Beyond Budgeting Approach

The Foundation of Beyond Budgeting

Forget the old-school budgeting rules. Beyond Budgeting is all about shaking things up with 12 principles that push for decentralized leadership and flexible management. This isn’t just some new fad—it’s been evolving over the last 20 years to help businesses keep up with the fast-paced changes in tech, global markets, and how we work. The main idea? Build a business model that can roll with the punches of digitalization, globalization, and mobility.

Here’s the lowdown on the principles:

1. Purpose: Match the company’s goals with its mission and values.
2. Values: Foster a culture of openness and trust.
3. Transparency: Keep communication clear and honest.
4. Autonomy: Let teams make their own calls.
5. Customer Focus: Always think about what the customer needs.
6. Accountability: Make sure teams own their results.
7. Goals: Set flexible, relative goals instead of rigid targets.
8. Rewards: Tie rewards directly to performance.
9. Planning: Keep planning as an ongoing activity.
10. Coordination: Promote flexible and adaptive coordination.
11. Resources: Allocate resources as needed.
12. Controls: Use controls that support flexibility.

This framework is all about creating a business that’s nimble and ready to adapt, moving away from the stiff, management of the past.

Evolution from Traditional Budgeting

Traditional budgeting? Think top-down, command-and-control. It’s all about the execs calling the shots, leading to a slow, rigid structure that can’t keep up with market changes.

Traditional Budgeting	Beyond Budgeting
Top-down approach	Decentralized leadership
Fixed annual budgets	Continuous and adaptive planning
Focus on cost control	Focus on value creation and customer satisfaction
Rigid and bureaucratic	Agile and flexible

Beyond Budgeting flips the script by giving power to teams closer to the action—those who know the customers and market trends best. This means faster, smarter decisions. It’s a concept that started in software development but has spread to all sorts of industries.

Take Svenska Handelsbanken, for example. They’ve nailed it by ditching rigid financial goals and setting them based on the ever-changing VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) world.

Curious about more traditional methods? Check out our articles on incremental budgeting and activity-based budgeting.

Implementing Beyond Budgeting

Decentralized Leadership Approach

In the old-school setup, the big bosses call the shots. Plans and goals trickle down through layers of management, creating a maze of bureaucracy. But Beyond Budgeting flips the script, giving power to individual teams and business units to make their own calls.

This approach is all about empowering and coaching rather than micromanaging. Management steps back, allowing teams to make decisions based on real-time data and customer needs. This leads to better teamwork and cooperation across the board.

Key elements of decentralized leadership in this include:

• Empowerment: Teams have the green light to make decisions that align with strategic goals.
• Coaching: Leaders act as mentors, offering guidance and support instead of controlling every move.
• Autonomy: Business units run the show independently, enabling faster responses to market shifts and customer demands.

Adaptive Management Processes

Beyond Budgeting champions flexible management processes that can roll with the punches. Unlike traditional, which sticks to rigid annual budget, this uses rolling forecasts and continuous planning to stay nimble.

Key practices in adaptive management include:

• Rolling Forecasts: These provide a realistic and up-to-date view of future performance. They’re updated regularly to reflect current conditions and are separate from performance targets.
• Dynamic Resource Allocation: Resources are allocated based on what’s needed now, not on a fixed budget. This ensures resources are used efficiently.
• Performance Evaluation: Performance is measured against relative targets and benchmarks, not fixed budgets. This encourages ongoing improvement and innovation.

Traditional Budgeting	Beyond Budgeting
Centralized control	Decentralized leadership
Fixed annual budgets	Rolling forecasts
Bureaucratic structure	Flexible and adaptive processes
Top-down decision-making	Autonomous teams

By embracing decentralized leadership and adaptive management processes, organizations can become more agile and responsive. This leads to better decision-making and improved overall performance.

Why Beyond Budgeting Rocks

Quick on Your Feet

Switching to Beyond Budgeting can make your company nimble like a cat on a hot tin roof. This method, which started in the tech world, is now the go-to for many industries dealing with the fast-paced changes of digital life, global markets, and mobile workforces.

In plain terms, it lets companies react faster to market shifts by giving more power to the folks on the front lines. Instead of waiting for decisions from the top, teams closest to the action can make calls on the fly. This means your company can pivot and adapt quicker than ever.

Old School Budgeting	Beyond Budgeting
Decisions from the top	Power to the people
Yearly budgets	Always planning
Set-in-stone targets	Flexible goals

Want to see how this stacks up against other budgeting styles like flexible budgeting and activity-based budgeting? Check out our other articles.

Smarter Choices, Faster

One of the biggest perks of Beyond Budgeting is making better decisions, faster. Ditching the old, stiff budgets means your company can act on up-to-the-minute info and stay nimble in a world that’s always changing.

Beyond Budgeting pushes for financial goals that adjust on their own, keeping your company flexible and ready to roll with the punches. This not only leads to smarter decisions but also keeps them in line with what’s happening right now. Plus, it boosts employee morale by focusing on profit-sharing instead of individual rewards.

Decision-Making	Old School Budgeting	Beyond Budgeting
Based on	Yearly budget	Real-time info
Financial Goals	Fixed	Flexible
Employee Motivation	Individual rewards	Team profit-sharing

For more on how it can shake up your financial planning and decision-making, dive into our guides on costing and budgeting and benefits of budgeting in business.

By jumping on the Beyond Budgeting bandwagon, your company can stay agile, make smarter choices, and keep improving performance and shareholder value.

Beyond Budgeting Success Stories

Companies Ditching Traditional Budgets

Some smart companies have tossed out the old-school playbook. Handelsbanken, Bayer Pharmaceuticals, Volvo, Equinor, and Roche Pharmaceuticals are leading the charge with it. They’ve ditched rigid budgets for a more flexible, responsive way to handle finances.

Take Handelsbanken, for example. They’ve scrapped traditional budgets entirely, using relative targets and rolling forecasts instead. Bayer Pharmaceuticals has jumped on board too, using Beyond Budgeting to boost flexibility and let decisions be made closer to the action. Volvo’s using it to get things running smoother, while Equinor and Roche Pharmaceuticals are seeing better teamwork and faster reactions to market shifts.

Real Results and Wins

Switching to Beyond Budgeting has paid off big time for these companies. A December 2020 study by BCG found that 59% of 174 finance execs saw sales go up after making the switch. Plus, 56% reported saving money on the budgeting process, and 41% freed up cash that was previously tied down.

Metric	Percentage of Finance Execs Reporting
Increased Sales	59%
Cost Savings in Budgeting Process	56%
Freed Up Financial Resources	41%

Beyond Budgeting is all about giving power to the people. Management steps back, letting teams set their own goals and plans. This leads to better teamwork and cooperation. Companies that go this route see continuous performance boosts and happier shareholders. Front-line teams can respond faster to customer needs, which keeps employees motivated and proud of their work.

Even with it, companies still set targets, but they’re more flexible and set by the teams themselves. These targets are less detailed than traditional, focusing on big-picture metrics like revenue, EBIT, or ROCE, and they’re often compared with peers and paired with relevant non-financial metrics.

Want to dive deeper into it? Check out our articles on incremental and activity-based budgeting. If you’re ready to shake things up in your own company, consider signing up for a budgeting course.