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The new New Economy Analyst Report – Febr 24, 2003

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©2003 Juergen Daum. All rights reserved.




Interview with Lennart Francke: Managing without budgets at Svenska Handelsbanken

News categories: Enterprise and business strategy, Finance and accounting, Performance management and controlling


An early pioneer and user of a “Beyond Budgeting management concept is Svenska Handelsbanken. Svenska Handelsbanken, a Swedish retail bank with branches all over Northern Europe and in Great Britain, has had no budgets since 1970. Nevertheless, it is one of the most successful banks in Europe and has outperformed all Scandinavian competitors with regard to a bank’s most important performance measures such as return-on-equity, cost-to-income ratio and customer satisfaction  – and this consistently over 30 years. Lennart Francke1 (see picture) Executive Vice President und head of the Group Control & Accounting department of Svenska Handelsbanken explains in this interview with Juergen H. Daum2, how they manage and control the Handelsbanken Group without budgets. 

This interview is an extract of the interview with Lennart Francke in Juergen H. Daum’s forthcoming book about „Beyond Budgeting“ and performance management . This shortened version has been published in German in the magazine "Controlling & Management / krp kostenrechungspraxis" in May 2003.    

(visit also J.D.'s Beyond Budgeting Info Center - New!)    

Juergen Daum: Mr. Francke, are you not afraid to loose control of the business without any budget?

Lennart Francke: Keeping tight control of the economic development of the whole Handelsbanken group is absolutely necessary of course. And I would say even more necessary in a decentralized and devolved organization like ours. Thus, part of this devolved organization concept is that all units are defined as profit centers. This includes 560 branch offices, the regional head offices and the staff departments at central headquarters. And we have one common accounting system for the whole group. It allows us to account for the revenues and costs of all profit centers of the entire organization. If you have such an accounting and management information system in place, you don’t need a budgeting system for keeping control.

Juergen Daum: What was the reason why Dr. Jan Wallander, the architect of the Handelsbanken management model back in the early 1970’s, abandoned budgeting at Handelsbanken? 

Lennart Francke: Abandoning the budgeting process was only one of a number of things what Mr. Wallander did, when he had taken over the position as CEO of the bank. It was one part of the whole concept under which he changed completely the strategy and the organization of this bank. It was very centralized before and he now decentralized the organization. Before, it had been very much run through a product marketing concept and he changed that in a truly customer driven marketing concept – which was revolutionary at that time. And Mr. Wallander from both his positions and experiences as the former CEO of a smaller provincial bank in Sweden and as an academic in social science, who had been working with a forecasting institution connected with the Swedish industry, he had come to the conclusion that it is impossible to forecast what will happen in a complex commercial market. So, he said, it is much better not to forecast.  He was convinced, that it is much better to manage a business according to what really happens, instead of always looking on a fictitious budget, which was set up many months before. If you have a budget, you tend not to see what happens in reality and not to be as flexible as if you don’t have such a detailed plan. He considered the budgeting process as an unproductive negotiation process. They negotiate a budget figure that they know they would be able to over perform. The outcome won’t be their best guess. It’s something artificial, which has in most cases nothing to do with market and business reality. Therefore he said, a budget is totally unnecessary; he even called it “an unnecessary evil”.

Juergen Daum: But how do you ensure consistency and coordinate the activities in a larger organization like Handelsbanken without a budgeting system? I think just to rely on the accounting system won’t be enough.

Lennart Francke: The most important mean for us to keep consistency in the business and of the activities in the organization is to maintain a very strict and well established corporate culture, so that all the employees of this bank all the time know, what the general goals for our activities are. And we have this corporate culture written down in a brochure called “Our Way”. It describes our corporate goals, the most most important of which is always to maintain a return on equity that exceeds the average return on equity of our peer banks in the Nordic area. Part of this corporate culture is also the decentralized organization. It starts with the account managers, who belong all to local branch offices and who are responsible for the total business relationship with their customers. The local branch manager is in charge of all marketing activities. He may structure his marketing activities the way he feels would be the best in his local market according to what kind of customers he has. We measure customer profitability rather than product profitability. Our product managers do not have the mandate to impose sales targets on the branch office network. It’s always up to the local branch manager to decide what products his customers really need to buy.

Juergen Daum: And what are the other elements of the Handelsbanken beyond budgeting management model?

Lennart Francke: The second element is the way, how we evaluate and measure performance. We evaluate the performance of the profit centers in the bank in relative terms. We do not compare actual results with a budget, a fixed plan, or an absolute target. We always compare the actuals of one unit with the actuals of other comparable units. So we do a lot of internal and external benchmarking as part of our performance evaluation process. Especially internal benchmarking is playing a key role when it comes to the very important branch office network that we have.

Juergen Daum: Why?

Lennart Francke: In our bank the branch office network is far more important than in most other banks of the same size. This is because we rely so much on the account responsibility, the local market responsibility and the profit center responsibility that the branch manager has. We devolve so much of the total result of the bank to our branch offices. They really account for the total group result that is generated in their local market. Therefore it is very important for us to be able to compare different branch offices among themselves in the bank. Unfortuneately, there are no data available for us to be able to compare our branch offices with the branch offices of other banks. But external benchmarking is playing an important role in evaluating the performance of the central part of the organization, like of group staff departments such as legal services, which we compare with external lawyers. We check if the legal department is able to cover their costs by charging market prices. So the third element of our management system is, that we have an internal market for internal services. When we have to make a decision, as to how many internal lawyers should there be in our internal group legal department, the answer to that question is: as many lawyers as the rest of the organization wants to buy the services from. So the legal department has to sell its services at or lower than market price to the different parts of the organization that need them. The goal for them is to cover their cost by charging the negotiated internal price.  

Juergen Daum: How do the senior executives manage the bank? How is the management process organized?

Lennart Francke: The 25 most senior managers meet every month for an informal review meeting, before which every participant receives a bunch of relevant figures showing how business volumes, market shares and the like have developed during the past month.  Then they start a discussion without any formal agenda. The intention is to find out together, what the actual situation of the bank is and what should be done in order to react, for instance to changes in the market place. The result is afterwards communicated to all branch managers. These recommendations from the senior executive team and the CEO should focus their attention on issues, which might be overlooked in the day-to-day business of their branch office, but which are important from the perspective of the bank as a whole. But they are still in charge to decide, what has to be done in their branch and their local market. Only if certain branch office key figures are moving out of a certain agreed bandwidth, then someone is asking the branch managers about what’s going on and if they need help or support.

Juergen Daum: How does Handelsbanken manage and measure performance on the various levels of the bank?  

Lennart Francke: As I said, the group target is to continue to maintain a higher return on equity than the average of peer banks. Consequently,  the target for each regional bank is to strive to reach a higher return on capital employed than the other regional banks. That means that we allocate capital to the regional bank and also to some of the joint group units like Handelsbanken Markets, Handelsbanken Asset Management and some of the subsidiaries like Handelsbanken Finance and then we measure their return on capital employed. But on the branch office level we do not allocate capital and do not measure return on equity. Instead, we charge capital costs to the branch office. Then we measure the revenues and the costs they generate. And part of that cost are the cost of capital. So the most important key ratio on the branch office is the cost-to-income ratio. We know for all 560 branch offices what cost-to-income ratio they have, for each one of them. And that’s the way we compare branch offices among themselves. When a branch office has a significantly higher cost-to-income ratio than peer branch offices, then the relevant regional bank head office says, this branch office does not perform well enough. And that’s when regional bank manager has to ask himself: what is wrong with the way this branch manager manages his business? Could we support the branch manager in some way so that he would be able to perform better? Or,  ultimately, should we change branch manager? That’s the way we measure and manage performance. Every month we compare the performance of a branch manager with the performance of other branch mangers – not with a budget of course. 

Juergen Daum: Today most companies still do budgeting. What is the major challenge for a company that wants to move to a management system “beyond budgeting” as Handelsbanken did?

Lennart Francke: In our bank managing without any budget worked from the beginning. We didn’t miss it even the first year, because the new way of measuring true performance and to benchmark was so much better compared to how we did it before. So I think in general, the process of abandoning the budget is a very simple and an easy one. You just have to dare to take the decision. But I think there is one major challenge. And that is that you have to rely on people to be able to run a devolved organization. So the difficult thing is probably really to devolve an organization and to say to yourself – being top management – that if we have good people out there and they know what the company’s corporate goal is and they have the tools to be able to do good business and they know we will measure their performance in a realistic way comparing them to peers, then they will do a good job. And having that decentralized, devolved profit center organization you certainly don’t need a budget. So the major challenge in the process is to enable the organization to work on a trust basis. And people have to know what the corporate goals are and they have to know what they have to do.  


Juergen Daum: Mr. Francke, thank you very much for this very interesting interview.


1 Lennart Francke gained an MBA from the Stockholm School of Economics in 1972 and studied at Harvard Business School in 1988 on the Programme for the Management Development. He has been employed at Handelsbanken for over 20 years whre he has held a number of key positions including 4 years as Foreign manager and member of the management group of the Regional Bank Eastern Sweden; Head of the local branch office Gustav Adolfs Torg, Stockholm; Deputy Head of Corporate Finance, Handelsbanken Investment Banking; Area manager and member of the management group for the Regional Bank Southern Sweden; Deputy Head of Central Credit Department; Executive Vice President and Head of Central Credit Department; annd, since 2001, Executive Vice President and Head of Central Control and Accounting Department.

2  Juergen H. Daum is an internationally recognized expert, author, speaker and consultant in enterprise management. As senior business consultant at SAP AG he is advising enterprises and business managers in: strategy management, organizational design, value innovation (marketing driven product development), financial and management accounting, controlling and enterprise performance management, management information systems and IT management. He was working with the Beyond Budgeting Round Table since a couple of years and he is actually helping several companies to move to a management approach "beyond budgeting" and to redesign their enterprise management concepts, processes and systems accordingly. He is frequently publishing and speaking about Beyond Budgeting and other enterprise management topics and he is the author of the book "Intangible Assets and Value Creation" (contact:, website:




“Fixed budgets don’t work today. A budget is a too static instrument and locks managers into the past - into something they thought last year that it was right. To be effective in a global economy with rapidly shifting market conditions and quick and nimble competitors, organization have to be able to adapt constantly their priorities and have to put their resources where they can create most value for customers and shareholders. In order to do that, they need the right concepts, management processes and tools – concepts such as the Beyond Budgeting Management Model. The introduction of new management instruments such as the Balanced Scorecard, which help to better align the entire organization with corporate strategic objectives and to focus it on the essentials, has created the right foundation. Because if corporate strategy and the objectives are clear for all people in an organization, one can principally react faster to changing market conditions.  But then the fixed budget comes into their way and prevents them from really doing the right things. Though what is often missing is a more flexible operational planning and control model. The Beyond Budgeting model wants to fill exactly this gap.”   
                                                 Juergen H. Daum

New! - visit J.H.D.'s Beyond Budgeting Info Center 
- including latest BB insight materials, interviews with BB pioneers etc. - here an extract:

| J.D.'s insight article "Beyond Budgeting" | Interview with Lennart Francke, CFO of Svenska Handelsbanken | Panel Discussion with Borealis, Nestlé, and Unilever | Interview with Jeremy Hope – co-founder of the Beyond Budgeting Round Table | Interview with J.D. on finance and IT



Additional Resources (updated Jan 2005):

Juergen Daum’s Beyond Budgeting Information Center  New!

Website of the Beyond Budgeting Round Table (BBRT)

Interview with Jeremy Hope (co-founder of the BBRT): 
The Origins of Beyond Budgeting and of the Beyond Budgeting Round Table (BBRT)

Enterprise Management, Leadership and Business Control for Value Creation
- presentation from Juergen H. Daum, held at the Executive Briefing on Performance Measurement of the Centre for 
Business Performance, Cranfield School of Management, 27 January 2004 in London, UK 
program of the briefing

Beyond Budgeting on the move: report from the First Annual Beyond Budgeting Summit in London, 1-2 July 2003

Enterprise Management in the 21st Century - A Blueprint for a New Approachand the role of Information Systems  Presentation held by Juergen Daum at the BBRT member's meeting, 26 June 2003 in Walldorf/Germany, and held as well at the First Annual Beyond Budgeting Summit, 2nd July 2003 in London/UK program of the summit

"Intangible Assets and Value Creation" by Juergen H. Daum: Introducing the enterprise management concepts for the knowledge and information age – now available!


Successful Enterprise Management through Employee Empowerment and  Financial Efficiency: "Beyond Budgeting" - presentation of Juergen H. Daum prepared for the SAP Human Resources und Financials Congress, December 2002, in Karlsruhe/Germany


Performance Management Beyond Budgeting: Why you should consider it, How it works, and Who should contribute to make it happen – article by Juergen Daum


Presentations held by Juergen H. Daum at the Beyond Budgeting Round Table member's meetings:
- Dec 07, 2000, London/UK:
Strategic Enterprise Management 
- May 16, 2002, London/UK: Information System Requirements for Performance Management Beyond Budgeting
Corporate Performance Management: Managing profitability and growth in the new environment – article by Juergen Daum


SAP’s White Paper “Beyond Budgeting”, which was co-authored by colleagues at SAP AG, Juergen Daum, and the Consortium for Advanced Manufacturing International (CAM-I) Beyond Budgeting Round Table

Beyond Budgeting – article from Jeremy Hope and Robin Fraser (the initiators and researchers behind the CAM-I BBRT concept), published in the U.S. Magazine “Strategic Finance”, issue October 2000

Panel discussion at the eCFO conference 2001 of the CFO Europe Magazine, Oktober 18-19, 2001 in Brussels, Belgium: "The Beyond Budgeting Management Model". Participants: Janet Kersnar, Editor-in-Chief CFO Europe Magazine; Guiseppe Biamino, manager Budgeting & Controlling at SNAM Rete Gas in Italy; Robin Fraser, Program Director CAM-I BBRT; Peter Herold, Senior Manager Deloitte Consulting UK; Juergen Daum, SAP AG. Can a company really implement the Beyond Budgeting model? This question was discussed by the participants on the panel: »video (Real Player)   »video (Media Player) 

Why today's accounting, controlling and management systems fail - in an interview with, Jürgen H. Daum explains the limitations of our traditional management tools in our economies of today and why an overhaul is necessary


Value Drivers Intangible Assets – Do we need a new approach to accounting, controlling and management systems ? – article by Juergen Daum


Performance Management and Business Controlling in the 21st Century (Presentation held by Juergen Daum at SAP's European mySAP Financials Conference, June 2002, Strassbourg / France) deutsche Version


Previous new New Economy Analyst reports related to the topic of the new performance management system (updated Jan. 2005):

Dec 29, 2004 - Interview with Patrick M. Georges: How can executives improve their personal productivity?


Sept 30, 2004 - The Management Cockpit “War Room” at Iglo-Ola (Unilever Belgium): An Interview with Iglo-Ola’s Financial Controller Ghislain Malcorps 

Aug 05, 2004 - Vector-Based Performance Measurement: Linking the Subjective and Objective Dimension into One System of Performance Measurement


Mai 02, 2004 - Panel discussion: Beyond Budgeting – breaking free from the annual fixed budget


Jan 10, 2004 - Interview with Jeremy Hope: The Origins of Beyond Budgeting and of the Beyond Budgeting Round Table (BBRT)


July 04, 2003 - Beyond Budgeting on the move: report from the First Annual Beyond Budgeting Summit in London


January 20, 2003 - Adding Value Through IT Investments (part 2)

January 15, 2003 - Why companies need new management systems to achieve sustained profitability - especially in difficult economic times

January 07, 2003 - Adding Value Through IT Investments (part 1)

December 28, 2002 - Approaching the next level of shareholder value management – the art of corporate performance management (part 2)

December 20, 2002 - “Intangibel Assets and Value Creation” – English version of Juergen H. Daum’s book is now available!

November 30, 2002 – A European Peer Discussion: “Measuring and Managing Intangible Values in Today’s Economy”

September 22, 2002 – The book of the month: “Building Public Trust: The Future of Corporate Reporting” by Samuel A. DiPiazza Jr. and Robert G. Eccles

August 03, 2002 – Approaching the next level of shareholder value management – basics (part 1)

June 11, 2002 – Intangible Assets: a central topic at the mySAP Financials conference in Strasbourg 

June 08, 2002 –  Performance Management Beyond Budgeting: Why you should consider it, How it works, and Who should contribute to make it happen 

March 06, 2002 – Interview with Baruch Lev: Accounting, Reporting and Intangible Assets  

Febr 06, 2002 - The book of the month: “Good to Great: Why some companies make the leap…and others don’t” by Jim Collins

Jan 26, 2002 - Corporate Performance Management: Managing profitability and growth in the new environment

Dec 28, 2001 - How to create value with Real Options based innovation management

Dec 20, 2001 - The book of the month: “Ownership and Value Creation – Strategic Corporate Governance in the New Economy” by Rolf H. Carlsson

Nov 27, 2001 - Leveraging e-Business Opportunities for Finance – Q&A with Juergen Daum

Nov 13, 2001 - Interview with Leif Edvinsson: Intellectual Capital: the new wealth of corporations

Nov 10, 2001 - The new FASB rules for reporting on Intangible Asset - The U.S. versus the European way

Oct 30, 2001 - The book of the month: “Intangibles: Management, Measurement, and Reporting” by Baruch Lev

Oct 16, 2001 - E-Business requires CFOs and CIOs to redefine their roles and relationships

Oct 06, 2001 - How Systems Thinking / Systems Dynamics helps to identify limits to growth to boost innovation value

Sept 11, 2001 - The book of the month: “Managing the Professional Service Firm” by David H. Maister

Sept 08, 2001 - How scenario planning can significantly reduce strategic risks and boost value in the innovation chain

July 26, 2001 - How accounting gets more radical in measuring what really matters to investors

July 18, 2001 - Interview with David P. Norton: "Intangible Assets and the Balanced Scorecard" 

July 06, 2001 - Today’s #1 management challenge: How to better exploit intangible assets to create value 

June 14, 2001 – The book of the month (May / June): “The Value Reporting Revolution” by Robert G. Eccles, et al.

May 22, 2001 - Beyond Budgeting: How to become an adaptive sense-and-respond organization

May 12, 2001 - A revolution in stakeholder oriented corporate disclosure – case study: The Shell Report

March 28, 2001 – The book of the month: “The Innovator’s Dilemma” by Clayton M. Christensen

Febr 26, 2001 -  eXtensible Business Reporting Language (XBRL) is moving forward

Dec 09, 2000 – The Book of the Month: “The Strategy-Focused Organization” by Robert Kaplan and David Norton

Nov 01, 2000: The Book of the Month: “Meta-Capitalism” by Grady Means and David Schneider

Oct 16, 2000: Dynamic revenue management: a major building block of wealth creation in the new economy

Oct 03; 2000: The book of the month: “Future Wealth” by Stan Davis and Christopher Meyer

More reports…


More about New Economy Economics and Management Best Practice in general, and about other related topics will be continued here in this new New Economy Analyst reports. To subscribe for Juergen Daum’s free-of-charge e-mail push newsletter click here. 

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