Winning - Jack Welch [65]
I’m not saying financial planning is bad. Without question, you have to have a way to keep track of the numbers—just not the way it’s usually done.
In this chapter, I’m going to talk about a totally different approach to budgeting. It aligns employees with shareholders, puts growth, energy, and fun into financial planning, and inspires people to stretch. In fact, this approach is so unlike the typical budget process that when we started using it at GE, we stopped using the word budget altogether.*
But more on that later.
The good news is that the process
I recommend is not very hard to do.
It is certainly no harder than the slogging, mind-numbing budgeting process that is the status quo.
But this new process can be practiced only if a company has trust and candor flowing through its veins. As I’ve mentioned throughout this book, that’s rare. Perhaps budgets that actually inspire creativity and growth will make the case for that to change.
Most companies use budgeting as the backbone of their management systems. And so the right budgeting process can actually change how a company functions—and reinventing the annual ritual makes winning so much easier, you just can’t afford not to try.
BUDGETS, THE WRONG WAY
Before describing how to devise budgets the right way, let’s look at the two killing dynamics that are the norm. I call them the Negotiated Settlement and the Phony Smile approaches to budgeting.
These dynamics, incidentally, aren’t only the purview of big corporate bureaucracies. No matter what size company you work in, one of these two approaches, maybe both, will probably sound very familiar to you. In my Q & A sessions around the world, I’ve heard about them in virtually every country and in companies with as few as a couple hundred employees, even in organizations that call themselves entrepreneurial. Bad budgeting is just that insidious; it creeps in everywhere and establishes itself as an institutionalized process. It’s amazing how many times I have heard audience members decry entrenched budgeting systems, only for them to wearily conclude, “But that’s just the way it’s done.”
It doesn’t have to be. But first you have to undo those killing dynamics I just mentioned.*
SPLIT THE DIFFERENCE
Of these dynamics, the Negotiated Settlement is the more common.
This process begins when the ink is barely dry on the strategic plan. That’s when the businesses in the field start the long slog of constructing the next year’s highly detailed financial plans from the bottom up. These will be presented in several months’ time at the Big Budget Meeting with headquarters. The numbers cover everything—from costs to pricing assumptions.
In all their assumptions, the people in the field are operating with one simple goal, albeit unstated: to minimize their risk and maximize their bonus. In other words, their underlying, galvanizing mission is to come up with targets that they absolutely, positively thinkthey can hit.
Why? Because in most companies, people are rewarded for hitting budget. Missing your budget gets you a stick in the eye or worse. So of course people want to keep their budget numbers as low as possible. No wonder their budgets are filled with layer after layer of conservatism.
Meanwhile, back at headquarters, senior managers are also preparing for the Big Budget Meeting. Their agenda, however, is the exact opposite of the field. They’re rewarded for increased earnings, and so what they want from the budget review at every business is significant growth in sales and profits.
Now fast-forward to the Big Budget Meeting itself.
The two sides meet in a windowless room with a whole day set aside for what everyone knows will be an unpleasant wrestling match.
The field makes its presentation with a fat deck of PowerPoint slides, and the story is invariably dire. Despite reports of a pretty good economy, there are reasons to believe this particular business environment is going to be very difficult. “The competition has just brought a new plant online, and with its excess supply, there will