What’s common to Hitler and company budgets

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The obsession that once a budget is set it’s sacrosanct, is akin to Hitler’s ‘withdrawal is superfluous’ doctrine. Photo: Getty ImagesThe obsession that once a budget is set it’s sacrosanct, is akin to Hitler’s ‘withdrawal is superfluous’ doctrine. Photo: Getty Images

The last quarter of every year is epochal for two reasons: one, everyone believes that the world is coming to an end on 31 March and the budgeted numbers that could not be met in the preceding nine months have to “somehow be done” in the remaining 90 days. Two, a fever to make next year’s save-the-world agenda takes hold. This is a period characterized by mindless obsession with numbers. I ask you, to borrow from Dhanush’s popular song, “Why thisKolaveri di (murderous rage)?”

We hurtle into this madness without taking any time to step back and reflect: what is the purpose of this ritual called budgeting? Is it merely to cast numbers and targets for the year, or ought it to be seen as an opportunity to review and put in place an operational plan for the larger strategic intent?

Since almost everything we call modern management practice has been adapted from the practices of the Armed Forces, I am going to lean on military history to illustrate the multiple dimensions of budgeting.

How focus on winning a battle cost Germany the war

During the winter of 1944, the Battle of the Bulge unfolded in the Ardennes region spread across Luxembourg, Belgium and France. This major German offensive ended with about 200,000 casualties—two-thirds of them from the German forces and the rest predominantly from the American forces.

It appears that Hitler wanted to relieve the pressure arising from the Allies’ dash to Berlin after they had run over France, post Normandy in June 1944. He believed that if he mounted an all-out attack on the weak Allied lines in the Ardennes region and punched through to the Belgian ports, mainly Antwerp, and cut off the Anglo-American forces to the north, he would have a stronger hand during the armistice negotiations.

Some military historians believe that Hitler was delusional in believing that if he won the Ardennes battle and took Antwerp, he could declare the war a stalemate and not a loss for the Third Reich. Germany was being squeezed on the eastern front by the Soviets and on the west by the Anglo-American forces. Even his own generals were not sure how realistic any of these objectives were.

However, Hitler was driven largely by personal ambition. At this stage of his life, he would harangue his veteran generals that it was “Primacy of Will” that made impossible dreams become real.

The supreme Allied commander General Dwight “Ike” Eisenhower’s son, General John Eisenhower, recounts the battle in his book The Bitter Woods: The Battle of the Bulgeand surmises that belief, devoid of reason, takes charge of an individual’s judgement when ambition, which is not tempered by counsel from others, drives one’s pursuits. He believes that this attitude makes one overestimate the infallibility of one’s own information and judgement.

When his generals advised digging in and defending at the German borders rather than stretching the lines in an all-out attack, Hitler concluded that they were being defeatist. He disregarded the ground realities, the capacity and capability of the resources at his command, the superiority of the Allied forces, or the fact that Germany was fighting on two fronts.

Pretty sane leaders have erred the same way in believing that “never defend, never withdraw and only attack” is inspirational. Thus, we see “Primacy of Will” all around us, especially with larger-than-life leaders.

By this time, Hitler had no air power; the Luftwaffe had been blown out of the skies during the preceding six months. In an all-out gamble, he committed even his reserve forces to Ardennes—all the armour and battle-hardened infantry that had been kept back to fight a defensive battle inside Germany. All that remained as reserve force were 14-year-old untrained children, the Hitler Youth.

Even a new student of military strategy will understand the importance of the reserve force. It steps in to hold conquered territory. It keeps the supply lines open for the attacking forces (all the more pertinent for Germany because with the Luftwaffe decimated, supplies could not have been airdropped). It replenishes the loss in infantry, armour and artillery. Above all, at the decisive moment in battle, it becomes a force multiplier.

There was no force or equipment left to keep the Soviets (on the eastern front) and the Anglo-American forces (on the western front) long enough at the German borders. Only a long battle of attrition on the borders would have given Hitler enough room to negotiate an armistice treaty to protect Germany’s sovereignty.

Sight on the main objective Contrast this with Eisenhower’s moves.

The strategic objective of the Anglo-American forces was to end the European war quickly and get to Berlin before their allies, the Soviets, so that the post-war shape of Europe could be determined by the Anglo-Americans.

By this time, it was evident that the German war machinery was broken.

Hence, Eisenhower’s focus was the roads to Berlin and not Ardennes. He knew that the loss of Ardennes may delay the end of the war but was unlikely to damage the core strategic objectives of ending the European war and taking Berlin before the Russians. So, Eisenhower put heavy resources into the attack forces moving to Berlin and left the forces at Ardennes with lighter resources to fight a defensive battle, should the need arise.

Thus, Hitler was correct in his assumption that the Ardennes was thinly resourced. However, the central point is, what really was Hitler’s strategic objective and how did an all-out attack in Ardennes support it? Was he fighting to win the war, manoeuvre a strategic negotiating advantage or was it meant to delay the impending Allied push into Germany—and if so, for what purpose? Clarity on this alone would have helped his staff officers set the battle plans with any degree of confidence.

History tells us the meticulous planning Hitler’s staff officers did for the Battle of the Bulge. In contrast, the Allies had only a vague inkling that Hitler may attack in the Ardennes. So, on 16 December 1944, when the Germans attacked, the Americans were caught with their proverbial pants down.

Yet, in three weeks, the Germans would be in headlong retreat, with their forces in complete disarray. Hundred days later Berlin fell, the war was over and Hitler was dead.

Your budget is not an end in itself, but a stepping stone

What are the key lessons from the Battle of the Bulge for us in business?

Over the years, budgets have come to represent targets. However, in reality, a budget deconstructs the strategy into executable actions. In that sense, it is the operational plan for a given strategy. It largely deals with allocating resources to effectively execute the operational plan. As C.K. Prahalad wrote, it is also a plan to leverage resources—depending on your strategic objective, where do you need to attack and therefore deploy more? Where will you defend and can do with less?

The thumb rule is, new product launches and markets you want to wrest from competition demand resource superiority. Established, mature markets can be milked with much thinner resourcing. How often do you see budgets making this distinction in resource allocation?

No strategy can dictate only attack on all fronts, with no defensive lines or options to withdraw. If a business leader adopts an attack-only approach, he will face the same consequences that Hitler faced in Ardennes. A caveat here: no one can really have a plan for withdrawal; it is a flexibility that leaders give their field commanders, lest they foolishly decimate valuable resources.

How much and how long do I commit resources where the result is a foregone conclusion? Can I redeploy a resource to where it will alter the balance of power and the eventual result?

Hence, the obsession that once a budget is set it is sacrosanct, is akin to Hitler’s “withdrawal is superfluous” doctrine. There ought to be room to modify a budget if market conditions have changed.

The little pieces that make up the final picture

The budgeting outcome should answer the question, how will an operational plan and resource allocation best achieve the strategic objectives? It has to be dynamic. It has to be specific to the business line, product and market, and not based on any one doctrine. Growth-obsessed leaders are in a way doctrinal in their approach.

I often wonder: if strategy is for a time frame that is more than one year, how can an organization’s budget be for one year? Markets, customers and competition do not change between 31 March and 1 April. Is it not strange that we think of budgets in terms of discrete fiscal years and not as a strategy cycle aligned to the number of years for which we may have framed our strategy?

Hitler did not have a final picture of what would signify to him the achievement of his strategy. So, he went from one battle to another. However, the Allies were clear about their strategy—the liberation of Europe in the Western theatre by pushing back the Germans and the liberation of Asia-Pacific in the eastern theatre by pushing back the Japanese.

When the limits of our strategy are unknown to us, very often, the planning process becomes the casualty. We call this expansionist strategy. It is impossible for any planner to plan an expansionist strategy not framed in a timeline. Occasional opportunism pays, but the strategy itself cannot be opportunistic. This makes resource planning almost impossible, which is the key to acquiring appropriate capacity and capability to execute the operational plan. Building resource capacity and capability has a lead time. Eisenhower negotiated with American President Franklin Roosevelt and British Prime Minister Winston Churchill, a full 18 months’ time to build capacity for the main European invasion.

During the past 10 years, many Indian businesses pursued an expansionist strategy without knowing their limits; they overreached and found themselves overwhelmed in terms of resources which include people, funding, innovation, access to market, and access to and assimilation of technology.

Ask yourself: is going to Europe to build a steel business wise, when you have not yet achieved global-standard capacity or capability at home? How much leverage of capital is sound when you are venturing into unknown new businesses, where you have no proven proprietary capabilities?

Where the budgeting process is a formalization of the CEO’s personal aspiration and not a well-tested output aligned to the institutional strategy, it is doomed to go the way the Battle of Ardennes went for the Germans.

A process of consultation and critique by informed team members is the best way to test any proposition. When CEOs refuse to do this and impose their propositions on institutions, the staff officers will cast great operational plans that look as sound as the plan for the Ardennes offensive, but the result will not be any different. The unfolding saga of Vijay Mallya is a case in point.

Eisenhower always had his key generals together when he planned a battle. He believed this balanced out the blind spots and also prevented an attack-only or defend-only general from running away with his default approach. Yet, he always gave the final word to the general who would command a particular battle.

So for next year, perhaps you could tell your colleagues this time-tested story of the Battle of the Bulge and develop a shared understanding of why even a seemingly mundane process of budgeting could help you achieve your collective ambitions.

Read an unabridged version on www.foundingfuel.com

K. Ramkumar is an executive director on the board of ICICI Bank Ltd and the president of ICICI Foundation.

[“source-Livemint”]