Page 32 - Performance Leadership

Chapter 2 Traditional Performance Management • 21

Table 2.1
Beyond-Budgeting Model

Beyond-Budgeting Process Principles Beyond-Budgeting Leadership Principles
Target setting. External benchmarks set Governance framework. Clear principles
aspirational medium-term goals. provide a framework for local decision
making.
Motivation and rewards. Relative rewards High-performance climate. High
based on external benchmarks and expectations lead to sustainable
evaluated with hindsight reduce gaming. competitive success.
Strategy process. A continuous process Freedom to decide. Empowered people
and more local involvement encourage with freedom and scope to make strategic
ambition and fast response. decisions are more committed to success.
Resource management. Resource-on- Team-based responsibility. Small teams
demand approach reduces waste. have a sharper focus on creating value and
reducing waste.
Coordination. One team approach Customer accountability. Frontline teams
encourages cooperation and excellent accountable for results are interested in
customer service. satisfying customer needs profitably.
Measurement and control. Fast and open Open and ethical information culture.
information focuses on learning and Information on openness and “one truth”
encourages ethical behavior. promotes ethical behavior.

Instead of an annual budget, beyond budgeting proposes a process
of continuous updates, a so-called rolling forecast. If an initiative has a
clear business case that realistically predicts a profitable outcome, a
lack of budget may never be the reason for not doing it. “Blowing the
budget,” (a bad thing) is replaced by “blowing the forecast” (a good
thing). The targets are set in aspirational terms, building a sense of
urgency and a “can do” mentality. Of course, a benchmark for per-
formance is needed. There is no fixed budget with which to compare
performance, but rather a dynamic ranking of regions, offices, sales-
people, projects, and so on. Also, a company peer group comparison is
important to make sure your company not only did better than previ-
ously, but also better than the market. Hope and Fraser, who developed
beyond budgeting, point out that fast and open information leads to
more ethical behavior and empowers more people to make the right
decisions. Also, fast information implies a high degree of automation
and elimination of most manual steps in the process that can lead to
“creative interpretations.” Although adopting the beyond-budgeting
model fully might be too radical an approach for many organizations,