Two companies plan for next quarter. The first sets a fixed target in January and spends the year measuring itself against it, celebrating when it beats the number and explaining when it misses. The second updates a rolling forecast every quarter, always looking twelve to eighteen months ahead, and treats each update as new information rather than a verdict. The spreadsheets look similar. The behavior they produce is not. The difference between a fixed target and a rolling forecast is less about accounting than about what people do when reality diverges from the plan.
A fixed target creates two jobs: hit the number, and defend the gap when you cannot. A rolling forecast, used honestly, creates a different job: keep your picture of the future current and act on it.
Comfort zone to stretch zone
The behavioral shift is documented. Bourmistrov and Kaarbøe (2013), studying two multinationals that adopted Beyond Budgeting ideas, described managers moving from the "comfort zone" of the fixed budget to a "stretch zone." When targets are set from the outside in, benchmarked against competitors and the market rather than a negotiated internal figure, managers interact more with their environment, negotiate more, and learn more. The fixed budget lets a manager relax once the number is agreed; the relevant world for the next year has been defined and bounded. The relative, forecast-driven target keeps the outside world in view because the standard keeps moving with it.
There is a second behavioral effect, on honesty. A fixed target rewards the manager who forecasts low and then delivers just above it. A rolling forecast, at least in principle, is only useful if it is accurate, so the incentive tilts toward telling the truth about what is coming. The organization asks a different question every quarter: not whether you hit the number you promised, but what you now expect to happen and what the company should do about it. The first question invites defense. The second invites information.
This is the behavioral core of the case for forecasts. A fixed target is a wall between the manager and reality: once it is set, reality only matters as a source of variance to explain. A rolling forecast is a window: reality is the thing you are trying to see clearly, because your next decision depends on it.
The trap of the forecast that becomes a budget
The honest complication is that forecasts do not automatically escape the pathologies of budgets. Bukh, Ringgaard and Sandalgaard (2024) studied the dynamic interplay between budgets and forecasts and found the boundary far more fluid than the rhetoric suggests: forecasts can quietly take on budgetary functions, becoming targets to hit and defend rather than best estimates of what will happen. The moment a forecast is used to judge a manager's performance, the manager has every reason to make it conservative, and the rolling forecast becomes an annual budget that happens to be updated four times a year.
The transition is also slower and messier than a switch. Henttu-Aho and Järvinen (2013), studying Beyond Budgeting in industrial firms, found adoption to be gradual and institutionally mediated, with hybrid practices during the change rather than a clean break. Organizations keep pieces of the old ritual while building the new habit, and the two coexist uneasily for years.
Semler's version avoided the trap by keeping the horizon short and the stakes off the number. As he has told it, Semco ran on six-month budgets and never planned beyond three years, on the view that three years is as far as anyone can honestly see. A short forecast that nobody is punished for missing stays a forecast. A long target that determines someone's bonus becomes a negotiation, whatever it is called.
The behavioral test, then, is not the format of the document but the consequence attached to it. A rolling forecast that is used to plan, to reallocate, to see the market coming, changes behavior for the better: it points people at reality. A rolling forecast that is used to grade people reverts to the old game, and the frequency of the updates just means the sandbagging happens quarterly instead of once a year. What changes behavior is not the cadence. It is whether the number is a picture of the world or a line someone will be judged against.
Sources
- Bourmistrov & Kaarbøe (2013). From comfort to stretch zones: a field study of two multinational companies applying 'beyond budgeting' ideas. Relative, outside-in targets move managers from a comfort zone to a stretch zone, increasing engagement with the environment. https://doi.org/10.1016/j.mar.2013.04.001
- Bukh, Ringgaard & Sandalgaard (2024). Moving beyond Beyond Budgeting: a case study of the dynamic interrelationships between budgets and forecasts. The budget/forecast boundary is fluid; forecasts can quietly assume budgetary functions. https://doi.org/10.1080/09638180.2024.2362681
- Henttu-Aho & Järvinen (2013). A Field Study of the Emerging Practice of Beyond Budgeting in Industrial Companies. Adoption is gradual and institutionally mediated, with hybrid transitional practices rather than a clean break. https://doi.org/10.1080/09638180.2012.758596