Creating Budget Headroom for Change
Leadership is all about making hard choices. Often I see executives take on a new role where significant change is required. This change must happen against a backdrop of cost containment. This can freeze even the best of leaders from taking action. Here are some things that may seem familiar to you:
- The change is happening in an already difficult business situation.
- Surprises happen that make an already difficult situation intensify.
- People provide all kinds of reasons as to why you cannot cut here, change that etc.
- You feel pressure to get some quick wins under your belt to build credibility with the boss.
- You see the budget reality inhibits your ability to make the necessary changes and may even see a further belt tightening coming.
If you are fortunate, you may get a one time ask for more resources, whether it be people, money and/or structural changes. One of the first things I like to do is help the new leader sort out their strategic intent. In my mind strategic intent are those vital few things that have to get done to accelerate growth of the business. After this I help them do a thorough review of their entire budget in light of that strategic intent. More often than not, the current spend is completely out of alignment with these priorities. Often you can re-align your budget to the new priorities, save money in the process and be able to re-position spend on the things that matter most. If you can show this to your new boss, you will build credibility early because they will see you as good with financials, able to make tough decisions around resources, align your function to your strategic intent and save money in the process. I would then hit them up for being able to spend a substantial amount of the savings on your new priorities. If you can give money back to the bottom line, so much the better. Every boss will want to give their new leader something early to demonstrate their commitment to you. If you can make it easy for them, all the better.
Once I consulted for a Chief Human Resources Officer that was really under fire with their budget for the following year. Additionally there was a strong sense that the priorities the business was asking from HR were not resourced well. It is hard for leaders to make changes when they feel there is no budget. We set out to analyze every single dollar globally and categorized the spend. We then looked at where the spend needed to be in light of emerging business priorities to drive growth. At that point we assessed alternatives that would in effect re-allocate budget to the new priorities and we built a bridge to get there.
Case: Company ABC Life Sciences
Our task: In order to develop and drive the workforce strategy and strategic people programs that will enable us to cost effectively make the transitions to enable the future organization, we will inventory the dollar for value of the current HR budget allocation and identify options to reallocate. We will at that stage have a solid cost model to define the investment reallocation levels.
Step 1: We looked at the budget through the lens of fixed/variable, people/non-people, strategic services/delivery services and by function within the department. Here is how we depicted the current budget allocation.
We looked at this in light on the anticipated budget for the following year including savings targets that had already been mandated by the CEO. We were able to make an effective bridge to the right level of budget being spent on those things the business demanded. The result was that we needed to re-think the structure of HR to get delivery closer to the local customer and in turn eliminated a number of expenses that had dubious value. In some cases the service was being delivered so far away from the end-user that satisfaction with the department was all but impossible.
Step 2: We then built a model showing existing budget, how we would propose to re-allocate the spend and showed them which budgets would go up and down and by how much. Out of this came a host of discussions with the HR senior team on the changes, the timing and the action plans.
Step 3: After there was agreement on the plan to move forward, we then built a model for how they could migrate to the new structure over an agreed timeframe so as to not disrupt the business.
This is an important process for every leader to go through to implement change. Having a trusted partner who can help you look at this independently is key.