55. Mastering chaotic markets with advanced management techniques

PLEASE NOTE: This transcript has been created using fireflies.ai – a transcription service. It has not been edited by a human and therefore may contain mistakes 

 
00:03 
Dom Hawes 
You are listening to unicorny and I am your host, Dom Hawes. Welcome, unicorners, to part two of our budgeting deep dive with Doctor Steve Morlidge. In part one, Steve showed us how our budgeting process is actually creating dysfunction in our businesses. How it's not helping us plan for growth, actually, how it's doing the opposite. It's helping us plot a course for shrinkage. Now, the remedy isn't to throw the baby out with the bath water. We're not anarchists here. We need constraints. We still need a budget, we still need a plan. The trick is to change the way we're applying those things. Let's get straight back to Steve. Steve, you did a great job in part one of framing the problem. Now, in part two, I want us to talk about how we can move towards a solution.  

 
00:52 
Dom Hawes 
And I'd like to start with the beyond budgeting institute, the BBI. Maybe you could tell us a little bit about the BBI's work and how it's helping improve business effectiveness.  

 
01:01 
Steve Morlidge 
Ok, so I'll give you a little bit about the history. First, where it came from. So it started off in 1998 when two people got together. I think they bumped into each other at the airport and basically got to bitching about the fact that everybody complains about budgeting. Nobody likes it, but there didn't seem to be an alternative. It started off as basically a couple of people with finance backgrounds trying to find a better way to do budgeting.  

 
01:30 
Steve Morlidge 
But it very quickly became clear that was the wrong question because they appreciated very quickly that budgeting is one manifestation of a particular way of managing a business that we characterize as command and control, and that you couldn't look at the budgeting and the finance processes in isolation, but that because the availability and distribution of resources is so fundamental to any organization, you can conceive of any attempt to fundamentally change the way that businesses work requires that process, that budgeting process, to be tackled at the same time. And so that was the realization that they had in 1998. And since then, we've been on a journey to understand what that means in a practical way for businesses and try to systematize it and make it easy for people to understand and implement.  

 
02:31 
Steve Morlidge 
Because the problem is, it is so fundamental at a practical level, but also in terms of the way people think. As we started off talking, it's not a quick fix, but the good news is it's not an all or nothing thing. There are sort of intermediate steps and they will generate benefits along the way. So the way that we articulate beyond budgeting now is we say it's a set of principles. There are twelve principles, six of which are process principles, which will be familiar to all accountants, and six of which are leadership principles. And the two are complementary and have to be aligned in order to achieve the kind of results we want to achieve. And what we're saying is it's fundamentally about trying to construct a management model that works for your business. It's not a recipe.  

 
03:20 
Steve Morlidge 
There is not a list of, these are the things you do, and this is how you do it. It is a set of ingredients, if you like, which you need to combine in a way which is consistent with the nature and needs of your business, and which is doable practically, given where you currently are as a business. That's the fundamental heart of beyond budgeting.  

 
03:43 
Dom Hawes 
And from a marketer's point of view, then, like for a CMO, listening to this, that wants to embrace some of those leadership principles, or wants to embrace some of those principles to try and make their budget more effective, other than buying a book, obviously. Where would they start?  

 
03:59 
Steve Morlidge 
I think the key thing would be to start by enrolling your colleagues, because it's not something that a CMO can do by him or herself. It's not something a CFO can do by him or herself. This is about creating a new management model, a new way of working. And in order to really make a difference, you need to get pretty much everybody in a business, if not perfectly aligned, you need to get them in the right kind of place, such that when you do start changing things, they react in the way that you want them to.  

 
04:37 
Dom Hawes 
Okay, so one of the bits of advice I constantly give to CMAs is to take the CEO out to lunch frequently. This could be one of the discussion points over lunch with the CEO.  

 
04:46 
Steve Morlidge 
This absolutely could be, yeah. I mean, there is a line of reasoning which is particularly popular in the states, for obvious reasons, is that it all starts with the CEO. You've got to get the CEO on the side. I don't subscribe to that wholly. It would be difficult to make progress if your CEO is antagonistic, but what you really need from your CEO is permission and support when you need it. But to expect the CEO to be driving it all, I think is unrealistic, not least because if I go back to my Unilever days, a CEO's term office is three years, four years, five years. And are they going to give all of their attention to this over five years? Unlikely.  

 
05:31 
Dom Hawes 
Unlikely, yeah.  

 
05:32 
Steve Morlidge 
So it's important to get the CEO on board. But I think what's really important is getting a coalition of like minded people together at a level in the business where they can actually make a difference.  

 
05:48 
Dom Hawes 
One of the other things I was really taken with again in the little book of beyond budgeting is there's a little graph one of the pages, which is a subsidiary of a major corporation. It's unnamed, but what it looks at is the business was going into a kind of volatile, slightly volatile decline until the beyond budgeting principles were adopted. And then what you see is enormous marketing efficiency because the marketing budget actually stays pretty steady. But the business then goes into sustained growth path.  

 
06:17 
Steve Morlidge 
The unnamed subsidiary is an unnamed subsidiary of. Usually, though, okay, I'll go into this in a little bit more depth because I think we've talked at a conceptual level up until now. I think it's helpful for people to make it real and also for people to appreciate. This is not just about trying to strike a nice pose. It's about getting results.  

 
06:42 
Dom Hawes 
Results. Yeah. Yeah.  

 
06:44 
Steve Morlidge 
So what happened in this particular case is I was given the responsibility for introducing beyond budgeting into Unilever. And there's only one of me and about 200,000 other people. So it was quite an interesting challenge. I decided there were kind of two basic kind of things I could do. One was to work on specific kind of processes that were small enough for me to get my hands around and actually achieve something, change something. That might be a kind of intervention which opened the door. And the other one is just go around and just go talk to people over and over and over again. I basically said the same thing over and over again. After about 200 presentations, I got reasonably good at it. And in my head, what I was doing, it was alike.  

 
07:31 
Steve Morlidge 
I was broadcasting seeds, and most of the time those seeds fell on kind of concrete paving slopes. Occasionally, what I hoped was one would sort of tumble over into a crack and there would be a bit of soil there and that would grow. And then if you've got a flower growing, you can then say to people, look at this flower. This is an amazing flower. And you can harvest the seeds from that and so on and so forth. And amazingly, it worked. It doesn't happen very often in a career where something that you plan works, but this did. And in this particular case, it was one of our foods businesses in eastern Europe who took these ideas up. They were a kind of microcosm of unilever. And its strengths and its challenges. Strengths are great people.  

 
08:19 
Steve Morlidge 
Its challenges were business challenges, which was, how do you grow in a boring market with established competitors. How do you grow? How do you get market share? And it's something we found enormously difficult.  

 
08:36 
Dom Hawes 
And a very common challenge, by the way. Yeah, very common challenge.  

 
08:40 
Steve Morlidge 
People in Europe were constantly beaten up, which is saying, why aren't you growing as fast as the Philippines? It's kind of a bit of a difference in this particular business. The old managers had managed using the old system, which is they negotiated a set of budget numbers with head office, and they did what they felt they have to hit those numbers every single quarter, which meant that there was this sort of a spasm in the revenue numbers which cascaded through the business. And the board interfered in things which it didn't have the competence to interfere in, because they were simply not because they were stupid, but they were just simply too remote from what was actually happening in the marketplace.  

 
09:23 
Steve Morlidge 
So what happened is the old board were kicked out, a new board was appointed, happened to have a few people in I knew, which helped, and they recognized what was wrong fairly quickly and stopped doing the bad stuff. But immediate consequence of that is the oscillation stopped and was replaced by a kind of nosedive, which was not the plan. So they stopped doing the wrong things, but they didn't have a kind of a ready plan b of the right things to do. What they did was extraordinary, courageous thing for a leadership group to do, but I think that's a key quality of leadership, courage. They recognized. They got a bunch of people underneath the board who were locals, super bright, highly motivated people who did know the business. And so they said to them, okay, you come up with a plan.  

 
10:17 
Steve Morlidge 
What's the best way to manage this business? That's when serendipity kind of played its part, which was that a couple of people on that group had been to my talks, and simultaneously there was a kind of initiative around culture change, coaching, all of that kind of stuff. I don't know what your experience is of organizational away days where you lock yourself in a sauna for two weeks and tell your colleagues about childhood traumas, but usually nothing much comes of these things. But in this particular case, they came out with a plan which is essentially beyond budgeting, although they didn't realize that. Cause I'd really focused my kind of pitch as a finance person on the process side, so that this other initiative supplied the leadership side of the equation.  

 
11:01 
Steve Morlidge 
So they went for this two weeks of weigh days, came and presented it to the board, I think in about first week of December. Board said, it's great do it. They implemented it on January 1. I've never seen anything like this. From January onwards, the business started growing month on month and in a steady fashion at roughly about 7% when the market was growing at 3%.  

 
11:25 
Dom Hawes 
Wow.  

 
11:26 
Steve Morlidge 
Okay, so it wasn't flaky growth, it was real growth. And the way that this worked was if you're growing your top line and you've got a bottom line set of obligations to corporate centre, then the more you grow, the more money you've got in the middle, the more marketing resources you've got in the middle that you can spend on good stuff. And the more good stuff you spend it on, the more you grow and you generate a positive feedback loop. So you break out of that zero sum game, because if the money is well spent, you get more money to spend as marketing people.  

 
12:02 
Steve Morlidge 
So instead of the key characteristic of a marketing person being the ability to negotiate a large number and spend it all, which is the key characteristic of marketing people, the marketing people who won are the ones who came up with good ideas and delivered on them, which.  

 
12:17 
Dom Hawes 
Is the nirvana that we're all chasing, of course. And it may not just be more budget into media, of course, the smart markets will be upskilling and training their people too. So the reinforcement loop is about people, skill, talent, density and an ability to execute well. Unicorners. Let's take a moment to recap what we've uncovered in the first half of our discussion and see if I can't bridge it with what lies ahead. Now, we've dissected the traditional budgeting model, that old behemoth that seems to clamp down on aspirations much more often than it uplifts them. It's broken. We hate the process, but we're tied to it, at least for the time being. There is another way, a better way. And that's why I wanted to bring Steve's work and the work of the BBI to you. Because there is a better way.  

 
13:14 
Dom Hawes 
Steve just gave us a picture of what's possible when we trust those closest to the customer to make decisions. And that is part of the marketing transformation we have been documenting on this podcast. And you see, beyond budgeting, it isn't just tweaking a few numbers. Its about redefining the entire approach to management, growth and innovation. Now we just talked about the importance of crafting management models that resonate with the unique rhythm of our businesses. Why? Because a one size fits all approach to budgeting. Its about as effective as using a sledgehammer to crack a nut. Its overkill. Its unnecessary and its, by the way, very likely to cause a message. So while on the face of it, we're talking about budgeting, what we're actually talking about is organizational design, which is about how you get things done.  

 
14:09 
Dom Hawes 
At the start of part one, Steve told us that budgeting is about resource allocation. And so it is with your marketing budget. It's about resource allocation. But of course, allocation is only half the picture. So let's connect the rest of it to our role as leaders. We are not just budget managers, we're the maestros of marketing's orchestra. Every decision we make, from funding allocations to strategic initiatives, sets the tone for how our teams play the tune of market demands. Engaging colleagues and rallying a coalition isn't just a nicety, it's a necessity. Why? Because the transformation to a more dynamic, responsive budgeting model hinges not on the whims of any single CMO or even a CEO, but on the collective buy in from those who are entrenched in the day to day realities of the business. Who are those people?  

 
15:06 
Dom Hawes 
They are the ones closest to your customers, the very ones you should be empowering to make decisions, the ones you should be freeing from too much hierarchical constraint, the ones who can transform your performance even in times of tight trading. That's why, beyond budgeting matters, it's about the kind of organizational shift that can catalyze consistent value creation. So, looking forward to the second half of our conversation, we are going to dive deeper into what it really takes to foster this kind of organizational shift. How do we as cmos, cultivate the courage to champion change, build coalitions that matter, and inspire a grassroots movement that will outlive the revolving door of corporate leadership? And crucially, how do we turn all of this from a lofty ideal into tangible actions that drive real, palpable growth in our markets? Let's get back to the studio.  

 
16:01 
Dom Hawes 
If you were going to give a CMO advice based on the last 20 years, of a way that they could approach trying to adopt some of these principles, what would that be?  

 
16:12 
Steve Morlidge 
I come back to what I said earlier, is engage with your colleagues, particularly a CFO, and what you need to arm yourself with, other than a series of terrific books, links on the show notes, is keep a few things in mind, is that budgets and the processes around budgets and budgeting, they did not come down from Mount Sinai with Moses. They invented by human beings in the context of a particular set of challenges 100 years ago. There are many other ways of running businesses, and everybody hates them. You might think your finance colleagues likes it. They do not. It makes their life horrible and miserable and unpleasant as well. But they're scared of doing anything different.  

 
16:58 
Steve Morlidge 
And there will be some people, and they're not just people in finance, who see budgets as a source of their institutional power, who might not want to give up the ability to say no, because that gives them organizational power, but they will be in the minority. And so you need to find allies who are prepared to run the risk of giving up some limited hard power in the very short term for the prospect of much greater influence and impact over the medium to longer term. The other thing I quite like as an image to bear in mind is there's a lot about budgeting, and this goes for lots of business processes as well, that are really rituals.  

 
17:45 
Steve Morlidge 
It's a bit like, again, a famous systems theorist talked about the corporate rain dance, and he said he had lots of consulting engagements in companies where they said they wanted to improve performance, but actually what they wanted to do was to learn how to do the dance better. So budgeting is a bit like a rain dance. We're not sure that it actually has an impact on the weather, but we're scared of stopping, because if we stop and it doesn't rain, we'll get blamed.  

 
18:12 
Dom Hawes 
And this is an organization wide thing, which is why it's important to recruit colleagues and build a coalition. But in the early instances, is there value in thinking about a discrete unit, for example, a marketing budget, and working with a CFO to say, hey, we're going to take a slightly different approach this year to how we budget in marketing. Can you do that as an experiment? You think you need to adopt it?  

 
18:33 
Steve Morlidge 
It's a good place to start. I mean, the best place to start is a good place to start. And the philosophy I always employed was, don't push on closed doors. Push on doors that are open and do the things that can be done? I mean, if you were a marketing person, irrespective of the corporate process, you could say, for instance, okay, I've got a 20 million marketing budget. It's currently divided up into 100 projects. Okay, we'll forget that. I'll take the 20 million, and I will build within my marketing department a process by which effectively there is a continuous process of competition for those resources, such that the resources flow to those areas of the business and those projects which look the most likely to succeed or are succeeding. I'll reinforce success and I'll cut spending in areas where things aren't working.  

 
19:33 
Steve Morlidge 
Things like that are absolutely possible. The biggest constraint is not them. It's what's in your head. In fact, one story I often tell is that my experience in Unilever and a number of people I've spoken to in other companies have said exactly the same thing. You talk to person a and they say, this is great. I'm absolutely behind this, Steve, but they won't let me. And I go and speak to them and they go, well, if it was completely. If it was up to me, I'd do this, but I can't. Because of them.  

 
20:02 
Dom Hawes 
Because of them. Yeah.  

 
20:03 
Steve Morlidge 
And I never found them. I never found them that was stopping them doing it. The ultimate one is shareholders. Yeah, well, this is absolutely the right thing. We can't do that because our investors won't let us. You talk to the investor to say, what, you mad? I couldn't give a flying fiddle. Whether you have budgets or not, what I'm interested in is performance. So there is no them stopping you doing it. The constraint is in your head. It's your assumptions about what you can and can't do and your assumptions about the world and the way organizations have to work. That's the biggest constraint.  

 
20:44 
Dom Hawes 
Well, unicorners, I suspect that, like me, you are now basking in a sort of post clarification glow. Steve's illuminated the problem. And suddenly, like me, you can probably see very clearly that the normal budgeting process is just plain wrong. We mentioned Ashby's law a few times. W. Ross Ashby was a british cyberneticist and psychologist who in the 1960s, coined a law about variety. Put simply, his law works like this. In order to deal properly with the diversity of problems the world throws at you need to have a repertoire of responses which are at least as nuanced as the problems you face. Now, I'm going to write a blog about this, which you'll be able to find on my newsletter on LinkedIn.  

 
21:30 
Dom Hawes 
So, a rigid plan with a rigid budget is doomed to fail because it cannot possibly react to the diversity of problems the world throws at us. What we need instead is the flexibility to divert funds, responding when opportunities arrive, and shutting down the dead ends. Now, as Steve pointed out, that requires buy in. I mean, everyone needs to recognize that old five year plan, the one that was chiselled into granite, ain't cutting it anymore. And instead, we need to make a plan that can handle constant change. And by the way, none of this happens overnight. But as Francis Bacon said, nothing that is excellent can be wrought suddenly. This is a long term approach, and the benefits to it are long term too.  

 
22:13 
Dom Hawes 
The big takeaway for me from all of this is that it helps us as marketers do the thing that were put on this earth to do to deliver happy customers. Because if we're able to use a budget to help us respond to customer needs, if we're able constantly to ask, you know, is this going to work for our customers, then we're always working from the outside in and that means we're going to succeed. Whereas if on the other hand, we're rigid and fixed in our approach and we're basically organizing ourselves around, how convenient and how efficient everything is for us, then we continue to work from the inside out and that leads to failure.  

 
22:52 
Dom Hawes 
Yeah, yeah, there are probably moments of success along the way, but as you've seen, and as I've seen, those are short lived and they often create even more problems further down the line. And by the way, if we're budgeting flexibly and reacting according to what's going to deliver happy customers, then we relieve our organization of its addiction to hitting the numbers for their own sake. The numbers come out of a plan. They're not the plan. They're supposed to be evidence that the plan is working. There's supposed to be evidence that we are on the plan. But instead, in rigid environments, the numbers take over. They become the whole game. People forget they're just a metric, a means of keeping score, as Adrian Coxon said on this pod.  

 
23:36 
Dom Hawes 
But Steve's approach helps us get away from that stop start chase, and it helps us put down some actual routes to achieve long term growth. Because isn't that what brand building is all about? Before you go, please do me a very small favor. And it's tiny. Please subscribe. Its so easy to do, its just a little click. But the consequences for us could be huge because the bigger our subscriber base gets, the bigger and better we get. Simple. Thank you. You have been listening to Unicorny, the antidote to post rationalised business books. I’m your host Dom Hawes. Nichola Fairley is the series producer, Laura Taylor McAllister is the production assistant, Pete Allen is the editor, Peter Powell is our scriptwriter and editor. Unicorny is a Selby Anderson production.