Moonshots
Summary
Set clear objectives to foster trust and sense of ownership therefore incentivizing managers to act as business owners, hence maximizing value creation
Problem
Budgeting Problems:
- Instead of focusing on the core business, resources are allocated to budgeting
- Budgeting shifts employees’ interest from the company’s best interest to a more departmental one
- Budgeting brings out personal motives and often leads to vertical and horizontal confrontations
- Adherence to budget targets inhibits innovation and initiative
- Hinders long term and sustainable value creation
Problem Root cause: As any method of control, budgeting has imperfections. Namely, that it sets targets, tends to be short term oriented and is fed through a top-down approach
Budgeting Problems:
- Instead of focusing on the core business, resources are allocated to budgeting
- Budgeting shifts employees’ interest from the company’s best interest to a more departmental one
- Budgeting brings out personal motives and often leads to vertical and horizontal confrontations
- Adherence to budget targets inhibits innovation and initiative
- Hinders long term and sustainable value creationProblem
Root cause: As any method of control, budgeting has imperfections. Namely, that it sets targets, tends to be short term oriented and is fed through a top-down approach
Solution
Solution:
• Set clear objectives to foster trust and sense of ownership therefore incentivizing managers to act as business owners, hence maximizing value creation:
– Abolition of top-down budgeting to foster entrepreneurial spirit
– Basing performance evaluation on marginal results improvement
– Asking managers to drive their units in their best abilities and leverage know-how to create more value
– Linking compensation directly to performance and not results
– Encouraging managers to take calculated risk without fear of retribution
– Focusing on the long-term and corporate strategy
• Full responsibility of managers for own P&L’s but with business specific performance measures enforced by top management:
– At year start, managers are free to negotiate personal roles and responsibilities driven by expected market conditions, and not by top down objectives
– Self-assessment of managers is reviewed utilizing a 360 degree system based on performance and congruence with company values and strategy
– Entrepreneurial spirit goes beyond budgeting by giving managers the flexibility in customers’ negotiations and service to reach agreed targets
– Managers have the ability to negotiate overhead resources needed for every project based on potential value creation.
– Ensure market-based transfer pricing between business units to ensure proper behavior of all parties involved
– Introduce real time data availability (e.g: daily P&L’s aggregated to full year) for performance management and encourage free sharing and full access with integrated systems
Solution:
• Set clear objectives to foster trust and sense of ownership therefore incentivizing managers to act as business owners, hence maximizing value creation:
– Abolition of top-down budgeting to foster entrepreneurial spirit
– Basing performance evaluation on marginal results improvement
– Asking managers to drive their units in their best abilities and leverage know-how to create more value
– Linking compensation directly to performance and not results
– Encouraging managers to take calculated risk without fear of retribution
– Focusing on the long-term and corporate strategy
• Full responsibility of managers for own P&L’s but with business specific performance measures enforced by top management:
– At year start, managers are free to negotiate personal roles and responsibilities driven by expected marketconditions, and not by top down objectives
– Self-assessment of managers is reviewed utilizing a 360 degree system based on performance andcongruence with company values and strategy
– Entrepreneurial spirit goes beyond budgeting by giving managers the flexibility in customers’ negotiations andservice to reach agreed targets
– Managers have the ability to negotiate overhead resources needed for every project based on potential valuecreation
– Ensure market-based transfer pricing between business units to ensure proper behavior of all parties involved
– Introduce real time data availability (e.g: daily P&L’s aggregated to full year) for performance management and
encourage free sharing and full access with integrated systems
Credits
- Tariq Mohammed Alturaigi
- Albert Canela
- Elie El Khoury
- Robert Stajic
- Davor Tremac
- Asli Tunaligil
- Emmanouil Xenos
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