Beyond budgeting

Before his famous book Organize for Complexitypublished in 2014, researcher Niels Pfaelging wrote his first book in 2003, laying the foundations for the agile management approach he would later develop. This book, Beyond Budgetinggives him the opportunity to apply his thinking to a fundamental element in the way companies operate: budget management, in other words, their ability to project themselves into the future.

Forecasting results, anticipating expenses, setting objectives... All these historic management principles, he believes, need to be rethought to give the company the agility imposed by an increasingly dynamic market.

Niels Pfaelging's central thesis is based on the almost instantaneous obsolescence of any fixed projection system. As soon as they are established, these projections prove to be outdated in the face of unforeseen developments in the global market. The control over the future offered by the series of forecasts drawn up each year by companies is illusory. The future will always remain unpredictable, and for this reason, the author advocates the systematic establishment of relative rather than fixed targets.

For example, setting relative target performance ratios, proportional to the market average, is infinitely more relevant than projecting precise ratios. The latter do not allow the company to position itself in its competitive environment. A company could, in fact, far exceed the fixed targets it has set itself, while achieving results well below those of its competitors. The evaluation of the company's performance would then be distorted. Each of an organization's performance indicators must therefore be assessed in relation to the benchmarks to which it may be linked.

But beyond the ineffectiveness of studying a company's performance in purely absolute terms, Niels Pfaelging points to another pitfall of these rigid projection systems. In his view, the rigidity and inflexibility of these systems seriously stifle initiative within the company. Judged and monitored more on their results than on their efforts, employees subject to such objectives act solely on the basis of these results, without giving themselves the freedom to think about how to achieve them.

Niels Pfaelging thus bases his thesis on the fundamental idea that the key to a company's success lies not in its (always illusory) ability to predict the future, but in its ability to organize its operations in such a way as to prosper in all possible future configurations. Finally, the author sums up his thinking as follows: good forecasts have never guaranteed good results - contrary to what we tend to believe. Only good preparation guarantees good performance.