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In this session, I will cover the problems with traditional management, including budgeting.
On 11 November 2021, we hosted our first virtual conference with a great lineup of speakers, here is the sixth session Beyond Budgeting - Business agility in practice by Bjarte Bogsnes
About Bjarte Bogsnes
Bjarte Bogsnes has a long international career, both in Finance and HR. He is a pioneer in the Beyond Budgeting movement, and has been heading up the implementation of Beyond Budgeting at Equinor (formerly Statoil), Scandinavia’s largest company. He led a similar initiative in Borealis in the mid-nineties, one of the companies that inspired the Beyond Budgeting model. Equinor realized that traditional leadership and management practices no longer work in today’s competence organizations operating in business environments more complex, dynamic and unpredictable than ever. The company implemented innovative alternatives to traditional management, like abolishing traditional budgets and calendar-based management in favour of more decentralized, agile and human processes. Bjarte is Chairman of the Beyond Budgeting Roundtable (BBRT). He is a popular international business speaker and is the winner of a Harvard Business Review/McKinsey Management Innovation award. Bjarte is also author of "Implementing Beyond Budgeting - Unlocking the Performance Potential", where he writes about his almost twenty-five years long Beyond Budgeting journey. Bjarte has now taken early retirement from Equinor, but will continue his Beyond Budgeting work through Bogsnes Advisory (bogsnesadvisory.com).
The transcript for Beyond Budgeting - Business agility in practice by Bjarte Bogsnes
Nader: Our next session we're going to be talking about beyond budgeting, the key to business agility or how we unlock business agility.
Thank you everyone for being here. I cannot do justice in introducing you because of the depth of experience that you've had in HR, in finance, in actually creating beyond budgeting and leading large organizations. But I will leave that for you to do better justice than me.
Bjarte Bogsnes: Thank you very much and hello everybody. First of all, I'm not the inventor alone of beyond budgeting. I've been key in the development of this concept, but there are more of us and we are a community.
So I'm the chairman of the Beyond Budgeting Roundtable and until a few months ago, I worked for a company called Equinor, used to be called Statoil and with a very heavy heart, I took early retirement a few months ago in order to be able to work on this, full-time and you can find out more on my website: Bogsnes Advisory.
What I want to share with you today is first the case for change- what's the problem? Because the problem with traditional management from a corporate perspective might be bigger than many think, including yourself. Then the good news, there are solutions here, Beyond Budgeting, which is actually a somewhat misleading name because the purpose of Beyond Budgeting is not necessarily to get rid of budgets. The purpose is to create organizations which are more dynamic, more adaptable, more human, and more agile, if you want. And in order to make that happen, we need to change traditional management. And at the core of traditional management, we find the budgeting process and the budgeting mindset. So that's where the name is coming from.
But every time I say Beyond Budgeting, think about business agility, because that is what this is. So I'd like to share the model with you. And then a few exciting cases before we go to the main case of today, which is the Equinor model, it's called Ambition to Action, heavily Beyond Budgeting inspired established 15 years ago. And I was heading up the implementation of this in Equinor and 10 years earlier, a similar thing in a company called Borealis before there was anything called Beyond Budgeting.
Every time I talk about Beyond Budgeting, there is a word coming up, and that is the word control. And the context is of course, the fear of losing control. And I often ask people what do you mean with control? What are you so afraid of losing? And actually after people have said cost control, many, go quiet, they actually struggle with putting words on what they are so afraid of losing. Quite interesting. So I checked off Oxford dictionary and they call it "the power to influence or direct people's behavior or the course of events".
And what does this mean in business or organizational terms? It actually means controlling people and controlling the future. And behind these two, lies the two main assumptions that underpin so much in traditional management. First of all, that you can't trust people. And second that the future is predictable and preventable.
And we are challenging both of these heavily in Beyond Budgeting because these are nothing but illusions of control. For instance that people can and must be managed. Of course you can manage people, but if people are managed in stupid ways, they hopefully find a way around in order to get the job done and when it comes to the future, the only thing we know is that we don't know.
Talking about people and trust. I used to travel a lot before the pandemic. And the first thing I always check up when I enter the hotel room is what kind of hangers do they have? And I guess you recognize these two types.
And I guess we can all agree that we just hate the one at the bottom. It's a hassle to use. So how come so many hotels offer us this stupid hanger? It's probably because there was an accident or two, or an incident or two where a hotel guest stole one of these hangers with a hook and what was the response? To punish everybody because somebody did something wrong. Actually, one of the problems with traditional management, putting everybody in jail because somebody did something wrong. Wise people out there have definitely agreed with what I'm saying here. Good old Peter Drucker: "Most of what we call management is about making it difficult for people to do the job".
And I couldn't agree more. Sometimes the problem is that we manage too much. And when it comes to corporate planning, another wise person, Russell Ackoff, he compared it off of the planning that he observed in organizations with a ritual rain dance. "It has no effect on the weather, but those who engage in it think it does". And I understand what Mr Ackoff was talking about here, because I have done a lot of dancing in my life. My first management job in Equinor or Statoil, as we were called back then was actually head of the corporate budget departments. I've been heading up more budget processes in my life than I want to be reminded about. I have done a lot of stupid things in my life, but I have learned.
All right, so much for wise people, imagine an organization that a hundred years ago invented a fantastic machine, state of the art and crucial for the success of this organization.
50 years ago, this machine started to make some trouble. And today this machine is completely broken. It looks like this. You will probably have understood that this is not the true story because in real life, people would have gotten together 50 years ago and done something here. Maybe try to fix it, or even better, try to invent a new machine because innovation is something we all love.
Innovation is great. Wonderful. We all want to be leading it, unique right there in the forefront, better than everybody else, but that enthusiasm for innovation seems to be limited through technology innovation, into products and services, but there is also something called management innovation that we should talk about today and exploring new ways of leading and managing and management innovation, that seems to be scary. Kicking out the budgets. Are you crazy? The consequence is that it's very crowded on the left-hand side, everybody is into this kind of innovation in some form or shape.
Management innovation on the other hand is not yet the crowded place because they're scary, but this is actually good news for brave companies who dare to explore, to embrace also this kind of innovation, because you can get just as much competitive advantage out of management innovation, as you can get from technology innovation. There are companies out there who openly state that we have no advantage whatsoever in what we produce, what we sell, we find that in the way we lead and manage. So you can get competitive advantage from it, better performance, defined in the right way.
This performance word is important. That is the reason why we should go beyond budgeting because it is good for performance, it's proven.
So I will talk more about that important word in a minute, but before that, it is still called Beyond Budgeting. It has something to do with budgets and budget problems. So I'd like to share quickly with you my budget problem list to see if you are in the same place here. Quite a long list. It's a very time consuming process. And by the way, when I'm talking budgets here, it's not just project budgets, cost budgets, it's profit and loss budgets, cash flow budgets, and all company budgets. So very time consuming making budgets, following up budgets, assumptions quickly outdated, we all know about that. This is a serious problem. Budgeting can stimulate what I would call unethical behaviors. The low-balling, the gaming, the sandbagging, the resource hoarding, the internal negotiations. Big problem.
At the same time, I'm not necessarily blaming people behaving like this because they are simply responding to the system we have assigned them to perform within. So this is not about fixing people and their behavior. It's about changing systems, which again changes behavior.
Budgeting can create illusions of control as we just talked about. Of course it feels comfortable to have next year described with a million details and decimals but again, the only thing we know is that we don't know, and if we don't have control, however we define that word, it's better to acknowledge, accept that we don't have control and act accordingly than to think that we have control and act accordingly.
Budgeting forces us to make decisions too early. We have to decide in the autumn, the year before what we shall do next year, what it shall cost [00:43:00] and in big companies, too many of these decisions are taken too high up. It doesn't always improve the quality of these decisions.
Budgets can prevent us from doing stuff that we should have done, but we can't because it's not in the budget, but this also works the other way around. It might lead us to do things that we maybe shouldn't have done, but it is in the budget and it is spend it or lose it, you know the game. And linked to this, I accept that the cost budget can be a very effective ceiling for cost, but let's not forget that it is just as effective as a floor in the sense that these budgets tend to be spent and I think we all know why as we just discussed.
To define good performance as hitting the budget numbers is very often a narrow mechanical way of defining good performance. We need a richer, broader, and more intelligent performance language.
I have been sharing these problems with hundreds of thousands of people around the world in the 25 years I've been working with Beyond Budgeting and most people out there agree, including executives, managers, finance people. At the same time, most organizations out there still do this stuff, which is interesting. I have a theory for you in a minute, but before that, I'd like to add on one problem that not too many have on their list, I've called it conflicting purposes.
I'll come back to it. It's a special problem because it's both a problem, but it also presents a solution and a way out on many of these problems. But again, how come so many companies still continue doing stupid stuff even if things are changing these days?
It could be that these problems are perceived more as irritating itches and not symptoms of a bigger problem, but that is exactly what they are, symptoms of a huge problem, which is also a paradox because here we are looking at a process invented roughly a hundred years ago. It's pretty old management technology we are looking at. And in case you don't know the inventor was Mr. James O. McKinsey. I never met Mr. McKinsey, but I don't think he was an evil man. I actually think he had the best of intentions. He wanted to help organizations perform better. And I think it probably worked well a hundred years ago, maybe even 50 years ago, but no longer today, because today things have changed.
Today this way of thinking, this way of managing, it's doing exactly the opposite. It has become more of a barrier than a support for getting out the best possible performance. And that my friends, I would call a pretty big problem, but we are back to this important word "performance", and for a few minutes, I'd like to reflect on that word in a slightly different setting than for our organizations.
I would like us to move into traffic because in traffic, when we are all driving, we also want to experience good performance. And for me, that would be a safe and good flow.
This is often something we meet, put up by traffic authorities to make that happen. This traffic light has no sensors which means that the one who makes decisions here about when you can drive, when you have to stop, is the one who programmed this light, and that person would not be in the situation when you sit there waiting.
And the information this programming would be based on, would not be entirely fresh information when you sit there waiting for obvious reasons. Fortunately, there is is another solution with exactly the same purpose, but a much better solution.
The roundabout, because here we, as drivers are in control, we make decisions. And the information we use is fresh, real time information. So there are different answers to the same questions. It could be interesting to compare a bit more, these two ways of managing and here, I've got a few leading questions for you.
It's proven scientifically that the roundabout is not just more efficient, it's actually also safer, but we also know that the roundabout takes more competence from everybody involved and going back to our organizations, I think we all know that what we need to leave behind of traditional management is in many ways, much easier for everybody involved compared to what we need to move towards. This takes more competence from us, especially on the leadership side, but we can't go for what's easy because it's easy. We have to go for what's best for performance, even if it takes more from us.
If there is a value set among drivers waiting for that green light, which is about me first, I don't care about the rest. Typically not the problem, or normally not the problem in front of that light, hopefully overruled by red, but in the roundabout, me first don't care about the rest is a big problem because here you're much more dependent on everybody involved sharing a positive wish or purpose of wanting this to flow well. We have to help each other. We have to interact with each other in a very different way than what we need to do in front of that light. Two other important words here. Trust is obviously one, in front of that light we are not trusted, in the roundabout we are. Transparency also relevant and important here. In the roundabout, because then in the roundabout, we need to be able to see everything, but in front of that light, the only transparency we need is the ability to see the color of the light.
I'm quite sensitive to words in the topic we are talking about today, and there are some words in the corporate vocabulary that I don't like very much, some labels. One of those is performance management. I find it quite negative because what you basically are saying is that if we don't manage your performance, there will be no performance.
I also think there is some illusion into this. I think our ability to manage performance in today's people and business realities is actually quite limited compared to what people often like to think as executives or finance people or managers. But performance management as a label, it makes sense when we talk about the traffic light, because that is exactly what traffic authorities are doing, managing performance very directly.
In the roundabout however, it is about something else. Here, it is more about creating conditions for great performance to take place. It is about enabling performance and not managing performance and this is more than playing with words. These are two fundamentally different angles into addressing that important question: how do we get the best possible performance in our organization? And I don't think you will be surprised if I say that Beyond Budgeting is not about managing performance, it is about enabling performance.
The roundabout is a more self-regulating way of managing and self-regulation is another important word here. Today organizations need more self-regulation, regulating management models for at least two reasons. First our business environment, with all the VUCA out there, the volatility, the uncertainty, the complexity, the ambiguity. I'm almost starting to get tired of that label, but I guess it still works.
If we take that VUCA label seriously, it must have implications for how we design our management models compared to if there is no or little VUCA out there. Quite obvious. The other reality we need to reflect on, it's not external, it's internal, has to do with people, asking ourselves what kind of people do we generally believe that we have in our organization?
And I guess you're all familiar with theory X and theory Y. These two opposing views on people and what motivates people, Douglas McGregor. As theory X views most employees as a bunch of potential thieves and crooks and unless we all keep them on short leads and micromanage them, they will all run away and do a lot of stupid things and spend money like drunken sailors.
If you read his book, you won't find those words in this book, but I think that's what he meant. Then you have theory Y, this much more positive view on people. The view that most people, most employees actually want to do a good job. They want to perform. They want to be involved, they want to be listened to, they want to be treated as adults. And we don't need to agree so far on where our sympathy lies X or Y, even if I have a certain hope, but it should be very easy to agree that if we mainly believe in X, our management model should look very different compared to if we mainly believe in Y.
If we combine these two dimensions, it could look like this and you recognize the two. Traditional management lies in this lower left hand corner with a conscious or unconscious assumption that the world is still a stable and predictable plan or a place and most people are on the X side.
If we disagree with that, now this is not the place to be. Then we need to move up in that upper right-hand corner by addressing both leadership horizontally and our management processes vertically and what we need to get out of traditional management, that is something that's very rigid, detailed, annual, lot of Rules-based micro management, Centralised command and control, a lot of secrecy and a strong belief in sticks and carrots as ways to drive [00:52:00] performance. This, as you all know, it doesn't work anymore.
So what do we need to do then? On the leadership side, we need to be more purpose and values based and less rules based. There has to be more autonomy. There has to be more transparency, here comes that important word again. And in this context, transparency is good news for scared managers, afraid of losing control because transparency can actually be quite an effective control mechanism, a social control mechanism.
A little story here. The Swiss pharmaceutical company Roche, did a very interesting experiment a few years ago. Today they are, by the way, on a Beyond Budgeting journey, but in a pilot, they kicked out the travel budgets, all travel rules and regulations, and replaced it with full transparency.
So with a few exceptions, everybody could see everything. If you travelled, to where did you fly? sleep? eat? cheap or expensive? Open for your colleagues to see and vice versa. And guess what happened with travel cost in that pilots? Came down through very simple self-regulating control mechanism, this was about tearing out pages in that rule book, instead of doing the opposite.
One warning when it comes to transparency, it is a very powerful mechanism. It has to be applied with wisdom. If it becomes naming and shaming, it doesn't work. And we should always position transparency more from a learning perspective than from a control perspective, how can we learn from each other if everything is secret.
Last but not least intrinsic, as opposed to extrinsic motivation. And as we all know the most common way of motivating people extrinsically for today is individual bonus. And as you probably all know, there is no area where there's a bigger gap between what most research is telling us and what most businesses are practicing. I don't know if it's the mystery or if it's tragic or both, at least it's very sad.
Still a lot of organizations, they have the best of intentions on the people side. They write nice words. They say nice words, but it doesn't help to have these theory Y leadership visions if there are theory X management processes, which is the case in a lot of organizations. We need to change our management processes to better reflect our view on people, at the same time as we need to make these management processes more VUCA robust.
Here are a few headlines of what that might mean in practice. Very often the traditional detailed annual budget, it has to go because it represents so much of what we find in that lower left-hand corner. More specifically, when we set targets and goals to the extent we shall have them, we should be inspired by football, soccer, where it makes sense. I have yet to meet a football team saying that the most important ambition for next year or the ambition for next year is to score 42 goals and get 45 points. Those are budget goals, and they don't think like that. They think in terms of league tables, performing well against peers. And again, sometimes that thinking can be relevant also for organizations internally and externally. We need more dynamics into these processes. Why on earth shall everything circulate around the fiscal year, typically of January to December? We need processes that are more event driven, more business driven and less calendar driven.
And last but not least, when we shall evaluate performance, we cannot reduce that to comparing two numbers and then conclude And this, my friends was a crash course in Beyond Budgeting. This is what it is about, addressing both leadership and our management processes in order to become more adaptive and more human.
It is this simple and this difficult. Some organizations find, unfortunately that people, a leadership discussion if it's difficult. If that is the case, then you can still get many benefits out of working only on the management process side. But if you want the full benefit of this, you need to address both. That is why we so strongly recommend finance and human resources to work together on this, if they are the two kind of main functions leading this.
A number of companies are today on this journey in some form or shape. Here we are. Here are some of them and I could have talked for hours about fascinating management innovation taking place in companies here. We don't have the time. I just wanted to share with you two quick examples.
Let us start in Norway. Upper left-hand corner. You see a company called Miles, a Norwegian IT company with business in Norway, the Baltics, South Africa and India. Miles have no budgets, no targets. If you work for Miles, you can buy whatever piece that you want, as expensive as you want, replace it as often as you want. No PC budgets, you can attend whatever conference you want, as often as you want, wherever in the world, they have no training budgets but it's not an anarchy.
They have a very simple control mechanism. When you have bought that PC, when you have returned from that training, you need to post on the internet, what you did and the cost of it. So transparency is their only control mechanism. They are very happy. Just one small concern, could this control [00:57:00] mechanism actually be too effective?
Are people buying good enough PCs? Are they taking enough training? But if that is a problem, I think it's a luxury problem. And I'd rather encourage people to attend more conferences and buy better PCs than bang them on the head with a budget and say no.
The pioneer in the beyond budgeting movement is a bank, a Swedish bank. You see them at the top here in the middle called Handelsbanken, 700 branches in Northern Europe, quite big in the UK. This bank has no budgets, no targets, no individual bonus, just a lot of great performance. And they have been operating like this since 1970. So we have a nice long performance track to look back at, to see does this stuff work.
And it does. This bank has been performing better than the average of its competitors every single year, since 1972. This is among the most cost effective universal banks in Northern Europe. And this bank has never needed any bailout from the authorities because they messed it up. It can't be a coincidence. This radically different management model, a lot of autonomy, lot of transparency, lot of self-regulation and this sustained fantastic performance over such a long period.
This bank, and some other bank companies, inspired what became known as Beyond Budgeting in the late nineties. The Beyond Budgeting principles were actually formulated three years before the agile manifesto.
As you will see in a minute, there are many similarities here, but there was no contact between these communities at the time. That's fortunately changed.
These other 12 Beyond Budgeting principles. Six on leadership and six on management processes. What is said on leaderships here is not necessarily that unique and many other movements, communities say similar things, but very often they haven't reflected on what kind of management processes are needed in order to activate and make these leadership principles credible.
And likewise, there are some nice management models out there, but they have not reflected, not sure what kind of leadership is needed to activate this. So we are very focused on creating coherence between what is said and what is done in organizations, a classical example of the opposite. It doesn't help that we talk loud and warm about how fantastic people we have on board and we will be nothing without you and we trust you. But not that much. Of course we need detailed travel budgets. Are you crazy? Hypocrisy is what I call it. Poisonous arrows between what we say and what we do. Very important to close those gaps. These principles are principles. This is not the management recipe. What this should mean in an organization, depends on that organization's business culture history. And again, that is the way it should be. I know that some companies, and by the way, when it comes to these management processes, I will elaborate a little bit more on some of them on the next slide, but I know that some organizations, and some people, especially finance people find these principles a bit big. This model, a bit big, a bit scary, if that is the case, good news, there is a simple way of getting staff that later can take you into these discussions.
It is about asking ourselves what is the purpose of a budget? And a budget actually has three different purposes. Companies make budgets to set financial targets, sales targets, production targets.
At the same time, that budget shall be a forecast of what next year's profit cashflow can look like. And last but not least, this is a resource allocation mechanism, handing out stacks of money to the organization. And it might seem very efficient to solve all three in one process, one set of numbers.
But that is also the problem because, let me illustrate with an example, we are moving into a budget process and corporate finance want to understand next year's profits. They start on the revenue side. They ask responsible people, what's your best numbers for next year, but everybody knows that the numbers and revenue I'm sending upstairs will come back to me as a target for next year maybe with a bonus attached. That insight might do something to the level of numbers submitted, moving to the cost side, investments, operating cost, asking people for the best number. I'm sure there are some smiling faces after but this is not funny. It's actually a big problem. Not just because it destroys the quality of numbers, but also because it stimulates this unethical or undesirable behavior that we talked about earlier.
Fortunately, there is a very simple solution. We can still do all of these three things, but they should be done in three different processes because these are different things. A target is an aspiration, what we want to happen, while a forecast is an expectation, what we think will happen, whether we like what we see a lot. Brutally honest, expected outcome.
And last but not least resource allocation is about optimization of scarce resources. And because we have separated, then target can now for instance be more ambitious than the forecast, which it often should be. But more importantly, we can now start to improve each one in ways impossible when it was all bundled in one process and one number on the left-hand side.
Now we can do great things to target setting. We can do great things to the forecasting process, getting rid of the politics and the gaming and we don't need a million details and we can invent much better and more intelligent ways of managing cost than what Mr. McKinsey could offer us a hundred years ago.
And last but not least, then we can organize each one of these on a rhythm that better reflects each purpose here, but also the type of business we are in. I'm sure that most of you are curious about how you manage cost without the budget.
I don't have time for the long version, but a quick example from Equinor. Equinor does not have a detailed annual investment budget where you sit in the autumn of the year before and decide everything, this is exactly how much we shall invest and then split exactly on these projects. And then you hand out these stacks of money to the projects for next year.
Instead there's a process based on the following principle, the bank is always open. The line can always forward a project for approval. Yes or no depends on two things: how good is your project? And can we afford it as things looks today? So this is Beyond Budgeting's versions of continuous delivery, not of software functionality, but of decisions and resources. So we're not a similarity between the two concepts.
All right, let me finish off with ambition to action in Equinor, and this is it in a nutshell, coming from an oil and gas history, but moving heavily into renewable energy. And Ambition to Action model in Equinor has three purposes. It's about translating strategy. And also we just integrated risk management. It's about securing agility and last but not least activating important values and leadership principles.
These are the steps in the process, translating strategy into strategic objectives, more on words than on numbers, then what are the risks of not achieving these objectives, other types of risks that we need to address, then it's time for actions.
What kind of actions do we need to move towards these objectives to mitigate risk? And what are the cons expected consequences of these actions expressed as forecasts. Then there's time for measurements. Measuring that we are moving towards these objectives. And the reason we've called these indicators and not KPIs, is to remind ourselves and everybody else that the I in KPI stands for indicator.
They are just indicating something. They are not necessarily, or maybe never telling the full truth. They are not called KPTs key performance truths. They are called key performance indicators and we must never forget.
Last, but not least, what does all of this mean for you and me and teams we are in? So now we are into the HR process and here is an example of activating, maybe the most important principle in Equinor, namely that how you deliver is as important as what you deliver and with how we deliver, we talk about the values in the company. And the weighting between these two in all consequences for your career is 50. And your pay is 50 50.
Here's an example of an Ambition to Action, a screenshot from the system where they lay. They all start within ambition statements. This is a corporate version and you see the first four steps from the previous slide and then the HR process following on and behind each red arrow, five perspectives.
Yes, we want to create value, as expressed at the bottom that can never happen unless we do well towards markets and customers, which will never happen unless we do well on operations, internal operations, which will never happen unless we do well on people in the organization. And in our company's case, safety, security, and sustainability.
Today, there are around 900 of these in the organization. And two important messages. The way alignment is created is not through top-down cascading because top-down cascading easily destroys everything related to ownership and motivation commitment and if that walks out the door, it doesn't help the numbers add up.
So instead alignment has created what is called translation, which means that when a unit here, because this more or less reflects the organizational structure, it might seem deep, but it lies about the low power distance, about all the collaboration. So don't be fooled by what might seem like a deep structure.
But translation is when a unit here, either make a new Ambition to Action or update the existing, it would look around, one level up, maybe one further up all the way to corporate left and right if relevant. And then the team has deep and good discussion, what should our Ambition to Action look like in order to support those we have a relationship to?
If that translation should go wrong, of course, the level of both should be what they are paid for, but it's not the problem and the main reason, transparency. All of these Ambitions to Actions are open, accessible for all employees, no place to hide, with a stupid Ambition to Action.
Couple of exceptions. It could be sensitive information or confidential that has to be closed, but people understand that. When it comes to rhythm, then these teams can in principle change whatever they want on their own ambition to action. When stuff happens, change their forecasts when things happen, change strategic objectives, strategic change, action changes continuously. They can even change their targets. If a target has lost its meaning, impossible to achieve or become a piece of cake.
So as little as possible on kind of predefined frequencies when things are updated. So a little bit back to the roundabout thinking, we would like this to run a self-regulating as possible and the less corporate needs to do here, the better. Corporate shouldn't abdicate, intervene if needed, support if needed, but the intention here is to let all of these teams experience and perceive Ambition to Action as something they mainly have in order to help themselves to run their own business and not as corporate controlled, very important ownership.
Last but not least, my last slide here, the holistic performance evaluation. A very important part of the model. And holistic here means two things. First of all, the 50 50 as I just talked about between what and how. Holistic also means that when we shall evaluate what has been delivered in business terms, that shall be an evaluation against the whole Ambition to Action and taking new information into account. We can't just look at the colour or add up the number of red and green indicators and then conclude, we need to look beyond measurement, behind measurement because these are indicators only, and this is done by pressure testing. For instance, I see that this indicator is green, but have we really moved towards that objective? When we look at what measurement didn't pick up, how ambitious were those targets? Should we punish someone, a team that stressed themselves, set themselves an ambitious target, didn't make it and reward somebody doing the opposite? Has there been significant changes in assumptions? Head wind, tail wind that we should take into account?
How were risks handled and what's the sustainability of what you have delivered? Or did you do some interesting things in December in order to make things look better? And the purpose of this evaluation has not changed over the years. The balance between the two hats, it's about learning and development mainly, but also about rewards. And that link to the rewards has actually been weakened over the years. Some years ago, there was a five by five matrix here with some mathematics about where you ended up in the matrix and the reward implications. It's gone. Nobody liked it. So now there's even more assessment than what was the case before.
Again, a very important part of the model. This is what I wanted to share with you. Here are my coordinates. If you want to follow me on Twitter and LinkedIn, I only write about this stuff. There are no cats and dogs and grandchildren I promise. Check out the Beyond Budgeting Round Table. And again, if you're interested my website and what you've heard was the very rushed version.
I'm sorry about the rush here. It's a big story. You heard the short version, this is the long version and here is more about everything including more on problems, more on cases.
And with those words I'm stopping.
Nader: Thanks very much for that. It's a big topic as obviously you know it better than me for sure. It was good. I think we got a good flavor of what it is and it's all good ideas.
They are simple, but they're not easy to do that's the thing.
Bjarte Bogsnes: If I could comment on that, the changes and what we do here is not that difficult. Changes in how we think that is the challenging parts.
Nader: Yes. Thank you.
I think we have questions. Let's just see what we have here.
I think we've got a comment here Beyond Budgeting seems interesting at lower internal level.
Bjarte Bogsnes: It's a good question. And we get that a lot, Equinor is a listed company, and with that separation of the budget purposes, the company has very good internal forecasts that can form a basis for communication with the external market.
If you use a budget as the basis for that communication, you don't know how biased that budgeting is in which direction. So this is good news for any communication with the market and investors, the market after has never been a challenge, the issues and challenges that we've had, they have all been internal and they are sitting up here between the ears of people.
So I understand the question, but it's not a problem. Not at all.
Nader: There's another question as well from David.
Bjarte Bogsnes: Yeah, good question. I've actually written an article. You'll find it on my LinkedIn account about OKRs from the Beyond Budgeting perspective, there are many similarities between Ambition to Action and OKRs, and I like OKRs as such. Again, but still it's no silver bullets.
There's no silver bullet. I have a few issues. OKRs combines, in key results you combine actions and indicators and targets, right? And we think these should be separated like we do in Ambition to Action. And also that seems to be an underlying assumption, I might be wrong that everything can be measured and I would challenge that as well, but beyond that, a lot of similarities with the translation, with the transparency, with the dynamics and so on. But the problem in most organizations is they have OKRs and they have budgets. And what happens when there's a conflict between the two, well I know, the budget always wins.
So if you want to show to the organization that you're serious about OKRs, you have to kick out the budget.
Nader: Super answer! Thank you.
Bjarte Bogsnes: Feel free to reach on out on those coordinates as well if you want to, if something pops up later. This is a message I often leave to especially finance people. So it might not be that relevant to you guys, but still I often say that what I've been talking about now, it will happen.
I don't care if it will be called Beyond Budgeting or business agility or whatever. There are many labels out there, but it will happen. And I'm convinced that in 15, 20 years time, when we look back at what was [01:12:00] mainstream management in 2021, we will smile even have a laugh, just like we today smile about the days before the internet and how long is really that.
And as organizations as companies, we have a choice we can choose to be Vanguards early movers, which gets competitive advantage out of this or we can choose to be dragged into this as one of the last ones. I think that should be an easy choice. Thank you very much.
Nader: Thank you. It was great listening to you and thanks for the time and the presentation. Bye. For now.