University College of Northern Denmark, Aalborg
Implementation of the Beyond
Budgeting Management Model in the
Czecho-Slovak Commercial Bank
(CSOB)
FINAL AP PROJECT
Katarina Dzacovska Michaela Reckova, 4fini0912
Final Project
University College of Northern Denmark
Financial Management programme
4th semester 2014
4fini0912
FINAL PROJECT
Implementation of the Beyond Budgeting Method in Czecho-Slovak Commercial
Bank (CSOB)
Supervisor: Nina Røhr Rimmer
Delivery date: 27th May 2014
Number of keystrokes in the report: 136 226
Number of pages in the report: 68
This report has been prepared by: Katarina Dzacovska, Michaela Reckova
Signatures:
Katarina Dzacovska Michaela Reckova, 4fini0912
Final Project
Contents
1.
PREFACE ........................................................................................................................................ 5
2.
INTRODUCTION ............................................................................................................................. 5
3.
PROBLEM STATEMENT .................................................................................................................. 7
4.
DELIMITATION ............................................................................................................................... 9
5.
METHODOLOGY........................................................................................................................... 10
6.
COMPANY OVERVIEW ................................................................................................................. 12
6.1.
6.2.
6.3.
6.4.
6.5.
6.6.
6.7.
6.8.
CSOB´S MISSION AND VISION ...................................................................................................... 12
CSOB´S VALUES ....................................................................................................................... 14
CSOB´S STRATEGY .................................................................................................................... 14
CSOB´S POSITION ON THE MARKET ............................................................................................... 15
ORGANIZATIONAL STRUCTURE AND MANAGEMENT ............................................................................ 15
MANAGEMENT MODEL INNOVATION ............................................................................................. 16
COMMAND AND CONTROL MANAGEMENT MODEL ............................................................................ 17
CHANGING MARKETS ................................................................................................................. 17
7.
WHY MANAGEMENT INNOVATION?............................................................................................ 18
8.
WHY BEYOND BUDGETING? ........................................................................................................ 19
9.
BB PRINCIPLES ............................................................................................................................. 24
9.1.
9.2.
9.3.
9.4.
9.5.
9.6.
9.7.
9.8.
9.9.
9.10.
9.11.
9.12.
10.
#1 VALUES ............................................................................................................................. 24
#2 GOVERNANCE ..................................................................................................................... 27
#3 TRANSPARENCY ................................................................................................................... 29
#4 TEAMS .............................................................................................................................. 32
#5 TRUST ............................................................................................................................... 35
#6 ACCOUNTABILITY ................................................................................................................. 38
#7 GOALS .............................................................................................................................. 41
#8 REWARDS .......................................................................................................................... 43
#9 PLANNING .......................................................................................................................... 46
#10 COORDINATION ................................................................................................................. 48
#11 RESOURCES ...................................................................................................................... 49
#12 CONTROLS........................................................................................................................ 51
SELECT THE RIGHT PEOPLE AND CHOOSE THE RIGHT TIME FOR THE CHANGE ......................... 52
10.1. STEEPLE ............................................................................................................................... 54
10.1.1.
Social factors ............................................................................................................... 55
10.1.2.
Technological factors ................................................................................................... 55
10.1.3.
Environmental factors ................................................................................................. 56
10.1.4.
Economics factors........................................................................................................ 56
10.1.5.
Political factors............................................................................................................ 57
10.1.6.
Legal factors................................................................................................................ 57
10.1.7.
Ethical factors.............................................................................................................. 58
11.
IMPLEMENTATION OR “FROM CONCEPT TO REALITY” ............................................................ 62
12.
HOW TO MEASURE A SUCCESS ................................................................................................ 67
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13.
CONCLUSION ........................................................................................................................... 71
14.
LIST OF LITERATURE ................................................................................................................ 73
15.
APPENDICES ............................................................................................................................ 75
Katarina Dzacovska Michaela Reckova, 4fini0912
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1. PREFACE
We would like to thank the Czecho-Slovak Commercial Bank (CSOB) for the great
cooperation and giving us all the precious information. Our thanks also belongs to Mr.
Franz Röösli, Director of the Beyond Budgeting Round Table, for all advices and neverending help with the implementation and deeper explanation of the principles of
Beyond Budgeting.
Last but not least, we would like to thank our supervisor, Nina Røhr Rimmer, for the
great ideas and motivation she provided us with during the preparation of the project.
2. INTRODUCTION
Budgeting – the phenomenon developed over 100 years ago in the industrial age with
the aim of improving the efficiency, but still used as a strategic business planning tool.
What most probably Mr Taylor, with the Scientific Management (1908) based on
separation of planning from doing, work based on detailed and precise instructions
and division of labour and use of specialisation, meant good is now resulting in great
shareholders’ dissatisfaction.1
1.1. Scientific Management Model
Source: Franz Röösli
1.2.Mc Kinsey´s Budgetary Control Model
Source: Franz Röösli
In 1922, Mc Kinsey had denominated the budget process as: “Budgetary Control, as an
axiom of the present day philosophy of business administration, is urgently needed
only for two purposes: as a basis for centralized executive control and a means of
coordinating the activities of the various functional departments.2
But nowadays, Dr. Jan Wallander, Ex-CEO of the Svenska Handelsbanken, is
saying:”Budgeting is an unnecessary evil.”3
1
http://www.businessdictionary.com/definition/scientific-management.html
James O. Mc Kinsey A.M. LL.B, Budgetary Control, New York, 1923
3
Scandinavian Journal of Management 15 (1999) 405}421
2
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What sets seal upon his word is the fact that research has shown that over 50% of
companies that use traditional budgeting tools and methods are unhappy with the
process and the resulting plan.4
Beyond Budgeting, quite new and innovative concept, is now trying to compete with
the traditional “command and control” management model. It offers operation
without many layers of control, employ few corporate staffers who are planning and
controlling performance of front line teams so the information is produced to enable
these teams to learn, innovate and adapt quickly. All this cause that devolved
organisations have lower costs and make their rivals unable to compete.
Simply, management model expresses the way “How company is run”. In today’s
business environment, management and leadership are becoming crucial and most
powerful tools companies have. On the example of Czecho-Slovak Commercial Bank
(further only CSOB Bank) we want to show how implementing Beyond Budgeting as a
different management model can become an advantage.
Finishing on the 4th place among all banks and foreign branches in Slovakia in 2013´s
rating, CSOB Bank belongs to the strongest providers of financial services at the Slovak
market.5 Moreover, CSOB Bank is providing services to all client divisions: retail
clients, corporate companies, small and medium-sized enterprises and last but not
least private clientele. 6 Complex range of products together with the individual
approach ensures high quality services for all clients. CSOB Bank is a part of CSOB
financial group which also includes: CSOB Poistovna (insurance company), CSOB
Stavebna Sporitelna (building savings company) CSOB Factoring, CSOB Asset
Management, CSOB Leasing and CSOB Foundation. CSOB clients can therefore find
under one roof not only banking products and services but also insurance, building
savings, investment products, factoring, leasing and more.
The only shareholder of CSOB Bank is the Belgian KBC Bank N.V. ”Parent Bank” owns
100% shares of CSOB Bank and is one of the key players on Belgian banking market as
well as important provider of financial services in Central and Eastern Europe.7
The fact that CSOB Bank provides quality products and services, confirms award for the
Best Foreign Provider on Slovak market 2013 according to Global Finance. 8 Likewise, in
4
http://www.rinedata.com/budgeting-and-forecasting/
http://firmy.etrend.sk/rebricky-firiem0/najvacsie-banky.html
6
CSOB annual report 2012
7
https://www.csob.sk/o-nas/csob-financna-skupina/skupina-kbc
8
https://www.csob.sk/o-nas/csob-financna-skupina/ocenenia
5
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2013, newspaper Euromoney awarded CSOB as the Best Private Bank on Slovak
market.9
By constantly bringing innovations to their clients, CSOB Bank wants to achieve the aim
of being always one step ahead of competition. In technological world where internet
plays a major role and information sharing is immediate this goal can become a big
challenge. Nowadays, just bringing innovations is not enough and therefore CSOB Bank
should focus on different possibilities how to make their business more efficient- e.g.
change in the management model.
3. PROBLEM STATEMENT
In everyday´s life CSOB Bank suffers from problems with the attitude, direction,
responsibility, motivation and creativity of people. Employees commonly find their
jobs boring, dislike them and in the worst case they try to avoid it. Thus they are forced
or bribed to make the right effort, and don´t like being accountable for their work.
Motivation is usually led by the money or fear of losing the job.10
What´s perceptible is that this is not just a dilemma of CSOB in last few years. Already
in 1960´s Douglas Mc Gregor had tackled about this issue when he introduced two
contrasting models of workforce motivation as “Theory X and Theory Y”. Above
mentioned issues are considered as the features of the Theory X.
Since the industrial age, strongly connected with the command and control model, we
suddenly stumble in the information age where life cycles are short; customers are
rapidly getting less and less loyal what in the expectancy of stronger loyalty pushes the
1.3. Industrial and Information age
9
Source: Franz Röösli
http://banky.sk/43085-sk/banky-na-slovensku-zbierali-v-roku-2013-vela-cien.php?pg=2
Douglas Mc Gregor, The Human Side of Enterprise, 1960
10
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prices of products and services down. Nowadays the choosy employers in the labour
market are shocked by the paradox of choosy employees.
What the world needs is a quick answer to the issues of the information age. This
answer can be also called the Critical/Competitive Success Factors (Table 1.4.), the
ones that are necessary for the organisation to achieve its mission, developed by D.
Ronald Daniel of McKinsey & Company in 1961.
1.4. Critical success factors
Source: Franz Röösli
CSOB Bank needs people as described in the Theory Y, the ones with the positive
attitude to their jobs, with creativity and ingenuity, employees able to take the
responsibility under the right conditions and ones who are motivated not only by
money but by their desire to realise their own potential.
Implementation of the Beyond Budgeting Model can lead to achieving this goal. Thus,
our research and our problem statement are represented by the analysis of the main
statement and sub-statements:
Implementation of the Beyond Budgeting Management Model
in Czecho-Slovak Commercial Bank (CSOB).



What are the steps and methods to-be-used?
How to select the right people and chose the right time for the
implementation?
How to measure the success of implementation?
In the Methodology part we mention the methods used to analyse and possibly find an
answer to this question.
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4. DELIMITATION
The aim of this report is to implement the Beyond Budgeting management model in
the CSOB Bank. Implementation is considered only in theoretical level since the real
change of management model would precede decision made from executives of the
company (top management) and as it comes with any change in organization some
preparation time would be required. 11
Earlier in this report, CSOB Bank was presented as a “daughter company” of Belgian
KBC Bank N.V. As the only and sole shareholder of CSOB Bank, KBC Banks N.V. has the
full right to intervene to questions of management of their “daughter companies”. We
are aware of the fact if any kind of change should be implemented in CSOB Bank it
would require approval process in KBC Bank N.V. For the purpose of this report we will
mainly consider CSOB Bank as a self-sustaining unit able to decide about management
of the company. Implementation of the Beyond Budgeting in CSOB Bank can be after
all perceived as a pivot model for the whole KBC Group. After clear results of change in
management model achieved by CSOB Bank in Slovakia, KBC Banks N.V. then could
decide about the implementation of the Beyond Budgeting in other “daughter
companies”.
We will not consider implementation nor effect this management change would have
on the rest of CSOB financial group companies such as: CSOB Poistovna, (insurance
company), CSOB Stavebna Sporitelna (building savings company) CSOB Factoring, CSOB
Asset Management, CSOB Leasing and CSOB Foundation.
Book ”Beyond Budgeting” issued in 2003 and written by Jeremy Hope and Robin Fraser
is regarded as predecessor for a recent book ”The Leader´s Dilemma” written by
Jeremy Hope, Peter Bunce and Franz Rӧӧsli. The newer book provides us with more
depth and actual information and for the purpose of accuracy and topicality of
implementation of the Beyond Budgeting principles in the CSOB Bank the newest book
we will draw from. 12
Since the main focus is placed on change in management of the company we will not
look close at the exact products and services CSOB Bank offers. The products and
services can change according to company´s objectives and values. Changing CSOB
Bank´s management it is most likely their objectives and values will change too.
This report is based on the professional internal information of the CSOB Bank. By
obtaining information about company´s culture, values, techniques to motivate
11
12
UCN, 3th semester, MAC, organizational, changes and development PowerPoint presentation, slide 9
Hope, J. , Bunce, P. , Roosli, F. (2011) The Leader's Dilemma, VIII
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people, leadership, communication, structure, strategy and other important processes
happening in the company we tried to see complex picture of the CSOB Bank. However
information we acquired comes only from interweaving dozens of employees in 5 local
branches.
Moreover, CSOB Bank doesn´t provide so much internal results for the public. We do
count with the problem of finding accurate and up-to-date data thus some of the
information could be garbled.
Last but not least, the fact that implementing new management model in CSOB Bank
could hamstring or completely suspend the run of the bank during the time of change
will not be considered as main intention of this report.
5. METHODOLOGY
Our methodology had briefly started in January while reading the book; Hope, J.,
Bunce, P., Roosli, F. (2011) The Leader's Dilemma: How to Build an Empowered and
Adaptive Organization Without Losing Control, that had become the fundamental
piece of our whole research. The problem statement hadn´t been already stated.
Fortunately, we had an idea of connecting the topic of Beyond Budgeting with the real
life use in a banking area in Slovakia. This idea was followed by the small research with
the aim of finding the bank which needs a change in the management model but on
the other hand is able and strong enough to challenge a risk this change includes.
We found out that CSOB Bank would be the best candidate for the Beyond Budgeting
method so we stated the problem statement that can be found above.
Now our next step will consist of the detailed internal and external analysis of CSOB
Bank where our purpose is to get as much information about the management,
company´s culture and organisation of work as possible. Analysis should be held
through the internet research where we will collect the secondary data about the
bank´s position on the market, relevant historical facts and changes the bank went
through.
The internet analysis will be followed by collecting the primary data in the form of the
personal interviews held with the directors of branches in Presov and Prievidza, cities
where the authors of this project come from.
To insure, in the most possible way, that our information is objective and to get more
internal insight into the CSOB Bank, while having interviews with the branches’
directors, there will be a small questionnaire distributed between the employees of
the branches. The questionnaire will be distributed between all employees of the CSOB
in cities Presov and Prievidza and it will consists of the questions that cover all the
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principles of Beyond Budgeting and asks the employees about their current feelings
about the company and its organisation. Some questions also ask about their opinion
about the new method-to-be-implemented and its possible results.
Not forgetting, as one of the authors was also working in CSOB Bank for more than 2
years, we will also use the knowledge and internal information gained during this
period.
We will also use the internal and external analysis as:

















Product process and management innovation´s analysis
Value, Mission, Vision and Strategy of CSOB
Analysis of the traditional and inverted organization
KBC´s group internal analysis
Analysis of the organisational structure of CSOB
Analysis of the Critical Success factors and their conflict with the traditional
management
Beyond Budgeting´s self-assessment test´s analysis of complexity, competitive
success and vision of CSOB
Employees´ types analysis
Organisation´s cultural artefact ´s analysis
Analysis of the 3 steps change theory of Kurt Lewin
William Briges´s Managing Transition Model analysis
Dr. John Kotter´s 8 step process for leading the change analysis
Analysis of the CSOB and KBC´s ratings (Moody´s and Fitch´s)
Analysis of Svenska Handelsbanken implementation of Beyond Budgeting
STEEPLE analysis of CSOB
Mc Gregor`s X and Y Motivation Theories
Extrinsic and Intrinsic Motivation
In addition, during the preparation of the project we would like to continuously
broaden our knowledge about the topic by studying available materials regarding the
implementation of the BB method in other companies.
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6. Company overview
Implementation of a new management model is preceded by detailed research in
order to gain better understanding in which position and state company currently can
be found. In this section we will take a closer look at CSOB mission, vision, values,
strategy, organizational structure, management and company´s position on market
with the aim of clarifying why switching management models is in this case a good
idea.
1.5. Developing vision, mission, strategy and goals
Source: Management principles, Andy Schmitz, 2012
6.1. CSOB´s mission and vision
From the information available at the CSOB´s web-page together with the information
we obtained during the meetings with branch managers the main vision of the bank is
to provide their clients with the first-class individual approach, advanced technology
and complete product portfolio.13 CSOB places customers at the first place and sets a
high score to providing quality, personal and professional customer service in order to
gain and keep customers´ loyalty and trust. Because CSOB belongs to the strong
international group in a field of finance and co-operates with other daughter´s
companies on the Slovak market, it has the ability to provide wide range products for
their customers. Not only bank products are found in CSOB´s portfolio but also
insurance, leasing, investments in the stock market and building savings for retail and
individual clients, corporate and SME (Small and Medium Enterprises). CSOB considers
complexity of the product portfolio as one of the biggest advantages in comparison
with their competitors and believes that “finding everything under one roof” will
satisfy their customers´ needs. CSOB places particular importance on advanced
technologies in order to continuously bring innovations to the customers business.
13
http://www.profesia.sk/praca/csob-financna-skupina/C5832
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“Always one step ahead with CSOB´s modern technologies and innovations, complex
financial care and professional services” is the core of CSOB vision statement.14
On the other hand, after wide research in the field of finance CSOB´s mission and
vision seem to have some gaps. Such a big product portfolio as CSOB has can also be
considered as a future trap. This could give an impression of “financial supermarket”.
In comparison with the Svenska Handelsbanken, where the Beyond Budgeting is
already implemented, the aim is to develop supreme banking professionals offering
good sound up-to-date advice to their customers.15 Wide product portfolio together
with pressure on performance from top levels could easily tempt to offer “what we
have” rather than “what customer needs”.
Nowadays people live in fast changing world based on transparency of the internet
and always available information. Build business on innovations and differentiation of
products is currently not a good strategy since it doesn’t take long and competitors will
launch similar product and copy the idea.
1.6. Product, Process and management innovation
Source: Franz Roosli
This picture confirms the words that product innovation doesn’t bring the long term
success since product innovation is easy to copy and that company should focus more
on management innovation in order to reach competitive advantage in the future.
Management style and leadership is difficult to copy from one company to another
and takes some time to implement.
14
15
https://www.csob.sk/o-nas/kariera/vizia-a-hodnoty
The leader`s Dilemma, page 46
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Last but not least CSOB´s mission and vision gives us just a general impression in
comparison with other banks at the Slovak market. For example the second largest
bank - VUB has a clear vision of being the best bank in Slovakia according to the
customer´s satisfaction.16 Tatra Banka, the third in the ranking, stated their vision
following: “We are perceived as the strongest and most attractive bank with
distinguished highest quality of services and the best place for work, the place where
we enjoy to be.” 17 We see the opportunity of implementing Beyond Budgeting
principles in improving CSOB´s mission and vision to be more transparent.
6.2. CSOB´s values
CSOB´s mission and vision reflect some of the company´s values such as: customers at
the first place, maintaining trust and loyalty and continuously satisfying customers´
needs. Additional values that CSOB recognises are: honesty in dealings, respect the
law, respect the colleagues and responsibility for the action. All of these values are
fundamental for every employee of KBC group and can be found in KBC Code of
Conduct.18 Recognition of the right values in the company is the one of the principles
of new management model and CSOB´s values will be commented later in this report.
6.3. CSOB´s strategy
Every company has to have a strategy for reaching the goals. CSOB focuses on few key
drivers on their way to achieve their vision. The most important character of the
CSOB´s strategy is based on the bank-insurance model – meaning CSOB is offering
insurance products in the bank branches. Because offering banking and insurance
services at the same place leads to the cost reduction the added value is granted to
clients by avoiding overlaps between the support entities.
As a part of the financial group CSOB is a part of the cross-border collaboration. Cooperation is seen across the financial group in the cost-efficiency (same accounting
programs for the whole group, communication channels, products etc.).
The significant strategy driver is established from international co-operation between
units. Sharing know-how, best practices, experiences and even products and services
within the financial group has become important part of CSOB´s and whole KBC group
strategy.19
16
https://www.vub.sk/o-banke/hodnoty-principy/vizia-misia-banky/
http://www.tatrabanka.sk/en/about/about-tatra-banka.html#tatra-banka
18
https://multimediafiles.kbcgroup.eu/ng/published/KBCCOM/PDF/COM_BDV_pdf_KBC_Group_Code_o
f_conduct_mrt2014_en.pdf?
19
https://www.kbc.com/MISC/D9e01/~E/~KBCCOM/~BZOQAWX/-BZIZTPN/BZJ07TR/BZL0ETR
17
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6.4. CSOB´s position on the market
With almost 50 years long history CSOB belongs to the key players in the field of
finance. In 1964, CSOB was established as the branch of foreign bank in Slovakia and as
the first and the only one offered trading activities and foreign payment. 20 During the
last couple of years CSOB has developed at the top of the rung and is continuously
awarded for its products and services. The latest Bank ranking based on total assets for
the completed financial year, places CSOB on the 4th place among almost 30 other
banks on the Slovak market. 21 (The full ranking is attached in appendix). The
magnitude and greatness of bank houses could be for some customers decisive. CSOB
on the 4th place leaves the impression of stable and credible bank what is confirmed
also by a rating of the banks A- according to the Fitch.22 23 A- represents above average
rating with a low risk and stable outlook in the future.
6.5. Organizational structure and management
Earlier in this report we have mentioned that CSOB is a part of the international
financial group and delimitated the content of this report strictly on implementation
Beyond Budgeting model in the CSOB Slovakia. The following picture shows the whole
KBC group structure just because CSOB is a part of bigger organization and most likely
follows the decisions made in the “parent company”. CSOB together with other
“daughter companies” can be found in the section “International Markets”.
1.7. KBC Group Structure
Source: kbc.com + own creation
Demonstration of the whole financial group´s structure should help readers of this
report to understand complexity of the financial group but of course our focus will lay
on CSOB itself and implementation of the Beyond Budgeting management model in
CSOB as it was self-sustaining unit.
20
Annual report 2013, CSOB, page 6
http://firmy.etrend.sk/rebricky-firiem0/najvacsie-banky.html
22
http://www.banky-na-slovensku.sk/rating/
23
https://www.csob.sk/o-nas/banka/rating
21
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While searching for the CSOB´s structure and management model we found it difficult
to come up with the detailed and up-to-date information that’s why this section is
based on organizational structure issued in CSOB´s annual report 2012 and most of the
information about management is coming from the personal experiences and
information acquired during the personal meetings with managers.
The chairman of CSOB, Daniel Kollar, together with 5 other members is also a member
of board. Inseparable parts of CSOB are: the internal audit department and compliance
department. On the next level of the organization every department has its own
manager such as: manager for whole retail section, manager for corporate banking,
human resources and services manager, risk management manager and other
department’s managers. Looking at the CSOB´s structure (Appendix no. 1.) each
department has its own subdivisions.24 For example parts of the retail department are;
the marketing division, retail branch network management division, e-channels
division, external parties division, private banking division.
Everyone who has worked in a bank or is little bit interested in the banking
environment knows that structure doesn’t end with the department manager but
continues e.g. in the retail department though local region managers to branch
managers until it reaches the employee. CSOB as a bank with a wide range of products
has also tools how to control different products line success. We searched into the
depth and found out the fact that each and every branch has its own specialists for the
different groups of products. For the investments, mortgages, debts and accounts
there is one person for each group in each branch specialized only in his group of
products. The results of those specialists are controlled not only on the branch level
but also by product line managers what can be seen many times as a performance
pressure and double control.
How could be CSOB´s structure simplified and improved will be discussed later in the
report in the corresponding Beyond Budgeting principle´s implementation.
6.6. Management model innovation
During the last few decades many new management theories appeared and some of
them are still being used in the business all around the world. Mentioning for example
Fayol´s Principles of Organization (General and Industrial Management) or Max
Weber´s Organizational Theory (The Theory of Social and Economic Organizations).
Fayol´s principles are based on the fact that each worker has no more than one boss in
order to know to whom he/she is to report to, labour divisions according to the areas
of specialization and assumption that managers have the authority to give orders. Max
Weber in his book The Theory of Social and Economic Organization states principles
similar to Fayol´s. Weber places the emphasize on the job descriptions, written rules,
decision guidelines, detailed records, regulations, policies and promotion based on
24
CSOB Annual report 2013
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qualifications.25 Both of these theories are considered being “command and control”
with focus on promoting pyramid hierarchy organizational structure, putting trust in
managers and assuming employees will simply do what they are told.
6.7. Command and control management model
Some companies are still designed with many rules and regulations to give managers
control over the employees. The aim of “command and control” model is to follow the
plan and meet the numbers to satisfy management rather than to please the
customer. In traditional “command and control” management model organizations are
built on many layers what is fertile ground for bureaucracy. With highly centralized
decision making process is almost impossible for employees to neither implement
change nor take immediate action.
6.8. Changing markets
Compared to the socialist and communist systems, where everything was planned,
organized and highly centralized, be adjustable to changing markets is a common
function of a capitalist economy.26 27 Companies all around the world are changing
their strategies with the aim of being more focused on satisfying customers and
keeping their loyalty. Nowadays, customers demand high quality products and fast
friendly service at a reasonable cost.28 Management change is therefore crucial for
companies to become more flexible and able to react on changes in customers´
expectations. The solution is to make whole structure of the company more flat what
will lead in employees´ empowerment.
1.8. Traditional organisation and inverted organisation
Source: Understanding Business
25
Understanding Business, Empowering Employees to Satisfy Customers
Essentials of Economics, John Sloman, page 22
27
Understanding Business, page 204
28
Understanding Business , page 206
26
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At the picture above, there can be seen difference between the traditional
organization where decision is made by the top management and go through all the
levels in the company and inverted organization where front line employees are
empovered to take decision so the whole structure is turn upside down. The most
important people are considered to be the front line employees and manager´s job is
to assist and support those key front line employees not boss them aroun as it was
customary in the traditional organization.
7. Why management innovation?
Entrance of a new competitor on the market, launch of a new product by competitive
bank or change in customers´ demand can jeopardize CSOB´s position and cause an
outflow of the clients if immediate action is not taken. According to the CSOB´s
structure we have to assume the decision about action is not in the hands of front line
employees. It has to go through the hierarchy of the company what is a sign of a
“command and control” system where employees are not allowed to respond quickly
to the challenges. One of the trends of today’s business is to empower employees to
make important decisions. Trusting employees appears as a great opportunity for
CSOB to take decision on time without losing the competitive advantage.
We also see the opportunity for improvement in clarification and communication of
CSOB´s values. Currently CSOB doesn’t have very narrow message what their vision
and mission exactly is. By reassessment and choosing right values CSOB will remain
flexible to adapt to the changes and can attract new clients by their clear message.
During the analysing of CSOB we noticed company keeps some elements of the
“command and control” management model and since the internet revolution and
open information customer´s needs changed this system of controlling is not as
effective as it used to be. The reason why we think management model should be
changed is that nowadays company has to be able to offer customers exactly what
they need and satisfy their always changing expectations in order not to lose the
customers loyalty.
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8. Why Beyond Budgeting?
1.9. Beyond Budgeting Companies
Source: BBRT
Looking at the pictures above and below we can see groups of organisations operating
among several industries. Their headquarters are based in different countries, what
more, even different continents. They used to have various organisational cultures, of
which problems were coming out every day more and more. They suffered from the
problems with the nature of workforce, technology, economics shocks, couldn´t
compete with competition, social trends, and world politics. It shows us diversity of the
companies across cultures and industries.
We can ask a question “What do have these companies in common?” – They all have
become (or are on a way of becoming) the Beyond Budgeting Organisations.
Organization
Industry
Country of Origin
Ahlsell
Amrican Express
Beth
Israel
Deaconess
Medical Center
Coloplast
dm drogerie-markt
Egon Zehnder Inernational
W.L. Gore & Associates
Google
Guardian Industries
DIY Retail
Financial Services
Health Care
Sweden
USA
USA
Medical products
Drug retail
Executive recruitment
Multi-products manufacture
Internet search
Float glass manufacture
Denmark
Germany
Switzerland
USA
USA
USA
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Handelsbanken
HCL Technologies
Hilti
John Lewis Partnership
Leyland Trucks
Nucor Steel
Southwest Airlines
Statoil
Sydney Water
Telekom Malaysia
Telenor
Toyota
Whole Foods Market
Universal bank
IT Services
Building products
Retail
Truck manufacture
Steel maker
Airline
Oil & Gas
Water utility
Telecommunications
Telecommunications
Car manufacture
Natural foods retailer
1.10. Beyond Budgeting Companies
Sweden
India
Liechtenstein
UK
UK
USA
USA
Norway
Australia
Malaysia
Norway
Japan
USA
Source: BBRT
We asked the employees and branch directors if they would like to work in a company
that is able to provide:




FASTER RESPONSE – CSOB could reduce complexity in the management process
and thus operate with speed and simplicity. They can achieve this by enabling
people to act immediately but within clear principles and values.
INNOVATIVE STRATEGIES – People working in an open and self-managed
environment with the clear governance can build and enjoy mutual trust
needed for the best practices.
LOWER COSTS – One crucial question asking: “Does this step add value to the
customer?” can unbelievably reduce the costs of unnecessary work.
MORE LOYAL CUSTOMERS – That´s what almost all companies dream about. If
CSOB placed customer value needs as their strategy, insured the fast response
all over the company and gave authority to front line people, loyal customers
could become reality.
Employees and branch directors answered with one voice that being part of such
company would be really enriching experience.
That´s what Beyond Budgeting is about. It means beyond the typical “command and
control” model mentioned above toward a new one which is more empowered and
adaptive. It offers rethinking how to manage organisations in ever-changing
environment, thus how to attract and keep the best people and enable them to form
the front line teams that are able to support the ethical behaviour and offer the
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customers what “they need” not only what a “company has”. All this leads to loyal and
profitable customers and finally to the sustained value creatinon.
To declare the fact that Beyond Budgeting is the right management model to be
applied in the CSOB we have used the BBRT Leadership self-assessment test29 , a
diagnostic tool that helps to evaluate what needs to be improved in CSOB, the extent
of change and how ready for the change CSOB currently is.
Self-assessment consists of 6 sections each containing 5-8 questions regarding the
company. It looks at the company´s management model holistically and make an
indicative case for change. It also includes the questions about the Critical/Competitive
Success Factors we briefly mentioned in our problem statement.
1.11. Conflict between CSF and the traditional management
Source: Franz Roosli
Nowadays, there is a conflict between the traditional management and Critical Success
Factors of today´s working environment (table 1.11). Managers of CSOB need to
choose actions to meet the CFS´s that influence the achievability of the mandated
goals (effectiveness), to provide a longer term benefit (efficiency). The suggestions for
the actions are shown in the Table 1.12.
Today´s competitive success factors
Fast response
Continuous Innovation
29
Leadership action
A large number of small-self managed teams
Destroy the boundaries and enable the
collaboration in the company
http://www.sqlt.com/bbdiagnostic/
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Operational excellence
Customer intimacy
Great place to work
Compliance/ External governance
Internal
supplier-customer
relationships
between teams creation
Assign ownership of customers to teams
Devolve planning and decision-making to teams
Agree a governance constitution that enables
local decision-making
1.12. Leadership´s actions regarding the CSFs
Source: BBRT
Coming back to the self- assessment test, as a result we got 2 strategic charts. The first
one shows us the complexity of the business environment (C) and the competitive
success (S) against the nature of the current model applied in CSOB and the complexity
against the vision for an alternative (Beyond Budgeting) model (V). As CSOB is
operating in a complex dynamic environment its vision is placed in the GREEN box. The
extent of change required to get there is the horizontal gap between the C a V.
In our chart Complexity is the average importance that the company gives to the
Competitive Success Factors, numerically stated it is 81% what is a “HIGH” result. The
Competitive Success is based on the bank´s assessment of the relative competitive
success today with the rank of 75% what is also considered as “HIGH” result. Looking
at the X axis we see that our current model is about 34% of the way towards the
“Empowered and Adaptive” what allocates the CSOB bank to the company that is
currently operating as “Partly Command and Control” as we already assumed before.
Fortunately, the vision is about 82% of the way towards “Empowered and Adaptive”.
However, CSOB still should with some urgency consider changing its model to increase
its competitive success.
1.13. Complexity, competitive success and vision of CSOB
Source: BBRT
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Another table focuses more on the CSF´s. Symptoms, Alignment with CSFs and the
Human nature assumptions scored as the lowest with the average of 15% what is
extremely “BAD”. It indicates great problems with the current management model.
Moreover, the current management model scored only 34% what is a “POOR” result
meaning it needs a change.
The match between the vision that CSOB has and the alterative, Beyond Budgeting,
model is 82% considered as “GOOD”. This result also with the ninth section which says
that the case for change is “COMPELLING” could be interpreted that Beyond Budgeting
principles to be analyzed bellow can provide very satisfactory solution for the currently
struggling CSOB´s model.
1.14. Summary scorecard
Source: BBRT
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9. BB principles
In the following part we will analyze 12 Beyond Budgeting Principles to-be
implemented in CSOB.
1.15. Beyond Budgeting Principles
9.1.
Source: BBRT
#1 Values – Bind people to a common cause, not a
central plan
Customers at the first place, maintaining trust, particular freedom and loyalty,
continuous customer satisfaction, honesty in dealing, respecting the law, colleagues
and responsibility for the action – values that can be found in the KBC Code of
Conduct30- meaning that every employee of CSOB (and also other KBC´s “daughter”
companies) should theoretically be aware of them and what more, follow them.
30
https://multimediafiles.kbcgroup.eu/ng/published/KBCCOM/PDF/COM_BDV_pdf_KBC_Group_Code_o
f_conduct_mrt2014_en.pdf?
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But in reality; actions strictly governed by detailed rules, targets, budgets, inspections
and performance appraisals, trust and transparency considered just as empty words.
That´s the true view at the CSOB´s values.
According to our research employees of both branches were dissatisfied with the
current situation of the CSOB´s working environment and agreed with the fact that, if
stated right and if there´s an environment where people truly participate, values of the
company can be a source of long-term competitive advantage. If people feel the values
and they understand them, they know what has to be done and they do it. Then no
control and inspection is needed. CSOB can complain that for a change in values they
need special people, trainings, thus also financial resources and many more.
1.16. Some of the CSOB´s suggested values
Source: culturetiopia.com
What they need is an anything special, just real person with the passion to work hard
to deliver a high-quality service/product in a very friendly and caring way. People,
their behaviour and passion for work create a soul of a company. Thus CSOB Bank
doesn´t need to look only for highly skilled professionals perfectly experienced in the
banking area. The reason why is that the level of knowledge and skills can be
improved quite fast through the training but attitude of people cannot be changed
that easily. They should employee people that can create a better soul of CSOB just
with few core values as culture of love, responsibility, accountability, that people will
believe in.
Where CSOB makes a mistake is that they put only the customers on the first place.
But how can an unhappy employee, without passion for his job and without the scope
and authority to make own decisions treat a customer right?
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Here CSOB needs to make a great step, involve people in this key change and give
them a feeling that since now, they are on the first place.
We assume that if CSOB “puts its employees first, they´ll treat customers right and
that´ll make the shareholders happy.” CSOB cannot stay just a company which, after
the opening hours, closes the door for the customer but also the employees. They
need to be sensitive to the needs of their people and recognize the things that are
important to them also in their personal lives. Nowadays, if an employee is sick and
really unable to come to the work, he has to contact his branch director and keep him
updated about his sickness until he is able to come back to work. It works the same
with the deaths in a family or, contrawise, when expecting a baby. All responsibility lies
on the employee. Except the formal information, usually nobody cares about the
employee´s personal life. Moreover, if a person decides to leave the company or retire,
it seems like CSOB just draws a line and forgets him.
If we want CSOB´s employees to feel that we value them as individuals, not just as
workers than we need to keep in touch while sick, have a child, death in the family and
also keep contact with retired people. We don´t expect CSOB to keep everyday´s
contact with sick employees but give them a feeling that they are missed on his
position and if needed also the help or support during their sickness. Keeping in touch
with the retired employees doesn´t make any profit, but it makes them appreciated
even after they left their job. If a people feel like the appreciated individuals of the
company they are proud to tell their families and friends about it. Communicating the
values of the company at every opportunity, living them, not seeing money as the
primary objective and measure of the performance, but putting ethics before and
hearing that former and current employees enjoy this culture of love and care makes a
company special.
Another issue, CSOB needs to fight with, is the missing trust in employees. In CSOB we
need to build an environment full of trust and accountability. When the front-line
teams have the confidence and mainly the scope and authority to respond rapidly to
unpredictable events without approval from senior people and make decisions they
feel the trust given to them. People also need to feel involved in the key changes to
perceive that “They are all in this together” and the change is not just a thing of top
management but it involves every employee. Living up to trust encourages the right
behaviour much more than following the plan and managing budgets.
CSOB Bank also struggles with the leaders who don´t have the motivation for leading
the changes. Thus if the employees don´t see their leaders living up to the values of
the company they don´t feel they should also fulfil them. CSOB Bank also needs to
encourage their leaders to become “cheerleaders of ambitions and improvement” – to
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be able to drive people to the point of thinking unthinkable and look for
improvements, even though they are not visible at first sight.
Now, there´s a small summary of the core values CSOB Bank could stick to:
1.
2.
3.
4.
5.
6.
Put your employees first.
Create a culture full of love and care.
Promote the honesty and openness.
Give your employees ability to act and to be accountable.
Encourage people to be more creative.
Don´t copy others
CSOB needs the values that are expressed in a way that grab people and make them
proud to talk about them. With above mentioned values CSOB Bank can easily become
the best; best place to work, have the best operations and best customer service and
finally become preferred bank (service provider) in the market.
9.2.
#2 Governance – Govern through shared values and
sound judgement, not detailed rules and regulations
Over 80% of investors agreed they would rather pay more for the shares of a wellgoverned company than for those of poorly governed one with the similar financial
performance.31 Thus the majority´s “view on the company” and its leadership practices
are a good example of importance of company having a correct management model
including right leaders and governance practices.
CSOB seems to use managers to control everyday´s performance of front-line
employees in order to follow and fulfil pre-set targets. Each organization´s unit
performance is closely controlled and regularly evaluated according to the fixed
targets. Governance is based on standardized processes and strict rules which don’t
allow employees to take immediate action what has at the end the effect of
disappointing clients´ expectations.
Also from company´s structure it is clear that CSOB with many departments,
management layers and manager positions is such a company that rather gives power
31
Paul Coomes and Mark Watson. Three surveys on corporate governance. McKinsey Qarterly 2000,
No.4, pp74-77
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to hands of managers than to the front-line employees, who create relationship with
customers and customers´ satisfaction, depends on them.
CSOB managers are perceived mainly as bosses with ability to control than leaders
with intension to encourage employees in their decisions.
Gandhi once said: “We must be the change that we want to see in the world.”32 This
truth can be also easily seen in CSOB´s governance. The change has to come from the
inside of CSOB. Top management needs to rethink their values, goals and ways how to
treat employees and customers too. Then hopefully the wished effect of increasing
customers´, employees’ and shareholders’ satisfaction will appear.
For CSOB´s governance transformation the following points are crucial to be changed:
 Reducing CSOB´s complexity- With so many layers, departments and managers,
CSOB has to take a great step to flatter the company´s structure. CSOB should
put trust into the front- line people and give them scope of authority for the
necessity of immediate action. Simultaneously, with the empowerment of
front-line employees comes also the responsibility for decisions what in other
words means CSOB will not need a dozen of manager-controllers. Managers
should then really be viewed just as the leaders and take roles of advisors and
supporters. Flattering company´s structure has also a positive side effect in
cutting costs because most of levels, divisions, administrative functions, and
compliance and control systems will disappear from CSOB management model.
The layers (the number of hierarchical levels) in CSOB should be after this
changed into flexible and adaptable to enable managers to forward plan in a
context of changing environment, facilitate co-ordination between business
units.
 Get rid of standardized processes- When giving people freedom to act, many
standardized processes, connected with huge hierarchy CSOB has, has to
disappear. Nowadays, asking for permission to take action on each of the
branches takes days, sometimes even weeks, to be processed because of the
long decision making process and standardized processes and systems. For
CSOB we suggest to get rid of standardized processes and trust people they will
act the best they can in accordance with the bank´s values.
 To have a clear risk management- Getting rid of standardized processes;
employees need to be familiar with the values and principles. Implementing
clear risk management should therefore become priority in CSOB. Bank has to
have a clear policy about how to view a risk with clear concept for employees
what to do and what not. Assuming that CSOB will adapt to the BB principles
32
http://www.schipul.com/quotes/171/
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and empower people we can say, in such an environment, there´s no need for
control, employees know what needs to be done and they do it. We suppose
risk management guidelines would be very useful for employees to be able to
make right decisions on the basis of CSOB´s values and not personal profit, as it
may have been seen at the present time; when situation doesn’t fit in any
standardized processes, employees prefer way, they achieve higher profit for
example according to bonus system,
 Create climate of trust and candor- CSOB can gain trust of their employees’
(but also clients´) by sharing information on time and foster culture where
people are not afraid to express dissent. Characterized dissent not as disloyalty
but other point of view is seen as an opportunity for improvement in CSOB
systems and strategies.
 Appoint inspirational leaders who empower rather than control- We believe
CSOB will be able to find great leaders among its ranks, but because of always
present pressure of meeting budgets and targets, those managers have been
forced just to control. After accepting Beyond Budgeting management model in
CSOB empowerment of workers will be the strategy to follow instead of control
and command system.
 Set relative goals rather than fixed targets- CSOB should realize that setting
fixed targets and goals has to be many times re-set because of unexpected
circumstances on the market what ends with ineffective target. Fixed goals are
not that motivating for employees too. Building CSOB´s strategy based on
reaching relative goals and targets and measuring success according to relative
improvement is the aim of implementation of the BB model in CSOB bank.
We believe, all above mentioned changes will lead to the creating climate of trust,
transparency, truth and clear accountability in CSOB.
To secure that governance in CSOB will not slip again to bossing, command style of
leadership we suggest constantly reinforced principles and values and stick with
empowering front-line employees.
9.3.
#3 Transparency
- Make information open and
transparent; don´t restrict and control it
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Promoting information flows to new levels of openness and transparency is considered
as a prerequisite for attracting the right people, customers and investors in every
company.
CSOB Bank does, on the first sight, offer its employees feeling of a particular level of a
transparency. They try to do it by issuing a magazine (every quarter), which should
serve as the peer comparison, but actually it just mainly shows the financial results of
the branches. Here they compare only the numbers and if the find branches that didn´t
fulfil the quota in the last quarter, they do put them into the “special care system”. In
this system the affected branches are monitored and if needed they are provided a
help of the specialist who come and try to train people to achieve better results (e.g.
with the techniques of selling the products). Moreover, frequent meetings of the
branch employees do actually provide the employees with the information about
planned changes in the bank but, in our opinion, it is too late to inform people when a
decision had been already taken.
Currently, there are many ways of providing the employees with the transparent and
up-to-date information. Many companies use the blogs (in 2002 only 15 000 blogs, in
2009 already 133 million of them), emails or even the company´s private intranet to
insure the real transparency. What a company can be afraid of is that transparent
information can through the wrong employees get to the competitors very fast. This
case will be discussed in the part of choosing the right time and right people for the
change.
Few years ago, CSOB had tackled with a problem of the employees being unable to
read and understand their own salary cheques. It can seem as the ridiculous situation
for the employees of bank to experience such a problem but it brings us to the point
that we cannot empower the front-line people and give them the ability to
transparently see all the information until they are able to understand it. This situation
was quickly solved by distributing the email which included the interpretation of the
parts of salary cheques for employees to be able to understand the transparent
information (meaning of measures and reports) we need to educate and teach them.
To insure an absolute transparency in CSOB we would like to use 5 key features:

Make everyone be able to see the organization´s and their team´s goals,
strategies and plans
o If the employees are unable to see the goals of the teams and also the
goals, plans and strategies of a company as whole and they have been
previously also educated about the meanings of them there is no
excuses for not understanding goals, strategies and so forth. Employees
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



thus have an opportunity to engage in and contribute to these
important processes.
Make everyone be able to see complete financial statements (apart from
group forecasts) as well as key performance indicator (KPIs), trends and peer-to
peer comparisons.
o In this field, CSOB had already made a small step, but the problem of
the magazines issued can be not up-to date information (as the
magazine is issued only quarterly and after every quarter there´s
needed at least one month to prepare it). But by enabling the
employees to search for their performance and compare it with the
other teams (or branches) immediately for example on the company´s
intranet could insure to share good and also the bad news immediately.
Being able to see the performance of the teams forces the poorly
performing ones to have an incentive to improve and high-performing
ones to stay on the top. Thus probably the “special care system” that is
now in use could have been fully or partly disestablished what could
cause a save in finances of the bank.
Make everyone able to see everyone´s salary and bonus
o Everywhere, salaries and differences in the bonuses are a big source of
interest and usually also dissatisfaction of many employees. On its webpage CSOB provides the employees and customers with the general
document stating the division of the bonuses according to the different
criteria (position, salary, cost/income ratio, % of active clients, net
profit). This is the only document regarding the bonuses that is available
for the public but also the employees of CSOB. In regards to the
concrete division of bonuses (who got it and how much), only top
management (the remuneration committee) is able to see the
information.
Make everyone able to see everyone´s expenses
o CSOB is struggling with the high expenses and the fact that more than
100% of available budget is spent in this case. Making the information
transparent can cut the expenses by 20-30%. The fact that if the
information about the expenses is not visible, everyone tries to drive
them up rather than eliminate them. But if the information is visible for
everyone, everybody tries to find cheaper or better option or considers
if the money spend do really bring the value. Transparency can also
bring employees to suggest the cost-reducing/cutting suggestions.
Everyone can see the minutes of key meetings.
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o CSOB builds its meeting and the top management of the fact that only
best people were able to get to those positions. Thus only the leaders
(and top management) have the ability to make radical decisions and
thus also need to accept the consequences and take responsibility for
their decisions. It all leads to poor communication and decision-making
and creates the opportunities for misrepresentation and fraud in the
company. What we suggest is the transparent information for everyone.
We would like the employees to see how decisions are made, including
which options were considered but not applied (and why). With this
step we can show the employees we value them all as equals and thus
we will build the trust and destroy the artificial hierarchy. Advantage of
this step for CSOB brings the fact of greater collegiality and
collaborative culture where problems are immediately shared and dealt.
Moreover, we would like to suggest CSOB to implement a rating system able to rate
the performance of the managers that could be published online. As CSOB´s
employees have sometimes problems with the attitude and the behaviour of their
managers they could be able to rate the managers who affect their work. Ratings
posted online (so visible for all employees) can challenge managers to be more
responsive and exercise their authority.
Providing the employees with totally transparent information requires a big courage
and also the change in how leaders think about information and how the
measurement and control process works. But hiding or manipulating the information
can only make company able to response slowly, not adequately and unable to
compete.
9.4.
#4 Teams – Organize around a seamless network of
accountable teams, not centralized functions
Many management layers and even higher number of manager´s span of control.
That´s what we see looking at the KBC´s (and also CSOB´s) organisational structures.
Simply looking at one branch of CSOB, there is a general director responsible for all
employees and under him, specialists for each of the departments (investment, loans,
real estate, accounts etc.). Each of those department´s managers is responsible for the
group of people working in a branch in the specified area. But these department´s
specialists also fall under the control of the regional directors of department´s
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specialist. With these regional specialists they held regular evaluating meetings to
improve the profit creation in their branches. Regional specialists also fall under the
control of 3 main department’s mangers responsible for Eastern, Middle and Western
Slovakia who cooperate together and control the regional manager´s performance. It
works the same with the branches directors and flows through the whole
organisational structure of CSOB in Slovakia until it reaches the highest posts of the
“parent” KBC bank.
On this small explanation we can see, in CSOB there had been an attempt of creating
some teams dependent or falling under the control of other, smaller, teams but it´s
not exactly what we would like to achieve with the Beyond Budgeting.
With the Beyond Budgeting we would like to achieve as few management layers
(hierarchical levels) and spans of management control as possible. We hope to
improve CSOB to a one team flexible, adaptable company where everyone´s interests
are mutually dependent and it than enables managers to forward plan in a context of
changing environment toward mutually beneficial objectives.
On a way to achieve this goal we would like to suggest to devolve the responsibility of
CSOB into the self managed teams. Nowadays, CSOB puts its effort on empowering the
leaders. We would suggest starting creating teams on the lowest level possible (e.g.
one branch as a self-managed team) and devolve the responsibility into them. Here,
we do stick to the example of Svenska Handelsbanken which nowadays has 81433
branches as self-managed profit centres (teams) with the scope and authority to run
its own business. Handelsbanken states, each local branch is taken as the complete
business, they have their own website and staff can make most decision locally thus
they also have full profit and loss account responsibility and can make decisions on the
salaries. Their reason for creating many profit centres is to encourage and enable
innovation and growth.
CSOB as an organisation with future clear accountability should stick to the BBRT`s
and Handelsbanken organisation of teams:
1. The executive team
 This group of people is, in general, responsible for setting purpose, goals
and strategic direction of the company and should also challenge other
units to maximize their performance. Nowadays this role is divided into
the high management and, to some extent, the general directors of the
33
http://www.handelsbanken.com/shb/inet/icentsv.nsf/vlookuppics/investor_relations_en_hb_q1_14_
eng_report/$file/hb_q1_14_eng_report.pdf
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branches. If we assume that every branch should become a selfmanaged team, the executive team of the branch should include only
general director of the branch. Of course, the executive team of the
branch is to fall under the control of the top management of the
company, but has to be enabled to take its own decisions and
accountability.
2. The support services team
 The support services team consists of the HR, Finance, marketing, IT,
design production and customer service and its aim is to serve and
support the value centre teams. This team usually doesn´t make the
profit but makes the value centres become more efficient and effective.
In CSOB´s case, now there´s no teamwork (only in the needed
situations) between the above mentioned groups of people.
Communication and cooperation between them is held only on a
professional level and usually doesn´t allow the innovation and growth.
3. The value centre team
 If we consider every branch of the CSOB as an independent selfmanaged team than every employee (in some extent also the general
directors and support services teams) are considered as the value
centres. Our aim in CSOB is to create as many value centres as possible
and treat each of them as a stand-alone business. Main task of the value
centres is to be accountable for satisfying customer needs at the lowest
costs thus – creating the value. Nowadays, managers of CSOB focus
mainly only on maximizing value that can be measured (ROS, ROI, ROC
or economic profit) but our aim is to see the value centres as own
businesses and give them as much freedom to act and improve as
possible.
Creating space and time for the self-managed work is the crucial step for CSOB to
become flexible and adaptable company. If CSOB empowers the employees and give
them freedom to act they can expect higher level of accountability almost
immediately. Also the golden rule tells us that small teams optimize the trust so each
person feels as a vital and important piece of the team.
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1.17. Kinds of teams in Beyond Budgeting company
Source: BBRT
9.5.
#5 Trust – Trust teams to regulate and improve their
performance; don’t micro-manage them
Many companies are seen using standardized principles and spending huge sums on
the control systems to be able to catch cheaters, punish them and return them back to
the pre-planned lines. The feeling of necessity to control people is getting bigger
simultaneously with company´s expansion. Over the years leaders consistently choose
to control people especially when crisis occurs or bad results are reported. That’s how
many companies still work, including CSOB.
Managers in CSOB do follow fixed targets, try to meet the numbers every quarter and
control their employees on the daily bases. Front-line employees have to report how
many clients they had during the day, what kind of products and services they offered
them and how successful they have been in selling.
After the couple of interviews with branch employees we figured out this reporting has
to be processed after individual client leaves the employee. Just imagine how much
time it has to take to register a note of every single client who comes to employee´s
table about what you offered him. Each day every employee sends this report to the
branch director who subsequently collects all the reports, put it together and send the
report, showing data from whole branch, to the region manager. Moreover, regular
meetings are held in CSOB. Most of our respondents perceive those meetings to be
focused on finding techniques how to meet targets.
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Everyday´s detailed controls and regular meetings show that CSOB is still using
command and control management style.
This fifth principle of Beyond Budgeting is all about empowering front-line people,
impose culture of self-managed teams and trusting employees they will do their job
the best they can.
Beyond Budgeting leaders Hope, Bunce and Rӧӧsli provide us with great help in
implementation trust in CSOB by writing the guidelines how to adjust this principle in
company:
1.
2.
3.
4.
5.
6.
7.
Create self-managed teams and give them autonomy
Eliminate the bureaucracy
Set operating and strategic boundaries
Trust and confidence for empowerment to be “taken”
Coach and support teams
Integrate information in the work
Manage by exception
1. As mentioned above, creating self- managed teams and giving them autonomy
would in case of CSOB mean to empower front line people, give them rights to
make decisions and solve problems right away. Because they are in the centre
of action, they talk to customers and have to respond quickly in order to satisfy
customers´ needs, the front-line people are the most valuable commodity
CSOB have. Region managers are prepared to trust local branches and this way
it happened to create self-managed teams in CSOB. Acquiring more local
autonomy means local branches will have control over the budgets, planning,
resources and decisions. In this stage branches tend to become more
productive without top-up controls.
2. The advice to reduce the bureaucracy is crucial in the process of changing CSOB
customs from controlling to trusting employees. We believe example of the
daily routines of employees mentioned at the beginning of this principle
provide our readers with the view how deeply is bureaucracy rooted in this
company. Rather than using top-down targets and subsequently monitor them,
CSOB should reduce their management layers with the aim of empowering
front-line people. If CSOB employees understand values of the company and
have set framework in which they can operate they should be able to selforganize work. However employees are free to act, the freedom also carries
responsibility and accountability for decision and should be asked to act as if
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they were the owners of the company. By removing bureaucracy, CSOB can
obtain competitive advantages which consist of quick response and lower cost.
3. By providing a clear boundaries and guidelines of responsibilities and
accountabilities and constantly reinforcing them CSOB should ensure
employees are capable of making the right decisions. During our research we
found out some boundaries are already set in KBC Code of Conduct- in the part
of the ethical and environmental considerations, strategic domain. Bank has
those rulebooks which regulate the area in which employees can act only in
general terms. Our humble idea is that CSOB should create clear guidelines for
each group of workers (front-line, managers, supporters) and define the
strategic and operating boundaries.
4. As we mentioned earlier empowerment encourages creativity, efficiency,
innovation and is a result of full commitment with company´s values and
mission. Making everybody´s salary transparent is one of the recommendations
of Beyond Budgeting in order to increase trust in CSOB teams. When every
employee can see salary of every other employee we avoid distrust and from
team workers can become friends not only colleagues. CSOB reward system will
be closer discussed in principle #8 – Rewards. Providing freedom and
transparency, CSOB is able to build the environment where employees trust
their branch directors, executives and each other. What follows from this is
that trust cannot be “given”, it can be only “taken”.
5. We have to ensure that CSOB provides employees with support and gives
correct on-time information to their teams. Branch directors become leaders,
couches and mentors in order to help employees correctly evaluate
information and come up with the right decisions. This way CSOB secures the
front-line teams’ capability.
6. Self-managed teams in our bank have to have an access to fast and relevant
information to be able to provide quality customers service. Based on BB
recommendations we would advise CSOB to make their information system
transparent and available for everyone so no restrictions or different
information are spread among departments or levels.
7. Manage by exception means to trust people acting within CSOB policies and
values and punish them if they mistreat it.
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After accepting this concept we assume CSOB will transfer power from topmanagement to the front-line people with the aim of increasing customers´
satisfaction. Autonomy to take decisions and solve problems by front-line people
ending with quick responses to customers’ demands will secure CSOB´s position on the
market. Moreover employees´ empowerment will lead to more innovative ideas as
they feel like part of the decision making process. With the feeling that employees are
trusted and with the desire to participate more, employees will be proud to tell their
friends and family where they work and will spread company´s values. To impose trust
in CSOB, we should experience the effect of flattering the whole company´s hierarchy.
The result is that CSOB gives freedom to self-managed teams to use their intuition in
questions of planning, decisions, resources and budgets.
Trust
Empowernment
1.18. Trust in Adaptive Company
9.6.
Adaptive
organization
Source: own creation
#6 Accountability – Base accountability on holistic
criteria and peer reviews, not on hierarchical
relationships
Following the previous principle we can´t forget that empowerment comes hand-inhand with accountability. When CSOB gives people freedom, it is also expected they
will be able to stand up for decisions and take responsibilities for the results of their
actions.
Firstly, in case of CSOB it is important to create flatter hierarchy with just a few
management layers as was mentioned earlier in this report in principle teams.
Secondly, bank has to make sure that employees understand connection between
their new freedom to act and accountabilities associated with it. The best protection
how to secure that state is to promote environment of transparency and disclosure.
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1.19. Accountability flow
Source: brt.org
For the purpose of this project we assume that CSOB follows our advices and will
operate only with executive team, support services teams and value centre teams. All
three units are held accountable among themselves and toward customers as shown
above.
After implementation of the Beyond Budgeting principles we perceive CSOB
accountability will look close to the following:
Employees working in CSOB branches




are responsible for providing the best customer service they can
have duties toward their branch manager/director
employees as individuals are obligated to meet agreed team factors and
therefore are accountable for team performance
are able to put their best effort into work and followed banks values –
accountability towards executives
Branches as self-managed teams


accountable to customers for the team execution and services
teams have agreed success factors that will be held accountable for in order to
improve against peers
CSOB Branch Managers/Directors

represents functions: leaders, mentors, coaches – are accountable for guidance
and support of front-line people in their decision making
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
local manager/director will be also accountable to regional level because of
the greatness of CSOB Bank in Slovakia
Regions

represents kind of link between branches and executive team and have both
ways responsibilities
Supporting services teams

has only supporting functions by providing technical, IT, marketing or other
help to employees
Executive team

Is accountable for transparent environment, clear mission and vision of CSOB,
choosing right strategies, reinforcing culture of company towards every
employee
Question “How to evaluate accountability in CSOB?” may also occur. All the units’
´accountability can be evaluated by establishing peer reviews in our bank. Peer
pressure is the most effective way how to maximize performance because everybody
wants to be viewed as a big participant to company performance. The effect will be
even higher if CSOB would decide to base their reward system on the peer
performance. So basically the only thing executive team needs to do is to give people
challenging goal and trust them that they are going to do their best. It is important to
realize that all principles in BB are connected and therefore you will hear about peer
pressure and reward system also in other chapters of this report.
Beyond Budgeting warns companies using matrix management model that it can be
difficult to define and see clearly the accountability. For example, the dual
responsibility for customers occurred to happen many times in CSOB Bank or already
mentioned “double control” when product specialist has to refer they results to
branch director as well as to product-line director(usually settled in region).
Even though in adaptive organization accountability flows between levels and across
the business towards customers the responsibility is clearly stated. Most importantly
accountability doesn’t go with the position or function as it was in traditional
command and control model.
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9.7.
#7 Goals – Set ambitious medium-term goals, not short-
term fixed targets
In the past CSOB had a clear strategy to dramatically increase number of branches on
the Slovak market. 34 Nowadays CSOB operates with 117 branches all over the
market.35 During the years number of branches has increased and their goal is
becoming reality. This is considered as a long-term goal when bank sets that for the
next couple of years it`s major focus will be on expanding and opening new branches
with the aim of offering services to more customers.
However, CSOB goal-setting process changed over the years and become more
focused on close future performance results and financial outcome such as ROE, ROA
order to satisfy shareholders. Annual planning, fixed targets, limited or none ability to
take decisions are just features of short-term profitability growth focus.
In order to provide our readers with the greater view about possibilities how to
improve situation in CSOB we will mention example of one of the companies which
already accepted Beyond Budgeting model in their management.
Swedish bank Handelsbanken replaced their old management model, changed their
goal from “the biggest” to become “the best and most profitable bank in Sweden” and
started to focus on profitability. 36 The business is made only in branches.
Handelsbanken is not a supporter of call centres because they believe that personal
approach is priceless and can’t be compared with cost deduction what using call
centres would cause. Each branch operates as independent team and has full control
over the resources, planning and goal-setting process. The point in Handelsbanken is
to perform better and faster than peer branches.
Since Handelsbanken and CSOB operate in the same field – finance, it is also proof that
implementation Beyond Budgeting principles are possible in such as environment.
Moreover CSOB can replenish inspiration from Handelsbanken´s goal-setting methods
and principles.
Our humble idea is that CSOB should return back to the strategy where setting longterm goals was important and see the shareholder’s value rather as a result of this
strategy not a high priority, short-term target.
34
http://banky.sk/5142-sk/csob-tento-rok-na-slovensku-zvysi-pocet-pobociek-minimalne-na-55.php
https://www.csob.sk/kontakty/pobocky-a-bankomaty
36
The Leader`s Dilemma, page 158
35
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Redefinition of the CSOB strategy should take place in order to clarify the way bank
wants to compete because at the present time it`s not clear if CSOB wants to go after
increasing profitability, size or scale.
We suggest CSOB should focus more on increasing profitability since we know from
internal information that bank already tried to look at customers’ profitability in the
past but didn’t have the right tools. If CSOB executives decide to take closer look at
customers ´profitability they need to have fast and open system accessible for
employee at every position. This accounting system would allow executives, branch
directors but also front-line people to better understand the current performance and
would involve people more into the team action based on peer pressure.
New accounting system ensures that every single branch of CSOB has the control over
their resources and expenses. Front-line people are more involved and then are able to
select the right customers or to take steps to increase customers´ profitability. Each
CSOB branch would operate as an independent profit centre what would have other
consequences for example: increase in peer pressure, better understanding of
customers´ profitability, more transparent system and at the end more control over
resources and expenses as if it would have been centralized process.
Talking about peer pressure, the leaders of Beyond Budgeting think it is the best
possible way to motivate people. With the up-to-date information about every
branch´s performance available, right people who are intrinsic committed with the
company and encouraging team soul CSOB has the good chance that peer pressure will
drive the performance of their employee the most.
Most importantly, CSOB has to adapt to the culture where relative goals are more
profitable than fixed targets and budges. The big advantage of relative goals is that are
always moving what encourages the improvement. In comparison with fixed targets
and budgets, the reality is that after reaching the target employees are satisfy that
they reached the goal and are not motivated to improve anymore. Important also is
that those relative targets are set by employees themselves and agreed in teams and
not imposed by authorities. It is called decentralization and employee empowerment.
Brand directors, region managers or bank executives have in this case only function to
encourage innovation and challenge employees in their performance.
Relative improvement provides positive impact on keeping people motivated since the
target is moving and results are known and evaluated after the period ends.
Assuming that CSOB will follow our advices about Beyond Budgeting principle – goals,
the situation in CSOB bank could look like this: CSOB empowers employees to set
relative goals which will help in improving branch performance. Instead of fixed targets
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and budgets implementation of the peer pressure has to be made. It will secure
relative improvement and clarification of CSOB´s strategy.
The main features of this chapter are:





Relative self-adjusting goals
Medium/long-term goals, not short-term fixed targets
Performance driven by peer pressure
Each branch = independent profit centre
CSOB´s focus on customers´ profitability (our advice)
9.8.
#8 Rewards – Base rewards on relative performance,
not fixed targets
In command and control management model, financial incentives are applied in order
to meet budgets and targets of the company. Employees see rewards as matter of
course and feel rancorous when they stop receiving them. We perceive individual
financial rewards as a tool to make people do something but it doesn’t mean they
want to do it. It is only temporary change in peoples´ behaviour but not change in
willingness to do something. Once rewards run out, people return back to their old
behaviour and are not motivated anymore.
CSOB uses complicated and specific reward system based on number of rules and
financial compensation what is, no doubt, the sign of command and control
management. Except basic salary, front-line employees receive:
o Different bonuses dependent on what function they held. For example: teller
receive risk bonus because of the money responsibility, specialists for product
groups (investments, mortgages, accounts) receive bonuses because of their
specific knowledge and responsibility to inform colleagues with news from
their product area, branch managers and directors are paid extra because of
their know-how.
o Bonuses are attributed to people liable for back office duties such as: securing
actual financial information available for customers of the branch, sufficient
stocks, ordering meal tickets and a lot of others.
o Each CSOB´s product that is also financially evaluated. Although, different rules
for receiving bonuses for the products sold have to be fulfilled. The rules are
not dependent on the employee´s effort but on the customers themselves.
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Providing example: Employee sell basic account- “Pohoda”, in order to get the
bonus for that, account has to be “active” what in terms of CSOB means
monthly: 400€ income receive, 3 regular SEPA payments and 5 times payment
with debit or credit card37 (also conditions for customer to have account
maintenance fees free).
These are all possible, us known; financial rewards that employee working in CSOB
branch can get. CSOB clearly base it´s reward system on “if you do this, you will get
that” on the way to reach targets and budgets. Because current CSOB´s management
model is based on meeting targets and budgets and because employee´s performance
is constantly controlled, the environment of fear and cheating arises. Just imagine if
bank has in offer two similar products; product A with bonus 2€ and product B with
bonus 10€, which one do you think will employee offer to customer preferably? This
current environment seduces employees to act in the way the best fits their situation
and tempt to forget about customer´s needs. Because targets and budgets influence
how person think and behave Beyond Budgeting leaders advice to avoid them and
trust front-line people instead.
Another problem with reward system based on targets occurs within management
level. Managers, in our case branch directors and regional directors are rewarded
based on how well team performed. Usually managers` rewards start at 80% and stop
at 120% of the target.
1.20. Compensation in Traditional management
Source: cam-i.org
37
https://www.csob.sk/individualni-klienti/ucty-a-platby/pohoda/o-produkte
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Picture illustrates that managers receive basic salary and up-to that their results are
evaluated according to target. If manager is sure that his team have no chance hit the
minimum target where he will receive bonus he can manipulate performance and
“save” the trade for another period. Performance is going good and manager is
evaluated according to the results achieved (B). As the maximum target is reached
manager loses his motivation to improve performance since there is no other bonus to
be gained. The trade above maximum target which should be done is in many cases
transferred to the next reward period. This manipulation with results doesn’t create
good environment in CSOB and saps the company`s values. That’s why Beyond
Budgeting principles recommend to disconnect targets with bonuses and trust people
they will do their best with managers only as supporters.
By avoiding targets and budgets we will empower people and trust them. The
presumption that we are able to choose the right people into CSOB whose have the
right motivation is crucial.
According to motivation theory about intrinsic and extrinsic motivation; two types of
people are about to appear in the society.
1.21. Features of Extrinsic and Intrinsic motivation
Source: academy.sportlyzer.com
Employees who see the task only as something what has to be done in order to get
reward or avoid punishment and don’t really care about the purpose or the way how it
is done are example of extrinsic motivation. Or as we can say it is an equivalent to
Theory X, people need to be motivated and controlled all the time. CSOB should
employ rather people driven by self-fulfilment, represented by the Theory Y, who see
task from the point of challenge not financial incentives.
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After detailed analysis of CSOB´s reward system, now, we would like to present the
necessary steps in order to improve performance of individuals but also teams:



Impose transparent profit-sharing system based on peer pressure.
o Our suggestion would be to make a few basic salary groups dependent
on position employees held and make that information transparent for
everyone. This way we avoid question “How much my colleagues get
paid?” and raises culture in which all people are equal.
o Impose peer pressure reward system and get rid of budgets and targets.
Employee’s motivation is driven by relative, always changing,
performance of peers not a fixed target.
See rewards as something extra, not granted
o Moving rewards from individuals to branches and share it fairly will
encourage team soul, pay attention to clients` interest and stop
employees actions according to the way it fits them.
o Removing all product rewards in CSOB.
Evaluate performance after peers´ results are known
o Hindsight, the only way to evaluate if performance was good or not.
9.9.
#9 Planning – Make planning a continuous and
inclusive process, not a top-down annual event
CSOB as many companies still prepare annual detailed targets, plans how to follow
them and control every step on the way to meet the numbers. Partial performances
are evaluated according to pre-planned targets and even bigger pressure is developed
if failed to meet them. Preparation of those annual targets is not only taking a lot of
time but also costs CSOB lot of money. Targets are planned for a year what means no
reassessment in case of sudden change in environment is possible. CSOB reaction on
change is slow and also the followed adjustment on change takes long time.
We prepared below seen list of instruction in the belief it will help CSOB to become
more flexible on the market changes and improve their planning process.


Shift from detailed targets to framework of performance expectations
o CSOB should free their managers from meeting numbers and top-down
controls and pay attention to importance of improving performance.
Make planning continuous process how to reach goals
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



o We would advise CSOB not to follow the annual targets which are
focused on numbers but listen to their customers´ needs and intercept
changes in financial field. In an adaptive organization, front-line people
have function to register those changes, reassess goals and immediately
plan the strategy in order to reach them. CSOB executives would
therefore have to decide only about long-term goals and right strategic
direction.
See planning as inclusive process
o CSOB managers have to ensure that front-line people are able to
participate in planning and strategy making process. The open system
has to be established in order to enable the flow of ideas from branches
to the top management. Most probably, people working in the bank
branches will come up with innovations and new ideas how to improve
because they are in the centre of action daily.
Set regular reviews
o CSOB should increase the number of meetings where the performance
evaluation is done and make those meetings regular. We would
recommend examining the check-plan-act cycle and the meeting to be
held at least once per quarter. Check the performance and evaluate
how CSOB is doing according to their strategy, plan the action what
need to be taken to improved and act according to that.
o Regular reviews offer plan corrections (not with the focus on financial
targets, but corrections in strategy) if, for example, the external
situation changes.
Discover rolling forecasts in CSOB
o Except annual forecast CSOB should pay attention to short-term (usually
monthly) forecasts which are focused on near future and enables to
help to improve decision making process.
o Rolling forecasts have become useful tool in recent years for companies
because they are focused only on few key drivers and discussed strategy
not the financial figures.
Annual meetings remain in the company
o Only long-term goals are discussed during annual meetings.
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1.22. A rolling performance
9.10. #10
Coordination
Source: The Leader`s Dilema
–
Coordinate
dynamically, not through annual budgets
interactions
Even though coordination is more important and better visible in manufacturing
companies we can still find couple of examples how to improve cooperation between
the CSOB units themselves and also toward the customers.
Earlier in this report, we have suggested to decrease hierarchical levels of the bank in
order to remove unnecessary positions and departments. Another reason to do so is
that communication between fewer units will be more transparent and easier.
Between the front-line people and top management, there will be only few layers
what will get everybody involved in common purpose to deliver the best products and
services to customers at the lower costs. When all the steps in this process are linked
we can talk about “flow” without causing CSOB to lose time or money.
In the book The Leader´s Dilemma, we have read that investment in capable front-line
people worth more than investment in expensive machinery or systems. 38 We have to
agree with it since employees working in CSOB branches represent a big value for the
bank. They are in every day contact with clients and know customers´ needs. If CSOB
employees become part of innovation and decision making process they are able to
promote new ideas about the products or services based on changes in customers´
38
The Leader`s Dilemma, page 226
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demand. In other words, branch people know what customers want, give impulses to
make the change and company is providing customers with product and services
according to their demands afterwards. CSOB is advised to leave the “Push” effect,
offering what bank has, and foster “Pull” effect where bank will offer products and
services designed tailored for customers.
Having an open and transparent communication system where information is shared
and providing employees (and also customers) with new technologies will enable fast
coordination action.
In adaptive organization collaboration between units is more likely to happen when
self-managed leaders see the opportunity than it is given by management. Empowered
people automatically tend to help each other in order to improve team performance
and so the same it is if two managers try to solve one problem. By this is shown that
coordination will be designed into the CSOB system after implementation of the new
management model.
9.11. #11 Resources – Make resources available just-in-time,
not just-in-case
The cores of the traditional budgeting model are periodic planning and redistribution
resources. Budget is prepared in advance and in some cases it takes months to do so.
The process is as following: Managers need to plan how much they will spend, explain
and probably argue with upper management if the planned costs are necessary and
why. The budgets tend to increase every year and only in rare cases are the managers
willing to decrease their requirements. On the other side the aim of upper
management is to cut the budgets to decrease cost and make company more
profitable. After redistribution of resources teams will try to use all the money so even
if it wasn´t necessary money are “wasted” by the end of the year. Also because there
are no controls afterwards, the thinking as “spend it or lose it” is allowed in the
traditional budgeting. The last but not least is that the business environment changed
in the past years. Nowadays share prices, inflation, currency exchange rates and other
financial indicators are changing every day what disallows prediction of the budgets for
the next period of time.
Our company CSOB is one of the companies still using traditional budgeting although
the process have started to change and we can see some innovative budgeting
approaches implemented in the company. That’s why we would like to analyse and
provide CSOB with more advices how to make their budgeting worth.
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We are aware of the facts that above mentioned problems are a huge disadvantages
for CSOB and significantly slower its development. That’s why we are coming up with
suggestions which CSOB can practically implement:

To make each branch independent profit centre
Let directors to be in charge of costs and profit for their branches. By giving branch
directors much more authority and scope over their budgets bank executives would
have to stop telling them what the numbers should have be. Teams become
empowered and accountable for their budget what we believe will lead in better
understanding of which costs add value for the company and which on the other side
are unnecessary. Our opinion is that branch people then start to think as if they would
be the owners of what will bring positive effect in decreasing costs.

Decrease “discretionary” costs
We would recommend CSOB to decrease the costs which primary don´t make profit for
the bank. As we could see, CSOB has a wide organizational structure with many
management layers and supporting departments. Those departments and managers
has mostly background functions and don’t make profit straight away. Basically, the
more pillars, layers, departments and functions the more costs are needed. So our
advice would be to get rid of unnecessary activities and to reduce the volume of
transactions.

No need for prior approval in connection with expenses
In connection with the implementation of the Beyond Budgeting management model
in CSOB this should become an important change. CSOB is operating on the financial
field with always changing conditions and therefore have to secure that their
employees are always capable and informed about the newest trends. Currently CSOB
holds meetings and conferences for directors, product specialist and other employees.
Naturally it obtains a huge amount of travel costs spend during the year. Employees
have to apply for prior approval of travel costs every time or pay the expenses from
their own pocket and reimbursed afterwards. This is the complicated process which
takes a lot of time with just “filling the papers”. Easily making travel expenses
transparent and open the budget for everybody without prior approval would in our
opinion save a lot of time and money since there will be no space for cheating. Even
better idea would be if CSOB made the conferences and meetings online or over the
phone. The significant decrease in cost would be almost immediate and information
flow would be actual. CSOB has already implemented the similar sort of thing when
“Personal Trainer”, online program for improving employee`s sales skills, starts to be
used.
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
League table as a tool for decreasing costs
To have the possibility of comparing branches` expenses will have the same impact as
with already mentioned performance comparison. Our humble opinion is that peer
pressure will drive team soul and volition to be ranked as good as possible what will
ultimately reflect in decreasing costs.
Accountability, empowerment, trust and transparency are just a few visible features of
making resources available just-in-time, not just-in-case.
9.12. #12 Controls – Base controls on fast frequent feedback,
not on budget variances
Focus on meeting the numbers, following a budget and evaluation of performance by
answering question “How much did you sell today?” is still a custom in CSOB. In order
to change current situation we strongly recommend taking closer look at the following
steps.
Firstly, understanding CSOB values and strategy takes significant role in a process of
performance controls. CSOB managers have to ensure branch people are fully
identified with company´s values in order to be able to set the right goals. They also
need guidelines and boundaries which clearly state their responsibilities because as we
already know it is them who are empowered to take action.
Secondly, let teams themselves set the goals based on CSOB´s strategy (middle-term
goals). In this case process matter as much as results since each team spend time on
discussing the right success criteria factors and strategy how to reach them. Members
of the team are coming up with different views, goals, directions therefore this process
has the value. We suggest branch people will feel more connected with the goals
because they are now part of decision making process and they all together agreed on
the success criteria factors.
Thirdly, performance measurement should be built on using key performance
indicators (already mentioned KPI´s) in order to find out whether success factors were
achieved or not.
The fourth step we see as the most important in implementation of the correct control
system. As CSOB branch directors and team members need to know how teams are
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doing against peers as well as CSOB executives need to know how the whole bank is
doing against competitors and market. Our humble idea in order to achieve fast and
frequent feedback in CSOB is to make their reports clear and understandable. Use only
relevant information with few key features such as: context, level, trend, analysis,
action.
1.23. Example of Report on page
Source: The Leader`s Dilema
With this “report on a page” supported by IT channels CSOB directors will receive
relevant information about performance on time. Report provides knowledge about
where the company is, where is going, why the trend is changing and what action to
take. Teams can therefore immediately respond on that and regulate their
performance.
Suggesting that CSOB will become an adaptive organization new control system based
on transparency will be imposed. So our final advice would be to open up information
about peers` performance and let teams to decide their own goals which follow CSOB
strategy.
10.
Select the right people and choose the right time for
the change
Each successful organisation has its own system of shared meaning held by members
that distinguishes the organisation from others, called the organisational culture.
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Now, assuming that the CSOB Bank could switch into the Beyond Budgeting company
it´s understandable that the organisational culture of the company would change
visibly too.
What is important is the fact that every change needs some rules. In the case of CSOB
bank we could use 5 rules of thumb for the timing of an organisational culture 39.
Firstly, we need to design when there is a compelling reason. Without a reason it
would be difficult to get people behind and engaged in any initiative. CSOB would need
a business case for designing e.g. the fact that the old “command and control” system
doesn´t work anymore, people do belong more into the Mc Gregor´s X model, not Y as
needed. Moreover, as mentioned before, CSOB´s vision and mission isn´t that
innovative what could drive the company to take a decision and change this fact by
implementing a new organisational culture.
Secondly, there´s a need of developing options before deciding on design.
Indispensable step for this rule is the scenario or simulation that can help CSOB to
identify the impact of the concept and the consequences of it. We would recommend
the CSOB to stick to the Larry Prusak´s, executive director of IBM, value of storytelling.
He assumes that when a company is in distress people start to talk to each other and
dig the firm out of the problems. This way could be really helpful, but only assuming
that the company employee honest and loyal people who are not afraid of presenting
their ideas. Otherwise, there´s still a huge range of methods that could help CSOB to
decide if the change is appropriate or needs to be redesigned.
Thirdly, CSOB needs to look for clues that things are out of alignment. Knowing that
now CSOB holds regular meetings stating the measures of the business results (e.g.
annual meetings, regular meetings of the regional directors, monthly evaluation
meetings), they have a great chance to see if things are out of the required line. Lack of
the alignment or walking out of the required line is a good sign for the change-to-beimplemented.
Fourthly, every time making a change we do predict it will last for a long time.
Therefore, company has to stay alert to the future. We can also use the golden rule
“Designing for the future is better than designing for now” 40. Not forgetting the fact
that nowadays world is changing every second and is unbelievably unpredictable
companies need to build a culture based on change, innovation and forward thinking.
Just as Beyond Budgeting model doesn´t belong to the company of highly-tying-up
39
40
Stanford, N. (2007): A guide to Organisational Design, London, UK, pg. 11
Stanford, N.(2007): A guide to Organizational Design, The economist/Profile Books. London, UK, pg.13
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models and is naturally changing and adapting to the conditions of the market over the
years it allows CSOB to design not only for now but think also about the future.
Fifthly, and most importantly we can take it as a conclusion´s point that a company has
to choose the right time to design combining all the rules mentioned above. Thus CSOB
should really punctually establish a sense of urgency in the company and inform all the
employees and top management about the problems and their suggested solutions.
Moreover, company needs to provide the employees with the “guiding coalition” –
group of people who know all the steps of designing and are educated and strong
enough to lead the employees through the change. What can create a high probability
of a cultural change are the times when a dramatic crisis occurs, a change in leadership
happens, a young and small organisation grows or when a weak culture exists.
In addition, CSOB could think that if making a change it can be considered as a repair of
the problems that are visible. But designing is a fundamental process not a repair job.
To fulfil what is needed and to be successful it has to be well-organised strategic
modifications that basically change the way business is done.
1.24. Mision, vision, strategy and
objectives
Source: N.Stanford, Guide to
Organisation Design,pg.19
Lastly, to make everything work perfectly, we need to state the fact that designing is
driven by the business strategy and the operating context. Design process of CSOB has
to start with the leadership agreement on what is their vision/mission, values and
operating principles, strategies, objectives and tactics. The Beyond Budgeting offers
them the paradigm for those issues.
10.1. STEEPLE
Operating context can be assessed implementing the STEEPLE analysis, the tool that
considers various external factors that can influence business performance of a
company.
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10.1.1. Social factors
Social trends show the possible change in people´s behaviour and reflect the people´s
demand after products or services. According to a study Barometer Cetelem 2014 41
almost 40% of Europeans is planning to increase their spending in the year 2014. It is
the largest change in customers´ behaviour since financial crises in 2008. Based on this
study the rising demand can be expected in market with real-estates. This suggestion
also confirms the trend that peoples´ interest in mortgages and loans increased in
Slovakia. Slovak banks provided during the first quarter of 2014 mortgages and loans in
total 335 mil €, representing almost 30% increase in comparison with the first quarter
of previous year42. Despite of this fact, Slovaks (in general) still have a habit to save
more than to borrow and therefore belong between a few countries with the lowest
bank´s debt (debt per person) in the whole European Union.43 One of the facts is that
women (53%) tend to borrow more than men.43 Even though women borrow smaller
amounts, they borrow more and it may give an idea to banks to base their marketing
strategy to attract the right sex.
10.1.2. Technological factors
Barometer Cetelem 2014 research also discovered new types of buyers´ behaviour
what was shown in online shopping expansion. Unexpected boom of smart phones and
tablets results in customers´ requirements continuous to rise and clients’ request to
link online shopping with typical stone shops/ branches. 42 Nowadays customers prefer
to search for information online, before they come for an advice to the house branch
what shows the change in customers´ tastes. Internet and online channels create the
added value for the typical stone branches by increasing attendance, offering
transparent information and play an important role in the selection of products and
services. Narrowly speaking about the technological factors in the financial field, we
have to mention that internet banking has become standard in banking services during
the last 5 years and number of its users has doubled.43 Presently, 4 out of 10 people
are actively using internet banking in Slovakia what is in comparison with Scandinavian
countries (more than 80%) still not that big success but with technology innovations
and financial awareness we dare to say number of internet banking users will increase.
Other changes associated with the new buying behaviours have the similar feature
because both enable faster access in payment issues. According to TARS (Tactical
Aviation Radio System), customers´ demand after QR (Quick Respond) service in their
bank increases.44 As one of four banks, CSOB provides their customers with this
possibility which brings faster and easier way of paying bills. And finally, it is not a
41
http://egoodwill.sk/vybrali-sme-za-vas/nove-druhy-spotrebitelskeho-spravania/
http://www.teraz.sk/ekonomika/zaujem-slovakov-o-spotrebne-uvery-rastie/82833-clanok.html
43
http://www.teraz.sk/ekonomika/prieskum-internetbanking/83126-clanok.html
44
http://www.teraz.sk/ekonomika/zaujem-klientov-platit-faktury-cez-qr/74907-clanok.html
42
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wallet or keys people always have with them when they go elsewhere but mobile
phone that became an inseparable part of everyday´s life. MasterCard has come up
with the research result that 60% of Slovak population would welcome using mobile
phone as a tool for paying goods. 45 This number together with other indicators shows
peoples´ readiness for new inventions on the banking market.
10.1.3. Environmental factors
Great attention has been focused these days on the environmental issues when people
started to realize they have to take proper care of nature. CSOB as a good example of
environmentally friendly company continues to reduce the impact of their activities on
the environment, monitors environmental risks and tries to conserve energy.
Year 2012 brings a new direction into the CSOB in questions of environment by
implementing an integrated management system (ISR) of environmental protection
and efficient use of energy according to internationally accepted standards ISO 14001
and ISO 50,00146 Furthermore, every employee of CSOB agreed on the document
“Environmental Protection Policy” which states the responsibilities against the society.
10.1.4. Economics factors
Economics factors influencing CSOB Bank in Slovakia are closely linked with increasing
demand for loans and mortgages. Volume of loans causes 9,9% increase in comparison
with the same period of time in the year 2013 and with a striking difference increased
by 33% in volume of mortgage loans what causes increase in banks´ net interest
income. The huge demand causes that the loan and mortgage interest rates fall and hit
the historical minimum what after all motivates customers to increase their demand.
Based on data from the NBS (National Bank of Slovakia) interest income reached 6,2%
increase in Slovak market in general. 47 Higher demand after loans together with
decreasing interbank interest rates causes that CSOB reaches 4% interest income
increase in comparison with 1st quarter of 2013.48 At the same time banks register
volume of deposit increase (3,8%).48 With the following trend of increasing demand
after loans and mortgages we have to assume the net interest income will increase in
near future too. Last but not least CSOB lift in payment fees and account
administration charges causes interannual growth in income in form of bank´s fees.
45
http://egoodwill.sk/financie-spolocnost/podla-prieskumu-mastercard-chce-60-slovakov-platitmobilom/
46
https://www.csob.sk/o-nas/pomahame-a-podporujeme/spolocenska-zodpovednost/zivotneprostredie
47
http://www.teraz.sk/ekonomika/sba-banky-ziskovost-uroky-vynosy/82860-clanok.html
48
http://www.teraz.sk/ekonomika/zisk-csob-financna-skupina/44780-clanok.html
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10.1.5. Political factors
Political situation in Slovakia has dramatically changed in last couple of weeks and the
view on the political background can help us in better understanding of possible
change those factors will have on the financial market. In March 2014 the President
election took place and with the significant difference of 18%, independent candidate,
Andrej Kiska has won and will become a new “head” of Slovakia in July. In the election
Kiska beat left-wing party SMER representative Robert Fico who takes place also as the
Slovak Prime minister (59%:41%). 49 SMER (the party which also implemented the bank
tax) took place of majority predominance in Slovak parliament after parliamentary
election in 2012. 50 Political specialist Grigorij Mesežnikov and other independent
observers agreed that people refused one-party rules, monopoly in Slovak governance,
and assume that people prefer power sharing.51 Unusual high difference between
candidates mirrors the desire for change and Kiska´s name is connected with hope for
the improvement. 52 Based on the research of Focus agency, with the results of
president elections are satisfied 47% of voters. 53 With the arrival of new president
people may acquire feeling positive changes are going to be implemented and
therefore it could have positive effect on financial sector, showed in continuous
increase in demand after loan products.
10.1.6. Legal factors
What kind of legal factors will have an impact on CSOB´s situation in the market will be
considered in this section of the STEEPLE analysis. In the Slovak market banks and
CSOB included providing the product “mortgage for young” which offers special
benefits for customers in age 18-35 (also couples in this age group). Currently income
limit for single person is 1043€ and with validity from 1st April 2014 it has changed on
the level 1153€ for single person and 2306€ limit for couples. 54 This change only
encourages young people to reach after own living and therefore underline following,
many times mentioned, trend of increasing demand for mortgages. Looking not to the
far past, Slovak banks have started to pay bank tax in 2012 55 what has negative impact
on profitability of banks and based on SBA statements (Slovak Bank Association) it is a
49
http://www.aktuality.sk/clanok/250191/komentar-nadej-tvoje-meno-je-kiska/
http://www.economist.com/blogs/easternapproaches/2012/03/slovakiaselection?zid=307&ah=5e80419d1bc9821ebe173f4f0f060a07
51
http://www.aktuality.sk/clanok/250282/videokomentar-slovensko-odmietlo-mocensky-styl-politikyhovori-politolog-meseznikov/
52
http://www.aktuality.sk/clanok/250191/komentar-nadej-tvoje-meno-je-kiska/
53
http://www.sme.sk/c/7172802/kisku-volili-najma-pre-jeho-slusnost-a-nekonfliktnost-ukazalprieskum.html
54
http://www.teraz.sk/ekonomika/hypoteka-pre-mladych-financie/79504-clanok.html
55
http://www.webnoviny.sk/ekonomika/vlada-schvalila-zavedenie-bankovej-dan/405776-clanok.html
50
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risk game and government hazards with stability of the whole financial sector.56 Slovak
government managed to announce not only implementation but also increase in this
tax what once again confirms negative impact on profitability of banks and bank´s
financial reserves. Specifically, CSOB recorded 1,9 mil.€ decrease.47 The European
Commission´s (EC) decisions could also have an effect on Slovak financial market
therefore we should be alert of next meeting where EC plans to set the rules for loan
providers so that in case of bankruptcy of a loan provider the help has to come from
shareholder and not from government tax receive.57 New rules secure that banks will
act like every other company and it should bring financial stability to the market. If it
would be a case of CSOB this could be slightly problematic since the implementation of
a bank tax doesn’t allow the bank to cumulate enough financial reserves, instead,
CSOB has to pay tax to government. And because the whole financial stability of a bank
is coming out from the reserves it seems like CSOB acquires in the “blank circle”.
10.1.7. Ethical factors
Ethical principles are fundamental part of the transparent and fair dealings in every
society. Failure to comply ethical basics can lead to corruptions and reckless approach
in financial institution. “Besides significant economic implications, the financial crisis
has also revealed considerable lack of moral values in commercial banking, which has
been reflected by a very unscrupulous approach of bankers to their clients.” 58
Assumption about the corruption expansion also confirms Transparency International
rating where Slovakia takes 5th worst place among The European Union countries.
More than 90% of Slovak citizens are convinced about the expansibility of corruption. 59
Continuation of this problem could cause CSOB loss of clients and distrust in their
services.
Social
Technological
- increase in spending by Europeans
- higher demand after loans in Slovakia in first quarter 2014
- women tends to borrow more than men
- Slovakia has lower credit demand than other EU countries
- Slovaks still save more than borrow
- expansion of online shopping
- increase in paying invoice through QR code
- higher demand for mobile payment
-clients would welcome electronic channels linked to house
branches
56
http://www.webnoviny.sk/ekonomika/clanok/416266-zvysenie-bankovej-dane-je-hazardovanim-sostabilitou-sektora/
57
http://www.teraz.sk/ekonomika/v-buducnosti-budu-banky-zachranovat/82558-clanok.html
58
http://nho.econ.muni.cz/13-2013/3-2013/impact-financial-crisis-business-ethics-banking-sector-casestudy-slovakia
59
http://www.noviny.sk/c/ekonomika/korupcia-na-slovensku-je-rozsirena-mysli-si-90-slovakov
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Environmental
Economics
Political
Legal
Ethical
- increased attention in environmental issues
-implementation integrated management system according to
the international standards
- decrease of interbank interest rates
- historical minimum in loan and mortgage interest rates
- increase in net interest income
- increase in deposits
- slight increase in income from banks´ fees
- president election
- higher income limit for product “Mortgage for young”
- introduction of a bank tax
-EC implements new rules in case of bankruptcy of the loan
providers
-increase in corruption
We can understand that choosing the right time for a change is important fact. If we
don´t choose the right time and there doesn´t exist the compelling reason, whole
change can get destroyed.
Another factor that can cause if not the failure, than at least huge complication of the
implementation is the employees. Implementation of a new model, totally different
from the previous one, can show us people as:







VISIONARIES/MISSIONAIRES – who completely believe new culture, accept it
and want to participate, have a picture of organisation in the future (e.g. in 10
years)
ACTIVE BELIEVERS - people who agree with the change, but usually follow the
top managers and their steps
OPPORTUNISTS – people who see also other opportunities and offer it as
possible changes, they are usually opened to a suggestions (higher salary,
getting better positions), if they like them they come to the process of change
RESIGNED/OBSERVANTS – people staying on between, create the largest group
(approx.60%), they don´t care about the change, only observe what is
happening, people mainly of the X Theory
GUERILLA FIGHTERS – people who don´t want to accept the change, they fight
for the old system
OUTRIGHT OPPONENTS – the ones who don´t agree with the change and are
prepared to leave, just stay until they find some other job
EMIGRANTS – employees who don´t want to accept the change, they leave the
company
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It is very important to recognise those types of people. For the company best
people are the visionaries/missionaries and the active believers, usually the
smallest groups. They both believe in the change, visionaries can simply (after
some training) become the members of the “guiding coalition” and lead the others
through the change. Active believers have also great value for the company, even
though they have some uncertainty about the change but still are opened to
something new, innovative.
If CSOB wants to implement a Beyond Budgeting model and they feel, they would
like to keep people they already have they could use some tactics to overcome
their resistance as e.g.:





Education and Communication – Company can promote the need for
change (establish a sense of urgency) by the communication with the
employees about the ongoing issues that need to be solved. Educating
people of how the change should be made, how it will touch them and how
the organisation will look after the change makes people´s thoughts about
the change more concrete and thus can also make them change their mind.
Participation - Making people to participate, enabling them to give relevant
suggestions and giving them the transparent information about the change
can persuade many employees about the need for change.
Building support and commitment – As mentioned above, guiding
coalitions can easily take people with a fear of change through it all or at
least minimise their resistance. Making people engaged in the change,
commit them to some actions is really helpful tool to overcome the
resistance.
Selecting the people who accept the change – It´s understandable that
people as “outright opponents” or “guerrilla fighters” will most probably
not change their opinion about the change. Thus selecting the people who
accept the change makes whole process faster and more effective.
Coercion – Pushing people into the change, application of direct threats
and forcing them could be used as a tool for overcoming the resistance but
usually is not used, nor useful.
If a company has enough people who do accept the change there´s no reason to look
for new employees. Unfortunately, after distributing a questionnaire between the
employees of CSOB we got an answer that more than 70% of employees don´t feel
comfortable about implementation of a Beyond Budgeting method. Almost 40% of
people responded, that if a change was going to be implemented they would most
probably leave the company. Thus, CSOB would need to employee many new people
who most probably wouldn’t have experience with the cultural artefacts of a CSOB´s
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new Beyond Budgeting Culture. To help these, new employees, to get in touch with
the new culture of the CSOB they could use methods as:




Stories – Many successful employees as Henry Ford II (Ford Motor Co.) or Bill
Bowerman (Nike) use the method of storytelling when employing new people.
Stories usually consist of event´s about the founders of the organisation, rule
breaking, relocations of employees or reactions to past mistakes. These stories
provide new employees with the explanations and reasons for current cultural
artefacts.
Rituals – IBM, Eriscon or the Wal Mart have typical rituals that express the key
values of the organisation. Those can be the most important goals or
importance of people to the company´s success. As CSOB doesn´t already have
a ritual like this they cannot use this cultural artefact now.
Material Symbols – Typical cars, special furniture or the location of offices,
symbols of a company on the untraditional places. That all can help to
distinguish the CSOB from other companies and help new employees to get
into the culture.
Language – Not forgetting, when people work and spend some time together
they can communicate even without words or with special words that they
create to send and receive the information processed much faster. They do
develop unique terms that relate to their business that after some time
becomes their working language. For the new employee it can be difficult to
get into the new terms used in the company but after some time it can make
them feel in their work as at home.
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11.
Implementation or “From concept to reality”
1.25. Implementation stages
Source: Franz Röösli
Finding problems in the CSOB and then trying to find a solution or suggestion how to
solve them according to the Beyond Budgeting principles is not an easy job, but
implementing it all and coming from the theory into the successful reality is much
tougher, complicated and important step.
In the next few lines we would like to show 3 methods that could make the Beyond
Budgeting be implemented by - Levin’s 3 Phases Changing Model, Kotter’s 8-step
change-process and also Bridges’ Managing Transition´s Model. CSOB can choose one
of those proposed solutions but can also try to implement it using the new process.
One of the offered implementation tools is the 3 steps Change Theory of Kurt Lewin,
German well known socio-psychologist. The concept developed during 1940´s 60
consists of 3 steps called:

60
Unfreezing – Starting with this first point CSOB needs to reduce the forces that
are striving to maintain the status quo, thus trying to overcome the resistance
of individuals or even groups. They need to do it by presenting people and
http://www.change-management-consultant.com/kurt-lewin.html
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

make them able to see the need for change and later show them to search for
new solutions.
Transition – Second step, sometimes also called “moving”. When a compelling
reason for a change is found and people recognize the need for change they
need to develop new behaviours, values and attitudes. Naturally, if a change is
quite huge as suggested in CSOB there may appear a period of confusion and
misunderstanding while doing new things.
Freezing – Final step is the stage of adaptation of a new method as the
standard operating procedure. Without this step the implementation wouldn´t
be complete and CSOB could easily go back to the old habits.
1.26. Change theory
Source: http://www.change-management-consultant.com
This model works with the strategic but also incremental or reactive changes. It
provides the example of visualising, planning and managing each of the 3 stages of
change.
Second offered option is the Managing Transition Model of William Bridges about
which he said that the change is situational and transition psychological process
people go through. As seen on the picture it also consists of 3 steps:



Ending – CSOB needs to understand one fact and it is that every ending is a
precondition for any beginning. Ending of the old model has to be supported by
giving people plenty of information, support and helping to define what is over
and what isn´t.
The Neutral Zone – Same as in the Lewin´s second step of Transition this stage
can become a difficult time for CSOB. In this stage people really need the
“guiding coalition” to show them how to get through the change and put away
all the confusion. It´s a zone of risks, because of feeling of people´s insecurity
and the fact that new arrangements are vulnerable to internal and external
shocks. Fortunately, it is also zone of opportunities as the old system is closed
there is a huge opportunity to identify and realize the change.
The New Beginning – It´s time to implement the change. To succeed in this step
William Bridges recommends the 4P´s: Purpose - the answer to the question of
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the organisation justification 61, Picture – used to illustrate a clear way of the
vision for change, Plan – shows how leaders think about the transition process,
it has to be strictly followed and the Part – to help people feel active leaders
need to involve as many people as possible.
Visibly, in this model, communicating the problem, solution and the process is the
tool used in all 3 steps.
1.27. Bridges´s Management Transition Model
Source: BBRT
At a glance, the third model can seem more complicated and structured. But as a great
leader, Dr. John Kotter says about his 8-step process for leading the change to a
sustainable change and business improvement: “Leaders who successfully transform
businesses do eight things right and they do them in the right order!”.62
He has divided his 8 steps into 3 categories: Initialisation (1.-3. step), Change
programme (4.-7.) and the last 8th step called Evolution. Naturally, he also counts with
the problems that can appear when not fulfilling all steps and named them 7 deadly
sins.
Dr Kotter assumes that the first step that a company should make on its way toward
an adapting and empowered organisation is the “Creation of a sense of urgency”.
Thus, in our case, leader of CSOB shouldn´t underestimate the step of establishing a
sense of urgency and communicate and discuss the case for change with all the
61
62
http://thehypertextual.com/2012/09/19/william-bridges-managing-transitions/
http://www.kotterinternational.com/our-principles/changesteps/changesteps
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employees. What more, if a leader is sure of the right choice of a Beyond Budgeting
method he can get into a collision with the company´s management. Dr. Kotter states
that at least 75% of a company´s management has to agree that the current situation
is unacceptable. With their help leader can build a motivation, involvement and
support between the employees.
Well, the research shows that the first steps are very important as close to 50% of the
companies failed because of their mistakes at the very beginning. 63 As mentioned
before here we can meet with the first of 7 deadly sins. If we don´t establish a sense of
urgency that is great enough it will be really complicated to prevent from the serious
problems later in the process and the management and staff could struggle from
shifting away from their comfort zones.
In our case the sources of urgency are issues with the declining number of loyal
customers, lack of the vision and mission for the future and the fact that the
company´s organisational structure is too complicated and the response in the
company too slow.
When employees and also management of CSOB is convinced that a change is urgent
they need to come move to the second step and “Put together a coalition of people”
to lead a change. It´s a general rule not only in CSOB, that people do follow leaders,
not titles. This is the reason why the Guiding Coalition should consist of people, mainly
from inside of the CSOB, able to create a significant level of trusting environment, put
emphasis on a teamwork and a have shared objective. If a Guiding Coalition isn´t
powerful enough we come to the second of the deadly sins. If the members of the
coalition don´t have enough experience from teamwork in CSOB it undervalue their
performance and importance what leads to similar problems as in first of 7 sins.
We already mentioned that up till now CSOB´s mission was “To provide the clients
with first-class individual approach, advanced technology and complete product
portfolio.” As the third step CSOB would need to create a vision that clearly defines
where they are going. Dr. Kotter states that the good vision of a company is the one
you can communicate with others in five minutes or less and get a reaction that
signifies understanding and interest. If CSOB won´t be able to create a precise vision
they confuse the employees, and the activities they take could go into the wrong
direction and end as the third of the deadly sins.
In the next stages, CSOB needs to concentrate more on the Change programme.
“Communicating the vision” after it has been created has to involve as many people
from CSOB as possible to communicate the core elements of a new mission. As people
63
http://www.kotterinternational.com/our-principles/changesteps/step-1
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in CSOB stated, they don´t like the regular meetings held once or twice a month
because of their length, always repeating facts and unnecessary explanation of obvious
things. What counts for CSOB is the fact that the new vision doesn´t need to be
communicated only at the regular meetings or the special meetings created for this
purpose but can be communicated with the members of a guiding coalition whenever
possible and requested. Again the golden rule says that the people at first look at the
leaders and if they see respect for the new mission from them, they are more disposed
for this change too. If there´s not enough communication, or only single form of
communication is used, the fourth of deadly sins appears.
Creating, understanding and finally accepting the vision is a great success. It allows the
organisation to “Empower the people to act on the vision”. Previous four steps were
dealing with the management and education of people, now it is time to get people
motivated to participate. CSOB´s problem is that people have never been allowed to
make changes, nobody has asked them about their ideas how to lead the company,
they didn´t get the responsibility for creation of new products. The change should
consist of encouraging the risk taking and giving the employees of CSOB ability to offer
new ideas, make own decision and be accountable for their activities. Leader of CSOB
should also encourage them to present their ideas about the new vision of company
and with their help try to get rid of existing obstacles.
If a CSOB Bank wouldn´t be able to remove obstacles to the new vision, they could fall
into the problem with the individuals who still resist the change and also influence
other employees.
Now, assuming that CSOB Bank would implement the Beyond Budgeting model as a
new method we come to the small collision of BB method and Mr. Kotter´s Theory. In
his sixth step he suggests the development of the performance improvements,
measurement systems and rewarding the people that are involved when aims are
achieved. Maintaining commitments to achieve short term goals is a step acceptable
for the Beyond Budgeting Method, but rewarding people with money is considered as
the crucial mistake. Thus in this step we do suggest CSOB to try to motivate people by
other rewards as the financial, but mainly by their passion for the work. Last but one of
the deadly sins is considered as a not systematic planning and creating of short term
wins. Here we assume that if people don´t see fast response of a new vision and
method implemented (short-term wins), they can give up again.
Although, short-term wins could seem that the implementation is successful
companies cannot just let up. If they do so and consider short-term wins as a greatest
success they could achieved they come up to the last of the deadly sins.
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Lasting change, persistence and patience are the key drivers of success for CSOB. They
have to understand that change doesn´t happen within few days, weeks and they need
to keep up with the guiding coalition and keep talking with the employees about the
change.
As Mr.Kotter says: “Cultural change comes last, not first.”, leaders but also
management and employees of CSOB have to be patient and wait for the long-term
wins and also for the cultural change, of which we will talk later.
12.
How to measure a success
Now, assuming that CSOB had chosen the right time and people, found an appropriate
way for implementation and finally implemented the principles of the Beyond
Budgeting we need to find the ways of measuring if it all had been chosen right and if
it ended in the success.
Understandably, the research regarding the success should be done after some time
since the new model had been implemented. On the example of Svenska
Handelsbanken (SHB) we would like to show CSOB, that being successful bank and
measuring the success isn´t that complicated. As already mentioned, in 1970, SHB had
come into the major crisis when profitability of the bank was low and the bank was in
conflict with authorities. One of the results of the crisis was the demission of the
executive director who had been replaced by Jan Wallander, PhD..
Dr. Wallander had claimed he wasn´t very experienced in the banking area before he
became a head of Sundsvallsbanken. Ten years later he said, he had gained a lot
practical business experience and developed many good and innovative ideas about
running a bank with many branches.64 After implementing a number of changes in the
organisation (nowadays called BB principles) he brought the SHB from the aim of being
the largest bank to bank that is the most profitable and best of the commercial banks
in Sweden.
1.28. SHB´s success
64
Source: BBRT
Sweedish Journal, 2008
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As seen in the table 1.xyyz SHB, with over 10 000 happy and satisfied employees who
enjoy their jobs and every day show their passion, belongs among the best employers
in the country. It receives the rating of AA- in the bond rating´s what belongs only to
the banks with the “high credit-quality investments”. Moody´s credit agency had
awarded SHB with the grade of Aa1 and Aa3 in last few years. 65
Looking at the CSOB´s rating from January 2014 we can say that, with the results of A2
and BBB+, it´s rating isn´t that bad but still can be improved. What has to be said is that
rating of the CSOB is fluctuating every time Moody´s or Fitch publishes new ratings.
The reasons of fluctuations are usually explained as the reduced or strengthen ability
of the “parent” company KBC to provide financial help to its “daughter” companies.
Rating
Long-term
Short-term
Moody´s
CSOB
KBC Bank
A2
A3
Prime -1
Prime -2
1.29. CSOB´s rating
CSOB
BBB+
F2
Fitch
KBC Bank
AF1
Source: csob.cz
What SHB put its effort on is not only credit ratings. What is more important for them
is the customer, employee and shareholder´s satisfaction. In the harmony with the BB
principles they assume that “Employees first, customers second. If we have a
motivated employee, he treats the customer well. Happy customer keeps coming back,
which makes shareholders happy.”66
1.30. SHB´s customer satisfaction
Source: Svenskt Kvalitetsindex
65
https://www.moodys.com/research/Moodys-Disclosures-on-Credit-Rating-of-SvenskaHandelsbanken-AB--PR_247220
66
Hope, J. , Bunce, P. , Roosli, F. (2011) The Leader's Dilemma, VIII
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Looking at the SHB´s results over last decades we see that its customer satisfaction is
much higher as the average in the sector.
Unfortunately, the results of the research made in year 201167 especially for the CSOB
do not seem that good. The research had asked about the customer´s satisfaction with
the opening hours of branches, communication with employees, their knowledge
about the products and also the range of offered products. Results of the research
show us that only 35% of the customers are always satisfied with the CSOB´s services,
while over 20% of the respondents said they are mainly not satisfied or totally
dissatisfied.
This is the place CSOB should be focused on more. Naturally, as
mentioned just few lines above and also in the Beyond Budgeting principles we offered
CSOB to choose the right employees and also treat them right, we do expect that the
customer´s satisfaction should rapidly improve in the future.
Age
18-30
31-45
46-62
Sum
n
%
n
%
n
%
N
%
Very satisfied
5
17,86
10
35,7
13 46,43
28
35
Mainly satisfied
7
21,88
15
46,9
10 31,25
32
40
I don´t know
2
13,33
8
53,3
5
33,33
15
18,75
Sometimes
dissatisfied
Always dissatisfied
1
25
2
50
1
25
4
5
0
0
1
100
0
0
1
1,25
Sum
15
18,75
36
45
29 36,25
80
100
Satisfaction
1.31. Satisfaction with employees of CSOB
Source: Lukas Ulbrich, Analysis of clients`
satisfaction in a selected commercial
bank, 2011
As mentioned in the BB principles, we can look at the success of the company from the
internal view and also external view. Up till now, CSOB was mainly looking at its yearly
budget. What from the internal view have seemed as the outperformance (CSOB had
beaten its own budget) could actually be a high underperformance from the market
view (other companies have had much higher and more positive results). The reason of
67
https://is.bivs.cz/th/13925/bisk_b/Lukas_Ulbrich_-_BP.pdf
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this underperformance can be that in comparison with other companies on the market
budget of CSOB was set too low.
To solve this situation and use it as a relevant measure of success CSOB needs not to
beat their own budgets but beat their competition, thus show outperformance from
the market view.
1.32. Outperformance and underperformance
Source: BBRT
Svenska Handelsbanken can be a good example also in this case. In their measures
their do the comparison:


Internally as comparison of:
o Teams to teams
o Branches to branches
o Regions to regions
Externally as comparison of:
o Bank to other banks on the market
1.33. SHB`s adaptive process
Source: BBRT
SHB uses the Return on Equity ratio and also Cost/Income Ratio as the measure of the
performance. As CSOB hasn’t tried to use those comparisons yet, the only information
about performance as RoE and the C/I ratio can be found in its Annual report from
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year 2013 68 . All the information is representation of the internal view as the
comparison of bank´s performance in 2013 and 2012. Results show us quite significant
decline in the C/I ratio, almost 1% increase of the RoE with the last year, what is in line
with development of net profit and also small but still positive rise in the RoA.
Naturally, looking only at those results we cannot how company had performed with
the other companies on the market. In the next annual reports we do seriously suggest
CSOB to analyse their results internally as the comparison of branches to each other,
regions to regions and naturally also from the market view with other banks.
Performance
Cost/Income ratio
ROE
ROA
2013
58,34%
9,56%
1,00%
1.34. CSOB´s Performance in 2012 and 2013
2012
66,82%
8,59%
0,92%
Difference
-8,48%
0,97%
0,08%
Source: CSOB Annual Report
Not forgetting, one or two year´s success cannot be considered as the long-term
success. Thus CSOB still needs to work on the effectiveness (“To do the right things.”)
and also the efficiency (“Do those things right.”). What more, hopefully everybody in
the company understand and leaders of the Beyond Budgeting also claim that every
change is not just a one-step process and thus CSOB should stick to the Kaizen´s 69
philosophy which sees the success only in the continuous change and improvement.
CSOB thus cannot stop now but needs to continue with making great and lasting
change through small, steady increments70 to achieve the sustainable success.
13.
CONCLUSION
CSOB represents a bank that has a good position on the market and is still able to
compete with other banks, but also struggles with the high costs, constantly falling
loyalty of customers and is not able to provide the transparency between the units.
In our last part of the project we would like to summarize the analysis of our problem
statement and its sub-statements.
Analysis of principles of the Beyond Budgeting Management Method showed us the
strengths but also weaknesses of the CSOB. In our report we developed the main
findings and their possible solutions:
68
CSOB´s Annual Report, 2013
http://www.investopedia.com/terms/k/kaizen.asp
70
Ph. D. Rombert Mauer, One step can change your life: The Kaizen way, (2004)
69
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





CSOB is missing clear vision, its employees are not familiar with it and thus also
don´t follow it.
CSOB considers the complexity of products as its biggest advantage. Huge
portfolio causes that uneducated employees are able to offer to the customers
what they have, not what the customer exactly need. Product innovation
should be replaced by the Management innovation that´s not easy to imitate.
CSOB´s values are strictly linked to the KBC´s values, thus CSOB doesn´t have
the power and also as a “daughter” company is not allowed to change its
values
CSOB´s position on the market is considered as good (long tradition since 1964,
4th place among all the banks in SVK) but still is able to receive better ranking in
the Moody´s and Fitch rankings
CSOB´s hierarchy is too complicated, there are many hierarchical levels and
great span of control – information flow is very slow, CSOB is not able to
respond to the changes in market
According to the self-assessment test of BBRT, CSOB´s case for the change is
“compelling” and 82%´s match of the Beyond Budgeting and the CSOB´s vision
provide us with the information that Beyond Budgeting is an efficient solution
for its problems.
We tried to explain CSOB why and how to implement the principles of the Beyond
Budgeting Management Method with the aim of showing them that the problems they
are suffering from now could be solved, or at least reduced. CSOB is now also
familiarized with the possible methods that have been used as an implementation
tools in many, nowadays called, “Beyond Budgeting Companies”.
After analysing all the principles of the Beyond Budgeting, we do support CSOB to
consider the implementation of this management method to continuously improve its
position on the market but also the inter-company relationships.
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14.
LIST OF LITERATURE
Beyond Budgeting: A Paradigm Shift in the Management Model
http://www.symphonia.net/reinventing/Franz%20Roosli%20Presentation.pdf
Basic management models
http://www.healthknowledge.org.uk/public-health-textbook/organisation-management/5cmanagement-change/basic-management-models
The Beyond Budgeting round table
www.bbrt.org
Hope, J., Bunce, P., Roosli, F. (2011)
The Leader's Dilemma: How to Build an Empowered and Adaptive Organization Without
Losing Control
Essentials of Economics, John Sloman, fourth edition
Wiliam G. Nickels, James Mchugh, Susan Mchugh
Understanding Business, 10th Edition
Explanation of the rolling forecast
http://www.cashfocus.com/what-is-rolling-forecast.htm
James O. Mc Kinsey A.M. LL.B, Budgetary Control, New York, 1923
Scandinavian Journal of Management 15 (1999) 405}421
Douglas Mc Gregor, The Human Side of Enterprise, 1960
Personal notes taken during the course “Beyond budgeting”, Basel, Switzerland, autumn
2013
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Stanford, N.(2007): A guide to Organizational Design. Creating high-performing and
adaptable enterprises. The economist/Profile Books. London, UK
Robbins, S.P./Judge T.A. (2008): Organisational Behavior, Pearson Education, 9th international
Edition. Upper Saddle River, NJ
https://academy.sportlyzer.com/wp-content/uploads/2013/03/Self-determinationamotivation-extrinsic-intrinsic-motivation.png
http://www.cam-i.org/wiki/images/c/c1/CompensationFigure.JPG
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15.
Appendices
Appendix no. 1 - Organizational Structure of Slovak CSOB
Source: CSOB Annual Report 2013
Appendix no. 2. – Questionnaire
Dear employee of CSOB Bank,
We would like to ask you to fill this questionnaire regarding the possible implementation of
the Beyond Budgeting Management Model in the Czecho-Slovak Commercial Bank.
Please, state which branch of CSOB you are working for:
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....................................................................
How long have you been working for the CSOB?
o
o
o
o
o
Less than a year
1-2 years
3-5 years
6-10 years
More than 10 years
What is your job function?
o
o
o
o
o
o
o
o
o
o
o
Non- supervisory employee
Supervisor
Teller
Customer advisor
Specialist in investing
Specialist in mortgages
Manager
Administration
IT support
Brand director
Other:………………………..
Overall, how satisfied are you with the company you work for?
o
o
o
o
o
Extremely dissatisfied
Very dissatisfied
Neither satisfied nor dissatisfied
Very satisfied
Extremely satisfied
How do you consider the regular meetings held in your branch?
o
o
o
o
o
Totally useless
Mainly useless
Nor useless nor useful
Quite usefull
Totally usefull
What, in your opinion, is the goal of the regular meetings held in your branch?
…………………………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………
…………………….
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Would you like to improve the regular meetings? If so, how?
o
o
Yes: …………………………………………………………….
No
Do you feel accountable at your post? If so, what makes you feel accountable?
o
o
Yes: …………………………………………………………….
No
Do you feel trusted in your company? If so what makes you feel like this?
o
o
Yes: …………………………………………………………….
No
Would you like to be more empowered at your post (e.g.no need to ask general director for
every approval)?
o
o
Yes
No
How happy/satisfied are you with the actual organisation´s structure?
o
o
o
o
o
Very satisfied
Satisfied
Nor satisfied or dissatisfied
Dissatisfied
Very dissatisfied
How do you consider your manager´s knowledge?
o
o
o
o
o
Extremely educated
Well educated
Not educated nor uneducated
Quite uneducated
Extremely uneducated
How would you rate the ability of your manager to help you, if needed?
o
Extremely helpful
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o
o
o
o
Quite helpful
Not helpful nor unhelpful
Quite unhelpful
Extremely unhelpful
How would you rate your manager´s openness to the new suggestions?
o
o
o
Not opened to new suggestions
Not opened and not declamatory
Opened to new suggestions
How much you feel you live by the company´s ethics?
o
o
o
Very much
Just enough
Less than expected
How well do you believe your manager lives by the company´s ethics?
o
o
o
Very much
Just enough
Less than expected
Do you like teamwork?
o
o
Yes
No
To what extent you consider your branch working as one team?
o
o
o
o
o
0- 20%
21-40%
41-60%
61-80%
81-100%
What suggestions would you make to improve the relationships in the company?
…………………………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………
…………………….
Do you agree that employees are recognised as individuals in CSOB?
o
o
Yes
No
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Would you refer a friend to work in your company? Why?
o
o
Yes…………………………………………………………….
No…………………………………………………………….
Does the company communicate its goals with you? If so, how?
…………………………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………………………
…………………….
How do you feel about changes in your organisational structure? (Possibility to choose more
options)
o
o
o
o
o
o
If any change appears, I will leave the company
I don´t like changes
I need to know exact rules and principles
I like changes
I think we need a change
I think we need a change and I am able to help with it
How would feel about the change of CSOB into the Beyond Budgeting company?
o
o
o
Positive attitude
Neutral attitude
Negative attitude
Thank you very much for participating in this survey.