Hack:
Investing into the Future

Current organizations are often geared to the financial cycles that they run. Whether these are tied to business planning, quarterly results or any other form of reporting mechanism. This means that grand plans are sliced into bite size pieces, and budgets are allocated with the next reporting cycle being kept at the foreground of our thoughts.

 

In fact, leaders that make investments beyond these time slices, end up facing an uphill battle to gain support for their plans. Those leaders that do end up overwinning the red tape face punishment for success.

 

To elaborate on this point, if a plan implies investing in the present in order to generate savings in the future, the leader him/herself does not gain access to the benefits and additional funds, but instead need to deliver against the renewed budgetary estimates made with the initial proposal. This creates a disincentive for most units to pursue longer-term efficiencies because these benefits are not allocated to them.

 

In order to counter this, mechanisms need to be put into place that bring the benefits of long-term investments to the leaders capable of succesfully implementing them. This means that the value from initiatives that uncover hidden inefficiencies should be reinvested into those individuals that can make the most of those benefits.

 

For instance, in marketing often if a new leader requires less funds to generate the same buzz in the market, for the next cycle the funds he didn't spend are taken off his budget, and the funds he has available are reduced. This means that the effective leaders end up with smaller budgets that the inefficient.

 

If we extrapolate this to the corporate level, we can only plan for money to be spent. We are incapable of planning in excess, which kills the need for efficiency in organizations. In fact, it fosters inefficiencies (spend it all or we will have less next cycle). The entire accounting system needs to be shaken up to allow for effective leaders to want to be effective. For the savings they make to be available to them to reinvest where they can make the biggest impact. Not for budgets of the efficient to be allocated to the budgets of the inefficient.