Beyond Budgeting at Paradigma.What it means to us – and how we make it real!BBRT Europe 41 meeting, 1 April 2008
The Paradigma group Solar energy systems Wood pelletssystems Gas-fired condensing systems The man behind the business idea 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
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 Differentiation phase Low degree of decentralization/ empowerment and fixed performance contracts: in conflict with today's critical success factors! Classic evolution path: stagnation within the tayloristic model Transformation - Revolution through radical devolution and decentralization (alternative path!) This is our path now! Classic evolution path: professionalization, bureaucratization and functional differentiation High degree of decentralization/ empowerment with relative performance contracts: aligned with today's critical success factors! Pioneering phase Integration phase Maintenance of empowered, trust-based culture, in spite of growth (alternative path!). Sustaining and deepening of the decentralized model, through generations Foundation Time scale: organization's age Several decades old Source: Niels Pfläging, “Leading with flexible Targets. Beyond Budgeting in Practice“, 2006
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.
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
Beyond Budgeting at Paradigma – how we started: Speed of change area of indirect influence personal area of (direct) influence area of no influence Reading: possible speed of change per action Source: “Influence Speedo” - Gebhard Borck
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),
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!”
FIRE 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)
FIRE 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 andconcluded “version 1.00” in September 2007 • First rounds of Tandem Meetingson the “Change manifesto, version 1.00“. Summer 2007: Paradigma becomes a member of the BBRT.
FIRE 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!
FIRE 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 • …
FIRE Our “change manifesto” - the crucial point: How do we, within the organization, perceive human nature?
Attitude – People dislike work, find it boring, and will avoid it if they can. Attitude - People need to work and want to take an interest in it. Under the right conditions, they can enjoy it. Direction – People must be forced or bribed to make the right effort. Direction – People will direct themselves towards a target that they accept. Responsibility – People would rather be directed than accept responsibility, which they avoid. Responsibility – People will seek, and accept responsibility, under the right conditions. Motivation – People are motivated mainly by money and fears about their job security. Motivation - Under the right conditions, people are motivated by the desire to realize their own potential. FIRE Creativity – Most people have little creativity - except when it comes to getting round management rules. Creativity – Creativity and ingenuity are widely distributed and grossly underused. Based on Douglas McGregor, ‘The Human Side of Enterprise’, 1960 Our “change manifesto” - the underlying issue: Our assumptions about human nature We don't believe in … We believe in …
FIRE 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
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 3. Autonomy Give teams the freedom and capability to act Micro-manage them Leadership 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 FIRE 9. Planning Make planning a continuous and inclusive process Top-down, annual event Processes 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 Our “change manifesto”:To us, beyond budgeting means a set of 12 principles. No less. Source: BBRT
Our “change manifesto”: If you leave one principle out, you will not succeed.
FIRE 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)
FIRE In a management model transformation, two intertwined change processes must come together Organizationalchange process (John Kotter) Individual change process (William Bridges) 3. Beginning 2. Neutral Zone 1.Create a sense of urgency 2. Pull together a guiding coalition 3. Develop change vision and strategy 4. Communi-cate for understan-ding and buy-in 5. Empower all others to act 6. Produce short-term wins 7. Don't let up! 8. Create a new culture • 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
FIRE 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 • Support task forces • Support people during the change • Support change in conformity with FIRE • Keep track of FIRE (e.g. check “change temperature” • Handle resistance • Push ahead with change • Cater for consequence • Take or carry through corporate decisions. • “Do the change all alone” Other important facts: • The GC is no elitist circle • The GC is not a new form of hierarchy • Being a member in the GC is no promotion
FIRE 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.
FIRE 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. • …
FIRE 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 dialoguestaking place continuously, applying action planning and on-demand resource coordination.
FIRE 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!
FIRE 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.
Principles of our management model transformation:FIRE-compatible compensation systems • Immediate action: gross violations of FIRE • principles and values are eliminated • Profit-sharing agreements for managing directors are dropped • Switch to fixed salaries! • Objectives or variables for management staff are dropped (approx. 20% share of income); • Switch to fixed salaries! • Annual “appraisal interview” and allowance for employees are dropped (approx. 12% share of income); • Switch to fixed salaries! • Objectives and commissions for sales force are dropped (approx. 60% of income) • Switch to fixed salaries!
FIRE 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
FIRE 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?”).
FIRE 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
Contacts & references René Reinhold, CFO Paradigma Energie- und Umwelt- technik GmbH & Co. KG www.paradigma.de Phone: +49-7202-922 246 Mail: firstname.lastname@example.org Beyond Budgeting Transformation Network– make it real! www.bbtn.org Niels Pflaeging BBTN & MetaManagement GroupAl. Santos 1.99101419-002 São Paulo – SP, Brazil email@example.com Gebhard Borck BBTN & gberatungFritz-Neuert-Str. 13 a75181 Pforzheim - Germany firstname.lastname@example.org