How To Budget Your Way To Irrelevance

We all must control costs. Companies that don't not only waste money and hurt profits, but they also miss out on market opportunities as they fritter away needed resources.

But companies don't exist to save money. They exist to deliver value. Even the most cost-efficient companies will go bust if they don't deliver much value.

Unfortunately, IT and other kinds of planning at most companies still rests on operational budgeting. The central -- and seriously outmoded -- idea underlying this approach is that planners plan by setting resource caps for various business functions. This approach has little or nothing to do with delivering value and driving innovation, which are accomplished by optimizing investments, not by capping resources.

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How can business leaders overcome this counterproductive approach to planning? For one thing, start to think about planning as the management of an investment portfolio aimed at delivering specific outcomes and benefits, rather than as the mere doling out of budget dollars.

The analogy with a personal investment portfolio is quite appropriate. A strong financial adviser will take into account a client's objectives. Is the client a young person, with a high tolerance for risk, who's looking to build equity? Does the client need the portfolio to throw off cash on a monthly basis? Is tax avoidance a priority? Or does the client need to hedge against a set of investments already in place?

Companies have similar investment objectives. A prime example is the quality of the customer experience, which in many markets is an even more important competitive differentiator than product features or price.

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What happens in the real world, however, is that companies don't bake customer experience into most of their projects and initiatives, which continue to be driven by time-to-market, lead generation and other imperatives. So while customer experience gets lip service, it never really becomes actualized.

With the right tools and processes, companies can formally prioritize customer experience as an outcome for every project and initiative. It may not be the primary imperative, but investment-centric planning ensures that it's appropriately prioritized across all company activities collectively. This approach is ultimately what transforms the theory of C-level strategy into the reality of in-the-trenches execution.

So if your company still equates planning with budgeting, it's time to start an investment-centric revolution. Otherwise, you could find yourself with a very lovely budget -- and not much of a value proposition to offer your customers.