Winning the Battle of the Budget

World-class companies are adding significant value to the budget process through linkage with their long-range strategic plan and by focusing on bottom-line performance. A key to success is obtaining management's buy-in.

The budget process is a lot like the federal government — nobody really owns all of it. At most companies, so many people have influence over the budget that making changes requires a massive consensus. As a result, people become stressed out and companies often remain with the status quo.

A growing number of companies, however, are reaping substantial benefits from benchmarking the budget process. Texas Instruments, Union Pacific Railroad and Texaco are among the companies making the transition to budget processes that greatly reduce detail and emphasize strategic planning.

“People are grappling with how to make [the budget process] more flexible and still enable it to serve some of the same purposes executive management wants a budget to provide,” says Lee Gregory, a consultant with the best-practices firm of Gunn Partners Inc. “The quarterly analyst meeting has done more to undermine smart management in corporate America than any other single event or issue. That's why you see executive management take such a strong focus on short-term numbers and putting a lot of emphasis on the budget process. At the same time, midlevel managers — the people on the firing line — are seeing the need for more flexibility and contingency and scenario planning.”

If your company is striving to reach a specific goal five or 10 years from now, you need to be able to break from traditional budget practices and scan the corporate horizon. And it certainly doesn't hurt to have an early buy-in from the bottom-liners in senior management, many of whom are beginning to understand the need for better teamwork and shared responsibility for outcomes throughout the company, not just in the finance department.

“If we all feel like we've got some skin in the game, if we miss the sales number or the overall bottom line, then we're all going to be willing to pitch in and help one another and flex to be more successful,” Gregory says. “But if I get narrowly focused on just being responsible for the marketing budget, I don't care that sales went to hell in a handcar. You have to understand those interrelations and you have to have some common measure that you're all pulling toward.”