Let’s All Sequester

My friend Glenn Mangurian and I think alike; yet, we think so differently. Glenn, who writes a monthly column called Pushing the Edge, titled his this month, Sequester This, with some interesting ideas on how to force the politicians to compromise and solve the Sequester. I am going to write about why you should promote the Sequester idea in your business.

But, first, we must apologize to our international readership who may not even understand this specific use of the word “sequester.”

After all, most of us in the US had not heard of it either until a couple of months ago. Our apology also extends to our repeated use of the US political landscape as a source for our business ideas in this column. The current US political landscape offers so much fodder for creative, controversial and provocative ideas that it is hard to resist. For the benefit of our international friends: To avoid the automatic expiration of some attractive tax cuts at the end of 2012 (then called the Fiscal Cliff) Congress agreed to extend a portion of those tax cuts, on the condition that Congress can come to a solution on a deficit reduction package by March 1st. To force that to happen, Congress imposed an automatic, across-the-board, budget cuts (with some exceptions), on the assumption that they were so onerous that the elected officials would certainly be forced to find a better compromise. These across-the-board budget cuts have come to be called the Sequester.

We want to advocate the use of the Sequester in your annual operating budgets.

But first, let’s remind people of the concept of zero-base budgeting. This was popular a few decades ago and many companies claimed to use it. We contend that few, if any, ever did. The concept of zero-base budgeting is to assume that none of the previous year’s expenses of each department was automatic, and that you started from zero and justified every piece of expense in your budget. While the concept has a lot of merit, it requires a lot of work. In effect, you would have to take everything in your house and put it in the lawn and use a fixed amount of Monopoly money to buy each desired item from the lawn and bring it back into the house. That includes, furniture, people, vendors and every possible expense. While it is ideologically sound, it is practically infeasible. So, most companies that claimed to practice it assumed that most of the stuff in the lawn will come back into the house.

We offer a different idea that we have practiced in a few companies.

We now call it Sequestration, though we did not know the term when we practiced it. At the annual budgeting time give every department an automatic 10% budget cut. Tell them that there is probably enough fat in each department for the executives to cut 10%. To keep your executives from yelling “Fire!” tell them that you will be judging them based on the wisdom of their cuts. With the stick in one hand extend a juicy carrot with the other. Tell them that you now have X million dollars for a strategic investment. Ask your executives for proposals on where you might make that strategic investment.

For a related, but slightly different, idea, see Food for Thought, August, 2010.

Sequestration is more practical than zero-base budgeting. Each manager can do this within their departments. They can do so with insight into the cost and value of the expenses they are incurring. You can make repeated strategic investments while minimizing the cost of the frugality needed to do so. It enables you to create a lean organization.

Food for Thought is our way of sharing interesting concepts on corporate leadership and management with others who might find it useful. The thoughts offered are intended to be controversial and thought provoking. They are intended to help our readers intentionally realize their potential, what we call Potentionality.