keynote: beyond budgeting
TRANSCRIPT
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Beyond Budgeting – a new management model for new business realities
The Statoil implementation journey
Bjarte BogsnesVice President - Performance Management DevelopmentChairman - Beyond Budgeting Round Table Europe
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Outline
• The case for change - what is the problem?
• The Beyond Budgeting principles
• The Statoil model - Ambition to action
• Next steps
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Statoil in brief
• Turnover and market cap approx. 75 bn. USD
• 20.000 employees in 34 countries
• World’s largest operator in waters deeper than 100 metres
• Second largest gas exporter to Europe
• World leader of crude oil sales
• Listed in New York and Oslo
Current production of oil and gas
US Gulf of Mexico
South America
West Africa
North Africa
Caspian
Middle East
Russia
Arctic
North Sea & Norwegian Sea
Canada
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Fortune 500 ranking (2011)
Social responsibility Innovation
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-1 % 4 % 9 % 14 % 19 %
Anad arko
R ep so l
C o no co P
S hell
Eni
D evo n
O ccid ental
Encana
C hevro n
B P
To tal
Petro b ras
B G
S tato il
Exxo nM
0 % 5 % 10 % 15 % 20 % 25 %
Encana
Anad ark
R ep so l
Petro b ra
C o no co P
D evo n
Eni
O ccid ent
S hell
B G
To tal
S tato il
B P
C hevro n
Exxo nM
Statoil financial performance – as we define it
RoACE – 2010
* Peer group: Anadarko, BG, BP, Chevron, ConocoPhillips, Devon, Encana, Eni, ExxonMobil, Lukoil, Occidental, Petrobras, Repsol, Shell, Statoil, Total.
Source: Barclays Capital
RoACE – 2009
Target
Target
-25 % -15 % -5 % 5 % 15 % 25 % 35 %
B P
Petro b ras
To tal
Eni
Encana
S tato il
Luko il
R ep so l
D evo n
Exxo nM
B G
S hell
O ccid ental
Anad arko
C hevro n
C o no co P
Total shareholder return 2010
Target
-15 % 10 % 35 % 60 % 85 % 110 %
Exxo nM
C o no co
C hevro n
D evo n
Eni
S hell
To tal
B G
Encana
B P
R ep so l
O ccid en
S tato il
Anad ark
Luko il
Petro b r
Target
Total shareholder return 2009
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Managing traffic performance - one alternative
Based on which information?
Who is in control?
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Based on which information?
Who is in control?
Managing traffic performance - another alternative
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Which is most difficult?
In which are values most important?
Which is most efficient?
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People
Business environment
Traditional management
The world has changed – what about the way we lead and manage?
“Theory Y”“Theory X”
Dyn
amic
Sta
ble
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We must address both processes and leadership
Leadership
Processes
Beyond Budgeting
“Theory Y”“Theory X”
Dyn
amic
Sta
ble
Relative and directional goals
Dynamic planning, forecasting and resource allocation
Holistic performance evaluation
Rigid, detailed and annual
Rules-based micromanagement
Centralised command and control
Secrecy, sticks and carrots
Values based
Autonomy
Transparency
Internal motivation
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11 -Classification: Internal 2010-09-10
Companies on a similar journey
”I have been waiting for this for 20 years”
(CEO)
(Main Norwegian cases) (Some international cases)
Europe’s most cost effective universal
bank
Beating the competition 40 years
in a row
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The Beyond Budgeting principles
Change in leadership Change in processes
1. Values - Govern through a few clear values, goals and boundaries, not detailed rules and budgets
7. Goals - Set relative goals for continuous improvement, don’t negotiate fixed performance contracts
2. Performance - Create a high performance climate based on relative success, not on meeting fixed targets
8. Rewards - Reward shared success based on relative performance, not on meeting fixed targets
3. Transparency - Promote open information for self management, don’t restrict it hierarchically
9. Planning - Make planning a continuous and inclusive process, not a top-down annual event
4. Organization - Organize as a network of lean, accountable teams, not around centralized functions
10. Coordination - Coordinate interactions dynamically, not through annual planning cycles
5. Autonomy - Give teams the freedom and capability to act; don’t micro-manage them
11. Resources - Make resources available as needed, not through annual budget allocations
6. Customers - Focus everyone on improving customer outcomes, not on hierarchical relationships
12. Controls - Base controls on relative indicators and trends, not on variances against plan
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Improve
“Same number –conflicting purposes” ”Different numbers”
• Unbiased - expected outcome • Limited detail
• Ambitious • Relative KPIs where possible• Holistic performance evaluation
• Dynamic - no annual allocation• KPI targets, mandates, decision
gates & decision criteria • Trend monitoring
Start of the Statoil journey- solving a serious budget conflict
Budget =
•Target
•Forecast
•Resource allocation
Step 1 Step 2
Target
Forecast
Resource allocation
The budget purposes Separate
“Event driven - not calendar driven”
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Performance is ultimately about performing better than those we compare ourselves with
Key principles – Ambition to action
Do the right thing in the actual situation, guided by the Statoil Book, your Ambition to action, decision criteria & authorities and sound business judgement
Within this framework, resources are made available or allocated case-by-case
Business follow up is forward looking and action oriented
Performance evaluation is a holistic assessment of delivery and behaviour
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The CEO on Ambition to action
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Ambition to action - a process which balances …
… alignment – from strategy to people
… with flexibility and freedom
Strategic objectives KPIs
Actions & forecasts
Individualgoals
Where are we going – what does success look like?• Most important strategic
change areas
• Medium term horizon
How do we measure progress?
• Indicative measure of strategic delivery
• 10-12 KPI’s, annual/ longer term targets
What is my contribution?
• My Performance goals (MPG)
• Delivery
• Behaviour
How do we get there?
• Concrete actions and expected delivery (forecast)
• Clear deadlines and accountabilities
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Ambition to action example
Where are we going?
”Strategic objectives”
How do we measure
progress?
”Key Performance Indicators”
How do we get there?
”Actions”
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More than 1100 ”Ambition to actions” across the company
…..and more
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A new performance language- from narrow measurement to a holistic assessment
B e h a v i o u r
Delivery
Living the values
• Day-to day-observations
• 360°/ 180°/ 90° surveys
• People survey
50/50Pressure testing KPI results:
• Deliver towards the strategic objectives?
• How ambitious KPI targets?
• Changed assumptions, with positive or negative effect?
• Agreed actions implemented, or corrective actions initiated as needed?
• Delivered results sustainable?
Ambition to action
• Development plan
• Rewards
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The journey continues ...
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The controller and the fisherman ...
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Ambition to action – new principlesFrom calendar-driven to business-driven
No annual versions
• Update when necessary, triggered by external or internal events (“big for you”)
Simple change and coordination controls
• Seek approval if big, inform if small. Inform other affected units
People@statoil
• No change, review status on dynamic Ambition to action
Varying time horizons
• Target and forecast horizons reflecting urgency and lead times
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Questions or comments – now or later?
Bjarte [email protected]
+ 47 916 13 843
Beyond Budgeting Round Tablewww.bbrt.org
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2. The problems with traditional management
3. The Beyond Budgeting model
4. The Borealis case
5. The Statoil case
6. Implementation advice
Out on Wiley (US) 2009Available from Amazon.co.uk
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