Former Director of Jamba Juice Speaks on Strategic Budgeting
Q: Can you give a brief synopsis of how strategic budgeting differs from traditional budgeting processes?
A: Traditional budgeting focuses on expenses and cost reduction…finding weak points in the system and eradicating them. It is often an approach of negative vision—let’s get rid of what we don’t want. Strategic budgeting instead focuses on how resources need to be allocated in order to achieve the desired objectives. It requires making an explicit link between how resources are allocated and their effect on outcomes. It creates a process where decision makers agree on desired outcomes, how the system currently works, what levers are available for improving system performance, and what indicators will help us know if we’re really improving. In short, strategic budgeting is a generative process (looking forward) as opposed to a reactive one (looking back).
Q: What resources are needed to implement strategic budgeting measures? How does an organization prepare for such a transition?
A: The resources required included the right set of stakeholders with the right set of skills. To implement requires a champion that has excellent facilitative leadership skills (for more on these skills, see Roger Schwarz’s work). The process skills must include a set of shared values for decision-making. The organization needs to develop a “systems” orientation—seeing the issues from a longer term, dynamic perspective that plays across multiple sectors (of the organization and external groups). Those directly involved in strategic budgeting need to develop a “strategy as learning” mindset (as described by Kaplan and Norton). And they can be supported by using microworlds (simulation-based scenario planning tools) to test policies in a safe and time-compressed environment.
Q: Who takes no the role of strategic budgeting within an organization? Is it a combination of management and finance, or is there typically a specific position created?
A: There are two perspectives on this. One is to create the Office of Strategy Management as suggested by Kaplan and Norton, and to partner them with the Finance Division. This has some advantages; in particular, it creates a group that’s accountable and with authority to make things happen.
The other approach, which is far more sustainable and prone to create quantum improvements in the organization, is to make it part of the task of senior management team. Because strategic budgeting requires a development of long term strategic objectives, this is naturally part of the senior management team.
Q: What setbacks have you seen or experienced with implementing strategic budgeting?
A: I’ve seen several. Some of the more common setbacks include:
- A major issue results from ineffective communication (up/down and across). Upward communication problems often include issues with the Board, who often do not have the dedication to long-term results that may require short-term investments (i.e. short-term hits to profit). Downward communication problems occur when trying to link strategy to daily operations. And across the organization communication issues will result in overlooking potential unintended consequences for strategic decisions.
- I’ve been involved in a few efforts where the champion leaves before “roots” have taken hold. The organization will usually revert to the way things used to be.
- Another mistake is not providing enough resources to building strategic thinking capacity in the organization.
- Many organizations I’ve worked with believe vision planning/budgeting is a one time, discrete event. We just need to have one big offsite and we’re done. Then it’s back to daily operational budgeting.
- Finally, organization will go through the process, but not take the time to identify early warning indicators—so they won’t know when implementing if there’s a problem (with either performance or the strategy). Without early warning (leading) indicators, they’ll not be able to agilely adjust.
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