Budget Begging Bowl

Year after year enterprises engage in an exercise that is like a well-orchestrated dance of corporate executives, each playing their best role and they have to collectively also look good to the audience. Interestingly the audience is the executives themselves, the Orchestra Master (CEO) and Board of Directors who asks for changes to the story line or approves the end result. At a broader level successful execution played to the stock market and analysts acknowledges work well done.

Like in an orchestra an ill tuned instrument can strike a discordant note, the collective sum of efforts needs complete alignment for an enterprise to work at as close as possible to its optimal level. This applies to the planning process as much as to the execution. Undercurrents during the planning process if ignored will come back to haunt the team during execution. All this is common sense, nothing new here, but we still continue to self-impose challenges and then find complicated solutions.

Every year give or take a few weeks this is the time when for most companies budgets are approved for the next year. The process begins many months earlier and after multiple rounds of discussions and negotiations, the final budget is presented by either the entire management team or select few (read CEO, CFO and maybe the CMO) to the Board. As boards have to “add value” they challenge the collective wisdom and either inflate the top-line or bottom-line or both or cut costs leaving the team perplexed or so it seems.

We all learn the game fast and keep buffers in the budgets for such eventualities. We offer the token protest and accept the fait accompli moving on with life. It is funny that this repeats itself in every department, company and everyone goes through the charade almost unthinkingly. The process leading into the D-day and thereafter is notable. But there are many who are challenged; let me reveal a few scenarios based on some direct, incidental and anecdotal data.

Budget planning is typically a function of planned capital investments and operating expenses. Most companies are CAPEX unfriendly and there is always pressure to reduce operating expense. For the CIO the two edged sword draws blood by moving hardware and licensing to operating expense and then the CFO wants to cut OPEX. Finance and/or business friendly CIOs know how to manage this, others struggle to keep their head above water until one of the powerful CXOs throws them a lifeline.

Post “rationalization” by the Board, the situation gets even more interesting. Now that everyone has been given a say 15% operating budget cut, the un-buffered and bewildered CIO struggles to stay afloat. A frustrated CIO once commented, where do I cut without impacting service levels ? I cannot go short on licenses, nor on bandwidth, and service providers want inflationary increase, AMC needs to be paid, travel and training are already down; do I go to the CEO, or CFO, or better the Board with a begging bowl ?

In jest or otherwise the remark portrays the helplessness felt by many and not just the CIO. Is there a way out ? There is if everyone went back to basics and stopped predicting the future based on the past and making unrealistic projections on what the business will be next year. It would help if all functions worked the budget together acknowledging dependencies for success rather than in silos. It is then up to the CEO to play the galleries or stand firm ground with the Board when s/he represents the team’s collective effort.

Where would you draw a line as the CIO/CEO ? Will you accept the cuts ? How will you ensure that realistically the company has enough cushion to react to market and competitive moves or the black swans that seem to be common now ? Will you put your neck out for the team ? I have always gone into a meeting with the maxim that budget is an intent to spend; we collectively determine the spend and own it up irrespective of which head or bucket it sits in. There are limits to cutting cost, let’s focus on the customer and how we can increase revenue. That is a better discussion !

Justifying IT budgets and the bicycle stand syndrome

A long time back during a budget meeting, one of my CEOs narrated a story (or maybe a fable) on Boardroom discussions on budgets. This story has stayed with me for a long time, and the memory was refreshed last week in a discussion with some industry leaders. Here’s the story:

In the Board meeting of a large and successful company with multiple manufacturing plants, two agenda items were tabled; first to discuss $400 million investment in a new manufacturing facility, and the second the layout including employee amenities of the same manufacturing plant. The second agenda item was unusual for the board to discuss, but found its way into the chambers since the Employee Satisfaction Index at one of the older plants was low. The financial proposal was tabled by the Head of Manufacturing, with added guidance from the CFO. The resolution was passed unanimously, and done with, in about half an hour.

However, the discussion on amenities took almost two hours — with the longest time spent on the location, structure and type of the bicycle stand. Everyone had an opinion, and disagreements continued until the Chairman of the Board decided to put the debate at rest by appointing a committee headed by the HR Head to review other plants (including those of competitors) and table the recommendations in the next meeting.

Last week, the meeting with fellow CIOs and a few marketing heads veered towards budgeting and ROI. Snide remarks aside, the debate on how these distinct functions justify their million dollar proposals took an interesting turn. When the CIO presents a business case for an enterprise wide system that potentially benefits everyone but requires significant participation and change, it takes immense effort and documentation in order to get everyone to listen, review and agree. Multiple iterations are the norm, and a chain of signatures essential before the grant of even a tentative approval. Whereas, the CMO sails through in a jiffy citing brand building, customer touch and impact on sales, even when most of them are not necessarily attributable to the discussed campaign or idea.

Why is it so difficult for CIOs to get funding for new projects as compared to, say CMOs? The difference is, I would guess in many parts. To begin with, the language in which these proposals are put across. Another is the change that IT purports to create in a change-averse world. It could also be that marketing as a function always focuses on the end customer, while IT initiatives are predominantly inward focused (though that is changing fast now). The conversation initiated by CIOs when they connect to stakeholders and customers does find traction. So maybe peer learning has to be gained on how to pitch right the first time, every time, and win when every function is competing for the same precious resources.

Scott Adams (of Dilbert fame) in his unique manner put across the marketing formula, “It’s just liquor and guessing”. I have yet to find a good enough one on IT budgeting.