Budget season is near. Executives are dusting off the machinery and rallying the troops. Is budgeting a blessing or a burden in your company? For those with visible, data-driven strategic assumptions about the outside world, market growth, competitor moves, technology, the cycle, the budget reflects street-smart insight into where the profit lies, and the leaders who authored the numbers own them. For everyone else, the sweat of the troops is side-swiped by numbers born of internal folklore, and when the meetings are done the answer is the magical ten percent. Funny, that was last year's number too.
That is the blunder: internal data, not tied to external data and assumptions. It hurts for three reasons.
Averages
A single growth number homogenises the differences between your products and markets. How can the budget for smartphones be 15% when the market is growing at 30%, asked one executive. The budget had never looked outside.
History
Last year plus a margin assumes the market will behave as it did. The one thing every assumption list says is that it will not.
Ownership
Numbers handed down are defended with excuses. Numbers built from the market by the people who will deliver them are defended with action.
The fix
Start the budget from the strategy page, not the spreadsheet: the assumptions, the product-market priorities, the five Strategic Numbers. Build the number cell by cell, product by market, from external data. Then let the leaders who will carry each cell set it. In the MOVE® system this is the difference between a budget and an earnings commitment the board can approve.
Monday
Take this year's budget and find the growth rate for your most important product in your most important market. Then find the market's growth rate for the same. If nobody can tell you the second number, the first one was folklore.
