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The annual budget process can be a parade of lengthy meetings and red tape — so one CEO decided to try something different.
Since becoming CEO at Bayer, Bill Anderson has introduced a set of striking changes to the company, including an overhaul of its budget system, which he sees as the driving source of corporate bureaucracy.
"We all know that the belly of the beast of bureaucracy is the budget process, right," Anderson said in an interview with Business Insider. "Everybody knows that. Everyone hates it."
Every 90 days, Anderson reallocates budgets for the next cycle.
The executive said the decision to take the company "90 days at a time" was inspired by a "radical experiment" he helped implement at Genentech in 2016 before becoming CEO of the biotech company in 2017. After what he described as an unsuccessful attempt to de-bureaucratize the budgeting process at Genentech, Anderson said Genentech decided to "kill all budgets."
However, the plan didn't lead to lower spending, he told BI.
While company spending at Genentech went down in the first year, it shot right back up a year later, Anderson said. While the CEO didn't want to bring back the old process, he concluded he had to find something to replace it with.
Genentech declined to comment.
Anderson brought the lesson to German life science company Bayer, where, a month after becoming CEO in June 2023, he replaced annual budget discussions with 90-day cycles. Instead of managers spending five months setting targets and forecasting, Anderson said squads come together every 90 days to discuss whether the company achieved its goals, how it used resources, and what it needs to focus on next.
In a conventional budget process, Anderson said the team would be discussing what they're going to do in the third quarter a year ahead. The problem with that, he said, is "nobody knows" what they'll be doing that far in advance.
"That's a waste of time," Anderson said. "They're negotiating over budgets for Q4 next year. They don't even know what they're going to be doing."
The budget overhaul is part of a larger restructuring which the company refers to as "Dynamic Shared Ownership." In addition to flipping the budget system, the model also reorganizes staff every 90 days into "mini networks" made up of who is best suited to lead that specific project.
"So every 90 days, people can flow between teams, money can flow between teams," Anderson said. "And you're working on the most important things for the next 90 days."
In a press release announcing the new operating model in January 2024, the company said the structure would "reduce hierarchies, eliminate bureaucracy, streamline structures," and speed up the decision-making process.
A company spokesperson told BI that select groups called "frontrunner teams" transitioned to the new model in the summer of 2023. Now, most of the company has moved to the new structure. Along the way, managerial positions have changed, with some transitioning to individual contributors and others being laid off.
Since the beginning of the year, the company has cut about 5,500 roles, most of which were managers, shrinking its overall headcount from around 100,000 down to around 94,500. A spokesperson said layoffs are ongoing.
Anderson said some teams, like those that started the transition a year ago, "are racing ahead and doing great," while other groups are "still stuck in the starting blocks." He added that the company's voluntary attrition rate has gone down since transitioning to the new operating structure.
The company has embarked on a plan to cut costs by about 2 billion euros by 2026. Bayer's stock price is down 46% since the beginning of the year. In its third-quarter earnings, the company reported over $4 billion in net losses and shared expectations for a "muted outlook" and "declining earnings" over the next year.
The company has faced several recent headwinds, including the expected loss of exclusivity on the blood-thinning drug Xarelto. Anderson said the drug was once responsible for a significant amount of Bayer's profits.
The company has also grappled with legal battles over Roundup, a herbicide produced by Monsanto, which Bayer purchased for $63 billion in 2018. The product has been the subject of thousands of lawsuits alleging it causes cancer, and Bayer agreed to pay billions of dollars to resolve some of the litigation while it also appeals some of the court decisions.
"The litigation topic is a big overhang for our company," Anderson said, adding that "there's a lot of great things happening" but investors want the company to deal with the lawsuits, which it is.
When Bayer announced the new operating model, the company said its goal was to become "more agile and significantly improve its operational performance," and Anderson has already reported some positive results.
In Bayer's third-quarter earnings report, Anderson said Bayer's Pharma division outside Milan cut release time by almost 50%, resulting in less waste, improved cash flow, and lower inventory. Anderson said in the report that when he first asked about success stories, he would get the same two or three examples.
"Now, I'm hearing stories like these basically on a daily basis," Anderson told investors. "I'm confident that will translate into results for our investors, and a bright future for us and our customers."
