Dynamite post and timely. This is a great example of why finance leaders need to stop sending Excel templates during budget season and instead have a conversation with their leaders in a small group or 1:1 setting with these sorts of questions, take notes, and then turn those notes into a spreadsheet.
Well-written, and it’s an important topic. A few thoughts:
1. For every organization that has the debt you describe, another has the opposite problem: People, structures, and processes stretched so thin/eliminated in the name of EBITDA that the multiple on those earnings is impaired, and you have little hope of knowing the damage until you bring the company to market and land at (or below) the bottom of the range.
2. You’ll struggle to align on a zero-based budget without first aligning on a better operating model and then sizing organization and the budget to run that model. The budget is a dependent rather than an independent variable. It’s the output of the process, not its driver.
3. Rewriting an operating model from scratch is really hard. Incremental annual budget increases are mindless and lead to the organizational debt you describe. Maybe there’s a middle ground: Hold the functional leaders responsible for the majority of people costs accountable for *increasing returns to scale*. Let them figure out the people, structure, process details. They’ll need a strong HR business partner who understands strategy, finance, and org design. And if these leaders can’t do that, you’ve found the problem.
Putting in practice can be very challenging. Departments take for granted the Actuals and Budget from previous years to discuss next's year budget, even without any relevant project or initiatives.
Would love to see more details on this idea of organizational debt. How do you go about disincentivizing the sub-layer of management to accurately report their headcount needs when it’s in their business to get more budget?
Dynamite post and timely. This is a great example of why finance leaders need to stop sending Excel templates during budget season and instead have a conversation with their leaders in a small group or 1:1 setting with these sorts of questions, take notes, and then turn those notes into a spreadsheet.
Well-written, and it’s an important topic. A few thoughts:
1. For every organization that has the debt you describe, another has the opposite problem: People, structures, and processes stretched so thin/eliminated in the name of EBITDA that the multiple on those earnings is impaired, and you have little hope of knowing the damage until you bring the company to market and land at (or below) the bottom of the range.
2. You’ll struggle to align on a zero-based budget without first aligning on a better operating model and then sizing organization and the budget to run that model. The budget is a dependent rather than an independent variable. It’s the output of the process, not its driver.
3. Rewriting an operating model from scratch is really hard. Incremental annual budget increases are mindless and lead to the organizational debt you describe. Maybe there’s a middle ground: Hold the functional leaders responsible for the majority of people costs accountable for *increasing returns to scale*. Let them figure out the people, structure, process details. They’ll need a strong HR business partner who understands strategy, finance, and org design. And if these leaders can’t do that, you’ve found the problem.
1. Agree! Org debt can be both ways (spending too much or too little relative to growth)
2. Agreed and good point
3. Yep - certainly doesn’t have to be all or nothing
Thanks for the feedback and excellent additional points!
The idea of zero budget exercise is great.
Putting in practice can be very challenging. Departments take for granted the Actuals and Budget from previous years to discuss next's year budget, even without any relevant project or initiatives.
100% is is hard. If the company isn't fully committed to doing it and if you don't have the right leaders, then it probably won't work.
If done right tho....great things can happen :)
Would love to see more details on this idea of organizational debt. How do you go about disincentivizing the sub-layer of management to accurately report their headcount needs when it’s in their business to get more budget?
Yes, I will do a future post with more detail on how I go about this!
Thank you!
This is my new favourite term. Organizational Debt. Great post!
Glad you enjoyed it Ruben!