will provide a challenging and open
environment for the employees to use and develop their knowledge and skills. These
conditions will allow the company to continually improve performance while adapting to
changing market conditions. In contrast, the traditional budgeting system was developed
in a stable environment where it was possible to limit the knowledge and skills to a few
employees. The other element focuses on the design of the organization and the
devolution of responsibility to those on the front-line. The purpose is to give those who
Budgets 17
are closer to the customer, the freedom to make fast and relevant decisions. This contrasts
with the traditional management system which relies on the expertise of top management
to make good decisions.
Individually these two elements can add value to the operation of an organization.
However the real strength is in combining the two. In a July 2003 article, Juergen Daum
writes,
“What makes Beyond Budgeting different from other management models is that it provides a comprehensive management model that does not just look at one area or tool while overlooking others, rather it seeks to ensure that all the pieces of the management model are coherent with each other. It is because it is a coherent model in which all of its components work in harmony that it can produce outstanding and sustained success.”
As mentioned, Beyond Budgeting is an all encompassing model. It is not just a
tool that you can take out of the toolbox and fix a problem. The following is how Hope
and Fraser (2003, p.xix) describe it.
“Beyond budgeting is not a toolset designed to fix a specific problem with budgets or anything else. Nor is it a set of processes that can be cherry-picked to suit the requirements of senior managers who claim to have identified particular weaknesses in their information systems. Plastering over the cracks of the existing management model based on central control is not its purpose. Rather, it offers an alternative management model based on the decision-making needs of front-line managers. It is a coherent set of alternative processes that support relative targets and rewards, continuous planning, resources on demand, dynamic cross-company coordination, and a rich array of multilevel controls. None of this means loosening performance standards. The effects are just the opposite. Performance responsibility is transferred from the center to business units and, in more mature cases, to the front line. The heightened sense of ownership and commitment that comes from involving local people in setting goals and actions provides the driving force for continuous improvement.”
The History of Beyond Budgeting
The term Beyond Budgeting as a name has only been around since 1997.
However, there are few organizations that have used the concepts of Beyond Budgeting
Budgets 18
over the last couple of decades. The Beyond Budgeting Round Table (BBRT) was
formed in early 1998 to find ways to overcome the limitations of the budgeting. The
BBRT is not only involved in research, it is also a network of companies, at various
stages of implementing Beyond Budgeting, who sponsor the continuing research. Initially
the BBRT was made up of primarily Scandinavian companies who had dropped the
traditional budget process. Eventually the BBRT gained momentum and now includes a
number of European companies such as Volvo, Ericsson, and Boots, and has also made
slow in-roads into North America.
The intention of the BBRT was to study those organizations that had abandoned
budgets. The analysis was to look at the best practices of those organizations and from
there, identify the principles of a new management model. The focus then moved onto
implementing the principles into interested organizations. The step from an interested
observer to committed participant usually takes several years as organizations need to be
convinced that the change is worth it.
The Beyond Budgeting approach was primarily developed with profit companies
in mind. However there are charity organizations who are now involved in the BBRT.
Many of the principles identified by the BBRT are also applicable with non-profit
organizations such as SIL.
Why Beyond Budgeting
Success in today’s world is determined by a number of factors. They include
responding rapidly to unpredictable events, being innovative, being operationally
excellent, meeting the exact needs of the customer, attracting and keeping the best
Budgets 19
people, and achieving the highest standards of ethical behaviour. The following section
explains how Beyond Budgeting enhances these success factors.
Changes in today’s world happen very quickly. The traditional management
system reacts slowly to changes as decisions have to move up to the top. An adaptable
management system can react quickly to unpredictable events because front-line
managers are given decision-making responsibility.
The traditional management model does not encourage individuals to be
innovative. Protecting one’s territory becomes the primary task. Developing an
organization that adapts to change encourages people to share knowledge and best
practices, which lead to strategic innovations.
Low costs for organizations are a must given today’s competitive markets. For
example a start-up firm, not bogged down by a multi-layer bureaucracy, can come into
the market with better quality and at lower costs. The only way for a top-down company
to reduce costs is to start chopping. This primarily leads to less people doing the same
work. An adaptive organization looks at improving processes rather than functions.
Knowing a customer’s exact needs and responding quickly is important. Today’s
organizations must design their processes to address the needs of the customer. This
contrasts with the 20th century company that tried to fit the customer’s need into what
they were doing.
The traditional management model expects people to follow policies and
procedures. This results in nitpicking as people don’t need to make decisions, they just
have to know how to apply the ever expanding rules. Beyond Budgeting encourages an
environment that is open and challenging. This makes it easier to attract and to keep
Budgets 20
talented people as they are given the freedom, the opportunity to grow, as well as being
accountable for the decision-making and performance.
Accounting scandals such as Worldcom and Enron have resulted in the demand
for higher standards when it comes to ethical and social responsibility. Changing ethical
behaviour is only possible through procedural and cultural transformation. Whereas the
command and control model shares information on a ‘need to know’ basis, Beyond
Budgeting is dependent on the open and transparent reporting of information. The free
sharing of the information makes it much more unlikely for numbers to be fudged.
CHAPTER 2
LITERATURE REVIEW
Beyond budgeting is a holistic approach to the topic of leadership, a topic where
there are many philosophical and value-based perspectives. This chapter will selectively
highlight aspects of leadership that are important to consider in moving to Beyond
Budgeting.
For the Christian there is clear instruction from the Bible regarding this important
topic. There should be a difference between Biblical and worldly leadership. In Mark
10:42-45 (NLT) Jesus tells us the following,
“You know that in this world kings are tyrants, and officials lord it over the people beneath them. But among you it should be quite different. Whoever wants to be a leader among you must be your servant, and whoever wants to be first must be the slave of all. For even I, the Son of Man, came here not to be served but to serve others, and to give my life as a ransom for many.” Jesus models what is said in this passage perfectly. Jesus modeled what God intended for leadership to be.
Budgets 21
2 Timothy 1:7 (KJV) says, “For God hath not given us the spirit of fear; but of
power, and of love, and of a sound mind.” A servant leader does not need to move
forward in fear. Power through the enabling of the Holy Spirit has been given to
persevere through trials and to have courage to initiate change. Ephesians 5:1-2 (NIV)
encourages us to “Be imitators of God, therefore, as dearly loved children, and live a life
of love, just as Christ loved us and gave himself up for us as a fragrant offering and
sacrifice to God.” Finally God has promised to give us a sound mind to be able to think
through issues clearly.
This review of literature briefly highlights some other key assumptions of servant
leadership. They include a discussion of spiritual disciplines, management versus
leadership, employee empowerment, change, lifelong learning, team leadership,
leadership succession, and ethics.
Spiritual Disciplines
To be a godly leader it’s important to start with qualities of the heart. God looks at
our heart; he wants holiness and righteousness. He does not look at the outward
appearance as the world does. Four heart qualities of significance are dependence on
God, humility, repentance, and obedience. Jesus said that our lives would not have
anything of lasting value unless we ‘remain’ in Him. 2 Corinthians 3:5 (NLT) puts it this
way, “It is not that we think we can do anything of lasting value by ourselves. Our only
power and success come from God.”
We are to be honest in the estimation of ourselves, which allows us to act wisely,
prudently, and modestly. Those who over-estimate themselves will become proud,
haughty, and foolish. The question is not whether we sin, but how we respond when we
Budgets 22
do make mistakes. Deuteronomy 28:9 (NLT) promises that “If you obey the commands
of the Lord your God and walk in his ways, the Lord will establish you as his holy people
as he solemnly promised to do.”
Heart qualities are developed through discipline. There are a number of spiritual
disciplines which include silence and solitude, prayer, fasting, meditating, and
confession. As an example, solitude is a time to get away and let God speak to us. In his
book, The Life you’ve always Wanted, John Ortberg (1997) talks about solitude as a time
to get away from the pressures of this world. If we don’t take the time, we can easily
copy the behaviour and customs of this world.
In order to develop the spiritual disciplines, it will take time and commitment.
Ortberg (1997, p.196) says,
“It is unlikely that we will deepen our relationship with God in a casual or haphazard manner. There will be a need for some intentional commitment and some reorganization in our lives. But there is nothing that will enrich our lives more than a deeper and clearer perception of God’s presence in the routine of daily living.”
Management versus Leadership
In his book, Leading Change, John Kotter (1996, p.25) writes the following about
leadership and management.
“Management is a set of processes that can keep a complicated system of people and technology running smoothly. The most important aspects of management include planning, budgeting, organizing, staffing, controlling, and problem solving. … Leadership defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles.”
If that is the case then a traditional management system needs management to run
the organization. Management in a hierarchy works best when there is a predictable and
stable environment. This contrasts to an organization that requires leadership to
Budgets 23
continually respond to a changing environment. To be successful in today’s fast changing
world, it is leadership that can provide the direction and motivation to produce the needed
organizational change.
Employee Empowerment
Many companies today are looking to employees at all levels to be involved in
making decisions and to be accountable for performance. They see how changes in
today’s world, such as a global economy, reduced profit margins, and equal access to
technology, make it necessary to move in this direction. These changes ‘force’
organizations to look to the expertise and creativity of all its employees rather than just a
few to remain competitive. Front-line employees are the ones who see what is happening
with the customer and can react to changes as needed. Employees of today want the
challenge of decision-making and will be more committed if they are involved in it.
An organization can make empowerment successful by ensuring that the
individuals are competent and capable. The staff should then be challenged to reach the
goals and objectives that have been set. Leaders will motivate the people by offering
support and confidence, both in word and in deed. They must not second guess the move
and take back control i.e. the employees should be allowed to make mistakes and to
correct them using their own initiative. The leader must also respect the individual
differences regarding empowerment or in other words, to match people to the challenge.
Hierarchy versus Decentralization
A hierarchical organization is dependent on rules and regulations through
decision-making that is centralized. The communication is typically vertical with the boss
as the expert so the employees are told what to do. The emphasis is on maintaining the
Budgets 24
status quo, thus individuals may stagnate. The leadership is generally command and
control where information is on a need to know basis.
This is in contrast to a decentralized organization where innovation is needed and
decision-making devolved. Communication is interactive (across the organization) and
employees across all levels are seen as experts so they are empowered. The emphasis is
to change in response to the needs of the customer, a pattern that creates growth
opportunities for the people. The staff is trusted to make the decisions so information is
freely shared. Servant leadership is more suited to this organizational structure.
Change
John Kotter’s book, mentioned above, has an eight step plan for change. First is
for there to be a sense of urgency. There must be very strong motivation to overcome the
complacency that may be there to maintain the status quo. Secondly, a team must be put
together in order to lead the change. In a stable environment an individual can manage an
organization. With an ever-changing world, a single person does not have the time or
expertise to deal with the change. A skilled and committed team can share the leadership
needed to move the company on.
The third step is a vision that is needed to guide the change. The vision gives a
picture of what the future will look like by providing a general direction, motivating
people in that direction, as well as coordinating the action of all the different people and
departments. The next step is communication, communication, communication. The
message must be kept simple and be done via different avenues. Two other aspects of
communicating are for leaders to listen and for their behaviour to match what they say.
Budgets 25
The fifth step is the empowerment of the employees. In today’s competitive world, the
expertise of all the people is needed, not just top management.
Sixth, because change can take time, sometimes years, it is important to have
‘small wins’ along the way. The ‘wins’ can help to build momentum for the organization.
The seventh step is to build on the ‘wins’ of the previous step. Structures and policies
must be changed to meet the new vision. People, who buy-in to the change, need to be the
ones who are promoted and trained to lead the change. Finally the change must be
anchored into the culture of the organization. The new practices must be firmly
entrenched otherwise people will quickly revert to the old traditions and behaviours.
Lifelong Learning
An important aspect of developing an adaptive organization is having capable and
competent people, not just at the top, but throughout the organization. Individuals are
needed who have a learning attitude, not just on a one-off basis but for a lifetime. The
three areas that a person must develop are character, skills, and understanding, also
referred to as the heart, hands, and head. Character includes spiritual disciplines, healthy
relationships, and physical and emotional well-being. Skills can be cross-cultural
adaptation, technical, and practical. Understanding is application of Biblical/theological
knowledge. The three are interdependent; you can’t have one without the other.
There are three types education that can be used to develop the three areas
mentioned above. They are non-formal, informal, and formal. Non-formal learning comes
through doing the work. It is determined by competence rather than tested knowledge. An
example would be on-the-job training. Informal learning comes from being in
community. Examples include growing up in our home, being part of a care group, or
Budgets 26
hosting people in your home. It is unintentional, spontaneous and based on socialization.
Formal learning is intentional and often delivered through in a recognized study program
such as a bachelor or masters program.
Team Leadership
Genesis 1:26 says, “Let us make people in our image, to be like ourselves.” The
‘us’ in the verse indicates the Trinity, the Father, Son, and Holy Spirit. The leadership
among the Trinity is shared. Since the Trinity created people in their image, then
leadership within a community should be shared. The image was created in all people,
not in one particular person i.e. Adam. All people then have the capacity to be leaders.
Leadership is based on the gifts and abilities that God has given to each. One person may
be gifted in organizing the community for a certain task, another may know how to
encourage, and yet another can communicate well.
Team leadership works on the strengths of all the different individuals. It is
impossible for one person to have all the gifts and abilities that a group would have. A
team of leaders will achieve far more than the sum of the individuals. Team leadership
also provides accountability, encouragement, and everything does not fall on one person.
Leadership Succession
An important part of ongoing success in an organization is leadership succession.
A servant leader will not only desire a good transition to another leader, but that the
organization will do even better. Leadership succession is about training and experience.
Companies that are continuously training and have pushed the decision-making and
performance accountability to the lowest level will have people ready to take on
leadership roles as the current leaders retire or move on.
Budgets 27
Jesus is the ultimate servant leader, who showed us that these truths do work.
While on this earth, Jesus took a group of twelve untrained and uneducated men and
called them his disciples. He trained and mentored these men by integrating word and
deed. For three years he showed them how to be servant leaders. Shortly after Jesus’
departure, this group of twelve became the foundation upon which Christ built the
church.
Ethics
Laura Nash in her book, Good Intentions Aside, refers to a Self-Interest model of
business ethics. The model states that attention to the bottom-line and being efficient will
provide the greatest return to the greatest number of stakeholders. However, if the focus
is constantly on profit, ethics very quickly becomes a secondary consideration. The
model does not take into account the fallibility of man and how leaders can very quickly
become self-centered.
Nash provides a different model which she refers to as the Covenantal model of
business ethics. This model is based on creating value by providing service to the
stakeholders of the organization. Service to people is obtained through mutually enabling
relationships. It is not that profit and efficiency is not important. The primary focus of the
organization becomes relationships and the bottom-line is secondary. The fallibility of
man, although still present with this model, is dealt with through the accountability of
relationships. People are much less likely to fall into sin when they have established good
relationships. Of course a close relationship with Jesus is our greatest “weapon” against
the temptation of seeking after self.
Budgets 28
In our ever-changing and global world, a different ethics model is needed.
Corporate self-interest does not ensure survival in today’s world. Today’s market requires
all sorts of partnerships that will provide value to all stakeholders. There can be no
partnerships if there is no relationship. Good relationships are built on trust, fairness,
cooperation, and so on. Relationships will provide the solid foundation that an
organizations needs to be successful.
CHAPTER 3
BEYOND BUDGETING – ADAPTIVE PROCESSES
Over a period of several years the Beyond Budgeting Round Table, a network of
companies looking for ways to improve the budgeting process, came up with a number of
principles that made companies successful in today’s unpredictable environment. These
principles are listed in numerous sources including Jeremy Hope & Robin Fraser’s book
(2003), Beyond Budgeting.
The principles can be divided into two major parts, those for adaptive processes
and those that decentralize decision-making and performance accountability. This chapter
discusses the six principles of managing with adaptive performance management
processes. Chapter four moves onto the six principles related to decentralization.
A budget can be considered as a fixed performance contract between a
subordinate and a superior. The performance of the subordinate is deemed to be
satisfactory, whether implicitly or explicitly, when the target is met. Meeting the target
may lead to a good evaluation and being rewarded. Over the years the use of the fixed
performance contract has led to budgetary games such as under predicting sales, over
Budgets 29
estimating expenses, spending the budget this year so you don’t lost it next year,
incurring next year’s expenses in the current year, and ‘hoarding’ funds because you
don’t know if you’ll get an allocation in the future. Playing these games may possibly
enhance the organization in the short-term, but often to the detriment of the long term. In
order to implement adaptive management processes, organizations should seriously
consider removing the traditional budgeting system.
Principle One – Goals
The first principle for establishing adaptive processes is that the goals should be
set relative to industry, direct competitors, internal performance comparisons, or last
year’s performance and not against a fixed target. Competitive benchmarks are seen as a
way for companies, departments or divisions to achieve more than their counterparts. It is
also important that the fixed target not be used to evaluate performance.
The traditional budget has become a budgetary game of who is the best at
negotiating. Managers will set easy to reach targets as well as buffering themselves
against uncertainty. By meeting the target, the manager is then in a position to have a
positive evaluation. In contrast, the intent of setting goals should be to always improve
and beat the competition thereby increasing value for shareholders and customers.
Principle Two – Rewards
This principle follows closely with the first one. Rewarding performance should
be linked to relative improvement and not a fixed performance contract. Rewards are
based on financial and non-financial key performance indicators (KPIs) and are given at
the end of the year, when performance is known. Uncertainty can be a cause of anxiety,
Budgets 30
but it can also be something that drives an individual to succeed. The person knows
where they want to go, but doesn’t know what challenges they will face along the way.
In addition rewards are given on the success of the team, not the individual. It is a
team that sets and then attempts to meet the performance benchmarks. Peer pressure is a
strong motivator to keep people moving as any free riders, those who let others do all the
work, will be quickly exposed as each person is responsible for their area of work.
Principle Three – Planning
Planning should be devolved to lower levels and be continuous. This gives
operating managers the freedom to plan as they see changes happening in the market and
are then able to respond immediately. It is these managers who have the contact with
customers; therefore they are the ones who will know them and plan for their care. The
devolving of the planning function also gets buy-in from the employees as they are a part
of the decision-making. Although plans have historically followed a calendar or fiscal
year, continuous planning is required as business may not follow an annual cycle.
Planning which has traditionally been done by top management is done by the
operating managers. In an adaptive organization context the responsibility of senior
executives is to set boundaries, direction and guidelines for strategy formulation. They
then monitor and challenge the managers, instead of controlling and directing.
Principle Four – Resources
When faced with threats or opportunities, the Beyond Budgeting model requires
that operational managers have access to resources as needed. However the access must
be limited to parameters that have been agreed to. In many cases the parameters would be
based on key performance indicators (KPIs). (More will be said about KPIs when
Budgets 31
discussing principle six.) This availability of resources is also relevant for internal
markets. The manager has the choice as to whether he/she needs the service, which is
priced at a market rate. For major projects a fast-track approval method is used so that
front-line managers are informed quickly.
In a traditional management system, top management sees the budget as a means
of controlling costs. However, the more a budget is capped, the more a manager will
hoard resources. This leads to departments or business units having excess resources that
are lying around while other departments are not able to take advantage of an opportunity
because resources are not available. If adaptable organizations are to have resources
available when opportunities come, resources should only be requested when needed.
This obviously will take a great deal of trust, for both top management and front-line
managers. Top management must trust the information they receive and release the
resources. Front-line managers must give an honest appraisal of the situation and trust
that the resources will be available when needed.
Principle Five – Coordination
The coordination of work in the Beyond Budgeting model is organized around
customer oriented teams that are accountable for profitable customer outcomes. It is not
functional departments that are accountable for meeting targets. The ‘new model’ in
Figure 3.1 below shows the interaction between different departments. The interaction is
according to customer demands. This compares to the traditional model where
communication goes up and down. The interaction allows for customized solutions,
unlike the traditional model that would have all sorts of policies and procedures.
Budgets 32
Figure 3.1 Organization Models
Working across departments also includes the sharing of knowledge and best
practices. Although there is a competitive spirit amongst teams, there is also cooperation
within the organization to make each other better.
Principle Six – Control
Traditionally, organizational control was dictated by compliance and information
was shared on a need to know basis. In an adaptive organization there must be transparent
and open information throughout the organization, although at different levels of
aggregation. In an open culture all information is shared, whether good or bad. There is
no need for creative accounting to meet budgets.
The ‘control’ in an adaptive organization is achieved by good governance.
Operating managers develop strategy and make decisions based on boundaries and
guidelines set by senior executives. Those at the top are free to challenge the managers
regarding assumptions as well as assessing the risks. This interaction requires a high level
of trust. The trust is dependent on values such as integrity, openness, and fairness.
Although mistakes are tolerated, any abuse of these values is not.
Budgets 33
Control in an adaptive organization is also achieved through a good information
system, which will have the following characteristics:
a) It must be fast and relevant; therefore the accounting system needs to be up-to-
date.
b) There is a continuous process of monitoring. Periodic reporting is replaced by
moving averages.
c) The annual budget is replaced by rolling forecasts. The idea is to provide a fast,
summarized view of the future. They are quite often done quarterly and look
forward about six to eight quarters. It must be kept simple, so the detail of the
traditional budget must be deleted, and the focus has to be on the key variables.
d) The variance reports used in the traditional budget are replaced by key
performance indicators (KPIs). KPIs are used to monitor the performance and
they also ensure that performance is within the set boundaries and guidelines.
They can be financial or non-financial measures. KPIs tend to be few in number
and are often expressed by ratios or percentages.
e) Performance is primarily viewed by exceptions, looking for abnormalities or
unusual trends that might reflect changes that require attention.
f) Some organizations use internal competition to enhance performance. ‘Standings’
are posted on a regular basis to let people know how they are doing.
g) It will be flexible as it spans the organization, touching areas such as resource
planning, forecasting, and monitoring processes.
It is important to note that the process will determine the behaviour. By changing
the process i.e. eliminating the budget and adapting these principles, the organization has
Budgets 34
a much better chance to get behaviour that is desired. Although the traditional budget has
been an effective tool in the past, it no longer fits our fast changing world. Today’s
organization must continually look for new ways to serve the customer and to add value
for the shareholder.
CHAPTER 4
BEYOND BUDGETING – DECENTRALIZE
The second part of the Beyond Budgeting model describes the six principles of
leadership. Organizations today have access to similar technology and to the global
economy. The only advantage that an organization has is its people. In order to more
effectively use the people, an organization must move the decision-making and
performance accountability down to the lowest level. People at all levels of the
organization should be seen as a source for creativity and insights.
It is essential that the budgeting process be removed in order to empower the
people. The traditional budget requires a command and control system that moves the
decision-making to the top; therefore any attempts to decentralize will be blocked.
Principle Seven – Governance
The first principle of decentralization is effective governance, which is divided
into three parts. First, the empowered employees must know the principles and
boundaries within which they can operate. They are given freedom to do everything
within the boundaries, anything outside is not permissible. This standard must be strongly
enforced. This approach contrasts with the traditional management system that counted
on a strict set of rules. Secondly the successful organizations do not focus on shareholder
Budgets 35
value as their primary purpose. Although these companies do very well financially, their
people buy-in to a ‘cause’. They have some values that are shared. People want to know
that their purpose is more than financial gain for the shareholders; they want to know that
their work is making a difference in society. The third part of governance is that leaders
need to become coaches and mentors. In the past, leaders were seen to be the experts so
command and control was used to direct the operations. They must now let go of the
decision-making process, a very difficult step, but a front-line manager must be allowed
to make mistakes and also be responsible to fix them.
Principle Eight – Performance
The governance principle gives the manager the freedom to work within certain
boundaries. This principle places a high expectation on the manager. The performance of
the manager should be evaluated relative to the competition, an internal performance
comparison or last year’s actual and not to a fixed target. If a competitor becomes better,
then the expectation is that the manager looks for ways to improve the performance of
his/her unit. The people in the organization also need to be challenged to think differently
about how business is done. They are expected to take responsibility and not to push it up
to top management.
A competitive environment is desired in order to push people to higher standards.
However this push to perform must be offset by a willingness to help others. There must
be a sharing of resources, knowledge, and best practices within the organization if it is to
be successful.
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Principle Nine – Freedom to Act
As mentioned under the governance principle, people must be given the freedom
to make decisions for their area of responsibility. This does not mean that leaders ignore
departments or business units once they have delegated responsibility. Leaders continue
to be involved by encouraging the managers. They do this by challenging the risks and
assumptions that a manager has made in developing a strategy. They ask questions to
ensure that there are not better alternatives. Perhaps most importantly, they resist the urge
to go back to centralizing decisions.
Leaders include everyone in the strategy development not only to get their buy-in,
but to also get their input. It doesn’t stop with involvement at the strategy stage, it
continues with empowering the front-line teams to make decisions and to be accountable
for what happens.
Principle Ten – Team Accountability
Whereas the traditional management system depended on the decision-making
expertise of upper management, the empowered employee who is well-trained and
capable needs little supervision. Employees work in teams that focus on the process and
not on functional teams that follow the budget. Working in close relationships, the
employees create a real sense of community. It is more than a feel good community; it is
a team that works to achieve results. A key to having communities of people is having
creative and capable employees that will be the right fit for the team.
Principle Eleven – Customer
The focus of adaptable companies should be to improve customer outcomes and
not on meeting some budget number. The empowering of people is not so they can help
Budgets 37
to achieve a target, but rather the front-line people are the ones who know the customer
and are therefore best positioned to meet customer needs. Relationships which are an
important part of forming organizational teams are also a key in knowing the customer.
Relationships outside the organization are essential in showing the customer that they are
valued.
Principle Twelve – Transparency
Companies have generally provided information on a ‘need-to-know’ basis. A
large step in empowering employees is to be open and honest about sharing information.
The information needs to be shared quickly and must be open to all at the same time. This
is applicable whether the news is good or bad. Providing such information across the
company is dependent on culture of trust. The accounting scandals of recent years have
made transparency a key factor. A culture with openness and truthfulness starts from the
top and filters its way through the organization.
The benefits of decentralization have been known for a number of years. Research
by well known writers has shown that performance is best when employees are not
commanded or controlled. It has also shown that people are satisfied when they share
values, have freedom to act, and are challenged in their work.
It is possible to accept the adaptive processes without fully implementing the
decentralization. However a fully coherent management model is possible by using all
twelve principles of the Beyond Budgeting model.
Budgets 38
CHAPTER 5
BEYOND BUDGETING – IMPLEMENTATION IN SIL (PART 1)
Before moving onto implementing Beyond Budgeting within SIL International, a
little background is required. In 1999, SIL adopted Vision 2025, which states, “By 2025,
together with partners worldwide, we envision Bible translation in progress for every
language that needs it; thereby empowering all peoples to use Scripture, establish
churches and disciple believers.” Questions were raised as to whether the structure that
existed would allow SIL to meet the ambitious goals defined in Vision 2025.
As mentioned earlier, the Beyond Budgeting model is geared primarily for profit
orientated companies. However, many of the principles are applicable for non-profit
organizations. There are benefits to SIL removing the budgeting system and replacing it
with adaptive processes as well as devolving decision-making and performance
accountability. They include:
1. SIL could react more quickly to changes in our fast changing world. With the
structures and systems currently in place, it can take years for change to happen.
2. Decisions would be made by those who are closer to the customer i.e. language
groups requiring Bible translation and literacy development. It is the leaders on the
front lines who can best see what is needed.
3. The allocation of funding would be on a strategic basis. The current method is more
political, based on who can negotiate the best.
4. The Beyond Budgeting model continuously looks at the next two years or so, whereas
the current system is only focused on the next fiscal year. This can result in a short-
term view of planning and allocation of funding.
Budgets 39
5. Funding could be more flexible, allowing funds to be available for new opportunities.
Currently, new opportunities may be missed because resources have already been
allocated.
6. The Beyond Budgeting approach is less time consuming. The budgeting process now
takes a minimum of six months to complete. This often means that the budget is
outdated by the start of the new fiscal year.
The next two chapters explain the barriers that SIL must remove and the new
principles that must be accepted in order for Beyond Budgeting to be successfully
implemented. It also discusses where SIL is in line with the Beyond Budgeting concept
and where it may not be possible to agree with the concept.
Goals
The first principle states that goals are ideally set relative to industry or direct
competitors. In the Bible translation task, SIL has very few “competitors” as there are not
many people or organizations that go out to help minority language groups through Bible
translation and literacy development. However the goals of SIL are set high. One of the
core values of SIL is to trust God for the impossible. When looking at the task to be done
from a human perspective, it is impossible, but with God all things are possible. Due to
this trust in God, members of SIL have high expectations for the work. Whether the
budgeting system is removed or not will have little or no effect on these high
expectations.
Perhaps there are still standards that SIL could use to spur on the task. For
example, key performance indicators could be compared among entities to help each
other look for better ways in doing the task. SIL offices around the world can look at the
Budgets 40
statistics from other parts of the world and look at how they can improve their own
performance. It is not just a matter of becoming as good as the others, but how can
performance be raised to even a higher level.
Rewards
The idea of rewards within SIL is different than many organizations. Whereas a
profit organization often rewards the people financially for doing well, the motivation in
a missionary organization such as SIL is very different. They do not necessarily see
where the work will go or how it will be accomplished, yet by faith they move forward.
Hebrews 11:1 (NLT) describes what faith is, “It is the confident assurance that what we
hope for is going to happen. It is the evidence of things we cannot yet see.” Rewards are
not based on self-interest, but as a love offering to God. When it comes to rewards,
eliminating budgets in SIL will have little effect.
Planning
The formal planning within SIL is generally done on an annual basis and is
usually tied to the budgeting cycle. The fast changing world however requires that
planning activities be done on a continuous basis. Plans are often set by April 1st for the
next fiscal year, which runs from October to September. Plans formulated in March can
easily be outdated by the time October starts. In addition, plans should not be constrained
to the fiscal period. Activities will continue regardless of the time of year.
If the budget was eliminated and replaced with rolling forecasts, then the planning
would not be tied to a fiscal year. Just as rolling forecasts are updated on a periodic basis,
so the planning would also be updated.
Budgets 41
In the past, planning was done at the entity level. (An entity refers to the work of
an SIL office, generally in one country. A SIL organization chart is included in Appendix
A to help show where the different offices and departments fit). One reason for this was
limited communication and access in the early years of SIL. In the last decade or so some
of the decision-making was pulled up to top management. Reasons for this include a
shortage of resources, people and funds, as well as a change in leadership. In the last year
the trend has been to push decisions back down to an Area level. It would be better if the
planning and decision-making were to remain at the local level since they are the ones
who work with and are near the ‘customer’, the ones who benefit from the Bible
translation. Personnel at the local level have a better understanding of the people and the
situations they come from. The variety of people and situations around the world makes it
impossible for upper management to develop the best plans for everyone. Keeping the
planning at the front-line will also encourage buy-in from those in the entity. They will be
much more committed to the plans if they have developed them.
The role of top management in the proposed planning stage is to challenge and
encourage the entity as well as ensuring that it is within agreed upon boundaries and
guidelines.
Resources
In the current system, resources are generally obtained through two avenues,
either the operating budget or project funding. The operating budget has been dependent
on an assessment of the support raised by members, as well as interest income. However
this method of raising income is no longer sufficient to raise the funds needed to
Budgets 42
complete Vision 2025. Entities and departments now look to the project funding system
to provide a majority of funds needed for Bible translation.
Most requests made via the project funding system must be made by April 1st
each year. Due to limited funds, from April to mid-June requests are reviewed,
questioned, and analyzed by the Area Office. From mid-June to mid-July the Area
Offices rank the project requests according to guidelines set by the International Office,
although they can override the rankings as they choose based on need and priorities. In
mid-August the funding agencies get together with the International office and review the
list of projects that have been ranked by the Area Office. The agencies then decide which
projects they want to sponsor. About the beginning of September those who have
requested the funds, are advised as to whether they will receive all, part, or none of their
request for project funds. One of the problems with such a long time frame is that
projects and programs may be delayed or put on hold while the request for funding is
being considered for approval.
The project funding system is based on a reasonably stable environment. It
assumes that the funding will fit with the fiscal year. However, if an opportunity were to
come up, the system would be very slow to respond to the request. Likewise, the
receiving SIL entities and departments are slow to return any funds that are not used.
One result of the present system is that some entities and departments within SIL
will hoard resources. They are not sure whether funds will be available when needed so
budgets are padded and contingencies built in. Surpluses are then built up for the time
when they might be needed, which ties up resources that could be used elsewhere. This is
Budgets 43
an indication that the people don’t trust the system; they don’t believe that the funding
will come through when really needed.
Taking away the current budgeting system could result in better use of the
resources. It would be replaced with a system of rolling forecasts. The offices worldwide
would send in quarterly forecasts of funds needed for the next, say 24 months. The
allocation of funds would be within certain parameters. The parameters would be based
on key performance indicators that are agreed on.
Due to limited resources larger funding requests would need some prior approval.
For example, there might have to be a limit of $100,000 per project. Anything greater
would need approval from the next level. In order to keep things moving, such a decision
would have to have a fast-track approval process. Reserves would be centralized in such
a system, but they would be held for opportunistic programs and not just as contingency
on current programs.
Funding should not be limited to that which goes through the SIL system.
However, the current funding system does not encourage entities to go out and find other
funds. It is easier to just work with the present system than to look for funding
alternatives. A large portion of the time currently spent by people could be used to go out
and look for other sources of finances.
Coordination
The intention within SIL is to be interdependent; to coordinate activities across
the corporation. However there are systems in place that create a hierarchy similar to the
model shown in Figure 3.1. This makes it easy for people to work within their own areas
and not think about including other people in the process. There is an expressed
Budgets 44
willingness to cooperate, but the structure makes it easier for people to work
independently. The result is that information and best practices are not always being
shared.
The traditional budget was designed to fit into a hierarchical management
structure. Removing the budgeting system and replacing it with a more adaptive process
will get the interdependence that is sought as teams are made up of individuals from
across functions. Good coordination will lead to benefits such as more creativity and a
more efficient us of funds.
Control
The basis of control within SIL can be described as following the traditional
management model where compliance is attained through the hierarchy. This is in large
part due to the budgeting philosophy which is designed for a ‘command and control’ type
company. An adaptive organization bases control on a good governance model. SIL does
attempt to devolve the control, but because the budgeting system requires central control,
the attempt to push down is not very successful. The removal of the budgeting system
will help SIL to devolve decisions and performance accountability. More will be said
about governance in principle seven.
The basis of control in an adaptive organization is dependent on good
information. Presently in SIL much of the information is not shared openly and what is
shared is often on a need-to-know basis. The information system must be open and span
all levels of the organization. It is recognized that the information will not be aggregated
the same for different levels of the organization. There is also certain information that is
more sensitive and needs to be shared discreetly e.g. personnel.
Budgets 45
SIL is currently developing a software program that will provide better
information, especially in the areas of personnel and finance. Personnel information
which can be duplicated in several offices across the organization will be centralized to
provide more complete information when needed. Information regarding finances will be
improved, but it will still be based on the budgeting system. Currently financial
performance is reviewed periodically, but it is often slow, out-of-date, and focused on the
past. Performance is compared to budget and variances must be explained. One of the
primary reasons for financial reports is to produce financial statements. Although it is
very important to generate financial statements for governments and donors, it does not
provide data for leading and managing in a changing world. An adaptive model needs to
have the budget replaced with rolling forecasts and key performance indicators.
Whereas annual budgets are for a set one year period that ends September 30th of
each year, rolling forecasts are always moving forward. As one quarter is completed
another quarter is added to the end. Earlier it was suggested that the rolling forecasts be
done for a 24 month period. This is likely a good suggestion for SIL, although a different
time frame could be used. A minimum time period would be 18 months and a maximum
might be about 30 months. The idea with rolling forecasts is to provide a fast,
summarized view of the future. It must be kept simple, so the detail of the traditional
budget must be deleted, and the focus has to be on the key variables. The rolling forecasts
must be in line with the continuous planning to stay focused on the future and to be able
to make changes as needed.
The variance reports used in the traditional budget would be replaced by key
performance indicators (KPIs). KPIs are used to ensure that performance is on-track, and
Budgets 46
is within the set boundaries and guidelines. There is a continuous process of monitoring.
As with rolling forecasts, KPIs are reported quarterly on a rolling basis. Whereas the
variance reports can be quite detailed, the KPIs tend to be few in number. They can be
financial or non-financial measures often expressed by ratios or percentages. Key
performance indicators measure the performance that is important to the entity being able
to attain its goals and objectives. Examples of key performance indicators might include
total gifts received, the number of trainees, the number of consultants, the amount spent
per trainee, the number of nationals, dollars spent per translation, and so on. (It is not the
intention of this paper to come up with the key performance indicators for SIL.)
Some organizations use internal competition to enhance performance. ‘Standings’
are posted on a regular basis to let people know how they are doing. As mentioned
earlier, perhaps posting the key performance indicators would help to encourage and
challenge entities across the organization. Seeing what other places are doing may help
people to come up with some new ideas as to what they could do.
The open and honest sharing of information is based on trust. SIL’s current
funding system lacks trust as entities and offices pad budgets in order to ensure resources.
In the new model, those providing the funds will have to trust that the rolling forecasts
are realistic and those receiving the funds will have to trust that the funds will be there as
requested.
Budgets 47
CHAPTER 6
BEYOND BUDGETING – IMPLEMENTATION IN SIL (PART 2)
Although an organization may have a degree of success by implementing only the
first six principles, the real strength of the Beyond Budgeting model comes from adapting
all twelve principles. This chapter describes how SIL should move toward decentralizing
the decision-making and performance accountability to the lowest possible level.
Governance
Employees, who are given freedom to make decisions and be accountable for
them, don’t need rules and regulations. They need to know the guidelines and boundaries
to work within. A bureaucracy depends on policies and procedures in order to get
compliance. Having volumes of policies and procedures can be a burden on change. SIL
will have to eliminate many in order to give front-line staff the freedom to make changes
as needed. For example, a policy is set on office hours that members and employees are
expected to adhere to. It would be better to provide some boundaries on the work that
must be completed, including the need to work with others.
An area of strength is SIL’s shared vision for transformed lives. It is a value that
is shared by all or at least most of the members. The members want to make a difference
in the lives of people.
Leaders in SIL need to become coaches and mentors. They must resist getting
involved in a ‘hands on’ manner. However, they do need to be an encouragement – to
challenge and monitor the performance. Part of vision 2025 is that we are not to be
working harder, yet SIL leaders generally carry very heavy work loads. If the work is
Budgets 48
devolved to the lowest level, then leaders will be freed up to be in mentorship
relationships.
A specific example of change of governance within SIL is related to executive
committees (referred to as ECs). Through the years, SIL has been setup as a member
driven organization. In other words, it is the members who are to have ultimate control of
the organization. SIL International has a Board of Directors, but each entity also has a
Board, referred to as ECs. One purpose of the ECs is so that there is member input in the
work. If SIL were to devolve the decision-making, then the insights and creativity of all
staff would be possible. If that were the case, then the ECs could be eliminated. The
additional ‘board’ adds another level of hierarchy that makes it hard to change as needed.
Ultimately the question to ask here is, ‘Does EC add value to the organization?’ If not,
then it could be removed from the structure.
Performance
Striving for excellence has generally not been a problem when it comes to SIL.
One of the core values of the organization is to have a high standard in the quality of the
Bible translation. Part of the reason for the high standard is the nature of the work as well
as the type of person involved in the task. It is also based on a Biblical standard.
Colossians 3:23 (NIV) says, “Whatever you do, work at it with all your heart, as working
for the Lord.”
A negative tendency is to get too focused on the number of Bible translations
remaining and to forget about the people. Although the Bible translation task is critical, it
can not be at the expense of relationships.
Budgets 49
Improved performance also means that SIL should be creative in accomplishing
the task. There is a desire within SIL to be creative, but hierarchical structures make it
very hard for changes to be initiated. When it comes to the language work, SIL is fairly
creative. Yet in other parts of the organization the creativity is dampened by structures
such as the budget. The removal of the traditional budget will help make it easier for SIL
to be creative.
There is an expectation and a desire that people throughout SIL will cooperate
with one another. Once again certain structures such as the budget make it harder to do
so. In hierarchies it is easy for departments or offices to become their own ‘silos’. It is not
intended but people tend to get caught up in their own function. An adaptive organization
requires that there be interaction across functions and departments.
Freedom to Act
Once the decision-making process has been passed down to the lowest level, then
the entities and offices must be given freedom to act. In SIL top management has the
‘right’ to intervene as they feel is required. The entities and different offices can also
perceive certain comments or questions to be directives, although that may not
necessarily be the case. This can easily happen in a hierarchy where the position of the
leader is seen as an authoritarian. The responsibility of the leader in the new model is to
be an encouragement – to challenge and monitor the performance of the entities and
offices.
Although not explicit, mistakes are generally not tolerated as it is not a good use
of God’s resources. Front-line staff must be allowed to make mistakes and they should
also be required to fix them. The temptation will be great to step in and to fix the
Budgets 50
problem, but the leader must keep hands-off and instead encourage and challenge the
front-line staff.
Team Accountability
Before SIL is able to devolve decision-making, the front-line staff would have to
be competent and committed. Training is currently a high priority within SIL. The last
several years has seen a large amount of resources committed to the education and
training of many personnel. For example, a leadership development program has been
started to identify, train, and mentor new leaders. Currently the training in SIL is more
focused on the ‘experts’, those that specialize in certain fields. In order to move to
Beyond Budgeting, all individuals in SIL will need some level of training. The training
will be needed initially to help staff adjust to the new model and then training will be
required to help them adjust to ongoing changes.
The training that is received gives the people many different skills and abilities.
However they are then placed in a structured environment that is the same as before the
training. The traditional system makes it easier to follow the status quo, rather than
initiate needed changes. As an example, trainees in the leadership program are trained
and mentored to live the characteristics of servant leadership. However, once individuals
are back in the work setting, they are more likely to be in a ‘command and control’
situation which makes it difficult to apply the servant leadership principles they have
learned.
In the last few years SIL has used a team approach to solving problems and
working through issues. One of the tendencies is for the SIL teams to be functional i.e.
using ‘experts’ from the same area. Teams in the Beyond Budgeting concept must be
Budgets 51
cross-functional. All different skills, abilities, and experience are required to face the
challenges of our changing and complex world. One benefit of using cross-functional
teams is that leadership will be shared. This provides good opportunities for the
development of leadership.
A problem faced by SIL is being able to retain people. There are cases where
people leave for legitimate reasons, but there are also times when reason is ‘unknown’. A
possibility is that people are not challenged or aren’t given the freedom to be creative.
Another challenge for SIL is to find people who will fit the new model. Recruiting and
hiring staff will have to be geared toward those who are interested on being on a team,
yet enjoy the challenges and responsibilities of making decisions.
Customer
One of the keys to Beyond Budgeting is that a close relationship be kept with the
customer. Historically SIL members have maintained that close contact by actually doing
the Bible translation amongst the people. It was these members who then made the
decisions as to what was best for the translation work. If decisions are pulled to the top or
even to the Area level, it becomes more difficult to know the customer. The decisions are
better made by those who have established relationships and can respond to changes and
the needs of the customer. For example the allocation of limited funds would be best
done at the entity level, rather than being set by Area staff.
To serve the customer front-line people should not work independently.
Relationships also need to be established within the organizations and with other
organizations to gain the expertise needed to provide good solutions for the people being
served. SIL has placed a high value on partnering with others in the last decade in order
Budgets 52
to do the work better. However SIL has traditional structures such as the budget that work
best in a hierarchy. In a hierarchy, people tend to focus on their work, therefore
relationships and partnerships are not as well developed ultimately losing the focus on the
customer.
Transparency
Although SIL has not had to deal with any major accounting scandals,
information is not always freely shared. An open and transparent information system is a
must for employees to be empowered. If SIL continues to maintain hierarchical
structures, the tendency for offices and departments to operate independently will always
be there. The result is that information is only shared on a need-to-know basis. The
challenge in SIL being an adaptive organization is having a completely open system
where SIL leaders trust staff with the information.
One way to build trust is for SIL not to just circulate good news, but to also
circulate the ‘bad’ news. People will respond if everything is shared and not just the
highlights. Not only does the information have to be openly shared, it must also be fast.
New strategies in an ever-changing world are dependent on fast information. It is also
needed to help avert potential problems.
A decentralized structure will give SIL the ability to adapt to a fast changing
world. To make such a move, SIL will have to ensure that freedom to act is integrated
with competence and commitment.
Budgets 53
CHAPTER 7
BEYOND BUDGETING – IMPLEMENTATION IN SIL (PART 3)
Implementing the Beyond Budgeting concept in SIL raises concerns and
questions. This chapter answers some of the anticipated arguments against transitioning
to a Beyond Budgeting approach. It also addresses who the key players are, provides
implementation suggestions, and briefly mentions the Balanced Scorecard.
Arguments against Beyond Budgeting
There may be arguments as to why Beyond Budgeting could not work in SIL.
This section attempts to address some of the main concerns.
One of the first arguments against Beyond Budgeting is the perceived loss of
control. How can SIL control costs if there is no budget? Perhaps the question should be
whether the traditional budget really does control the flow of funds? There are entities
and offices that pad the budgets and hold on to surpluses to ensure there are funds
available when needed. The hoarding of resources is a result of not trusting the system.
An adaptive company requires that trust be built. ‘Controls’ are through self-regulation
i.e. trust those making the decision, and transparent information. Beyond Budgeting does
not negate the fact that checks and balances are still needed to reduce the temptations and
the misuse of funds.
Another concern could be the empowering of the front-line. Do they have the
expertise needed to make good decisions on the limited resources? Empowerment must
be clearly understood before choosing to go that direction. Characteristics of
empowerment include the transparency so people have information to make decisions,
Budgets 54
on-going training to ensure competency, a culture that provides encouragement and
support, and boundaries and principles to operate within.
It might be said that Beyond Budgeting is just another tool or fad. So often
companies take on new methods and processes, but in many cases implementation is a
failure. As stated at the beginning, Beyond Budgeting is more than just a tool. It is a total
management philosophy. The model will not work by just pasting it into the current
structure. There must be the removal of systems and structures, such as the budget, that
encourage bureaucracy and discourage the agility that is needed by today’s organization.
An aspect that would have to be considered is cultural. SIL is an international
organization. Will the Beyond Budgeting model work in all the countries that SIL works?
The concept started in Europe and has moved onto other countries, primarily in the
developed world. There are examples of successful companies who have divisions and
offices in many parts of the world, including some in less developed countries. Although
the model is able to cross cultures, it can not be implemented haphazardly. Working in
other cultures requires planning and commitment from all the stakeholders. A program
for the implementation and how the concept will work in a particular culture will need to
be clearly understood by all.
People may ask whether Beyond Budgeting can be applied to the non-profit
arena. This is a legitimate concern as there are obvious differences between a non-profit
and profit organization. However both sectors are trying to best utilize limited resources.
The non-profit has used the traditional budgeting system to allocate those resources. The
same problems that the profit organizations have had with the budget are applicable to the
non-profit.
Budgets 55
When working in a team, it may be argued that there will be free riders, those who
let others do all the work. In an adaptive organization, where everyone’s input is
required, free riders are quickly exposed. Individuals who are not contributing should be
replaced as soon as possible. In SIL this is not as easy as it sounds. A lack of resources,
funding or personnel, may make it difficult to find a person who can just step into the
position.
Finally, will the Beyond Budgeting model fit into the SIL culture? Over the years
a strong organizational culture has developed in SIL and it will take some effort and time
to cultivate a culture that will accept such a dramatic change. It starts with explaining
why the budget is being removed and how it will help members and employees to do
their jobs. It will take plenty of training and repetition to ensure that people understand
the new system. The software will have to be capable of forecasting and tracking key
performance indicators. The mind-set of the people will have to be focused on value
added, rather than how much does it cost.
Who are the Strategic Change Agents?
Since Beyond Budgeting is a different management philosophy, there will need to
be a different mind set required by all leaders, employees, and members. This section will
focus on a few key individuals.
With any change of this magnitude, the support of the Executive Director is
essential. It is also important that the majority of the top management be supportive. This
includes the Associate Executive Directors, Vice-Presidents, and Area Directors. In
addition it would also be preferable if most of the entity directors are also on board.
Budgets 56
Currently finance is seen in SIL as a control and enforcement department that
records past history. The challenge is for the finance offices to adapt practices that will
help the organization to improve performance. Jurgen Daum (July 2003) writes the
following,
“So the traditional role of a CFO will be transformed from the role of a ‘chief cash manager and chief accountant’ to the one of an agile and active Chief Value Officer (CVO), who always keeps an eye on the effectiveness of the value creation system of the company, on the efficiency of its business processes, and on its unrealized value creation potential and he is constantly pressing for its realization.”
If budgets are no longer used, then Finance must re-define its role to one that will
add value. Finance can take the lead in replacing budgets with rolling forecasts and
performance measurements, both financial and non-financial.
The Information Technology (IT) department needs to replace the traditional
software with software that can provide detailed reporting and forecasting capabilities.
This information, financial and non-financial, must be distributed throughout the
enterprise.
Bringing in people who want to be a part of an adaptive organization would be the
responsibility of Human Resources (HR). It will be important to recruit individuals who
want to have the freedom and enjoy the challenge of making their own decisions.
These individuals must also be ready and willing to work on cross-functional teams. In
addition, HR experts experienced in organizational change projects are valuable
resources in the move toward Beyond Budgeting.
Implementation Suggestions
In order for Beyond Budgeting to be successfully implemented in SIL the
following factors must be present.
Budgets 57
a) The support of senior management is essential. The verbal and non-verbal
communication must show that leadership is totally behind the change. It would
also be best if leadership remained fairly stable during the implementation stage.
b) For the change to have momentum there has to be a sense of urgency
throughout SIL. In other words, a need for change has to be established.
Problems with the current management system must be identified and a vision
for the new system created.
c) A cross-functional team should be set-up to lead the change.
d) The training and educating of people is a high priority.
Another key factor in implementing Beyond Budgeting is to look at the corporate
culture. The question is whether the SIL culture can handle change, more specifically can
it handle change quickly? SIL’s culture could likely not allow for a change of this
magnitude over a period of a year or two. It would likely take a minimum of three to five
years to make the kind of change described in this paper. That being the case, it is best for
SIL to stage in the Beyond Budgeting model. The first stage is to create and agree on a
vision of being more adaptive. The model and how it works would have to be explained.
Many of the leaders and managers would have to buy-in to the change in order to have
any success. The second stage is to design and test the processes needed for the change.
The third stage is the actual implementation and the final stage is the continual trend of
devolution. The history of the way things have been done will not quickly disappear. The
transition to a new model will take years. It is important for SIL to look for quick wins in
the transition to help keep the process energized.
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Complementary Tools
Over the years a number of tools have been developed that are designed to
improve an organization’s performance. These tools don’t always have success, because
often they are just added to the current management system without determining whether
they are compatible. There are a number of tools that can be useful to an organization
including the Balanced Scorecard, Activity-Based Management, and Zero-Based
Budgeting. This section will briefly focus on how the Balance Scorecard can complement
the Beyond Budgeting model.
The primary purpose of the Balanced Scorecard is to provide measurements that
show the company how it is doing. A good understanding of the organization determines
what the key performance indicators (KPIs) should be, which are then monitored on a
regular basis. KPIs are determined by asking questions such as:
a) Are we satisfying our stakeholders? For example, what is the retention of
members or employees?
b) Are we building capacity in order to execute our strategies? This could include
training for changing organizational structures.
c) Are we operating efficiently? As an example, do we have enough consultants to
ensure that quality is maintained
Measurements do not mean that strategies will work, but they do provide feedback
on how the strategies are working. If needed, corrective action can be taken to help the
organization get back on track. Other benefits of the Balanced Scorecard include
determining if problems are caused by strategies or operations, early detection of
Budgets 59
problems or opportunities, increased productivity and customer service, a clear
understanding of what drives the organization, and the best way to allocate resources.
LIMITATIONS
The sections written about SIL are based on personal observation. Since my work
with SIL has been in eastern Africa, the observations may not be reflective of what is
happening in other areas of the world where SIL works. More time and research would be
needed to get a true picture of how SIL works worldwide.
One purpose of this paper was to determine the feasibility of implementing the
Beyond Budgeting model in SIL. Although implementation within SIL is possible, it was
beyond the scope of this paper to provide a detailed explanation (i.e. a step-by-step
approach) on how Beyond Budgeting could actually be implemented. Once again more
study would be required to provide that level of detail.
CONCLUSION
The paper asks the question, “Does SIL need budgets?” The simple answer is
‘no’, SIL does not need budgets. The current budgeting system could be removed and
replaced with rolling forecasts and key performance indicators.
Will SIL remove the budget? I believe that there are individuals within SIL that
would like the organization to adapt to the changing times. The question is whether the
corporate culture will allow such a dramatic change. The SIL culture has developed
through a long rich history. A radical move to Beyond Budgeting could be beneficial to
Budgets 60
SIL, however, until there is a very high level of urgency and fostering of a culture that is
open to change, it will be very difficult for SIL to overcome the status quo.
Budgets 61
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Greengard, S. (2000) The great leap forward. Business Finance, September. Retrieved
