Why did I chose this resource?
I chose this resource because we are formalizing and institutionalizing professional Finance & Accounting processes in our company. We expect to use Finance and Accounting metrics to help us understand where we have been, where we are (in terms of products sold, units produced, etc.), where we want to go.
What did you learn from it?
I learned that traditional forms of budgeting that emphasize setting hard and fast goals, e.g., we must meet X dollars in revenue by Y time period, or we must achieve Z quota, can lead to fraudulent behavior as individuals / groups fudge numbers to meet year end quotas. The process is burdensome and expensive. Finally, the traditional budgeting approach is out of touch with the current competitive environment. The current competitive environment is dynamic and able to adapt to change. So, too, should the budgeting process be.
- Build a governance framework based on clear principles and boundaries.
- Create a high-performance climate based on the visibility of relative success at every level.
- Provide front-line teams with the freedom to make decisions that are consistent with governance principles and strategic goals.
- Place the responsibility for value creating decions on teams.
- Focus teams on customer outcomes.
- Support open and ethical information systems.
To take advantage of a decentralized budgeting approach, managers must AVOID:
- fixed performance contracts
- command and control management
- dependency culture
- central resource allocation
- multilayered functional heirarchies
- closed information systems
How are you using what you learned?
We currently tie rewards to past performance. We will continue to do this. We are utilizing clear principals to guide our actions. We’re small enough that there is not a need for proactive empowerment of front-line teams, because we are all on the front line. The first objective is for us to institutionalize Finance and Accounting principles, and then incorporate these ideas into our daily finance and accounting routines.
- Set stretch goals aimed at relative improvement (using leaders in our industry as the standard)
- Link evaluation / rewards based on hindsight, not projections
- Action planning should be continuous and inclusive
- Make resources available
- Use customer demand as the driver of company actions
- Everyone in the company should understand corporate strategies and how their role in it
- Establish benchmarking models
- Understand how profitable we are when we meet customer needs (reporting)
- Utilize enterprise information systems and rolling forecasts
- Name : Beyond Budgeting
- Author : Jeremy Hope and Robin Fraser
- Summary.com: Link to Summary