How To Budget Your Way To Irrelevance - InformationWeek

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Government // Mobile & Wireless
11:22 AM
Lokesh Jindal
Lokesh Jindal

How To Budget Your Way To Irrelevance

Instead of focusing just on containing costs, consider what objectives and value your company is trying to deliver.

We all must control costs. Companies that don't not only waste money and hurt profits, but they also miss out on market opportunities as they fritter away needed resources.

But companies don't exist to save money. They exist to deliver value. Even the most cost-efficient companies will go bust if they don't deliver much value.

Unfortunately, IT and other kinds of planning at most companies still rests on operational budgeting. The central -- and seriously outmoded -- idea underlying this approach is that planners plan by setting resource caps for various business functions. This approach has little or nothing to do with delivering value and driving innovation, which are accomplished by optimizing investments, not by capping resources.

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How can business leaders overcome this counterproductive approach to planning? For one thing, start to think about planning as the management of an investment portfolio aimed at delivering specific outcomes and benefits, rather than as the mere doling out of budget dollars.

The analogy with a personal investment portfolio is quite appropriate. A strong financial adviser will take into account a client's objectives. Is the client a young person, with a high tolerance for risk, who's looking to build equity? Does the client need the portfolio to throw off cash on a monthly basis? Is tax avoidance a priority? Or does the client need to hedge against a set of investments already in place?

Companies have similar investment objectives. A prime example is the quality of the customer experience, which in many markets is an even more important competitive differentiator than product features or price.

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What happens in the real world, however, is that companies don't bake customer experience into most of their projects and initiatives, which continue to be driven by time-to-market, lead generation and other imperatives. So while customer experience gets lip service, it never really becomes actualized.

With the right tools and processes, companies can formally prioritize customer experience as an outcome for every project and initiative. It may not be the primary imperative, but investment-centric planning ensures that it's appropriately prioritized across all company activities collectively. This approach is ultimately what transforms the theory of C-level strategy into the reality of in-the-trenches execution.

So if your company still equates planning with budgeting, it's time to start an investment-centric revolution. Otherwise, you could find yourself with a very lovely budget -- and not much of a value proposition to offer your customers.

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User Rank: Strategist
11/4/2013 | 8:12:19 PM
re: How To Budget Your Way To Irrelevance
I agree w/ Mr. Jindal in theory. Problem is, how do you quickly move people around from one place in the organization to the other? From unproductive uses (where they have expertise) to productive uses (where they have no expertise). People are not cogs in a wheel that you can just swap in and out. I may have more expertise than anyone in shipping and logistics but move me to mainline manufacturing and I am worthless. By the time I come up to speed on manufacturing, there would be the next new thing that I would need to be moved to.
User Rank: Ninja
10/31/2013 | 11:21:36 PM
re: How To Budget Your Way To Irrelevance
I worked for a company where we missed our planned targets. The CEO addressed the company and, with a straight face, told everyone that we're still very profitable and I reassured everyone that you don't "save your way to success". Then he proceed to cut employees, freeze salaries, cut benefits and look for every possible opportunity to save money up to and including cutting custodial and building maintenance services to the point where employees emptied their own trash cans, the bathrooms were filthy and the building started to have pest problems (insects).

I agree with your article but I'm skeptical the all mighty bean counters can be contained.
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