To explore strange new worlds, to seek out new life and new civilisations, to boldly go where no man has gone before.

Ah the company mission statement.

According to my CIMA E3 notes it should be designed to put in writing the basic purpose of the organisation and what it is trying to achieve. As an employee we need direction we need to understand where the company that pays us and feeds our children is heading. We all need to be singing of the same hymn sheet.

Evidence of mission statements can be traced back to the early 1900’s. One of the earliest is from Henry Royce – ‘We build the best motor car’. But they began to appear more and more often during the late 1980 – In the USA naturally.

Some mission statements are long and basically unintelligible:

Our mission is to produce superior financial returns for our shareholders by providing transportation, high value-added logistics and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. We will strive to develop mutually rewarding relationships with our employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.
- Fedex

Whilst others are a bit more to the point:

To crush Reebok.
- Nike
Beat Coke.
- Pepsi
We will crush, squash, and slaughter Yamaha.
- Honda

I must add these are not current, interesting, but not current.

Can you tell an organisation from its mission statement? Which company had the following statement?

Our mission is to conduct all of our businesses, both energy and financial related, with four key values in mind: respect, integrity, communication and excellence. All business dealings must be conducted in an environment that is open and fair.

Yes you guessed it! Enron who in 2001 were implicated in a massive fraud

How about:

A specialised lending and savings bank which aims to deliver superior value to customers and shareholders through excellent products, efficiency and growth.

Northern Rock – good isn’t it?

How about:

Our mission is to make, distribute and sell the finest quality ice cream and euphoric concoctions with a continued commitment to incorporating wholesome, natural elements and promoting business practices that respect the Earth and the Environment.
- Ben & Jerry's

To enable people and businesses throughout the world to realize their full potential.
- Microsoft.

So where are we now? After about 10 years of use mission statements became less popular. Where is the competitive advantage of having a mission statement if everyone has one?

So bye-bye mission statement and hello Noble Purpose, a cross between a mission statement and an advertising slogan. Shorter and snappier. Examples include:

To make people happy.
- Walt Disney
Beyond Petroleum.
- BP
To give ordinary folk the chance to buy the same things as rich people.
- Wal-Mart

I'd be interested in hearing your examples.


Cheers Peter
Kaplan – Building Futures One Success Story At A Time!

Budgeting - What's the point?

All managers know the scene. Hours are spent over spreadsheets. Days of meetings, discussions and debates. Draft budgets, revisions and redrafts. Months are spent estimating this that and everything down to the last paper clip. Finally the budget is accepted. Yet even by the end of Week 1, most assumptions the budget was built upon will be out of date, the constraints set will be inhibiting action and business opportunities will be lost.

Fixed budgets don’t work today. A budget is a too static instrument and locks managers into the past - into something they thought last year was right. To be effective in a fast moving economy with rapidly shifting market conditions and quick and nimble competitors, organisations have to be able to adapt constantly their priorities and put their resources where they can create most value for customers and shareholders.

Budgets, as practiced by most organisations today should be abolished! A growing number of companies have decided that conventional budgeting is no longer worthwhile. To them, the reassurance budgets give to a nervious chief executive is outweiged by the flexibility needed in todays organisations.

The weaknesses of traditional budgeting processes have been the subject of much attention and many commentators. Hope and Fraser consider that such weaknesses include the following:
• Budgets prepared under traditional processes add little value and require far too much valuable management time which would be better spent elsewhere.
• Too heavy a reliance on the 'agreed' budget has an adverse impact on management behaviour, which can become dysfunctional with regard to the objectives of the organisation as a whole.
• The use of budgeting as a base for communicating corporate goals - setting objectives, continuous improvement etc - is seen as contrary to the original purpose of budgeting as a financial control mechanism.
• Most budgets are not based on a rational, causal model of resource consumption, but are often the result of protracted internal bargaining processes.
• Conformance to budget is not seen as compatible with a drive towards continuous improvement.
• Traditional budgeting processes have insufficient external focus.

Rolling or perhaps monthly budgets focus management attention on current and likely future events. But is this managing change? Or merely an attempt to keep ahead of change.

‘Beyond Budgeting’ could be the answer. ‘Beyond Budgeting’ is about releasing people from the chains of top down management and enabling them to use the knowledge resources of the organisation to increase profitability. With intellectual assets accounting for 80-90% of shareholder value today, people really are the organisation’s most valuable asset. But the way the annual budget round works means that their energy is used more for negotiating the budget than creating shareholder wealth.

In the private sector managers should consider current and future opportunities with a focus on non-financial ‘value drivers’ as performance indicators. This should create and foster a climate based on competitive success. Goals are agreed against external benchmarks rather than against internally negotiated fixed targets. Managerial focus shifts from beating other managers for a slice of resources to beating the competition. It empowers operational managers to act by removing resource constraints. Key ratios are set, rather than detailed line-by-line budgets. Access to resources is based upon agreed parameters rather than line-by-line budget authorisations. This is aimed at speeding up the response to environmental threats and enabling quick exploitation of new opportunities.

Can ‘Beyond Budgeting’ work in the public sector? This would require a change in mindset. Senior managers and politicians would need to set broad goals and trust in their managers to ‘get on with it’ One of the biggest problems confronting the public sector is how do they best utilise their limited resources to meet the public’s unlimited needs? The problem we have today is that in the public sector the budget process is often about justifying existing resources and acquiring new resources. Priorities are based upon budget submissions and taken by people far removed from the action. Resources are then allocated for the year ahead. If ‘resource ‘buckets’ were allocated to users and they had the scope to spend the money in the way they thought best to maximise their performance and they had the information to understand their inputs and the flexibility to buy their resources from an internal or external market then they might have the incentive to take a long look at their costs.

Kaplan (no relation!) provides an interesting example. In the City of Indianapolis and after many years of budget overruns the new mayor decided to put a number of contracts out to tender. One included the paving of roads, filling potholes, sweeping streets, and collecting rubbish. He first asked for current costs. No one in the council had a clue. He then commissioned an a costing study. This showed a different view of costs. He then shared the information with departmental workers who decided to bid for the contract. Armed with the new information, the workers’ bid was by far the lowest cost ($286 per ton against the previous cost of $640). Cost savings came from fewer supervisors, reduced work crews (labourers vehicle drivers, and equipment operators) and more efficient use of vehicles. The lessons learned was that once the full information was shared with the workers (they had no idea about the central service costs), and once they had the freedom to act, they were in the best position to make improvements.



References:
Coombs, H M and Jenkins, D E Public Sector Financial Management, 3rd edition, Thomson Learning Press, 2003.
Hope, J and Fraser, R Beyond Budgeting, 1st edition, Harvard Business School Press, 2003
http://www.beyondbudgeting.org/
Robert S. Kaplin Indianapolis: Activity-Based Costing of City Service