Winning - Jack Welch [67]
When the show is over, the lights come up, and for a few minutes, the managers and the field people engage in rather pleasant chitchat. It goes like this:
“I see you expect Acme Corp. to build another plant. That’s very interesting. They almost went bankrupt in ’88,” one senior manager musters the energy to say.
“Well, they were bought two years ago, and they’ve come back strong,” Sara quickly answers.
“Very interesting. Very interesting,” comes the vague reply from a headquarters heavy.
“And I see that you’re expecting the cost of natural gas to hold steady for the first six months,” another headquarters person might offer up as evidence he was listening.
“Absolutely!” Sara responds. “We don’t see any change in that pricing.”
“Hmm…interesting.…Yes, interesting….”
Finally, after a few more perfunctory exchanges, it’s over. The top team smiles brightly and says, “Nice job! Thanks for coming in! Have a safe trip home!” And pretty convinced that they did OK, the field people smile back brightly and go away.
Then there’s the meeting after the meeting.
That’s when the members of the top team sit around talking about how much they are really going to get from this business. The reality is, headquarters already knows how they are allocating the company’s investment dollars, and they know exactly what revenue and earnings numbers they expect in return from each business. Those decisions, they believe, belong at headquarters, where managers can see the whole picture, pick priorities, and divvy up the goods appropriately.
A few days later, Sara gets a call from a lower-level staff person at headquarters telling her that her business will get about 50 percent of what was asked for at the Phony Smile meeting, and the earnings budget number will be 20 percent higher than the one they submitted.
What a kick in the stomach! Instantly, Sara is enraged for a slew of reasons at once: Headquarters just didn’t listen! All that work for nothing! No one explains anything around here! And worst of all, now there won’t be enough money for all the things we should be doing.
The next day, Sara goes back to her people for their meeting after the meeting. Together, they all rail against the injustice and mystery of the corporate edict.
And then, without meaning to, Sara makes matters worse. To appease her team, she takes the money from corporate, now much less than they had asked for, and she evenly parcels it out, a bit to manufacturing, a bit to marketing, a bit to sales, and so on. Of course, Sara would be smarter to place her bets on one or two programs, but that rarely happens in these situations. People stuck in the Phony Smile budget game get bitter. Too often, they lose their sense of commitment to the company and forget how excited they were about their original proposals. They just take the money from corporate and spread it like crumbs.
My argument here is not with a senior team allocating resources. That’s their job because they have a strong, informed understanding of what each business can realistically deliver. The trouble arises when headquarters is secretive about the process, when they don’t explain the rationale behind their decisions.
But like the Negotiated Settlement dynamic, the Phony Smile usually concludes with everyone shrugging off the whole enervating event—it’s just business, right? And the next year, they start it all over again.
A BETTER WAY
Now, you may be wondering, “If companies manage to hit their numbers and pay bonuses with either the Negotiated Settlement or Phony Smile approaches to budgeting—as flawed as they are—why mess with them? At least they deliver.”
The problem is: they often deliver only a fraction of what they could, and they take all the fun out of setting financial goals. Yes, this annual event can be fun—and it should be.
Imagine a system of budgeting where both the field and headquarters have