Beyond Budgeting for a True Agile Transformation

Small Talk with Bjarte Bogsnes (Transcript)

This blog post is the transcription of the chat we had with Bjarte Bogsnes about his Beyond Budgeting Master Class on 6 November 2024.

The conversation has been slightly edited to better fit the written format. Enjoy!

Avanscoperta: Let’s start from the basics, as usual during our Small Talk interviews.
Beyond Budgeting, what is it?

Bjarte: Well, first of all, it is a somewhat misleading name because this is about so much more than budgets.

It is about challenging traditional management and leadership, and we will argue based on two main assumptions:

1) you can't trust people,

2) the future is predictable.

None of the two are true and that is what we are challenging.

So beyond budgeting is a management model that has a positive view on people and employees, and also offers much more adaptive, or agile, or whatever you want to call it, ways of leading and managing.

We've had long discussions internally, like, “Should we change this name a lot?” We know it's misleading, but it has become a brand, and it has one benefit: It provokes people. And if we can use that attention to explain what this really is about, then the name might have served its purpose.

But of course there is also a link to budgets, because, at the core of the traditional way of managing, you find the budgeting process and the budgeting mindset.
It's impossible to change management and leadership without also addressing the budgeting process. It's necessary but not sufficient.

Avanscoperta: Now I'm curious to know more about how the name beyond budgeting came about and who came up with it. I guess you referred to a group of people or was it you in the first place?

Bjarte: No, it was not me in the first place. It was actually two English authors and researchers, Jeremy Hope and Robin Fraser. Back in the mid-90s, they discovered that some companies out there, mainly in Europe, had done interesting things around their leadership and management model, including budgeting and kicking out the traditional budget.

One of these companies was a Swedish bank, which I will discuss extensively in the masterclass, called Handelsbanken. And another company was Borealis, which was Europe's largest petrochemical company at the time. And I was heading up the finance function in this company.

Through some coincidences, we got the chance to kick out the budget in that company in 1995. And it worked wonderfully. Cost, for instance, came down. Back then, there was nothing called Beyond Budgeting, so it was a bit risky, but it worked wonderful.

And then, I think the year after, I saw a small advertisement in a UK magazine that these two guys were looking for companies that had done stuff in this area.
So I called the UK number and got in touch with Jeremy. They came over to Copenhagen, and we met. We've been friends ever since. Unfortunately, Jeremy has passed away, but I have been involved in Beyond Budgeting movement since then, and I've been the chairman of the Beyond Budgeting Brown Table for many years. It is a network of interested individuals and companies, and we have been operating since 1998.

Beyond Budgeting was born before the Agile Manifesto. The two have many similarities. However, there was no contact at the time. Fortunately, that has changed today. There's a lot of contact, and there should be because this is about business agility in practice.

Avanscoperta: So indeed you are the best person right now to learn about Beyond Budgeting in the Master Class we’re hosting in Berlin together.
Would you tell us something more about the in-person event?

Bjarte: First of all, I've been doing sessions on Beyond Budgeting for many years - workshops, keynotes, shorter sessions… It was actually a conference company that strongly encouraged me to do something longer than a one-day session. We tried it and it worked.

I have to say that, initially, two days could be a bit long for people participating, but the feedback has been extremely good. I have really enjoyed myself.
So I really like this format, because then there is time for good, deep, broad discussions, and engagement dialogue, which, when it's only one day, because this topic is so big, actually one day can be, or typically is, too short.
I promise participants two unforgettable days. If your feedback is as good as the other participants', you will not regret participating here.

Avanscoperta: Indeed we can't wait.
Let's go back a bit to the why is beyond budgeting a thing, why is it important and why we've seen it working many times. In which way is budgeting itself a problem?

Bjarte: Let me first define what we mean with budget, because a lot of people think about budgets just as cost budgets, but the finest definition is broader.
We talk about revenue budgets, profit and loss budgets, balance sheet budgets, and cash roll budgets, so it's a broader definition.
One problem or issue is that this is an extremely old management technology.

Budgeting was actually invented a hundred years ago, and I'm sure it worked well back then, maybe even 50 years ago. But today this way of thinking, of leading, and of managing, is doing exactly the opposite of its original intentions, which was actually to help organizations perform better.

Today, this way of managing is doing exactly the opposite. It has become more of a barrier than a support for getting off to the best possible performance. And that problem list is long. I mean, it's a very time-consuming process. It creates gaming and lowballing, sandbagging, resource hoarding, and fancy December spending. Assumptions are quickly outdated.
To define good performance as hitting budget numbers is very narrow and often completely irrelevant.

So we need a richer, broader, more intelligent definition of good performance. Is it, for instance, a good performance to hit your cost budget if you could have spent less or should have spent more, as one example?
And how do you know upfront in the Autumn what the right spending level is? How do you know exactly what the right spending mix is within that spending level? How do you know what is the right dose of travel cost for next year? No, we don't. But still, we insist on putting numbers on this.

These numbers become the truth against which everything shall be managed. You know, I sometimes wish that we all woke up one morning with a collective memory loss in this area. We couldn't remember anything about how we were leading in managing. And I doubt that what we would then come up with would resemble anything like traditional budgeting. What we would come up with is closer to the stuff that we are talking about now.

The problem is that we don't have that memory loss. And on the contrary, everybody remembers too well and everybody is too scared to break out of it, right?

Fear is a big element here—the fear of losing control. But many people haven't understood that the control they are so afraid of losing is nothing but the illusion of control. And when people ask me, “Will we lose control?” My response is, “Yes, we will lose some control, and we shall lose some control.” That's the bad control, the stupid control. We will get more of what we call good controls.

One example of a good control mechanism is, for instance, transparency, which is a very simple self-regulating way of making sure that people spend money wisely.
I've got loads of examples of how transparency is used as a control mechanism in the masterclass.

Avanscoperta: This links back to the two points you mentioned before, which are trusting people and predictability of the future.
The first point I'd like to stress now is this: How do you enable a culture of trust, which is basically one of the foundations of the whole beyond budgeting approach?

Bjarte: The interesting thing is that executives and managers, or especially executives, are asked, "Do you trust your employees?" Then almost everybody will say, “Yes, of course, we only recruit the best, right? Of course we trust people”. And sometimes they even mean it. Not always, but sometimes. So that's not the issue. It's not the issue of what these guys are saying, what they are writing.

The issue is, is this reflected in their management processes? And the answer is so often, no. That's the issue. The issue is this lack of coherence, these poisonous gaps between what is said and what is done in organizations.

One classical example is to talk loudly and warmly about how fantastic employees we have on board. But then still insisting on detailed travel budgets. Again, hypocrisy.
Or if the organization talks equally much about collaboration and teamwork and everybody is in the same boat, but when it comes to rewards, it's all about individual bonuses. Again, there are poisonous gaps between what is said and what is done, and people notice this.
And then the words become hollow because the management processes have the opposite message.

So if you want to show that you're serious about trust, show it in your management processes, which includes, for instance, kicking out the detailed travel budgets and a lot more.
And trust me, generally and typically, cost does not explode, if you apply the right control mechanisms to it. Very often costs actually come down.

But again leadership, including trust, is not something you can talk about in isolation. You have to look over your management processes and make sure that the words are reflected in those processes.
This is key in Beyond Budgeting—creating coherence between what is said and what is done. This is why Beyond Budgeting has 12 principles. Six are on leadership, like purpose, autonomy, and transparency. Six are on management processes, like target setting, forecasting, resource allocation, performance evaluation, rewards, and recommendations on the rhythm of all these processes.

There is also a strong focus on creating coherence between what is said about leadership and what is practiced through these management processes.

Avanscoperta: So many things resonate with what we've been discussing during these Small Talks interviews with our other trainers, whether it's OKRs, portfolio management, or, again, the culture of trust and all of this.
This brings me to ask you, who is this for? From what you say, it looks like it's not for, let's say, smaller companies, but maybe more corporate, bigger teams. Or is it not?

Bjarte: It's both for the big and for the small.

It's for the big, given the advice on how they can find their way back to that business agility they had as a smaller organization.

Because I keep saying that companies are born beyond budgeting. They become something else when they want to grow and become big because they copy what the big companies are doing, and then they end up in the same misery of bureaucracy, rigidity, lack of engagement, and all that.

For big companies, it’s about how to find their way back without losing the benefits of being big.
For small companies, it’s about how you can grow without ending up in the same misery.
So it’s for big and small companies, it's for managers, it's for finance people, it's for HR people, it's for agile people, it's for everybody interested in these important issues of leadership and management.

Avanscoperta: Is it more for people who are in charge of someone else or charge of some processes?

Bjarte: Not necessarily. Of course, at one stage, the executives need to be on board, but most revolutions do not start at the top. What you need are some brave and willing people who can take the lead on this and work on this to make it happen in the organization, including convincing executive teams.
I also recommend people from the public sector to come along. I will share some amazing cases from the public sector where stuff is starting to happen.

Avanscoperta: Are there any cases or suggestions on how to make this happen in a remote scenario?

Bjarte: Of course, everything in this area is more difficult when you are not in the same room. So if I could choose, I would always try and be together. If it isn't possible, of course, don't let that be a showstopper. It is still possible.
This is more challenging remotely because it is not just about changing what we do. It is just as much about changing how we think, right? And in my experience, that is easier when you can look people directly in the eyes.

There is no rocket science in beyond budgeting when it comes to changing what we do. We talk about rolling forecasts, relative targets or maybe no targets, holistic performance evaluation… but there is really no rocket science.
But if you try to do things in a different way with the same old mental models, then you will typically fail.

And of course, the change in how you think is the most painful one because so many people have grown up in that traditional way of doing it, believed it, maybe even made a career out of being good at it. So it can be painful to admit that maybe we need to change.

That's why I think it's very important that we be very careful when criticising people for what they have done. What we shall try to get across is that things have changed. And because things have changed with the competence of employees, with the VUCA (volatility, uncertainty, complexity and ambiguity) level of the business environment, we need to change how we work.
And the starting point is accepting those changes. If you accept those changes, you have started to change how you think.

Avanscoperta: This links to the second point, one of the assumptions that you mentioned at the beginning about the future. Change is not only the overall evolution of things but also the fact that we cannot predict things.
This again is connected to the relationship between agility, business agility and beyond budgeting, as workshop description there is no real agile transformation without beyond budgeting.

Bjarte: This is something I will talk a lot about in the masterclass, and we will discuss that a lot, because I'm a big fan of agile.

What I'm going to say now is no criticism of agile at all.

However agile was not designed and developed as a way to run an enterprise. It was born in software development and meant to improve software development and team work.

And agile was a huge success. But when you try to scale agile, the holes in agile become visible, and I refer to all the things agile didn't need to think about back then, because enterprise management was not the key focus.

These are the holes that Beyond Budgeting is filling, because Beyond Budgeting was born at enterprise level by people with deep and strong experience from corporate enterprise level.
I think that is one of the main differences between agile and Beyond Budgeting.
But again, there are many similarities, and the two together can be extremely powerful.
Agile transformation without Beyond Budgeting? Forget it.

I think that's why so many agile transformations are struggling because they have not realized it. These organizations are trying to scale agile using exactly the same framework, language and labels that did wonders in the software development area and back then. But you can't scale it without broadening this, and that is what Beyond Budgeting is doing.

Avanscoperta: Let's come back to the actual workshop. How did that happen? When did you start to deliver this, and why? Was there a request in particular?

Bjarte: I've been doing things like this for almost 30 years now since my Beyond Budgeting career started back in the mid-90s. In the beginning, there was a lot of interest in the finance community, then it later spread to the HR community and to the Agile community. Lately there’s been quite a lot of interest from corporate-level executives and also the consulting business.
And now I'm talking about the big consulting companies, which have become seriously interested in Beyond Budgeting.

I’ve been asked to do this for a long time. I've done a number of one-day workshops, but then it was this conference company that strongly encouraged me to run a two-day session. And I'm very glad they did because it has worked very well.

Avanscoperta: How can one get started with the Beyond Budgeting? What are the first steps?

Bjarte: I would definitely recommend people to check out the Beyond Budgeting Roundtable website, which has a lot of information. You might also want to check out my website. On both websites you find reading recommendations and also other relevant stuff.

Avanscoperta: As we were discussing before we started this conversation, I found out not only you published two books… ut they actually are two and a half books. How come?

Bjarte: What happened was that back in 2008 I wrote my first book, it's called Implementing Beyond Budgeting, aimed at finance people. You might know the one who wrote the forward, the American professor Robert Kaplan, who is the inventor of the Balanced Scorecard.
That book did really well, and a lot of people encouraged me to write a new book. My US publisher encouraged me to write the second edition first, and I ended up with something in between. So it came out in 2016, and it’s called Implementing Beyond Budgeting second edition, but there's a lot of new stuff in it compared to the other ones, that's why I call it that two and a half books.

These two books have one thing in common: They are normal book lengths, say 250 pages. That is too long for many busy people, including executives with limited time to read.
So my last book, which came out recently, it's called This is Beyond Budgeting, it’s much shorter, more focused. So busy people can have time to read it. It's also out in audiobook for those who don’t even have time to read, but they might drive or fly from time to time and so they can enjoy the audio book.
The last book has a foreword by Professor Gary Hamel, who is US-based, and Gary is number one in the world within the management innovation area. He is simply unbelievable. If you haven't heard him, check him out. He's got some amazing videos. He's simply dynamite, so I'm really proud that he wrote the foreword.

Avanscoperta: As we mentioned, it's not only a change in how we do things but also about how we think. Of course, whenever you try to introduce something new and different, you might get good, but also bad response. So I wanted to know from you what was the best and worst response to this approach.

Bjarte: There are stories in both camps when it comes to best and worst, but fortunately, much more good stories than bad stories.

Very few companies go back once they have started. I don't need one hand to count the number of companies going back, and we know the reasons why. It's about a two-week case for change or a flawed implementation. But fortunately, these are the very few exceptions.
The big majority do not go back. On the contrary, they become braver as they go along. Because this is a journey where the direction is clearer than the destination, to the extent there is a destination.

What is scary today is not scary tomorrow, because it works.

Fortunately, I don't have many of these worst responses to share with you because there's been so few. It has been sad the few times I have learned that companies are going back.

Sometimes, it's also linked to a radical change in top management before this platform has become solid enough to withstand some earthquakes.

Avanscoperta: Thanks a lot, see you in Berlin!

Check out Small Talk on YouTube or Spotify.

Credits: Picture by Jodie Righos on Unsplash

Learn with Bjarte Bogsnes

Bjarte is the trainer of the Beyond Budgeting Master Class, a 2-day event taking place in Berlin on 10-11 April 2025.

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