It’s difficult to think of a business process that is more unpopular than budgeting. In nearly two decades of writing and talking on the subject, I have yet to come across anyone who is prepared to stand up and say it is a good thing.
Why, when everyone hates it, do we still have traditional budgeting? My tentative answer to this would be that most people were not aware of the alternatives.
In my last blog, I promised to give you some tips about how to introduce some Beyond Budgeting ideas into your business to help make it more flexible and reduce the gaming behaviour associated with the budgeting game. Traditional budgeting has three major weaknesses:
In the last blog, I described how it is possible to implement Beyond Budgeting in a step-by-step fashion. If you choose to go down this route you will become increasingly uncomfortably aware of a disconnect between Beyond Budgeting style processes and the rules and routines that govern normal business life in a traditional organisation. In the brave new world I have described, senior managers perched high in the organisational pyramid can no longer use targets and incentives to remotely control the activities of their subordinates and measurement systems no longer highlight deviations from pre agreed plans and budgets and trigger ‘corrective action’. Resources are allocated continuously and an annual set piece planning ritual cannot effectively coordinate activities in an organisation that is continuously adapting to events.
In the period from 2001 to 2006, the Retail division of Swiss Post transformed itself from a public service company into a business driven sales organization. Crucial drivers of change were, on the one hand, the adaptation of the steering systems up to the final implementation of a "Beyond Budgeting" philosophy and, on the other hand, a humanistic attitude of management and finance department against all employees. The success was amazing: The division succeeded in increasing the sales of new retail products from 0 to over 400 million CHF, optimizing the bottom line by more than 100 million CHF or more than 5 percentage points and becoming the first state-owned company in Switzerland to win the EFQM- Award for Business Excellence.
It is difficult to think of another business process that is as universally detested as annual budgeting. The list of complaints will be familiar to anyone who has run a budget process or has been subjected to one…and that probably means everyone reading this article.