Archive for July 26th, 2008
Innovator’s dilemmas: the budgeting problem (1)
“If budgeting is to have any value at all, it needs a radical overhaul (…) the traditional budgeting process takes too long and consumes too many management resources (…) [and] fails to move people to act in their company’s best interest.”
“Why Budgeting Fails: One Management System Is Not Enough” by Prof. Peter Horvath and Dr. Ralf Sauter. Paper published by Harvard Business School Publishing.
Given alternative investment options, budgeting ends up being about prioritizing what projects get what type of assets and resource levels. Common sense dictates that the decision making process should be driven by specific goals that maximize the return on that investment.
However, competing and often conflicting demands, legacy requirements, inherited commitments, assumed entitlements, inward looking and bureaucratic behaviors can stifle innovation and a company’s growth.
When starting a project it pays to figure out roles and responsibilities. In large organizations, the project’s champion, budget holders and those expected to do the leg work might not necessarily come from the same departments and business units.
This helps taking down corporate silos. It allows managers to cross-pollinate innovative initiatives. Ideally, cross-functional teams save themselves from tunnel vision and elevate their competence level to deliver breakthrough innovations.
In some other cases, this approach facilitates the integration of end to end offers focusing on incremental innovations where the whole is greater than the sum of the parts. But, realizing any, if not all, of the expected synergies can become an excruciating undertaking under traditional annual budgeting processes. This is my first post on this subject and a few other will soon follow. In the meantime, I will continue to appreciate your comments and emails.
Picture credits: Hemera Technologies Inc., a wholly owned subsidiary of Jupiter Images Corporation.
| J. de Francisco |  |
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| Chicago, IL 26 July 08 |  |
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