Hope and Fraser correctly illustrate how, in extreme cases, use of the budget to force performance improvements can lead to a breakdown in corporate ethics. People, who worked at WorldCom, now bankrupt and under criminal investigation, said CEO Bernard Ebbers’s rigid demands were an overwhelming fact of life there. “You would have a budget, and he would mandate that you had to be 2% under budget,” said a person who worked at WorldCom, according to an article in Financial Times last year. “Nothing else was acceptable.” WorldCom, Enron, Barings Bank, and other failed companies had tight budgetary control processes that funneled information only to those with a “need to know.”
Companies that have recognized the damage done by improper budgeting are moving away from reliance on obsolete data and the long, drawn-out, self-interested wrangling over what the data indicates about the future. They have also rejected the foregone conclusions embedded in traditional budgets—conclusions that overshadow the interpretation and circulation of current market information, the stock-in-trade of the knowledge-based, networked company.
Tags: business, cost, reduce cost