Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today by Jack Welch & Suzy Welch

Author:Jack Welch & Suzy Welch [Welch, Jack & Welch, Suzy]
Language: eng
Format: epub
Tags: Non-fiction, Self Help, Business
ISBN: 0061241490
Google: rfW_AAAACAAJ
Amazon: B004MPRWL4
Barnesnoble: B004MPRWL4
Goodreads: 5563
Publisher: Collins
Published: 2007-01-02T00:00:00+00:00

NO MORE B.S. BUDGETING

* * *

The longer I work, the more I get the feeling that even the best people waste their time “delivering the budget.” I guess that has to happen, but the whole budgeting process just seems so senseless. Your opinion?

—PRAGUE, CZECH REPUBLIC

* * *

Senseless? Not really—counterproductive is more like it.

Look, some form of financial planning is obviously necessary; companies have to keep track of the numbers. But your thinking is on the right track. The budgeting process—as it currently stands at most companies—does exactly what you’d never want. It hides growth opportunities. It promotes bad behaviors, in particular when market conditions change midstream and people still try to “make the number.” And it has an uncanny way of sucking the energy and fun out of an organization.

Why? Because most budgeting is, simply put, disconnected from reality. It’s a process that draws its authority from the mere fact that it’s institutionalized, as in: “Well, that’s just the way it’s always been done.”

It just doesn’t have to be!

But before we go there—that is, a better way to budget—think about what’s wrong with the standard approach.

The process usually begins in the early fall. That’s when the people in the field start the long slog of constructing the next year’s bottom-up, highly detailed financial plans to make their case to the company bigwigs in a few weeks’ time. The goal of the people in the field, of course, is unstated, but it’s laserlike. They want to come up with targets that they absolutely, positively think they can hit; after all, that’s how they’re rewarded. So, they construct plans with layer upon layer of conservatism.

Meanwhile, back at headquarters, executives are also preparing for the budget review, but with the exact opposite agenda. They’re rewarded for big increases in sales and earnings, so they want targets that push the limits.

You know what happens next. The two sides meet in a windowless room for a daylong wrestling match. The field will make the case that competition is brutal and the economy is tough, and, therefore, earnings can increase, say, just 6 percent. Headquarters will look surprised and perhaps a bit irate; their view of the world calls for the team to deliver 14 percent.

Fast-forward to late in the day. Despite the requisite groaning and grumbling along the way, the budget number will be settled right down the middle—10 percent. And soon after, the meeting will end with pleasantries and handshakes. It will only be later, when both sides are alone, that they will crow among themselves about how they managed to get the other guys to exactly the targets they wanted.

What’s wrong with this picture? First, what you see: an orchestrated compromise. But more important, what you don’t: a rich, expansive conversation about growth opportunities, especially the high-risk ones.

That conversation is usually missing because of the wrongheaded reward system we mentioned above. People in the field are literally paid to hit their targets. They get a stick in the eye (or worse) for missing them.

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