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Corporate budget balancing

This is the season for budget planning for the next year. (Companies that follow Jan- Dec planning cycles).

It is a season of tizzy and many hours and resources are spent on creating the plan for the following year. It will go endless revisions as the first submission is never good enough. Margins could be better. Costs could be lower. etc.

Knowing that this dance will take place, most offices plan their initial submissions accordingly.

What I have found generally is that a large part of the discussion takes place around the numbers itself.

I get, that budgets should be largely about numbers. However, this is also the one time that senior managers of most companies get to together and discuss overall company plans for the next year. Set some objectives or goals.

I have done many a budget plan and done the objectives and goal setting as well. But somehow the discussions weigh heavily on the side of the numbers.

And it increases as the year goes by.

Let’s say for example a goal is to win a specific piece of business. And the investment required to make that win is a specific talent. In the goals we say that the win will happen, say, in Q2 of  the year and the talent will be secured around the same time.

Everyone agrees with this goal and the investment, and the green light is given.

The year starts and then come Q1 you find that some other client who was expected to spend $X in Q1 will now only do it in Q3 because their product launch got delayed.

Guess what..now the Q1 numbers will not look too good. So to ensure that the quarterly numbers are met, expenses are frozen which typically is new hires. And that talent required to win that other piece of business which is part of the goal gets pushed out and so on.

Clearly I simplify,(and talk service firms than all corporations), hugely to make the following points:

Quarterly focus. I think enough ink and pixels have been spent on this subject. Given that earnings need to be issued and the role analysts seems to play in company valuations the pressure to ensure quarterly numbers are met, even if it means that long term goals are sacrificed, or compromised, is significant. I was reading recently an article that some top companies have stopped issuing quarterly guidance or have amended what they issue in these reports. This article even gives evidence that the quarterly focus is bad for long term company health. Perhaps the time has come for all companies to have a uniform system of taking a long term view of the business and managing earnings accordingly.

Numbers or Product : Companies seldom get into business to make money. They get into business to provide a service or a product. By selling enough of that product they make money. As long as that sequence is always maintained money will flow. Being the best at something ensures you get the margins that deliver the profits that makes the company valuable. 2 examples of this come to mind. One is Apple. If you’ve read the Sculley/Jobs articles.. Very simply speaking Sculley wanted to cut the cost of the product to sell millions. Jobs wanted to get the perfect product that cost more and sell millions. The Apple success is there for all to see. I also want to talk about a company I worked with. Ogilvy in India. It was always a great agency and a financial powerhouse. Then a creative genius took over who had a maniacal focus on the product. Literally within a year the company was producing the best work in the country, if not the region/world. And guess what.. it became an even more powerful financial juggernaut. Focusing on the money leads to cost cutting, short cuts, delayed investments etc which seldom show up in the near term but start the slow slippery slope downwards.

I am not decrying the financial aspect of the business by any means. Having run businesses myself I know that all the great product on the world, without money to pay the rent is of no use at all.

I seek a better balance between Quarterly numbers and Annual numbers. Between Numbers and product.

In the festive season upon us that is a wish I have for all.


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