1. Customers

Customers - Focus everyone on their customers, not on hierarchical relationships

Classic 20th century organizations from the industrial age usually applied make-and-sell business models, which means that they developed products, produced them and then gave the customer an incentive to buy them. High performance organizations today use a sense-and-response approach, which applies an outside-in philosophy. Any organization can apply an outside-in sense-and-respond approach.

• Famously, Toyota and Dell have invented outside-in business models in their industries (cars and computers, respectively), submitting production to single customer orders or projects.


• Guardian Industries originated a similar business model for flat glass and mirror production, being the first company in the industry to sell directly to customers.


• Handelsbanken and Scandinavian retailer Ahlsell work from the branch outside in.


• Southwest Airlines, AES and Semco, Egon Zender International and W.L. Gore work from single value creation streams or customer projects.

The high performers of the 21t century are “managed” by market pull, not via inside-out command and control. Waste and even damage occurs if inside managers are interfering with the mechanism of “market-pull”. Every single person needs a free and clear view to the market forces that are driving the organization.

Hierarchical organization charts dissimulate the view that organization members “serve the boss”, or hierarchy. They thus stand in the way of the market forces, by making people look “up”, not “out”. In this way, hierarchies limit the potential of their members to serve the market.

Beyond Budgeting organizations, on the other hand, don’t “produce” without market pull. They actually make use of the pull from the outside-in to energize and stabilize their adaptive networks of cells. That way, Beyond Budgeting organizations use the somehow differing interests of the market forces like legislation, investors and customers to “manage” their networks of cells.

• Market pull is what connects the market with the organizations, and thus the outer part of the sphere of activity with the inner part. Whenever an external stakeholder of an organization “wants“ or “demands“, “orders“ or does something relevant to the organization, it originates market pull.


• Market pull can be applied by customers wanting something, but also by shareholders demanding a compensation for their investments, or a bank demanding payback of a loan, or the state demanding the payment of taxes, or a competitor launching a new product. Market pull thus has varied sources.


• In the real world, there is no such thing as “market pressure“. This might at first sight appear as a counterintuitive claim. But if you consider organizations as operating within their own, self-defined Sphere of Activity, then markets simply cannot apply “pressure“. What markets really do is that they apply “pull“. They do this all the time. And pull is a powerful force. All market actors pull. They stimulate by pulling. They want things. They govern the organization.

Market pull comes with an interesting collateral. Because once market pull is applied as a governing and energizing force, consciously, it is capable of substituting management as an internal function of the organization. In fact, management has been outsourced to markets long ago. This happened when competition and dynamic change took over within the environments of our organizations. In consequence, any effort to “manage“ an organization from the top down means making a painstaking, but ultimately fruitless effort to “steer from within“, or to duplicate “what manages us“.
In other words: management today usually means trying to do something that the market already does for you in a much better way, because it does it in a perfectly relevant and timely fashion.

2. Organization

Organization – Organize as a lean network of accountable teams, not as centralized functions.

Highly devolved organizations, as opposed to command and control organizations, are not structured hierarchically. In fact, since hierarchies don’t accept any other rulers but “top management”, or “bosses”, radical empowerment based upon the decentralization of decision-making is not compatible with structures based on power relationships and hierarchy. Although it is well-known that many organizations are factually ruled not by formal, but by informal networks, the common way to make teams act responsibly is still to give some of them a “commanding”, or “managing” position.

Beyond Budgeting organizations, on the other hand, want to achieve something entirely different: They want everybody in a company to think, to be and act responsible, in order to increase the value and wealth creation. Therefore, a Beyond Budgeting organization does not “believe” in hierarchy. It believes in empowerment and in the capabilities of its people. And the best-known and successfully practiced route to empowerment is to turn the organization into a network of interrelated cells.


The cell structure concept

A cell structure (as opposed to a design based on “departments” and “functions”) is capable of interacting situationally, in more diverse ways than functionally divided hierarchies. Even more so, it doesn’t need commands to be controlled – it can be controlled and governed just through “market pull”. Other control mechanisms that make sense within a decentralized cell structure are self-control, “peer pressure”, cultural control inspired by strong shared values and culture, as well as a far higher level of internal and external transparency than is common in the tayloristic management model.

Overall, by creating a network of these cells, and by making use of people´s full potential, business is being turned as simple and as straight-forward as executives always dreamt it would be.

There are different ways to organize a cell structure which are all coherent with Beyond Budgeting principles. The different typologies can also exist in combination.

• Profit center networks (e.g. Handelsbanken, Toyota and scandinavian retailer Ahlsell)


• Multi-project organization or project orientated organization with temporary centers of project teams established instead of permanent profit centers


• Cross-organizational value creation networks between self-dependent cells

Adopting a cell structure design is vital to making integration, or transformation work. Without this kind of concept, building an organization with little hierarchy and no command and control, is near impossible.

A networked cell structure has a lot in common with living organisms. Cell division is a common feature as well. It happens both in organisms and in networked organizations. Organizations of the new kind share the belief that a single cell should never outgrow a psychologically sound size that can grant high-trust communication among team members. onsequently, in cell network firms, once a team expands too much, this team gets divided “as needed”. This kind of cell division can be found at places such as AES, Aldi, Handelsbanken, Dell and W.L. Gore. Maximum cell size defined by an individual firm may vary greatly from industry to industry, and it varies among the case examples. W.L.Gore's unit size, for instance, is limited to around 150 team members.


Characteristics of a truly networked organization

• It gains stability and resilience not through power relationships, or through “resistance to pressure”, but through the “pull” that comes from the market outside. (Sounds simple? It is!)


• It is transparent, through open information systems.


• It shows its internal interactions in a simple manner, based on “market” and “pull” relationships.


• It creates a shared understanding of the “inside” and “outside” relationships of the organization.


• It doesn’t care about hierarchy, but about value creation streams, based on networking patterns.


• It has the interconnections needed - notmore, not less


• It applies the full set of 12 Beyond Budgeting principles.

Building blocks of cell structures

According to the systemic view of an organization, a devolved network consists of only four types of structural elements, which we will explain more in detail in this section.
Understanding the role of each of these elements is key to designing a truly devolved organization.

The four structural elements of the model are:

1. Spheres of activity


2. Network cells


3. Network strings


4. Market pull

Detailed descriptions of the building blocks of cell structures


"Spheres of activity" - distinguishing the inside from the outside

For a detailed description of the "Spheres of activity" pls. view the principle "Values".










“Network cells“ – how they differ from functions & departments

• Network cells integrate several functions, roles and duties, which would be traditionally separated into different departments, divisions and areas. A cell thus contains different functions and roles!


• Network cells offer and sell products and/or services on its own, and only depend on its market in its decisions about them.


• Network cells are customer focused, as they respond only to internal or external clients, not to hierarchy.


• Network cells are held accountable by other members of the organization and are responsible for their own value-creation. Each cell has its own P&L statement.


• Network cells apply the full set of 12 Beyond Budgeting principles.

“Network strings“ - the communication and value creation links

Strings, representing elasticity, depict the connections between cells, which might arise from several different kinds of interaction:

• Formal communication,


• Informal networking, and


• Value creation flows from the inside out.


• Internal markets and pricing mirror the flows of value creation. Cell networks practice internal payments for services, from the outside in.

"Market pull" - the force that actually “manages“ organizations

For a detailed description of the "Market pull" pls. view the principle "Customers".








How is life within a “network cell” different from working in a hierarchy?

Generally speaking, single cells within a devolved network do not entail highly specialized people, but mostly generalists ho share the workload flexibly among themselves. Furthermore, traditional tayloristic job descriptions focusing on an individual are displaced by role descriptions for entire teams, which focus on the responsibilities that have to be assumed by individual cells. These roles are often juggled with among team members, which means that “role rotation” is very common here. In order to allow for this flexiblity, generalistic talents of people are more appreciated in networked organizations, as opposed detailed technical knowledge, which is typically (over)valued in tayloristic organizations: Here, organizations sadly classify their people by their work, or job descriptions - not by their talents or abilities.

In order to make a devolved network become real, thinking about work and performance have to undergo a deep transformation. In a single cell, employees have to be entrepreneurial thinkers and doers, whereas managers in these structures serve as advisors or keepers of shared values and principles. Their role extends to not more than to steward the organization. In the words of some of the pioneers, this means being a “catalyst” (Ricardo Semler) or an “enabler” (Vineet Nayar). Managers in their traditional role as commander, inspector and executor are not needed in a networked structure, but there are roles traditionally filled out by managers which can be assumed by single persons or by different persons in the cell´s team. The lead can be and is taken by everyone who takes the responsibility to act for the team.

Besides the need for people to assume the role of “temporary leaders”, there is a need for “new roles”, which are not common in tayloristic organizations, but which are vital for decentralized networks to sustain coherence and learning. he “professor” role: These initiate learning processes in the organization, in order to keep the cells prepared for current changes and keep them innovative. The “artists” role: Artists have the sense for symbolic gestures, signs and rituals in order to make, maintain and develop internal and external relationships as well as maintaining, keeping conscious and penetrating the organization repeatedly with the its principles, reason for being, values, identity and visions). The “anthropologist” role: Anthropologists provide the understanding of norms and cultural values, of desired attitudes, mindsets and convictions of partnership internal/ external in the network.

3. Autonomy

Autonomy - Give teams the freedom and capability to act; don’t micro-manage them.

Within the cell structure, each single cell is fully independent in its decision-making regarding e.g. products (customer needs), pricing (cost to customer), promotion (communication), placement (convinience) as long as these autonomous decisions are made within the sphere of activity and focus either on internal and/or external customers. In line with the "peach" model, decisions are made at the periphery (and not the front line).

Typically the consultation principle is applied with reference to decision-making ("consultative single decision-making"). Well-known Beyond-Budgeting-Pioneers that apply the consultation principle are e.g. W.L & Gore & Associates, AES Corp, Toyota, dm drogeriemarkt, Alnatura, Svenska Handelsbanken or Egon Zehnder International.

Consultation generally means to get information and advice before making any decision. Consultation is itself a hierarchy-free process which can be asked for and given by any employee within the organization (consultation can also be given by external parties).

By using the consultative single decision-making employees experience autonomy in their decisions while the cell or even the entire organization take on responsibility for this decision.The advice itself is not binding, but forces the decision-maker to consider the needs and wishes of the organization.


The consultation process consists of the following main steps:

• 1. Within the cell the decision-maker is specified. Within devolved leadership, "Leaders" make as few decisions as possible.


• 2. The decision-maker seeks an appropriate consultant either internally or externally


• 3. decision-maker and consultant enter a dialog


• 4. The decision-maker takes on responsibility an chooses the best advice and makes the decision (or makes modifications)


• 5. The cell supports the decision, gives feedback, forgives the decision-maker if the decisions turnes out to be not appropriate, remenbers key learnings

Characteristics of the consultation process are:

1. consulting employees are included into the decision-making


2. the sharing of information increases transparency


3. consulted employees feel involved and respected


4. decision-maker and consultant strengthen their personl relationship; which makes it impossible for the decision-maker to ignore the advice


5. Consultation is on-the-job-training due to the knowledge of the consultants


6. better decisions are made as work directions or group decisions due to the specific knowledge of the consultants


7. the decision maker experiences fun due to autonomous decision-making

Finally work directions cannot be completely substituted by devolved decision-making and consultation, e.g. for issues with legal obligations or standardization issues e.g. like a standardized IT system.

4. Responsibility

Responsibility – Enable everyone to think and
act like a leader, not merely follow ‘the plan’.

In accordance with Theory Y assumptions about human nature every single employee is considered within the Beyond-Budgeting-Model as an entrepreneur, as an CEO, who is not only engaged in autonomous decision-making within the sphere of activity, but who is also fully responsible for the outcomes of the decisions.

Therefore, organizations have to create an enabling environment in which

• Employees can react to market-pull autonomously


• Employees share their knowledge to peers e.g. through advice or a transparent information system

Devolved leadership also means that the cell or the entire organization takes on responsibility for the wrong decision made by using consultation.

5. Values

Values – Govern through a few clear values, goals and boundaries, not detailed regulations.

Both the tayloristic as also the post-tayloristic Beyond-Budgeting-Organization are goverend through specific mechanisms. Whearas the traditional command-and-control management model focuses on the vision and mission statements and detaillled rules and regulations, plans and budgets, the post-tayloristic Beyond-Budgeting-Organization is contrary governd though the sphere of activity, consisting of a few, clear, and related to Beyond Budgeting values, the business model, the vision and mission statement and the brand position.

Beyond-Budgeting-Organizations contrary to tayloristic organizations do not focus primararly on financial goals e.g. like shareholder value or EVA, but on a highter purpose. Financial success is in this way only seen as a condition but not the final aim.

Also the few clear values differ from tayloristic organizations in the way, that they reflect the Beyond Budgeting mindset and Theory Y assumptions about human nature and comprise values e.g. like decentralization, autonomy, responsibilty, entrepreneurship, trust, transparency, dialogue-based leadership, consultation, and joy at work etc.


Characteristics of the “Sphere of activity“

Every organization operates within its own “sphere of activity”. Consciously or unconsciously. The sphere originates from the combination of an organization’s purpose and identity. This encompasses its business model, its shared values and principles, its brand proposal, its vision and mission.
Traditional command and control organizations frequently fail to make their sphere of activity explicit to its people and stakeholders. The sphere thus remains ambiguous to the involved parties within the system. Not so in pioneering organizations of the new model, which always have an extremely strong corporate culture, a clear value system and explicit boundaries. The pioneers have a need for a well-defined sphere, because their governance doesn´t rely on command and control, use of power, and fear.
In traditional organizations, consequences cause actions.
In pioneering organizations, on the other hand, all acting is a consequence.
Defining the sphere of activity is a key ingredient of the case for change, which has to be written up in the transformation from command and control to the “Beyond Budgeting” model.

Sample values statements by transforming organizations, that were created with the organization by BBTN Associates:

Paradigma, Germany:

Logoplaste, Brazil:

6. Transparency

Transparency - Promote open information for
self management; don’t restrict it hierarchically.

Transparency means to disclose all information (market information, competitive information, salary information, etc.) to all employees of the organization in order that finally every employee can himself or herself create his or her own picture of the situation to ask for advice or make a decision.

Transparency is therefore a means for control in form of self-control.

Transparency as a single management tool is also known as "open book management".

With reference to SEC issues, every single employee of American Beyond-Budgeting-Pioneers, e.g. like AES Corp. or Whole Foods Market, that are listed publicly at the NYSE, are treated as insiders by the SEC.

7. Goals

Goals - Set relative goals for continuous
improvement; don’t negotiate contracts.


Beyond-Budgeting-Organizations beat the competition, not predefined, planned, fixed and negotiated targets

Because a future that cannot be predicted cannot by controlled by "management by numbers" using fixed and predefined performance contracts within e.g. budgets, target agreements, TQM systems, Balanced Scorecards or other quota systems.

Usually within highly dynamic and complex markets predefined fixed performance contracts have soon to be revised and lead with coupled financial incentives to harmful and even unethical behavior within the organization. The more aggressive the coupled incentives are, the more damage to the organizations occurs. Instead of focusing on the customers and "market-pull", fixed performance contracts stick to hierarchical relationships.

Therefore the once within the industrial age successful fixed performance contract becomes absolute within the knowledge economy.

Traditional management processes keep teams from strategic
thinking, and motivate counterproductive or unethical behavior

Typical problems with predefined, negotiated and fixed performance contracts are:

• Fixed performance contracts create an illusion of control and objectivity
• Fixed performance contracts narrow the recognition of performance
• Fixed performance contracts are pillars of the command-and-control culture
• Fixed performance contracts destroy instrinsic motivation
• Fixed performance contracts erode the trust between people
• Fixed performance contracts are placed on past events and not concern the future
• Fixed performance contracts are demanding, time-consuming, and expensive
• Fixed performance contracts are inflexible and prevent adaptibility
• Fixed performance contracts decrease bith the performance of humans and the organization
• Fixed performance contractsencourage short-term thinking and acting
• Fixed performance contracts encourage unethical and dysfunctional behaviour

The relative performance contract

Instead, cells within Beyond-Budgeting-Organizations set their own and ambitious goals based on relative targets for which they are solely responsible. Because the targets are set by the cells themselves, no top-down agreements take place and max. identification with the own set targets exists. The leaders are moreover like an advisor or catalyst who encourages the cells to set ambitious relative goals, create an open environment, moderate the process, check for alternative options, or obligate cells to continuous performance improvement. The relative performance contract contrary to the fixed performance contract is based as the name itself says on relative targets and on mutual trust of employees. The relative performance contract is not "soft" but a high niveau of trust and responsibility keep the balance within the Beyond-Budgeting-Model.

The relative targets are itself both highly challenging as highly flexible and dynamic.

The next chart shows the main differences between the fixed performance contract of the command-and-control-management model and the relative performance contract of the alternative Beyond-Budgeting-Model.

Relative performance contracts are separated from performance appraisals and financial incentives. Relative targets adapt themselves to changing market environments and don't have to be negotiated or modified in the future. They do not incentively manipulation and are derived through dialog.


Within the Beyond-Budgeting-Mindset three types of different relative targets do exist:

• external benchmarks and best in class: relative targets are based on comparisons between the own organization and the market environment and external competitors


• internal benchmarks and best performance: relative targets are based e.g. on other cells, colleagues, branches, subsidiaries, projects and so on


• challenging stretch targets and trend observations in comparison to actual performance of previous periods to foster continuous improvement and innovation and can be applied if neither internal nor external benchmarking is possible.

Key advantages of relative targets are:

• They set a high motivation to challenge the ultimate power of competition
• They communicate constant, external challenges "outside-in"
• They make number and target negotiations unnecssary
• They are always relevant and challenging
• They adjust automatically
• They are not a trigger or the object of manipulation
• They do not activerly foster certain behaviour - they do not have any motivational effects
• They are less finance and resource oriented, but are related to actual events.
• They foster organizations to use real KPI and not quantitative inputs and activity measures
• They garantee maximal freedom to find ways to achieve them
• They grant increasing transparency
• They encourage decentral responsibilty and contrary also demand it
• They are clearly linked to the strategy and foster strategic thinking
• They allow a neutral appraisal of the performance afterwards, compared to relevant and real measures, considering all internal and external influences

League tables and ranking lists

Beyond-Budgeting-Pioneers e.g. like Svenska Handelsbanken, Ahlsell or Aldi have learned that league tables or ranking lists are a powerful governance tools for relative targets as the next figure shows on the example of Svenska Handelsbanken that uses league tables for comparison of branch cells, regions and banks. Resources are also distributed this way by using simple performance indicators e.g. like costs over turnover.

League tables are a suitable instrument to challenge or assess oneself but to not serve as a performance appraisal instrument.
Alternatively, Beyond-Budgeting-Organizations rely mostly on personal, informal leadership and support from the leaders for their cell.

8. Rewards

Rewards - Reward shared success based on
relative performance, not fixed targets.


Beyond Budgeting means also beyond incentives

Closely linked to compensation is the question of motivation. Beyond-Budgeting-Organizations do believe in Theory Y assumptions about human nature and therefore in intrinsic motivation: every employee is bearer of motivation by nature. No artificial means as symbolically carrots or financial bonuses are necessary to motivate people. Organizations have simple to free the natural motivation of their employees and not to keep it off track by using e.g. fixed performance contracts.

Beyond-Budgeting-Organization consider joy at work, the identification with the organization, its vision and brand, its products and customer needs as the most important intrinsic motivational factor not external financial rewards.

Renumeration is therefore seen as an hygiene factor, not as an external motivational factor for work.

The research of Alfil Kohn from the 1990s clearly demonstrated that financial rewards lead only to a short-term adaption of the behavior, but not to a substantial long-term change of the behavior. As financial rewards disappear, employees fall back to their original behavior pattern. Moreover the behavior is not aligned to a sustainable commitment to value creation or behavior that reflects long-term business interests.

Compensation systems based on predefined and fixed targets foster manipulation and unethical behavior

In this sense, traditional tayloristic renumeration systems based on Theory X assumptions about human nature that link individual performance to predefined, negotiated and fixed targets (fixed performance contracts) do neither motivate people but decrease joy at work and even foster manipulation and unethical behavior. For instance instead of setting challenging goals employees negotiate low targets, that can be easily achieved and support only their self interests.

The next two case studies demonstrate typical examples of abuse of predefined fixed bonuses linked to individual performance.

The next figure points the differences between capped financial incentives tied to fixed performance contracts contrary to financial rewards that are coupled to relative performance contracts which cannot be manipulated by employees.

Reward shared success based on relative performance afterwards

Alternatively Beyond-Budgeting-Pioneers have developed various compensation systems that

• either reward shared success of cells afterwards based on relative targets


• or reward the success of the entire organization in form of a profit sharing (e.g. Svenska Handelsbanken, Southwest Airlines, Whole Foods Market)

but have in common, that financial bonuses not depend on predefined fixed targets.

The fairness of the basic salary is within Beyond-Budgeting-Organizations determined e.g.

• through systematic market overviews and a policy to pay basic salaries that have market level or even are higher


• through transparency of all basic salaries and bonuses within the organization


• through a process to adapt annually the basic salaries within all cells

The Beyond-Budgeting-Pioners Southwest Airlines and Egon Zehnder Internatinal have for example developed compensation systems that pay a basic salary not on the actual performance but on a seniority scheme with a profit sharing.

Additional bonuses for out-performing employees might be possible without the character of incentivation. But these should only be execptions and granted through a consensus dialog to which all cell members should agree. Examples for these additional bonuses are from Toyota the improvement proposals for kaizen, which are granted only to teams and through a merchandise credit.


Principles for compensation systems in line with Beyond Budgeting

In practice there may not one best way to create compensation systems that are in line with Beyond Budgeting. The BBRT has identified the following principles to create coherent, simple and sustainable compensation systems:

1. Pay the person – not the position. Abolish salary bandwidths.
2. Reward results (ideally, relative to external benchmarks, not target realization
or actuals compared to plans. Abolish all links between targets and money.
3. Apply group- or team-based variable compensation, e.g. participation in the overall financial result of the firm, not individual bonuses.
4. Design simple variable compensation systems – eliminate complexities, which will lead to manipulation.
5. Compensate long-term value creation – not short-term performance.
6. Only use financial performance indicators in compensation systems – not intermediate indicators which are often hard to quantify or measure (such as quality or customer satisfaction).
7. Include all people in the variable compensation system (turning the system fair and inclusive) – not only an “elite“.
8. Use the language of participation in results - not the philosophy of “incentives“.

All employees should earn a share of the financial success. Restrain from the idea of “motivating them“!

By freeing themselves from conventional forms of “pay for
performance”, organizations will create simple and more transparent compensation systems.

9. Planning

Planning - Make planning a continuous and
inclusive process, not a top-down annual event.

Can you read the future, from the bottom of a cup of coffee? Or do you have a crystal ball that lets you to look into the future? Can you read the cards and see what will happen next year? Well, if none of this actually works, and if we accept that it´s impossible to predict the future, then why do we still spend massive energy and time on formal techniques that try to achieve just that for businesses?

Beyond-Budgeting-Organizations consider the future to not to be predictable. Therefore company planning is useless if the situation does not change or is harmful, if the companies tries to stick to predefined plans despite of change.


General problems with traditional company planning are:

• Plans are fostered by wish thinking and therefore be confronted by manipulation
• To create plans vertically integrated (bottom up, top-down) is extremely expansive and time consuming
• Plans and planning prevent from the real work
• Plans incentivate employees to follow blindly the predefined way instead of achieving best and afterwards evaluated results
• Plans lead to manipulation of forecasts and to manipulation of the books in order to achieve predefined and fixed goals ("numbers game")
• Plans can lead to deadly customer relationsships if a pull strategy is used in order to achieve the sales quotas
• Plans are an illution for control for managers, supervisors and controllers "follow the plan and everything will be fine" in a increasing changing, danymic and complex world
• Plans demotivate managers and teams to view the market reality
• Plans lead to ongoing plan-actual comparisons with fault search, a defense mentality and waste of management attention
• Plans lead to a culture of organized irresponsibility and dependability on centralized decision-making. They demotivate teams
• Plans lead to a waste of resources
• Plans lead to a fight of apparently limited resources und therefore encourage a silo mentality and bureaucracy
• Plans are going to be playballs, because employees trick the system of with the planned numbers coupled controls and incentives

Alternatively Beyond-Budgeting-Pioneers e.g. like Svenska Handelsbanken or Southwest Airlines use the following local action planning or "strategic review" with the process steps "check, aim, plan, and act" monthly, quarterly or when needed.
The process is itself not top-down initiated, but by the single network cells that want to increase their relative targets. Therefore no fixed performance contract does exist. The network cell members set their ambitious goals themselves as also work out the action plans, as have also the responsibility themselves for the realization.

The "strategic review" process of Svenska Handelsbanken.

1. Check: Within this process step the situation is analyzed by a branch network cell.
2. Aim: By using advice from the HQ or local managers, relative targets are set by the branch cell (e.g. increase of 30% of cost turnover ratio).
3. Plan: By using advice from the HQ or local managers, concrete actions to achieve the set relative targets are created. Multiple options are tested by forecasting. Finally process step 1 to 3 are documented within a short (2 to 3 page) document.
4. Act: Within this process step, initiatives with the highest probability of success are selected. Then resources are made dynamically available or decreased, depending on situation.
This 4-step process continuous infinitely, while the own set targets are tried to reach. Instead of separating planning and execution as within the command-and-control management model, the "strategic review" includes planning and action, planers and executioners, strategy and execution.
Actions plans can be modified when needed and are not fixed nor they are a control mechanism but a leadership dialog and the realization.

Strategy and planning are two pairs of shoes

Henry Mintzberg stresses for years that strategy and planning do not suit together, because strategy is a freely and creative thinking whereas contrary planning is a process that requires a decision between multiple scenarios.
From this point of view "strategic Planning" appears to be a antagonism. Within the Beyond-Budgeting-Model "strategic planning" is itself substituted by distributed strategic thinking of all employees and strategic leadership dialog as an ongoing routine, that is integrated into the consultation and decision process. Some of the Beyond-Budgeting-Pioneers have included strategic thinking into their daily business, that no single strategic process can be identified. As Herb Kelleher, former CEO of Southwest Airlines points out properly: "We do have a strategic plan, it's called doing things."

10. Controls

Controls - Base controls on relative indicators
and trends, not variances against plan.

By using relative targets is becomes obvious that traditional plan-actual comparisons become obsolete within the Beyond-Budgeting-Model. To control relative targets a complete new type of reporting is required. Experiences show that within a Beyond-Budgeting-Transformation only 10% of the reports from the former information system are kept.

The following figure outlines six new types of reporting-the-Beyond-Budgeting-way to control relative targets.

11. Resources

Resources - Make resources available as
needed, not through annual allocations.

Resources. What most organizations do with them is basically this: Once a year, they define the size of the pie. Then, they invite managers to fight for a piece of the action... Organizational research has shown over and over that this is the fundamental mechanism organizations use… and that it inevitably leads to sub-optimization, to say the least. Happily, there is a far better way to steer resources. Just imagine for a moment that you simply wouldn't define the size of the pie for a fixed period any more. And that you would take important resource decisions together in a team, and always as late as possible!

Instead of allocating resources annually through a budgeting process, Beyond Budgeting Organizations have individually developed ways to make resources dynamically available as needed.

Some of them will be presented in more detail within this chapter, others generally comrise:

• KPI-based definition of the scope of action


• internal markets for operational resources (see also Value Creation Caluculation)


• Fast approval of important projects


• Periphery based decision-making for resource allocation of small projects

Employing resources dynamically: A typical way of doing it, as practiced by Sydney Waters, Sight Savers International and the Worldbank:

Sydney Waters, an Australian public organization used the following approach for dynamic resource allocations since 1990 without demanding cost analysis or fixed budgets. The approach bitself can be both used for ongoing operational resource allocation whereas also for projects with higher demanding investments.

At Sydney Water each quarter simple turnover forecasts for the next 25 months are created. Additionally operational resource demands are projected using only a few KPIs for the same forecasting period and additionally information from the ongoing investment- und project portfolio are gathered.
Using all these information, a dynamically picture of the complete resource allocation is created each 3 months for the near future (15 months forward). Furthermore project proposals and project approvals are also evaluated within resource discussions, that are then discussed, prioritized and decided on by a committee.

This process enables a dynamic resource allocation independent from the investment decision and creates transparency on the resource usage.

Within the management team, each person has an equal vote on crucial resource decisions and learn, to foster long-term interests of the organization. At the same time this process enables a dialog for the improvement of operational costs and control of approved and ongoing projects and investments.

Employing resources dynamically: A typical way of doing it, as practiced by dm drogeriemarkt, Alnatura and Svenska Handelsbanken:

Contrary to Sydney Waters, Sight Savers Internatinal and the Workbank, dm drogeriemarkt, Alnatura and Svenska Handelsbanken use an internal market for their dynamic resource allocation instead of budgets, which is best described by the Value Creation Calculation of dm drogeriemarkt.

12. Coordination

Coordination - Coordinate interactions
dynamically, not through annual planning cycles.

Instead of coordinating activities through budgets, Beyond Budgeting Organizations are aligned to market pull and correspondingly coordinate interactions dynamically based on market pull.

Post-tayloristic practices developed by pioneering Beyond-Budgeting-Organizations incl. e.g.

• offering of customer-based solutions


• governance through customer profitability (instead of fixed sales quotas)


• real time disposal of capabilities