100 GREAT BUSINESS IDEAS • 151Is budgeting an indispensable, practical tool for effective
management? Or is it a corporate ritual and hassle that far outweighs
any benefi t it provides? There is a third view: that it is useful, but
only up to a point, and that by rethinking the budget a fi rm can
dramatically improve its fi nancial management.
The idea
Diageo was created following the 1997 merger between Guinness
and GrandMet FMCG. Following the merger, 60 fi nance managers
from across the business met to discuss how they could best serve
their shareholders in the future. Overwhelmingly, the response was
to “blow up the budget.” The feeling was that the budget process
consumed vast resources, it took too much time, and its one-size-
fi ts-all approach took too little account of each individual business.
There was little benefi t for the shareholders in this detailed process
(which is typical of many corporations). The budgeting exercise was
seen as a game, and managers believed that shareholders were not
concerned with assessing performance against arbitrarily agreed
targets, but with whether the company was worth more this year
than last.
There was a feeling that something had to be done—people were
wasting too much time and money. The fi nance department began to:
- Streamline the existing system.
- Move to an integrated strategic and annual planning process
built around key performance indicators (KPIs) and, crucially,
rolling forecasts.