The end of fiscal is (usually) followed by an organizational twitch of budgetary insanity. The brain-slappingly painful, yet seeming inescapable behaviour I'm referring to is where managers take whatever cash they've got left and make the mad dash to spend it.
This has to end.
In essence, after a year of grinding caution, meticulous control, and careful planning we seek to manage our budgets we grab what's left in the piggy bank and look to spend it.
There are a few problematic elements here:
1. Timeframe (i.e., Corporate Myopia)
What is the message when we set the "financial distance" to one year? We complain about devestating corporate myopia but what is the fundamental message if we measure and emphasize quarters or a single year vs. 2 or 3 or 5? Why should we expect a long term focus if rewards and punishments are dolled out in the short term?
2. Consequence (i.e., The Hidden Value Statement)
To reframe what Bob Sutton considers to be the best litmus test for creativity (looking at "What happens when you fail?"), I'd point to "what happens when you fail to end up with a budget of zero dollars?"
It's simple. You don't spend the cash, then it's at risk of taking a permanent vacation from your budget next year. This just hurts my brain.
So, ofcourse, if that money is as good as gone, then why not spend it. What else would anyone expect under those rules?
However, there's an additional "social cost". Not only do you lose budget, but you "look bad" and "raise questions" about why you have so much left over. Tsk, tsk.
3. Fast vs. Good
The problem now becomes spend it fast vs. spend it well. This is the second generation mutation of the first two problems. There's no time left and it's simply better to spend than not spend.
The end result - a high risk of wasteful purchase. Not only is it (I would agrue) totally unecessary in the first place, but chances are you end up with stuff that's not even value added.
4. Everybody Does it (i.e., Corporate Zombieism)
Aside from the classic "bridge jumping" argument emphasizing lack of critical thought, the real issue here is the scale. If the majority of organizations are guilty of this practice, what's the level of global economic waste? I shudder to imagine.
The scale of waste is the 3rd generation mutation of the problem.
What's worse is that all of this "economic waste" is 100% recyclable. In fact, it's silently begging to be reassigned to a useful purpose.
5. The Legacy War-Machine
The amount of pieces stacked against myopic budgets is collossal. There are entire industries based on the idea of the single year budget (e.g., accounting, tax, etc). Any attempt to radically change their business model will be annihilated. So, we can't mess with the legacy war-machine - it's too powerful and too cranky. Imagine a combination between the Incredible Hulk and a really stodgy bureacrat.
The good news is, we don't have to reinvent the standard economic annual cycle or anger legacy industries - we just have to change what companies do with their yearly change jar.
And let's face it, some constraint is actually a good thing.
There is good news too. Most of the problems are mutant offspring of old problems. So really if we can attack the gene pool hopefully we have fewer mutants running amok.
What needs to be changed is the Hidden Value Statement. This is the powerful organizational norm that says you better spend your money OR ELSE. (1) because we'll take it away if you don't and (2) because you will be subject to managerial stigma if you don't go on a shopping spree like the others.
First, the hidden value statement needs to change. Create longer term budget pools to support desirable organizational activities (e.g., innovation).
Let's take inspiration from the fact that some organizations are already doing this in bite sized pieces. E.g., at Whirlpool, innovation compensation for senior leaders is based on a three year cycle. Cleary, it's easy to identify the kinds of activities that merit a longer term evaluation.
Second, the hidden value statement needs to go public. It can't be hidden. Everyone needs to know.
Left over dollars are acceptable - perhaps even highly encouraged. Relentless communication can signal where and how left over dollars will be allocated (and possibly rewarded).
Third, the budget of origin must not be punished. If in the end you still take away cash for next year, you're still making enemies of managers. Except now they're even more pissed off because they can't control how the dissappearing dollars are exhausted.
Instead, the original budget must remain unpunished for sharing left overs. I would encourage the opposite, that sharing spare change is indeed noble, helpful, generous, and enabling and should be recognized as such.
2. More opportunity for valuable outcomes (e.g., innovation outputs)
3. More opportunity for workforce recognition and development through new, valuable activities/initiatives
4. More opportunity for an engaged workforce
5. More opportunity for fewer human capital costs (e.g., absenteeim, presenteeism)
6. More opportunifty for more profit
7. (At least temporary) Competitive advantage over competitors NOT doing this (e.g., Greater % of cash going to value-add vs. competitors)
I think the above list outlines, at a very high level, the potential practical impact for deliberately trying to maximize the ROI on remaining cash.
2. Have managers report on how much money is left over in their budget one month before end of year. Ask them to approximate what new spending in the next month is anticipated. and what will probably be left over.
3. Freeze the amount left over from end-of-year.
4. Having the senior executive team establish potential pools of strategic value; or crowdsource to varying degrees. E.g.,ask managers/employees would they would support with the left over money, or provide a list. Either way, it should be finalized by the SET.
5. Communicate the new shift in fiscal practice to employees via multiple means (email, video blog, in person presentations, etc). Begin prototyping recognition programs.
6. Gather employee feedback via surveys and/or focus groups regularly. Address misperceptions. Highlight successes, create "heroes" and broadcast.
7. Establish a consensus mechanism for managers/employers to indicate how they would like savings spent. Again measure satisfaction with process, understanding of goal, perceived link with strategic value - and address.