Drive Your Ducks To Mightier Ponds

A recent McKinsey survey revealed that companies allocating the same amount of resources to the same business units as prior years can expect static results. On the other hand, those that shift an average of 56% of capital across a wider range of businesses earned an average of 40% higher returns over a multi-year period, thus generating a reinforcing cycle of growth that stimulates ongoing value-creating investment opportunities in new markets, new segments, joint ventures, pilot programs or acquisitions.

 Most food companies are anchored in old budgeting processes and spending habits, and the reasons for this are many. Companies default to budgeting patterns that provide no clear link to new strategies. Or there’s no bottom-up build to the process, no proper auditing of returns on current investments. No measurement stick to trigger re-deployment. Even politically, some executives dominate decisions with a personal bias toward their own divisions and teams or pet projects. No wonder delivery on strategy falls short; there’s been no meaningful shift of resources to support it!

You may believe your company avoids these anchoring traps, but be willing to be challenged. All budgeting if left unchecked can undermine your organization’s ability to achieve its goals. CEOs must be alert to any tendency to use irrelevant numbers mired in politics or habit to influence capital allotment, and insist their teams re-balance resources to create value.

A simple guide is to categorize business units into buckets such as “grow”, “maintain” or “dispose”, and then change the default budgeting process to one requiring burden of proof and performance measures. After careful deployment, the CEO could apportion the remaining 2-3% in available capital to ventures outside of traditional business units to seed future growth, or use variable cost savings or profit from as little as 1% revenue growth over target for the same purpose.

Regardless of the method you choose, directly and transparently tying budgeting and resources to corporate strategy improves results and creates value. In doing so, the company’s strategic and financials teams must work closely together under clear guidelines mandated from the top spot. And don’t underestimate the importance of an outsider’s point of view, fully supported by the CEO, to challenge the status quo and offer bold recommendations that have the potential to be unpopular but avoids disproportionate power and influence over capital, talent and resource decisions.

In other words, someone to help you drive your ducks to mightier ponds.