Colin (00:02.123)

Hi and welcome to today's episode of The Growth System, the podcast that looks at B2B growth through a systems thinking lens. I'm Colin Shakespeare.

Chris (00:12.511)

I'm Chris Bayless.

Colin (00:14.549)

And today we're diving into a topic that's central to really every organization, not just in B2B and that's budgets. But we're not just talking about like numbers on a spreadsheet. We're really going to explore how traditional budgeting methods might actually be one of those things that we talk about here on the growth system that's holding companies back and how maybe taking a systems thinking approach can perhaps offer a better path forward.

Chris (00:44.104)

Absolutely. it's that time of year, isn't it? We're in the middle of November. Budget rounds are ramping up. If they haven't done so already, everyone's getting that sort of familiar sinking feeling that the spreadsheet is going to arrive from on high and some numbers are going to need to be plumbed in and, you know, the quiet argument is going to start. we just thought this was a great time.

Colin (01:10.315)

Sometimes it's not that quiet to be fair Chris, sorry.

Chris (01:14.472)

And increasingly noisy the closer and closer we get to the end of the financial year. But there is another way. So I think we thought it would be pretty interesting to talk about that. I think it's fair to say that the other way is not all of our ideas whatsoever. We're very much reflecting, I think, a changing of the...

the wind, I guess, in terms of how people think about budgets. But as ever, really trying to unpack that from a systems perspective and try and stitch some of those ideas with a sort of systems thinking mindset. So I saw some stats researching the episode that kind of blew me away because I've worked in big corporates, Colin's worked in big corporates. We've all been sort of around the budgeting merry-go-round. We now do it.

in in revspace group in a much more modest way but it's a fact of life right and therefore it really shocked me to learn that 72 % of CFOs find traditional budgeting yields unrealistic numbers and I thought that's kind of mad that we've got this entrenched way of doing things that three quarters of the people that fundamentally own this process don't actually believe in.

And another stat which I thought was pretty wild was that it takes 25,000 person days per billion dollars of revenue to put together an annual budget.

This is a pretty old stat, but wow. mean, that is an insane amount of, let's say money, that is being spent putting together this document that three quarters of CFOs think is basically a fantasy. So, you know, the time for thinking about things differently is well overdue, I think.

Chris (03:09.974)

I guess, sort of finally before we maybe get into the meat of it, I saw this sort of Jack Welsh, he was the chairman of GE, and his sort of view was that the most ineffective practice in management is the budgeting process.

He said that it sucks time, sucks energy, fun and big dreams out of an organization. In fact, when companies win, in most cases, it is despite of their budgets, not because of them. So against that backdrop, I think it's fair to say that even the people at the top think that the bar is on the floor in terms of budgets can get better.

Before we get into that, why don't we talk about some of the ways that, you know, traditional budgeting creates problems and maybe let's talk about how budgeting actually gets set in the real world because I think this is the heart of the problem,

Colin (04:13.079)

Yeah, mean, those statistics really, really hammer home how much time and effort is invested in traditional budgeting processes that even the people doing it agrees not going to yield the desired results. I think it just really underscores how we can re-evaluate, how we need to re-evaluate budgeting. I it strikes me that budgeting shouldn't just be this sort of financial exercise. It's fundamentally a reflection of the organization's health.

and the organization's priorities. And think if we approach it the way that we do, and I think you'll probably unpack how we do that at the moment or how it's traditionally done at least, we miss out on chances of really achieving that alignment. So everyone on the podcast has to drink, everyone listening has to drink now because I've said alignment for the first time. But we miss out on that opportunity for alignment between our resources and our strategic vision.

Chris (05:13.418)

Yeah, absolutely. And I think that that sort of reality check, I guess, that sort of alignment view is just clearly not present because certainly, you know, when I worked in bigger enterprises, and even frankly, some much smaller businesses, budgeting is a game. know, budgeting is something that is gamed. And depending on which sort of

area you're in, whether you're in a revenue generating department and you're setting fundamentally targets, you what we were talking about last week.

And as we talked about last week, what you're to be doing there is low balling. You're going to be minimizing the bar at which you kind of success is perceived to be achieved. Because frankly, you've got to get in the game. Personal remuneration is linked to budgeting. If you can get away with putting the lowest number possible in the budget, that's in your interest. That's in your department's interest. That's in the interest of not getting a bigger target next year.

of looking like a hero because you smash target if that's what you choose to do. So there is a of a merry dance taking place just the same as when you're asking for money. You know the focus in any department I've ever been in has been a let's make sure we retain what we got last year you know it's an abject failure if we didn't get the amount of money we got last year as the bare minimum. You know ideally we want to grow that amount of money.

Because to be frank, it ensures that we've got a surplus of kind of resources corralled inside the department.

Chris (06:56.16)

you know, every individual, because we all know how budgets really get set, right? You know, you've got this sort of idea of the number we've got last year as the benchmark. You've got these sort of budget holders that live inside the department, you know, individual functions within within a department called a marketing department. You've got your whatever it might be, B2B, B2C, know, email, events team, whatever they are, you know, they've all got their own little fiefdoms and they all want their own stuff and they've all got their own ideas.

of what they want to spend some money on and there's nothing sort of inherently intrinsically wrong with that but it leads to this culture of like how much can we get? Let's put all the money inside, let's kind of create a situation where particularly where we perhaps might have targets around like staying on budget, you know, being on track, let's make sure they're as easily achieved as possible, make sure we've got a nice little nest egg saved up inside our departmental budgets.

And of course, you you've got these two things taking place. The amount of money coming in is being gained. The amount of money going out is being gained.

It's all very insular, it's siloed. And ultimately the sort of mantle on which the company stands actually turns into this sort of internal negotiation with management, a sort of gamesmanship of sorts where rather than developing something realistic that actually reflects where the company is going and could go, it ends up being pretty, I don't know, arbitrary, fictitious.

Colin (08:32.375)

And above all competitive, think, rather, above all it's competitive rather than being holistic, not that competitive and holistic are opposites, but I think you know what I'm saying here, where instead of everyone having a view of what does the organization need as a whole, how do we need to allocate our resources in alignment with our strategic goals? No, at this point, everyone...

Chris (08:32.878)

This sounds dreadful but it's real life.

Colin (08:58.731)

has a hill to die on around why they need at least the same amount as they had the year before. And then we, of course, we have the big race to make sure that you've spent your budget before the deadline, essentially.

Chris (09:15.459)

Absolutely. Yeah, well that, you know, that little nest egg that you've corralled, okay, well actually we've got to now ditch that, you know, it's coming up to the end of the financial year. You know, the great budget dump takes place, which, you know, when you're sitting out here in supplier land, isn't that a lovely time of year when someone phones you up and I've really got, you know, a million quid I need to spend before next Tuesday. Could you possibly help me out with that? Yes, of course, but for the business.

You know, that's horrendous. You know, that's profit margin flowing out the door to suppliers that's not really required just in the interest of making sure that you get the same again that you didn't really need next year. Think how many things you've had to sell to get that nest egg disposed of. It's kind of crazy.

Colin (10:01.111)

Yeah, mean, really encourages, it causes a sort of drive towards even more entrenched silos, think, certainly sort of siloed thinking. does it, you sort of suspend this knowledge that we all, let's say deep down have that every budget decision is going to have a knock on effect right across the organisation. You allocate resources here, it's going to have

expected consequences elsewhere unless we actually take this holistic view. I mean, I've been in a sales team that's, and again, we won't name any names here, but a sales team that's lost head count, which has been reallocated to marketing, ostensibly to create more leads, to feed fewer salespeople, only for that marketing budget to be spent.

on an external agency to do what the head count we lost were doing. there's a sort of, it was quite a quantitative view on how to sort of analyze the efficacy of that rather than maybe taking into account some of the, and hopefully we'll get into this later, some of the less measurable, but certainly tangible effects of that, even just around the morale of the team and stuff.

in the decision makers, but also in the quality of work that was being produced. And ultimately, I guess the spoiler is it didn't solve the problem. And again, I think this is a result of this, everyone retreating into their silos as we come around to budget time.

Chris (11:48.16)

Yeah, 100%. And yet this kind of traditional view of budgeting, this kind of annual budgeting process seems to persist, even though everyone kind of observes these behaviors, which is kind of mad. But let's maybe talk about some of the sort of, I guess, challenges of traditional budgeting, some of the limitations of traditional budgeting. And I think the main one, really, there are lots of competition to be the main one, I think here, but...

It is just that fact it's an annual budgeting process this kind of infrequency and rigidity that we get from the fact that we start the budgeting maybe in November you know we ramp it up it gets locked in maybe somewhere around January February maybe right down to the 11th hour depending on on how kind of efficient your organization is but it's this sort of

outdated and static reflection of the world as it was at the point that someone, you know, clicked save final on the giant spreadsheet. And it kind of leads to this fragility, I guess, because what was decided then becomes sacrosanct. It is untouchable. And yet the world changes so quickly, more quickly, it feels than ever before.

And yet, you know, any sort of market response is hindered by the fact that our budgets have been allocated, you know, we haven't got budget for that. Yeah. And, and I think that's kind of crazy that, that we create this process that as you say, is rooted in silos and rooted in a lack of flexibility because it's the right way of doing things. I think it's kind of I think also

the starting point for sort of traditional budgeting is a big issue because invariably, as we said kind of in the intro, it's last year as the starting point, right? You know, no one's starting with a clean, you know, blank spreadsheet. We're to start with, you know, save as 2024, know, backspace 2025. Okay, we've got our working document. And then it's about...

Chris (14:03.252)

incrementality almost it's like well what else would we like all these things are in here because they've always been in here. So you've got this again this sort of not just a view of the world as it was when the the budget was saved but maybe from many years past in terms of what we spend our money on. So and of course I think you've got to an ability within that to make a load of inaccuracies errors whatever into that that that ultimately don't kind of

account for whatever the current sort of view of the world and performance standards are. So they've got this sort of inflexibility that comes from how they're created, how frequently they're created. And they're really like static documents. And yet static documents that take an unbelievable amount of time to actually get over the line.

Colin (14:55.223)

like four months since some organizations have worked in easily four months or like that's the target is for. Yeah, that's what good looks like is doing this in four months, one third of your year in creating this stagnant static document from lagging indicators or perhaps not even really, maybe that's being too kind. There's a bit of a copy and paste.

Chris (15:00.296)

Easily. That's what good looks like. Yeah, formless.

Colin (15:24.663)

sort of syndrome going on here as well. I think we work typically mostly in the tech industry as well where the just it's almost a cliche to say the sheer pace of that is very, let's say dynamic environment to that's almost euphemistic. It really makes rigid budgets outdated very quickly. And I think we all need to I think there's a generalized sort of awareness of this, but then an acceptance that this is just the kind of the way that it is. And it's

it's hard to be thinking about adaptive budgeting models that can actually evolve with the changing circumstances. And I think there is a need to have a grown-up conversation about this.

Chris (16:05.228)

Yeah, 100%. I mean, I read a stat, which I don't want to believe, that suggests that 20 % of management time over a whole year is related to budgets. The creation and management and reporting of, you know, like that's one day a week spent driving a document that 75 % of CEOs don't believe in. Crazy.

Colin (16:17.856)

Wow.

Colin (16:30.785)

guess you've got to wonder how much sort of dedication to, you know, there can't be a whole lot of perfectionism going on in terms of creating budgets that no one believes in, frankly, as well. So I wonder how that's impacting the quality of work. Maybe that's a tangent. Maybe we should think about that another time.

Chris (16:50.166)

Yeah, absolutely. I think there is a direct relationship between that. And I think some of that comes from the top as well, because not that I'm trying to lay all the problems at the foot of the CFO here, but as soon as you've got this kind of centralized decision making, like budgeting goes up the chain of command.

the success or failure of your application comes back down often with zero justification that here's what you got. And that can lead to, I think, some pretty dodgy decision making because people that don't necessarily understand the operational reality of the business are arbitrarily almost, it probably feels maybe in reality, putting the red pen through stuff and not really seeing how it all connects together just because

because that's quite a big number, let's just half that and then we can give this bit to over here. And it all in the sort of, when it comes to the death of actually getting it signed off, like how do these decisions get made? They get made up on high by people that don't really understand what's behind the budget line on the spreadsheet. And that's again kind of crazy I think that this whole sort of house of cards then has

resource allocation kind of linked to it, it has compensation linked to it, whether that's in terms of like revenue attainment or whether it's around cost control or being on budget, I mean that we then start paying out on achieving the numbers on the static document from up to 12, 15, however many months ago. And just the more you think about it, the more you think, my God, why do we do this?

Why does no one question it?

Colin (18:42.741)

Yeah, that relationship between sales targets, incentive structures and budgeting is, I think, probably a whole other episode or episodes in itself. Something else that you brought up there that I think is another is a kind of subset of problems within this wider set of problems is around cost control. That seems to be a big priority.

have some empathy for CFOs here. It's not like think CFOs are like terrible people or bad at their job or anything. It's clearly a systems issue. Again, everyone should drink. But there's a tendency to instead of viewing budgets as a sort of enabler of organizational development, it's viewed as a cost control exercise. And you know, that's perhaps perfectly understandable. But I think if you sat down with a

blank sheet of paper and kind of reinvented budgeting, you would be thinking about it in those more sort positive terms of how we use the budget to kind of drive the organization forward rather than pinching pennies.

Chris (19:57.194)

Yeah, 100%.

Colin (19:57.633)

perhaps being reductive pinching pennies, think cost control tends to be prioritized over sort of organizational development.

Chris (20:05.792)

Yeah, I think it absolutely does. the objective is to balance the books. It's to make sure that the budget that we expect to have based on the revenue we expect to have is allocated in a way that is perceived to be fair by all of the people in there based on what they've asked for. It doesn't...

have any direct connection to like a holistic view of where value comes from or at least not in my experience. So I think that it I mean ultimately it reinforces silos doesn't it it it is rooted in siloed thinking every department submits their budget it goes up the chain of command it comes back down.

you expect when it reaches the sort of apex that things are considered in a more holistic way, but they're not really. The money is considered in holistic way. The strategy isn't that sat underneath those. Because how can it be? know, it's numbers on a spreadsheet. So this sort of reinforcement of silos, I think, is one of the big issues. And when we kind of start talking about the systems view of the problem, well,

That's a really, really big part of it. That it is ultimately a wedge to be driven between teams because it leads, as you said, absolutely rightly in the intro, it creates a competitive atmosphere within the organization. know, departments of value for larger and larger shares of budget.

and the broader sort of organisational impact that is just not considered, it's not with anyone's interest to consider it, it's not a component of the process to consider it, so it's not considered. And it sort of represents a sort of, I guess, series of sort of reinforcing kind of feedback loops, I guess, within each individual.

Chris (22:07.028)

departments that sort of self justify, you know, if we've got more, we'll get more. Great, you know, we're sort of self justifying. You know, this sort of more equals more approach isn't, yeah, more is more. absolutely, more budget is more of everything. So let's do that. And because we have this kind of lack of interdepartmental kind of balancing loops,

Colin (22:21.527)

More is more.

Chris (22:37.056)

we don't kind of get this view that more in one department probably means less in another department. And when we live in a system that whilst is, it contains many entities, but those entities are all related. So if it sells a marketing, you you use the example of sales getting less in marketing could get more. Well, there's naturally a system.

Colin (23:05.471)

Of they use that example.

Chris (23:07.252)

Yeah, but it's a great one, isn't it? Because it ultimately in the growth system is what we talk about, sales and marketing and the growth team. And if we have less sellers,

that are less motivated because they've got less budget because they've lost some of their colleagues. And, you know, it's all been put into marketing. Hey, we've reinforced an adversarial relationship. We've created a situation where theoretically more leads are going to be have to be managed by less people. So the quality of the way that those leads are going to be managed is likely.

to have gone down, possibly it's unsustainable, possibly it will lead if the marketing colleagues do a great job. We've got leads that can't be responded to. In fact, actually, we spoke to a prospect a little while back, can't remember who it was, but said something that shocked both of us. We're just like, yeah, we only get back to about 50 % of our inbound inquiries. Up to you. Wow. Yeah.

Colin (24:06.773)

Yeah, wow, that's some serious leakage. You think about how difficult it is for most organizations to produce enough leads to not get back to 50 % of them and survive. Like there's a lot of effort wasted, isn't it?

Chris (24:25.428)

Unbelievably so, a lot of budget wasted generating all those leads which have gone nowhere. And you know that probably had its roots in a process like the one we've been describing at some point. yeah, we're great at doing this, we're getting more leads, so can we have more budget? Of course you can, you know, that makes perfect sense. Can anyone deal with them in sales? Well, that's not a factor on the spreadsheet. It's just, it's kind of crazy, but it's happening.

And it's about to start happening. you know, hence the hence the timing of this podcast. So when we're looking at. Tis the season. Yeah. And these kind of interdepartmental feedback loops, these this kind of system view of the interrelated nature of what budget is spent on and indeed the interrelated nature of what budget is taken away from is not considered and should be considered. And.

Colin (25:02.333)

We're well into the season for it now, aren't we?

Chris (25:24.702)

Ultimately, the traditional budgeting process does not view the organization as a interconnected set of entities. It does not view it as a system of interconnected parts. It views it as a collection of buckets in which money is tipped into and tipped out of during the budgeting process. And that's so obviously wrong. Because it drives this misalignment.

And I think it's no more so than probably around goals. You know, there was always a sort of give get scenario, right? You know, if we're going to ask for X budgets, then we're going to deliver Y outputs. So again, this is a this is a route of misalignment of the organizational misalignment because the books.

be balanced, do they not? we want to have our little nest egg and we want to do our little budget grab, then we're probably going to say, well, yeah, we'll do a bit more of, you know, we'll do 10 % more of output, whatever output is, whether that is sales or product launches or features or whatever it is. MQLs indeed.

Colin (26:38.295)

Or as we said in first episode, MQLs, back in very first episode, we talked about this actually.

Chris (26:44.906)

Yeah, 100%. So we're massaging the figures everywhere. And these girls are not online, are they? Because no one's looking at them. So when we're thinking about kind of how we start fixing stuff, that system view is obviously the root of it.

I don't know, what more can we say on systems? I mean, there's quite a lot of our good old favorite archetypes we could probably apply to this. But I think that...

Chris (27:26.583)

The way that I would kind of think about this is...

The traditional budgeting approach leads to a sort of measurement myopia, it's a phrase I think in something that you shared with me Colin, I think it's a really great way of looking at it. Because I sort of love this sort of thought that by just focusing in on the numbers by this budget process just being about

Colin (27:48.819)

me trying to be worthy and live up to my name.

Chris (28:02.282)

the metrics, then it really leads us to focus only on what is quantifiable. You know, it's sort of if this, then that. If I get this, then I will produce that. And this sort of lack of thought given to the sort of intangible factors like morale, like organisational development, like learning, like customer relationships.

None of that features in a budgeting process really. You might get someone linking their spending customer success to NPS or something, great. if we are suddenly going to...

ask people, this is one that I've seen quite often in the budgeting process, you'll get this like clean sheet of paper like go and just ask us for whatever you want and everyone just knows it's a merry dance because you're only going to get whatever you got last year you know plus or minus 10 percent and people put a lot of heart and soul into going and making up these plans and these strategies and they get really invested in them and they put them in this spreadsheet and lo and behold they don't get

And employee morale is like, is the first thing to suffer there. Like it feels like a rational spreadsheet exercise, but a lot of human effort and endeavor and kind of emotional energy has gone into producing those things. And I think that that is one of the sort of unspoken casualties of the budgeting process is just this.

sense that we're all in this together and that we're up and up for the challenge because everyone knows well actually it's really just about last year plus 10 percent. So I think that the sort of narrowed focus onto the numbers the sort of measurement myopia means that we just don't consider anything without immediate financial returns or quantifiable outcomes so I think that yeah.

Colin (30:04.097)

anything that's too hard to measure to put it again to again to be a bit reductive is like anything that's too hard to measure like how do you how do you measure employee morale in a way that then doesn't become you know that good heart's law doesn't come into play and then it ceases to become a good measure like what is a what are tangible measurable ways to measure what are fundamentally sort of

fairly intangible or qualitative? If you look at organisational health through the lens of learning and development, how much are we going to progress in that in the next year or how much have we progressed in that in the last year? Well, again, how do you measure that without then, again, good heart's law coming into play and people are teaching to the test in order to show, look, we have this number of

certifications this year and therefore we are a more learned organization or you raised NPS scores and sort of customer loyalty that doesn't necessarily tell you exactly what we are the health of customer loyalty is at. But of course these are all super critical elements of long-term success and indeed probably short-term success as well. think part of the reason that this problem persists, this

Chris (31:20.041)

Absolutely.

Colin (31:32.023)

The cause of lot of the misalignment that we talk about is that the idea of fixing this problem gets pushed into the too hard pile, probably because you're spending four or five months doing the budgets. So naturally, does become too hard. And to be fair, a lot of what you're planning for in the budget is probably

fighting fires and fixing problems that exist now, which is another huge drain rather than on sort of proactive programs to improve organizational health.

Chris (32:08.576)

Yeah, I think that you make such a good point there that what doesn't get taken into account, I think, when reviewing the success of a budget is this sort of delays in feedback. know, this sort of the impact of under investigating, investigating, under investing in something intangible. You know, the

The impact generally manifests itself over a much longer period. It's much harder to kind of link cause and effect, particularly within the confines of a of a budgeting process and a budget review process. And it's so often that emergent system behavior, these kind of intangible behaviors, whether it's like innovation capacity or employee engagement or brand reputation.

These are typically really strong leading indicators of future system success that aren't considered within the budgeting process because they don't measure well in the short term. And therefore they're quite hard to put budget justification against. And I think that's something that is the death of businesses that you can continue doing that year on year without really

you you don't know what you've got till it's gone. think that's probably the problem that you see there. And those are sort of interconnectedness of all of this, the sort of siloed view, the measurement myopia, you talked about like filo fighting, kind of creating, you know, misallocations potentially of budget. And you've got this sort of constantly shifting sand of intangible impacts that you just can't see on the spreadsheet.

So we've talked about the problems as ever, let's talk about what to do instead shall we? I mean do you want to kick us off on some what to do instead thoughts?

Colin (34:10.113)

Look, in terms of what to do instead, as you know, I have recently started to dip my toe into the how budgets are created world. And it's kind of a minefield. I know that in the research, we looked into things like smart budgeting, like this.

emphasis on agility and speed and continuous planning. I can't say that I am an expert in this area, but think there's a lot out there in the research to think about implementing flexible, maybe monthly budgeting and responding to rolling forecasts and being more agile in how we make adjustments. I guess enabling organisations to kind

pivot and swiftly adjust to market shifts and maintain that competitive edge. And I think as a general point, there's a need to move towards more, let's say, decentralised and more autonomous units collaborating with other stakeholders and fostering this iterative continuous improvement model.

Chris (35:37.152)

Mm.

Colin (35:37.451)

And obviously that's going to foster greater or one would think would foster greater communication and understanding across departments. Now, we work in a relatively small organization and I've seen, you know, how that can work in at that scale. I don't have any positive examples from my career of that really working in practice in some of the larger organizations and you referred to working in corporates, which is quite the opposite.

Chris (36:06.134)

Yeah, I saw quite a nice analogy, I thought, of the sort of agile planning approach to budgeting that you're kind of talking about there, which is a sort of analogy of a ship trying to sail to a destination that traditional budgeting would mean that if it plotted a course on a chart, it would...

sail on that course and it knows what its destination is and it will not deviate from that course or anything whether there is a hurricane or a ship in the way or you know whatever is on there it's that's the path that's yeah that's the seas that are being plowed through whereas this sort of agile approach is more around accepting that there will be

conditions on that journey which will lead to deviations from the course. We still know that we're trying to get from here to the other side of the Atlantic.

Chris (37:10.538)

An agile approach doesn't mean that you could leave for Boston and end up in Belize as this sort of thing I was reading suggested, but it still means that you've just got the flexibility baked into the process to navigate around storms, to stop off an island's possibility.

Colin (37:29.441)

or icebergs.

Chris (37:31.884)

So I thought that was quite a nice way of thinking about it, the sort of agile planning is that whilst it prioritizes flexibility, you know, there is still a destination in mind in terms of where we're trying to get to. So there are a few things that I was looking at in here and all of them really seemed to come back to one kind of central idea, which was this sort of concept of rolling forecasts. You know, as you said, the sort of agile approach is all around, you

better collaboration, better transparency, more data-driven insights, but ultimately it was about shorter term, I think was the main outtake that I took out of that by ultimately looking at much shorter periods, be they quarters probably, to align budgets with kind of the current reality that the business is facing, be that positive or negative. You know, if you have a

a run of deals close in a particular area and you're ahead of target, well actually you might be able to spend a bit more to get some more of those rather than being locked into the budget that you set in the past. Equally, if things aren't quite as good, then you're going to want to make some decisions around do we actually need to spend more in that scenario? Do we need to spend less? You know, what is the...

what is the reality that we're facing right now? And I think that's something that just makes so much more sense, particularly if you know you have got a destination in mind in terms of broad targets to hit. And it just sort of prioritizes utilizing data and analytics, using data-driven insights to kind of make decisions. And isn't that just such an obvious thing to do?

which most budgeting processes don't allow for. I also thought that something in this kind of like agile view of the world, which I thought was just so sensible, is actually a sort of value-driven approach to budgeting, which might sound like an obvious thing, but rather than saying, how much money do you want, department?

Chris (39:52.265)

actually really linking back to what is the corporate strategy, you know, where is value going to be created to drive us towards that strategy, what are the strategic priorities, how are those going to get delivered, and ultimately doing resource allocation based on the high impact areas, the sort of levers that can be pulled.

to make sure that we're maximizing return on investment across the piece, across the entire budget. So, whilst there's sort of a technical almost, and this is not resolutely not an accountancy podcast, we're not seeking to give financial advice here. I think that this just agile, shorter term planning window, data driven.

sort of strategy driven approach to budgeting just inherently and sort of instinctively just makes so much more sense.

Colin (40:53.141)

Yeah, think that's also there's a kind of trade off between. I guess there's a lot of talk nowadays about sort of optimizing for efficiency and there's a kind of trade off between that and actually maintaining this adaptability that you're talking about. I think what we're starting to realize now that that's. That's a difficult balance. You can go too far the other way. I over optimizing for efficiency can really sort of reduce your resilience. Like just look at what happened to.

global supply chains during COVID, for example. So I think when we're thinking about the solution here, it means that in budgeting, we have to be leaving room for experimentation and not necessarily committing all of our resources, as you kind of mentioned earlier, where you're saying, we don't have the budget for that. Good idea comes along, but we don't have the budget for that. Don't commit all resources to rigid plans and actually leave.

that sort scope for the organisation to pivot when necessary without that being a sort of shared trauma for everyone in the organisation.

Chris (41:56.94)

Yeah, I've seen actually in the real world one particularly good example of people doing that, which is this sort of, I can't remember what it's called, but essentially it's sort of the innovation approach to budget allocation, which is the sort of 70-20-10 model.

think Google are probably credited with doing this. seem to remember it's an older piece of thinking, but it's not really important. But fundamentally, it put 70 % in BAE, put 20 % in stuff that...

is probably going to be fine, you know, it's not quite a sure thing, but it's certainly a good solid bet and leave 10 % just for making wild bets, you know, for pure innovation, for things that you're effectively willing to lose 100 % of.

And I think that's an interesting way of viewing the world, even if it's at a departmental siloed level. Actually, even if you just make people do that, you're going to drive a lot more innovation into the process, but you're also going to drive more greater flexibility to capture opportunities as they arise rather than be allocated, as you say.

Colin (43:06.518)

Yay.

Yeah, so that's an interesting point as well, that 10 % that's left for innovation and sort of unexpected things and to be able to kind of follow through on good ideas, I guess. Which is interesting, there's a tension here, isn't there, between enabling greater autonomy and decision making and things like budgeting and innovation between departments and...

business units, guess, however you want to divide them up and having those and yet still acting in a more sort of holistic fashion or thinking in a more holistic fashion about it all. I guess to choose an analogy outside of the business world, this is why, as Chris knows, I'm sort of military nerd, this is why NATO forces

are trained to fight the way that they do, where individual commanders at the battalion level are unable to make decisions, which in, say, to choose a sort of cogent example, in the Russian army, which is trained to fight in much larger formations, where that's simply not possible. I in some cases in the last couple of years, we've seen the president making tactical battlefield decisions on behalf of a unit in occupying Ukraine.

whereas their fighting forces where individual come out that would never happen. And so, nevertheless, there's no doubt that the NATO or NATO trained forces are obviously operating in a, essentially they're all working towards the same goal and they do have dynamic resource allocation, et cetera, but it's just that there's this.

Colin (44:58.903)

enablement and empowerment I guess of individuals to you know they're not just working to a rigid plan they're moving towards the same goal.

Chris (45:10.866)

There is an old military adage isn't there that...

you know, no plan survives first contact with the enemy. And I think that you can see that in that NATO example, but I think you can see that in budgeting. You know, something that you said 12 months ago is not going to be fit for purpose in eight months time when some, you know, speed bump in the road occurs that you didn't foresee. And I think this sort of rolling forecast approach where you've got not just 12, 18 months, you might even have a 36 month view. Where's the business going to be in 36 months? What does that look like?

like obviously the detail is not going to be high in those longer views, but you're constantly filling it in three months at a time, you're constantly updating it. So you've got this kind of flexible, adaptable approach that allows you to kind of...

focus on key value drivers, focus on critical variables like revenue growth and cost structures and whatever performance indicators you're using within the organization so you can make really fast adjustments to what's happening out there in the market. But also you can keep the budget more closely aligned with company strategy because goals and priorities shift over time, opportunities emerge, and it gives us an adaptable framework to start capturing some of that stuff.

Colin (46:28.247)

Sorry, sorry to interrupt. was thinking kind of part of the point I was making here is imagine if you are in a traditional rigid budgeting system, let's euphemistically call it a system, and all your resources have been allocated at the start of the year. And then as often happens, new opportunity, let's not even be negative about it, a new fantastic opportunity arises which requires you to redirect some resources and maybe make some innovations. However, you're not able

Chris (46:29.514)

No, that's great.

Colin (46:57.973)

to respond to that quickly enough or in an agile enough fashion, because you have to send that request up the chain as far as the CFO. That's the kind of business equivalent of what I was talking about. And the CFO has to clear time to then understand the opportunity in itself and sort of trickle that back down through the relevant channels, by which time the opportunity, especially in the tech industry and the speed that things move, is probably gone.

Chris (47:27.37)

Yeah, 100%. And so this is the rolling approach. And not something else I was reading about, which actually I must say is not something that I've previously been familiar with. But I sort of liked the strategic purity of the idea of something called zero based budgeting. I don't know whether you read about that. Good. And I think that this is a basic concept.

Colin (47:45.479)

Yeah, I've been calling it Zeebeebees, but yeah.

Colin (47:52.981)

nightly is that joke.

Chris (47:56.94)

The basic concept of this, because I will let's not go into the, you know, the nuts and bolts detail of it, but it's fundamentally as you always start with a clean sheet in whatever period, even if you're doing a rolling budget basis, you always going back to justifying every activity.

And I think that whilst that could be slow and potentially could be inefficient, so we're not necessarily advocating it, what it does do is ensure that you've never got any dead wood in there that you're just doing because you've always done it. If you can't justify it versus the current strategy that's prevailing within the business, then you shouldn't be doing it. So I think this sort of zero-based approach is pretty interesting, I think, in terms of being able to ensure that

you've always promoting cost savings, you know, you're always identifying and eliminating unnecessary expense, you're always encouraging goal alignment, you're always kind of focusing on accountability, you know, departments have got to justify their expenditure. I guess the reality of that is that it's probably time consuming, it's probably resource intensive, and it probably leads to a degree of short termism.

Colin (49:10.615)

Well, hang on though, Chris, hang on. If 25,000 person days are spent per billion dollars, presumably it was, of revenue, isn't there a significant scope to kind of reallocate those person days across the year to be doing this? Maybe, I take your point about sort short-termism, maybe. But in terms of the resource allocation,

Chris (49:17.91)

Yeah.

Chris (49:31.989)

Mm.

Colin (49:35.735)

I'm not sure I buy it because we've got these stats that you told us at the beginning about the 25,000 person days.

Chris (49:39.232)

Yeah.

Chris (49:44.106)

Yeah, and I think there's a sort of horses for courses thing going on here. I think it's very tempting for big business to think this would never work for us. But ultimately, they're where most of the dead wood is. I think that if you are in a budget that's got constraints, that is looking at strategic realignment, or indeed that's kind of experiencing growth or restructure or whatever.

actually that zero based approach is probably a very healthy way to think about.

how all this money is floating out the door. So yes, I do get that. And I guess it's all down to time horizons, as with so much of this stuff. You're probably not going to do a zero-based budget every quarter, but you might do one every year and then evaluate it every quarter using a rolling approach. I think that the two things are interrelated in the sense that they ultimately promote strategic alignment. They promote constant reevaluation of what

going out the door and what value it is creating and how aligned that is with the strategic objectives of the organization. And I think that, you know, when we think about that in our specific world of kind of B2B tech, that it gives you the ability to kind of be much more connected to kind of market trends, to kind of market dynamics.

as we see competitive landscapes changing, we see competitors releasing features that we need to potentially react to, whatever it might be, industry trends, it gives us a framework for enabling shifts within what we're doing without it having to go all the way up to the CFO, and I think that's quite a key thing. I think also,

Chris (51:37.872)

something that I, we haven't talked about, but I thought was quite an interesting thing that I was reading was about sort of value alignment, you know, in the the B2B tech world, innovation and kind of R &D is such a significant part of the, of what makes companies successful. And ensuring that we're kind of allocating sufficient funds into R &D.

is such a key point in terms of how we're thinking about budgeting and coming back to the point we're making earlier about sort of intangibles, stuff that doesn't have an immediate return. You I think when we have a sort of value of innovation within the business, making sure that we're just vet checking our budget allocation, that it's making sure we're delivering against our values, I think is quite an interesting way of looking at the world.

So we are up against time as we always are. Shall we think about maybe just sharing a few best practices from a systems thinking perspective to sort of round out the episode in terms of what an alternative approach to budgeting could be.

Colin (52:49.621)

Yeah, think unexpectedly this episode, perhaps we could run and run. We could probably do a second Budgets episode at some point and still have stuff left to talk about. It was an even richer topic than expected.

Chris (53:05.984)

for something that amounts to talking about spreadsheet is definitely an opportunity, kind of rich environment, isn't it? In terms of talking about things from a systems perspective. And I guess to maybe kick us off with a first point and maybe this could be our summing up as well in the way that we normally do. But I think the number one thing when we're thinking about budgeting effectively in a non-traditional way, in an agile way.

Colin (53:13.911)

Ha

Chris (53:33.362)

is focusing on interconnections across departments. We know that the company is an ecosystem of departments, it's an ecosystem of entities, and budgeting should reflect this kind of interconnectedness. So encouraging collaboration and transparency across the departments during the budget planning process.

you know, for instance, aligning marketing and sales projections and product development timelines rather than working in nice, you know, departmental silos, like crazy idea, but maybe we should think about when we're spending budget based on when the products are coming out and, know, what marketing we're doing based on what sales are doing and what sales we're doing based on what marketing are doing. So kind of having the shared understanding of resource needs, resource allocation, and kind of taking

Colin (54:19.659)

guess transparency between the departments as well here.

Chris (54:23.148)

Yeah, absolutely. Do you want to go for one or shall I keep bludgeoning on?

Colin (54:32.407)

I was going to say something about a dynamic adaptive budgeting model is what is pretty obvious that there's a need for. As you particularly illustrated, it's just not a fit for the dynamic and complex business environments that we actually work in to be

spending four or five months creating this static document that no one believes in. And adaptive models obviously are kind of one solution to that problem. I think rolling forecasts is something that I think maybe we could even look into that in more detail later. Certainly flexible budgeting techniques is something that not just finance, but guess the line of business heads, et cetera, need to kind of look at and certainly be.

be thinking about at the moment and moving forward and adapting planning to real time data and emerging trends. And I guess leaving room, this is something that's often forgotten that you brought up, leaving some fat in the budget, if you like, for innovation, new opportunities and things that come up during the course of the period, let's say if it's a year or a quarter or a month.

and allowing that rapid adjustment to market changes and allowing resources, aligning your resources with evolving opportunities and threats as they come along rather than saying, we'll factor this into next year's budget.

Chris (56:16.202)

Yeah, I think in a similar vein, I would think that thinking about budgeting through the lens of

like system leverage points to sound very systems thinking about this. But we've talked about leverage points before, we've talked about levers and ultimately identifying the levers in the system, the leverage points that can drive positive outcomes. Whether that is...

Colin (56:32.733)

is the growth system.

Chris (56:47.91)

R &D spending in a tech company when we know that we've got a big market shift, you know, that would maybe be an obvious one. That if we are maybe looking for a series B, then actually customer acquisition, maybe at all costs is actually a lever that we're pulling to then drive growth and not one we would necessarily advocate, but certainly a common one. So I think looking at these value levers and using the

as a methodology through which to view the budget. So ensuring that we've identified the levers and that we are investing in pulling them for value creation purposes so that when we're building the budget it's focusing on these high impact areas that contribute to overall system performance.

Chris (57:40.785)

Do you want to get another one?

Colin (57:44.863)

Yeah, go on then, go on. I think something that's lacking in a lot of organizations, certainly in my experience, is sort of effective and transparent and I'll just say it honest, sort of feedback mechanisms, let's say, that promote.

that ideal of full transparency and reliable information being part of the feedback loop. So obviously, it's absolutely essential for the system itself. Just as an ecosystem responds to changes, companies need to have mechanisms to adjust their budgets based on new insights. And that means that effective feedback mechanisms have to be in place. And that's not just feedback feeding up the chain.

But I think something that's sorely lacking is real transparency across departments and across functions. So there needs to be some sort of, there needs to be a regular review process. I guess part of that process has to be analyzing performance metrics that make sense and don't just focus purely on the.

the easy to do quantitative metrics, we produced this many leads and so on. And that's actually quite hard to do. there's a need to implement a system to govern that and to inform across the whole organization. mean, I've even been in organizations where there are different sort of organizational sort of designs in different business units, for example, which makes that very challenging.

Chris (59:34.14)

Yeah, yeah, I think sort of wrapping around those are this sort of, sort of data kind of visualization, business intelligence kind of view, right? So we're making these decisions, we've got this kind of continuous improvements, like all these feedback mechanisms, that we really need the data to make informed decisions. And it's something that we talked about.

think actually in the metrics episode, maybe even last week as well, it's like this concept of scorecards and having data at your fingertips. We don't talk, and it's something that we should change, I think, about what you might broadly call non-human systems, technology, integration, automation, composability, all that stuff going slightly off topic here.

That kind of technology architecture, that sort technology ecosystem that's going to put data at our fingertips, it's going to enable data visualization, it's going to enable scenario planning. I think that's something that really needs to be part of an agile budgeting system and a sort of modern budgeting system.

Colin (01:00:42.603)

Yeah, think just interject, I think that we've been talking about behaviors that kind of drive and reinforce silos. we don't talk enough about how important it is for the technology stack and the non-human systems to be aligned. And that has essentially the opposite effect. And it's actually an area that we work in quite extensively at the moment as well. So we should talk about that more facilitating

the flow of that data and the right information to the right people in real time, which is of course possible and surprisingly kind of let's say underdone even in the B2B tech world.

Chris (01:01:25.76)

Yeah, absolutely. And I think a final one probably for me in terms of what good looks like from a systems perspective. And actually, I'm reflecting back on the episode where we talked about some systems failures, things like the Cisco kind of flip debacle. If you don't align budget with kind of the company's vision and culture and values, you know, if it doesn't pass that test of alignment,

then the budget probably isn't right, no matter how much justification you can put around it in the justification spreadsheet. So I think that if budgets don't reflect the company's vision, they don't reflect its values, then they are going to create misalignment, and it is going to create misalignment.

So, you know, if we are a business that is saying we are going to change the world through innovation and we're not spending anything on R &D, well that's a problem.

you know, if we are a business that is going to be the number one enterprise networking business and we are going to spend half a billion dollars on a consumer product, that's probably an issue. So let's think about that sort of cultural and vision lens when you're reviewing the budget. So I suspect that is probably slightly more things than we had time for.

Colin (01:02:48.961)

Yeah.

Colin (01:02:54.987)

Yes, yes, we've probably gone a bit over. I actually had one more final thought just before we wrap up, Chris.

Chris (01:03:01.209)

With this far out, let's have a final one to see yourself.

Colin (01:03:06.103)

So part of the problem, part of the inertia in fixing these problems, which I think the data, the points that you told us about at the start, made it obvious that kind of everyone knows that this is a problem. And part of the problem is that if you try and make changes, if you're the CFO and you say, we're going to do budgeting differently now, it's quite hard to know whether or not that's going to work or how that's going to play out. The only way to do it is to just kind of do it.

And that's a tremendous risk. I think CFOs are typically quite risk-averse, and they essentially have to be. And I think this is something that we're going to have to go into. Sorry, I will shut up in a minute. This is something that we're going to have to go into, I think, probably on a separate episode, because we are now at a point, I think, with emerging technologies around data analytics and particularly AI, where

It really enables us as systems thinkers to approach budgeting through predictive modeling. So we can essentially see what would happen or at least have a better go at predicting what would happen if we make certain changes rather than having to take the risk of implementing changes and see what happens. Maybe go to prison or.

certainly get fired. But I think it's certainly an episode of predictive modeling. We'd have to dive into this budgeting issue as well. Tools that can allow us to simulate various budgeting scenarios or indeed other scenarios and improve decision making and really be able to compute all these complex interdependencies that we're talking about in a way that's maybe a whiteboard's not ideal for.

And we know some people who would probably argue differently who just really love whiteboards. But I think I will shut up now because I could talk too much about modeling. That was too interesting.

Chris (01:05:06.388)

your day. Right.

Chris (01:05:18.193)

our problem with an unstructured episode, isn't it? We get all a bit unstructured. But I think that's been really interesting. I think it's been interesting to explore a different way of viewing the world around budgets. I certainly think that some of the organizations I've worked in in the past would have really benefited from.

some of these more agile approaches. I think that they would have made far better decisions in the course of the year. And I hope everyone listening can maybe take a few crumbs into their own budgeting process and maybe think a little bit differently about how things ought to be done.

Colin (01:05:56.747)

Yeah, on that note, we'd really appreciate a moment of your time to tell us what you think, either just about the growth system podcast in general, or indeed what your thoughts are on this episode, or maybe just your sort of stories about traumatic budgeting experiences. And certainly we will delve back into that, depending on what comes back.

That's definitely all we have time for today. We've kind of run a bit on from where we the length of a normal podcast. All that's left to say the growth system is brought to you by RevSpace. We're an applied growth consultancy that connects B2B organizations with the future of growth, offering consultancy, education and applied delivery services. Don't forget to follow and rate the podcast. It really helps us bring the content.

to a wider audience. And as I said, we'd really appreciate a moment of your time to tell us what you think. That's all we've got for this week though. See you again next time. Thanks. Bye bye.

Chris (01:06:58.752)

soon.