Case study of a Beyond Budgeting transformation project

1. Beyond Budgeting at Paradigma.
What it means to us – and how we make it real!
BBRT Europe 41 meeting, 1 April 2008
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2. The Paradigma group
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3. The Paradigma group
The man behind Solar energy Wood pellets Gas-fired
the business idea systems systems condensing
systems
What have Paradigma solar collectors achieved in terms of
environmental protection, up to now?
Carbon dioxide savings: 200,000 tons
Fuel oil savings: 80 million liters
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4. October 2006 – the inspiration for the beyond budgeting
journey at our firm (or: The slide that really got me thinking…)
Evolutionary pathways within an organization's life
Low degree of
decentralization/ Classic evolution path:
empowerment and Differentiation stagnation within the
fixed performance phase tayloristic model
contracts: in conflict
with today's critical
success factors!
Transformation - Revolution
through radical devolution and
Classic evolution path: decentralization (alternative path!)
professionalization,
bureaucratization and This is our path now!
functional differentiation
High degree of
decentralization/
empowerment
with relative Maintenance of empowered, Sustaining and
performance
Pioneering trust-based culture, in spite of
Integration deepening of the
contracts: aligned phase growth (alternative path!). phase decentralized model,
with today's critical through generations
success factors!
Foundation Time scale: organization's age Several decades old
Source: Niels Pfläging, “Leading with flexible Targets. Beyond Budgeting in Practice“, 2006
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5. Beyond Budgeting at Paradigma - how it started
Some steps that initiated our journey.
• October 2006 COGNOS Performance 2006 – everything started here…
• December 2006 Niels Pflaeging meets Paradigma for a first conversation.
• February 2007 1 1/2-day in-house introductory workshop on
Beyond Budgeting with some managers.
Workshop led by Niels and Gebhard Borck.
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6. Beyond Budgeting at Paradigma - how it started
• March 2007: Decision among the 5 general managers:
Result: “We will do it.“. Planning of next steps.
• Sunday, 15.04.2007:
„Getting the owner on board“ – 1-day workshop with Alfred Ritter.
Result: “Do it, I am at your side!“
• Monday/Tuesday, 16./17.04.2007:
2-day Workshop with the team of 26 German managers
of Paradigma Group,
plus 2 employee
representatives.
Result:
“We will do it together.“
• May 2007: Formal project start –
first small
implementation steps
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7. Beyond Budgeting at Paradigma – how we started:
Speed of change
area of indirect influence
personal area
area of no of (direct)
influence influence
Reading:
possible speed of change per action
Source: “Influence Speedo” - Gebhard Borck
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8. Beyond Budgeting at Paradigma – how we started
Communication activities to reach all Paradigma employees,
during the earliest stage of the initiative
• “Beyond Budgeting book“ and
“Our Iceberg is Melting“ book for all
employees
• Information about Beyond Budgeting
on the intranet
• “Departmental“ talks
• Since June 2007: „Tandem Meetings“.
These are frequent, open
discussion forums with 12 participants max.,
at the various locations of Paradigma group
(moderated by a ”tandem“ of members of the Guiding Coalition),
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9. Beyond Budgeting at Paradigma – how we started
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10. Beyond Budgeting at Paradigma – how we started
Mixed feelings among our employees…
• “Where the hell is the project plan with fixed
deadlines for all those involved?”
• “Who is responsible for these changes?“
• “This sounds great – but what are the
specific actions required?”
• “Top management and middle management
should give it a start and prove this
with their good example first.
I don't trust them.”
• “This seems to mean that managers will be
passing on responsibilities to common
employees – so they will work (even) less and
we will have to do all the stuff!”
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11. An initiative for full model transformation, since mid-2007:
At Paradigma, beyond budgeting becomes FIRE!
• Flexible
(responding adaptively to market demands)
• Integration
(of all organization members into the transformation process)
• Respectful
(in dealing with people and the environment)
• Effective
(as an organization and as people within the team)
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FIRE

12. Our “change manifesto”: Writing up the case for change
The change manifesto is aimed to
give all people in the Paradigma
“flexible boundaries“ for action.
• Manifesto Task Force with
12 people on board – including
full general management team
and employee representatives
• Started work in May 2007 and
concluded “version 1.00” in
September 2007
• First rounds of Tandem Meetings
on the “Change manifesto,
version 1.00“.
Summer 2007: Paradigma becomes a member of the BBRT.
12 FIRE

13. Our “change manifesto”
Among the contents:
Our business model (redefined
with help of the consultants)
12 new core values and
the 12 principles of the
beyond budgeting model
constitute the foundations of
our collaboration.
Everyone within the Paradigma
group can refer to it!
13 FIRE

14. Our “change manifesto”:
Establishing a sense of urgency among all people in the firm
Our urgency described:
• Insufficient market orientation – too
much technology-oriented
• Bad financial performance
• Differences within the top management
team
• Collaboration within departments is ok,
while trans-departmental collaboration
is lousy
• Egoisms at the different locations
• …
14 FIRE

15. Our “change manifesto” - the crucial point:
How do we, within the organization, perceive human nature?
15 FIRE

16. Our “change manifesto” - the underlying issue:
Our assumptions about human nature
We don't believe in … We believe in …
Attitude – Attitude - People need to work and want to
People dislike work, find it boring, and will take an interest in it. Under the right
avoid it if they can. conditions, they can enjoy it.
Direction – Direction –
People must be forced or bribed to make the People will direct themselves towards a
right effort. target that they accept.
Responsibility – Responsibility –
People would rather be directed than accept People will seek, and accept responsibility,
responsibility, which they avoid. under the right conditions.
Motivation – Motivation - Under the right conditions,
People are motivated mainly by money and people are motivated by the desire to realize
fears about their job security. their own potential.
Creativity – Most people have little creativity Creativity –
- except when it comes to getting round Creativity and ingenuity are widely distributed
management rules. and grossly underused.
Based on Douglas McGregor, ‘The Human Side of Enterprise’, 1960
16 FIRE

17. Our “change manifesto” - 12 core values that fit with FIRE
Core values for the organization, articulated in the change manifesto
• Partnership culture
• Humanist behavior
• Social contribution
• Transparency
• Dialogue-based leadership
• Consultation
• Decentralization
• Trust
• Learning culture
• Attractive place to work
• Targets
• Success
17 FIRE

18. Our “change manifesto”:
To us, beyond budgeting means a set of 12 principles. No less.
Principles Do this! Not that!
1. Customers Focus everyone on their customers Hierarchical relationships
2. Network Organize as a lean network of accountable teams Centralized functions
Leadership
3. Autonomy Give teams the freedom and capability to act Micro-manage them
4. Responsibility Enable everyone to think and act like a leader Merely follow ‘the plan’
5. Values Govern through a few clear values, goals and boundaries Detailed rules and budgets
6. Transparency Promote open information for self management Restrict it hierarchically
7. Goals Set relative goals for continuous improvement Negotiated contracts
8. Rewards Reward shared success based on relative performance Fixed targets
Processes
9. Planning Make planning a continuous and inclusive process Top-down, annual event
10. Controls Base controls on relative indicators and trends Variances against plan
11. Resources Make resources available as needed Budget allocations
12. Coordination Coordinate cross company interactions dynamically Annual planning cycles
Source: BBRT
18 FIRE

19. Our “change manifesto”:
If you leave one principle out, you will not succeed.
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20. Management model transformation:
Is it like traditional project work?
All of us are FIRE -
not just a few!
All of us have do our bit and contribute our share -
not just “the others”!
“Change will not come
if we wait for some other person
or if we wait for some other time.
We are the ones we have been waiting for!”
(Barack Obama)
20 FIRE

21. In a management model transformation,
two intertwined change processes must come together
3. Beginning
Organizational Individual
change process change process
(John Kotter) (William Bridges)
2. Neutral Zone
1. 2. 3. 4. 5. 6. 7. 8.
Create a Pull Develop Communi- Empower Produce Don't Create a
sense of together a change cate for all others short-term let up! new culture
urgency guiding vision and understan- to act wins
coalition strategy ding and
buy-in
1. Ending
The “Double Helix Transformation Framework” is a completely new kind of change initiative framework: One in which
the two different dimensions of profound change – organizational and personal – are intertwined and inseparable. The
framework allows for a richer and more “realistic” leadership of profound change.
Source: “Double Helix Transformation Framework“ - Niels Pfläging/Gebhard Borck/BBTN
21 FIRE

22. Our management model transformation:
The role of the Guiding Coalition
Transformation must be led by a strong Guiding Coalition (GC).
The Guiding coalition (GC) is a group of people from different levels and functions of the
Paradigma group, who got together on the basis of conviction and determination, to act
for change.
Tasks of the GC: Not tasks of the GC:
Get rid of obstacles to FIRE Take or carry through corporate
Support task forces decisions.
“Do the change all alone”
Support people during the change
Support change in conformity with FIRE Other important facts:
Keep track of FIRE (e.g. check “change The GC is no elitist circle
temperature” The GC is not a new form of
Handle resistance hierarchy
Being a member in the GC
Push ahead with change
is no promotion
Cater for consequence
22 FIRE

23. Our management model transformation:
The role of the FIRE Task Forces
The actual changes throughout transformation
are being driven by Task Forces (TFs)
A TF is established on the basis of an
urgency/a problem referred to systems/actions
differing from the manifesto.
Topics for TF are problems referring to the FIRE
change process, not to do jobs which are “daily
business”.
A TF is initiated to deal with a clearly defined
task.
A TF has to arrive at valid agreements.
A TF always exists for a limited amount of time.
TF are staffed according to the problem/the
task, not based on hierarchy or departments.
A TF is staffed through a consultational process
or through voting procedures, depending on
the task.
23 FIRE

24. Principles of our management model transformation:
Transparency for everyone
From our manifesto for change:
“If people in our organization become
entrepreneurs, then they are entitled to
complete transparency! There is no more
hierarchical/functional withholding of
knowledge!”
Some consequences:
• All company figures are open to all
people in the firm (e.g. balance sheets,
profit and loss accounts, company
statistics, market figures).
• Our controllers have got lots of new
customers: now they are “business
consultants” for everyone in the firm.
• Starting May 2008, salary data will be
disclosed within the Paradigma group.
• …
24 FIRE

25. Principles of our management model transformation:
Changing management processes from “fixed” to “relative”
The world changes permanently and
fast, hence we have to look at performance
in a relative, not in a fixed way!
Planning: Budgeting and other traditional
business planning for 2008 was eliminated.
Performance measurement: No more fixed
targets in the form of Plan/Actual
comparisons – reports have been rearranged,
using multi-year trends, annual comparisons,
and some forecasting.
Reporting system is being further improved.
Targets: Derived objectives for senior
management have been dropped and will not
be replaced. Relative targets for teams will be
deployed once we have put a new
organizational (cell) structure in place.
Resource management: We now have dialogues
taking place continuously, applying action
planning and on-demand resource coordination.
25 FIRE

26. Principles of our management model transformation:
Decentralization
Customer and market-oriented reconstruction of
the group (“from the outside in”, i. e. “responding
to market-pull”)
No more functional “departments”,
instead: “cells” with constructive processes
following customer/supplier relationships.
Example: Building regional teams
- 28 sales force mavericks,
- 15 field engineers
- 15 back-office sales employees
(all nicely divided into different departments
before!), are going to become
6 virtual regional teams!
26 FIRE

27. Principles of our management model transformation:
New leadership behavior & minimum of hierarchy
What happens if we submit everyone in the
firm to “market-pull”?
Why must management staff make
decisions hierarchically, if there are
external/internal customers in place?
Senior management hands over leadership
responsibility to all.
Concept: dialogue-based leadership
Due to the cell-formation process there will
be less management staff. In the new
model:
• A part of them is going to be real
leaders, according to our new values
and model!
• A part of them will become simple
members of the business cells,
because of their mainly specialist
know-how.
• A part of them may not identify
with the new model and will resign.
27 FIRE

28. Principles of our management model transformation:
FIRE-compatible compensation systems
Immediate action: gross violations of FIRE
principles and values are eliminated
1. Profit-sharing agreements for managing
directors are dropped
Switch to fixed salaries!
2. Objectives or variables for management staff
are dropped (approx. 20% share of income);
Switch to fixed salaries!
3. Annual “appraisal interview” and allowance
for employees are dropped
(approx. 12% share of income);
Switch to fixed salaries!
4. Objectives and commissions for sales force
are dropped (approx. 60% of income)
Switch to fixed salaries!
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29. Principles of our management model transformation:
FIRE-compatible compensation systems
Entirely new conception of
compensation systems, being worked
out by a “Compensation Task Force”
What is the individual staff member
worth to the organization?
What does income “in conformity with
market requirements” mean?
Homogeneous profit-sharing of staff
for the whole Paradigma group –
focused on “relative market
performance”, not on achievement
of planned/fixed budget figures
Introduction of “trust-based
working hours for everyone”,
in the whole Paradigma group
29 FIRE

30. Principles of our management model transformation:
Open communication
Don‘t talk about each other, but with
each other (applies to EVERYONE in the
company)
Recognize and remove existing bullying
tendencies/structures
Direct communication: fewer mails and
more personal conversations
Open discussion platforms, the so-
called “tandem meetings”, will
continue: topics are discussed together
with all interested, without need to find
solutions immediately.
(“Will management staff be
unnecessary in future?”,
“Must all the employees in the
company earn the same?”).
30 FIRE

31. Our management model transformation:
What we are doing right now
The Guiding Coalition increases the
pressure for change
The Task Forces achieve first results
We approach publicizing of all salaries
to everyone – increasing urgency and
hinting at the fact that there is no way
back to taylorism and secrecy
Three “cell-formation” workshops in
calendar week 14 will break up
traditional departments and hierarchical
power. The workshops will start the
creation of a new, networked,
organizational structure
Forthcoming:
Leadership skill training for new
model and structure
Creation of a value-flow system,
similar to Handelsbanken´s
31 FIRE

32. Contacts & references
René Reinhold, CFO
Paradigma Energie- und Umwelt-
technik GmbH & Co. KG
www.paradigma.de
Phone: +49-7202-922 246
Mail: r.reinhold@paradigma.de
Beyond Budgeting Transformation Network – make it real! www.bbtn.org
Niels Pflaeging Gebhard Borck
BBTN & MetaManagement Group BBTN & gberatung
beyond
budgeting Al. Santos 1.991 Fritz-Neuert-Str. 13 a
>
transformation 01419-002 São Paulo – SP, Brazil 75181 Pforzheim - Germany
network.
niels@bbtn.org gebhard@bbtn.org
www.metamanagementgroup.com www.gberatung.de
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