Bjarte Bogsnes

Bjarte Bogsnes has a long international career, both in Finance and HR. He is Chairman of 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 twenty years long Beyond Budgeting journey. Statoil has opened up for Bjarte to undertake select external consulting work.

 

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The Statoil Performance Framework – the journey continues

By Bjarte Bogsnes, Senior Advisor Performance Framework at Equinor (formerly Statoil), and Chairman Beyond Budgeting Roundtable

Welcome to this blog series, where I look forward to share with you some of my reflections on what I believe are very important issues for most organisations today.

I would like to start with some stories from employer Statoil, where I have been heading up our Beyond Budgeting journey since 2005. It is in no way over, and I wanted to share with you some exciting recent developments.

I continue with a blog about the many budget problems which everybody complains about, but which fewer seem to realise are about much more than irritating itches. They are symptoms of a serious and systemic problem.

The next blog will be about the “The Rolling Forecasting trap”, where I have some urgent advice about how to get this process right. We continue with a blog about one of the most asked questions when managers hear about Beyond Budgeting; “How do I manage cost without a budget?”. There are some very good and comforting answers to that question. The next one will be about how to escape the straitjacket of the calendar year in favour of a more dynamic and business/event-driven rhythm in our management processes. Then over to what many experience as a main barrier for implementing Beyond Budgeting; the individual bonus.  Since we now are in HR territory, my last blog will address Finance and HR cooperation; is it time to join forces?

But back to Statoil. We are a Norwegian energy company with 20,000 employees in 36 countries and a turnover of around 60 bn. USD. The main activity is still oil and gas exploration and production, but the renewable energy business is increasing fast, preparing the company for a low carbon future. Statoil is the world’s largest operator in waters deeper than 100 meters, and has built on this competence to become a major player in offshore wind, which includes building the world’s first floating offshore wind farm.

Statoil hit the ground running in 1972. The young company had to catch up fast with international giants coming to Norway after significant oil and gas discoveries were made on the Norwegian continental shelf some years earlier.

The company grew fast. Young people were given huge responsibilities very early on in their career, including myself. Not more than a year after my graduation I was heading up the corporate budget department (interesting in itself, given my current Beyond Budgeting role!)

Those early days probably laid the foundation for Statoil’s strong innovation culture. The company is recognised for a range of different technology achievements, including subsea production, increased reserve recovery, offshore CO2 storage etc. Innovation did however not stop with technology. The company has also long been recognised as a frontrunner in management innovation, in exploring news ways of leading and managing in knowledge organisations operating in dynamic and uncertain business environments. A major step was taken in 2005, when the company abolished traditional budgets in favour of “Ambition to Actionis a management model heavily inspired by the Beyond Budgeting philosophy of autonomy, trust and transparency. In 2010 the performance process became even more dynamic when the calendar year was abolished where possible in favour of a more business- and event-driven rhythm.

Strategy, Finance and HR worked closely together during all these years to secure a performance process that was running seamlessly through all three areas. The need for Finance/HR cooperation will be the subject for another blog in this series.

Team, transparency and dynamics have for years been important elements in Ambition to Action. The HR process has evolved in the same direction, with a major step taken in 2017. The new People@Statoil process is much more dynamic. Goals are set and adjusted when needed, and can be shared. Feedback will be continuous and more peer-oriented, with a much stronger forward-looking development focus, building on peoples’ strengths. There will be no deadlines. The annual salary review will be even more assessment based, with performance being one of several drivers only.

Along the way, the label “Performance Management” was also challenged, due to its illusions of control and rather negative tone (“If we don’t manage performance there will be no performance”). 2017 saw the launch of a heavily revised and improved Statoil Book. This is our most important document, a little booklet spelling out what we believe in and how we work. The Statoil Book has a Performance Framework chapter, where Ambition to Action and People@Statoil is described. It talks a lot about enabling and developing performance, but Performance Management is gone. Finally!

Another important step has also just been taken on risk management. Statoil has long been a leading company also within Enterprise Risk Management. The process was however quite separate from business management taking place in Ambition to Action, with separate action databases, for instance. From 2018, Risk has been combined with Ambition to Action, all maintained in the same system, with integrated action management and a lot of other great new functionality.

In 2017 also saw the opening of another step in our journey. For years, target setting has been an important part of Ambition to Action. Since abolishing traditional budgets in 2005, a lot of effort was put into setting better targets. This resulted, for instance, in abandoning many absolute targets in favour of relative ones, on for instance corporate value creation, profit, production unit cost and reserve replacement KPIs. 

What is now on the table is an emerging discussion about having no targets. Targets can be highly problematic, especially those coming from above (as discussed in this article). We have therefore been encouraging the organisation to also use KPIs without targets, where these simply measure that we are moving in the right direction. Norwegian readers will understand the difference between målstyring and målestyring. We are however not yet looking at completely abolishing targets, like some others have done.

This discussion is a great example of Beyond Budgeting implementation being a journey and not a project, where the direction is clearer than the destination, if there is one.  We all get braver along the way. What is scary today will often be obvious tomorrow!

The article was first published in Prevero Blog

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Hitting the Target but Missing the Point

By Bjarte Bogsnes, Senior Advisor Performance Framework at Equinor (formerly Statoil), and Chairman Beyond Budgeting Roundtable

Myths about Target Setting during your Budgeting Process

The world of management is full of myths and rituals. Many seem to have been with us forever, often explained and justified as “we have always done it like this”. Some have a shorter history, often introduced because “everybody else is doing it”.

One of these rituals definitely feels like it falls into the first category. Target setting seems to always have been there. In most organisations, this is actually not true. If we go back 20-30 years, the situation was quite different. There were far fewer targets around. Yes, there were (and still are in many organisations) detailed budgets which often represented targets. These were mainly financial numbers, however. The birth of the Balanced Scorecard in the late nineties led to a massive increase in non-financial metrics, resulting not only in much more measurement through KPIs but also in much more target setting on these. This new way of managing later spread to the public sector, where “New Public Management” has also led to a massive increase in measurement and target setting.

Along the way, we seem to have forgotten that “the target is not the target”. It is not about hitting a number. What we really want is the best possible performance, given the circumstances. Setting targets are one way of achieving this, but not the only way and too often not the best way.

The target myths

Rituals aren’t necessarily a problem. Myths are different because they are typically not true. There are three strong myths surrounding targets, all seemingly undisputable justifications for this popular management practice.

  • Without targets people won’t know what to do
  • Without targets people will not be motivated to perform
  • Without targets we are unable to evaluate performance

These myths are, however, not just disputable. They are simply not true. Here is why.

Let me first make a clarification. The targets and the target setting I challenge here are numerical targets. They are very specific, different from more general ambition statements with rounded numbers; ”in the range of”, or “towards”. In addition, they are absolute, not relative where own performance is compared with others. They are typically set from above, in order to control, punish and reward. I have fewer problems with targets people set for themselves to learn and improve, although also these can be problematic if taken too literally.

“Without targets, people won’t know what to do”. Not true. Words can often address direction and expectations much more clearly and intelligently than what any single number can do.

“Without targets, people will not be motivated to perform”. Not true. Many, including myself, are much more fired up by the right words, igniting our hearts in a very different way than those clinical and decimal-loaded numbers which only reach our brains.

“Without targets, we are unable to evaluate performance”. Not true. This one might be the most solid myth to bust, so let us dive a bit deeper here.

No target - no performance evaluation?

A target is trying to describe what good performance looks like at one point in time down the road, for instance at year-end in the case of an annual target. This is often quite difficult, especially when there is a lot of uncertainty that we can’t control. Where is the market going? What will competitors do? And what about the oil price and exchange rates? We have to make a number of assumptions about all these uncertainties, forcing us to be quite subjective even if we don’t want to. But when we finally land on a specific number, the subjectivity seems to disappear. Now it has all become more orderly, and we can focus on measuring whether we are hitting the number or not.

What we have been through, however, is actually a premature performance evaluation, and quite a difficult one, due to all that uncertainty forcing us to make all those guesses. Wouldn’t it make more sense to do this job afterwards only, when all the uncertainty is gone? We then know what happened with markets and competitors. We know how the oil price and exchange rates moved, and a lot more. Why should we let a yardstick decided twelve months ago be the judge when we can now look at facts instead of basing us on all those guesses we made back then? Most of us know what good performance looks like when we see it.

Targets work. That’s the problem.

Many will still argue that target setting works. “What gets measured gets done”. Yes, targets do work. That is actually the problem. Managers hitting their target is, however, no guarantee whatsoever that this was their best possible performance, given the circumstances. Maybe some could have performed even better because assumptions changed. Others had a lot of headwinds and might have performed great even if they didn’t hit their target. But we only know this afterwards!

Targets are often expressed through KPIs. Those still insisting on setting targets should not forget that the “I” in KPI stands for “Indicator”. They are seldom telling the full truth, which probably is why they are not called “KPT”s; Key Performance Truth. We have to look behind the indications before we can conclude.

Zooming blindly in on targets can, therefore, be highly problematic, even dangerous, also when there is no change in assumptions. Volkswagen and Wells Fargo are recent and sad examples of blind KPI target management running the show.

A holistic performance evaluation

If we do set KPI targets, both the uncertainties discussed require that we take hindsight insights into account:

  • Indicator uncertainty - how big is the “I”?
  • Target uncertainty - what is the right number?

In addition, there are also other questions that should be asked in such a holistic performance evaluation. How did we achieve our results? Which risks were taken? How are sustainable the delivered results?

Some would argue that all this assessment on top of measurement makes the performance evaluation too subjective. They prefer the objectivity of only looking at actual versus target, end of story. But as we just have discussed, this is an illusion of objectivity, due to all the subjectivity going into target setting in the first place.

The longing for full objectivity might also have something to do with managerial laziness. It is obviously much easier to compare two numbers only and conclude. Making a deeper performance assessment by looking at what really happened and digging behind measured results in order to reveal the true underlying performance takes an effort. It takes leadership. Some find that cumbersome, even difficult. But we need leaders with competence beyond the ability to compare numbers. Leadership is not meant to be easy.

If you are new to, but intrigued by these reflections, you might wonder if it’s all nice theory and wishful thinking. It’s not. Many organisations have either skipped or never introduced targets. Check for instance out Handelsbanken or Miles, two great companies who not only operate without targets but also without most other management rituals, including budgeting.  

There is a better way!

P.S. Linking incentives like the individual bonus to targets will only turbocharge the many challenges described above. It also opens up another management myth; what is it that really motivates us? This topic is so big that it deserves its own article. Stay tuned!

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The Management Process Rhythm – from Calendar Driven to Business Driven

By Bjarte Bogsnes, Senior Advisor Performance Framework at Equinor (formerly Statoil), and Chairman Beyond Budgeting Roundtable

Bjarte Bogsnes has a long international career, both in Finance and HR. He is currently heading up the implementation of Beyond Budgeting at Statoil, Scandinavia’s largest company. Bjarte is Chairman of 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 twenty years long Beyond Budgeting journey. Statoil has opened up for Bjarte to undertake select external consulting work.

LinkedIn accounthttps://www.linkedin.com/in/bjarte-bogsnes-41557910/

There once was a Finance manager who met a fisherman. “Could you please tell me about your life and your work?”, asks the Finance manager. “Well, I am at sea for five months and then I am home for five months”, the fisherman responds. There is a long pause. Our Finance manager is thinking hard. Something is wrong; five plus five is only ten! ”So what are you doing in the two last months?”.

Yes, something is definitely wrong, but maybe more in the Finance manager’s head than with the fisherman’s work rhythm!

It is amazing to observe how the fiscal year totally dominates the rhythm in our management processes. It is equally amazing that so few question the practice. This happens even if January to December (or any other fiscal year period) is often a completely artificial construct from a business point of view. Business has its own life and its own rhythms. Even when there is a seasonality to it, as with winter sports or the ice-cream business, year-end divides the high (or low) season.

We know why: “It’s always been done like this”, or “Everybody else is doing it”. Another reason might have to do with the background of many Finance people working with performance management. They often have a statutory accounting history. Here, the fiscal year is not just less of an issue, it is a legal requirement. The problem arises when people bring their accounting background and mindset with them into business management. Decimals, precision, consolidation, reconciliation and repeatable structures no longer works very well when the focus is on a future with lots of dynamics and uncertainty and not on a past with none of it.

The myopic calendar focus can be stupid, or funny, or both. “Accordion” forecasting is a classic example. When the budget is made, we want to understand all of next year, twelve months ahead. But into next year, in the first quarter, nine months is enough, we can still see till year end. Then six months and then three months is enough, before we suddenly need to see twelve months ahead again (budget time…). 

An annual resource allocation is also meaningless. You might have heard it before, the unthinkable parallel to a bank telling its customers “we’re only open for business and loan applications once a year, in the autumn”.
 
Resource allocation must be more continuous and dynamic. A key concept in Agile software development is ”continuous delivery” of new functionality. The big old projects were too big one-off batches, forcing users to decide on all system requirements up front. It’s the same in an annual budget. It is a too big batch, with too many decisions made too early. 

The solution is simple. Where possible and meaningful, we must organise our management processes on business- and event driven rhythms.

  • Targets must have natural deadlines, short if urgent, longer if more complex. End of December should be the exception, not the rule
  • Forecasting must be dynamic or rolling 
  • Resource allocation must be dynamic and not an annual stunt
  • Performance evaluation must take place when work is completed

(There is more about forecasting and resource allocation in earlier blogs in this series)

Possible and meaningful is important. Sometimes, we have no choice but to comply with fiscal or annual periods. Even when we have a choice, it might not make sense.

Going dynamic is not just a Finance issue. It is just as relevant for HR. It is great to observe an increasing number of organisations going in this direction, including my own employer Statoil. For HR, it is about moving away from the annual stunts of setting goals and providing feedback/evaluating performance. This is being replaced with a much more continuous and natural rhythm, in the case of Statoil with no deadlines set for the process.

Note by the way that “more dynamic” does not necessarily mean “more often”. It means doing things at the right time, which can also mean less often than in a traditional rhythm.

The article was first published in Unit 4 Prevero Blog

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The Rolling Forecasting Trap

By Bjarte Bogsnes, Senior Advisor Performance Framework at Equinor (formerly Statoil), and Chairman Beyond Budgeting Roundtable

TrapBeyond Budgeting has now been around for twenty years. More and more companies across the world are embarking on a Beyond Budgeting journey, from global giants to smaller ones not yet strangled by corporate controls and bureaucracy, eager to protect their start-up agility as they grow. The financial crisis ten years ago was a stark reminder for many that businesses need something more agile and responsive than what traditional management can offer, including budgeting – a management technology invented a hundred years ago under very different circumstances.

Lately, after years of trying to scale Agile, “Business Agility“ has (finally) become a hot topic. Beyond Budgeting has been on this end of agility all the way back when Agile was only a software development thing.

The consulting businesses became interested many years ago. Some of the big firms are even active in the Beyond Budgeting Roundtable. I have always welcomed these guys to the community. We need them, just like we need academia and business schools onboard (which is also happening).

We need them, however, to come on board with a full and broad understanding of what Beyond Budgeting is. Those of you familiar with the concept, which we also call “the adaptive management model”, will know that it is about much more than budgets, as expressed in the twelve Beyond Budgeting principles:

Some find the model very comprehensive, almost overwhelming, given the way it addresses almost all issues that need to be on the C-suite agenda, from leadership to management processes. For the consulting business, this breadth of Beyond Budgeting represents a problem. They are typically called in to help organisations with more specific problems. Their projects are seldom about radically changing whole organisations, especially if that involves challenging fundamental executive beliefs.

Some consultants have therefore tried to “carve out” elements of Beyond Budgeting as a starting point for their clients. The classic example is “Rolling Forecasting”, where forecasts are updated typically every quarter and typically with a five-quarter rolling horizon. Actually, Beyond Budgeting does not specifically speak about Rolling Forecasting. Principle 7 and 9 recommend a dynamic, lean and unbiased forecasting process. Rolling Forecasting is one way, but not the only way, as we will discuss in another blog. I might, by the way, be wrong, but I believe Borealis was one of the first companies implementing such a forecasting process when we kicked out the budget back in 1995, before there was anything called Beyond Budgeting. At least, we had not heard of anyone else doing this. Fortunately, we avoided the trap described below.

Rolling Forecasting is a tempting place to start. Not scary, not challenging any executive beliefs, and something Finance is naturally in charge of. Unfortunately, it too often becomes a dead end, or at least a detour many find it hard to return from.

The simple reason is that the budget has three different purposes:

  • Target setting – what we want to happen. The budget works as a target for production, sales, profit etc., often coupled with bonuses.
  • Forecasting. The budget should provide insights into, for instance, next year’s expected cash flows and financial capacity.
  • Resource allocation. The budget hands out bags of money to the organisation, both opex and on capex.

This financial kinder-egg might seem very effective. Three purposes fulfilled in one process and in one set of numbers. But herein lies also the problem; the three do not go well together. How can an ambitious sales target also represent expected revenues? How unbiased is a cost forecast that is also a line manager’s only shot at getting access to resources for next year?

These conflicting purposes can only be solved by separating the three into different processes, allowing for different numbers. The separation opens up for exciting improvement opportunities within each process:

The problem with implementing Rolling Forecasting on its own is that it leaves an important question open; how will the two other budget purposes be solved?  When I ask this question to companies who are about to start in this “easy” way, I typically get one of these answers:

  • The Rolling Forecast will be used for target setting and resource allocation
  • We will still make annual budgets only for these two purposes

The first answer means that the company is implementing nothing but a rolling budget process. Four budgets a year. Much more work, and a lot of pissed off people.

The second answer implies less work, but also means that beyond the “forecasting against the December wall” problem, none of the many other budget problems are solved.

To make a long story short, separating the budget purposes can’t be a sequential process. It must all happen in parallel. When Rolling Forecasting is introduced, Finance must at the same time provide clear and credible answers on how targets setting and resource allocation now will be solved, separately from the forecast. If a Rolling Forecast becomes something to “deliver on”, or an application for resources, failure is just around the corner.

We have unfortunately seen this happen too many times. The consultants do not carry all the blame. Finance is often just as guilty. After reading this blog, you have no excuse for falling into the same trap!

 

The article was first published in Unit 4 Prevero Blog

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The Illusions of Control

By Bjarte Bogsnes, Senior Advisor Performance Framework at Equinor (formerly Statoil), and Chairman Beyond Budgeting Roundtable

FP&A Tags: 

control“Control” is an interesting word in the management vocabulary. It is a word many managers struggle with defining. Beyond “cost control”, most are quite vague when it comes to other definitions.

Oxford Dictionaries provides the following: “The power to influence or direct people's behaviour or the course of events”. In business terms this would mean

  • Controlling people
  • Controlling the future

Here lies the biggest problem with traditional management. It is based on the false, or at least outdated assumptions that

  • People can and must be controlled (or “managed”)
  • The future is predictable (or “manageable”)

Both are dead wrong. While "losing control" is one of the biggest fears in management, "having control" is one of the biggest illusions.

Let us start with people. They may seem controllable, and command-and-control might seem effective on the surface. But people are also smart. Most know how to find their way around rules and regulations if they don’t make sense. The consequence is bigger than ineffective controls. A much bigger problem is the impact on morale and motivation. If cheating the system is “how we do it here”, it is not only a sad use of people’s creativity - engagement and pride walks out the door. It is not a coincidence that engagement levels across organisations are scarily low.

Another huge problem is the effect on the quality of decisions. The further away decisions are made from the real work and where things happen, and the earlier they are taken, the more negative the effect. The traditional detailed annual budget is a prime example. Too many decisions are taken too high up and too early. The result is too often poor decisions with a negative impact on value creation.

Finally, let us not forget that control is expensive. Trust is free!

Let us then move to the future. The US baseball player Yogi Berra provided us with this wonderful statement: “If you don’t know where you are going, you might end up in a different place”. I will add that even if you think you know where you are going, you will most likely end up in a different place.

The future is uncertain. The only thing we know for certain is that we don’t know. Volatility, uncertainty, complexity and ambiguity levels are higher than ever. To assume that this future can be described with almost the same granularity as the past is meaningless. But that is exactly what happens. We are once again back to the budget. Revenues and resource needs are described with a detail level that almost resembles accounting. That detail level is fine and often required when describing the past, because the past carries no uncertainty. The moment we turn towards the future, we need to leave behind that accounting mindset. Unfortunately, this seldom happens because we don’t like uncertainty. It is uncomfortable to acknowledge that we don’t know. It feels almost irresponsible to stand in front of executives with such a message.

We need to stop fooling ourselves. We need to accept and embrace uncertainty. We also need to accept that trying to forecast the future is often about compensating for a lack of agility. The more responsive an organisation is, the less it needs the false comfort coming out of future accounting.

But we will, and we shall, “lose control”. We must lose all the bad controls we have just discussed. We shall however have more of the good controls. Transparency is a good example. It provides a social control mechanism. There is a reason why thieves and crooks prefer to operate at night. It is a simple and self-regulating control mechanism, which also can enable learning in organisations.

Let us close with another wonderful quote from our friend Yogi Berra: “The future ain’t what it used to be”!

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Author's Articles

May 7, 2019

There once was a Finance manager who met a fisherman. “Could you please tell me about your life and your work?”, asks the Finance manager. “Well, I am at sea for five months and then I am home for five months”, the fisherman responds. There is a long pause. Our Finance manager is thinking hard. Something is wrong; five plus five is only ten! ”So what are you doing in the two last months?”.

April 4, 2019

Beyond Budgeting has now been around for twenty years. More and more companies across the world are embarking on a Beyond Budgeting journey, from global giants to smaller ones not yet strangled by corporate controls and bureaucracy, eager to protect their start-up agility as they grow.

March 12, 2019
FP&A Tags:

“Control” is an interesting word in the management vocabulary. It is a word many managers struggle with defining. Beyond “cost control”, most are quite vague when it comes to other definitions.

January 24, 2019
FP&A Tags:

I belong to the rather small group of Finance people who also have worked in Human Resources. The four years I headed up HR in the petrochemicals company Borealis was a great experience (after heading up Finance where we kicked out the budget already back in 1995, another great experience!).

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