The tyranny of the annual budget reigns supreme over a business ruled by the Budget Tyrant. Treating the budget like a divine creation passed down from an infallible god, this type of CEO often has a financial background and believes the key to a successful business is the financial planning process. He or she believes variation is the enemy thwarted only by strict adherence to the yearly budget.

Unfortunately, this executive cannot accept that business is conducted in a constantly changing environment. A budget created under one set of business conditions often doesn’t apply six months down the road. Executives and managers can’t change their spending and as a result become more like clerks than business leaders. The entire organization becomes a giant plane on autopilot flying the same path regardless of the changing weather conditions. These types of businesses miss opportunities and are ripe for disruption by competitors who take advantage of their slow course corrections.

Missing opportunities extends to the hiring process. The tyranny of the annual planning process prevents the organization from hiring top talent when it becomes available. You need to be able to quickly exploit disruptive events such as layoffs or acquisitions that put great people on the market. A culture built around fidelity to the budget doesn’t have the flexibility to make these opportunistic hires. I’ll be writing more about this in subsequent posts, including how to avoid becoming a slave to the budget.

Are you a Budget Tyrant CEO?

1. Do you focus on comparables to budget as your primary metric?
2. Is it possible for executives to rearrange their spending within budget without your approval?
3. Does your company actively look for opportunities regardless of whether they were budgeted or not?
4. If one of your executives found an acquisition that was great for the company but was unplanned, would it have any chance of making its way through your organization?
5. Can your managers hire superstars even if they are not budgeted?

Related articles:

The budget is set so no brilliant ideas until next year

How to balance the budget with the business

CEO Fail: The Budget Blower CEO

Avoiding fiscal decision paralysis