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About Beyond BudgetingThe Budgeting problem |
About Beyond Budgeting
Beyond Budgeting is the first great management ideaof the twenty first century
Gap between rhetoric and reality Beyond budgeting is a more adaptive and devolved alternative
A radical proposition?Budgeting, as most corporations practice it, should be abolished. That may sound like a radical proposition, but it is merely the final (and decisive) action in a long running battle to change organizations from centralized hierarchies to devolved networks. Most of the other building blocks are in place. Firms have invested huge sums in quality programs, IT networks, process reengineering, and a range of management tools including EVA, balanced scorecards, and activity accounting. But they are unable to establish the new order because the budget, and the command and control culture it supports, remains predominant.
Gap between rhetoric and realityThe between the rhetoric and the reality of devolved decision-making is huge. But to succeed in the global market, it must be bridged. Much is at stake. Responding effectively to change, finding and keeping talented people, producing imaginative strategies, reducing fixed costs, building closer relationships with customers, and improving ethical behaviour and reporting - all these key success factors depend, to some degree or another, on winning the battle for the devolved organization together with its culture of personal responsibility. The central planning and budgeting process perpetuates a culture of dependency. It supports the belief that decisions improve the higher in the organization they are taken. This is a ridiculous idea to most employees.
Budgeting has few admirersGaming the numbers is pervasive. One large survey of U.S. companies concluded that managers either did not accept the budgetary targets and opted to beat the system, or they felt pressured to achieve the targets at any cost. This pressure is squeezing the life and spirit out of many organizations and their people. It's the mentality that says, "Do what I say or your future is at risk." It is driven by greed and a need for instant gratification and immediate results. This was evident at both Enron and WorldCom. The WorldCom culture, say those who worked there, was all about living up to [CEO] Bernard Ebbers's demands. "You would have a budget, and he would mandate that you had to be 2 percent under budget. Nothing else was acceptable."
Beyond Budgeting, a more adaptive and devolved alternativeReplacing the budgeting model with a more adaptive and devolved alternative is the solution that organization's need to achieve their goals of becoming devolved networks. Criticizing budgets is not new. But defining a set of principles that guides leaders toward a new lean, adaptive and ethical management model is a new idea - perhaps the first great new idea of the twenty-first century.
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