Measuring Business Excellence

Is your organisation ready for beyond budgeting?

André A. de Waal
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André A. de Waal, (2005),"Is your organisation ready for beyond budgeting?", Measuring Business Excellence, Vol. 9 Iss 2 pp. 56 - 67
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 Insights from practice
Is your organisation ready for beyond
budgeting?
André A. de Waal

André A. de Waal is a professor Summary

of strategic management at the Purpose – Traditionally, budgeting is considered to be one of the most important management tools to
Maastricht School of steer the organisation, evaluate its performance and motivate its people. However, criticism of the
Management (The Netherlands) budgeting process has increased considerably in the past decade. This paper aims to examine an
and lecturer in performance alternative to budgeting known as ‘‘beyond budgeting’’, comparing it to traditional budgeting.
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management accounting at Free Design/methodology/approach – Examines some of the literature regarding budgeting and describes
University of Amsterdam. He can the beyond-budgeting entry scan, a tool which helps organisations to assess whether they are ready to
be reached via his website start the powerful change process of abandoning the budget.
(www.andredewaal.nl) or at the Findings – There are many possibilities, on the scale of traditional budgeting to beyond budgeting, to
following address: Maastricht modernise the budgeting process. However, the beyond-budgeting model deserves serious
School of Management, consideration because it enables an organisation to look with a fresh view at its budgeting process,
other planning processes, and organisational structure.
Endepolsdomein 150, 6229 EP
Maastricht, The Netherlands. Originality/value – Each organisation should at least explore the benefits of introducing one or more
beyond-budgeting principles. This is especially interesting because research has shown that the more
beyond-budgeting principles an organisation implements, the better it performs.
Keywords Budgets, Behaviour
Paper type Research paper

Introducing beyond budgeting

The Beyond Budgeting Round Table (BBRT) consortium[1] has worked since 1998 on developing
an alternative to the budgeting process. After conducting research at several organisations that
fully or partly abandoned their budget, the BBRT developed a generic model that is based on 12
principles. In the ‘‘ideal’ beyond-budgeting organisation, all 12 principles have been fully
implemented. The first six principles concern creating a flexible organisational structure in which
authority is devolved to employees. Principles seven to 12 deal with designing an adaptive
management process for a flexible organisational structure. The 12 beyond-budgeting principles
are described underneath (Hope and Fraser, 2003; de Waal et al., 2004).

Creating a flexible organisational structure (principles 1 through 6):

1. A self-governance framework. In the beyond-budgeting organisation the hierarchical
organisational structure is subdivided into smaller, self-managing units. The traditional
central control system with many rules and procedures is thus abandoned. Managers
have the authority to run their unit as they see fit. The hierarchical structure is used only
if decisions have to be taken that affect all units. Because the self-managing units are
small, the organisational structure is less complicated and therefore more flexible. As a
result, so exploitation costs are decreasing.
2. Empowered managers. Organisational members have the freedom and opportunity to
act at their own discretion. There are no tight controls that restrict people in their room
to manoeuvre. Managers of self-managing units act within the values and strategic

PAGE 56 j MEASURING BUSINESS EXCELLENCE j VOL. 9 NO. 2 2005, pp. 56-67, Q Emerald Group Publishing Limited, ISSN 1368-3047 DOI 10.1108/13683040510602885
 boundaries as set by senior management. Managers are responsible for both short
and medium term goals and can decide for themselves how to achieve these goals.
3. Accountability for dynamic outcomes. People in the beyond-budgeting organisation
are responsible for achieving competitive results, not for achieving pre-set targets for
a department or function. Managers get their evaluation after it is known what they
have achieved compared to what they could have achieved, given the
circumstances. The desired results are set dynamically (i.e. they can be adjusted
throughout the year) and thus not beforehand because that would discourage
people to achieve more than the preset targets.
4. Network organisation. The beyond-budgeting organisation is structured in such a
way that self-managing units form independent, customer-focused entities. These
entities focus completely on the market and delivering value to customers. They
adapt quickly to changing customer needs as well as unexpected opportunities and
threats in the market. The market is the determining factor and not the traditional
hierarchical central planning, budgets and controls.
5. Market coordination. Services from central support units (like HRM, ICT) can be
purchased by the self-managing units on the basis of service level agreements.
Each unit can decide for itself whether it wants to use services from central support
or whether it wants to hire external support. The central support units are in this way
challenged to deliver high-quality and cost-efficient services.
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6. Supportive leadership. The organisational members are encouraged to achieve

stretching goals and coached by senior managers in obtaining these. The managers
of self-managing units are allowed to take risks and make mistakes, without directly
being punished for it. The senior managers act as mentors who coordinate the
relations with and between unit managers.

Designing an adaptive management process (principles 7 through 12):

7. Relative targets. The organisation’s strategy is aimed at beating the competition, not
last year’s budget. The targets are set in relation to the organisation’s main
competitors or comparable organisations (in the case of nonprofit organisations).
Managers are involved in the target-setting process, which has a strong motivating
effect. The targets are continuously adapted based on the performances of
competitors and market developments.
8. Continuous strategy-setting. The strategy-setting process in the beyond-budgeting
organisation is a continuous and bottom-up process, not a yearly top-down exercise.
The strategy is continually adapted to the circumstances, based upon signals and
input from the organisation’s front line.
9. Anticipatory systems. At least once every quarter managers make rolling forecasts
which extend beyond year end (preferably six quarters ahead) for both the financial
and non-financial critical success factors of the enterprise. There is no connection
between the forecasts and the reward system, as a result of which forecasts can be
set in an objective way. The senior managers provide support to managers of the
self-managing units about future actions, based on these forecasts.
10. Resources on demand. Managers allocate resources to those units where they are
needed most, at the time they are needed most. The self-managing units decide for
themselves how much resources they need to satisfy the demands of their markets and
make investment plans accordingly. Senior management ‘‘rewards’’ the best investment
plans by allocating resources to them. There are no fixed investment budgets based on
last year’s budgets. Consequently, units have a different investment pool each year.
11. Fast, distributed information. Information is quickly available and easy to access for
those who need it in the organisation, at the time they need it. The information is not
over-detailed and contains both lagging and leading indicators. A balanced set of
performance indicators is used to compare the results of the self-managing units with

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VOL. 9 NO. 2 2005 MEASURING BUSINESS EXCELLENCE PAGE 57
 the targets and the results of the other units in the organisation, competitors or
comparable organisations. Senior management regularly checks to see whether the
self-managing process works or whether corrective steering is needed.
12. Relative team rewards. The rewards are based on the results of the self-managing units
and the organisation as a whole, in comparison with the competition. The fact that the
reward structure is based on a combination of individual and group rewards, stimulates
the team spirit of the organisation.

The essence of the beyond-budgeting model is that organisations must change their focus
from top-down control to bottom-up empowerment, because this seems to be the best way
to adjust to the fast changing world of the information age (Hope and Fraser, 2003). Through
the use of rolling forecasts and continuous up-to-date information, companies can react
quickly to changing market conditions. Because the self-managing units are highly
customer-focused and market-oriented, they have the freedom to do whatever it takes to
please customers. Because employees’ performance is evaluated at the end of the year and
compared to the results that could have been achieved under the circumstances, people
stay motivated and strive continuously for the best. As the organisation has no
budget allocation at the beginning of the year, investments are only made throughout the
year, in plans which are in accordance with the organisation’s strategy and which add value
to the company.
The interest in the beyond-budgeting model is growing, as is illustrated by the increasing
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number of organisations which have implemented the model or parts of it: Ahlsell, Beckers,
Borealis, Bulmers, Coors Brewers UK, Deutsche Bank, IKEA, Leyland Trucks, Rhodia, Sight
Savers International and Unilever UK. These organisations state the following advantages of
beyond budgeting: lower costs (of both management processes and organisational
structure), improved quickness of reaction, and stronger commitment of employees. A good
example of these advantages is that of Svenska Handelsbanken, which has been engaged
since 1970 in implementing and refining of what we now refer to as the principles of beyond
budgeting. From the mid-1970s onward, Svenska has consistently performed better than its
European competitors on virtually every performance indicator (e.g. return on equity, total
shareholder return, earnings per share, cost-to-income ratio, and client satisfaction). Senior
management attributes this excellent performance to beyond budgeting and keeps on
refining the application of the beyond-budgeting model in the company.

The beyond-budgeting entry scan (BBES)

It is advisable to check whether people in the organisation feel the need to change the
budgeting process, before starting the implementation of the beyond-budgeting model. If
this need exists, it then becomes important to estimate the effort required for
implementation. The BBES is specially developed for this purpose. The scan is not so
much an elaborate analysis but rather a quick scan that functions as a catalyst for the
discussion of the desirability and feasibility of implementing beyond budgeting. The BBES
has been developed in three stages in a period of two years. In the first stage, a draft version
of the scan was made on the basis of management literature and several interviews, which
then was tested at a pilot company. In the second stage, the scan was reworked and
retested, at a different pilot company. In the third stage, the scan was again updated and
piloted at several companies, and a final version of the scan was made (de Waal et al.,
2004).
The BBES poses three questions:
1. Does the organisation currently have problems with the budgeting process and if so, is it
prepared to adapt and change this process?
2. To what extent does the organisation currently work according to the beyond-budgeting
principles?
3. What are the preconditions for successfully implementing beyond budgeting in the
organisation?

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PAGE 58 MEASURING BUSINESS EXCELLENCE VOL. 9 NO. 2 2005
 These three questions will be discussed in the following paragraphs.

The need for beyond budgeting

A possible implementation of the beyond-budgeting model starts with identifying the need
for adapting and changing the budgeting process. After all, if the organisation is not
experiencing any problems with the current budgeting process, implementation of a new
model would be of little or of no value. It is therefore really necessary to check whether there
is dissatisfaction within the organisation with the existing budgeting process. Once it has
become clear that there is a need for change, the willingness of the organisation to adapt
and change the organisational structure and processes should be identified. The opening
questions of the BBES are as follows:
B How satisfied are you with the current budgeting process?
B Is the organisation prepared to change the budgeting process?

Status of the organisation

To determine the degree to which the organisation already works according to the 12
beyond-budgeting principles, the BBES examines the current method of working. In
addition, the BBES makes an inventory of the possibilities and willingness of the company to
adapt and change its method of working, if needed. Therefore BBES-questions are
developed for each of the 12 beyond-budgeting principles.
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Principle 1: a self-governance framework. A decentralized organisational structure with

self-managing units constitutes the basis of beyond budgeting. Decisions in such a
structure are made on the front-line, which is closest to the customer, and therefore it is
possible to respond quickly to threats and opportunities that arise. The self-managing units
contain several disciplines such as marketing, sales, logistics and finance. To safeguard the
autonomy of the units, ‘‘remote management’’ is practised by senior management, i.e. it only
comes into action when a unit is ill-performing during a longer period of time. The questions
of the BBES for principle 1 are:
B The beyond-budgeting model uses a decentralized organisational structure with
self-managing units. To what extent is your organisation currently decentralised?
B If your organisation is not or not completely decentralised, is it possible to implement
(further) decentralisation?
B If (further) decentralisation is possible, are the people in the organisation in your opinion
prepared to carry out the decentralisation?
Principle 2: empowered managers. For beyond budgeting to be effective, managers of the
self-managing units need to have the freedom to act to their own discretion, within the strategic
boundaries. This means that managers, if conditions permit, can independently set certain
actions in motion without prior authorisation of senior management. If market conditions are
favourable, it will not be difficult to adhere to this principle. However, if conditions are less
favourable, the delegation of responsibilities could pose problems for senior management.
There will, for instance, be an increased need to monitor the self-managing units and to check
and control their operations. The questions of the BBES for principle 2 are:
B The beyond-budgeting model gives managers considerable freedom to act at their own
discretion. To what extent do managers of lower levels in your organisation have the
freedom to take decisions autonomously?
B If managers fn lower organisational levels have limited or no freedom, is it possible to
enlarge their authority to act?
B If (further) delegation of authority is possible, is senior management in the organisation in
your opinion prepared to do so?
Principle 3: accountability for dynamic outcomes. In the beyond-budgeting model,
organisational members are held accountable by senior management for achieving
challenging and dynamic targets. They are evaluated on their results compared to what they

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VOL. 9 NO. 2 2005 MEASURING BUSINESS EXCELLENCE PAGE 59
 could have achieved. Pre-set targets are not used in the beyond-budgeting organisation,
instead targets dynamically are set (i.e. they can be adjusted) compared to the competitors
or comparable organisations. The questions of the BBES for principle 3 are:
B The beyond-budgeting model states that managers should be responsible for achieving
dynamic targets. To what extent are the targets in your organisation dynamic, which
means they can be adjusted up or down, depending on the circumstances?
B If your organisation does not use dynamic targets, is it possible to introduce dynamic
targets?
B If dynamic targets can be introduced, are people in the organisation in your opinion
prepared to do so?
Principle 4: network organisation. The beyond-budgeting organisation is structured around
independent, customer-focused units that replace the traditional design with hierarchical
functions and departments. The units focus primarily on delivering value to customers, quick
reaction, and anticipating changing local circumstances or unexpected threats and
opportunities. The questions of the BBES for principle 4 are:
B The beyond-budgeting model uses an organisational structure of independent
customer-focused units. To what extent is your organisation currently focussed on
customers?
If your organisation is not or not enough focussed on customers, is it possible to
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implement a customer-focused structure?

B If implementing a customer-focused structure is possible, are the people in the
organisation in your opinion prepared to do so?

Principle 5: market coordination. In the beyond-budgeting organisation activities are

coordinated on the basis of demand and supply, instead of being steered by central
planning, budgets and controls. The self-managing units decide for themselves how many
services they purchase from the central support units, they can also go to an outside
company. This forces the central support units to deliver high-quality services as efficient as
possible. Originally the question of the BBES for principle 5 was: ‘‘How are the activities and
costs of the central support units (like HRM and ICT) coordinated and accounted for in your
organisation?’’ However, when the BBES was tested, a few of the testing companies
remarked that this question was not really relevant. In their opinion the way central support
units are organised does not affect the implementation of beyond budgeting. Therefore, no
questions have been included in the BBES for principle 5.

Principle 6: supportive leadership. In the beyond-budgeting organisation, organisational

members are managed on the basis of coaching, not on receiving and executing orders.
Senior managers act as coaches who do immediately call lower-level managers to account
for their mistakes. Bad news is directly shared by the self-managing unit and senior
management, so that they can give offer support as needed. The coaching style stimulates
organisational members to be more entrepreneurial. The questions of the BBES for principle
6 are:
B Senior managers in a beyond-budgeting organisation are not directive but supportive
and have a coaching attitude. To what extent can the prevailing management style in your
organisation be described as coaching?
B If managers in your organisation only have a limited coaching style, is it possible to
improve on this style?
B If developing a coaching management style is possible, are the people in the organisation
in your opinion prepared to do so?
Principle 7: relative targets. Managers in a beyond-budgeting organisation set goals in
relation to the competition. They aim their action plans at beating the competitors, not the
budget. The gaming effect which often occurs during target setting is absent because all

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PAGE 60 MEASURING BUSINESS EXCELLENCE VOL. 9 NO. 2 2005
 targets are set equal or better than the competition. The targets are relative, i.e. if a
competitor or comparable organisation (in the non-profit sector) performs better, the targets
are adjusted to make up for the difference. The questions of the BBES for principle 7 are:
B The beyond-budgeting model uses targets that are set in relation to the competition. To
what extent is this the case in your organisation?
B If targets in your organisation are not relative, is it possible to implement relative target
setting?
B If relative target setting is possible, are the people in the organisation in your opinion
prepared to do so?
Principle 8: continuous strategy setting. Because changing circumstances can render a
strategy obsolete, the strategy-setting process in the beyond-budgeting organisation is a
continuous process. It is bottom-up, because the strategy is based upon input of the
self-managing units, which are closest to the market. The questions of the BBES for principle
8 are:
B The beyond-budgeting model uses a continuous bottom-up strategy-setting process. To
what extent is the strategy-setting process in your organisation structured in this way?
B If the strategy-setting process in your organisation is a yearly and/or top-down process, is
it possible to make the process continuous and bottom-up?
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B If it is possible to make the strategy-setting process continuous and bottom-up, are the
people in the organisation in your opinion prepared to do so?
Principle 9: anticipatory systems. Each quarter, the beyond-budgeting organisation makes
rolling forecasts of the most important financial and non-financial indicators, looking six
quarters ahead. These forecasts have no connection with the reward system and earlier
forecasts, so an objective estimation can be made without aiming at pre-set targets. The
questions of the BBES for principle 9 are:
B The beyond-budgeting model uses rolling forecasts that look six quarters ahead. To what
extent does your organisation use this type of rolling forecasts?
B If your organisation does not use this type of rolling forecasts, is it possible to implement
them?
B If it is possible to implement this type of rolling forecasts, are the people in the
organisation in your opinion prepared to do so?
Principle 10: resources on demand. The self-managing units in the beyond-budgeting
organisation do not ‘‘automatically’’ get a resource budget at the beginning of the year,
which builds on the budget of the previous year. They have to obtain resources based on
good quality business plans. Adaptations in this allocation can be made during the year,
based on changing internal and external circumstances. Senior management has to quickly
evaluate the plans so the units can seize on opportunities. The questions of the BBES for
principle 10 are:
B In the beyond-budgeting organisation, resources are allocated on the basis of need, not
on the previous year budgets. How are resources allocated in your organisation?
B If resources are not or not enough allocated flexibly, is it possible to implement a more
flexible allocation process, based on good-quality business plans?
B If more flexibility is possible, are the people in the organisation in your opinion prepared to
make the allocation process more flexible?
Principle 11: fast, distributed information. In the beyond-budgeting organisation,
good-quality management information is freely available and easily accessible to
everyone in the organisation. This information, which includes a set of lagging and
leading indicators, is used to compare the results of the self-managing units with targets,
results of other units and competitors or comparable organisations (benchmarking). The
questions of the BBES for principle 11 are:

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VOL. 9 NO. 2 2005 MEASURING BUSINESS EXCELLENCE PAGE 61
 B The beyond-budgeting model has an efficient and effective management information
supply process, including a set of financial and non-financial indicators. To what extent
does your organisation currently has such an management information supply process?
B If the quality of the information supply process in your organisation is not sufficient, is it
possible to improve it?
B If (further) improving the management information supply process is possible, are the
people in the organisation in your opinion prepared to do so?
Principle 12: relative team rewards. The reward structure in the beyond-budgeting
organisation is based on a combination of the results of the self-managing units and the
results of the organisation as a whole. At the end of the year, the results are evaluated and
compared to the results that were possible to achieve in the specific market situation,
compared to the competition and comparable organisations. The questions of the BBES for
principle 12 are:
B The beyond-budgeting model uses a reward structure that consists of a combination of
individual and group rewards (balanced rewards). To what extent does your organisation
uses such a structure?
B If your organisation does not use such a balanced reward structure, is it possible to
implement a reward structure based on individual and group results?
B If implementing a balanced reward structure is possible, are the people in the
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organisation in your opinion prepared to do so?

Precondition for a successful implementation

It is important that the preconditions for a successful implementation of the beyond-budget
model are known before implementing it. Various beyond-budgeting projects (see for
example the case of Cleaning Industries Netherlands further on in this article) have made it
clear that the role of corporate can be decisive in the process. When an organisation
operates independently, it can decide for itself whether or not to implement the
beyond-budgeting model. However, if a company is part of a larger organisation or
conglomerate, for instance a business unit of a multinational, it often is not authorised to
adapt such an important business process like budgeting on its own. Often, corporate does
not or not yet want to give up managing its organisational units with pre-set financial targets.
It is then virtually impossible for an organisational unit to implement the beyond-budget
model. At the most it can try to implement some of the 12 beyond-budget principles. The
final question of the BBES is: ‘‘Is your organisation part of a larger organisation or
conglomerate? If so, is your organisation authorised to adapt and change the budgeting
process?’’

The complete test

Table I shows a complete overview of the BBES, including the possible answers to the
questions (the BBES is also available at www.beyondbudgeting.nl). Completing the
questionnaire will be followed by immediate advice on whether the implementation of
beyond budgeting has a chance of success in the organisation.
After the questionnaire of the BBES has been completed, the answers are ‘‘translated’’ into
colour and depicted in a scheme. On the basis of this colour scheme, an advice is given on
whether or not to implement beyond budgeting. With the BBES-results, an organisation can
decide whether it will start implementing the beyond-budgeting model or whether it will first
improve its current budgeting process (‘‘better budgeting’’). The colour scheme that is used
is discussed below:
1. Need for beyond budgeting (opening questions A þ B):
B Green. The implementation of beyond budgeting should be seriously considered.
B Orange. The test result shows that the need or preparedness for changing the
budgeting process is moderate. The lack of need or preparedness of the organisation

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 Table I Complete overview of the BBES
Possible answers

Opening questions
A. How satisfied are you with the current budgeting process? Satisfied Reasonably satisfied Dissatisfied
B. Is the organisation prepared to change the budgeting Not at all To a certain degree Fully prepared
process?
Principle questions
1a. To what extent is your organisation currently decentralised? Not at all Partly (Almost) completely
1b. Is it possible to implement (further) decentralisation? No To a certain degree Yes
1c. Are the people in the organisation prepared to carry out the No To a certain degree Yes
decentralisation?
2a. To what extent do managers on lower organisational levels Little to no freedom Limited freedom Large degree of
have the freedom to take decisions autonomously? freedom
2b. Is it possible to enlarge managers’ authority to act? No To a certain degree Yes
2c. Is senior management in the organisation prepared to No To a certain degree Yes
delegate authority?
3a. To what extent are the targets in your organisation dynamic All targets are preset Some targets are All targets are
(i.e. they can be adjusted up or down, depending on the and fixed dynamic dynamic
circumstances)?
3b. Is it possible to introduce dynamic targets? No Limited Yes
3c. Are the people in the organisation prepared to introduce No To a certain degree Yes
dynamic targets?
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4a. To what extent is your organisation currently focussed on Hardly Partly Strongly
customers?
4b. Is it possible to implement a customer-focused structure? No To a certain degree Yes
4c. Are the people in the organisation prepared to implement a No To a certain degree Yes
customer-focused structure?
5. No questions
6a. To what extent can the prevailing management style in your Hardly Partly Strongly
organisation be described as coaching?
6b. Is it possible to develop a coaching management style? Limited To a certain degree Yes
6c. Are the people in the organisation prepared to do so? No To a certain degree Yes
7a. To what extent are targets in your organisation set relative to None of the targets Some targets are All targets are relative
the competition? are relative relative
7b. Is it possible to implement relative target setting? No To a certain degree Yes
7c. Are the people in the organisation prepared to do so? No To a certain degree Yes
8a. To what extent is the strategy-setting process in your Yearly, top-down Yearly, bottom-up OR Flexible, bottom-up
organisation continuous and bottom-up? flexible, top-down
8b. Is it possible to make the strategy-setting process continuous No To a certain degree Yes
and bottom-up?
8c. Are the people in the organisation prepared to do so? No To a certain degree Yes
9a. To what extent does your organisation use rolling forecasts Not at all Limited Completely
that look six quarters ahead?
9b. Is it possible to implement rolling forecasts that look six No To a certain degree Yes
quarters ahead?
9c. Are the people in the organisation prepared to do so? No To a certain degree Yes
10a. How are resources allocated in your organisation? On the basis of the On the basis of At the time and place
budget previously made where needed
investment plans
10b. Is it possible to implement a more flexible allocation process, No To a certain degree Yes
based on good-quality business plans?
10c. Are the people in the organisation prepared to do make the No Limited Yes
allocation process more flexible?
11a. To what extent does your organisation currently has an Not at all Limited Completely
efficient and effective management information supply
process, including a set of financial and non-financial
indicators?
11b. Is it possible to improve the management information supply No To a certain degree Yes
process?

(Continued)

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 Table I

Possible answers

11c. Are the people in the organisation prepared to do so? No To a certain degree Yes
12a. To what extent does your organisation use a reward structure Not at all For some of the For the entire
based on a combination of individual and group rewards? management levels organisation
12b. Is it possible to implement a structure based on individual No To a certain degree Yes
and group results?
12c. Are the people in the organisation prepared to do so? No To a certain degree Yes
Final question
I. Is your organisation part of a larger organisation or Part of a larger entity Part of a larger entity þ Not part of a larger
conglomerate? If so, is your organisation authorised to adapt þ no authority to limited authority to entity OR part of a
and change the budgeting process? adapt budgeting adapt budgeting larger entity þ authority
to adapt budgeting

to change should be a point of special attention during the implementation of the

beyond-budgeting principles.
B Red. Implementing beyond budgeting is strongly advised against. The test result
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shows that there is no the need nor preparedness to change the budgeting process.
Not until the need and preparedness to change has increased, should you consider
implementing the beyond-budgeting model.
2. Status of the organisation (principle questions 1-12). The colours for the scores are given
for each principle:
B Green. There are hardly any to no obstacles to the implementation of this
beyond-budgeting principle.
B Orange. Some obstacles can be expected during the implementation of this
beyond-budgeting principle. Several elements will require special attention.
B Red. Many obstacles can be expected during the implementation of this
beyond-budgeting principle. Many elements need to be changed substantially.
3. Precondition (final question I):
B Green. You can seriously consider implementing the beyond-budgeting model
because you have the authority to do so.
B Orange. You cannot benefit from all the advantages of beyond budgeting because
your organisation is not completely authorised to change autonomously the budgeting
process. You first have to obtain permission before you can begin or continue with
beyond budgeting.
B Red. You cannot implement beyond budgeting because your organisation does not
have the authority to do so. You first have to obtain permission before you can start with
beyond budgeting.

BBES in practice: Cleaning Industries Netherlands

Cleaning Industries Netherlands B.V. (CIN)[2] is a subsidiary of multinational World
Cleaning, Inc., a manufacturer of household products. The organisation produces A-brands
as well as house brands and has a leading position on almost all of the markets it operates in.
The company has a sales office in The Netherlands, where the marketing and sales
departments reside, and two factories where household products for the Dutch market are
produced. CIN is subdivided in so-called business teams, which are each responsible for
the turnover and margin of a specific product category. Each team is led by a business team
leader and consists of the functions marketing, finance, logistics, sales, account

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PAGE 64 MEASURING BUSINESS EXCELLENCE VOL. 9 NO. 2 2005
 management and market research. In this way, teams can autonomously take decisions and
actions to quickly anticipate developments in local markets.
CIN is experiencing several problems with its current budgeting process:
B The process takes too long (half a year) and requires too much effort. For example, during
the budgeting period the finance department spends more than half its time on this
process.
B Because corporate imposes the targets on CIN, the targets for the business teams in CIN
are often raised arbitrarily compared to their original estimates. Therefore the business
teams already know in September of the current year that they will not be able to achieve
their targets for next year.
B There is much margin in the budgets of the business teams.
B Because the reward structure is linked to the achievement of fixed targets at year-end,
short-term goals prevail over longer-term goals.
B The budgeting process uses static targets, which makes them less realistic during the
year.
The described problems and the dissatisfaction with the current budgeting process
motivated CIN to fill in the BBES, to see whether beyond budgeting could form an alternative
for the company. The BBES for CIN looked as follows (see also Table II):
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B Need for beyond budgeting. The managers of CIN are not satisfied with the current
budgeting process and see a clear need for changing this process.
B Principe 1: a self-governance framework. The organisation has a decentralised
structure with business teams, which function like the self-managing units in the
beyond-budgeting model.
B Principe 2: empowered managers. The business teams are only to a certain limit
authorized to make decisions autonomously. Under favourable circumstances
responsibility is delegated to the teams, but in adverse conditions this authority is
taken back by the CIN senior management team.
B Principe 3: accountability for dynamic outcomes. The managers are held
accountable for achieving fixed financial targets. Senior management does not
look at what could have been achieved.
B Principe 4: network organisation. The business teams consist of managers from
various disciplines (marketing, sales, logistics, finance), who cooperate to position
and sell products in a specific market segment as good as possible. The teams are

Table II Result of CIN’s BBES

BBES part Test Score

Need for beyond budgeting Preparedness to adapt the budgeting process Green
Status of the organisation 1. Self-governance framework Green
2. Empowered managers Red
3. Accountability for dynamic outcomes Orange
4. Network organisation Green
5. Market coordination N.A.
6. Supportive leadership Green
7. Relative targets Red
8. Continuous strategy-setting Green
9. Anticipatory systems Orange
10. Resources on demand Orange
11. Fast, distributed information Orange
12. Relative team rewards Green
Precondition Authority to adapt the budgeting process Red

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VOL. 9 NO. 2 2005 MEASURING BUSINESS EXCELLENCE PAGE 65
 strongly market-oriented and customer-focussed.
B Principe 5: market coordination. No questions in the BBES.
B Principe 6: supportive leadership. CIN is a flat, non-hierarchical organisation in which
people can speak their mind, and in which the management team manages the
organisation in a coaching manner.
B Principe 7: relative targets. CIN uses fixed, absolute targets that are not changed
during the year, despite changing market conditions.
B Principe 8: continuous strategy setting. The strategy-setting process is bottom-up on
the basis of input from the business teams. The overall CIN strategy is once a year
reviewed and, if necessary, adapted. Within the business teams, this strategy review
takes place several times a year.
B Principe 9: anticipatory systems. CIN does not use rolling forecasts. It uses three
monthly forecasts that do not extend beyond year-end. They serve to give
management an idea of whether the fixed targets will be achieved at the end of the
year.
B Principe 10: resources on demand. All resources are during the budgeting process
divided among the business teams, on the basis of investment plans. The teams
have to finance all their activities with these resources and cannot take up promising
opportunities that occur during the year.
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B Principe 11: fast, distributed information. The information within CIN originates from
several sources, some of which are ambiguous thereby making the information
sometimes unreliable. As a result, management information is not available for
everyone in the organisation.
B Principe 12: relative team rewards. The reward structure is based upon group
rewards. Only if CIN as a company achieves it targets, a bonus is paid to employees.
B Precondition for a successful implementation. Because CIN is part of a multinational,
it lacks real possibilities to make changes in the target-setting process without
previous authorisation of World Cleaning, Inc.
The following recommendations were made to CIN, based on the results of its BBES:
B The management team of CIN has to talk to corporate to ask for authorisation to
adapt the current budgeting process. Only with approval of corporate can the
implementation of the beyond-budgeting model at CIN become a success.
B From now on, business teams have to be evaluated on the basis of relative and
dynamic targets.
B The introduction of rolling forecasts that extend beyond year-end make it possible for
the organisation to better evaluate whether it is still on its strategic track.
B By improving the management information supply within CIN, the business teams
can, at any time, get insight into market developments and their own results, which
will improve their motivation and commitment.

Conclusion
There are many possibilities, on the scale of traditional budgeting to beyond budgeting, to
modernise the budgeting process. However, the beyond-budgeting model deserves serious
consideration because it enables an organisation to look with a fresh view at its budgeting
process, other planning processes, and organisational structure. Each organisation should
at least explore the benefits of introducing one or more beyond-budgeting principles. This is
especially interesting because research has shown that the more beyond-budgeting
principles an organisation implements, the better it performs (Fraser and de Waal, 2001).
Before an organisation starts to implement the beyond-budgeting model, it is advisable to fill
in the BBES. This scan provides a company a good indication of whether there is
dissatisfaction with the current budgeting process, whether people in the organisation are

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PAGE 66 MEASURING BUSINESS EXCELLENCE VOL. 9 NO. 2 2005
 prepared to change and adapt it, and how much effort this will take. With a filled in BBES, an
organisation will be better prepared for the discussion that inevitably lies ahead in the near
future: whether to change, abandon or leave the budgeting process the way it is.

Notes
1. The Beyond Budgeting Round Table is an international not-for-profit management research
consortium, consisting of representatives from profit organisations, non-profit organisations and
academics. More information can be found at: www.bbrt.org

2. On request the organisation stays anonymous.

References
de Waal, A.A., Bilstra, E.P. and Ottens, P.H.J. (2004), Beyond Budgeting: Het Praktische Alternatief voor
Budgetteren, Kluwer, Dordrecht.
Fraser, R. and de Waal, A.A. (2001), ‘‘BBRT benchmarking project: report on an exploratory research’’,
CAM-I’s Beyond Budgeting Round Table, London.
Hope, J. and Fraser, R. (2003), Beyond Budgeting: How Managers Can Break Free from the Annual
Performance Trap, Harvard Business Press, Cambridge, MA.

Further reading
Argaryis, C. (1953), ‘‘Human problems with budgets’’, Harvard Business Review, Vol. 31 No. 1,
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pp. 97-110.
Babbini, C. (1999), ‘‘Reality check: is traditional budgeting under siege?’’, CMA Management,
November.

de Waal, A.A. (2002), Minder is Meer: Competitief Voordeel door Beyond Budgeting, Holland Business
Publications, Haarlem.
Fanning, J. (2001), ‘‘Budgeting: evolution or revolution?’’, Articles of Merit – 2001 Collection, available at:
www.IFAC.com

Hansen, S.C., Otley, D.T. and van der Stede, W.A. (2003), ‘‘Practice development in budgeting’’, Journal
of Management Academic Research.
Krell, E. (2003), ‘‘The case against budgeting’’, Business Finance, July.
Neely, A., Sutcliff, M. and Heyns, H. (2002), ‘‘Driving value through strategic planning and budgeting’’,
research report, Cranfield School of Management and Accenture, Cranfield.

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