44.312 Security Management

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How does the shift to a learning organization play out in terms of the management functions we have studied?

Budgeting

  • Problems:
    • can be seen as a way for a manager to maintain or increase an individual's or department's power.
    • they only deal with a single year, so they're not good for long-term planning.
    • versions such as the line-item use only incremental decision making
    • often preserve old decisions, don't fully re-examine them.
    • emphasize control over money without really looking at how the money is being spent in terms of achieving goals
    • or, budgets may be used oppressively, with managers focusing on mistakes
    • some managers simply focus on their own budgets when preparing budgets, rather than the needs of the organization as a whole, and focus on outputs, not processes.
    • Has been blamed as one of the reasons for the corporate scandals such as Enron and WorldCom:
      "One large survey of U.S. companies concluded that managers either did not accept the budgetary targets and opted to beat the system, or they felt pressured to achieve the targets at any cost. This pressure is squeezing the life and spirit out of many organizations and their people. It's the mentality that says, 'Do what I say or your future is at risk.' It is driven by greed and a need for instant gratification and immediate results. This was evident at both Enron and WorldCom. The WorldCom culture, say those who worked there, was all about living up to [CEO] Bernard Ebbers's demands. 'You would have a budget, and he would mandate that you had to be 2 percent under budget. Nothing else was acceptable.'      " -- Beyond Budgeting
    • traditional budget emphasis is on control, "with a centralized force emphasizing coercion rather than coordination, focusing on cost controls rather than on creating value, which in turn stifles initiative and keeps the planning and execution processes separate."
    • top down: from CEO to line level who must execute
      • no longer consistent with decentralized organizational styles that give more power and autonomy to line managers. Inherent conflicts result.
  • New Realities:
    • companies today must be flexible and innovative
    • "Only by overcoming the constraints of the traditional budgeting approach can managers build a business model that operates at high speed; is self-questioning, self-renewing, and self-controlling; and rewards innovation and learning."
  • New Practices:
    • Beyond budgeting"
      a performance management system that gives budgeting decisions to the line managers, who are those most affected by budgets. :
      • eliminate annual budget cycle, because it limits long-term planning and is deterministic
      • goal is to support self-governing business units
      • give more responsibility and accountability top more business units to create value. "devolution."
      • create autonomous profit centers. These will be able to continuously adjust their strategies and encourage team performance at various levels.
      • Doing this requires training managers well, plus giving them freedom and responsibility to deliver results. (my emphasis)
    • "Rolling budgets"
      review quarterly rather than just once a year.
      • helpful in planning, because you can work with "real-time" information
      • can shift priorities more rapidly if external conditions change
      • requires that managers be more intimately involved in the process
    • Multi-year budgeting
      • involves a 2-yr. or longer budget (up to 5).
      • improves long-term planning and priority-setting.
      • lets departments link long-term plans and priorities with budgets and decision making.
      • reduces amount of time annually devoted to budgeting
      • however, they lack flexibility and make forecasting difficult
    • Balanced scorecard:
      combines traditional accounting with non-financial measures in both long and short-term. "The balanced scorecard retains traditional financial measures but also adds 3 other measures to tell the company's real overall health:
      • customers (factors such as product image, service quality, cost
      • internal factors (employee skills, productivity, quality
      • learning and growth (can company change and be innovative?) -- this measures employee satisfaction.

Links performance to the company's overall mission: are these expenditures and efforts helping achieve it?

  • Benefits:
    • new versions may help the company deal with fast change better.
    • hidden benefits:
      • give most useful and important information for managers
      • emphasize excellence in context of efficiency and effectiveness throughout the organization
      • "engage organization in a coherent and efficient process that ties everything together, including budget requirements, obstacles, and objectives"

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