The Service Business & Its Funding

Performance Funding Service

Secure the funding.

This is the primary imperative of the internal service business unit. It is the outcome that will precede all others. Do whatever it takes to ensure we get budget funding for this and the coming year. This means paying attention to what budget allocators expect, and then providing just that. It’s also preferable to show that we could have done more… if only there was more budget.

One impact of consumerized technology on the workplace is the chance at a better operational funding model. Instead of dropping a large chunk of cash in the annual funding round, the SaaS company just asks for a monthly fee. This fee can usually be stopped, no harm no foul. It works for both parties. I would like to see this model extend all through the enterprise. I would particularly like to see this model extend to the contracts offered to the big consultancies. They seem to be enjoying significant economic rent.

Budget is offered against well written promises.

The business case writer becomes a critical player. Of course, I’d like to think that all writers become critical players. But the point I’m trying to make here is that the business case contains a significant amount of spin. Especially the section with long forward benefits projections.

Any genuinely innovative product or service will change a business in unexpected ways. This makes many cost benefit estimates exercises in meaninglessness. I’m a big fan of teaching people to estimate certainty using confidence intervals. It’d make a big difference in the assessment of business cases. People would get into the habit of looking at how unlikely many business cases actually are.

I keep coming back to a quote familiar to many: “no plan survives first contact with the enemy”. It’s a shortened version of an observation by Field Marshal Helmuth von Moltke (1800-1891). His deeper observation deserves a lot more attention. Particularly by those who have the task of allocating budget funding on the basis of a business case.

“The tactical result of an engagement forms the base for new strategic decisions because victory or defeat in a battle changes the situation to such a degree that no human acumen is able to see beyond the first battle”

It’s a tired and unhelpful comparison relating business to war. However, the quote has stayed in my head because of his main point. That the result of a small situation changes the odds of the large situation and, this is the important bit, such that people can’t see what will happen next. He goes on to say,

“No plan of operations extends with any certainty beyond the first contact with the main hostile force". For the purposes of this post we can say something like, “No business plan extends with any certainty beyond the first major deliverable”.

This is a fairly reasonable statement. It’s one that the internal business unit can stand behind. It’s one that CxOs at the enterprise level want to see. They want to see this because they know very well that we work in constantly shifting circumstances. And getting locked into bad long term budget allocations are a fundamental cause for CxOs having to look for work.

I would like to see a situation where we fund up to a critical point, where we derive some general idea of possible options from that critical point, and a funding model that lets funding be stopped in the event of no further gains.

Are most enterprises set up for this? Not really. Should that be a reason for not looking for better funding models? Not at all. Remember that, while the language and system of writing of the budget is financial, it represents managerial decision making. The budget is an expression of management intent towards the future. It is a commitment of blood and treasure to some desired end state.

The budget wasn’t brought down from the Mount by Moses. The budget has important implications for governance and controls, but it’s ultimately an expression of how management chooses to fund activities. There’s nothing to say that funding allocations have to be yearly, or quarterly or whatever.

The counter-argument is that funding uncertainty will degrade management performance. Pshaw. Small and medium businesses around the world confront the reality of funding uncertainty everyday. It’s part of being an effective manager.

What we are actually saying is that the service business unit manager prefers the comfort of funding certainty. But does this comfort encourage effective management behaviour? I believe it doesn’t.

Which is one reason why internal service business units often seem to exist for their own purposes. Because to ask questions about effectiveness can put the budget allocation into peril. Service business units get uncomfortable with existential questions because they can be only too well aware that they aren’t really contributing to effective performance.

And no one likes a freeloader.