Budgeting no longer helps organisations to perform better. On the contrary. It prevents organisations from...
Advice from a Football Manager about Budgets
One of the characteristics people use to describe me is well-read which is appropriate because I enjoy reading material that covers a variety of fields. One of the fields I cover is sports because it provides connections to finance. While covering sports I found material that represents a connection to budgets and the connection is the leadership style of a football manager, Jurgen Klopp.
Who Is Jurgen Klopp?
Jurgen Klopp is the football manager for the Liverpool Football Club. As a football manager, he has established a reputation for being an effective leader. His reputation has been assessed by performance however I assess the process.
What Is The Process?
The process is Jurgen Klopp’s five lessons in leadership described in the following article:
Which Element of the Process Stands Out to Me?
The element that stands out to me is simplicity which Jurgen Klopp describes below:
“I have a lot more information than I give to the players. Not because I want to keep it, but because they have to play a football game and you have to play with freedom. In the beginning, when a new player is coming in, I don’t give them information. It is like ‘let them play.’ With the team, there are more things, and you try to help 11 players do the right thing at the right moment.”
How Can Simplicity Be Applied to Budgets?
The answer is in Jurgen Klopp’s approach which is centered on the following statements:
- “Play with freedom.”
- “Let them play.”
- “Do the right thing at the right moment.”
“Play with Freedom”
A criticism of budgets is their emphasis on precision. As a person who has prepared budgets, I am aware of the precision that goes into them, e.g. determining the amount of money to be spent on office supplies during the month of December. Precision of this type has a two-fold negative effect. One negative effect is the amount of thought to determine how much money is going to be spent on one element in a month. Another negative effect is the irrelevance that the amount of money determined in the budget. The amount of thought and irrelevance represent characteristics that support the criticism of budgets.
Budgets should eliminate the precision that makes them time consuming and irrelevant.
Time should not be spent on how much money will be spent on a specific line item for one month, time should be spent on how much money will be spent to help companies improve the well-being of their stakeholders. Spending time on how much money will be spent to help companies improve the well-being of their stakeholders allows people to play with freedom. People in production, selling, and administrative functions should have the freedom to organize their spending in a way that not only maintains but also enhances stakeholder well-being. Freedom allows people to incorporate trial and error, a concept that stimulates thinking and learning how companies accumulate wealth. Accumulating wealth in the form of characteristics – accessibility, competence, courtesy, durability, and innovation – establishes a foundation for companies to fulfill their value propositions.
Turning budgets into drivers for fulfilling value propositions make them relevant!
“Let Them Play”
A criticism of budgets is their creation. Creation of budgets can occur from a top-down approach, i.e. finance executives dictate what managers in production, selling, and administrative functions can spend, when, and how much. Finance executives are typically detached from the day-to-day activities in these functions so they lack direct knowledge of what goes on in these functions.
This approach does not let managers play!
Production managers know what it takes to create what companies sell, selling managers know what it takes to promote and distribute what companies sell, and administrative managers know what it takes to support what companies sell. This knowledge must be incorporated in the preparation of budgets. By incorporating this knowledge managers of these functions can prepare budgets that achieve relevance which is the thoughts becoming action and action becoming knowledge of how good or bad companies are in fulfilling their value propositions.
“Do the Right Thing at the Right Moment”
A criticism of budgets is they become useless due to changes in environment. Changes in economic and competitive environments are realities that companies must accept. In order for companies to have budgets that are useful, they must allow people to do the right thing at the right moment.
Doing the right thing at the right moment is centered on answers to the following questions:
- What are the reasons that people have for buying what companies sell?
- How can companies satisfy these reasons?
Changes in environment can change reasons people have for buying what companies sell. An economic upturn can change buying habits from necessity to luxury, an economic downturn can change buying habits from luxury to necessity. Changes like these and others require doing the right thing at the right moment.
Doing the right thing at the right moment is achieved by companies satisfying the reasons people have for buying what companies sell. Perhaps production needs to create products that satisfy durability. Perhaps selling needs to promote and distribute products that satisfy accessibility. Perhaps administration needs to support services that satisfy competence. How can a budget assist these functions?
The answer is guidance. Guidance provides information aimed at resolving a problem. A budget should provide information that helps companies resolve a problem of satisfying the reasons people have for buying what companies sell.
A company is a team consisting of people in production, selling, and administration. A company has one goal, improve the well-being of its stakeholders. A budget can provide guidance on how to achieve this goal. How to provide guidance should be unlimited to learning from people inside diverse entities. One way to incorporate learning from people inside diverse entities is through the leadership lessons of a football manager.