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The traditional performance management model is too rigid to reflect today's fast-moving economy. Two new approaches devolution and strategic performance management-have risen in popularity, but they are equally frustrated by unyielding budgeting systems.
In an age of discontinuous change, unpredictable competition, and fickle customers, few companies can plan ahead with any confidence-yet most organizations remain locked into a "plan-make-and-sell" business model that involves a protracted annual budgeting process based on negotiated targets and resources and that assumes that customers will buy what the company decides to make. But such assumptions are no longer valid in an age when customers can switch loyalties at the click of a mouse.
Organizations need to find a new model that effectively empowers front-line managers to make fast decisions based on current information. The "Beyond Budgeting" model represents a set of information-age best practices-from organization design and devolution of authority to planning and performance managementthat leading-edge companies are now using to respond much faster to customer demands. Understanding what these practices are and what you need to do to adopt them is increasingly likely to determine whether or not your company is able to compete effectively in the new economy.
Such companies as Svenska Handelsbanken (see sidebar, p. 33), Volvo Cars, IKEA, SKF, Borealis, Fokus Bank, and Boots have all abandoned the budgeting model in one form or another in recent years. And the momentum is gathering pace. Ericsson, Diageo, and British cider maker Bulmers are among the latest companies to see the light. Such is the current interest that in 1998 a Consortium for Advanced Manufacturing-International (CAMI) research forum known as the Beyond Budgeting Round Table (BBRT) was established to understand and report on these developments.
After two years' research and numerous case visits, the BBRT has concluded that not only do firms need more effective strategic management, but they also need to redesign their organizations to devolve authority more effectively to the front line. Crucial to success, however, is the recognition that these two elements of the beyond budgeting model must be given equal attention.
ORGANIZATION DESIGN AND DEVOLUTION
Most attempts at redesigning organizations and devolving decision making have focused on flattening hierarchies, reengineering processes, and introducing team working. Invariably, such approaches simply lead to the delegation...