Understanding Statoil's Ambition-to-Action Process And Beyond Budgeting Principles

What Statoil managers mean by no longer preparing a budget

1. Statoil managers claim that their company no longer prepares a budget. What do they mean by that claim?

2. Why did Statoil decide to abandon budgeting?
3. Describe the new processes that Statoil implemented to replace the budget. What are its strengths and weaknesses?

4. Is the Statoil “Ambition-to-Action” system just a routine implementation of the Beyond Budgeting approach, or does it include some additional features or fail to uphold some of the Beyond Budgeting principles?

5. The “Beyond Budgeting” approach is still relatively rare outside Europe. Why? Is there something about non-European cultures that limits its applicability, or are other companies just slow to catch on to an innovation that has started in Europe?
6. Statoil managers were displeased with the traditional budgeting process that the company formerly used. Why?

7. What are the major differences between a traditional budgeting process and the
Statoil “Ambition-to-Action” process?

According to the claims of managers of the company, Statoil, they do not prepare the budgets of the company anymore. This refers to the fact that the company stopped using the process of annual budgeting and they had introduced the process of “Ambition-to-Ambition”. The company does not follow the process of calendar and they had implemented the process of “event driven dynamic forecasting”. Instead, they plan their processes, strategies and other actions according to their business and operations (Catasús 2013). The aim of the company is to give their performance with their full potential by creating conditions as required by the team. The process of “Ambition-to-Ambition” is the combination of two processes; i.e. “balanced scorecard” and “beyond budgeting”. This strategy of the company is a management process of innovative performances and this helps to translate the overall strategies of the company into the “strategic objectives”, indicators of key performances, “needed actions” and goals of the employees (Kaarbøe et al. 2013). Thus the company aims to build their “strategic planning”, setting of targets, planning of actions and dynamic forecasting according to the need of the business.

There was a lot of problem that the managers faced in the budgeting. The budget was prepared on the basis of the annual report and the strategic changes cannot be made in the budgets. There are three purpose of budgeting process and all the purposes were not same. There was a difference in the purposes of traditional budget (Hope and Fraser 2013). The budget became the barrier for the various activities as the budget was prepared on the basis of the assumptions, those assumptions were wrong. The budget was very time consuming so the managers needs much time to spend on the budgeting process. There were all these problems that the managers started to face so that they cut off the term budget and introduced new strategies such as KPI (key performance indicator) and the Ambition to Action. There was no need to spend a lot of time and money for preparing and reviewing the budget. The main focus of the budget was the access number of the accounting and the financial requirements. Due to all these issues, the managers decided to abandon the budgeting process (Sirkiä and Laanti 2015). The prices of the oil are volatile; the manager forecasted many problems in managing the budget that’s why they decided to abandon the budgeting process.

Reasons for Statoil abandoning the traditional budgeting process

3. Ambition to action is the new process implemented by Statoil for replacing the budget. Ambition to action and the KPI (key performance indicator) are the new process started by Statoil for the replacement of the Budgeting process. Ambition to Action is the process that is implemented to provide the integration from the organizational strategy to the employees’ action (Bognses 2013). KPI is the key performance indicator that is introduced as the off shore platforms.

Ambition to Action is the process of how the managers manage the business and the organization. It is the process implemented for the leadership exercise. It is the term that is used to check the activities of the employees of the business. It is the core process for the business review meetings (Bibb 2016). It is the best tool to provide the integrations the process of strategies with the financial and the operational measurement activities. This is implemented to provide the holistic approach. It is the process that provides the key features to the managers of the company to manage all the actions of the employees at the time of the work. All the ambition Action was displayed together within a single page. There is an example given for the entire corporation. The overall mission of the global organization is shown and a competitive advantage can be taken by using the Ambition to Action.
KPI are used to grow the business rapidly and to make the organization popular. There are five perspectives of the KPI. There are four traditional perspectives of the key performance indicator are known as the traditional balanced scorecard perspectives such as finance , operations, markets people and the organization. The conventional order for the display of the perspectives was different from the standard balanced scorecard. Except keeping the financial perspectives at the top, KPI and ambition to action kept the organization and the employees perspectives at the top o developing the various strategies (Moritsgård 2014). These processes were implemented for providing the secure attention on the performance drivers that are found in the first perspectives. Therefore, in the budgeting, finance was the main focus and was the ultimate consequences that were helpful for the improvement of the perspective actions. The manager of each entity selected the set of the Ambition to Action and the KPI’s that the managers believed that those entities will do the best work for the organization. The managers were known to the various strategic objectives. Theses processes were very helpful for the organization to handle all the process (Catasús 2013).
4. Ambition to Action is a strategy that was developed for providing the integration to the action of the employees from the organizational strategies at the time of the development of the flexibility. There are some basic principles given of the Ambition to Action process.
• The performance is all about the out-performing the peers.
• An ambition to Action is a process that helps the Statoil’ manager to take an appropriate action at the right situation. Ambition to action is the process implemented to take the right decisions.
• It is also helpful for the organization as the resources are made available within the framework (Crompton 2015).
• Ambition to Action enables the business to gain the profit by looking forward and it is the action oriented process.
• The evaluation of the performance is also a holistic strategy of the delivery of the goods and the behavior of the employees.
Ambition to Action is the process that was developed to around the secondary system KPI (key performance indicator) which was designed in the company at 1997. The key features were added to the Ambition to Action process to provide a broader language to describe and evaluate the performance provided by the key features of the Key performance indicator (Nørreklit and Kaarbøe 2013). It is the process that provides various features to the managers to managers to manage the business. Ambition to Action is the better tool than the budgeting that provides the integration of the strategic processes including financial activities.

Strengths and weaknesses of Statoil's Ambition-to-Action process

The concept of “Beyond Budgeting” aims at overcoming the shortcomings of the traditional budget methods. This model helps to increase the adaptability of the enterprises. The concept of “Beyond Budgeting” has twelve principles. The first six principles aim at take the correct actions towards the actions that lead to the change. The next six principles consider the management process along with the leadership actions of the company. This method is popular among the Europe (Bourmistrov and Kaarbøe 2013). This is because the European countries have rich economic resources and they are adaptable to changes in their work process.
The process of “Beyond Budgeting” involves various structures of organizations, “flat hierarchies” and flexibility of “peer to peer” network. The principle of “Beyond Budgeting” do not form fixed target of their performances and the organizations are capable of organization by self and “self regulation”. These organizational structures are creative and rapid. These aims and principles of “Beyond Budgeting” can be followed by the countries of Europe as the Europeans are creative people and they are more adaptive to changes (Shimizu 2015). Non-European people do not prefer changes in their work procedures and they prefer working in fixed target structure. In the method of “Beyond Budgeting”, the allocations are done according to the available recourses of the organizations and not according to the calendar. Various European companies do not favor this structure. This is because they preferred organizational structure and planning of the resources according to the calendar (Heyden et al. 2015). Their work structure is different from the people of Europe. Thus, the concept of “Beyond Budgeting” is not much familiar in Non European countries.
6. • Traditional budgeting process was using in the Statoil organization by the managers. The managers of Statoil are displeased with the rational budgeting due to the various reasons given below.
There are three different purposes of the traditional budget that are forecasting, target setting and the resource allocation. All theses purpose was not affecting the quality of the each purpose individually. The aim of all three purposes was different so the quality of the production was decreasing (Bognses 2013). The forecast purpose became biased due to the same number considered as the target and the application for the resources. The sale target should not same but due to forecasting the sale target started matching.
After prepared the budget became obsolete because of the wrong assumption of the information. The budget was prepared on the basis of thee wrong assumption so it became failed. The manager realizes that the cost of preparing the budget can be spent to doo some other work to get over this failed budgeting problem (Johnsen and Ennals 2016). Due to the lack of the budgeting cost, the managers were not able to add some additional feature to the budget. The budget became centralized that was detailed budget and became the management of those workers that were experienced and highly educated.
• The budget was prepared according to the annual report cycle but the annual cycle. The manager started to spend a lot of budget review that were used to look back to the time and the explaining variances. Not quite efficient for all the operations of Statoil. Some operation were used to evaluate the performance and for the forecasting of operations frequently.
• The budget was prepared by considering that the financial capital is the main aspect of the budget.
• The budget became fail due to the budget was competed with the management tools that worked an illusion for the managers of the organization. The most important work became ignore due to the illusion and the budget became fails, that’s why the manager of the company became unpleased with the traditional budget.
7. Ambition to Action is the better tool than the budgeting that for proving the integration of the strategic processes including the measurement and financial activities and the employees activities. The difference between Ambition to Action and traditional budgeting process are given here:
Ambition to Action Traditional Budgeting Process
Ambition to Action provides the business a look forward strategy. Tradition budget does not provide the look forward strategy to Statoil.
It is a action oriented process that includes previous and current actions. It prepared on the basis of the annual report and it is not action oriented.
Ambition to Action provides the holistic approach to the management. It does not provide the holistic approach to the management as it focuses on the narrow financial process and the accounting numbers were different from our business.
The oil prices are very volatile so the strategies can implement out of the Ambition to Action. The strategies cannot be read out of the budget.
Ambition to Action is not a narrow accounting process. It is an arrow finance focusing process.
The main focus of the Ambition to Action is to improve the performance. The main focus of the traditional budgeting was on the accounting and the financial position of the organization.

Difference between Ambition to Action and Traditional Budgeting
There are lot of differences between the traditional budgeting and the Ambition to Action. The process of Ambition to Action means that to improve the function and the activities done by the employees while implementing any strategy for preparing the budget and various other strategies (Heinzelmann 2015). The traditional budgeting was a budget that is implemented for providing the various purposes such as performance target setting, forecasting and the resource allocation. There was a gap among all the purposes of the traditional budgeting.

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