Reinventing Planning And Budgeting Tools For The Adaptive Enterprise published by Optima Media Group in June, 2006. This report price starts from US $ 1605.
Abstract
The Report In Brief:
- Why next-generation planning and budgeting processes are key to the
adaptive enterprise
- Step-by-step advice on how to migrate from traditional budgeting
- Inside advice from pioneers of new approaches to planning and budgeting
- Detailed assessment of alternative models and techniques
- A framework for re-engineering planning and budgeting
Use this new strategic report to:
- Transform budgeting pain into corporate gain
- Create lean, effective planning and budgeting processes
- Solve the cultural challenges of developing an adaptive enterprise
- Implement workable alternatives to the annual budget De-couple incentives
from annual fixed targets
- De-couple incentives from annual fixed targets
For the first time, this report provides a comprehensive guide to the
practical options, a migration plan and benchmarks for improvements. It shows
how to undertake goal-setting, planning, resource allocation and
performance-linked compensation using more appropriate frameworks and tools.
Alternative tools and techniques are only part of the requirement. Find out
how to bring about the all-important cultural challenges in behaviour and
working practices that make next-generation planning and budgeting possible.
Dissatisfaction with the annual budget is driving companies to a tipping
point. It is not just the time, effort and cost eaten up by conventional
budgeting. Once delivered, it undermines an organisation's ability to adapt
and respond to changing operating conditions and market forces. And when
linked to rewards, the annual budget often distorts decision-making and
management behaviour.
Designed for a business era that has long passed, the annual budget is now a
constraint and liability.
Some organisations - private and public - have developed innovative
solutions, even abandoning the budget altogether. Their objectives: to create
more responsive and flexible forms of planning, forecasting and performance
management. Their reward: better business control and greater responsiveness
to a roller-coaster business environment. Plus dramatically improved business
results.
Execuitve Summary
Chapter 1: An Agenda for Change
An outline of the urgent need to change the budgeting process. Why many
believe that the conventional budget is an annual performance contract that is
no longer fit for purpose in an era characterised by rapid market/sector
changes that provide both strategic threats and opportunities to organizations.
The overview looks at the purpose of the traditional budget in terms of:
- Goal setting
- Resource allocation
- Planning
- Performance evaluation and reward.
How adaptive organizations set out to achieve these outcomes in different,
more effective and efficient ways.
Chapter 2: Creating the new Adaptive Vision
Although aware of the shortcomings of the traditional budget, most senior
managers lack either an alternative performance vision for the organization or
a clear understanding of the next steps to take. Based on practitioner
experience and expert advisor input, this chapter describes the importance for
senior management of developing an 'adaptive' performance vision for the
organization. This typically involves devolved responsibility for
decision-making.
This chapter stresses the value of senior management championing an adaptive
approach, especially given the cultural and process challenges ahead. The CEO
should drive the vision, and the CFO must champion the realization of that
vision.
An adaptive organization is defined as possessing a number of external and internal performance characteristics:
- It continually reconfigures itself to remain aligned to external customer,
market, economic and societal requirements.
- Internal responsibility for delivering to those requirements is devolved
to the appropriate organizational level.
Chapter 3: Alternatives to the Conventional Budget
With a new vision in place, this chapter describes the most frequently used
options to the conventional annual budget.
These include:
- Setting non-negotiable top-down targets that are supported by bottom-up
planning
- Assessing performance based on relative performance and not performance to
a budget
- Quarterly rolling financial forecasts
- A more dynamic approach to resource allocation that is not based on
entitlement.
Chapter 4: Reinventing the Budget to Support Strategy Management
With the goal of being an adaptive organization, improving the annual
budgeting cycle is one aspect of a wider performance management transformation
to support better strategy management.
This chapter shows how the budgeting process can be better aligned to the
strategy planning/implementation process. This includes the role of quarterly
strategic reviews to direct resource allocation and inform rolling forecasts
and the use of the balanced scorecard to align the budget with strategic
efforts.
It also includes the role of shareholder value analysis such as EVA. These can
be used to replace the budget or as a better mechanism for measuring
performance and prioritising resource allocation.
Chapter 5: Moving to an Adaptive Model: the Cultural Challenges
The greatest barriers to abandoning, or re-engineering, the budgeting process
to create and Adaptive Organization are typically not structural, but cultural.
It is crucial that senior management defines the behaviour it wants to
encourage to support the new performance model. This means paying close
attention to cultural questions and communicating the new behaviour
organization-wide.
This chapter describes the major cultural challenges faced when re-engineering
the budget, and how they have been tackled by leading organizations.
Topics covered include:
- Selling the message to senior management
- Selling the message to the finance function
- Selling the message to line managers
- Overcoming resistance from managers who are 'good' at working the
budgeting process.
Chapter 6: Decoupling the Bonus from Fixed Annual Targets
Possibly the greatest obstacle to transforming the budget is its link to the
annual incentive compensation process. As this chapter shows, a number of
leading organizations have recast their bonus systems so that they are no
longer linked to annually negotiated performance targets.
We look at how bonuses can be linked to other frameworks such as the Balanced
Scorecard or EVA, but also how some companies have fully decoupled individual
(as opposed to team or group) incentives from targeted outcomes.
Chapter 7: Looking ahead and A Model for Change
This concluding chapter includes a model for managing the migration to an
adaptive organisation and the adoption of re-engineered planning and budgeting
processes and practices.
Tweny action-oriented questions help use to navigate their journey toward
being an Adaptive Organization.
Chapter 8: Best Practice Case Studies
This chapter includes seven best-practice case studies of organizations
exemplifying the new approaches described in this report.
- Boston Scientific
- Henkel
- Herman Miller
- Nordea
- Scottish Enterprise
- Tomkins
- UBS Wealth Management and Business Banking
APPENDIX 1
Using software to support better planning and budgeting
APPENDIX 2
Useful sources of information and help
Table of Contents
Chapter 1: An Agenda for Change
- Research Findings
- The Strengths of the Annual Budgeting Process
- Accountability
- Weaknesses of the Annual Budgeting Process
- Structural Shortcomings
- Goal Setting
- Forecasting
- Resource Allocation
- Process Shortcomings
- Balanced Scorecard
- Behavioural Problems
- Incentive Compensation
- Devolved Responsibility
- Self-assessment Checklist: the current status of the budget
Chapter 2: Creating an Adaptive Organization
- Defining an Adaptive Organization
- Appropriate Devolution
- A Dynamic Tension
- Continuous Learning
- An Adaptive Vision
- Senior Management Commitment
- A Compelling Case
Chapter 3: Alternatives to the Conventional Budget
- Case Overview
- Disentangling the Budgeting Process
- An Interlocking System
- Managing with Adaptive Processes: six principles
- Self-assessment Checklist
Chapter 4: Reinventing the Budget to Support Strategy
- Aligning Strategy with the Budget
- The Balanced Scorecard
- Strategic and Operational Budgets
- The Balanced Scorecard and Beyond Budgeting
- Shareholder Value Analysis
- EVA Explained
Chapter 5: Moving to an Adaptive Model - challenges
- Culture: the most difficult challenge
- Research Findings
- Myriad Cultural Barriers
- The Role of Senior Management
- Senior Management Resistance
- Middle Management Buy-in
- Devolved Decision-making
- The Importance of Trust
- Teamworking
- The Support of the Finance Function
- Turf Protection
- More Enlightened Professionals
Chapter 6: Decoupling the Bonus from Annual Targets
- The Downside of the Budget/Bonus Linkage
- A Ceiling and a Floor
- The Problem of Negotiation
- Relative Targets
- Shareholder Value Techniques
- Economic Value Added
- Nine Priciples of EVA-based Incentive Compensation
- Aligning Compensation to the Balanced Scorecard
- Difficulties in Scorecard/Compensation Link
- Weighting Perspectives
- Scorecard-based Plans
- Quarterly bonuses
- Chapter 7: Conclusion and Agenda for Change
- Future Developments
- No Change Expected
- Some Change Expected
- Significant Change Expected
- Key Questions for Becoming an Adaptive Organization
Chapter 8: Eight Case Studies
- Boston Scientific
- Henkel
- Herman Miller
- Nordea
- Scottish Enterprise
- Statoil
- Tomkins
- UBS - Global Wealth Management and Business Banking
