Blog: Interest in Beyond Budgeting accelerates after the pandemic

In mid-November there was another Beyond Budgeting Round Table in London. For my part, it was the first trip abroad since before the pandemic and we met in a nice but very rainy London.

The turnout was record high, which is a clear sign that interest in developing/changing governance in companies and organizations is increasing.

We got to take part in some interesting journeys where companies let go of the classic budget management for more dynamic and agile methods of managing and developing the business.

The TDR Capital case

TDR Capital is a British private equity company that primarily invests in experiential brands. In 2019, some partners at the company started reading about Beyond Budgeting and became increasingly interested in the concept. After some meetings with representatives of Beyond Budgeting in the late summer of 2019, it was decided to test a customized application on two portfolio companies, Hurtigruten and the large British gym chain David Lloyd

What they wanted to achieve with introducing Beyond Budgeting principles in their portfolio companies were:

  • Reduce politics and "gaming" both around revenues and costs.
  • Making salary/compensation independent of the budget. Linking to budget can in many cases be misleading as, for example, external factors may have influenced the result more than the own performance
  • Change the behavior of using up budgeted funds in order not to risk getting less allocated next year
  • Reduce centralized power because, according to TDR, it limits entrepreneurship

After applying the principles of Beyond Budgeting for 2 years improvements have been seen in both culture and profitability. What they have achieved is:

  • A culture of creating forecasts based on where you think you will end up, not on hopes. The forecasts are made as often as necessary and they are as precise as possible - but only in areas where forecasting is relevant.
  • Employees are followed up on key figures that are relevant to the tasks they have - not because they are cascaded down from the top level. It can be EBITDA, NPS, eNPS, wastage, turnover, etc. - entirely depending on tasks and areas of responsibility.
  • They work with extensive internal benchmarking and league tables that make it possible to see that different parts of the organization are performing as intended (sites, salespeople, operations, etc.).
  • Seperate annual performance reviews from bonus discussions
  • Covid helped in the implementation – the classic budgets were irrelevant as instruments from March 2020.

The challenges TDR and their portfolio companies have experienced is that it is easy to fall back into the culture that the classic budget process creates. For example

  • It is deeply rooted in many companies to be measured against the budget and receive a bonus relative to overperformance towards the budget
  • Employees are used to and confident in knowing how much they have the right to spend – thinking more like an owner and thus spending "good" money can otherwise be experienced as uncomfortable
  • External stakeholders are used to and want to see a budget

The experiences and successes that have been seen from working more dynamically and letting go of the classic budget management mean that TDR now intends to move forward with several of its portfolio companies.

What strikes me when I listened to TDR is that you measure and forecast more when you stop budgeting. What is crucial for success is that you work according to the needs of your organization - forecasting where it is relevant and letting other less movable parts of, for example, where the cost mass remains fixed. In order to obtain good data and good forecasts for the part of the business that is more variable, we work with the support of predictive forecasts and data science. The importance of digitizing the production of decision-making documents becomes very clear.

Feel free to contact me if you want to hear more about how companies work to achieve more agile management that creates more value.

Ekan Management is one of the pioneers in Beyond Budgeting

Ekan Management have been representatives of the Beyond Budgeting Round Table (BBRT) network in Sweden and internationally for 10 years. We are a partner in Beyond Budgeting Ltd which, among other things, delivers training via the Beyond Budgeting Institute as well as advice and implementation of transformation Beyond Budgeting through Beyond Budgeting Advisory.