Ballack believes that Bayern's 3-1 win over Manchester City two weeks ago has proved that they can improve further under Guardiola, as they continue an 11-match unbeaten run in all competitions.
He told Sky Sports News: "It's always hard to set new goals after you win the Champions League. What are your ambitions for the following season.
"The change of coach was exactly what Bayern needed. Fresh challenges have arrived with Guardiola. He is absolutely world-class. He knows exactly what the players need in every situation.
"The Champions League game against Manchester City showed that this team still has plenty to offer. That was extraordinary."
The Spaniard is yet to taste defeat in the Bundesliga, sitting top after collecting 23 points from a possible 27 in nine games.