Five Management Ideas for Business Success: Beyond Budgeting

This week we're rolling out a five-part series in an effort to provide a little insight into some of the latest management trends that can help elevate your small business.

They make bookstore shelves sag and they all promise to make your organization more competitive, your employees more productive (and satisfied) and your bottom line sweeter. But when the economy’s booming, employees are hard to find, and work-life balance means a scheduled family lunch in the middle of the 60-hour work week (did we mention employees were hard to find?), who has time to pay attention to management trends?

Here’s a cheat sheet for Alberta entrepreneurs: the five critical management ideas you should be paying attention to no matter how hot it gets in the trenches, plus a few brain teasers to help you get to the next level. The common thread that binds them together is simple: to succeed in today’s business environment, your business and its people have to be flexible and adaptive. Being rigid went out with the corset and the boiled shirt. But you already knew that.

Beyond Budgeting

Proponents call open-book budgeting the first really great business idea of the 21st Century: abolishing traditional budgets in favour of more adaptive and decentralized alternatives that sustain superior competitive performance in lean and ethical (in the not-like-Enron sense) enterprises. Does your old budget make sense after, say, Hurricane Katrina? In 2005, the year of five hurricanes, American Express modified its budget six times, then chucked it out the window. Charles Schwab did the same, joining a growing legion of European and American companies shaking off the shackles of the annual budget. IBM is thinking about it. The World Bank is going that way too and, closer to home, the Canadian Imperial Bank of Commerce already has. Handelsbank, one of the top performing banks in Europe, has gone without annual budgets for 30 years. Before it got bought out by Ford Motor Company, Volvo was the 14th largest automaker in the world, but the second most profitable one, and it relied on ever-changing four-to-five year financial forecasts, not fixed annual budgets. In contrast, traditional budgeter Ford spends $1.4 billion a year on its budget process. “Is that cost-effective,” asks Bruce Thurston, a principal with Management Resource Services in Lethbridge.

Andrew Brooke, director of finance and accounting with the Calgary office of Texas-headquartered Lauren Engineering and Construction, is another enthusiastic convert to the approach. “Traditional approaches to bud­geting are often the result of political negotiation in a company, involve targets set at some executive level, and are based on the assumption that decisions made at that level are better than those made by the front-line people,” he says. “This old way of budgeting makes the organization inflexible and unable to change rapidly with market conditions.” Performance incentives tied to meeting budget targets also results in managers and employees working to “beat the budget.”

“That’s ridiculous,” says Brooke. “It erodes your competitiveness and your bottom line.” It may have worked in the 1920s, adds Thurston, but in 2006 a competitive enterprise needs to be able to reallocate its resources as soon as market conditions change – sometimes in anticipation of them – and not the next calendar year.

Beyond Budgeting resources:

Check out the Beyond Budgeting Round Table at www.bbrt.org or read Jeremy Hope and Robin Fraser’s Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Harvard Business School Press, 2003).

Everything I Know I Learned from my Software

Extreme Programming (XP) started life about eight years ago as “a deliberate and disciplined approach to software development.” Somewhere along the way, it has morphed into a management philosophy well-suited to high-risk, high-speed projects, and not just in the high-technology industry. XP is deceptively simple. One of its key rule is “always do the simplest thing that could possibly work.” Another: “When XP is broken… fix it.” Both as a programming method and a management tool, XP is about approaching mega-projects through incremental, integrated steps in an environment in which knowledge is widely shared (by moving people around often), communication is key but time-wasting meetings are not (a goal achieved by, for example, daily “stand-up” meetings), and the customer is “always available” – and treated as an integral part of the project team.

XP’s most revolutionary practice? No overtime.

Source: Extreme Programming: A Gentle Introduction (www.extremeprogramming.org)

 

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