A False Sense of Control
Why we eliminated strategic planning and annual budgeting
“I love the annual budget planning cycle.”
— No One Ever —
In most companies, planning for the next year’s spend (carefully aligned to a corporate strategic roadmap) begins a full quarter ahead of the next year.
It goes on for months — meeting after meeting, cut after cut, projection after projection, until finally it is adopted by a grand board resolution. Companies then spend the next nine months desperately trying to control their fates with monthly revenue projections, expense reports, profit and loss scenarios, and nasty emails to employees reminding them of the $43.20 per day meal reimbursement policy.
The lower down the totem pole you go, the more painful this predict and control process feels. When I ran a department, I spent no less than 80 hours each year preparing for the big partner meeting that took place in November. I’d ask my team to prepare their predictions for department demand in the coming year, I’d examine every expense line item to find candidates for cuts, and I’d prepare my business case for any new expenditures we required. Typically, I’d get 25 whole minutes of the executives’ time to present my case. They’d sit there, staring at me expressionless, making my thoughts oscillate between “Am I speaking English?” and “Do I have spinach in my teeth?” And after three days of hearing similar proposals from my fellow sleep-deprived colleagues, they’d go into a closed room and emerge with a first pass at the annual budget. Typically, department leads were handed a new number and asked to cut their proposed budget further. Like cats bringing home a rat to our owners, we’d dutifully make the hard decisions and present revised budgets to the powers at be. Except, by then, their strategic plan had shifted three more times and our efforts were now dead on arrival. And so the cycle continued until we ran out of time (i.e., the fiscal year started).
Even if we solve for issues with executive engagement and transparency, the problem with these types of long-term planning remains: the prediction never matches the reality. There are three core reasons top-down annual planning doesn’t work:
Decisions are made by the people who are furthest removed from the day-to-day
Companies rigidly adhere to a structured plan that is definitionally outdated the day it’s issued
Because the plan has little real-world utility, the inefficiency of spending months presenting upward comes at a significant opportunity cost of more high-value activities
How can we possibly know, beyond a high-level guess, what kind of year our company will have? And to what end does such a prediction serve us? The predictions are rarely right. At best, missing your projections affects morale; at worst, it has real-life implications on the job security of your employees. Brian Robertson, author of Holacracy explains this phenomenon brilliantly (as covered heavily in Frédéric Laloux’s Reinventing Organizations):
“Imagine if we rode a bicycle like we try to manage our companies today. It would look something like this: we’d have our big committee meeting, where we all plan how best to steer the bicycle. We’d fearfully look at the road up ahead, trying to predict exactly where the bicycle is going to be when...We’d make our plans, we’d have our project managers, we’d have our Gantt charts, we’d put in place our controls to make sure this all goes according to plan. Then we get on the bicycle, we close our eyes, we hold the handle bar rigidly at the angle we calculated up front and we try to steer according to plan...When you are actually riding a bicycle, steering is not something you do once upfront; it’s something you do in continuous flow, with micro increments all the time, and you do it consciously, you do it based on opening your eyes, taking in data in multiple ways.”
So, the obvious question is: “What do you do instead?”
RiverNorth has a core philosophy that is wrapped around every single thing we do:
SENSE ➤ CHALLENGE ➤ ADAPT
It is every employee’s responsibility to sense what must be done to move the organization toward its evolutionary purpose. Day-to-day, this means asking ourselves, “what is the most valuable contribution I could make today?” Strategically, this means recognizing that RiverNorth is not a static set of policies and corporate documents. We are a living entity that evolves daily at the will of the collective sensing of the people that make up the company. As we sense factors that affect our strategy, we actively challenge that strategy. Regular company-wide PitchFests provide opportunities for individuals or teams to describe tensions they have sensed and how they plan to process those tensions.
Once a challenge is understood, the company works to adapt as quickly as possible to overcome the challenge. This is not done through presentations to executives who make decisions behind closed doors. We don’t value the sensing ability of any one person over another -- a founding assumption of RiverNorth is “everyone’s input is weighed equally.” Instead, we seek advice from colleagues and have the power to make decisions about what needs to be done. Strategy happens every day by everyone.
In practice, this means that we prioritize making decisions based on what we know now, instead of what could be the case later, understanding that we have the flexibility and commitment to adapt if our decision is wrong. To do this, we do not prepare annual budgets. We maintain basic profit goals (as a percentage, not dollar figure) and average costs that are openly shared with each employee. Because no one really knows how the year will end: we just spend a lot less time pretending we do.