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Essay Instructions: Assignment #2: Costco Case Study on Leadership Strategies

You are the expert in this case and provide your own insights and reactions to it based on what you have been reading and learning in this course, and any additional research you may find. Keep in mind, that the key to this assignment is to provide your opinion on the questions asked of you below. Do not reiterate what is written in the case study - rather add your thoughts based on learnings and research and link directly to the questions. It is imperative that you use good critical thinking identifying your own points of view related to this case study, and provide additional research to validate your point(s) of view.

Read the case study & react by writing a 3 to 5 page paper using the learnings from this course thus far, and include a minimum of 2 additional pieces of research
Minimally you should answer these three questions:
Define flexible leadership theory (FLT) and discuss how it applies to Costco's operations?
What is the CEO's role (not necessarily just Sinegal's) in FLT?
Can this work in your organization? If so, how? If not, why?
Submit your paper by Sunday April 10th, by 12:00 midnight on Blackboard.
Remember to double space, use 12 pt. font, have a Title page, Abstract and use APA guidelines.
Do not spend time repeating the content of the articles. You should begin by defining FLT, how it compares to Costco's operations and tie-in new ideas/content while answering the questions above
Costco Fast Facts


Suggested Readings:

Why Flexible Adaptive Leadership is Essential for Organizational Effectiveness.

Outside the Box

Costco Addiction

Costco Data Monitor

Essay Instructions: I would prefer the writer who goes by the name 'C.R.", if possible:

Please construct a 2 page analysis of the following book summary for the book, "Beyond Budgeting". Below is a book summry I would like to be used for the analysis:

Published by Soundview Executive Book Summaries, P.O. Box 1053, Concordville, Pennsylvania 19331 USA
?2003 Soundview Executive Book Summaries ? All rights reserved. Reproduction in whole or part is prohibited.
How Managers Can Break Free From
The Annual Performance Trap
BEYOND
BUDGETING
THE SUMMARY IN BRIEF
It?s no secret that annual budgeting processes are time-consuming, add
little value and prevent managers from responding quickly to changes in
today?s business environment. Traditional budgeting?s focus on fixed targets
and performance incentives often leads to dysfunctional, even unethical,
management behavior. But organizations can break free from the annual
budget trap once and for all.
Beyond Budgeting presents an alternative, coherent management model
that enables companies to manage performance through processes specifically
tailored to today?s volatile marketplace. Based on the decision-making
needs of front-line managers, this model lets you take advantage of two
major opportunities. Your company can create a set of adaptive management
processes that replace centrally controlled, predetermined goals with
self-regulating, relative competitive benchmarks and transfer the power
and decision-making authority from the center of the organization to the
front line.
Concentrated Knowledge? for the Busy Executive ? www.summary.com Vol. 25, No. 9 (3 parts) Part 1, September 2003 ? Order # 25-21
CONTENTS
The Annual
Performance Trap
Pages 2, 3
Breaking Free
Pages 3, 4
How Adaptive Process
Opportunity Lets
Managers Focus
On Value Creation
Pages 4, 5, 6
Principles of Radical
Decentralization
Page 6
Insights Into Changing
Centralized Mind-Sets
Pages 7, 8
A Management Model
For the 21st Century
Page 8
By Jeremy Hope and Robin Fraser
FILE: FINANCIAL /ACCOUNTING
?
What You?ll Learn In This Summary
? Why the annual budget and performance contract is a trap and how
you can break free from it. Do away with budgets and you will save time
and money while you create a more ethical and profitable company.
? How creating an adaptive process lets managers focus on continuous
value creation instead of meeting budget goals. No longer will managers
meet artificial, internally set goals. Instead they will measure their performance
against others in the industry as managers set stretch goals.
? How and why to create a radically decentralized organization to
become a high performance organization. By decentralizing, you create a
vital, responsive organization.
? What you need to do to realize the full potential of management
models like customer relations management, benchmarking, Balanced
Scorecards, activity-based management and rolling forecasts.
The Annual Performance Trap
Like them or loathe them, everyone has a view about
budgets. CEOs like the warm feeling they get when they
see the year-end profit forecasts. But they might be anxious
about the reliability of the assumptions and the
firm?s ability to respond to change. CFOs like the way
they are able to tie operating managers to fixed performance
contracts (fixed targets reinforced by incentives).
But they also know that the process takes too long and
adds little value. Operating managers like ?knowing
where they stand.? But they are also concerned about
the time wasted and that fixed performance contracts
lead to decision paralysis and cosmetic accounting
rather than decisive action and ethical reporting.
The consensus in American business circles is that the
budgeting process isn?t all it could be. Dissatisfaction is
rampant. There are three main reasons for this:
? Budgeting is cumbersome and too expensive;
? Budgeting is out of kilter with the competitive environment
and no longer meets the needs of either executives
or operating mangers; and
? ?Gaming the numbers? has risen to an unacceptable
level.
Budgeting is Cumbersome and Too Expensive
The budgeting process is a deeply embedded annual
ritual. It absorbs huge amounts of time for an uncertain
benefit. Typically, it starts with a mission statement that
sets out the aims of the business followed by a group
strategic plan that sets the direction and high-level goals
of the firm. These form the framework for a budgeting
process that grinds its way through countless meetings.
The average time consumed by the budgeting process
is between four and five months, absorbing 20 to 30
percent of senior executives? and financial managers?
time. A 1998 benchmarking study showed that the average
company invested more than 25,000 person-days
per billion dollars in revenue in the planning and performance
measurement processes.
For any firms involved in mergers, acquisitions, disposals
and other reorganizations, the budgeting workload
can be overwhelming. The result is a finance team
under constant pressure to reconfigure the numbers
rather than support hard-pressed managers with the
information they need to make decisions.
Budgeting Is Out of Kilter
With the Competitive Environment
The pressure on corporate performance has become
intense. Shareholders demand that firms be at or near
the top of their industry peer group. Intellectual capital,
such as brands, loyal customers and proven manage-
BEYOND BUDGETING
by Jeremy Hope and Robin Fraser
? THE COMPLETE SUMMARY
For Additional Information on the authors, go to:
http://my.summary.com
Published by Soundview Executive Book Summaries (ISSN 0747-2196), P.O. Box 1053, Concordville, PA 19331
USA, a division of Concentrated Knowledge Corporation. Published monthly. Subscriptions: $195 per year in U.S.,
Canada & Mexico, and $275 to all other countries. Periodicals postage paid at Concordville, PA and additional offices.
Postmaster: Send address changes to Soundview, P.O. Box 1053, Concordville, PA 19331. Copyright ? 2003 by
Soundview Executive Book Summaries.
Available formats: Summaries are available in print, audio and electronic formats. To subscribe, call us at 1-800-
521-1227 (1-610-558-9495 outside U.S. & Canada), or order on the Internet at www.summary.com. Multiple-subscription
discounts and Corporate Site Licenses are also available.
Soundview
Executive Book Summaries?
ANNIKEN DAVENPORT ? Senior Contributing Editor
DEBRA A. DEPRINZIO ? Art and Design
CHRIS LAUER ? Managing Editor
CHRISTOPHER G. MURRAY ? Editor-in-Chief
GEORGE Y. CLEMENT ? Publisher
2 Soundview Executive Book Summaries?
The authors: Jeremy Hope and Robin Fraser are
Directors of the Beyond Budgeting Round Table, a collaborative
that offers shared learning, performance management
research and consulting support.
Adapted by arrangement with Harvard Business School
Press, from Beyond Budgeting by Jeremy Hope and
Robin Fraser. Copyright? 2003 by Harvard Business
School Publishing Corporation. 232 pages. $35.00.
1-57851-866-0.
The Traditional Budgeting Process
Mission Statement
Strategic Plan
Budget
Goals and rewards
Action plan
Resource allocation
Coordination
?Budgeting?
?Keeping on Track?
Control
(continued on page 3)
ment teams, drives shareholder value. Product and strategy
cycles have shortened. Prices and margins are under
pressure and customers are becoming fickle. The old
command-and-control management style is out of tune
with the new need for agile and adaptive leadership and
the need to transfer more power and authority to people
closer to the customer.
Few of the innovative management tools of the past
decade have been used to fundamentally transform the
performance management process. At best they have
made marginal improvements to a broken system. Few
have achieved their potential.
?Gaming the Numbers? Is at Unacceptable Levels
Budgets started life in the 1920s as tools for managing
costs and cash flows in large organizations. By the
1960s they had mutated into fixed performance contracts.
By then companies were using accounting results
such as costs, net income and return-on-investment
(ROI) to do more than keep score but also to motivate
operations personnel at all levels. By the 1970s, financial
indicators were being used to manage the business.
This lead to the increased use of the fixed performance
contract as the basis for setting fixed targets
against which performance was evaluated and rewarded.
The fixed performance contract begins with an ?earnings?
contract between senior executives and external
parties, such as investors or bankers, and then cascades
down the organization in the form of ?budget? contracts
between senior executives and operating managers.
The typical budget contract provides:
? A fixed target, such as sales, profits, costs and
return on capital.
? An incentive for meeting or exceeding targets.
? An agreed-upon strategic and financial plan.
? A statement of resources available.
? A commitment to cross-company actions such as
a promise by production to meet a sales plan target.
? A reporting schedule so that progress can be
monitored.
One problem with this management method is that it
may lead to fraud. Fear of failure (to meet the goals
specified from above) is often the underlying cause.
This was evident at both Enron and WorldCom. When
senior executives and operating managers commit to
overly aggressive targets, they may fudge the numbers
to meet them. The fixed performance contract is a deadly
virus. It can lay dormant for years until an aggressive
?management by the numbers? leader comes along and
activates it. It is a dismal way to manage a business. ?
Breaking Free
There are organizations that have found a better way.
They have eliminated the annual cycle of preparing, submitting,
negotiating, and agreeing upon a budget by
department, function, business unit, division or even the
whole organization. The result has been to save months
of work. The budget no longer represents an annual fixed
performance contract that defines what subordinates
must deliver or how resources are allocated or what business
units must make and sell. The budget no longer
determines how the performance of those units and their
people will be evaluated and rewarded.
Who are these organizations? They vary in size from a
small charity to a huge global firm. They have gone
beyond budgeting, enabling more adaptive management
processing and a radically decentralized organization.
The Adaptive Process Opportunity
Rhodia is a large specialty chemical company with
sales of $7.2 billion operating in many global consumer
markets. The annual budgeting process took six months
and was slowing down its ability to respond to the market.
In 1999, the company replaced it with two performance
management cycles. One takes a strategic view
and continually looks two to five years ahead, with an
annual review. The other takes an operational view and
looks five to eight quarters ahead, with a quarterly
review. Managers now focus on medium-term strategy
rather than short-term fixed targets.
The contrast between the old and new way of doing
things is dramatic. It looks like this:
Targets: Instead of setting a fixed sales/profit target,
the organization trusts everyone to maximize profit
potential by continuously improving against an agreedupon
benchmark and remaining in the top of the industry
peer group.
Rewards: Instead of a fixed reward, managers are
rewarded by a peer review panel based on performance
and with ?hindsight? at the end of each year.
Plans: Instead of an agreed action plan, the organization
trusts everyone to take whatever action is needed to
meet medium-term goals.
Resources: Instead of a fixed budget amount, managers
trust the organization to provide the resources
needed to meet goals, and management trusts everyone
will keep resources within agreed-upon key performance
indicators.
Coordination: Instead of an imposed-from-above
coordination of activities, the organization trusts that
everyone will work together according to periodic
agreements and customer requirements.
Controls: Instead of monthly performance monitor-
3
Beyond Budgeting? SUMMARY
Soundview Executive Book Summaries?
The Annual Performance Trap
(continued from page 2)
(continued on page 4)
ing, the organization trusts everyone will provide an
accurate forecast based on the most likely outcome. The
organization will only interfere when the indicators
move out of bounds.
The principles of Beyond Budgeting offer a new
coherent management model. It assumes that front-line
managers are able to regulate their own performance.
Senior executives provide a supportive role. They challenge
and coach, but decisions are taken locally within a
clear governance framework based on principles, values
and boundaries. In the new coherence, relative improvement
contracts, strategic models, rolling forecasts and
service-level agreements make sense.
Radical Decentralization
There must also be a wider coherence among the
organization?s success factors, its strategy, its management
processes, and its leadership styles and culture.
The process is about lifting the burden of bureaucracy
from the shoulders of front-line people, eradicating the
dependency culture and enabling people to accept even
more responsibility for their own performance.
The delegation of decision-making and spending
authority has always been one of the key functions of
budgeting. However, this delegation usually occurs
within a regime of compliance and control. When that
power is transferred from the center to operating managers
and their teams, vesting them with the authority to
use their judgment and initiative to achieve results without
being constrained by some specific plan or agreement,
the organization creates an empowered work
force. That in turn drives superior performance.
Radical decentralization requires that leaders share six
common principles. These are:
1. Build a governance framework based on clear
principles and boundaries.
2. Create a high-performance climate based on the
visibility of relative success at every level.
3. Provide front-line teams with the freedom to
make decisions that are consistent with governance
principles and strategic goals.
4. Place the responsibility for value-creating decisions
on teams.
5. Focus teams on customer outcomes.
6. Support open and ethical information systems.
Going beyond budgeting provides benefits for shareholders,
too. It addresses two primary issues investors
face. The first is whether they believe an organization will
produce sustainable growth in shareholder wealth. The
second is whether they trust the management team. ?
How Adaptive Process
Opportunity Lets Managers
Focus on Value Creation
Breaking free from the fixed performance contract is key
to unlocking stretch targets, implementing adaptive
processes and eradicating most of the undesirable gameplaying
that pervades the budgeting process. Break free by:
? Setting stretch goals aimed at relative improvement.
You do this by telling the team that they should
set their goals based on their highest aspirations. Just
make certain that the stretch goal isn?t seen as a fixed
target against which performance will be evaluated.
Also make sure that goals are set relative to external
benchmarks. Benchmark goals are based on industry
best-in-class performance measures, and teams are
given an extended period of time to reach them. Most
companies set the goal as being in the top quartile of
their peer group. You can also set goals relative to internal
peers as a way to boost continual improvement.
Beyond Budgeting? SUMMARY
Breaking Free
(continued from page 3)
Svenska Handelsbanken
Decentralizes
Swedish bank Svenska Handelsbanken was struggling
and losing customers, especially to a smaller
rival run by Dr. Jan Wallander. So the bank invited
him to join it as its new CEO. He accepted with the
proviso that the bank would have to radically decentralize
operations and abandon its budgeting
process.
Convincing others that the organization should not
be coordinated and controlled from the center was a
tough challenge. Wallander was resolute. He believed
that what holds an organization together is a commitment
to a clear purpose, principles and values.
Above all, Wallander believed in setting people free
? free from stifling bureaucracies, predetermined
plans, fear of failing to meet fixed targets, and forced
cross-company actions designed by central planners.
He opened up the information system so that
everyone could see the same information at the
same time. Sharing and cooperating were no longer
choices: They happened automatically.
Since abandoning the budgeting model in the
1970s, the bank has produced outstanding return for
shareholders, consistently beating all its European
rivals on the key ratios of cost-to-income and coststo-
total assets. The CEO credits its decentralized
management model as a major source of competitive
advantage.
4 Soundview Executive Book Summaries?
(continued on page 5)
? Base evaluation and rewards on relative
improvement contracts with hindsight. Do not link
rewards to fixed targets agreed upon in advance. Set
bonuses based on a relative improvement contract that
involves a whole team setting and meeting a range of
performance benchmarks over a period of time. Use a
peer review group to evaluate their performance with
the benefit of hindsight. The peer panel must ask, ?Did
they do as well as they could have done given what we
know about the profit-making opportunities during the
period and what the competition has achieved??
? Make action planning a continuous and inclusive
process. The calendar or fiscal year may be an appropriate
time period for reporting results to investors but it
is unlikely to be for managing the business. Focus
instead on continuous value creation.
? Make needed resources available. Managers need
fast access to resources. Although you may provide
parameters within which resources can be committed,
within these limits managers should have wide discretion
over how they utilize resources. Provide fast-track
approval for major projects outside the budgeting
process. Major projects should be approved as needed,
not because it is the right time of the year. Managers
should have the power to implement small projects.
? Coordinate cross-company actions according to
prevailing customer demand. Let the pace of market
demand set commitments. Whenever possible respond
to unanticipated customer requests. Give those who are
making the front-line decisions access to customer profitability
information or they risk creating losses as the
costs of customizing affect customer profitability.
? Base controls on effective governance and on a
range of relative performance indicators.
Decentralizing means making the switch from central
control to multilevel controls. Multilevel controls means
knowing what is going on and interfering only when
necessary. Ensure that there is effective governance
from the center which supports local decision-making.
Applying these principles results in aspirational goals,
reduced gaming, ambitious strategies, fast response,
reduced waste, improved customer service, and an
atmosphere that promotes learning and ethical behavior.
Insights into Implementation
Little uniformity exists in how firms have approached
the implementation of beyond budgeting. Though some
have used consultants to help with the process design,
few have used them to aid with the abandonment of the
budgeting process and the implementation of its
replacement. After surveying successful companies that
have gone through the process, the following guidelines
help shed light on how they managed the change-over:
? Define the case for change and an outline vision.
Implementing beyond budgeting, even incrementally, is
a significant change and needs to be handled accordingly.
Going beyond budgeting is about changing a mind
set. You won?t be able to build support from the top and
a groundswell below unless you make a convincing case
for change that includes a vision of how things will be.
The case for change should be both a clear statement of
the ?current pain? experienced with the budget-based
model and the benefits to be gained by replacing it with
something different.
? Convince the board. One of the key roles for the
project team will be to convince the board that managing
without budgets will bring significant benefits without
too many down sides. The board will question
whether the firm can maintain effective corporate governance
and internal controls and whether changes will
affect the firm?s ability to forecast future earnings and
Beyond Budgeting? SUMMARY
5
How the Board at Borealis
Was Convinced
Borealis is one of the largest petrochemical companies
in the world. Output from its products can be
found in thousands of everyday products from diapers
to housewares to power cables. It was formed in
Denmark in 1994 as a joint venture between two Nordic
oil companies (Statoil of Norway and Neste of Finland).
It inherited most of its processes, systems and people
from the parents. Heading up the team that would create
a Borealis unencumbered by the burdens of budgeting
was Bjarte Bognses. His team?s first job was to convince
the board that doing away with the budgeting
process was a good idea.
The team was confronted by board members who
asked, ?How do we control the business without budgets??
?and ?Why take the risk?? Through a series of
meetings, the team won the board over. They discussed
two primary risks: that costs would explode because of
fewer controls and that decision making would be paralyzed.
Bognses addressed these concerns like this:
?We have good, capable people who take their jobs
seriously. They know what to do. The likelihood of
chaos is minimal. We should also consider the risks of
not doing it. What would happen? We would carry on
as normal with no one challenging costs and everyone
demanding more resources than the company can
afford.? He won the board over and the company has
become a powerhouse.
Soundview Executive Book Summaries?
(continued on page 6)
How Adaptive Process Opportunity
Lets Managers Focus on Value Creation
(continued from page 4)
avoid upsetting the market with unpleasant surprises.
? Get started. Remind people that the change will
actually mean less work, not more. A great approach is
to eliminate the next budgeting process right away and
immediately replace it with the new process.
? Design the model and implement the process. The
annual budgeting process connects every part of an
organization and influences how people think and
behave at every level. Any changes must therefore take
into account these effects. Realign recognition and
rewards, and reestablish coherence in the whole process.
? Train and educate people. Combine a welldesigned
system and a rollout program with excellent
training materials. Make sure everyone becomes familiar
with the new processes as soon as possible.
? Rethink the role of finance. The success of managing
without a budget will be fleeting unless the role
played by the finance team is realigned with the new
processes. This is a time of maximum uncertainty for
the finance team. They need to know where they stand.
Ensure they have the training to meet future challenges.
? Change behavior. Change will be driven by the
new processes, not by management decree. Behavior
change follows process change. With no detailed budget
to define their targets and dictate their actions, managers
must accept greater responsibility for their actions and
more accountability for their results.
? Evaluate the benefits. Demonstrating short-term
wins is important to keep resistors at bay. Show them
hard evidence of success. Short-term wins should have
three characteristics: They should be visible, unambiguous
and clearly related to the changes. ?
Principles of Radical
Decentralization
Effective empowerment is the product of freedom multiplied
by capability. As with any mathematical equation,
if one of the variables is zero, the result will also be
zero. This explains why so many attempts at empowerment
fail. Few leaders seem capable of supporting both
variables at the same time. To make it work, you need to
understand seven leadership principles. They are:
1. Provide a governance framework based on clear
principles and boundaries. People at all levels of a firm
need clear guidelines so they know what they can and
cannot do. In control-oriented organizations, these were
based on mission statements, plans and budgets. In
empowered organizations, they are based on clear principles,
values and boundaries. Essential boundaries include
the strategic domain; codes of conduct; ethical and environmental
considerations within which managers can
operate; time between reporting intervals; and the area
between what managers must do and what they might do.
2. Create a high-performance climate based on relative
success. When senior executives fixate on meeting
numbers every quarter and year-end, their obsession
drives dysfunctional and disruptive behavior at every
level. Managing without fixed targets and incentives
leads to strong and consistent levels of performance
when leaders champion relative performance, challenge
ambition, and balance competition and cooperation.
Break Free From Fixed Performance Contracts
3. Fixed performance contracts tie operations managers
to specific agreements and reduce their flexibility.
Breaking free from these contracts is the single most
important step that leaders can take to create an empowerment
culture where beating the competition is what?s
important, not meeting some arbitrary internal goal.
4. Give people freedom to make local decisions that
are consistent with governance principles and the
organization?s goals. Teams at every level need strategic
direction. To instill a culture of responsibility rather
than dependency, leaders should challenge assumptions
and risks, involve everyone in strategy, and empower
teams to make decisions.
5. Place responsibility for value-creating decisions
on front-line teams. Decentralizing allows teams to
respond to local opportunities in ways that create a
more adaptive organization. Changing functional mindsets
to team-based mind-sets is a major cultural challenge.
To embed the philosophy of teamwork and personal
responsibility, leaders must create a network of
small, customer-oriented teams, and base recruitment on
a potential employee?s fit with the team.
6. Make people accountable for customer outcomes.
As you move beyond budgeting, your structure
should become more networked, using independent
units with distributed capabilities and expertise. You
will be able to locate and combine expertise across the
network and seamlessly bring collective expertise
together to provide customer solutions. That way, teams
can share knowledge across the business as they
respond to customer demands.
7. Support open and ethical information systems
providing ?one truth? throughout the organization.
Resist the temptation to hide facts from the organization.
Good and bad news must be shared so potential
problems can be solved before they become crises. ?
Beyond Budgeting? SUMMARY
How Adaptive Process Opportunity
Lets Managers Focus on Value Creation
(continued from page 5)
6 Soundview Executive Book Summaries?
For Additional Information on How Not to Implement Change,
go to: http://my.summary.com
Insights Into Changing
Centralized Mind-Sets
Changing the centralized mind-set is extremely difficult
and depends on rooting out the budgeting and
dependency culture. The problem is a lack of understanding
of what leaders must do to make empowerment
work effectively. To make it work, they must abandon:
? fixed performance contracts
? command-and-control management
? the dependency culture
? central resource allocation
? multilayered functional hierarchies
? closed information systems
To make the leap, the organization and everyone in it
must see real benefits. The main benefits of empowerment
are unlikely to be realized until the budget contract
has been abandoned and alternative processes have
been put into place. It is the new processes that change
actions and behavior.
?We Really Mean It?
Abandoning the budget is one of the most positive
actions leaders can take that say to people ?we really
mean it.? Managers are immediately aware that there is
no detailed plan that dictates their actions. They must
think for themselves and take responsibility. The learning
process is both fast and steep. Managers suddenly
have to understand strategy at both corporate and local
levels and know the principles and boundaries within
which they are to operate. They have to understand that
if they make mistakes, they won?t be punished.
For many managers steeped in the command-and-control
culture, devolving responsibility is airy-fairy stuff.
Their job as they see it is to ensure that leaders have
control, and that can only be done with hard numbers.
These managers exist in every organization and are usually
a difficult and vocal minority. The answer isn?t to
cater to them but to maximize attention to the top 90
percent or so who do get it ? who understand the benefits
of decentralization. Promote the people who
embrace the new values and it will take root.
Some companies have found that the turning point in
their switch to a culture of responsibility was when they
changed how people were recognized and rewarded.
The Roles of Systems and Tools
Six tools are especially helpful in going beyond budgeting.
These are:
1. Shareholder value models that align decisions of
internal managers with the expectations and interests of
external shareholders.
2. Benchmarking models align targets with external
or internal best practices and display the results in terms
of rankings lists.
3. Balanced Scorecards provide a strategic framework
for local decisions and provide leading indicators
that tell managers if strategic goals are met.
4. Activity-based management informs managers
about the causes of costs and better equips them to
understand the net profit contributions of products,
channels and customers.
5. Customer relationship management tools focus
managerial actions on knowing and satisfying customer
needs profitably.
6. Enterprise information systems and rolling forecasts
join up the disparate functions of the organization
and enable managers to relate work and cost inputs to
customer outputs across the business.
Advocates of tools and information systems claim
potentially powerful results if they are implemented in
the right way. Tools and systems will work if the organization?s
culture is supportive, its leaders are committed,
and decision makers have the freedom to act on the information
the tools provide. These are big ?ifs.? The reality
is that few tools achieve their objectives. The problem is
that although all these tools have been implemented to
overcome the systemic failures of the traditional model,
the processes that underpinned those failures have been
left in place. They have, in effect, been neutralized by the
powerful antibodies of the budgeting immune system.
Budgets are barriers to the full implementation of the
listed models. Removing the barriers is key to successful
implementation of the models. For each model, the
approach differs slightly. Here is the breakdown:
Beyond Budgeting? SUMMARY
Soundview Executive Book Summaries? 7
How IKEA Shares Information
IKEA?s chairman Ingvar Kamprad believes his company?s
open information systems based on sharing
of best practices give the international retailer a powerful
competitive advantage. The company assigns
?IKEA ambassadors? who are trained by the chairman
himself in the company?s values and culture to
key positions in every unit. They socialize newcomers
into the IKEA philosophy and facilitate the transfer
of ideas and best practices across the company?s
operating units. As a result, newly set-up stores look
at other stores and try their hardest to improve on
them. Some of the distinguishing characteristics of
the typical IKEA store have emerged out of this institutional
entrepreneurship. These characteristics
include cafeterias serving inexpensive exotic meals,
such as Swedish meatballs; supervised play areas for
children; and fully equipped baby-changing facilities.
(continued on page 8)
Shareholder value models let managers make decisions
based on creating value greater than the cost of
capital. By looking at every business as a portfolio of
assets, products and customer segments, you can apply
or reduce resources to them on the basis of their valuecreating
opportunities. This is hard to do in the traditional
budgeting environment, where goals and
resources are allocated for the year with little relationship
to the allocations?s impact on segments of the business.
Some get more than they need in relation to their
value-creation while others don?t get enough. Instead,
give front-line managers access to the information they
need to see what creates the most value.
Measure Relative Success
Benchmark modeling is the philosophy of continuous
improvement against a world-class standard. Wellchosen
benchmarks ensure that firms are measuring performance
against best industry standards rather than
internally negotiated targets. Budgets are barriers to
benchmarking because budget figures rarely are tied to
external factors, but reflect realistic goals set internally.
That can prevent moving ahead within the industry even
as internally selected goals are met. It?s the company?s
performance relative to the competition that counts, and
that?s what benchmarking measures. Using benchmarking
also allows fair evaluation of efforts during turbulent
times as it measures relative success.
The Balanced Scorecard was developed in the early
1990s as a response to the inadequate performance measurement
systems that were primarily geared at reporting
financial results against the budget. Scorecards are
business units? strategy map. They set goals and provide
an action plan for meeting those goals. Scorecards let
front-line teams manage strategy by making sure goals
and actions are aligned.
Understanding How Activities Add Value
Activity-based management models enable managers
to better understand how activities add value to
products and customers. An activity-based model can
measure the cost of activities that are not readily
accounted for in a budget that only shows the costs of
functions and departments. By giving front-line employees
access to activity-based information, they can make
better decisions about their activities, and set priorities
that lead to greater profitability.
Customer relationship management models identify
what people must do to satisfy customers and build
their loyalty and profitability now and in the future.
Front-line workers must be freed from budget goals that
restrict their ability to build relationships.
Enterprise information systems and rolling forecasts
should be used to monitor business changes and
have the capability to do so almost in real time. ?
A Management Model
For the 21st Century
The essence of the adaptive and decentralized management
model is that by giving capable and committed
people the authority to make fast decisions in their local
markets, they will act responsibly; respond appropriately
to the threats and opportunities confronting them; and
with an eye on competitive performance, deliver consistent
results. The focus of the model has moved from
central to local control. This means that it is the local
team that engages in planning and execution. They are
the ones in touch with customer needs and the ones who
have the freedom and capability to act.
Leaders also benefit. They have more time to challenge
and support front-line people and reinforce principles
and boundaries. Fast, transparent information
ensures that there are many checks and balances that
provide strong controls.
Lower Cost
Low cost is also a feature of the beyond budgeting
company ? an important feature in difficult times. By
removing the cost of the budgeting process and eliminating
the entitlement mentality that traditional budgets
create, front-line managers can spend less when they
need less while safe in the knowledge that they will be
provided greater resources should they need them.
A decentralized company also encourages an environment
of good governance and ethical behavior. People
want to work in a more virtuous organization where
they can trust people and be part of a team. They want
to know what the company stands for and where it is
headed. And, most important of all, they want more
meaning in their working lives.
The adaptive and decentralized model is the answer. It
is based on releasing the enterprise, energy and capabilities
of people supported by adaptive processes, appropriate
tools and clear leadership principles. There is no
place for fixed performance contracts and remote-control
management. Leaders need to place more faith,
responsibility and trust in their operating people. The
result will be a management model that offers a unique
source of competitive advantage. ?
Beyond Budgeting? SUMMARY
8 Soundview Executive Book Summaries?
For Additional Information on how one company removed barriers to
change, go to: http://my.summary.com
Insights Into Changing
Centralized Mind-Sets
(continued from page 7)

Essay Instructions: Jill,



Here is the message from my instructor. Can we fine tune the next assignement and have you help from now on?





Hi, Zach, and welcome to class! A good job with this first unit. I enjoyed your discussion on leadership and management, and a solid effort with APA. For next time, please stick more closely to our textbooks in support of your response. The goal here is to demonstrate understanding of our textbook readings, so don?t worry about including outside sources. (It?s a lot more work, and I?d much rather see you demonstrate a solid understanding of Yukl.) Also, let?s work a bit on citation technique. APA citations should be included at first mention of any author/text/idea in each paragraph, citing both direct quotes (which should be minimized at this level) and paraphrased ideas. Then, once per paragraph is fine as long as continuing attribution remains clear. Note that for APA citation, direct quotes take (Author, Year, page#) while material paraphrased in your own words takes just (Author, Year). Overall, a good start! 85





My next assignment:



UNIT TWO



Reading Assignments
Read the following chapters from Leadership in Organizations:
?Chapter Five: Participative Leadership and Empowerment
?Chapter Six: Leadership Traits and Skills
?Chapter Seven: Contingency Theories and Adaptive Leadership
?Chapter Eight: Power and Influence Tactics

Read the following chapters in Lincoln on Leadership:
?Part Three
?Part Four

Short Essay Questions: Answer four of the essay questions from the list below. Be sure to utilize our text readings in each answer, citing in APA style as you go. Provide an APA reference list at the end of your assignment. Each question should be approximately 200 words for an assignment total of 3-4 pages. (Please read all chapters in the unit prior to answering the questions, as some material will overlap, and thus material from several chapters may support your response.) Choose four of the following: Explain what is meant by participative leadership and identify three situations when participative leadership should be used.
1.Explain technical, interpersonal, and conceptual skills and describe the level of each type of skill that is typically important for leaders, managers, and followers to possess.
2.Briefly explain and contrast path-goal theory and multiple-linkage theory.
3.Differentiate between position power and personal power. Explain how each applies to leadership (versus management).
4.Explain the four elements of emotional intelligence.
5.Do you feel Abraham Lincoln had high levels of emotional intelligence? Explain your beliefs by applying the Yukl text to examples from the Phillips text.