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Beyond Budgeting - Creating High-Performance Organizations for Today’s Markets - a seminar with Niels Pflaeging, organized by UNIstrategic (Kuala Lumpur/MA)
1. Beyond Budgeting:
Creating high-performance organizations
for today's markets
How to achieve sustained competitive advantage in the corporate race -
without fixed targets and annual planning!
Kuala Lumpur, 03.-04. May 2011
Niels Pflaeging
[ BBTN Associate & Presidente MetaManagement Group
Niels Pflaeging ]
BetaCodex Diálogo CFO www.betacodex.org
Econique – Network
18/19 de Mayo 2009
4. Industrial age ends: Knowledge economy advances:
high ”Supplies have the power“, ”Customers have the power“,
Evolution of mass markets: strong competition, individualized demand:
Taylorism as the superior model decentralized and adaptive model is superior!
Now, all these factors
are equally important!
Here, only efficiency Competitive
mattered, really! Characteristics success factors (CSF)
Dynamics 1. Discontinuous change - Fast response
and 2. Short life cycles - Innovation
complexity 3. Constant pressure on prices Operational excellence
-
Characteristics
4. Less loyal customers - Customer intimacy
• Incremental change
• Long life cycles 5. Choosy employees - Great place to work
6. Transparency, - Effective
• Stable prices
societal pressure governance
• Loyal customers
High financial - Sustained superior
• Choosy employers expectations value creation/fin.perf.
• „Managed“ results
low
1890 1980 1990 2000 2010 2020
Most organizations still use a management model that was designed 2030
for efficiency, while the problem today is complexity.
4
5.
6.
7. “command and control“
• Too centralized
• Too inward-looking
• Too little customer-oriented
• Too bureaucratic
• Too much focused on control
• Too functionally divided
• Too slow and time-
consuming
• Too de-motivating
• …
7
10. Periphery
Center
Information Decision
Command
Impulse Centralist command and
Reaction
control “collapses“ in
increasingly complex
environments
Source: Gerhard Wohland 10
19. Do you BELIEVE in Theory Y?
Firmly?
Good. Because we are sure then you would never, ever
practice (or support, or tolerate) HR processes and tools
that treat people like children, or animals, or worse. Right?
Such as performance appraisals, individual target setting,
incentive compensation, meritocracy, or control of work-
hours…
25. Sciences: Practice:
Thought leaders Stafford Beer Industry leaders
Margareth Wheatley
(selected) Niklas Luhmann (selected)
W. Edwards Deming
Kevin Kelly
Ross Ashby
Joseph Bragdon
…
Douglas McGregor
Chris Argyris Complexity
Jeffrey Pfeffer
Reinhard Sprenger theories Industry
Stephen Covey
Howard Gardner Social
Viktor Frankl
… sciences and
Retail
HR
Peter Drucker
Tom Peters Leadership & Services
Charles Handy change
John Kotter
Peter Senge
Thomas Davenport Strategy & Governments
Peter Block Performance & NGOs
… management
Henry Mintzberg
Gary Hamel
Jeremy Hope
Michael Hammer
Thomas Johnson
Charles Horngren
…
25
26. Industry
Retail
Services
Governments.
& NGOs
26
27. The BetaCodex: The 12 new laws of Leadership
§1 Freedom to act Connectedness not Dependency
§2 Responsibility Cells not Departments
§3 Governance Leadership not Management
§4 Performance climate Result culture not Duty fulfillment
§5 Success Fit not Maximization
§6 Transparency Intelligence flow not Power accumulation
§7 Orientation Relative Targets not Top-down prescription
§8 Recognition Sharing not Incentives
§9 Mental presence Preparedness not Planning
§10 Decision-making Consequence not Bureaucracy
§11 Resource usage Purpose-driven not Status-oriented
§12 Coordination Market dynamics not Commands
27
29. Traditional model (supports efficiency) New model (supports complexity)
Centralized Decentralized
hierarchy, network,
“command “sense
and control” and respond“
The old model is not
aligned with today’s
Critical success factors and
it does not support ‘Theory Y’.
> We need a new Relative
strategy model to cope with performance
complexity contracts
> We must change
the whole model!
Fixed
performance
contracts Dynamic
coordination
Fixed processes Dynamic
processes
control
29
30. The BetaCodex:
Thinking and working
on the model,
not
in the model.
35. • Consistently successful, for more than 40 years
• “Most innovative company in the U.S.“
(Fast Company)
• For the 8th year in a row among the 100 best employers in the
U.S. (“Fortune“ – best medium-sized employer).
Best employer in England for the third consecutive year.
Among the best companies to work for in the EU and Germany.
• All employees participate in the firm´s success and become
“virtual“ shareholders.
• No job titles. Little hierarchy.
No job descriptions - instead: “job sculpting“.
• Highly empowered teams. “Temporary leadership“
• “Since 1958, Gore has avoided traditional hierarchy. Instead, we have practiced a
team-based environment that stimulates personal initiative, innovation and
communcation between all our Associates.”
• “The fundamental belief in the people in our organzation
and in their ability continues to be the key to our success.“
35
54. 1 very simple principle:
Always disconnect compensation from targets.
Always.
54
55. Pay-for-performance is an outgrowth of behaviorism, which is
focused on individual organisms, not systems - and, true to its name,
looks only at behaviors, not at reasons and motives and the people who
have them.
I tell Fortune 500 executives (or at least those foolish enough to ask me)
that the best formula for compensation is this: Pay people well, pay them
fairly, and then do everything possible to help them forget about money.
How should we reward our staff? Not at all! They are not our pets.
Pay them well, respect and trust them, free them from disturbance,
provide them with all available information and support to perform
on the highest possible level. Alfie Kohn, Sociologist
1. Pay people well
2. Pay people fairly
3. And then do everything possible to take money off peoples minds!
All pay-for-performance plans violate that last precept!
56. 1 very simple principle:
Never use bonuses and incentives.
Apply profit sharing and/or shareholding concepts
for community.
56
57. 1 very simple principle:
Pay the person. Not the position.
Always.
62. A small elite governing the
powerless masses. An economic
system held together by tight
planning, and control. Mistrust in
entrepreneurial initiative.
Those were key features of the
soviet union.
Now guess where this kind of
governance remains in place
today: It is the worlds
corporations and small to large-
size firms. It is just that we call
the practice “management”.
Apertura
62
80. More about devolved leadership
• Devolution, like delegation, is a form of decentralization. While delegation occurs when a superior
decides to pass a power, responsibility or task to a subordinate, devolution occurs when a board
(or equivalent) decides as a policy to empower a lower level in an organization.
• Devolution is therefore more permanent than delegation. It involves structural changes that impart
a greater degree of autonomy (Greek: self governance). Devolved Leadership means
decentralizing decision making authority to teams at as low a level in the organization as possible.
The aim is to enable everyone to think and act like a leader.
• It is likely to require changes in organization, and for people to acquire new capabilities. It will
usually involve decentralizing activities in order to provide teams with greater autonomy, but it
does not mean that all activities must be decentralized.
• Under Devolved Leadership, activities may be centralized or decentralized. As a rule
decentralization of activities is preferred because it leads to better customer service and reduces
organizational complexity, but it does not preclude centralizing activities if doing so will make
significant cost savings or enable more specialist expertise to be retained, and these benefits
outweigh those of greater autonomy.
• However, what has to change under Devolved Leadership is the relationship between units.
Power must be given to the customer, whether external or internal. Suppliers must respond to the
needs of their customers, not be driven through a functional hierarchy.
• The result is that the organization becomes flatter. It can then act as a network of autonomous
units, each unit adjusting continuously to the needs of its customers (internal and external),
thereby enabling the whole organization to become more adaptive.
81. The notion of
dividing an organization
into functions,
and then departments,
is fundamentally flawed.
But what is the alternative?
93. “I don´t know if it is possible.
What I know: It is necessary.“
Tom Peters
Today we already know for sure it is possible.
And we have also learned how it can be done.
93
96. Make it real!
www.betacodex.org
A selection of associates:
Silke Hermann Niels Pflaeging Valérya Carvalho
silke.hermann@ niels@betacodex.org valeria@betacodex.org
insights-group.de nielspflaeging.com Betaleadership.com
Wiesbaden–New York São Paulo-New York-Wiesbaden São Paulo
Walter Larralde Sergio Mascheretti
wlarralde@ s.mascheretti@
on-strategy.com.mx itmconsulenza.it
Mexico City Bergamo/Milan