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Are Budgets Helping or Hurting Your Business? Bjarte Bogsnes Take with Beyond Budgeting · Budget Your Business

• 0:00
  SPEAKER_03: There is a concept based on a very simple principle which which we called the bank is always open.
• 0:07
  SPEAKER_03: Which simply means that the line can always forward a proposal for a project and ask for funding at any time.
• 0:15
  SPEAKER_03: The bank is always open.
• 0:17
  SPEAKER_03: Whether you get a yes or no depends on two things.
• 0:27
  SPEAKER_01: Let's get started with your host, Scott Geller.
• 0:30
  Scott: Hello, and welcome to budget your business.
• 0:32
  Scott: I'm your host's host, Scott Geller.
• 0:35
  Scott: And today I have Bearte Bosness, who is going to talk about a very interesting and endear topic to me.
• 0:45
  Scott: And that is a topic called Beyond Budgeting.
• 0:48
  Scott: Welcome, Biarte.
• 0:50
  SPEAKER_03: Thank you.
• 0:51
  SPEAKER_03: And thank you for the invitation.
• 0:53
  Scott: Absolutely.
• 0:54
  Scott: So I I started my career in some of the biggest corporations in the world, as well as the Federal Reserve, and was taught early on this once a year, October, September, or September to Octo November planning session, January through December, all finance.
• 1:11
  Scott: And then as I thankfully fell out of the corporate space into some smaller in the small business remote and then stayed there.
• 1:20
  Scott: I kept seeing the holes in that approach.
• 1:22
  Scott: And I kept seeing the problems that weren't solved or dressed because of this this traditional corporate approach.
• 1:32
  Scott: So I started to adjust how I looked at it and how I might attributed it.
• 1:36
  Scott: And then I came across beyond budgeting.
• 1:38
  Scott: And then it really, really kind of gave me a structure that I was able to start following more.
• 1:45
  Scott: And really brought up a lot of other ideas that I'm trying to incorporate with the businesses I work with and what I might talk about for budgeting.
• 1:54
  Scott: And that is more or less kind of what you're an expert at, Biorte.
• 1:59
  Scott: And that's what I'm really excited to talk about.
• 2:03
  Scott: But for folks that are meeting you for the first time, do you mind sharing a little bit about who you are and what you do?
• 2:11
  SPEAKER_03: Well, I'm uh more from a finance uh person as such.
• 2:15
  SPEAKER_03: I have a business good education and uh um I also have a long corporate career, which I actually ended not that long ago to be able to spend even more time working with Beyond Budgeting.
• 2:27
  SPEAKER_03: And um, for me, this all started actually 30 years ago before there was anything called Beyond Budgeting.
• 2:34
  SPEAKER_03: I worked in Europe's largest petrochemicals company called Buoyolis, and we got the chance to kick out the budget if we could find a better way, and we did, and it worked wonderfully.
• 2:46
  SPEAKER_03: And um, some years later uh I got the chance to do it again in a company called Ekfinor, used to be called Statoi, um, one of Scandinavia's largest companies, quite big in the US, by the way.
• 3:00
  SPEAKER_03: So it's an oil and gas company.
• 3:03
  SPEAKER_03: And um, so I was heading up that implementation.
• 3:07
  SPEAKER_03: This was uh 20 years ago, and um I worked for them for many years with the further development of the model, leadership training, and um also all the time doing external stuff like um keynotes, uh small-scale consulting on behalf of my employer, uh, writing books and so on.
• 3:25
  SPEAKER_03: That's basically my career.
• 3:27
  SPEAKER_03: I'm the chairman of the Beyond Budgeting Roundtable, which is an international network of companies and individuals interested in this.
• 3:35
  SPEAKER_03: And we actually just had our annual conference in Germany yesterday with a lot of fascinating cases.
• 3:42
  SPEAKER_03: I'm also one of the few finance persons that has worked in HR and this petrochemicals company where I'm heading up finance for some years after that.
• 3:51
  SPEAKER_03: I was heading also heading up uh human resources.
• 3:54
  SPEAKER_03: Not also, but and then I moved to HR.
• 3:58
  SPEAKER_03: And that was actually a wake-up call for me when it comes to the people and leadership side of beyond budgeting, which is actually an important part of this concept, as we will come back to.
• 4:10
  Scott: Yeah, I that that is that's not your usual role that you're all into.
• 4:14
  Scott: You hear CFOs going to operations, this the CEO every now and then IT, but uh not too often going to the HR.
• 4:21
  Scott: So I like that approach to it.
• 4:22
  Scott: And then and I'm definitely going to return to how this beyond budgeting is not just on the finance side.
• 4:29
  Scott: Um so this podcast is actually called budget your business with the understanding that it's not exactly what I want it to be.
• 4:39
  Scott: It's more of a financial planning for small businesses.
• 4:43
  Scott: At the same time, financial planning isn't exactly as well known as the term budgeting.
• 4:50
  Scott: So it kind of grabs people, they they understand what a budget is first.
• 4:57
  Scott: Now, you know, I I mentioned before, and it sounds like you know you don't really like that traditional budgeting.
• 5:02
  Scott: So, why why are you staging this fight against budgeting?
• 5:07
  SPEAKER_03: Well, you know, budgeting is hundred-year-old management technology uh invented by James O.
• 5:14
  SPEAKER_03: McKinsey, the founder of McKinsey Consulting.
• 5:17
  SPEAKER_03: Um, I never met Mr.
• 5:18
  SPEAKER_03: McKinsey, but um I think he had the best of intentions back then.
• 5:22
  SPEAKER_03: He wanted to help organizations perform better.
• 5:25
  SPEAKER_03: And I'm sure this stuff worked back then, maybe even 50 years ago.
• 5:30
  SPEAKER_03: But today, this way of thinking, this way of leading, this way of managing is doing actually the opposite.
• 5:35
  SPEAKER_03: It has become more of a barrier than a support for getting out the best possible performance in organizations, which is a huge problem.
• 5:43
  SPEAKER_03: And that is because the the assumptions behind all of this, and I would extend this to traditional management and not just budgeting.
• 5:54
  SPEAKER_03: The assumption behind there are two main assumptions.
• 5:56
  SPEAKER_03: First of all, that the future is predictable and uh manageable, and the second one is that you can't trust your employees.
• 6:04
  SPEAKER_03: And of course, if you believe that that is true, you should definitely continue with budgeting.
• 6:10
  SPEAKER_03: But um, those are the assumptions we challenge because I mean the world is not predictable and not very manageable, and we believe that the big majority of employees can be trusted, even um even if there might be a few bad apples.
• 6:25
  SPEAKER_03: So, and and if you agree with us on those two, well then it must have implications for how you design your management model.
• 6:34
  SPEAKER_03: Um, it has to be much more uh flexible, dynamic, adaptable, and also it has to um give employees and middle managers, the frontline managers, much more autonomy than they often get in in through traditional detailed uh top-down budgeting.
• 6:55
  Scott: Yeah, I and I like that the that thought process of it's not just the finance team working in isolation, you you involve the entire corporation.
• 7:04
  Scott: And and one of the part of the way you you you break it down is is into three components, which I'd like to maybe touch on.
• 7:11
  Scott: And that's that's the the target setting, the the forecasting, and the resource allocation.
• 7:17
  Scott: In in the term you use with the target setting, I I really like, and it's it's more of an aspiration.
• 7:24
  Scott: I think a lot of people think of no, the budget is set in stone, and if we don't reach it, it's a failure, and and there's no other options.
• 7:31
  Scott: But a target and even more so, aspiration, to me, those are very different words and different directions.
• 7:40
  Scott: Could you kind of explain that a little bit more?
• 7:42
  SPEAKER_03: Well, I I'll do that, but but let me first kind of explain why we talk about these three different things.
• 7:49
  SPEAKER_03: Because that goes back to asking ourselves a very simple question, namely, why do we budget?
• 7:54
  SPEAKER_03: And those are the three reasons why we make the three financial reasons why we make budgets.
• 8:00
  SPEAKER_03: I mean, we make budgets to establish targets, financial targets, sales targets, production targets.
• 8:06
  SPEAKER_03: So target setting is one purpose.
• 8:09
  SPEAKER_03: The other purpose is that we would like to understand what next year could look like in terms of uh profits, cash flow, and so on.
• 8:16
  SPEAKER_03: But that is more of a forecast purpose, right?
• 8:19
  SPEAKER_03: We would we would like to have a kind of what is the expected outcome here?
• 8:24
  SPEAKER_03: And the third purpose of budgeting is resource allocation.
• 8:28
  SPEAKER_03: We use this process to hand out backs of money on UPEX and CAPEX to the to the uh organization.
• 8:34
  SPEAKER_03: And it might seem very efficient to solve three purposes in one process and one set of numbers, but that is also the problem because what happens in practice when you move into a budgeting process in a large organization.
• 8:47
  SPEAKER_03: Let's assume that upstairs finance, they want to understand next year's profit cash flow.
• 8:52
  SPEAKER_03: So they start on the revenue side and ask responsible people what are your best numbers for next year.
• 8:57
  SPEAKER_03: But everybody knows that what I'm sending upstairs to finance will most likely come back to me as a target for next year, maybe with a bonus attached to hitting that target.
• 9:08
  SPEAKER_03: And we all know what that insight does to the level of numbers submitted.
• 9:12
  SPEAKER_03: Moving to the cost side, we ask the same people, other people, what are your best numbers for next year?
• 9:16
  SPEAKER_03: Everybody knows that this is my only chance of getting access to money for next year, and some might also remember that 20% cut from last year or in last year's budget process.
• 9:29
  SPEAKER_03: And that memory and that insight will also do something to the level of numbers submitted, and this way the numbers will tend to go the other way to make sure that you get enough.
• 9:38
  SPEAKER_03: And we might smile a bit about this, but this is actually highly problematic, not just because it destroys the quality of numbers, because you get polluted and biased numbers, but also because it stimulates the behavior that is at least borderline, unethical.
• 9:53
  SPEAKER_03: The lowballing, the gaming, the sandbagging, the resource holding, the frenzy December spending and so on.
• 9:59
  SPEAKER_03: I mean, these are not the kind of behaviors we would like to see between colleagues.
• 10:03
  SPEAKER_03: At the same time, I'm not blaming anyone for behaving like this because these people are just responding to the system that we have designed for them to operate in.
• 10:13
  SPEAKER_03: So if we want to change behaviors, which we have to, it is not about fixing people, it's about fixing and changing systems, which again changes behavior, and that is what Beyond Budgeting is doing.
• 10:25
  SPEAKER_03: And that is why we are separating these three purposes, so that we can improve each one in ways impossible when it was all bundled in um one set of uh numbers in one process.
• 10:38
  SPEAKER_03: So we can set targets in different, very different ways.
• 10:41
  SPEAKER_03: We can have a cadence on all of this that varies between target setting and forecasting and resource allocation.
• 10:48
  SPEAKER_03: You wouldn't change targets that often.
• 10:50
  SPEAKER_03: Um, forecasting should be changed more often.
• 10:54
  SPEAKER_03: Resource allocation, as we as we recommend, should be much more dynamic and continuous.
• 10:59
  Scott: And how do you find the right sequence of when you flow through these three components?
• 11:06
  SPEAKER_03: Well, um, one way of doing this is to say that we should first set our targets and do do that first.
• 11:14
  SPEAKER_03: Um, and having done that, then you can start running your forecasting processes, which could be on a rolling, it could be a rolling approach where you do it, for instance, every month, every quarter.
• 11:24
  SPEAKER_03: But every time you do it, you look ahead with a kind of similar period.
• 11:30
  SPEAKER_03: Because traditional forecasting is um is has a quite interesting rhythm because the closer we get to year-end, the less interested we become in the future until it's suddenly budget time, and then we want to understand 12 months ago.
• 11:44
  SPEAKER_03: So it's a kind of an accordion forecasting horizon, which I think is quite funny.
• 11:49
  Scott: January isn't going anywhere, right?
• 11:51
  Scott: Even though you keep planning to December, that first quarter is still gonna happen whether you're ready for it or not.
• 11:56
  SPEAKER_03: Yeah, yeah, yeah.
• 11:57
  SPEAKER_03: You know, I mean, so that's something we recommend on the cadence here, that where it's possible, where it makes sense, organize your processes here on a rhythmic which is more business-driven, more event-driven than calendar-driven.
• 12:11
  SPEAKER_03: Um, in some cases, you don't have a choice, you have to stick to the calendar year, but very often there is a lot of flexibility to have something that is more event-driven.
• 12:21
  SPEAKER_03: So you change stuff when things around you change, when there is a war, when there is uh you know, whatever that has an impact.
• 12:29
  SPEAKER_03: Then you assess well, should we change anything, uh including targets for that sake.
• 12:35
  Scott: And on the forecasting side, I I like the rolling approach.
• 12:38
  Scott: I I try to do that myself, and whether it's monthly or or quarterly, I try not to instruct businesses to push it beyond quarterly to re-looking at everything.
• 12:48
  Scott: And but what I really like is you say is it needs to be done at the right time, right?
• 12:52
  Scott: And find the right the right frequency.
• 12:55
  Scott: And that to me, I feel like that might change.
• 12:57
  Scott: It might be monthly at one point, and you might be it might be quarterly at other points.
• 13:01
  Scott: Is that how you look at it as well?
• 13:03
  SPEAKER_03: Yeah, absolutely.
• 13:04
  SPEAKER_03: And what we it's quite common to have rolling forecast with the kind of a fixed frequency of, say, a reporter.
• 13:10
  SPEAKER_03: But what we did in Equinoor was actually somewhat different because there is quite a lot of variety across the company in the in the rhythm and cadence of the different activities.
• 13:21
  SPEAKER_03: Um, oil trading has a very different pace than exploring for new resources, as one example.
• 13:28
  SPEAKER_03: So we introduced what we call dynamic forecasting, and in dynamic forecasting, there is no predefined update frequency.
• 13:35
  SPEAKER_03: The concept is that the different businesses they update their forecast when stuff happens in their own business environment that they think justify a forecast update.
• 13:47
  SPEAKER_03: Um, they are not doing it for corporate, they do it for themselves in order to manage their own business.
• 13:52
  SPEAKER_03: But that information goes into a common database, so corporate can at any time tap into that information when they have a need for it.
• 14:00
  SPEAKER_03: Um and there was no right or wrong here, dynamic or rolling, but uh what you choose should be driven by how um similar or different your different businesses are if you're uh in a in a larger company.
• 14:13
  SPEAKER_03: I guess for smaller companies uh you would have less of this issue of varying uh rhythms, um, so it might be less of an issue, and then quarterly might be okay.
• 14:25
  Scott: And at the end of the day, this forecasting is not just an exercise you you you perform just to do it, it's really to support decision making.
• 14:36
  SPEAKER_03: Absolutely.
• 14:36
  SPEAKER_03: And I think that's very important that that we we talked about the budget having three purposes.
• 14:41
  SPEAKER_03: Forecasting has only one purpose, and that is decision making.
• 14:44
  SPEAKER_03: So if you don't know what kind of decisions a forecast shall support, maybe you don't have to make that forecast.
• 14:50
  SPEAKER_03: So I think actually we are making too many forecasts, or businesses are generally sometimes making too many forecasts.
• 14:56
  SPEAKER_03: What is very important with that forecast is that it is just a forecast.
• 15:00
  SPEAKER_03: We talked about the target being in aspiration, but the forecast is an expectation.
• 15:05
  SPEAKER_03: What you think will happen, whether you like what you see or not, brutally honest.
• 15:10
  SPEAKER_03: Uh 50-50.
• 15:11
  SPEAKER_03: Um, so it's not the bid into a target negotiation because that's a separate process.
• 15:16
  SPEAKER_03: It's not an application for resources, that is also a separate process, as we probably will come back to.
• 15:22
  SPEAKER_03: It is just the forecast.
• 15:24
  SPEAKER_03: And um, nobody should have any reason to gain on those numbers.
• 15:29
  Scott: Right.
• 15:30
  Scott: And I want to roll into to the next piece of this, and that is that resource allocation, because for every company, regardless of your size, there's scarcity, and you have to deal with whatever it might be on different scales, but you have to deal with some level of scarcity.
• 15:45
  SPEAKER_00: Absolutely.
• 15:46
  Scott: So, how how in your mind, how do you kind of take that next step for forecast?
• 15:51
  Scott: We've got our target, we're forecasting, but now we have to do something with that, I feel like, is is is and that's where the resource allocation comes from.
• 16:00
  SPEAKER_03: Yeah, and when it comes to resource allocation, we recommend to to address um that somewhat differently, depending on whether we are looking at COPEX or UPEX.
• 16:10
  SPEAKER_03: So if you are looking at um the COPEX and investments, then it's actually not that difficult.
• 16:15
  SPEAKER_03: Um take Equinor again, um, the company with that invests between 10 and 15 billion US dollars a year.
• 16:23
  SPEAKER_03: There is no traditional and detailed annual investment budget where you sit in the in the fall, the year before, and decide exactly how much to invest, split exactly on these projects, and then you hand out that bag of money to each project.
• 16:38
  SPEAKER_03: Instead, there is uh a concept based on a very simple principle, which which we called the bank is always open.
• 16:46
  SPEAKER_03: Which simply means that the line can always forward a proposal for a project and ask for funding at any time.
• 16:54
  SPEAKER_03: Um, the bank is always open.
• 16:56
  SPEAKER_03: Whether you get a yes or no depends on two things.
• 16:58
  SPEAKER_03: How good is your project?
• 17:00
  SPEAKER_03: And those criteria haven't changed very much, financial, non-financial, uh, and so on.
• 17:05
  SPEAKER_03: Second question: can we afford it as things look today?
• 17:10
  SPEAKER_03: And where is that information coming from?
• 17:12
  SPEAKER_03: Well, from the updated uh reliable cash forecast.
• 17:16
  SPEAKER_03: So it's not that difficult when it comes to investment, it's a bit more challenging when it comes to uh operating costs, admin costs, uh how do you manage travel cost without the budget?
• 17:26
  SPEAKER_03: But here we have um uh uh a range of different alternatives that uh organizations can choose from.
• 17:35
  SPEAKER_03: What you want to leave behind is the traditional annual detailed cost budget.
• 17:40
  SPEAKER_03: So you sit again in the fall and decide exactly how much to invest.
• 17:46
  SPEAKER_03: Okay.
• 17:47
  SPEAKER_03: When you sit in the fall and decide exactly how much you should spend next year and split exactly on what you you you on how much on salary and overtime and travel and consultants and and steel and power and very detailed.
• 18:04
  SPEAKER_03: And then you are uh two things.
• 18:06
  SPEAKER_03: First of all, you are making decisions too early.
• 18:08
  SPEAKER_03: Because how do you know exactly how much is what was the right level of of spending?
• 18:14
  SPEAKER_03: Um because that might depend on on yeah, will depend on your your revenues, and and also how do you know exactly what the right split is?
• 18:23
  SPEAKER_03: Um so this is about making decisions at the right time, which actually means as just like with CapEx, as late as possible, because then you have better information, but also at the right level, especially in larger companies, then the best information does not always sit at the top.
• 18:42
  SPEAKER_03: So let the majority of decisions be made where the best information is sitting.
• 18:48
  Scott: Yeah, I I I like that.
• 18:50
  Scott: I like that.
• 18:52
  Scott: It's not just the the leadership doesn't know everything, right?
• 18:56
  Scott: There's a lot of knowledge and a lot of value across the organization that I feel like a lot of times is is maybe not intentionally, but but ultimately ignore.
• 19:06
  SPEAKER_00: Yeah, absolutely.
• 19:08
  SPEAKER_03: So um uh and and you know what we are after here, and I'll come back to some of the other mechanics in a minute, but what what we are after is that people think about company money as their own money.
• 19:20
  SPEAKER_03: And uh it's quite interesting to think about how we think about this stuff as private citizens versus employees or managers.
• 19:28
  SPEAKER_03: Because I mean imagine as a private citizen that you're your um um your car is April, your car is breaking down, and you have to go to the bank and ask for a loan for a new car.
• 19:39
  SPEAKER_03: And uh assume that the bank is telling you that sorry, the lending department is only open in October and the rest of the year we are closed.
• 19:48
  SPEAKER_03: And of course we laugh because no bank will say anything stupid like that.
• 19:52
  SPEAKER_03: But what is the budgeting process?
• 19:53
  SPEAKER_03: Well, that's exactly what it is.
• 19:55
  SPEAKER_03: And imagine if the bank then adds on that by the way, I see you have some money left on your current account.
• 20:01
  SPEAKER_03: If you haven't spent it by December, we will take it.
• 20:04
  SPEAKER_03: And then, of course, we laugh, we laugh even more because but I mean that is so we have this completely different mindset when when when we go to work in the morning.
• 20:13
  SPEAKER_03: But again, let me be a bit more concrete.
• 20:15
  SPEAKER_03: So, what are the alternatives here?
• 20:16
  SPEAKER_03: The first one is something we just call an overall cost frame or a burn rate guiding.
• 20:22
  SPEAKER_03: So instead of a very detailed budget ending up in a certain total, let it just be a total kind of in the range of X million or whatever, within that full autonomy to make the right decisions along the way.
• 20:35
  SPEAKER_03: If it's difficult to know what should that total be, you can move from thinking in absolute terms to what we call relative terms.
• 20:42
  SPEAKER_03: And one degree of relativity is to talk about unit cost, for instance.
• 20:48
  SPEAKER_03: So your production unit cost shouldn't be more than five dollars per unit, and you can spend more if you produce more, spend more if you sell more, right?
• 20:56
  SPEAKER_03: And and vice versa.
• 20:58
  SPEAKER_03: You can make it even more self-regulating by saying that there is no five dollar per unit constraint, but your dollar per unit should be competitive versus peers internally, externally.
• 21:11
  SPEAKER_03: So if you end up spending six, that's okay.
• 21:14
  SPEAKER_03: Probably if they spend seven or eight, but not if they are able to make three or four.
• 21:19
  SPEAKER_03: So again, more kind of self-more adaptive and self-regulating ways of managing cost.
• 21:27
  SPEAKER_03: And of course, another alternative is the bottom line target.
• 21:31
  SPEAKER_03: If a unit has a bottom-line target, that's also a way of managing cost.
• 21:35
  SPEAKER_03: They cannot run away and spend money like drunken sales.
• 21:38
  SPEAKER_03: But it might be okay to spend more if what they spend is what we call good cost.
• 21:43
  SPEAKER_03: Because good costs create value.
• 21:44
  SPEAKER_03: As long as we have the financial capacity, we actually would like more good cost.
• 21:48
  SPEAKER_03: It's the bad cost we want to get rid of.
• 21:50
  SPEAKER_03: And the last alternative here is the most radical of them all.
• 21:54
  SPEAKER_03: I sometimes call it nothing at all.
• 21:56
  SPEAKER_03: The only numbers we have in this alternative are actual.
• 22:00
  SPEAKER_03: Cost numbers, which we monitor, we look at trends, and if it looks okay, we do nothing.
• 22:05
  SPEAKER_03: If it looks a bit strange, we take a look at it.
• 22:07
  SPEAKER_03: That might be a good explanation, a doses of good costs.
• 22:11
  SPEAKER_03: But, and this is important, we might also come across teams, managers who consciously or unconsciously abuse the trust that lies in this model.
• 22:23
  SPEAKER_03: Because the only thing you know if you show trust in an organization is that someone will abuse it.
• 22:29
  SPEAKER_03: I mean, back to my my employer, Equinour, it has happened, it will happen again.
• 22:33
  SPEAKER_03: That's not the issue.
• 22:34
  SPEAKER_03: The issue is how do we respond?
• 22:37
  SPEAKER_03: And the simple but wrong response is to punish everybody because somebody did something wrong.
• 22:43
  SPEAKER_03: For a CEO and CFO to say that look at what happened with this trusting over here and over here, everybody back to the good or budget.
• 22:51
  SPEAKER_03: That is simple but wrong.
• 22:52
  SPEAKER_03: The right thing to do, which takes a bit more leadership, is to take that very direct talk with those involved and let it have the necessary consequences.
• 23:02
  SPEAKER_03: This is not about being soft or evasive in any way, but we shouldn't put everybody in jail because there is a few criminals among us.
• 23:10
  Scott: And this is kind of where the people side comes in, right?
• 23:12
  Scott: It's not just the numbers.
• 23:14
  Scott: It's treating the individuals a certain way, giving them responsibility, but also having consequences for not for everybody, but those specifically.
• 23:24
  SPEAKER_03: Yeah.
• 23:24
  SPEAKER_03: And what we have seen when companies implement this is that the fear they have that cost will increase.
• 23:31
  SPEAKER_03: Typically, I mean that that doesn't happen.
• 23:33
  SPEAKER_03: It's much more common that costs come down.
• 23:35
  SPEAKER_03: We've had we actually had a case in the public sector in Norway where in a pilot some some teams were told to spend the message was spend what is necessary to do a good job, but not more.
• 23:51
  SPEAKER_03: And they introduced this pilot in 2019 as a test for 2020.
• 23:58
  SPEAKER_03: Of course, 2020 was the first year of the pandemic, so everybody had lower external cost.
• 24:04
  SPEAKER_03: No one had higher cost reductions than these two pilots, minus 50% both.
• 24:10
  SPEAKER_03: So this shows that that that cost budget, I mean, we tend to look at it as a kind of ceiling for cost, but it is just as effective as a floor, right?
• 24:21
  SPEAKER_03: That these cost budgets they tend to be spent.
• 24:24
  SPEAKER_03: And again, it's rational behavior because if you don't spend it, you get less next next year.
• 24:30
  SPEAKER_03: So um, yeah.
• 24:33
  Scott: So beyond, I I like that.
• 24:35
  Scott: I want I want to pivot a little bit here.
• 24:38
  Scott: Yeah, I'm I'm not gonna I'm not gonna quiz you on the page number of your book, but I am gonna pull out the on the this is beyond budging.
• 24:45
  Scott: Page 84 is a uh company's on this journey.
• 24:49
  Scott: And it's a it's a it's a page that has a bunch of logos on it, a lot of company logos.
• 24:55
  Scott: And I I recognize some of them, a lot of them are European, so some of them I don't really recognize, some of them are larger, but specifically what I'd like to understand is could you weigh in on how this process works with smaller companies?
• 25:09
  SPEAKER_03: First of all, I want to say that as I see it, the companies are born beyond budgeting.
• 25:15
  SPEAKER_03: When they are startups, they are nimble, flexible, adaptive, uh fast, uh, and also people focused, absolutely.
• 25:24
  SPEAKER_03: So that's not that's not the problem.
• 25:25
  SPEAKER_03: The problem is when these small companies want to grow, because most want to grow and become big.
• 25:32
  SPEAKER_03: And what many of them do, maybe all of them, is to look at what what have all the big these big companies that have grown, what kind of processes do they have.
• 25:40
  SPEAKER_03: And then they start to copy one by one, and maybe they call in the uh some of the big management consulting companies to advise them, and and the list of stuff they introduce gets even longer.
• 25:50
  SPEAKER_03: And then some of these companies they succeed, they do become big, but they discover that we have not only become big, we have become slow, rigid, bureaucratic, and sometimes quite sad places to be.
• 26:02
  SPEAKER_03: So the big question for big companies should be: how can we find our way back to what we had as a small company without losing the benefit of being big?
• 26:10
  SPEAKER_03: So, how can we be big and small at the same time?
• 26:14
  SPEAKER_03: To your question, the big issue for the small companies is how can you grow without ending up in the same place?
• 26:22
  SPEAKER_03: And it is possible if you're conscious about it every single day.
• 26:27
  SPEAKER_03: And there are examples on that list you just referred to of companies that started off small with this and were able to maintain their agility all along the way because they were conscious about it.
• 26:41
  SPEAKER_03: So it is it is possible, and I would also say you know, it's much easier to not implement stupid stuff in the first place than try to get rid of it afterwards.
• 26:54
  SPEAKER_03: And for the majority of the companies that you saw on that list, they were in the DAS category.
• 27:00
  SPEAKER_03: They had introduced this stuff and and had to get rid of it.
• 27:03
  SPEAKER_03: For my advice to the small companies that you are reaching, uh yeah, do not copy what the big companies are doing and stay true to your what you had as a startup, but you have to be conscious about it because if not, you will through very small kind of maybe daily, weekly, monthly decisions you that might not seem very dangerous, you kind of drift drift um into uh places that you don't want to go.
• 27:33
  Scott: Yeah, and you can drift into bad habits, and it's much more difficult to remove those habits than it is to keep the good ones.
• 27:41
  SPEAKER_00: Absolutely.
• 27:43
  Scott: Um, Biarte, I I want to be conscious of our of our time here together and and or specifically your time, but I do want to ask one more in the last chapter of your book.
• 27:53
  Scott: I I love your question there, because at the end of the day, it's what's in it for me?
• 27:59
  Scott: And so for a small business owner who's thinking, you know, maybe this can work for me.
• 28:04
  Scott: I mean, what at the end of the day, what's in it for them?
• 28:08
  SPEAKER_03: Well, first of all, I mean, what's in it for anyone doing this is that this is good for performance defined broadly.
• 28:16
  SPEAKER_03: It is good for your business performance, for your financial performance, but it also makes you more attractive as an employer.
• 28:23
  SPEAKER_03: People like to work for beyond budgeting companies simply because of their management model and because of that level of trust and autonomy and transparency and so on.
• 28:34
  SPEAKER_03: So this is good for business in so many ways.
• 28:37
  SPEAKER_03: And you know, I'm convinced that what we have been talking about today is something that will happen on a broad, broad scale, because the world is not getting more planable and uh employees are not getting less expectations to their employers.
• 28:54
  SPEAKER_03: So this stuff will happen.
• 28:56
  SPEAKER_03: I don't care if it will be called beyond budgeting or business agility or whatever, that is not important.
• 29:01
  SPEAKER_03: But I'm convinced that in 15-20 years' time, when we look back at what was mainstream management thinking still in 2020 think, I think we will smile, even have a laugh.
• 29:13
  SPEAKER_03: Just like we today smile about the days before the internet or the smartphone, it isn't that long ago.
• 29:18
  SPEAKER_03: And here, organizations, including small companies, they have a choice, they can choose to embrace this as an early mover and get a competitive advantage versus those who are not doing it, or they can choose to be dragged into this as one of the last ones.
• 29:33
  SPEAKER_03: And I know what I would have chosen.
• 29:36
  SPEAKER_03: And I can also promise those who consider this journey that is that if you do it, you will not regret it.
• 29:43
  SPEAKER_03: And I can make one promise here you will not go back.
• 29:48
  SPEAKER_03: Almost no one is going back once they have started on this journey.
• 29:52
  SPEAKER_03: Um, on the contrary, most companies get braver along the way because what is scary today actually is not scary tomorrow because it works.
• 30:01
  Scott: So uh share your vision there.
• 30:03
  Scott: Yeah, I I I like that.
• 30:04
  Scott: I share your vision in what this can do for businesses and what it can allow them to accomplish as well.
• 30:13
  Scott: Well, I I like to wrap up all of our shows with one to three immediate takeaways that our listeners could literally put into action as they turn off as they wrap up this podcast, typically around financial planning for the business.
• 30:27
  Scott: But what what could you share for us today?
• 30:30
  SPEAKER_03: Well, I would go back to that separation of the budget purposes, which is a very simple and logical and tested way of getting started.
• 30:40
  SPEAKER_03: So separate this into three different processes, and then you can start to improve each one in ways impossible when it was all bundled in one process and one set of numbers.
• 30:51
  SPEAKER_03: And the beauty with this is that then we still do what that budget tried to do for us.
• 30:57
  SPEAKER_03: But because we have separated, we can do each one in so much better ways, and it also means that um if there are worries about banks or investors wanting budgets, well, you have something much better to offer them because you can not just offer them a reliable forecast that is unpolluted and that investors and banks and yourself can trust much more, but you might in addition also show these guys that, well, in addition, that's my forecast, these are my targets.
• 31:28
  SPEAKER_03: Banks and investors will be more than happy.
• 31:30
  SPEAKER_03: So those external guys are do not allow them to be any barriers for getting started here because I mean um this is most of the companies that you looked at on that list are listed companies.
• 31:44
  SPEAKER_03: So, again, start off with a separation.
• 31:46
  SPEAKER_03: Once you have started to done that and started to improve, you are on the journey.
• 31:51
  SPEAKER_03: And look at this as a journey and not the project.
• 31:55
  SPEAKER_03: This is a journey where the direction is clearer than the end station to the extent there is an end station.
• 32:02
  Scott: I I like the journey approach too, because it is.
• 32:05
  Scott: It's it's not a it that that as well kind of goes against the the traditional corporate of it's a start and finish.
• 32:12
  Scott: It's it's no, it's not.
• 32:13
  Scott: You're continually moving forward.
• 32:17
  Scott: Well, BRT, I I typically ask for a favorite podcast or book recommendation.
• 32:22
  Scott: However, in this place, I'm gonna be selfish and put the two out myself.
• 32:26
  Scott: Uh the first is implementing beyond budgeting, and and the second is which is sitting right here next to me, this is beyond budgeting.
• 32:34
  Scott: And I think both of those are probably somewhat familiar to you, right?
• 32:37
  SPEAKER_00: Absolutely.
• 32:40
  Scott: Well, I highly recommend anybody go check those out, just uh in case you you tongue in cheek that Bearte uh authored both of those, and I think they're they're both great.
• 32:50
  Scott: I've I've read a third one, Future Ready, but I will say the the two you wrote are a little better for like a business owner to read because it's a little more practical, whereas the future ready is a little more technical on the finance side, and I think a lot of people might get dragged down in the technicalities of it.
• 33:10
  Scott: Well, BRT, this has been great.
• 33:13
  Scott: Uh, I appreciate you coming on the show.
• 33:15
  Scott: Where where can people find out more about you on?
• 33:18
  SPEAKER_03: Well, you might want to check out my website, uh booksness advice advisory.com.
• 33:24
  SPEAKER_03: Um and also have a look at the Beyond Budgeting Roundtable uh website, which is called BBRT.org.
• 33:32
  SPEAKER_03: Um, those are two places where you will find out more.
• 33:37
  Scott: Well, Biarte, thank you for coming on on a Friday afternoon with me and and talking beyond budgeting.
• 33:44
  SPEAKER_03: Thank you again for the invitation.
• 33:46
  SPEAKER_03: Nice to meet you.
• 33:48
  Scott: Thank you, folks, and that's it for today.
• 33:52
  SPEAKER_01: If you like the show or found something useful, text someone right now and say, I have a podcast recommendation to check out.
• 34:00
  SPEAKER_01: You can also like the show or find more at your favorite podcast locations, Apple Podcasts, Spotify, and Amazon.
• 34:08
  SPEAKER_01: Thank you for listening.
• 34:09
  SPEAKER_01: And we hope you join us for our next guest on Budget Your Business.
• 36:07
  SPEAKER_01: Let's get started with your host, Scott Geller.