Multinational expansion often comes at the cost of agility and flexibility. As more bureaucracy is imposed, things inevitably become slower and more rigid. But Bjarte says this doesn’t have to be the case.<\/p>\n\n\n\n
\u201cOur journey has very much been about trying to find our way back to what we had as a small organisation, without losing the benefits of being big,\u201d he says.<\/p>\n\n\n\n
For Bjarte, Equinor’s ambition to shape the future of energy has played a key role in transforming the industry. They want to remain competitive at all times, but they\u2019re not shying away from the issue of climate change. They might be part of the problem now, but they\u2019re determined to be innovators in ushering in a low carbon future.<\/p>\n\n\n\n
Where internal leadership is concerned, Equinor have tried to leave behind traditional management practices even if they seem like the easy option. Leadership styles shouldn\u2019t be adopted on the basis of being easier, he says. Their preference is for values based management over rules based management, and trust and transparency are vital for making this shift. Instead of managing performance in an attempt to control the outcomes, they want to create the conditions that enable performance. <\/p>\n\n\n\n
Bjarte is acquainted with all of the common budget problems. For example, when budget decisions come from up high and are made 12 months ahead of time, necessary actions are blocked just because they\u2019re not in the budget. The same problem applies in reverse, with things getting done simply because they\u2019re specified in the budget even when they\u2019re inessential.<\/p>\n\n\n\n
\u201cThe budget is a very bad platform or yardstick for defining or describing good performance,\u201d says Bjarte. Simply hitting the budget provides no qualitative insight into performance (or, at best, it\u2019s a very narrow indicator.)<\/p>\n\n\n\n
Another common budget problem is conflict in purposes. Three separate purposes shouldn\u2019t be conflated, even if there is an overlap in their outcomes. Conflicting purposes \u2013 such as target, forecast and resource allocation \u2013 should instead be handled via three separate processes.<\/p>\n\n\n\n
\u201cA target is what we want to happen, the forecast is what we think will happen, resource allocation is about what it takes to make it happen,\u201d says Bjarte. \u201cWhen we separate we can start to improve each of these purposes.\u201d<\/p>\n\n\n\n
Bjarte Bogsnes has worked in finance and HR at Norwegian energy company Equinor (previously known as Statoil) for over 35 years. He’s witnessed rapid growth during that time, with the company now operating in 36 countries.<\/p>\n
Bjarte is also the Chairman at the Beyond Budgeting Institute. His beyond budgeting journey started back in 1995, a time when the concept was still largely unheard of.<\/p>\n
In his talk at the 2017 Beyond Budgeting Conference, Bjarte explains how it\u2019s possible to hang onto the flexibility of a small organisation without losing the benefits of being big.<\/p>\n
Read the transcript and watch Bjarte’s full talk below.<\/p>\n","protected":false},"author":7,"featured_media":9179,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[53],"tags":[],"blog-post-type":[37],"class_list":["post-9177","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-conference-videos-full","blog-post-type-blog-guest-feature"],"acf":{"featured_guest_name":"About Bjarte Bogsnes","featured_guest_biography":"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\u2019s largest company. He led a similar initiative in Borealis in the mid-nineties, one of the companies that inspired the Beyond Budgeting model. He has helped numerous other companies globally getting started on a Beyond Budgeting journey.\r\n\r\nBjarte is Chairman of\u00a0Beyond Budgeting Roundtable (BBRT).<\/a>\u00a0He is a popular international business speaker and Beyond Budgeting coach, and a winner of a\u00a0Harvard Business Review\/McKinsey Management Innovation award<\/a>. Bjarte is the author of\u00a0Implementing Beyond Budgeting - Unlocking the Performance Potential<\/em><\/a>, where he writes about his almost thirty years long Beyond Budgeting journey. His new book\u00a0This is Beyond Budgeting \u2013 A Guide to more Adaptive and Human Organizations<\/em><\/a>\u00a0with a foreword by Gary Hamel is out early 2023.\r\n\r\nBjarte is available for speaking engagements and select consulting work through\u00a0Bogsnes Advisory<\/a>.","featured_guest_image":9178,"read_or_watch_time":"Watch: 20 min watch","video_url":"https:\/\/youtu.be\/4EvvKX9qOI0","transcripts":"I\u2019m based in the finance team of Statoil, that\u2019s where I have my education and background, but I\u2019ve also worked in HR, heading up an HR function, and I\u2019ve also been in different leadership roles for more than 20 years, and all of this is highly relevant because \u2018Beyond Budgeting\u2019 is about so much more than budgets, there\u2019s a big dose of people and leadership in this. My Beyond Budgeting journey started back in 1995, then I was working in a company called Borealis where we had the opportunity to kick out the budget before there was anything called Beyond Budgeting, we hadn\u2019t heard of any other organisation doing this, it was simply a big jump into the darkness. It worked, and I\u2019ve never, never looked back.\r\n\r\nWhen I joined Statoil in 1983, it was a smaller company than what it is today. Most small companies want to grow, they want to become bigger. Fair enough. And some succeed! But, many of those that succeed discover that we have not only become big, we have also become slow, bureaucratic, rigid. We\u2019ve lost a lot of that agility and flexibility we had as a smaller organisation. I think there\u2019s a wonderful kind of parallel here to the ageing process of man, because as we grow older we do lose a bit of that agility we had as teenagers. I\u2019m approaching 60, I\u2019m starting to get some personal experience here, and what I\u2019ve learned is that when it comes to man there is no choice, in the end age takes us all. Organisations however, they have a choice. It is written nowhere, as far as I\u2019ve read, that because you are big you should be slow, rigid, bureaucratic, all the stuff that we don\u2019t want to be. Looking back at our journey, I think it has very much been about trying to find our way back to what we had as a small organisation, without losing the benefits of being big. So, how can we be small and big at the same time? It has been our big question, and the big question for organisations who not yet have become big but want to become big, that should be how can we grow, without ending up in the same place.\r\n\r\nWhat I would like to share with you today is who we are, how we work, and what we have learnt at Statoil. Statoil was born in 1972 when there was oil and gas discovered in Norway, and we had to hit the ground running to catch up with the Exxons and the BPs and the other big guys, so delegation, trust, decentralisation, that was not a choice we made but a necessity. We simply had to give young people big responsibilities. I joined the company in 1983, my first management in 1984 was Head of the Corporate Budget Department, so I\u2019ve been heading up more budget processes than I want to be reminded about, and trust me, I\u2019ve done so many stupid things in my life it\u2019s unbelievable. We have a new CEO, great CEO, who has - I wouldn\u2019t say changed our strategy but sharpened, distilled our strategy, and here are the headlines, our ambitions: shaping the future of energy; competitive at all times, yes that has something to do with the oil price; but even more importantly, we want to play a key role in transforming this industry; and we want to provide energy for a low carbon future. We definitely recognise climate change, we think we are part of the problem, we think we can also be part of the solution on our way to a low carbon future. Our new CEO has also updated our leadership principles; we used to have 12, which is quite a lot, now we have three. It\u2019s about shaping the future, it\u2019s about people, it talks a lot about empowering, and it is about delivering results. It\u2019s about performance defined in the right way, and that\u2019s the only reason why we embarked on this journey at Statoil, because we think and believe and know that this is good for performance, defined in the right way.\r\n\r\nI would like to explore that important word \u2018performance\u2019 now, in a somewhat different setting than business and organisations, because we are going to move into traffic for a few minutes. In traffic we would also like to experience good performance. When we are driving to work, or to the airport or whatever, and what would we like to experience in traffic? What\u2019s our definition of good performance in traffic? A good flow, and a safe flow. I hate traffic jams. By the way, I never understood why they call it rush traffic. There\u2019s no rush at all, those cars are standing dead still. But, there\u2019s a lot of things that I don\u2019t understand, as you will learn, so anyway\u2026 Traffic authorities want exactly the same, even if I\u2019ve had my doubts from time to time. A traffic light is something we often find put up by traffic authorities to create a safe and good flow. Two questions around this way of managing traffic. Who is in control, and based on which information? So, who is in control here? Traffic authorities. The guy who programmed this light is the one who is in charge here. Which information would this programming be based on? Historical trends, and maybe some forecasting on how traffic might develop. This wouldn\u2019t be entirely fresh information, as you\u2019re waiting for the green light. The guy who is managing would be at home, in bed, in the office, but not in the situation with fresh information. The best of intentions, to try to create a safe and good flow. Is there an alternative to the traffic lights, with exactly the same purpose but very different solution? A roundabout. So, who is in control and based on which information? We, as drivers, are in control, based on what we see - fresh, real-time information. Very different answers on these two different ways of managing traffic, so let\u2019s compare the two. The roundabout is normally more efficient, because you have the authority to make decisions. You don\u2019t have that in front of the traffic light. That\u2019s maybe what makes the big difference here. The roundabout is also more difficult to drive in, and again back to our organisation for a minute, everything we are trying to leave behind in Statoil of \u2018traditional management\u2019 is, from a leadership point of view, much easier than what we\u2019re trying to do instead. All the processes are simpler, but the leadership they take is more challenging. But leadership is not meant to be easy. Is it relevant to talk about values in this setting of traffic? In the Statoil book we talk a lot about values based management, and the opposite of that you could call rules based management. The traffic light is a good example of rules based management. In case you\u2019ve forgotten, red is stop, green is drive, and we can always discuss yellow, but it is a very simple rules based system. If there\u2019s a value set among drivers waiting for that green light, which is about me first, I don\u2019t care about the rest, that mindset is normally not a big problem in front of the light because it\u2019s over-ruled by red light. But, in the roundabout, me first I don\u2019t care about the rest can actually be a big problem. In the roundabout, we are much more dependant on having this common positive purpose of wanting this to flow well. Here we have to help each other, we have to have our own intentions visible, we have to interpret other people\u2019s intentions, so it\u2019s not enough with fresh information and authority to act on it, we also need this positive value set. Trust is a relevant word here. Ahead of the light, we are not trusted. In the roundabout we are trusted by traffic authorities to make decisions. Transparency is an important word. Ahead of that light, in theory the only thing you need to be able to see is the colour of the light, nothing else. In the roundabout, that would be a disaster, you need to be able to see what is happening. Transparency is very important. The label \u2018performance management\u2019, which I actually have in my my title, is an awful title, awful words, but it\u2019s highly applicable for the traffic light. That\u2019s exactly what traffic authorities are doing. They are managing performance. In the roundabout, however, they are doing something different. The roundabout is not about managing performance, it is about creating conditions for great performance to take place. It\u2019s about enabling performance. That is a very principle difference, and I would argue that performance management is one of these illusions of control that many finance and HR people live under. If we don\u2019t manage performance, there will be no performance. That is not true, but it\u2019s not bad news because there\u2019s so much great stuff we can do when it comes to enabling performance. The roundabout is also a more self-regulating system, and I think that\u2019s a common thread through the Beyond Budgeting principles.\r\n\r\nYou saw these principles earlier and I will not go through them now, but I refer to them again because some people seeing this, especially for the first time, they might feel that this is pretty big stuff, actually a bit scary. I know a number of finance people who are a bit cold on this, they think it\u2019s scary. Not necessarily the management process side, but the leadership side of this. If that\u2019s the case, then we need to relate to that, because if we scare people we risk not getting started at all. Then, we need to find other, more safe, more comfortable places to start so that we don\u2019t scare people. Therefore, I want to bring up again the budget problem list that Anders was showing a bit earlier, because this is about equipping you with arguments for why this process is flawed without addressing the full monty and all the principles from day one. It is a more stepwise approach, in case these principles are too scary from day one. This should always be plan B; the plan should always be to try to get people to engage on the totality, but if that isn\u2019t the case, there are other ways of doing it. Again, that budget problem list is long, often weak links to strategies, very time-consuming. Many people talk about time-consuming as a big problem. It does belong on the list, but if you look at some of these other problems they are actually bigger. Assumptions quickly outdated, it stimulates unethical behaviours, the low-balling, the gaming, that\u2019s the big problem. Creates illusions of control, that\u2019s a big problem. Forcing us to make decisions too early, the year before, very often too high up in the organisation, that\u2019s the problem. It can prevent us from doing stuff that we should have done, but we can\u2019t do it because it\u2019s not in the budget. And the other way around! It can lead us to do things that we shouldn\u2019t have done, because it is in the budget, and you already know the game: spend it or lose it. The next point is about the stupidity of the accordion time horizon, where we make budgets and forecast, when we make budgets we want to understand 12 months ahead into the budget year, suddenly nine months is enough, we can still see \u2018til year end, six months, three months before, then we suddenly get interested in 12 months again. It\u2019s maybe not the biggest problem, but at least a bit funny. This is a big problem: the budget is a very bad platform or yardstick for defining or describing good performance. Hitting the budget number, describing that as good performance, is a very narrow, mechanical, and sometimes completely outdated problem. Last but not least, here is a problem that we have briefly discussed already, the conflict in purposes, but I\u2019m coming back to that because addressing the conflict in purposes in the budget can be a great place to get started if the big thing is too big.\r\n\r\nBack to the different purposes of a budget. Think about a financial budget, and if you look at the different parts of it then we see that there are three different purposes at play here at the same time. Think about revenue budgets. At the same time as it can be a target, the sales that we should hit, it\u2019s also a kind of forecast or what might come in of money next year. If you take fixed cost, it\u2019s actually maybe all three things, it is a resource allocation, it is a forecast of what we think the cost will be, and in some cases also a target.\r\n\r\nSo, you\u2019ve got this very confusing picture of three different purposes at play in the budget at the same time. Again, just to remind us, what was the problem around this financial Kinder Egg, trying to be very efficient, three things in one process, one number. Let\u2019s take an example again. Let\u2019s assume that the forecasting is important to us, it\u2019s important to understand financial capacity, cash flows next year, we start on the revenue side, we ask our sales people, \u2018what is your best sales forecast for next year\u2019. But, every sales response will know that the number I now give up will come back to me as a sales target for next year, and my bonus will be linked to hitting my sales target, so what might happen to that potentially good sales forecast we could have received? It might start to move down. We all know the game. But, you know it\u2019s budget time so we have to move to the cost side, the investment side. We ask the same people, \u2018what\u2019s your best cost or investment forecast for next year\u2019, because we need to understand cash flows. Everybody knows \u2018this is my only shot at getting access to resources for next year, and last year the guys upstairs cut my number by 30%\u2019, so what behaviour might we now see? The very opposite; inflated numbers. You all know the game, you all smile, but this is not a smiling matter, this is actually quite sad and serious because not only does this destroy the quality of our numbers, but it also stimulates this behaviour that is borderline unethical. So, that\u2019s the bad news. The good news is, as you know, that we can still do all of these three things, but there\u2019s three separate processes because these are separate things. A target is what we want to happen, the forecast is what we think will happen, resource allocation is about what it takes to make it happen. How do we optimise these resources? This can become different numbers, and even done in different ways, because when we separate we can start to improve each of these purposes. How can we set targets that really inspire and stretch people, without people feeling stretched, that are more robust against the \u2018VUCA\u2019 out there: volatility, uncertainty, complexity, ambiguity. Some organisations have found out that they don\u2019t need all of these targets, that they can do it with less targets, or no targets at all, that there are more downsides than anything else by setting targets. They find other ways of creating direction and inspiration. They found other ways of evaluating performance. They say, \u2018we don\u2019t need to predefine performance through targets in order to evaluate performance. How can we establish a lean, simple, unbiased forecasting process, where we quickly get on the table a set of numbers that we know we can trust, because we have removed the reason for gaming the numbers. The forecast is no longer a bid into a target negotiation, it\u2019s no longer an application for money; it\u2019s just a forecast and nothing else. Last but not least, how can we manage costs in different ways than what the traditional annual budget provides, because we need more effective, intelligent ways of managing cost than what the management technology invented a hundred years ago are able to offer us. Let\u2019s not forget that budgeting is a hundred year old management technology. And, how can we do all of this more event driven? This is where we started out in Statoil, and actually Borealis as well; it\u2019s logic, it shouldn\u2019t be scary, but this is a great way to get started as a nice backdoor into the bigger Beyond Budgeting principles. Once you\u2019re into these discussions, then you can have great discussions about how can we do things better now, inspired by new business realities out there, and inspired by positive employees, theory X versus theory Y. Let me give you a few examples from Statoil of what this could look like.\r\n\r\nThese are our most important financial targets in the company, the two KPIs here definitely have weaknesses, but that\u2019s not the point, the point is that we are thinking in relative terms. On return on capital, there\u2019s no target of 11.5 or whatever, it\u2019s all about doing well against competition. These are the guys we compete with. We are not all identical, so this is not as precise as setting 12.5, but it\u2019s ten times more relevant. We call these evergreen targets or ambitions. We\u2019ve had the same ones for maybe ten years now, I think we\u2019ve moved the one on the right side up and down a few times, but we don\u2019t need a big exercise every autumn to recalculate this. They stand until we have some other ones. This is probably the closest our board comes to approving a budget, and these two drives the common bonus scheme we have at Statoil, everybody on board, us against the competitive. We do also have some individual bonuses; I\u2019ll come back to those."},"yoast_head":"\n