Even at the best of times, foreseeing what lies ahead is, as Nils Bohr put it, difficult and associated with significant uncertainty. The present circumstances just exacerbate this fact – the past eight months may or may not be indicative of what will come, and it does not seem likely either that things will go back to being like they were before. In other words, there is no relevant frame of reference to base our predictions on.
One cannot help wondering:
- Is it then worth the time and effort to do the budget?
- What is the likelihood of realising the budget?
WHAT IS THE PURPOSE OF YOUR BUDGET?
To answer the first question; A budget which primarily is to serve as a performance measurement tool against which results are compared and explained has never been more meaningless given the uncertainties. However, a budget which is to serve as a shared ambition has never been more meaningful. It can offer direction in a time when most of us feel lost.
As for the likelihood of realising the budget in a future, which may or may not resemble anything we know, the short answer is “It is very much up to you”. Admittedly a somewhat provocative statement but consider the following: Change and uncertainty are not new phenomena. Heraclitus wrote about them in ancient Greece, Machiavelli in the Middle Ages. Change and change leadership have been part of the executive’s toolbox for centuries.
However, the complexity is higher than ever, and so is the speed at which the changes occur. As a company, there is very little you can do about the complexity and speed except for recognising it for what it is and respond appropriately. The key to realising your budget is therefore in your ability to respond appropriately, and that is in fact within your span of control.
RESPONSIVE BY DESIGN
How your operating model is designed will to a large extent determine your ability to respond appropriately to changes and uncertainty in the external environment. The relevant question to ask in a budget context is therefore “Is our operating model fit to deliver our ambition in the given environment?”.
Two overarching evaluation criteria are relevant in relation to responsiveness, namely simplicity and adaptivity. These two criteria need to be balanced. Simplicity without adaptivity or adaptivity without simplicity will not enable responsiveness.
Simplicity as an evaluation criterion is about efficiency, effectiveness and transparency in your organisation. We tend to see our operating model, i.e. our processes, our IT landscape, the organisation and our management and governance structure as a given. It is a fairly permanent structure, which is only subject to adjustments when e.g. new ERP systems are bought or in connection with acquisition. In addition, we tend to consider each element in the operating model separately instead of as closely interconnected elements.
It is important to realise that, for your operating model to be efficient, it must be viewed holistically, and each element must be carefully aligned with each other. The end-to-end process should efficiently deliver the services and products which match the customers’ requirements, and nothing else. The IT landscape should be of a nature that enables and increases efficiency in the end-to-end process, employees should be organised around the process, and management and governance should drive continued efficiency and effectiveness.
Adaptivity is not a matter of being best at predicting the future but of being attentive, ready for and able to respond. Where simplicity is about the systemic dimension of an organisation, adaptivity is about the behavioural dimension. Your organisation is currently coping with one of the largest disruptions seen in recent history. It has adapted to the situation by collaborating in new ways, changing ways of working, through extended use of technology and so on and so forth. Consider this from a behavioural perspective; Which behaviours enabled us to respond quickly? Which behavioural changes are important to sustain? How to ensure that they are indeed sustained?
There are several proven models and inspiring views on how to address the behavioural dimension. The common denominator however is the importance of addressing the ‘Why?’, ‘What?’, and ‘How?’. None of us are likely to voluntarily behave in a certain way unless we understand and accept why it is being asked of us. ‘So, what is it you want me to do?’ needs to be clearly articulated, and probably more importantly demonstrated consistently. Running the risk of stating the obvious; We cannot expect people around us to behave in a certain way if we do not do so ourselves. Finally, new behaviour might require new skills and the opportunity to behave in the new way.
YES; YOU CAN REALISE YOUR 2021 BUDGET
A good place to start is by rating your operating model on each of these two criteria. And hopefully, you will be able to answer in the affirmative to the question from before: “Is our operating model fit to deliver our ambition in the given environment?”. If your answer is less certain, now is the time to start addressing complexities in your operating model and nurturing the behavioural aspects.