Different use of Forecasting Information 64

As mentioned, FiGo has implemented standardized templates on how to conduct and present rolling forecasts. Nonetheless, there are significant variations in forecasting practices between the business units, due to high degree of decentralized and autonomous subsidiaries. There are both different forecasting practices and degree of implementation. This has led to some tension between top management and the business units about how the forecast should

be conducted. On the one hand top management have an idea on how the forecasts should be done, but on the other hand there are no strict, detailed policies:

“Also we haven’t had very strict company policies, that “you shall do this...” or... “You shall not do it this way.” They all have to be part of the forecasting process, but we haven’t said exactly how they should do it in their companies. Except in our... where, say… [CFO of the Group] for instances is going around and talking about how we do it, how it should be done... But it takes some time to change... change people. And to get used to not having the budgets there.” (Respondent 4)

This seems to create a challenge when forecasts are consolidated and numbers are reported to the next level. Some business units, like the insurance unit, uses their forecasts as an important input in decision-making and to drive performance, while other business units uses forecasts only as a reporting tool. The maturity of the business unit is explained as a reason for the differences:

“And also the fact, that we haven’t matured to that level yet, because it’s also about how mature we are or how ready we are for thinking like that. “ (Respondent 4)

Furthermore, some parts of the alliance, such as the alliance cooperation unit, still use budget as a management control tool, and they do not understand how the Beyond Budgeting mindset and the use of rolling forecast can increase adaption and interaction throughout their unit. Moreover, there is a perception that the forecasting process isn’t customized to fit the various business units:

“Managers in some subsidiaries perceive the forecasting process as a reporting [tool] because the process is not adapted to their business, and thus give little value”

(Respondent 7)

As this implies, there are different understanding of the purpose and benefits of rolling forecasts, which explains why the business units have different approaches. In addition, there are differences within the business units as well, both in regards of the mindsets and the perceptions towards forecasting as a tool. On lower levels, the forecasting process is to a higher degree perceived as a reporting tool compared to managers on higher levels:

“(…) If you go further down the organization, then the management level in insurance company, they would probably say that this is a reporting to the next level.” (Respondent 1)

This implies that there are some challenges regarding how the forecasts are prepared, since forecasting is bottom-up process that involves many employees at all levels. Managers have to communicate the benefits of the dynamic business model, which is strongly built on a common business understanding and involvement.

Additionally, the degree of alignment between group and business units varies significantly in regards of localization. Some are close geographically, while others are not. Control and interaction are not as prominent when there is a physical distance between the corporate level and different business units. One from the top management confesses that they tend to have a weaker focus on these units in regards of operations and management style. The Head of Controlling, has putted it bluntly as:

“Out of sight, out of mind” (Respondent 5)

This is also emphasized in earlier statements, where the insurance unit tends to be used as a blueprint for the forecasting process, both because of their maturity and physical closeness. This creates a challenge when the new management model is used throughout the alliance. The top management group has difficulties observing how the business units use standardized templates when conducting their forecasts, due to the localization challenges. On the other hand, the business units that are not localized close to the top management might also have difficulties understanding the value of using rolling forecasts. In the statement below, the CFO of the mutual fund express his view of rolling forecasts:

“If I should change that prognosis four times a year, I would be confused. So, I need to have a cost budget which is realistic and where we can focus on ending the year on the cost-side as we planned for. Then, budgeting our income is like budgeting the world economy. […] Meaningless. It is complete nonsense. […] If anything can be realistic, this [long average of the stock market] is more realistic because that is a kind of average over a very long run. And to say anything about how it will be next year, you know, that is just bullshit.” (CFO, mutual fund)

As this denotes, the mutual fund only makes quarterly forecasts as a reporting tool to the top management. It is difficult for the mutual fund to make “brutally honest” forecasts, and use the standardized templates because of high market volatility e.g. incomes are highly volatile due to market conditions. This points out some of the tension between the units and top management, and the challenges regarding having such differentiated units and not customized forecasting processes. Top management need to find a way to communicate their vision of dynamic management model and rolling forecasts, thus getting the whole organization on the same path - regardless of variation and localization.