Budgeting. Only a unique group of people actually enjoy it. It doesn't normally make it on to the list of "Fun Things To Do." So how could something as dry as budgeting display the hidden truth that who we are as people is the key determiner of our effectiveness as leaders? Answer: Through a leader named Eric. Word of Warning: If you dislike ‘story problems’ as much as my wife and mother-in-law, you'll have to grit your teeth and hang in there. This story isn’t really about the numbers. You’ll see that when you get to the end.
70% and Not a Penny Less
Meet Eric. He is a senior vice president and the head of manufacturing in his company. As such, the budgeting process requires him to estimate annual expenses for the entire manufacturing department. The next seven years are going to be tougher than normal in Eric’s industry. As a result, revenues for Eric's company are expected to be $550M in 2015, down by 30% from the previous 3-year average. Subsequently, all departments within Eric's company will be tightening their belts on expenses for the foreseeable future.
Eric and his subordinates crunch all of the necessary numbers on sourcing raw materials, maintaining equipment, purchasing new machinery, and paying the employees who will make it all happen. The 2015 budgeted expenses come in as expected at $385M; 70% of projected revenues. This 70% number has been consistent for the past five years and Eric feels confident that these expenses are both accurate and necessary. We need to keep our investment in manufacturing steady. It takes money to make money. If we don’t have a product to sell, we don’t have a business, right? thinks Eric.
Eric enters the death march…err, I mean the much anticipated budget meeting...and as sure as he has two feet, the belt tightening discussions begin. The company’s general and administrative (G&A) corporate expenses run in the neighborhood of $20M and everyone seems to be on board that those expenses need to be managed down by 3% in 2015. Eric agrees with vigor and challenges the corporate office manager on expenditures that don’t seem to create much direct value in Eric's opinion. The corporate office manager defends the need for these expenses but Eric responds by saying, “Let’s be honest, it is going to be a tough few years. We’ve got to start getting these costs ratcheted down. And it will be impossible to do that without any pain.” As each department's budget is evaluated, Eric's questions, comments, and challenges consistently push toward cost cutting no matter the pain and difficulty it will create.
Eventually it is Eric’s turn to share the details of his $385M 2015 manufacturing budget. He does so with clarity and confidence. When he finishes, the room is quiet with no objections or challenges. On to the next department they go. It would seem that Eric has done a great job both thinking about and communicating his plan...or did he?
Why The Silence?
The company needs to cut costs, the vast majority of which fall in Eric’s department. Reducing Eric’s $385M budget by 3% would save the company significantly more money than reducing the $20M G&A budget by 3%, $10.95M more to be exact. So why isn’t anyone challenging Eric’s plan? Why is there little conversation about reducing expenses in manufacturing, the most expensive department in the company? Furthermore, why isn’t Eric proactively offering to make cuts in manufacturing if he agrees that cuts overall are necessary given the prognosis for the next seven years? The secret lies in who Eric is as a person.
Eric is an influential leader in the company. Much power comes to him for being in charge of manufacturing. And that’s fine with Eric. It even makes sense to him to have such power given his level of experience and his perspective on the importance of manufacturing to the company's success. As Eric sees it, the organization is better off because he carries a disproportionately larger amount of power than his fellow executives and department heads. Who else would use their influence to drive accountability and cost savings if I didn’t? Eric thinks to himself.
Eric indeed carries a great deal of power. And he doesn’t do much of anything to make it easier for others to challenge that power. On top of that, he keeps others on the defensive by constantly challenging them. By keeping them in the critical bulls-eye, Eric avoids the very hot seat on which he regularly puts others.
Before you convict and sentence Eric for treating himself differently than others and not leading by example, consider that his current state of being isn’t part of a grand master plan. He didn’t plot while having coffee this morning -- or any other morning for that matter -- how he’d keep others from challenging him. Over the years, through the force of his personality and the self-justification of his thinking, this is simply who he has become. And the net result is crickets -- as in nada, nothing, silence – from his peers when Eric presents a budget with zero cutbacks in his department, the most expensive department in the company. Eric didn’t plan to become a self-unaware bully, but he has become one nonetheless. And the impact of it is not theoretical; it's bottom-line real.
Improving More Than What We Do
If we, as leaders, find limited challenges to our thoughts and plans, we should be concerned. Such silence may not, as we are tempted to believe, indicate that we are good communicators, our plans are flawless, and our audiences wholeheartedly agree with us. It could mean that we've not properly managed our power and have become self-unaware bullies. If we want to keep the power of leadership from making us into less effective leaders, we need to exercise the courage and humility necessary to proactively seek critique from others. We also need to have the will and empathy to create safe methods, both emotionally and organizationally, for others to share their transparent thoughts. Humility. Courage. Will. Empathy. These are not issues of strategy and execution. These are about who we are as people.
Whether we want to be critical of Eric for not having the humility necessary to be more approachable or of his executive peers for not having more courage to challenge him, the story is the same. Our organizations are deeply influenced by the inner development of our leaders. The proactive and intentional effort required to become well-developed people has a tangible impact on the quality of our leadership. It, more than anything else, helps us lead our teams, departments, and organizations effectively. And in doing so, it keeps us from becoming bullies in the board room, the living room, or in any other room in which we lead.
Share Your Thoughts: Have you ever followed or observed a leader who was a bully? What were the repercussions for you and your organization? We’d love to hear from you. Join the conversation by clicking here.
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