Stuart Locke: Vision as the bottom line

Professor Stuart Locke

Budgets and forecasting are the backbone of any business (ask an accountant), but when the budget gets in the way of the vision, there's a danger that the business can lose its way.

Partly it's a problem inherent in the contradiction between these two processes. Vision emerges through the trial and error process of developing insights into how you can create more value than your competitors. Budgets and forecasts, on the other hand, emerge through a structured, ordered process, where the figures have to add up in the end.

Unfortunately, this structured, ordered process can take on a life of its own. Remember the slinky, the spring that could walk itself down steps? Budget cycles can act a bit like a slinky, taking your business in a direction predetermined by economic efficiency and short-term performance. Along the way, you can lose sight of what your business is all about.

So what can businesses do to make sure the budget process doesn't hijack the company's overall purpose?

First, we need to let go of the top-down mission, objective, strategy, tactics (MOST) approach. The process of developing a winning strategy is much more messy, experimental and interactive. It's very much a bottom-up process, which involves generating insights from operating experiences and the needs of stakeholders, and moulding them into winning strategies.

Just recently, the giant British retailer Marks & Spencer has been here to strike a deal on sourcing New Zealand lamb. In a company where the budget drives the deal, the approach would be: what is the market for lamb, what sort of price can we get, what do we need to pay and what are the associated costs?

Instead, M&S see the value proposition is in providing quality and consistency. M&S aim to provide consumers with the same sized lamb chop every time, with the same colour, texture and taste.

To achieve this, M&S have contracted to purchase specially bred – and trademarked -- Primera sheep from Hawkes Bay breeder Rissington Breedlines, and have also licensed the sheep to UK farmers to ensure consistent year-round supplies for the UK market. It's a good example of the company's vision driving the deal, in this case through a strategy of creating alliances.

All businesses need vision to create strategy. We need to be continually asking ourselves: what is the value proposition for the customer/client and what is it that is driving our strategy forward? It seems to me that this isn't likely to be along a coil of repeated budget cycles -- which is probably best used as an executive toy for slinking down a stairwell.

* Stuart Locke is Associate Professor of Finance at Waikato Management School. He spoke on this topic at the Conferenz Best Practices and Strategic Models for Budgeting, Planning and Forecasting conference held in Auckland on 20-21 February.