Is your organisation taking steps to become more agile? Probably.
This usually means a move away from hierarchical central structure, with more devolved power, and decision making placed in the hands of more and more people across the organisation. A world with fewer controls.
But are Insight teams prepared for this more agile, event-reactive approach to company management?
The Insight team cannot be directly involved in every decision made, therefore the IMA advocates broader dissemination of knowledge and understanding to empower decision makers and drive change.
Trading centralised control for agility
In their book ‘Beyond Budgeting’, authors Jeremy Hope and Robin Fraser argue that the traditional annual budgeting process, characterised by fixed targets and performance incentives, is time consuming, over-centralised, and outdated.
Worse, it often causes dysfunctional and unethical managerial behaviour. Based on an intensive, international study into pioneering companies, they propose an alternative, coherent management model that overcomes the limitations of traditional budgeting.
The most often quoted case study, and one of the first to take this approach, is Handelsbanken, a Swedish bank. They are not the world’s biggest bank, but they are rated as the strongest bank in Europe. And they have posted profits above the average for their sector every year since 1972! And what drove that performance? They abandoned classic budgeting in 1970.
Traffic lights or a roundabout?
To understand what it means to do away with budgets, consider the analogy of how you control another complex operational system – the road network. The key decision making element of driving is what to do at junctions. And there are two principal styles of control: the traffic light and the roundabout.
The traffic light is just like a centralised control system like budgeting. It decides when you can or can’t go, and individuals are not allowed to disobey. Green means you can go, whilst red means you can’t.
Contrast that with the roundabout. Here, the decision making is delegated to the driver. Of course, there is one simple principle, that of giving way to traffic already on the roundabout, but beyond that the driver decides. How often have you been held at a red traffic light when there’s no traffic and it would be safe to go? At a roundabout there are no such problems and traffic generally flows more efficiently.
What happens if you apply this principle to departmental spending? You get rid of fixed budgets and instead leave it to managers to take what they believe is the right decision at the time to meet business objectives. There are some rules and constraints of course, just as the roundabout has rules, but decision making is far more localised.
Without budgets, surely spending will spiral out of control?
The evidence suggests that it doesn’t.
In the case of Handelsbanken, it means branch managers really are managing their own branches. They take decisions on whether a customer gets a mortgage. They decide the staffing levels and office expenditure. They are entirely responsible for maximising their branch performance. And the key to it is information and transparency.
At all stages, they and all their peers can see how they are doing, and performance is measured entirely on a relative basis – relative to their peers and relative to the market. The result is that it makes the whole organisation more responsive.
It also removes the game playing so often associated with centralised systems, the worst example being managers frantically spending their remaining budgets at year end, whether for the business’s benefit or not, simply to make sure they don’t then lose that money from next year’s budget.
While this budget-less approach is not at all commonplace, it is growing, and is starting to be practiced by companies including American Express and Unilever.
The implications for Insight
Most companies today have a centralised, typically annual, planning and budgeting process that determines the bulk of activity in the following year. To maximise the value that Insight can bring to decision making, Insight teams try to find ways of moving upstream in that planning process. By doing so, it becomes possible to plan and schedule Insight work to support the organisation’s decisions in a timely manner, and ultimately drive change. Also, it avoids much of the ‘hamster wheel’ style reactive work along the way.
What Beyond Budgeting and other agile approaches demonstrate is that this level of corporate planning and control may decrease over time, demanding a different emphasis from Insight teams.
Perhaps the most immediate area to examine is how we manage our accumulated Insight knowledge, and crucially how we share this with decision makers.
Most teams recognise the need for Insight portals and self-serve systems. But perhaps this is often driven by the need to reduce the workload of constant minor demands. Instead, the emphasis should now be on empowering decision makers across the organisation to regularly use and rely on Insight. In turn that means identifying the big customer and market insights which all senior decision makers need to know, and figuring out how best to share that understanding.
If you have another 5 minutes...
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