WANT TO KNOW MORE ABOUT PERFORMANCE- BASED BUDGETING? Attend my course at the Texas Municipal League offices in Austin on February 20. For more information, visit www.tml.org.

Overcoming Resistance to Change

December 2008

In the coming few months, I am going to write about a budgeting concept called “performance-based budgeting.” But before I do, I want to go ahead and respond to what I know I will hear from many of you. Many of you will say of performance-based budgeting, nice concept, but there is no way my organization is going to do that! It will take too much time and money, although it is interesting, it just isn’t going to work for us.

You may be right. Yes, the concepts we will be discussing may feel a bit radical to you. But you wouldn’t be the first to do implement these ideas—or the last. Change is actually possible. You just have to feed it, embrace it, and break down the barriers that can stop it.

I ran into a great article in Harvard Business Review by John P. Kotter called “Why Change Fails”. I am using his list of the eight factors that can halt change and then adding my own personal examples regarding budgeting. Obviously, to make change happen, you have to fight these eight forces.

1. Not creating a great enough sense of urgency—We prefer the status quo over change and in order for us to change, we have to experience some kind of pain or discomfort that makes our current path intolerable or unacceptable. In other words, it sometimes takes a serious whack on the head to get us moving.
   
   It is nearly impossible to convince people that they should look toward the future and invest time in creating a meaningful budget system if they are not currently experiencing any financial pain. In periods of economic distress, in hard times, budgets become an easier sale and managers actually pay attention to them. No one wants to talk about budgets when times are good. There is no perceived need to tighten belts. “Make hay while the sun shines!” as they say in Texas.
   
   I predict a resurgence of interest in budgeting as our economy bottoms out. I read in the paper today that healthcare reform may actually happen because a larger number of voters are out of work and without any coverage. Pain often leads to progress, in a weird sort of way.
2. Not creating a powerful guiding coalition—You need a powerful champion for the new budget approach. If top management does not support and uphold the change, the whole system will fail—no matter how much you want it or how sensible an idea is.
   
   Jackson, a new city manager of a wealthy California town, wanted to implement the balanced scorecard and a form of performance-based budgeting city-wide. He met with all city employees and told them of his intention. Jackson gave them a few weeks to think about whether they could get on board with the idea. He then went around and had a chat with each manager. If a manager said that they were not on-board with the change, Jackson suggested that they look for a job elsewhere - because he was going ahead with this plan regardless of their opinion and didn’t want them making his job harder. “No hard feelings.” he said, “I just have to get on with it.” Now that is strong leadership!
   
   There is a new book out called The No-Asshole Rule. And the author’s concept makes perfect sense to me. It may seem cruel—but as Nick Lowe sings, “You have to be cruel to be kind, in the right measure.” Why have everyone sitting around suffering through something they don’t agree with? There are too many other places to work and things to do to let that happen. Help them see the light and help find a new home.
   Here’s another example of how leadership can help or hinder a change. I was the treasurer for a local chapter of the National Speakers Association—an association, as you might have guessed, of public speakers—folks who make their living speaking at conferences and doing training. These are huggy, friendly folks who don’t give a darn about finance or budgeting. They were never interested in talking about the chapter’s money. Some felt that if we had the right intention (or rubbed their magic karma crystals in the right way) that the finances would take care of themselves.
   
   Naively, I took on the role of treasurer one year because the only other CPA in the group had had enough of being treasurer. He warned me not to do it, but I thought I was special and could make the leaders of the chapter see the light. What a rube! It was very evident at our first board meeting that no one was going to listen to me and no one wanted to talk money. So, throughout the year we slowly went bankrupt.
   
   I warned and warned and warned, but only when we were unable to pay for our meeting space on Saturday for lack of funds did anyone care. Just as I was taking all of this personally, a stalwart member of the chapter volunteered to help us get our act together. His name was Jim and we elected him president. Jim was an ex-Marine and he was famous for teaching leadership skills to Wal-Mart executives. At our first board meeting under his direction, he made it clear that he wasn’t going to allow the chapter to fold. He asked me to stand up next to him (he and I are both well over six feet tall) and he told the group that I was going to create a strict budget and we were all going to follow it. If they didn’t comply with the budget that they would have to talk to Jim and to me about it! I was so pleased with my newfound power and authority I almost burst at the seams.
   
   And he meant it! We dug ourselves out of the hole and ended the year with a healthy budget surplus. But Jim completely exhausted himself herding those crazy cats on the board—so he virtually disappeared after his one and only term and left Tom in charge.
   
   Tom is a marriage counselor who teaches Japanese relaxation techniques to schoolteachers and social workers. Tom is a wonderful man and a dear friend, but he is not a financial tough guy. The board quickly fell into their old habits and started depleting the surplus. After three years of this yo-yo stupidity, I decided it was time to step down and let someone else fight these battles. As a finance professional, I had no authority anyway—it came from the president of the chapter.
   
   A few years later, they predictably bottomed out and went broke—again. The leadership asked me to be treasurer—again. And I told them that if they got Jim back, I’d be happy to come back as treasurer. Otherwise, no way!
3. Lacking a vision—So you have a sense of urgency and strong management support, now you need to be clear about where you want to take everyone. You need to choose the planning and budgeting format you desire, come up with a plan to develop it, monitor it, and report on it—and make this super clear to all involved. The vision will change slightly over time as you refine it, so you must do your best to communicate frequently… and that leads to the next point.
4. Undercommunicating the vision—Having a sense of where you want to go isn’t enough, the key players in the organization need to understand the vision and internalize it. In order to do that, you have to communicate, communicate, communicate. One little meeting introducing the concept isn’t going to do it. First you have to figure out how they key people like to receive new information—via training, short meetings, one-on-one meetings, emails, podcasts, reports, whatever! And then you have to engage in this sort of communication over and over and over until they cry mercy. Until every one of them cries, “I get it already! Leave me alone!” you haven’t done enough.
5. Not removing obstacles to the new vision—I don’t know what your organizations particular hang-up is, but I do know that you have one. And it will be as obvious to everyone trying to implement the new budgeting program as an elephant sitting on the receptionist’s desk. Go ahead and ask the team to throw out every tangible and intangible barrier to implementation and then figure out a way—as a team—to either eliminate it or work around it.
6. Not planning for and celebrating short-term wins—Implementing a performance-based budget is going to be an arduous and time consuming task. You may never be able to declare that you are done because it will constantly evolve. So in order to make sure the team doesn’t lose heart, you need to figure out a way to celebrate milestones. Good project managers lay out the steps involved in implementing a new system and each of these steps has a deliverable or a product.
   
   For instance, one milestone will be the creation of an initial strategic plan or balanced scorecard for each department. This is a great time to have a party and a discussion. Each manager can share his structure with the other managers to brag and discuss best practices. You can even make it competitive, by selecting the most robust and well-thought out model and award the team that created it with something special—like an afternoon off or a gift certificate. These little tidbits of appreciation mean everything to your team. Most employees say they prefer recognition over salary.
7. Declaring victory too soon—I can’t help but think about George Bush’s declaration that we had won the war in Iraq—about five years ago. We are still there as of this writing—and it doesn’t look like we are going to “win” anything. That was one of his first jumbo political fumbles—and we, of course don’t want to make the same mistake. Again, the change will not come on us all at once or be finished in one fell swoop. It will occur gradually and truly never be over.
   
   Big milestones can be reached, but we can fall back into our old stinky budgeting habits at any time. Today, I read in the paper that Oprah as gained a good amount weight because she stopped exercising. You may or may not feel for her or may or may not like her, but you can totally understand what happened, can’t you?
   
   Everyone needs to be clear that this is an ongoing process that will never end. The Japanese love a concept called Kaizen—which means continuous small improvements. That is something we can commit to, right?
8. Not anchoring changes in the corporate culture—My speaker/trainer/author friend Anna markets herself as a corporate change agent. She believes that cultures rule organizations and that an organization’s culture can be changed.
   
   I agree that culture dictates many decisions, but I disagree with Anna that culture is something that is fixed with a few training seminars.
   
   Southwest Airlines has a very defined culture. When another of my buddies, Suzyn, went through a rigorous interviewing and training process with Southwest Airlines, they tested her ability to withstand pressure while maintaining a good sense of humor, they measured her ability to work with others in a team, and when she was hired they sent her through a month long training where she had to memorize a 30-minute standup routine so that she would be ready at any moment with a cute quip in case of deflating customer morale.
   
   Southwest brags about its customer oriented culture and offers customer service schools to outsiders. But they tell a story on that shows the limits of culture change initiatives. A group of British bankers attended the customer service training wearing three piece suits. These bankers had heard of the miracle of Southwest’s culture, but after one day, everyone realized this was too far a leap for them to make so they turned tail and went home!
   
   So how do you root something in a culture? Well you methodically work—baby step by baby step through people to reward them for culture enhancing behaviors. Work to make sure that employees give you positive responses to the following questions:
   
   
   • Do I know what is expected of me at work?
   • Do I have the materials and equipment I need to do my work right?
   • At work, do I have the opportunity to do what I do best every day?
   • In the last seven days, I have received recognition or praise for doing good work?
   • Does my supervisor, or someone at work, seem to care about me as a person?
   • Is there someone at work who encourages my development?
   • At work, do my opinions seem to count?
   • Does the mission/purpose of my company make me feel my work is important?
   • Are my coworkers committed to doing quality work?
   • Do I have a best friend at work?
   • In the last six months, has someone at work talked to me about my progress?
   • This last year, have I had opportunities at work to learn and grow?

Maybe I’ll have Anna write something on this topic for a future ezine.

As you know, it doesn’t take much to push a person or an organization off course. So, you might be right that performance-based budgeting will never get off the ground in your organization. But maybe… just maybe if you rub your crystal…