Winning - Jack Welch [66]
The final pronouncement from the business managers usually goes something like this: “To be optimistic—very optimistic—earnings will likely grow only 6 percent.”
Headquarters, needless to say, has its own view of the situation, and it is decidedly not dire. The economy is strong. GDP is estimated to rise steadily all year. Orders are up everywhere else in the company. The main competition has a big asbestos lawsuit against it that will distract management. The business can get the cost reductions with $5 million in new programs, and earnings should grow 12 percent.
You know what goes on during this marathon—the grumbling and groaning, the probing and data quoting, the back and forth and back and forth again. On occasion, it can get contentious, especially if a senior person has worked within the business earlier in his career. He’ll throw out anecdotes about how they used to do it in the old days and accuse the field of lowballing. “I know where you’re hiding it. I used to park reserves in there too,” he might insist. “Now give it up.”
The grappling concludes—finally and inevitably—when the sides split the difference. The field gets $7.5 million in resources and a budget with a commitment for 9 percent earnings growth.
Before the field packs up to leave, everyone somberly shakes hands. The mood is resigned. For all involved, the unspoken vibe in the room is: we didn’t get what we wanted or what was right.
That pall lasts right up until the moment the field team pulls out of the driveway. Then the high-fiving begins.
“Those stiffs wanted us to deliver 12 percent, and we only have to hand them 9!” the people in the field exclaim. “Thank God we dodged that bullet!”
The headquarters team is also feeling pretty good about themselves. “Those sandbaggers only wanted to give us 6 percent,” they crow. “Did you see where they were hiding earnings? We let them off with 9 percent. They’ll deliver that, and probably more, but with their 9 and what we’ve got from the other businesses, we’ll have enough.”
Soon thereafter, the Negotiated Settlement gets officially approved, and the field and headquarters make their peace over its targets. They tell each other, “Well, we can live with the numbers this year. We guess they’re OK.”
When the end of the year rolls around, the awful ritual completes itself. Most often, the field hits or beats their targets and gets their bonuses, and of course headquarters congratulates them. Job well done!
Everyone is happy, but they shouldn’t be. In this minimalization exercise, there has been little or no discussion about what could have been.
EVERYONE MAKE NICE
The second budgeting dynamic that saps value is the Phony Smile.
Again, people in the field spend a couple of weeks coming up with a detailed budget plan. Compared to the Negotiated Settlement approach to budgeting, the sadder part of this dynamic is that often, Phony Smile plans are filled with good ideas and exciting opportunities. The people in the field have bold dreams about what they can do—make an acquisition, for example, or develop new products—given the right amount of investment. They’re eager to expand their business’s horizons, but they need help from the mother ship.
To make their case, the managers in the field prepare the usual stacks of slides. Since retiring from GE, I’ve seen such presentations with as many as 150 pages! Every competitive angle is covered, and usually overly so. Typically, these presentations are evidence of painstaking labor, wrought with angst over minutiae and born of long nights of building spreadsheets that contain precision to the last dollar. It’s likely that nobody actually enjoys putting together these slide packs, but when they’re done, along with exhaustion, the team understandably feels an enormous sense of pride and ownership.
On