Steve Morlidge:"Budgeting is an outdated idea"


Steve Morlidge (54) spent most of his working life as a financial controller at fast-moving consumer goods giant Unilever. His passion for advanced performance management started many years ago, which resulted in the foundation of BBRT - a platform connecting organisations wanting to transform their performance management models to share knowledge. He is also co-author of "Future Ready, how to master business forecasting", a well-received book about forecasting.

His last three years at Unilever were exceptionally exciting, says Morlidge. He was one of the very few finance professionals who dared to lead a multinational like Unilever in implementing dynamic performance management, aimed at introducing beyond budgeting ideas and practices in all worldwide branches of the company. With great success, the endeavour proved very beneficial for Unilever. We were extremely curious to find out more about Mr. Morlidge's passion for performance management, which he himself calls 'his obsession'.

Mr. Morlidge, can you please tell us a bit more about your career and background?
"After 15 years at Unilever, I left the company four years ago. Right now I spend a lot of time with my family either at home, or at our holiday home in Crete. Another great deal of my time is spent on my biggest hobby: performance management. I realise that sounds a bit sad, but I permit myself to have one obsession, and this is it. This is what I study, and the topic on which I write publications."

When did this special interest occur, before it became an 'obsession'?
"Well, it's the same with engineers - they start decamping clocks at a young age, just out of interest to see what the inside looks like and how they work mechanically. For me these clocks were organizations, I have always been extremely interested in how they operate. Being a twelve-year old boy I thought it was a good idea to design a constitution for the country (laughing). Depressing, isn't it? I think it's fair to say that the interest for performance management has in fact always been there."

Do you consider forecasting as a soft topic, or rather as a technical matter?
"I personally believe that forecasting is - in some form - necessary for all organizations. The core message that I wish to convey in my book is that people and organizations need to forecast, simply because they are not capable of responding quickly enough. If only we were, then forecasting would not even be necessary at all."

How do you feel about the fact that most companies still establish their budgets on a yearly basis, instead of all of them forecasting the way you advise them?
"I think it's incorrect to assume that companies still budget in the more traditional sense of the word. 'Budgeting' is not a universal concept, nor is its practice. I personally think most companies still attempt to 'budget' once a year, to try to predict their yearly outlook at its most successful form. This in essence is no longer budgeting in the classical method, since the process itself has transformed. Nowadays organizations, and the people working in it, realize the world is extremely unpredictable, that trying to predict its outlook based on a stringent financial planning, seems rather ineffectual. This implies that budgeting, as once blueprinted by James McKinsey early 20th century, is a rather outdated idea."

Do you imply that a yearly-focused round of budgeting is a fruitful effort which companies can do without?
"It's not fruitful, nor is it really necessary. Companies find it difficult to cast out the process and ritual of budgeting at once, which is why I expect to see budgeting - in some form or shape - for quite a long time from now. But when you take a closer look at the core of budgeting as it is shaped today - it differs from what it used to be. I expect the role of the process and the means used in it, to change further."

What is the connection between budgeting and forecasting?
"One of the weaknesses of budgeting is the attempt to equalize a number of non-compatible objects in one set of numbers. You set a target, which ideally is ambitious and offers you some margins at the same time. You use the budget for a forecast which simply has to be realistic, in order to allocate resources that have to be sufficient. By this narrowing everything down to one sequence of numbers is why I am convinced that budgeting confines your business."

"Forecasting can be very useful, provided that it offers an utmost accurate estimate of the future. This is where forecasting and budgeting differ mostly: a budget implies an estimate of the future how you wish it to be, encapsulated in a set target. On a more practical level I think forecasting offers a good way for people to set loose of the rigidity of budgeting processes. But before they will, they need a good alternative to hold on to, to remain confident about the future. If you implement successful forecasting processes in your business, people will be just as confident as they were while they were budgeting. Which makes releasing it a lot less frightening."

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Hi Steve,

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