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The Case for Transformation (BetaCodex05)

BetaCodex Network white paper No. 5, on the Case for Transformation towards decentralized, networked organizations

NielsPflaeging
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The Case for Transformation (BetaCodex05)

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  1. Make it real! THECASE FOR TRANSFORMATION WhattheBetaCodexstandsfortoday. Whyyoushouldchangeyourorganizationalmodel. Howyoucanstartthetransformationjourney. 05 BetaCodexNetworkAssociates NielsPflaeging&GebhardBorck BetaCodexNetworkWhitePaperNo.5.Apr2008–updatesDec2011,Feb2013

  2. TheBetaCodex (or“beyondbudgeting”) movement hasbeenonajourneyofmorethan15yearssofar… The1stphase (1998-2002): Findingaworld “beyondbudgeting” The1stphase: •  TheBBRTisfoundedin1998asastudygroupwithinCAM-I,anindustryassociation. In2002,theBBRTbecomesindependentfromCAM-I. •  Companyvisits:TheBBRTlooksintoorganizationstofindwaystoabandonbudgeting. ItfindsorganizationslikeHandelsbanken,AES,Borealis,andIkea. •  Morethan20detailedcasestudiesarewrittenup,anddiscussedwiththe membershipduringmeetingsandsharedwiththewideraudienceatconferences.The BBRTexpandstotheAmericasandotherregions. •  Theprinciplesofthemodelareoutlinedandrefined.Manyarticlesarepublished. •  From1998on,theBBRTgathersaround150memberorganizations.

  3. The1stphaseofthejourney: Lookingforaworld“ “beyondbudgeting” ” 1922,JamesO.McKinsey:“Budgetarycontrol…isurgentlyneededasthebasisfor centralizedexecutivecontrolandtocoordinatetheactivitiesoffunctionaldepartments”. To: 1997,Dr.JanWallander:“Budgetingisanunnecessaryevil.” From: Typicalproblemsofbudgetarymanagement Criticalsuccessfactors 1. Fastresponse 2. Innovation 3. Operationalexcellence 4. Customerintimacy 1.  Toolong/expensiveannualplanning/budgetingprocess 2.  Inflexibletochange.Innovationstifled,notinspired 3.  ‘Spenditorloseit’costprotectionmentality 4.  Salestargetsandincentivesdrivebehaviour, whichbecomesdivorcedfromstrategy 5.  Extrinsic,notintrinsicmotivation,overlycentralized decision-making 6.  Dysfunctional,evenunethicalbehaviour 5. Greatplacetowork 6. Effectivegovernance 7.Financialperformance • Inferiorfinancialperformance Thesearesymptomsofadeeperproblem

  4. The2ndphaseofthejourney: Understandingthenewmodel The2ndphase (2003-2007): Understanding thenewmodel The1stphase (1998-2002): Findingaworld “beyondbudgeting” The2ndphase: •  ThefirstHBRarticleonBeyondBudgetingappears. •  ThefirstbooksbyBBRTdirectorsarepublished, inlanguagessuchasEnglish,German,Spanish,DutchandChinese. •  TheBBRTauthorsmanyconceptpapersonthemodel. •  Furtherpioneeringcasestudiesareidentifiedanddescribed, suchasSouthwestAirlines,Toyota,Semco,Aldi,DM,andothers. •  ToolssuchastheBBRTonlinediagnosticarebeingdeveloped,transformationistried. •  TheBBRTpositionsthemodelnotasaperformancemanagementsolution,butasthe 21st-centuryalternativetotayloristicmanagement.

  5. Outliningthe“industrialage“modelanditspitfalls “ “commandandcontrol“ “ “ “keepontrack” ” strategy •  Toocentralized •  Tooinward-looking •  Toolittlecustomer-oriented •  Toobureaucratic •  Toomuchfocusedoncontrol •  Toofunctionallydivided •  Tooslowandtime-consuming •  Toode-motivating •  … Fixed performance contracts control

  6. Theworldhaschanged– aholisticlookattoday'scriticalsuccessfactors Industrialageends: ”Supplieshavethepower“, Evolutionofmassmarkets: Taylorismasthesuperiormodel Knowledgeeconomyadvances: ”Customershavethepower“, strongcompetition,individualizeddemand: decentralizedandadaptivemodelissuperior! high Now,allthesefactors areequallyimportant! Here,onlyefficiency mattered,really! 1.  Discontinuouschange 2.  Shortlifecycles 3.  Constantpressureonprices 4.  Lessloyalcustomers 5.  Choosyemployees 6.  Transparency, societalpressure ?  Highfinancial expectations Competitive successfactors (CSF) -Fastresponse -Innovation -Operationalexcellence -Customerintimacy -Greatplacetowork - Effective governance - Sustainedsuperior valuecreation/fin.perf. Characteristics Dynamics and complexity Characteristics •  Incrementalchange •  Longlifecycles •  Stableprices •  Loyalcustomers •  Choosyemployers •  „Managed“results low Mostorganizationsstilluseamanagementmodelthatwasdesigned forefficiency,whiletheproblemtodayiscomplexity. 1890 1980 1990 2000 2010 2030 2020

  7. Fromcommand-and-controlhierarchy tomarket-drivennetwork Traditionalmodel:“ “Alpha” ” (centralizedfunctionalhierarchy) Emergingmodel:“ “Beta” ” (decentralizedleadershipnetwork) Changing leadershipand structures •  “Bosses”rule! •  Top-down commandandcontrol •  Topmanagement isalwaysincharge •  Centralizedleadership •  Hierarchicalrelationships •  “Themarket”rules! •  Outside-in senseandrespond •  Front-lineteamsarealwaysin charge •  Devolvedleadership •  Socialdensity

  8. Fromfixedtoadaptiveperformanceprocesses Traditionalmodel (fixedperformancecontracts, negotiatedinadvance) Newmodel (relativeperformancecontracts, assessedwithhindsight) Relative performance contracts strategy Fixed Changing processes performance contracts Dynamic coordination control •  Fixed,annualprocesses •  Fixedtargetsandincentives •  Centralizedand bureaucraticcontrol •  Dynamic,continuousprocesses •  Relativetargets/compensation •  Team-basedself-control, transparencyandpeerpressure

  9. Fromtheoldcoherencetoanewcoherence. Alpha:Traditionalmodel(supports efficiency) Beta:Newmodel(supports complexity) Decentralized network, “ “Senseand respond“ “ Centralized hierarchy, “ “commandand control“ “ Theoldmodelisnot alignedwithtoday’s Criticalsuccessfactorsand itdoesnotsupport‘TheoryY’. >Weneedanew modeltocopewith complexity >Wemustchange thewholemodel! Relative performance contracts strategy Fixed performance contracts Dynamic coordination Dynamic processes Fixedprocesses control

  10. Therearemanyoutstandingcasesofcompaniesthathave appliedthe“new”model.Thisisaselection. 10 10

  11. Theultimategoalforapplyingthenewmodelis industryleadership.Noless. Industry Retail Theyare: •  Innovators:Acriseswithintheir industriesorfirmscausedthem tochangeradically •  Mavericks:Exceptionalleadershipmodels •  Performers:Superiorcompetetivesuccess Services Governmental &not-for-profit It´sthecoherenceofthe leadershipmodelthatmatters!

  12. Thereisa“new”model-supportedbybothscienceandpractice Sciences: Thoughtleaders (selected) Practice: StaffordBeer MargarethWheatley NiklasLuhmann W.EdwardsDeming KevinKelly RossAshby JosephBragdon … Industryleaders (selected) DouglasMcGregor ChrisArgyris JeffreyPfeffer ReinhardSprenger StephenCovey HowardGardner ViktorFrankl … Complexity theories Industry Social sciencesand HR Retail PeterDrucker TomPeters CharlesHandy JohnKotter PeterSenge ThomasDavenport PeterBlock … Leadership& change Services Strategy& Performance management Governments &NGOs HenryMintzberg GaryHamel JeremyHope MichaelHammer ThomasJohnson CharlesHorngren …

  13. Welcometothe3rdphaseoftheBetaCodexjourney! The3rdphase (2008–): Transforming organizations The2ndphase (2003-2007): Understanding thenewmodel The1stphase (1998-2002): Findingaworld “beyondbudgeting” The3rdphase: •  Themodeliswidelyrecognizedandunderstood.Someorganizationsapproachfull modeltransformation,guidedbyBetaCodexprinciples. Conceptsandtoolsfortransformationarebeingpresentedandfurthermethodsadded. •  TwoBBRTdirectorsleavetheBBRT (RobinFraserandNielsPflaeging). •  TheBeyondBudgetingTransformationNetwork (BBTN) isfounded,adoptinganew approachtowardsresearchandmembership,byfocusingontransformation,and becomingopensource. •  “TheBeyondBudgetingmodel”isrebrandedas“theBetaCodex”.Withthis,theBBTN becomestheBetaCodexNetwork. •  …

  14. Now,itistimefortransformingyourorganization– byclosingthegaps Atypicalcompany–resultsfromtheBBRTonlinediagnostic Table 1: The case for change Problems Vision Practice Close thegaps!

  15. “Incrementalchange”,startingwithtools orwithinaspecificfunction (e.g.finance),failstotransform! High Gearedtowardsefficiency Gearedtowardscomplexity Industry leadership Startingwithtools… •  Rollingforecasts •  Benchmarking •  Rewardsystems •  Balancedscorecard •  ABM,CRM,EVA…etc. X Compe- titive perfor- mance New model Adaptive processes Traditional model Low Centralized&fixed Decentralized&dynamic Managementmodel

  16. Therearetwodifferentwaysofworkingonthemodel– evolutionandtransformation Sustainingand deepeningofthe decentralizedmodel, throughgenerations Evolution withinthedecentralizedmodel (cultureofempowerment andtrust) Integration phase Beta!Highdegree ofdecentralization/ empowerment Transformation throughradical Decentralizationofdecision-making Differentiation phase Stagnation withinthetayloristicmodel Alpha!Lowdegreeof decentralization/ empowerment Bureaucratization throughgrowinghierarchy andfunctionaldifferentiation Pioneering phase Beta!Highdegreeof decentralization/ empowerment Severaldecadesold Foundation Timescale:organization'sage

  17. Fortransformation,wemustwork onthemodel,notinthemodel. Gap! Gap!

  18. Coherenceisacriticalissue-thereisno“ “halfwaytoBeta” ”

  19. Istransformationpossibleatall? “Idon´tknowifitispossible. WhatIknow:Itisnecessary.“ Tom Peters Today,wealreadyknowforsureitispossible. Andwehavealsolearnedhowitcanbedone.Anywhere.

  20. Thepowerofvisionaryleadership: dm-drogeriemarkt,transformedduringthe1990s f( x x V S R D ) > Dissatisfaction Vision Strategy/Steps Resistance Theresults: •  Moresuccessfulthanitscompetitorsin allrelevantperformanceindicators. •  Oneofthemostrespectedcompanies inGermany.Strongorganicgrowth. •  Almostwithouthierarchy,sincethelate 1990s.“Branchesrule“,leadership happensstrictly“bydialogue“.

  21. TheBetaCodex:Isthissomethingforonlyaselectfew? Justforgeniusesandmavericks?

  22. Therearetwodifferentwaysofworkingonthemodel: evolutionandtransformation.Dependingonwhereyouaretoday Sustaining Integration phase Beta!Highdegree ofdecentralization/ empowerment Evolution Transformation Differentiation phase Stagnation Alpha!Lowdegreeof decentralization/empowerment Bureaucratization Organizationswith traditionalmodelsmust eventuallytransform themselves! Pioneering phase Beta!Highdegreeof decentralization/ empowerment Severaldecadesold Foundation Timescale:organization'sage

  23. It´sadifferent mental discipline

  24. The12lawsoftheBetaCodex (formerly:BeyondBudgeting) areafullsetofdesignprinciplesforanewtypeoforganization Law Beta §1Freedomtoact Connectedness §2Responsibility Cells §3Governance Leadership §4PerformanceclimateResultculture §5Success Fit §6Transparency Intelligenceflow §7Orientation RelativeTargets §8Recognition Sharing §9Mentalpresence Preparedness §10Decision-making Consequence §11Resourceusage Purpose-driven §12Coordination Marketdynamics Alpha notDependency notDepartments notManagement notDutyfulfillment notMaximization notPoweraccumulation notTop-downprescription notIncentives notPlanning notBureaucracy notStatus-oriented notCommands

  25. Principlesfortransformingthemodel 1.  Initiation–Anyoneanytimecanrecognizetheneedforchange butithastobeownedbythetop. 2.CaseforChange–Acompellingchangemanifestomustbebuiltatthetop beforedoinganything. 3.Leadership–Visionaryleadershipthroughaguidingcoalitionisthepower thatdrivestransformation,notcommandandcontrol. 4.Coherence–Everyelementofthenewmodelmustbecoherent, otherwisetransformationwillfail. 5.Process–Theprinciplesforleadingchangemustbebuiltintoaprocess andadoptedwithoutexception. 6.Evolution–Thenewmodelmustbeimprovedcontinuously withouteverdeclaringvictory.

  26. Principles:Leadingmajor,transformationalchange Applyingafittingchangemodeliskey– theBetaCodexNetwork’sDoubleHelixTransformation Frameworkistailoredtothischallenge,beingboth systemic,agile,andmakinguseofcomplexgroup dynamics References 1. Ending Individual changeprocess 1. 2.NeutralZone Createa senseof urgency 2. Pull 3.Beginning 3. togethera guiding coalition Develop change visionand strategy 4. 5. Communi- catefor under- standing andbuy-in Empower allothers toact 6. Organizational changeprocess Produce short-term wins 7. Don't letup! 8. Createa newculture

  27. Totransformyourorganizationfrom“ “command&control” ”to “ “decentralizednetwork” ”,adoublehelixchangeframeisneeded 1. Ending Individual changeprocess 1. 2.NeutralZone Createa senseof urgency 2. Pull 3.Beginning 3. togethera guiding coalition Develop change visionand strategy 4. 5. Communi- catefor under- standing andbuy-in Empower allothers toact 6. Organizational changeprocess Produce short-term wins 7. Don't letup! 8. Createa newculture References

  28. Thecasefortransformation–asummary • Ourgoalisambitious • Ourcaseforchangeiscompelling • Thewholemodeloftheorganizationmustbechanged • Thisrequirestofollowallthestepsthatareessential tosuccessfultransformation • Anincrementalapproachtoimprovingthemodel ortogettingto“Beta”willneversucceed. “It’snotbecauseit’sdifficultthatwedon’tdaretodoit: itseemsdifficultbecausewedon’tdaretodoit” Seneca, Roman philosopher and statesman, 4BC – 65AD TheauthorswouldliketothankRobinFraser,whose presentationontransformationattheBBRT40meeting, October2007,hasservedasabasisforthispaper.

  29. TheBetaCodexNetworkwhitepapers-sofar Special   Edi+on   Special   Edi+on   FindallBetaCodexNetworkwhitepapersonwww.betacodex.org/papersandonSlideshare. Whitepaper–The3StructuresofanOrganization ©BetaCodexNetwork–Allrightsreserved 25

  30. The“OrganizeforComplexity”book Paperbackedition Deluxeedition (withbonuschapter) www.organizeforcomplexity.com

  31. Make it real! ValéryaCarvalho mvaleriacarv@gmail.com LinkedIn SãoPaulo NielsPflaeging contact@nielspflaeging.com nielspflaeging.com NewYork,Wiesbaden SilkeHermann silke.hermann@nsights-group.de insights-group.de Wiesbaden,Berlin,NewYork LarsVollmer me@lars-vollmer.com lars-vollmer.com Hannover,Stuttgart betacodex.org GetintouchwithusformoreinformationaboutleadingBetaCodextransformation, andaskusforakeynoteoraworkshopproposal.

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