 Welcome to the Adyal People Freakercast. We talk about how to navigate with agility in our organisations. So we think you're the expert. Is that what you meant by expert? It's been a long time since. Well, don't get me wrong. The majority of my career has still been in finance. It's just that I chose not to just be an accountant. Unfortunately, my wife is an accountant. So I vicariously live, still live that accounting thing through her. Because she has one thing, she has period then, she has year then. She has the auditors coming. All those things that are scary to an accountant, there was milestones of inefficiency. And it just makes my heart weep when I listen to her talk about the same. So if I think I was an accountant 25 years ago and I'm thinking, why are you still doing this? Seriously, seriously. So she goes, oh, shut up. I know you don't want to be an accountant. I was like, no, there's good reason as well. It's interesting because you remember from the podcast with Richard, they explained the history of the budget, which I thought was interesting because it's really the same. We try to improve traditional thinking instead of thinking new, which is the same in management and leadership. No, absolutely. And they do the same thing in budgeting as they do in leadership as well. They think putting the tools in place that makes the budget look nice and shiny and whatever, but still follow the same practice of how they compile it. After the call, I tried to get my wife to see a different, but she was firm on the traditions of budget setting. I was like, okay. You have no idea how sometimes the smallest thing, particularly around finance is not the most sex of subjects in its own right, but the fighting that can go with it because people are so held onto those traditional values. This is the exasperation for yourself, Pia Maria, is that you found that in HR, and it's just so debilitating watching people just firmly grasp onto this. It's 500 years of history that we must maintain. They're like, okay, just take five minutes to think you could do something different and better. But the thing is that humans are very good at adding on things to problems. So we've solved problems by adding something new, don't remove things. So when we think something needs to be, that's sort of the human behavior. I think I guess that 90% of all humans are behaving that way most of the time. Of course, we can all do it in some small things, but especially the things that we feel very strongly for, maybe it's harder to actually remove things. You need, as you said, invest some brain capacity or time to actually see and do those things if you want to really change something. I guess you need to see that better alternative, don't you? Have it's something to place it because otherwise if you take that one thing away from them and they've got nothing else, then they're immediately feeling, well, I feel now worthless. I feel my jobs are at risk. I feel that my whole being is being exposed because when I sort of flipped to become a consultant, I was still going into sort of finance organizations or finance teams and they would still be there with these like coffee stand dog ear instructions of how to do something. Nine times out of ten, they couldn't tell you what it was that they were doing and why they were doing it. It was just, it was given to them and they just followed it blindly. I used to say to them, now I could say this without risk and stuff like that. I'd say, listen, see this month end, don't do that. Don't do that. See who screams after you don't do it. And then next month, you know you could correct it. Nobody was brave enough to do it, but I thought, you know what? You continue doing something that you've got no understanding of what it is that you're doing. I did that one. I was working. It was HR though, but it was reporting. It was 120,000 employees around the globe and then I stopped sending some reports. I didn't notice for several months, but when they noticed, they checked every month. We just took a change in that. Maybe you were sidetracking from the subject, but it's behavioral change. In a company, it was 200 employees or something like that. It's not very big, but we decided to cancel, remove all meetings, cross teams and cross just to see which one hurt not having. So we made that we continue that for four weeks or something. And then people started to feel that things are hurting. We want this one back or we want this part of this meeting back. And it was sort of a rebirth of what was good and removal of what was bad. Sometimes you have to shock the change, don't you? You know, sometimes the gently, gently approaches doesn't have the legs. Sometimes you just have to shock it and disrupt completely. My last company, which was a big investment company. I did write this case, which I called the case for positive disruption in finance. Everybody liked the idea and they were like, yeah, go ahead David, you do it. We'll follow behind you and stuff like that. I was like, no, no, I kind of need you to kind of come alongside me. And it's funny, this company and they're a big organization. And they categorically told me that, oh, David, we're not. We're a big traditional organization. You know, even five years ago, we operated like Gordon Gekko, you know, and Wall Street and stuff like that, where the guys would still have the red braces and the striped shirts and the slick back hair and all this. You know, the real bully boys. It was a real boys club and stuff. And it's like, all right, OK, so. And they weren't, they weren't, oh, coming to Agile. That's, that's just, we're nowhere near that. And it's, and I thought, yeah, you're not that. But we, in terms of my team, they practiced Agile. And they were like, David, you can do Scrum Master. And I'm like, well, I can. Let's not say I'm going to do it. But oh, could you do a retrospective for us? They're like, yeah, no problem. We can do that. I said, where was the last thing you did the retrospective? And eight months ago, I was like, OK, you're not Agile, really. Seriously. You can't even do that. And so the funny thing is when I got. So I joined Helge's Book Club the other week there. And you know the age of Agile with them? Yeah. Sorry, what's his name? Stephen Denning. Stephen, Stephen Denning. So many books to read. I can't remember. I know that you know them all personally, but you know. So I was reading that. And it started off in the early chapter and says, the two most agile organization in the world is this. They're like, no, they're not. They really are not because one of them is the one I was at. Yeah, like not a chance that you even consider yourself agile. Even you admit yourself, you're not Agile. And then another one that Helge brought up was Barclays Bank. Now Barclays Bank used to be my business account for my company. And and again, you know, the device that you know, the device that you have online that you can go and check your account. It's a little calculator thing. I had that around somewhere. And then it took them eight weeks for them. Sorry, it took them a year and eight weeks for them to get me a new one that worked. So let us have a look a bit on the subject today. Yes, yes, sorry. I don't want to stop you because we had we had good things. But today's subject, it's about the drawbacks of having overly specific financial objectives. And sometimes it might be good. We prepared ourselves before this week. And we talked about McDonald's and in that production line, maybe it's really good to have quite specific financial objectives. My experience experience from working in it where you have operational cost and you have development costs. And sometimes someone says from far, far away. Yeah, we have too much operational cost. We need to lower the operational cost, but they are not looking into the actual reality of that product that is living. It might be that there's a lot of technical depth connected to that product. And therefore we have a lot of operational cost. We cannot just remove or lower the operational cost by just cutting the budget. Because what happened in that situation, people just started to time report in a different way and they continue to do the work that brought the most value to the product. But it was really important to lower that cost and they got it. But it was a bit too specific and it was too far away from the reality. I mean, what you want is the most bang for the buck, right? Of course. It's not definitely lowering cost, but maybe you should increase cost and then you will get more bang for the buck. Who knows? Maybe you start creating so much value that you become so profitable that it doesn't matter what your cost is. You need to try it. Well, I guess it's about optimizing the cost itself though. There is an awful lot of duplication and wasted effort that goes into the spending of things. So as you cost a product or materials and stuff like that, it's about looking at that and saying, listen, the cost bit is we can't change that. What we need to do is make that cost more efficient than the way that we handle it. You get into the whole kind of just in time in terms of material handling. You get into looking at the sort of value stream in terms of the efforts that go into managing that spend, the time involved, who does it labour, how many hands does it go through, how many texts does it need to go through as well. So it's about looking at that. And you know, an awful lot of companies will sort of look to address that. But again, it comes down to, you know, if you start trying to shave off departments of eyes looking at it and approval levels and all this sort of stuff, then, you know, again, people feel their jobs at risk or their capabilities being lessened and stuff. So but it's ultimately, you know, if you paint the pictures about optimizing cost, then and particularly in public sector organisations where it's very key on because it's the public parts that you're spending for, you know, very noticeable services, you know, social care, housing, et cetera, et cetera. Yeah, but you can flip it equally on private sector and financial services that as much as they are more revenue generated. Yeah, I mean, optimizing cost is always a good thing as well. Yeah, but a very good way of optimizing costs is to remove managers, right? Because everybody will get their salaries are actually maybe the biggest cost of any business. And that's what they need this morning start, right? Because they removed all the managers and then everybody could have more salary of everybody who was actually creating that value because managers so much value, not kind of the most value creating unit of a company. And their argument is always that if you remove that layer, then you know that you increase the risk. But yeah, obviously a company like Morningstar works better effectively and dispels that rumor. So maybe it is about trying to get all the larger type organisations to jump at this, you know, maybe the medium ones that are the sort of key ones that prove that this can work, you know. Martin, you did some research before today's speaker about things that could happen in an organisation if you are overly specific on the financial targets. So what did you find there? I always go back to Kevin and Evan when I'm thinking about anything. That's my looking at this. That's how I understand the world. And I think if you're overly specific in your financial objectives, you are creating hard constraints to any organisation. You sort of make the impact of not reaching these objectives catastrophical, more or less, they break in such a hard way. So it's hard for things, people to not trying to reach them. And then people, I think people start to gain them in different ways. So I think that is a big risk if you make them overly specific. People start to gain them, start to try to find ways to approach them. Which is, yeah, makes you very short-sighted. It nourishes the short-term behaviours and bad behaviours as well. Competition and brown nosing and politics and all these bad behaviours that we see in organisations. Because everybody needs to reach that specific detailed target that they have set to get their reward and so on. But now we're going to the performance management part. But it's very connected. Especially to managers, the financial goals are usually connected to performance goals for a manager. I have seen several times that managers tend to do counterproductive things just to fulfil their financial goals. And with that, their performance goals. Because they are measured on it. So if they fulfil the budget, then they will get more bonus end of the year. More or less. It's good. Good things. I have exercises where we can try. If you follow this checklist, people are very good at following checklists. Because it's easy. You start to do that and then you stop to think. Because there's a checklist of things you need to do. Overly specific things. It feels like a checklist, I think. So if I reach this, then I'm done. I don't have the possibility to reflect and think about things. I'm just doing stuff. And finance people like that. They like the order of things. But the problem I see that, Martin, is that people go down the checklist and just tick it off as they perform it. And what the bit that they miss doing is the holistic view of, so what is the overall impact of me doing this? That's kind of me mechanically going through these steps. And hey, that feels like a win. But if I think about my budget setting days, we would do the whole scientific thing going down the list of, you know, here's the cost, here's the revenues, here's, you know, individual and departmental costs, et cetera, et cetera. And so you do the scientific of applying, you know, 10% here, 5% uplift here, et cetera, et cetera. And you've got various tools that allow you to do that much more quickly these days. But what generally managers will do, you hand it back to him and say, oh, actually, that looks too high or that looks too low. And just without rhyme or reason or appearing rhyme or reason, he will say, can you change that? Can you add 100,000 to that and go, why? Because the way that he looks at it, because he's not involved in the mechanics of compiling it, he just wants to see that his bottom line looks good. Because as you mentioned there, Daniel, his budget, sort of his performance and bonus is measured on that, you know, and that alone. And so there's, so you as the person compiling the budget, no holistic view, the guy who is going to sign off the budget, no holistic view. And so everybody has these little carvings of their view of the world. And it's, and as you mentioned, it starts to create some un-sabery behaviours, shall we say, ethical fading and all that sort of stuff, you know. And that combined with the budget setting process is always done very rushed at a period when you'd much rather be doing, or sorry, you need to be doing something else. So that year-end closing, you know, the corporate reporting, your sort of, you know, wider regulatory type reporting capability as well. This is all kind of all mismatched together. And from when you look at all the finance stuff, they're all stressed out trying to compile that. Yeah, and always at the end, or it starts in August somewhere, September, and you need to set the budget for the next year. And there's a lot of rush and everyone is just, yeah, we need to just fix the budget. But you just set everything and you need to, everything needs to be in place and then everyone after needs to clear it and blah, blah, blah. There are so many steps just because we are approaching a new year. You're an important person. And that's why they keep this ritual because, yes, we are doing the rain dance. It doesn't make it rain, but you know, it feels good to do it. Yeah, you have to be sin-free then, absolutely. Yeah, that's a ritual that makes people important. But you had an example there, Pia, I mean, I think about the fishermen and the fiscal year and the challenge is that. Yeah, because then there was the fishermen and the accountant. This is a story from Jack the Boothman. And the fisherman says, yeah, I'm telling the accountant, yeah, I'm fishing for five months and then I have five months off. What is the accountant's question then to the fisherman? It's what do you do the rest of the two months that's left of this year? And because this is a rhythm of his fishing is five months. It's not a full year, but many times you focus just on a calendar year. But why do we focus on a calendar year? I mean, the business rhythm has nothing to do with the accounting as such. It's two separate things really. So every business has its rhythm and it's not always the same as a calendar year. We don't need it to be a calendar year either. You have the HR wheel, same thing. It's a calendar year. You do this, but this time of year, that time of year and so on and so on. But why should we do it as often as we can or want to or find peace of mind instead of just following a kind of predetermined structure of the HR wheel? Yeah. So we're governed by the wrong things in this case. The annual thing that because there is a law and the legal aspect to it that you need to close the books and so on every year. We sort of set that we should do it and it's hard for us to step away and remove behaviors that we have already set. We can add things on top of it, but we don't, we are not good at removing behaviors. No. Thank you. Sorry, thank you. I just want to say that it's good that we turn it around a bit because you started now PMIA. We at the people we have understood that both HR and finance are too big enablers for an agile organization. We need to have them on board. We have a training today. It will be launched this month. And it's about agile finance. So it's created by agile people and beyond budgeting. So since we already started, I would like to use the last minutes to talk about what is that beyond budgeting then is saying. And how can we connect that to today's subject about financial objectives? So the first thing is to break the link between annual budgets, fixed performance targets and bonuses and rewards. Break that link so that we don't link people's targets to the budgets and to rewards because then people would just try to reach the targets because they get the reward not because they really want to go in that direction or stretch themselves. And then there are also three purposes of the budget. It's the target setting and that is maybe what we would like to happen. And this is usually what you use as your budget figure what you would like to happen. But then you need also to make a forecast regarding what you think will happen. And these are two different numbers. And then there is the third number that you need to keep separate from the previous two is the resource allocation. It should be dynamic instead of decided in advance because there may be things turning up in the middle of the year that we didn't see coming. When we live in this complex reality that is changing all the time, we need to all the time be on the outlook for new possibilities and new benefits that could serve us instead of being tied by a fixed annual budget. So instead open the bank the whole year instead of having it just open in the autumn when you do the budget. That's some of the things that we're learning in this training and a lot of exercises of course discussions. That's really interesting. And I think Daniel made the point there. HR and finance are in that position of being able to be the key enablers. And I think maybe a half step that needs to happen there then that HR and finance need to find some way of joining forces. Because you know this and I know this is that these guys very rarely speak to each other and if they do it's never really on the same terms. And so the kind of if it has to be a joint force and I'm not saying that it has to be, but if it's if it's a way of moving things forward. Yeah, maybe joining forces would be at least a good thing or at least allies. Yes. I'm looking forward to the training actually. Yeah. Yeah. Are you going to join us? I'm hoping to pay my yes I have not signed up just yet, but I'm. Yeah. But yeah, I'm hoping. I went on. Has it been finalised in terms of location and stuff like that? Yeah. Okay. So with that, let's end today's Fika and thank you for attending.