In order to address complexity, organizations do not need one monolithic theory. They do not need a framework. Instead, they need coherent, shared language and imagery. And a system of systems concept that everyone in the organization must acquire, and integrate, through learning.
Consequently, it is crucial to Beta that it is not based on rules, but on principles. Unlike other organizational concepts, the BetaCodex is neither a tool, nor is it a one-size-fits-all solution. It is a system of systems concept, and a way of thinking & acting.
Principles vs. rules: They are not the same
The difference between rules and principles is that for setting up rules, you need to analyze every possible situation before formulating it. Rules are based on an “if-this-happens-do-that” logic. Whenever an unknown situation occurs, however, rules fail. They just do not support you in finding good solutions to never-before-thought-of problems, as they occur regularly in our everyday work lives and businesses.
Principles, by contrast, do not just apply to known problems. You do not need to be aware of all possible situations. You apply them within whatever situation as it occurs. Principles are like guidelines that help you test whether your actions are aligned with your beliefs and values, or not. If not, you have to search for another way to solve the problem. Understanding this difference, you are able to adopt BetaCodex principles (or “laws”) to your firm or to situations you encounter at your work – anywhere, at all times.
Still, we have learned that it needs some practice to understand the combination of the principles of the BetaCodex. This is because the model is based on a set of 12 coherent, and interdependent principles. Thus, only applying the full set of principles will reward your organizations with the superior results the codex offers.
The 12 laws of the codex articulate a coherent new leadership model that is opposed to the command-and-control management model which thought leaders like Frederick Taylor, Henri Fayol, Alfred Sloan, or Henry Ford developed about 100 years ago.
The principles of the model are not a salad bar to choose from! Only by applying the full set of the 12 principles, organizations are rewarded with the superior performance the model has to offer. Lennart Franke, CFO of Svenska Handelsbanken, was often asked, if the Handelsbanken model, today known as the Beyond Budgeting model, could be applied partly, in bits and pieces, and he replied: “Imagine Great Britain would change from left-side traffic flow to right-side traffic as practiced on the European continent. And imagine that we then say: “Ok, but to us English that appears too radical and too complex to be done in a rush. Let us therefore start next week with the busses and the trucks only.” It is just the same with Beyond Budgeting.”
The 12 laws of the codex
Since 1998, the Beyond Budgeting Round Table, and then the BetaCodex Network, have drawn upon case study-based research to conclude that companies with a contemporary view of human nature don’t control them with plans and fixed targets, but that they aim for “relative” performance contracts with them instead. Early on, the BBRT concluded that there had to be a set of 12 central principles of the organization model based on “relative performance contracts”, contrasted against the assumptions of fixed performance contracts..
Relative performance contracts are based on the assumption that it is unwise to set fixed targets for managers and teams and then to control their behavior and activities in terms of these targets. The implicit agreement is that management’s task is to provide a challenging and open work climate within which employees agree to aim for continuous performance improvements. Managers and employees must use their knowledge and their own common sense to adapt to changing conditions and environments.
Under this performance contract, decisions are not made at the top. Instead, they are distributed, decentralized, and devolved as far out as possible. This type of performance contract is based on mutual trust. Increased transparency and higher expectations (compared to competitors or their equivalent)provide a permanent challenge, which either has to be matched to or whose failure will lead to equally transparent negative consequences. Responsibility for performance and decision-making are gradually shifted away from the center of the organization towards the periphery.
The BetaCodex: a mindset and a mental discipline
The BetaCodex suggests another way of looking at performance, success, and an organization´s reason of being. If you ask yourself why your organization does not deliver the performance you might expect. If you ask yourself why performance does not improve. Or why people in your organization seem demotivated. Well, then, the BetaCodex suggests, you should ask for the causes not by assigning blame, but by identifying the systemic problems in the organization itself.
Systems theorist W. Edwards Deming one stated that about 95% of all problems within organizations are caused by the system, and only 5% by humans within the system. He had a point.
To describe the new breed of post-taylorist 21st century organization, which we call “BetaCodex” organizations, these expressions fit well:
- decentralized, or “devolved”
From Beyond Budgeting to the BetaCodex
The notion of the BetaCodex, or “the Beyond Budgeting model” relates to 12 laws, or principles. In this way, the BetaCodex is a “mind set” that results in putting an end to taylorist and hierarchical command-and-control and to shift the overall organization to total market-pull. In this sense, the entire organization is “managed” by market-pull. Traditional “management” and “governance” become obsolete. If they exist, they are counterproductive, lead to waste and can even harm the organization.
We have learned, over the years between 1998 and 2007, that the term Beyond Budgeting often led to confusion. We have seen many academics and even “experts” fall prey to the idea that a concept named like that must be somehow related to “planning”, or finance management, for example.
The term “Budgeting” in Beyond Budgeting, in our views, merely hinted at the starting point that the movement parted from. Many other starting points would have been possible. The transformation proposed by the Beyond Budgeting model and movement could always have been described through the Peter Drucker phrase that “90% of what we call management are actually practices that keep back people from doing their work.”
The challenge is to abolish those 90% and get the other 10% of management practices, or better: leadership practices right.
Although “Beyond Budgeting” thus never was at all conceived as a controlling or finance concept, unfortunately, even publications from acknowledged management experts proved that the term Beyond Budgeting was quite often wrongly understood. Therefore, we re-baptized the Beyond Budgeting model as “The BetaCodex”, finally, in 2009.
Foundations of the BetaCodex
The main driver of the rising of the new organizational model that we call the BetaCodex (formerly: the Beyond Budgeting model) is today´s ever-changing world:
Today´s dynamics and uncertainty defy industrial-age wisdom of “management” and organizational design.
The 100-year old notions of managing do not support today´s critical success factors (which are more varied and different than in the industrial age) and the command-and-control management model.
The BetaCodex itself is supported by two pillars. First, by sciences and thought leaders from fields as varied as complexity theories and HR management. Second, it is supported by practice – through pioneering organizations of varying history, size, cultural background, and from vastly different industries. The case for change is so compelling today, because now, both theory from different sciences, and practice from pioneering organizations which are leaders in their respective fields, come together – and in one, robust organizational theory, that is the BetaCodex.