Snippets: Some Provocative Views on Modern Business Practices from Jeremy Hope
Jeremy Hope is the research director for the Beyond Budgeting Roundtable (www.bbrt.org) and a leading thinker on modern
management.
His work is regularly published in the Harvard Business Review, and in other journals.
Jeremy is presenting workshops in Wellington (11 October Duxton Hotel) and Auckland (12 October Hilton Hotel) on
eliminating hidden costs in businesses, and new developments in performance management.
The following are extracts from his workshop paper on eliminating hidden costs.
Annual Budget Cycle Theory Y organisations have blown up the budget and moved to a sort of continuous planning process
usually involving quarterly reviews supported by ‘rolling’ forecasts. These forecasts are based on a few key drivers and
only take days rather than weeks and months to put together. Savings of up to 95% of the work of budgets have been
recorded. There are far better ways of steering the organisation.
Forecasting The mistake that many organisations make is assuming that forecasts are about ‘predicting and controlling’
future outcomes. The only certainty about a forecast is that it will be wrong. The only question is by how much.
Narrowing that variation comes from learning, experience and decent information systems. The purpose of a forecast is
not so much to provide an accurate view of the future but more to provide some insights about how strategic options and
future events will combine to produce most likely financial outcomes.
Staff Retention and the cost of turnover The vast majority leave because they are dissatisfied with the company or their
job. Theory Y managers believe it is more sensible to eliminate the causes of dissatisfaction instead of spending huge
sums on replacing them. In other words, they see employees as assets to be nurtured rather than costs to be expensed?
They get the hiring right in the first place. They ‘recruit for attitude and train for skills’ as one company put it.
This makes sense. It means that they look for people who fit their culture rather than just hire on experience and
qualifications. They then develop their people and give them responsibility at an early stage. High employee turnover is
a huge hidden expense and a sure sign of a weak and declining organisation. Many of the problems are cultural and to
change them will probably need new leaders. Balanced Scorecard The vast majority of Scorecards are used as top-down
control systems. This is also how the software industry has interpreted them. The give-away signs are the
‘target-actual-variance’ reporting systems with different coloured ‘traffic lights’ to tell us whether indicators are
going up or down.
Performance Appraisals Performance appraisals absorb a huge amount of management time but their effectiveness is highly
contested. According to research done by McKinsey & Co only 16% of the 13,000 executives they interviewed believed their companies could tell high performers from low
performers. This is a damning indictment of the effectiveness of performance appraisals. The belief that individuals
should be held accountable for their performance feels intuitively right. But, according to John Seddon, “the evidence
suggests that the premise is wrong. Individual behavior in organisations and thus their achievements are governed more
by the system they work in than anything they are able to do.”