Most business managers go through the annual ritual of budgeting. We plan the next one or two years based on the actual results of the most recent year. We draw up a spreadsheet and plan line by line – sales revenues up 10% and costs held to a 5% increase means a modest improvement in profits.
We should have learned by now that this is a sterile process. The past is a poor guide to the future and its innovations. In 1972 the Club of Rome published “The Limits to Growth.” It was a model that predicted what would happen to energy, food, population, environment, etc. It concluded that essential resources like oil would run out in the 1990s and that economic growth was unsustainable. It extrapolated the future based on the past. And it got it wrong precisely because the future is not like the past.
Blocking out innovative ideas
The planning straitjacket means that we are restricted to small incremental increases in revenues and we are squeezed on expenses. There is no scope for the radical improvements that the business so desperately needs. By thinking in terms of last year plus 10% we are blocking out big ideas. The motor car was not the horse-drawn carriage plus 10%, Amazon was not Barnes and Noble plus 10%, and the Smart Car is not your average sedan with an extra 10%. Each was a leap, an innovation, a different approach.
Nokia started as a wood pulp mill in Finland in 1865. It made paper products, rubber products and became an energy company before moving into consumer electronics and becoming the world leader in mobile phones. Virgin was founded by Richard Branson as a record label. It now offers a range of products in travel, entertainment, finance and communications. These successful companies did not get where they are today by modest incremental steps, but by combining efficiency with bold ventures into new arenas.
Who killed our business?
I use an exercise in my creative leadership workshops to shake people out of incremental thinking and planning. The team imagines that they are sitting in the room six years from now asking the question, “Who killed our business?” The premise is that some powerful force has put their company out of business. Individually and in teams they have to conceive of changes in technology, processes, fashion, competition or demographics that might completely replace their current business model.
There are many examples of how the unexpected has devastated businesses. Typewriter manufacturer Smith Corona was wiped out by word processing software on PCs. Polaroid was sideswiped by digital camera technology. MacDonalds has fallen victim to the rise of anti-corporatism and the power of the book, “No Logo.” Downloading music on the Internet is hurting music companies. A loss of reputation demolished Arthur Anderson. Accounting scandals killed Enron and Parmalat. Laser eye surgery is a threat to makers of spectacles and contact lenses.
Starting with a blank piece of paper, people have to imagine a major new trend or approach which would eliminate them and at the same time meet the needs of their customers better. Once they have agreed on some possible scenarios they need to design ideal companies to exploit the new approaches. Instead of starting from today and planning forward, they start from the future and plan for the future.
You can aid the process by first discussing fashion trends, technology developments and demographic movements. The purpose is to startle people out of a complacent and comfortable view of the future and to consider instead a vortex of dangers and opportunities.
Spreadsheets are great tools for recording figures and for trying different assumptions in an existing model. But among all the many menu bars and commands in Excel there is no instruction for “use your imagination” or “conceive entirely new possibility.” Try getting your team together and brainstorm some radical ideas. Develop scenarios that are imaginative but possible. Build some prototypes to test new products or business methods. Test them in the marketplace. An experiment will teach you far more than any spreadsheet. It is by systematically testing boundaries and pushing into new areas that companies like Nokia and Virgin succeed.
Of course every business needs a budget as a yardstick to measure against. But the budget is not a strategy for success or even for survival. Leadership means taking the business from where it is today to somewhere new and different. It means using imagination and innovation to design a better tomorrow.