This is the third post in my series on the six shifts presented in my new e-book, Associations Unorthodox: Six Really Radical Shifts Toward the Future, created in collaboration with CHIEF. (Please check out the previous posts in the series.) If you have not done so already, I hope you will download the e-book, and please join me on September 26 from 2 pm-3:30 pm EDT for my webinar on the e-book, presented in collaboration with Peach New Media. As always, I invite your feedback in the comments below, or you can join the Associations Unorthodox conversation on Facebook or Twitter using the hashtag #auxsix.
As a general rule, associations are risk averse organizations, instinctively conservative in every way, especially with their financial resources. Not surprisingly, orthodoxy prescribes the use of conventional non-profit budgeting approaches to mitigate risk and marshal funds for maximum impact. The reality of association budgeting, however, is often more problematic. For example, while budgets should reflect clear investments in stated strategic priorities, frequently they are built only to maintain existing activities, including pet projects supported by influential constituencies, and to reinforce the illusion of centralized control. Moreover, the inflexible constraints of traditional budgets constantly place association CEOs and C-Suite executives in the difficult position of having to justify to boards how dynamic external forces wreak havoc with fixed internal agreements around both revenue streams and costs.
To push back against these buffeting forces, associations need to redesign resource allocation for greater strategic focus, flexibility and trust. Instead of organizing budgets around a pre-determined set of activities, association boards can function more like investors by allocating capital to fund high-level strategic priorities developed through the crowdsourcing of strategy, while trusting staff and voluntary leaders to collaborate in real time to decide on the specific approaches and investments required to achieve those priorities. Instead of monitoring individual budget line items developed based on retrospective data, leaders can focus all of their attention on rolling performance metrics, and quickly reallocate resources as shifting conditions or new opportunities require. This approach challenges association leaders to become more comfortable with short-term ambiguity, better equipped to make good decisions at the pace of the external environment and more open to investing in continuous innovation that can create purposeful and profitable new revenue streams.
Budgeting, like strategic planning, too often feels like a pro forma process that favors imposing operational control, instead of focusing strategic investment, as its central goal. And as with strategic plans, one of the unavoidable problems with budgets as tools of control is that senior leaders can use them only to control the actions of their own people, and not the forces of relentless societal transformation. The accelerating pace of new value creation demands that associations move more decisively to capitalize on emerging opportunities for new value creation, especially since the windows for acting on such opportunities almost always close as quickly as they open. Unfortunately, staff and voluntary contributors frequently are unable to pursue emerging possibilities because of immovable budget restrictions or internecine fiscal politics. The elimination of budgets will make it far simpler for associations to adapt to the demands of rapid innovation today and going forward.
To be clear, my call for the elimination of budgets does not mean the abandonment of vigilant financial management. On the contrary, giving up the reassurance provided by fixed budget targets, and accepting the uncertainty of a more flexible approach to resource allocation across high-level strategic priorities, means association leaders will need an easily accessible system for monitoring their organizations’ financial condition in real time. A dashboard composed of a small number of key quantitative metrics, such as operating cash flow, gross margins and unsubsidized revenue growth rate, can help association boards, CEOs and C-suite executives connect the dots among business model performance, strategic performance and financial performance, and enable more effective expressions of fiduciary responsibility without the constraints created by traditional budgets.
To begin making the shift to eliminate budgets, association leaders can reflect on the following key questions:
+How has traditional budgeting limited your association’s ability to take action on new strategic opportunities?
+How is your association’s budget used as a mechanism of control by your board, CEO, senior staff or other leaders?
+What are some of the unexpected benefits of allocating resources to strategic priorities instead of programmatic line items?
+How could a more flexible approach to resource allocation help build greater trust among your association’s key decision-makers?
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