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Outline

Beyond Budgeting - an agile management model for new business and people realities Ambition to Action - the Statoil journey. Bjarte Bogsnes Vice President - Performance Management Development Chairman - Beyond Budgeting Roundtable Europe. The case for change - what is the problem?

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Outline

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  1. Beyond Budgeting - an agile management model for new business and people realitiesAmbition to Action - the Statoil journey Bjarte BogsnesVice President - Performance Management DevelopmentChairman - Beyond Budgeting Roundtable Europe

  2. The case for change - what is the problem? The Beyond Budgeting principles The Statoil model - Ambition to action Outline

  3. Current production of oil and gas Statoil in brief Arctic • Turnover approx. 130 bn. USD • 23000 employees in 33 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 North Sea & Norwegian Sea Russia Canada Caspian North Africa US Gulf of Mexico Middle East Aus/Indo. South America East Africa West Africa

  4. Fortune 500 ranking (2011) Social responsibility Innovation

  5. Some of the budget problems Often weak link to strategy Often a bad yardstick for evaluating performance Very time consuming Decisions made too early and often too high up Assumptions quickly outdated Can prevent value adding activities “Accordion” forecasting horizon Irritating itches - or symptoms of a bigger problem?

  6. Managing traffic performance - one alternative Who is in control? Based on which information? 6

  7. Managingtrafficperformance- another alternative Who is in control? Based on which information?

  8. Which is most difficult? Which is most efficient? In which are values most important? 8

  9. what about the way we lead and manage? The world has changed - Business environment Dynamic Traditional management Stable ”Theory X” ”Theory Y” People

  10. We must change both processes and leadership Processes No traditional budgeting Relative and directional goals Dynamic planning, forecasting and resource allocation Holistic performance evaluation Beyond Budgeting Dynamic Rigid, detailed and annual Rules-based micromanagement Centralised command and control Secrecy, sticks and carrots Values based Autonomy Transparency Internal motivation Stable ”Theory X” ”Theory Y” Leadership

  11. 11 Companies on a similar journey

  12. The Beyond Budgeting principles

  13. Start of the Statoil journey- solving a serious budget conflict Step 1 Step 2 The budget purposes Separate Improve • Inspiring & motivating • Relative where possible • Holistic performance evaluation Target What we want to happen • Budget = • Target • Forecast • Resource allocation • Unbiased - expected outcome • Limited detail Forecast What we think will happen • Dynamic - no annual allocation • KPI targets, mandates, decision gates & decision criteria • Trend monitoring Resource allocation “Event driven - not calendar driven” “Same number –conflicting purposes” ”Different numbers”

  14. Financial performance - as wedefine it Total Shareholder Return 2012 Return on Capital (RoACE) 2012

  15. The mindset required….. – cost conscious from the first penny Do I have a budget for this? Is this really necessary? What is good enough? How much value is this creating? Is this within my execution framework? Not OK Budget OK? OK? OK OK? OK? OK?

  16. …..and the tools available Traditional cost budget Absolute KPIs Relative KPIs If no KPIs found Ambition level / burn rate Unit cost input/output Detailed and annual Unit cost vs peers Bottom line focus only Strategic objectives or actions only Increasing autonomy and flexibility ~1000 Xx Xx Xx Xx Xx Xx Xx Xx 1003,4 ” A simplified and cost conscious way of working” “More video - less travel ” EBIT RoACE (abs/rel) ”USD/bbl” ”USD/customer” ”USD/employee” ”1. quartile” ”Better than average” Increasing need for strong values and clear direction Select based on what works best in your business Monitoring of actual development, intervention if needed only

  17. Strategic objectives Actions & forecasts Individual or teamgoals KPIs Where are we going – what does success look like? How do we measure progress? How do we get there? What is my or our contribution? • Most important strategic change areas • Medium term horizon • Indicative measure of strategic delivery • 5-10 KPIs, shorter/ longer term targets • Concrete actions and expected outcome (forecast) • Clear deadlines and accountabilities • My Performance Goals • Delivery • Behaviour Ambition to Action - purpose and process • Translating strategy - from ambitions to actions • Securing flexibility - room to act and perform • Activating values and leadership principles

  18. Ambition to Action example People & Organisation Where are we going? ”Strategic objectives” How do we get there? ”Actions” HSE How do we measure progress? ”Key Performance Indicators” Operations Market Finance

  19. More than 1400 ”Ambition to Action’s”across the company …..and more

  20. A broader performance language- from narrow measurement to a holistic assessment • D • e • l • i • v • e • r • y Ambition to Action • Development plan • Rewards 50/50 • Pressure 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? • B e h a v i o u r • Living the values • Day-to day-observations • 360°/ 180°/ 90° surveys • People survey

  21. Towards a simpler, more dynamic and self-regulating Ambition to Action process More cost conscious - less «cost cutting» More event driven - less calendar driven More translation - less cascading More relative - less absolute KPIs More transparency - less secrecy Simple is not the same as easy!

  22. Questions or comments - now or later? BjarteBogsnesbjbo@statoil.com + 47 916 13 843 Twitter @bbogsnes Beyond Budgeting Round Tablewww.bbrt.org 22

  23. Want to hear more? • The problems with traditional management • The Beyond Budgeting model • The Borealis case • The Statoil case • Implementation advice • Out on Wiley (US) • Available from e.g. Amazon.co.uk • (Now available in Russian and Japanese) 23

  24. Back-up

  25. Beyond Budgeting - why it’s different, difficult and powerful Granularity Many leadership theories Beyond Budgeting Idea Complexity theory Lean, Agile, Holocracy Balanced Scorecard Budgeting TQM, ABC etc… Recipe Elements only The whole Coverage Management agenda

  26. The CEO on Ambition to Action 26

  27. Delivery goals are based on Ambition to action - directly or indirectly Ambition to action Directly Indirectly Translated goals ”Manager” Translated goals ”Team member” without own Ambition to action ”Other employees”

  28. Why a holisticperformanceevaluation? KPIs are indicators, does not always tell the full story Always wiser in hindsight, always more information Fixed targets struggle in a dynamic world Create comfort around ambitious targets ” Not everything that counts can be counted, and not everything that can be counted counts (Albert Einstein)

  29. Implementation advice • Create problem understanding before talking solutions • What’s the real risk – upside vs downside • Design to 80% and jump • A ”pull-based” approach • ”One war but a thousand battles” • Involve HR • Don’t become a fundamentalist

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