Making Change Happen

Moving to continuous planning and adaptive controls can be a revolutionary process, or it can be approached in an evolutionary way -- first adding key elements, such as rolling forecasts, then relative measures, and so forth. Whichever approach a company takes, executives must maintain a coherent management model so that the various elements of the budgeting and planning process all lead toward the same objective. They must also pay close attention to change management issues, a topic of great importance to Steve Morlidge, who leads Unilever's efforts to implement many Beyond Budgeting concepts. His task is daunting. Unilever has more than 400 operating units. The company has enjoyed much success as one of the top three consumer-products companies in the world. Plus, as a mature company, it has a fairly deeply ingrained culture.

While preparing for the move away from traditional budgeting, Morlidge developed a change equation that identifies the levers of change he needs to move within Unilever -- (D*V*S) > R -- where D represents the degree of dissatisfaction with the current process; V represents the vision for the new processes or systems; and S represents knowledge of which steps to take first to start toward the new vision. The product of these three elements must be greater than the resistance to change (R) in order for change to happen. Because the three levers of change in this equation are multiplicative, if any of them is zero, the result is lack of movement. Great vision with clear first steps will not lead to action unless there is some dissatisfaction with the existing approach. High dissatisfaction with clear vision but questions about where to start often results in paralysis. High dissatisfaction coupled with knowledge of some key first steps -- but no overarching vision -- is dangerous, as it often leads to poorly defined requirements or projects that are initiated but never completed. Lowering the resistance to change can tip the project to success.

The formula can be summarized for the entire organization; however, its composition is strictly personal. Each individual can be assessed on the four factors. The degree of dissatisfaction as individuals and as a group provides the motivation to seek new alternatives. Agreeing on a vision for how the organization will be managed forms the basis for a new, coherent management model. Once the vision integrates all of the improvement initiatives that management is trying to implement, the company can chart its first steps to implementing this vision.

The challenges of today's business environment require organizations to become ethical, lean, and adaptive. To achieve this, they need to reach beyond traditional budgeting approaches that have provided the roots to ethical failures. Managers cannot instill values if they continue to use a game of liar's poker to establish annual fixed targets. Attempts to create lean organizations that efficiently respond to customer demands are likewise hampered by traditional budgeting practices. Planning must shift from the traditional budget's push approach into Beyond Budgeting's pull system.

These changes can be achieved by creating an adaptive organization that focuses on continuous planning and relative performance metrics that spur managers to strive for the top of the corporate league table. Beyond Budgeting enables organizations to stop gaming by decoupling incentive compensation from negotiated targets; engaging in continuous planning by using rolling forecasts; and using operational scorecards so that control mechanisms are adaptive. Together, these changes facilitate real-time management of the enterprise. Environmental changes will continue at an accelerating pace, and only ethical, lean, and adaptive organizations will be prepared to thrive.