Beyond Budgeting

The budget is a tool for repression rather than innovation. – Bob Lutz, Ex-CEO, Chrysler

The budget is an unnecessary evil. – Dr. Jan Wallander, Honorary President, Svenska Handelsbanken

The budget is the bane of corporate America. – Jack Welsh, Ex-CEO, General Electric

Annual budgets may sound boring to many, but their impact on society, how we work, and our output as a nation are huge.

In their book Beyond Budgeting – How Managers Can Break Free from the Annual Performance Trap, Jeremy Hope and Robin Fraser paint a very compelling picture for doing away with the annual budget, and moving to a move agile, decentralized value creation model altogether.

Hope and Robin argue that budgets have been hijacked by a generation of financial engineers that have used them as remote control devices to “manage by the numbers.”

They go one to say that “budgets have been turned into fixed performance contracts that force managers at all levels to commit to delivering specified financial outcomes, even though many of the variables underpinning those outcomes are beyond their control. This leads to undesirable and, in many cases, unethical behaviour.”

Examples of dysfunctional behaviour due to annual budgets include:

x always negotiate the lowest targets and the highest rewards.

x always make the bonus, whatever it takes (even if that means stuffing the distribution channel with “sale-or-return” products.

x never put customer care above sales targets.

x Never share knowledge or resources with other teams-they are the enemy.

x Always ask for more resources than you need, expecting to be cut back to what you actually need.

x Always spend what’s in the budget.

x Always have the ability to explain adverse variances.

x Never provide accurate forecasts.

x Always meet the numbers, never beat them.

x Never takes risks.

The solution

Hope and Fraser argue that the way out is to enable managers to focus on continuous value creation instead of merely trying to “make the numbers.” (I’m paraphrasing here).

When it comes to setting targets, choice high-level KPIs such as return on capital, frees chase flows, or cost-to-income ratios.

When it comes to rewarding people evaluate teams based on how they compare with industry benchmarks, their peers, and prior years.

For managing resources, make resources available and accessible to front-line teams as and when required through fast-track approvals.

To bring about these changes a change in core philosophy will be required. The fixed performance contract is based on central control. It assumes the absence of trust.

The relative improvement contract is based on self-regulation. It assumes that teams can be trusted to manage their own affairs (within agreed boundaries) and to be fully accountable for their results.

Summary

It’s hard to explain, and I am not doing the book justice. But if you are looking for a more lean, less wasteful, agile way to create your budgets, Beyond Budgeting may be the book you’re looking for.

Good reading for those of you looking for a more agile way to approach capital expenditures and budgets at your company.

Pixar’s Ed Catmull – keep your crises small

I’m a big Pixar fan, so when I saw this video with Ed Catmull talking about:

• why SGI failed (0 min)
• Pixar’s organizational structure (5 min)
• what iterative development looks like in a movie studio (6 min)
• the death that nearly occurred on Toy Story II (14min), and
• how Pixar does retrospectives (26min)

I just had to watch.

So if your a fan of their movies, or you’re just curious to see how they do it, grab a snack, sit back, and enjoy the show.

Part I – How to turn on the Microsoft Surface Table

This week I got the opportunity to play around with a Microsoft Surface Table (it’s kinda cool) but turning the bloody thing on was enough of a pain that I thought I would share the experience.

The first switch you need to turn on is the AC adapter located at the back of the table.

To get to the second switch you need to remove the kick plate panel at the end opposite of the AC adapter.

After you press and hold that one for a couple seconds the table should power up and you’ll be presented with the login screen. The manual is worth reading (it’s a bit tricky taking off the end plate as you need to unscrew a bolt). But once you get it off the switch is pretty visible.

The future of work

An excellent slide deck on the future of work.

Some of my favorite quotes:

• Project teams at work are beginning to resemble movie production teams.
• Ten years ago there were no social networks.
• Ten years before that we didn’t have the web.
• If you work in the web programming, online marketing, or mobile phone industries … you job did not exist 20 years ago.
• Who knows what jobs will exist 20 years from now.
• The people out of work today will soon find jobs again.
• But the work won’t be the same.

Good stuff.

The Drucker Exercise

Forming a team is always awkward at first. You are all new to each other, nobody knows what anyone likes or dislikes, and you are all in the same boat trying to figure out how you can all work together.

Instead of letting people stumble upon how you operate tell them upfront! You can do this in a clear focused way using what I like to call The Drucker Exercise.

The Drucker Exercise

The Drucker Exercise is a powerful relationship building exercise to help you and your team gel at the start of a project.

By sharing the answers to four simple questions:

• what am I good at?
• how do I perform?
• what do I value?
• what contribution can be expected from me on this project

you give your team the means to figure out how best to work with you, while at the same time setting expectations around how you can best work with them.

For example, spend two minutes thinking hard about what you are world class at and what you can do better than anybody else.

Understanding your core strengths is good to two reasons. First, it raises your level of self awareness (necessary for spotting opportunities where you can really shine). And secondly, it tells others where they can expect you to excel and where you are really going shine.

The next question to ask yourself is around performance.

How you perform is giving team members a heads on where your magic comes from. Are you a morning person? Let them know. That way they won’t schedule meetings with you during your most productive hours.

If you enjoy collaborating, but occasionally require moments of solitude, let them know that too so they won’t be surprised when you grab your laptop and head down to the coffee shop for some private brain storming.

The next question has to do with your values.

Values are about what you stand for. There are stake in the ground that let’s people know what’s important to you and what you care deeply about. Letting people know what you stand for is important because it gives them insight into what they can expect from you, and better predict how you are going to act and behave.

For example, say on your last project you were perpetually being asked to cut corners, hack, and take every liberty with the code base in the name of speed. Quality was all but thrown and the window and you felt bad coming in every day knowing you weren’t going to be able to do your best work.

If quality is important to you on this project then set that expectation upfront. Let the team know you are going to stand for shoddy craftsmanship. Your code is always going to be accompanied by a suite of automated tests you won’t tolerate bugs—of any kind.

Which brings us to our last question. What can the team expect from you on this project.

This question really gets into what role(s) you can be expected to play on the project.

If your a developer with a passion for user experience, let them know that in addition to cutting high quality code you would like to participate in designing the user experience.

If you were an analyst on the last project, but are now stepping into the role of project manager, let them know they won’t be able to count on you for analysis during this project as you will have your hands full learning the ropes of project management.

Setting expectations about roles at the beginning of the project is good because if there is any confusion about who is doing what, this brings it out on the table for all to see.

Then if any expectations need to be reset (including yours) you can do it before the project begins, and avoid having to reset expectations later.

Don’t wait

You don’t have to wait for a new project to do the Drucker Exercise. You can do it right now. Yes it takes courage to share this kind of stuff with your team. But when you do the response is almost always the same: “This was most helpful. Why didn’t you tell me about this sooner.”

Of course the real power of this exercise comes from doing it as a team and sharing your thoughts with others.

For the full story behind the Drucker Exercise get a copy of the paper Managing oneself and give it the full read. You won’t be disappointed.

They’re not requirements

One way agile brings immediate value to project teams, is by getting them to question the meaning of the work requirement.

Kent Beck, who put me onto this idea, says it best:

Software development has been steered wrong by the term
requirement, defined in the dictionary as something that is
mandatory or obligatory. The word carries a connotation of
absolutism and permanence, inhibitors for embracing change.
And the word ’requirement’ is just plain wrong.

Out of the thousands of pages used to describe requirements,
if you deliver the right 5, 10 or 20% you will likely realize all of
the business benefit envisioned for the whole system. So what
were the other 80%? Not requirements—they weren’t mandatory
or obligatory.

Kent Beck Extreme Programming Explained: Embrace Change.

It’s hard to abandon a word that has so much history behind it, but abandon it we must because the word is simply wrong.

So the next time you are gathering requirements for your project, try using the word feature instead.

This will get your customers less tied to the things they don’t need, and give you more time stuff to focus on the 10-20% that really matter.

Pomodoro Technique Illustrated

Friend and writer Staffan Noteberg has just realized his new book:

Pomodoro Technique Illustrated
Can You Focus, Really Focus, for 25 Minutes?

Pomordoro is time management tool for helping people focus.

In his book, Staffan shows readers how they can boost productivity, become more effective, and get more done with little more than an egg timer and 25 minute intervals.

The book is chalked full of useful techniques, practices about the Pomodoro technique, along with entertaining stories of how he practices Pomodoro himself.

But don’t take my word for it. Check it out for yourself here at the Pragmatic Programmer website. If you think you have a problem with time management, this could be the book you’re looking for.

Sharpen your saw with newsgroups

Today, in the agile community, there are dozens of newsgroups spanning many topics. Here are a few interesting ones I regularly track and follow:

Extreme Programming:

http://tech.groups.yahoo.com/group/extremeprogramming

Domain Driven Design

http://tech.groups.yahoo.com/group/domaindrivendesign

Lean agile

http://tech.groups.yahoo.com/group/leanagile

Lean development

http://tech.groups.yahoo.com/group/leandevelopment

Agile testing

http://tech.groups.yahoo.com/group/agile-testing

Agile usability

http://tech.groups.yahoo.com/group/agile-usability/

Do a favorite newsgroup? Do share.

Lightning bolts and reality

Just having gotten back from Agile 2009, there is a tension in the air that I find interesting in the agile community.

Most people / companies seem to get the mechanics of agile delivery. No one is debating the merits of writing unit tests, gathering requirements as user stories, and delivering functionality incrementally.

People get that.

What is more interesting is how companies, specifically senior management, are reconciling this growing wave of common sense and pragmatism that agile brings to project delivery, as it bubbles up within their organizations.

The tension I am referring to is how companies with traditional command and control style structures reconcile the brutal honesty and visibility agile brings to projects and portfolios.

No longer can management remain blissfully unaware of how their projects are doing. When the true state of a project is revealed, and it conflicts with the edicts and lightning bolts thrown down from up high, some tough conversations will need to be had.

As agile gains in popularity, and the dysfunction of how we have traditionally managed and run projects becomes more clear, it will be harder for command and control style management do just say ‘do it!’, when there is measured, tracked compelling evidence indicating others wise.

So if you’ve had great success with agile at the project level, and you are wondering how to capitalize on this and transition it to the next level, take comfort in knowing that you are not alone. Many are undergoing the same journey.

For some the transition will be smooth.
For others it will never occur.

The good news is that the conversations are occurring. And those companies that make the transition will reap the rewards and benefits that come from having an energized, self-organizing, continuously improving eco-system upon which to build compelling projects and services. And others will continue (some very successfully) with what they have done before.

The Pixar Touch

I just finished David Price’s excellent book titled The Pixar Touch.

It is chalked full of great stories, interesting anecdotes, and is a testament to the shear will power, and creativity of folks like Ed Catmull, John Lasseter, and Steve Jobs.

Here are some little known facts about Pixar:

• Pixar, not Apple, made Steve Jobs a billionaire. Jobs bought Pixar in 1986 from Lucasfilm for $5 million. In 1995, the week after the release of Toy Story, Pixar went public and Jobs’s stock was worth $1.1 billion.

• Ed Catmull, Pixar’s co-founder, dreamed as a youth of becoming an animator, but decided in high school that he couldn’t draw well enough. Instead, he became an early visionary of computer animation as a graduate student in the 1970’s. “Computer animation was sort of on the lunatic fringe at that time,” remembered Fred Parke, a fellow Ph.D. student in Catmull’s class at the University of Utah.

• When John Lasseter joined Pixar—which was then the computer graphics department of George Lucas’s Lucasfilm—he had just been fired from his dream job as an animator at Disney. He became the first person to apply classic Disney character animation principles to computer animation.

• To learn how to make a realistic French kitchen, the producer and first director of Ratatouille worked as apprentices at an elite French restaurant in the Napa Valley.

• Before it became an animation studio, Pixar went through years of struggle and multi-million-dollar losses. It started as a computer company and John Lasseter’s short films, such as Luxo Jr. and Tin Toy, were promotional films to help sell the company’s computers.

• Pixar was almost bought by…Microsoft? Yep: Jobs remained worried about the company’s finances even after Pixar made a deal with the Walt Disney Co. in 1991 to produce Toy Story, Pixar’s first feature film. The Pixar Touch details the effort to sell Pixar to Bill Gates’s company while Toy Story was in production.

• When writing Toy Story, to find inspiration for the relationship between Buzz and Woody, Lasseter and his story department screened classic “buddy” movies, including 48 Hrs., The Defiant Ones, Midnight Run, and Thelma & Louise.

• John Lasseter has instilled an intense commitment to research in the studio’s creative staff. To prepare for the scene in Finding Nemo in which the fish characters Marlin and Dory become trapped in a whale, two members of the art department climbed inside a dead gray whale that had been stranded north of Marin, California.

• Pixar deliberately avoided making the humans in The Incredibles look too realistic. They knew that as animated human characters became too close to lifelike, audiences would actually perceive them as repulsive. The phenomenon, known as the “uncanny valley,” had been predicted by a Japanese robotics researcher as early as 1970. Thus, the details of human skin, such as pores and hair follicles, were left out of The Incredibles’ characters in favor of a more cartoonlike appearance.

• The signature of most Pixar feature films is characters who appeal to children (toys, fish, monsters…), but who have adult-like personalities and are dealing with adult-like problems.

• Prior to the acquisition of Pixar by Disney in 2006, Lasseter loathed the idea of Disney making sequels to Pixar films without Pixar’s involvement—as Disney’s contract with Pixar allowed it to do. “These were the people that put out Cinderella II,” Lasseter remarked.

• Pixar is more than an animation studio. Pixar’s innovations in computer graphics technology pervade movies today. Special-effects houses like Industrial Light & Magic (Pirates of the Caribbean: Dead Man’s Chest, The Chronicles of Narnia: The Lion, The Witch and The Wardrobe, Harry Potter and the Order of the Phoenix) use Pixar’s software to create out-of-this-world places and characters.

(taken from amazon review)

If you want to learn more about the incredible journey this company underwent, you can read the book.

Or you can watch the equally good documentary : The Pixar Story.