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|In: Leadership|Last Updated:

Some days you get to be a grand visionary. This being October, you’re more likely to be busy preparing your budget.

Budgeting is a problem. It’s a time-consuming, annoying, expensive process, almost always implemented as stupid game-playing (the game is Pin the Tail on the Donkey), and the only thing worse is not doing it.

One difference between budgeting and other games, like bridge or Scrabble, is that you can choose to not play bridge and Scrabble. If you want to be in management, you have to learn how to play the budget game to win, or failing that to play it to not lose. It isn’t easy, since the other side holds most of the good cards.

(Sidebar: A group called the “Beyond Budgeting Roundtable” is trying hard to replace the budgeting game with a more rational approach, built on two major pillars — continuous, adaptive planning and decentralized decision-making. I wish them well. If your company hasn’t adopted Beyond Budgeting, though, I don’t recommend that you be the first to say, to the CEO and CFO, “You know that our budgeting process is a stupid game that promotes unethical behavior. Why don’t we adopt this promising alternative?” Unless, that is, you’re seriously interested in committing career suicide.)

There is no single, magic formula for preparing and successfully defending next year’s IT budget. Here are some techniques that should help you survive the experience, and even to have intelligent conversations on the subject:

  • Separate spending for value maintenance from spending that enables new business value. Value maintenance is “non-discretionary” — curtailing it isn’t a realistic choice. So long as the company is in business you will run day-to-day operations, modify the accounting software to accommodate changes in the tax code, and implement new labor contracts in the payroll system.Value enablement, in contrast, is “discretionary”: The business has a choice about each proposed software enhancement and major project, and about business expansion that drives the need to invest in additional infrastructure — for example, opening new branch offices.
  • Base spending for value maintenance on ratios. The cost of maintaining already-delivered value is the result of some basic drivers, such as the number of servers each sysadmin can support and the cost per seat for software licenses. Build your budget on these ratios, so you can defend the need to increase non-discretionary spending if the business situation calls for it.If you can, add another layer of sophistication by going beyond ratios, to break down costs into fixed and variable components.
  • Build continuous improvement into spending ratios. When you can, of course: You can’t build continuous improvement into per-seat software license costs. You can, in contrast, take steps to increase the server/sysadmin ratio, and you should, if for no other reason than to prevent complacency from seeping into your organization. Improving these ratios is how you shift spending from value maintenance to value enablement without reducing the value you maintain in the process.
  • Decide whether value-enabling spending is driven by capacity or demand. If you’re capacity driven, it means governance decisions are purely about allocating the staff you have available to work on software enhancements, major projects, and business expansion. The budget decision is about how much staff you have available to allocate.If your spending is driven by demand, it means the company decides what it will take on and you provide the right mix of employees and outside resources to take care of it. That, in turn, means you can’t budget without the company’s plan. It also means you have to be very good at the discipline of project cost estimation.
  • Apply the “walkaway rule” to your budget negotiations. For better or for worse, in most companies budgeting is a negotiation, not a collaboration (okay, I lied; it’s almost always for worse). One of the most basic rules of negotiation is that whoever is in a better position to walk away from the deal wins.In practical terms, this means agreeing to whatever cuts in your budget are proposed by the other side, making two points clear in the process: (1) the business will have to do without something as a result of the cut; and (2) you won’t be the one in the headlights — the standard governance process will be the mechanism through which the company decides exactly what the business will have to do without. That’s what it’s for.

The only thing worse than having to play stupid games is losing stupid games you’re forced to play. You might as well play to win.

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|In: Business Ethics|Last Updated:

Don’t worry. This isn’t a partisan political column, nor is it irrelevant to your corporate role. We’ll get there — be patient. You can learn a lot from current events if you know where to look. For example:

Let’s imagine you’re disturbed by current events. Perhaps you’re reacting to the recently passed laws allowing “harsh interrogation” and the suspension of habeas corpus, or judicial activism, or environmental and energy issues, or the war in Iraq, or illegal immigration, or the bipartisan gerrymandering of districts to make as many incumbents as possible safe, or taxing and spending, or not taxing and spending anyway, or Roe vs Wade, or the growing influence of religious groups vs Roe vs Wade, or the ownership of both major political parties by big business. What should you do about it?

A peculiarity of American politics is the persistence of third parties (and fourth, and fifth, and so on).

To the extent third party candidates have any impact at all, it’s usually to help elect whichever major party candidates hold the views least compatible with their own. And that’s in a good year. Mostly, third parties provide an outlet for those who want to participate in the political process without having to experience the sausage-factory ugliness of the political process itself. They provide an opportunity to say, “I told you so.”

Imagine that Perot, Nader, or both had spent all of their energy and influence working to modify the electoral process to allow “instant run-offs,” where voters list candidates in order of preference. Instant run-off would mean that Texans who like Kinky Friedman best for governor, but still would prefer Chris Bell over Rick Perry could vote their preference. If the Kinkster came in third, their votes would automatically shift to Bell.

Instant run-off would instantly remove the single biggest barrier to any third-party candidate — the perception that voting for one is a wasted vote. Had Perot lobbied for instant run-off in Texas in 1992, it very well might have happened, and having happened in Texas it very well might have spread — an enduring change that would have fostered the Independence Party he founded.

It’s worth asking why he and Nader decided to lead third parties instead of infiltrating the Democrats or Republicans, and why, having formed new parties, they chose to squander their time, energy and resources running for president instead of for instant run-off or some other tactic that would have had laid a strong foundation to build on. Three factors probably played important roles: An unwillingness to dirty their hands; a preference for being the big frog in a small pond instead of just one big frog among many in a lake; and a desire for the limelight.

The result: Their hands remained clean, they became big frogs in small ponds, they got the limelight … and they had little or no impact, other than as spoilers.

Which brings us to you and your role in corporate America.

Corporate politics, like national politics, is a multi-player chess game. The higher you rise, the more your personal effectiveness depends on your political skills. You choose tactics that can win given the situation as it is, not as you wish it was. While corporate politics rarely descends to the kinds of tactics used in national politics, on an average day you still find yourself faced with choices that are morally ambiguous at best.

Politics means getting your hands dirty, trading your support on one issue for someone else’s on another; building alliances with people you don’t necessarily admire or like; flattering, cajoling, and at times threatening. It isn’t a game for the finicky, and as a general rule, the nastiness of the tactics needed to win correlate with the size of the lake you’re ribbetting in.

Your choices are the same as those that were available to Ross Perot and Ralph Nader. If you find politics distasteful or lack the aptitude for it, but still want to play a leadership role, choose a smaller pond … a small-to-mid-size company.

But don’t turn up your nose at those who swim in the big lakes. They are the same as you and me. They just play the game better. Many are very ethical people, too. In their code of ethics, unlike the code of third-party candidates, achieving the least of the available evils counts as a moral victory.

* * *

Speaking of politics, election day is approaching. Given the issues at stake it’s as important a mid-term election as any of us have seen in decades. One of the candidates that’s running for each office and has a chance of being elected is a better choice than the others who also have a chance, even if you don’t much like any of them. Your vote is your influence, and even if you’re just choosing the lesser of two or three evils, you’re responsible for doing so.

Many disagree. To me, that says it’s just fine to allow the greater of two evils when you could prevent it, so long as you are able to wash your hands of the responsibility.

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