Week 45, 2019
Beyond Budgeting: Problem, Solution, and the Adherents
Each week I share three ideas for how to make work better. And this week, that means looking at how organizations spend money. And how it can be done better. It’s budgeting time!
Why am I writing about this? I got a call the other day asking if I might be able to fill a few vacancies in a client organization. “We’ve run out of budget for new hires,” they explained, adding that they were looking to use their “consulting budget” which, apparently, still had money left. “It’s just until the end of the year when the budget renews and we have full-time staff coming in.” Sigh. The games we play! The worst part is that my client didn’t seem to appreciate the irony in her request. And so I was thinking: why do we budget this way? Surely, someone, somewhere, must have thought of a better way?
And yes, it turns out someone has.
They called it Beyond Budgeting.
Let’s dig in.
The Problem
Here’s a question: on a scale from 1 to 5, how likely is that you are able to predict today what your expenses will be 12 months into the future? Not likely, right? And yet this is exactly how most organizations do budgeting today. They produce annual fixed budgets. And in so doing, they limit their ability to adapt to changing circumstances. And while this might have been OK back in the early 18th century, when budgeting was first introduced and markets remained relatively stable and predictable, it’s certainly not OK today. The world has changed while budgeting has not. And that’s a problem.
For more on why traditional methods have fallen out of date, read up on the Law of Requisite Variety and what it means for organizational design.
The Solution
Don’t let the name fool you. Beyond Budgeting is about more than just budgets. It’s about creating organizations better able to adapt to changing circumstances. It’s about Business Agility. And as such, it has ramifications for all parts of the organization. From values and organizational structures on the one hand to performance management and business forecasting on the other. Budgeting is just the starting point — a prerequisite first step. And so it follows the money. The road to better and healthier organizations supposedly starts with better budgeting procedures.
For more on BB’s philosophical underpinnings, check out The Twelve Principles of Beyond Budgeting on bbrt.org.
The Adherents
At the center of Beyond Budgeting are six leadership principles and six management processes. And if I didn’t know any better, I’d think they’d been lifted straight from the Agile playbook (w522018) or the ResponsiveOrg manifesto (w22019). Except they’re not. BB predates those movements; the Beyond Budgeting Institute was founded in 1998! It also has a rather impressive roster of adherents, incl. Toyota, Southwest Airlines, Swedish bank Handelsbanken, and Equinor — the Norwegian oil giant. Fact is, BB has gained a foothold in all manners of organizations, across multiple industries.
Visit Corporate Rebels to learn more: How These 3 Companies Manage Cost Without A Traditional Budget.
Beyond Budgeting is probably the best organizational operating system you’ve never heard of. Why? Why isn’t it better known? I’m not sure. It seems like a mighty fine addition to the annals of the organizational design if you ask me. But I suspect it suffers from a branding problem. People see the word “budget” and assume it’s something for the accounting department. It is. But it’s more than that as well. It has “leadership” written all over it. And so if you are willing to look beyond the name (pun intended), I suggest you familiarize yourself with its principles and processes.
I promise it’s well worth the effort.
That’s all for this week.
Now get back to work.
