The evenings are getting shorter, the leaves are falling from the trees and there is a slight chill in the air. This can only mean one thing: it’s time to get budgets completed.
I see budgeting as a time-consuming exercise of limited value. It is, essentially, the most ineffective practice in business. Luckily, there are a few big hitters who agree with me. “It sucks the energy, time, fun and big dreams out of an organisation. It hides opportunity and stunts growth. It brings out the most unproductive behaviours in an organisation, from sandbagging to settling for mediocrity. In fact, when companies win, in most cases it is despite their budgets, not because of them,” said Jack Welch, former CEO of GE.
Let us look at the charge sheet against budgets. First, what exactly is a budget? In my experience, budgets are an illusion based on guesswork and corporate politics, designed to give the finance folks a false sense of control.
Second, budgeting processes suck up unbelievable amounts of time, often just to rework flimsy assumptions changed by events during the process like Brexit.
Third, annual budgeting lights the blue touch paper in management to guarantee that all energy will be spent defending their budget internally rather than actually building great products that customers want.
Fourth, budgets often operate in a parallel universe, divorced from the business plans they are meant to represent. There is almost zero chance management will read your finely-honed marketing plan, when they can micro-manage individual line items in your budget instead.
Fifth, budgets are regarded as a rigid indicator of what is available. ‘Boss, I have found the cure for cancer but I need £100 to get it to market.’ ‘Is it within budget?’ ‘No.’ ‘Then get out of my office.’
Sixth, they encourage the finance guys to bypass any accountability. I was once called into the CFO’s office mid-year. He demanded to know why the marketing budget was 20% over. Given that I had tracked the numbers religiously, this was a real puzzle for me. Turns out the finance director had not accounted for VAT being part of the cost required for a certain type of media vendor. Guess who got it in the neck for the rest of the year?
Of course budgets do have some value. Targets are good in that they can drive and monitor performance. But that’s about it.
Hence I think zero-based budgeting (ZBB) is best practice because it forces both sides – marketing and finance – to actually think about what they are doing. Will I get ZBB on the agenda this autumn? I am trying. Wish me luck.