12
business finance
may/june 2009
The budgeT is dead.
There is no dobt whatsoeverabot that. It is as dead as a doornail. This mst be distinctl nderstood, or nothing wonderfl can come of indstr’s20th-centr management model that seemingl growsmore dsfnctional with ever qarter.We are of corse referring to the corporate bdget, notthe personal bdget or famil bdget or an other revered variet of that which generall refers to a planned list of rev-enes and expenses. And while some companies ma findthis obitar a bit prematre, others will likel tell s thatit’s long overde and that their bdget has been dead thesepast 5 ears. (One Swedish compan claims that theirs diedas far back as 1972.) Still, others ma claim that we’ve beendped and have fallen victim to a persasive activist lobb that stands to gain an inheritance from the bdget’s demise.Nonetheless, we sa that the bdget is dead. At the ripeold age of 87, the bdgetar concept took its last seflbreath. Of corse, there will be some who will arge withsond reason that the bdget is mch older, and, as o willread, we believe that there is some merit to this. Howeverfor the prposes of this article we wold prefer to simpl report: “Dead at 87” — a life that ma have served all of management better had it been half as long.In fact, acconting historians will likel someda remem-ber the bdget not onl for what it broght to bsiness, btalso for how tightl it clng to it. This endring grasp — asteel fingered clench — is something that few managementconcepts have ever achieved with sch speed and reach.Thirt ears after their inception, the dictms of bdgetar control were being disseminated to ever part of the world,reshaping organizations and tasking finance exectives (orptting a bit in their moths) for generations to come.Jst how strong bdgeting’s grasp remains on bsinessmight be better revealed b the nmber of companies thathave recentl reported a broad-based sstem failre in thearea of corporate bdgeting and control processes, and etthese companies have so far refsed to part with their bd-
The Bdget(1922–2009)
gets. A recent srve condcted b
Bsiss Fiac
fondthat two ot of three finance exectives expected their 2009bdgets to be obsolete within the first 6 months of theear, while 28 percent of finance exectives reported thattheir bdgets were obsolete even before 2009 began. Thiswidespread failre of bdgetar controls, however, is onl asbtext to a mch larger management qandar.
The LasT Key To DecenTraLizaTion
In the late 1950s, when management thinker PeterDrcker began writing abot the shift from the com-mand control organization (the organization of depart-ments and divisions) to the information-based organization(the organization of knowledge specialists), the practicesof bdgetar control seem to have been altogetherremoved from his line of sight. Or at least his writingsdon’t express mch concern over how widel sed bd-getar practices and fixed-performance contracts coldpotentiall ndermine his vision of late 20th-centr organizations.So it was for man management thinkers, whose explo-rations seldom peered into the finance department and withonl rare exception all bt overlooked bdgeting.In his book
My Yars with Gral Motors
(Dobleda &Compan, Inc., 1963), General Motors chairman and CEOAlfred Sloan Jr. sggested that bdgeting was designed notto centralize power, bt to decentralize it. “It was on thefinancial side that the last necessar ke to decentralizationwith coordinated control was fond. That ke, in principle,was the concept that if we had the means to review and jdge the effectiveness of operations, we cold safel leavethe prosection of these operations to those in charge of them,” wrote Sloan, while reflecting on the acconting pro-cesses his compan had adopted nearl 40 ears earlier.“If Sloanism was bilt on decentralization, it was con-trolled decentralization. Sloan created a powerfl generaloffice fll of nmbers men,” wrote John Micklethwait and
DuPont created it, McKinsey institutionalized it,Drucker overlooked it. Now, the tale of the overduedeath of an infamous control process.
By jacK sweeney
coverstory
www.businessfinancemag.com
jacK sweeney dt ff
Business Finance
.
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DuPont created it. McKinsey institutionalized it. Drucker overlooked it