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Death to budgeting

It’s considered one of the basics of management. If you don’t have a budget, you aren’t really managing. Not true: UBS made budgeting ...

By Julian Birkinshaw , Stuart Crainer and Michael Mol 01 March 2007

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It’s considered one of the basics of management. If you don’t have a budget, you aren’t really managing. Not true: UBS made budgeting secondary to performance and customer satisfaction.


Most large firms are victims of their own enthusiasm for new ideas and new practices. Whatever the latest management idea – knowledge management, re-engineering, sixsigma, 360° feedback – it is quickly noticed. Soon, a working group is formed to evaluate its potential; and, straight away, the idea is being tested in a pilot project.


But, once brought to life, projects are hard to kill; new ideas, once discussed openly, are hard to suppress. So “what’s new” is usually piloted on top of an existing set of processes and alongside the vestiges of several earlier projects, none of which really succeeded or failed. Much like the sandwich made with dozens of bread slices stacked ever higher, the result is an organisation in which multiplied processes create staggering complexity, limiting the ability of any one initiative to deliver on its potential.


The end result is an enterprise choking on innovation with widespread scepticism among employees. So the biggest challenge facing most large firms is not how to embrace the latest thinking; it is how to cast off the old. We need to create ways of working that are fit for the future, but we also need to become more effective at identifying and jettisoning the old ways of working that had value only in the past. UBS Global Wealth Management & Business Banking (UBS Global WM&BB), the private banking, retail and corporate banking division of the giant Swiss bank, offers a fascinating insight into how change can be facilitated by getting rid of a redundant and value-destroying process.


But the bank did not focus on just any process; it picked one that is considered core to almost any business: budgeting. One issue that every big-company manager can agree on is that the annual budgeting process is an enormous waste of time and effort. The UBS executives didn’t just bemoan the futility of budgeting, however; they decided to abolish the whole process. In doing so they achieved dramatic changes in the culture of the organisation and helped to reach record levels of growth. Building a platform for growth UBS was the product of a mega merger of two of Switzerland’s oldest banks (Union Bank of Switzerland and Swiss Bank Corporation) in 1998.


As Dominik Ziegler, controller of the Wealth Management International business recalls, “At the time of the merger, we were not in the best shape. Morale was low, and our cost base was too high. We went through a long period of rationalisation and cost cutting. And during that time we had a very strict budgeting process with very tight numbers and strict accountability.” By 2002, the cost-cutting measure had created huge savings, and the company had integrated itself around its single global brand. And with the financial services market recovering from its post-dotcom hangover, UBS was well positioned to move back into growth mode.


UBS Global WM&BB is the biggest and (together with UBS Investment Bank) the most profitable business group of UBS and the world leader in the private banking industry. With only about four per cent of a highly fragmented market, the potential for growth is enormous. So the business group executive team, led by Marcel Rohner, began in 2003 to shift the emphasis away from cost control. As Toni Stadelmann, CFO for the business, comments, “Our strategic challenge at that point was to shift the focus on costs to a focus on growth and efficiency. And that required a different culture, a different attitude.”


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