Budget reductions and accountability final

Tim Washington March 21st, 2011 MNGT 596

“Budget Reductions and Decision Making Accountability”

Introduction

In the 2010 elections, Washington state voters faced several initiatives aimed at

raising taxes to close the gap in the budget shortfall. The taxes were needed to continue

supporting “important” programs and vital public necessities. Nevertheless, the common

backlash to these initiatives was a demand for more fiscal responsibility. The tax initiatives

were rejected by the voters, thus sending a powerful message to the state and local

governments to a do a better job with the limited budget available. As the Seattle Times

was covering articles on the tax initiatives, it was not uncommon for hundreds of

comments to be posted on their website. Repeating themes emerged such as:

“[the government] cannot spend the revenue they already get in a responsible manner….Learn to spend responsibly….” (Gilmore) “It is time that the State Government started living with the tough choices we are all making and ask ‘What do we cut next?’ instead of ‘What do we tax next?’” (Gilmore) “It's not taxation which is the problem, it's wasteful spending. Face the real issue = CUT SPENDING” (Garber, “Businesses Divided”) “The answer is not more money, it is better priorities and better efficiency” (Garber, “I-1098”)

The question then is, do budget cuts drive accountability and force decision makers to

make better and more efficient budgetary decisions? This question is not only an issue for

state and local governments, but of corporations as well. In many companies, there is

downward pressure to reduce information technology (IT) spending, even slashing

budgets in order to “get things under control.” There were big IT layoffs at Boeing in 2010,

yet IT organizations are still expected to perform at pre-2010 levels. Based upon current

literature and examples from the Boeing company and the City of Bellevue, the

outstanding characteristic is that the more proactive a management team is to develop

good governance processes, the quicker it can respond with better decisions when budget

cuts do occur. This paper will address the needs and benefits of good governance, as well

as the leadership required to be proactive in order to realize the benefits of a solid

governance framework.

Budget Reductions and Decision Making Accountability

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Part 1: Governance Research

The core issue that this paper aims to resolve is how corporate and local governance

can meet the greatest number of needs for their stakeholders in both the short-term and

long-term in the face of an economic downturn and resulting budget cuts. “Good”

decisions can be defined as decisions that maximize value in both the short-term and

long-term. The allocation of funds through a budgeting process is a key mechanism for

meeting these needs. “The budget process needs to represent not only the interests and

needs of the moment, but also those of the future. If the needs of today’s taxpayers are

not properly balanced with those of tomorrow’s, future generations may suffer a loss in

living standards and may have to contend with a severe economic crisis” (Fiscal

Stewardship). As this quote points out, if the short-term and long-term needs are not

balanced, citizens may suffer a loss in living standards in the future. By extension, the

same holds true for corporations; without balance, companies may see lower profits in the

future or even bankruptcy. When budget cuts occur, what is at stake therefore, is the

quality of life for local citizens and the existence, growth, and profitability of corporations.

In order to ensure that ‘good’ decisions are made that protect the quality of life for citizens

and the profitability and growth of corporations, accountability mechanisms need to be put

in place.

The concept of accountability has numerous facets (Tippett). According to the

Committee on the Fiscal Future of the United States, the governance framework is

necessary to hold leaders accountable for meeting targets (Fiscal Stewardship).

“Broadbent and Laughlin argue that there are two aspects of accountability: public

accountability, that involves the public as principals and is concerned with issues of

democracy and trust; and managerial accountability, that is concerned with day-to-day

operations of the organization” (Tippett). Accountability may also be synonymous with fair

and equitable processes as well as transparency. “‘Accountability’ and ‘accountable’ have

strong positive connotations; they hold promises of fair and equitable governance. It

comes close to ‘responsiveness’ and ‘a sense of responsibility’, a willingness to act in a

transparent, fair, and equitable way. Koppell distinguishes no less than five different

dimensions of accountability—transparency, liability, controllability, responsibility, and

responsiveness” (Bovens). Moreover, “it will no longer be sufficient for public officials and

local governments to demonstrate efficiency (doing more with less) and sound business

principles (MBO, TQM, and High Performance). They must go further to demonstrate their

accountability for the appropriate, proper and intended use of resources” (Gibson). In


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addition, it is good leadership that drives accountability, according to Jeff Jager of Point B

Inc. True leaders hold decision makers accountable for their decisions. These quotes

highlight three components of accountability and are shown in figure 1:

1. Governance as the framework which enables accountability

2. A common purpose and shared vision with strategic goals to demonstrate

accountability

3. Leadership to drive accountability

Figure 1

Governance as Governance as the Framework the Framework Which Enables Which Enables AccountabilityAccountability

A Common Purpose A Common Purpose and Shared Vision and Shared Vision

With Strategic Goals With Strategic Goals to Demonstrate to Demonstrate AccountabilityAccountability

Leadership Leadership to Drive to Drive

AccountabilityAccountability

For the remainder of the first section of the paper we will explore these three aspects

of accountability as it relates to the budgetary process.

Governance as the Framework

According to Peter Weill and Jeanne Ross, experts in information technology

governance, governance can be defined as “specifying the decision rights and

accountability framework to encourage desirable behavior…” (Weill 2). Clearly, this refers

to the people making decisions, a process for making decisions, and accountability to help

ensure that good decisions are made. The importance of governance cannot be

overstated. According to Howard A. Rubin, a former executive vice president at the Meta

Group, “a good governance structure is central to making [the investment process] work.”

These quotes highlight the need for a well defined and properly structured governance in

order to manage the investment process. According to Gil Makleff, the six pillars of

governance include:


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Timing: when are decisions made? Annually, quarterly, just in time, over multiple years?

Decision Style: how is consensus achieved: in groups, by voting, or through a dictatorship?

Organizational level: who is involved in the decisions? A board, a multi-functional steering committee, a project management office?

Thresholds: what are thresholds defined by? Budgets? FTEs? Cross business unit projects?

Decision Criteria: what other criteria affect decision making? Financial impact, strategic impact, risk levels, architectural fit?

Decisions: how do projects originate and get prioritized? How do they get funded? Who tracks their implementation?

These six pillars form a framework that provides a critical accountability mechanism

through which fair and equitable investment decisions can be made. It is important for

corporations and city governments to include these elements into the governance

process. By getting agreement on governance processes amongst decision makers, the

governing body can utilize the framework above in a more harmonious and successful

manner. “Those [organizations] with effective governance have actively designed a set of

IT governance mechanisms (committees, budgeting processes, approvals, and so on) that

encourage behavior consistent with the organization’s mission, strategy, values, norms,

and culture” (Weill 2). One of the key words in this sentence is ‘actively designed’.

Successful organizations actively design their governance processes to align with their

vision, mission, strategy, and culture. By extension, those organizations that haphazardly

design their governance processes may struggle and even fail to make good investment

decisions. Weill also argues that “IT governance is the most important factor in generating

business value from IT” (Weill vii). Moreover, “Effective IT governance is the single most

important predictor of the value an organization generates from IT” (Weill 4). This is a

powerful statement. While this paper has a broader focus than just IT, the point is well

made that governance not only makes a significant contribution to a company, but even

more, is the single most important predictor of the value that can be generated by various

departments.

With such a framework, budgetary decisions can be made in a fair and equitable

manner. These budgetary decisions are really investment decisions—where to spend,

how much to spend, and when to spend. Collectively, we can view these investment

decisions as a portfolio of investments. The concept of portfolio management (whether

financial portfolios or project portfolios) becomes very important when balancing long-term

and short-term needs. According to K.C. Yelin, “an enterprise portfolio management


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framework can provide structure, context, and information enabling executive participation

and appropriate decision making” (Levine 227). Therefore, investment decisions are really

just the output of a decision making process. The ‘portfolio management framework’ is a

critical component for making better decisions in the short-term and long-term and directly

ties in the concepts of governance and accountability; “portfolio management without

governance is an empty concept” (Datz).

A Common Purpose and Shared Vision With Strategic Goals to Demonstrate Accountability

Not only does a governance framework need to be put in place, accountability needs

to be demonstrated to stakeholders as well. Again, “…[public officials and local

governments] must go further to demonstrate their accountability for the appropriate,

proper and intended use of resources” (Gibson). Efficient use of resources is necessary

but no longer sufficient—leaders must demonstrate accountability to their stakeholders by

proving that limited resources are being allocated to the highest priorities goals and

projects. This points to the need for a common purpose, a shared vision with agreed upon

strategic goals. “Accountability, in turn, requires a shared framework for the interpretation

of basic values, one that must be developed jointly by bureaucrats and citizens in real-

world situations” (ibid). The interpretation of basic values starts with understanding the

purpose of the organization (ideation).

In the book Executing Your Strategy: How to Break Things Down and Get Things

Done, Mark Morgan highlights that “the most effective individuals and corporations are

those that take great pains to understand and cultivate a sense of identity, purpose, and

long-range intention” (p. 28). He continues by making the statement that “clarifying

identity, purpose, and intention is the critical first step toward doing the right things” (p.

30). According to “The Aligned Enterprise: Orchestrating the Next Level of Performance”,

published by IP Solutions through a joint effort with Stanford University and adapted from

Executing Your Strategy, “ideation provides a context for people to perform within. With

this context, people can make decisions that affect the overall enterprise in supportive

ways”. Therefore, understanding the purpose of the organization is required in order to

make good decisions that support its overall purpose.

In addition to a common purpose, every successful organization needs a shared vision

with strategic goals in order to make the right decisions. “Vision comprises strategy,

metrics, and goals. After all, if your goals are unclear, it doesn’t really matter how you get

there. Although this management concept is far from new, companies still suffer from a


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lack of clarity about their paths (strategy), the goals the paths are supposed to lead to,

and the metrics that measure success” (The Aligned Enterprise). The Organization for

Economic Cooperation and Development (OECD) released a publication in 2004 entitled

“OECD Principles of Corporate Governance”. In this paper, the organization highlights that

corporate governance “provides the structure through which the objectives of the

company are set, and the means of attaining those objectives and monitoring

performance are determined”. The concern then is that if organizational goals are ill-

defined and there is no pronounced strategic direction, then by default, any decision is

acceptable because there is no defined end goal to arrive at. Understanding and

communicating organizational goals is another crucial step for making good investment

decisions. “Enterprises with clarity and focus generally produce better results in any

endeavor” (Weill 27). Organizations therefore need to be proactive in developing long-

term strategic plans and criteria for defining good investments so that “good” decisions

can be aligned to the goals and strategies of the organization.

Our working definition of a ‘good’ decision includes maximizing value in the long-run;

this necessitates having strategic goals and a vision of what the future state of the

organization looks like. Having strategic goals implies that the organization needs to make

improvements or invest in certain areas in order to create a better future which we could

call the “future state”. Understanding the future state enables a governance team to create

a strategic roadmap which helps the organization understand what it needs to do to reach

the destination of the roadmap. Without proactively developing a plan and knowing what

the future state looks like, the organization could perpetually operate in a reactive mode.

Therefore, these strategic goals and plans become the measures by which leaders

demonstrate accountability for the appropriate, proper and intended use of resources.

Funding decisions should be made based upon the strategic goals and plans.

Leadership to Drive Accountability

Leadership is a critical component that brings the governance framework and the

vision and goals of the organization together. Good leaders will develop the right goals

and strategies for the organization. At the same time, good leaders will also develop the

necessary governance infrastructure to make good decisions that will drive the execution

of the strategy they have put in place. More over, good leaders will hold management

accountable for following the governance process and will take ownership for achieving


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the organizational goals. In sum, leadership drives accountability. We will look at these

points in more detail below.

Leadership and Governance

Governance and leadership work together mutually. “Fiscal targets and goals are not

self-enforcing. Rather, a framework is necessary to hold leaders accountable for meeting

targets” (Fiscal Stewardship). This quote strengthens the need for a strong governance

framework and points out that leaders need to be held accountable for generating greater

value in the short-term and long-term. However, accountability is not limited to the

governance framework. One World Trust, an international think tank that advocates

decision-making and governance reform, uses the following definition of accountability:

First and foremost accountability is about engaging with, and being responsive to, stakeholders; taking into consideration their needs and views in decision-making and providing an explanation as to why they were or were not taken on board. In this way, accountability is less a mechanism of control and more a process for learning. Being accountable is about being open with stakeholders, engaging with them in an ongoing dialogue and learning from the interaction. Accountability can generate ownership of decisions and projects and enhance the sustainability of activities. Ultimately it provides a pathway to better performance.

These attributes are really pointing to better leadership as a means for driving

accountability since good leaders will engage with and respond to stakeholders in an open

manner. According to Peter Weill, leaders should be engaged in actively designing

governance mechanisms (Weill 2). Governance should not be a delegated activity, but

requires active participation in order to make it successful. Good leaders then will adopt

and drive governance processes which in turn hold decision makers accountable for

developing good solutions and finalizing good budgets.

Proactive leadership is also essential in institutionalizing and living the governance

framework. Governance processes are significantly undermined by leaders who say one

thing and do another. “The transition to living the framework requires powerful leadership

and discipline” (Levine 227). If management is not held accountable to following

governance processes, the entire governance framework falls apart. “It’s not enough for a

leader to do things right; he must do the right thing” (Bennis). Leaders must be careful to

maintain credibility among their employees by living the values of the governance

processes that have been put in place, otherwise company morale can suffer. Likewise,

by following through with governance processes to achieve strategic goals, leaders


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demonstrate accountability and further strengthen the institutionalization of governance

throughout the entire company.

In addition, Peter Weill in IT Governance lists seven success factors for IT

governance, the first three of which directly relate to leadership. Firstly, “the most

important predictor of top governance performance was the percentage of managers in

leadership positions who could accurately describe their enterprise’s IT governance” (p.

124). Leaders and managers at all levels of an organization need to know how the

governance processes work—if decision makers don’t understand it, it will not be used or

used ineffectively. The second factor related to leadership’s engagement with the

organization around governance processes. Often this took the form of various

communications with managers and employees. The third factor was direct involvement of

senior management in the governance process. There was a direct correlation between

involvement and governance performance. As obvious as this sounds, being directly

involved with governance processes sends a strong message to the rest of the

organization.

Leadership and Vision

Leadership is also integral to driving successful strategic execution. Leaders must not

only help develop the organization vision, strategy, and goals, but must also engage

employees to understand the vision and work toward the goals. “Successful strategic

system implementations demand business leaders with the vision to define and implement

the change” (Weill 41). In a recent New York Times article titled “Google’s Quest to Build

a Better Boss”, one of the habits of effective Google managers that Google discovered

was to “have a clear vision and strategy for the team” (Bryant). Even though this same

finding has been published numerous times before, the point is further strengthened

through Google’s extensive analytical research on its own managers.

According to Warren Bennis, leaders need to think strategically by understanding the

final goal, evaluate possible routes, determine the best route to get there, and then “climb

the mountain” (Bennis). In doing so, these leaders become responsible and accountable

for bringing their organization from point A to point B. The way they accomplish it includes

developing and sharing the organizational vision. Ron Woodbury, a CIO for Altura Credit

Union, elaborates on this point in his discussion on leading a team across a bridge

blindfolded. One of his fundamental leadership take-aways from the experience was to

“spend a little more time up front to ensure everyone is informed and understands the

vision, opportunities, and obstacles—then forge forward as a cohesive team on a path to


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success” (Woodbury 70). Finally, “a real essential for effective leadership is that you can’t

force people to do very much. They have to want to, and most times I think they want to if

they respect the individual who is out front, if they have confidence that the person has

some sort of vision for the company” (Don Ritchey, quoted by Bennis). Good leaders who

earn the respect of their people will be able to lead them to accomplish the strategic goals

of the company.

Leadership in the Current Economic Climate

In the current economic environment, leadership is also essential for driving positive

change. With both our country and state strapped with enormous debt, good leadership is

needed to guide us out of this difficult economic situation and “political leadership is

essential to fiscal reform” (Fiscal Stewardship). As discussed at the beginning of this

paper, the counterargument against raising taxes was focused on responsible spending,

reduced spending, and developing better priorities. This requires leaders to make difficult

decisions to establish trade-offs with the current budget. According to Thomas Friedman,

a New York Times columnist, leadership in the new era involves the difficult task of taking

things away (reduced spending) to get the fiscal house of the United States in order.

Fiscal responsibility includes a clear understanding of what is most important versus

things that are less important, communicating these priorities, and then making trade-offs

to reduce spending in less important areas. However, Friedman warns that if our current

leadership does not take this path, the financial market may do it for us in a brutal way,

thus lowering the standard of living for the people (Friedman).

“The leaders who will deserve praise in this new era are those who develop a hybrid

politics that persuades a majority of voters to cut where we must so we can invest where

we must” (ibid). Again, this necessitates the development and communication of priorities.

Without understanding priorities, it will be impossible to convey to stakeholders (US

citizens in Friedman’s article) why certain cuts need to be made. However, the focus is not

merely on budget cuts, but rather how to allocate funding to the highest priorities that

support the greater good. By inference, Friedman seems to suggest that US priorities are

not well developed or communicated; this is the fault of leaders. The same need applies at

the state and local levels and even within corporations. Friedman further elaborates that

these issues need to be addressed in a fundamental way, not in a “piecemeal” way, the

result of which is a “lifestyle of just survival” (ibid). Leaders are accountable for developing

strategic goals and priorities, and leaders are equally responsible for executing upon them

to ensure a higher quality of life for local citizens as well as the existence, growth, and


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profitability of corporations. “If business leaders do not assume responsibility for

converting [IT capabilities] into value, the risk of failure is high” (Weill 66).

In this first section, business and academic literature was surveyed to determine how

organizations could improve fiscal responsibility. As we saw, accountability mechanisms

need to be put in place in order to accomplish this. Moreover, accountability is not a

simple topic but can be addressed with three elements: a governance framework that

enables accountability, a common purpose and shared vision with strategic goals to

demonstrate accountability, and leadership to drive accountability. The next part of this

paper focuses on two local examples of governance.

Part 2: Local Examples

Boeing Commercial Airplanes (BCA) Computing Governance is a representative of a

private corporation, and the City of Bellevue represents a local city government. Both

reveal some of the elements of accountability discussed in the previous section. In this

section we will compare some of the points above with the examples below.

Example 1: BCA Computing Governance

Boeing Commercial Airplanes (BCA) employs a computing governance board to

review significant information technology (IT) investments and provides funding for IT

work. “The goal of the computing governance is to provide processes, data and tools that

allow BCA to work across organizational boundaries to gather, prioritize and approve

requirements for computing investments that result in an optimized portfolio of

investments and service level agreements (SLA’s), link to specific BCA strategies,

generate the highest value, and are aligned architecturally with the BCA and Boeing

Enterprise ‘go forward’ application roadmaps” (BCA Computing Governance Overview).

According to the governance board’s charter, this governance board is specifically

responsible for the following items:

Managing a centralized funding pool for IT expenditures in accordance with affordability targets

Ensuring alignment with the Enterprise IT Business Plan Making authorization and priority decisions on all BCA investments in information

technology This ensures that IT investments enable BCA business strategies and drive

value This ensures that IT investments support key initiatives that are not on an

airplane Program’s critical path Integrating computing investment requests and prioritize based on the project

business case and strategic fit


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Conducting gated investment reviews to: Monitor computing investments against cost, schedule and estimated

benefits Ensure benefits for completed projects are booked in the BCA business

plan Validate projects continued alignment with Business Process and Tool

Strategy

Collaborating with IT on infrastructure strategies

This board has also clearly articulated that governance in the context of computing

investments refers to a business process that helps ensure proper allocation of IT

resources to BCA computing investments projects in order to maximize value to BCA. In

addition, the governance board also administrates a finance discipline to actually book

benefits derived from IT investments against formal organizational business plans.

Within the BCA computing governance are two boards operating at two different

levels. At the first level is a Strategic Integrated Design Team (SIDT) that comprises BCA

representatives from the various Business Units, functions (e.g. engineering, supplier

management, manufacturing), and IT lower level managers and could be considered the

first “line of defense” against misaligned projects. The SIDT reviews all project requests

and prioritizes work based on the value derived from the business case as well as

strategic alignment. When project costs exceed a certain budgetary threshold, the SIDT

prepares a recommendation and escalates the project investment to the Computing

Management Board (CMB). The CMB comprises executive level management from IT and

BCA; they are responsible for authorizing the work and ensuring that the proposed value

gets realized and captured in a business plan.

The computing investment process includes a series of gate reviews, whereby a

project team must comply with and fulfill all necessary requirements before moving on to

the next phase. Each phase includes a finance review with a Finance focal to first review

the costs and benefits to ensure that the numbers are sound and secondly to calculate an

updated return on investment (ROI) and net present value (NPV). Due to the complexity of

Boeing IT, an architecture review is also included to make sure that nothing is out of

alignment with current IT architecture standards. Finally, a business plan review is

conducted to ensure that benefits are captured in a long-term business plan. The four

primary phases are as follows:

1) Opportunity Evaluation (OE) to develop a formal proposal and calculate

benefits


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2) Preliminary Analysis to define the technical requirements

3) Architecture to “define the framework”

4) Design, Construct, and Implement which represents the bulk of the project to

build, test, train, and deliver the final IT solution.

The computing governance process described above is a strong framework for

allocating hundreds of millions of dollars of IT spending across BCA each year. Two of its

biggest strengths come from including the right level of management in the decision

making, and applying consistent financial measurements and incorporating the financial

costs and benefits into organizational business plans. The ensuing accountability

framework promotes healthy and cost-reducing projects that increase value for BCA. Brett

Roberts, a senior manager who oversees the BCA computing governance process, points

out that having an integrated governance process is part of the infrastructure required to

do a good job of evaluating project proposals. “Without governance, deciding what to keep

and what to cut becomes a sales job” (Roberts). By instituting better governance, it is

possible to provide greater visibility and clearly show executive management the impacts

of potential budget cuts. In other words, the message becomes, “if we make cuts, here’s

what we lose”. This becomes a matter transparency; the transparency of the process.

Without good consistent processes, funding decisions will get made based on the best

sales pitch and good decisions will be made inconsistently. “Governance as a foundation

enables good choices. Then we can answer other questions such as, ‘what will we lose if

we don’t do something’. Governance is an enabler for quicker decisions” (ibid). By having

the governance infrastructure as the foundation, BCA has been able to do a better job of

fairly and effectively evaluating the value of projects.

When asked about budget cuts, Roberts and Jack Medley, another senior manager

who participates in the BCA computing governance process, both agree that budget cuts

help drive accountability and improve decision making to a certain extent due to increased

scrutiny of spending. One example they cited was that recent cuts forced the company to

look at two-sided printing. In the past, printers with good two-sided printing functionality

were too expensive and too slow to do the job reasonably. However, due to the budgeting

pressure, the company recently took another look at it and realized that it was now

economically feasible and would save significant paper costs in addition to being good for

the environment. Without the cuts, the company would not have made changes to their

printers.


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The primary concern pointed out by Roberts, is when budget cuts are made that affect

the mission (“cut to the bone”) and reduce essential services and features. The resulting

decisions are not effective and end up creating more harm than good. Based on past

experience and observations, he also noted that when budget cuts are too severe,

organizations will try to game the system and hide information so as not to be severely

impacted by budget cuts. This shows that not all budget cuts drive positive change, but

should be done with careful consideration to the essential products and services affected.

To counteract this problem, he recommends understanding the source of the cuts, which

should allow for the transparent discussions mentioned above that would help convey the

dollar value lost as a result of the cuts.

One of the challenges expressed by Robert is changing the mindset of people within

the company to not focus merely on costs, but also pay attention to value, which may

include financial as well as strategic benefits. He believes there is a shared sense of value

(i.e. the value proposition) between governance board members, but when times were

tough and recent cuts were made, there was very little discussion about the amount of

value being left on the table. The finance organization is traditionally focused on cost, but

both Finance and the Computing Management Board (CMB) should aim to get to the point

of consistently communicating value. In this way, rather than accepting the budget cuts at

face value, the CMB can communicate back to the executives how much money, in terms

of future returns, is foregone (‘left on the table’) as a result of the cuts. “This type of

thinking needs to be driven deeper into the organizations” (ibid).

Another challenge highlighted was in the area of strategic planning. Roberts

commented that some governance operations are too reactive and that BCA should be

more proactive with understanding the future computing needs because it is too

expensive to reinvent processes and computing systems for new airplanes. Although

criteria does exist for evaluating project proposals and ensuring proper alignment, the

CMB has the opportunity to make further improvements in terms of capability processes

by developing a forward thinking strategic roadmap. A strategic roadmap would provide a

vision for where computing funding should be allocated and how it will help drive BCA

toward a preferred future state. Another advantage for having such a roadmap would be

to understand impacts and schedule slides to strategic objectives when new project

requests are made that would divert funds away from strategic items. A comprehensive

roadmap would also help overcome the strong silos that still exist between business units


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and functions. By understanding the future needs of each business unit, common

computing systems could be developed that meet the needs of multiple business units

and cost the company less money to operate in the long-run. In contrast, unless the

various business units communicate their computing needs, multiple overlapping

computing systems may be developed that cost the company significantly more money in

the future. This highlights the need for comprehensive strategic planning by the

Computing Management Board.

Example 2: The City of Bellevue

The city of Bellevue with its new budgeting process is a great example of proactive

leadership, collaboration, value focus, and governance. Two interviews with City of

Bellevue council members, Jennifer Robertson and Claudia Balducci, yielded great insight

about Bellevue’s history and the current work around Bellevue’s new budgeting process.

In the past, cities could expect 6% annual property tax increases for budgeting purposes.

Later, local initiatives cut that to 2% and then eventually to 1% annually. With the rest of

the country in a recession, the city saw indicators that the recession would hit the

Northwest and further reduce city revenue. Even with frugal spending and careful

oversight, the council proactively made plans to address the recession by developing a

new budgeting process called “Budget One”.

After speaking with the two council members, it was very clear that strong leadership

drove the new budgeting process. Documentation on the city’s website very clearly

outlined both the need for a new budgeting process and the method for doing so. The

message was carefully framed to convey that the new budget process would be

foundational and would set the future direction of the city. The expectations were also

clear, “for all of us, this budget process will be one of the most challenging in our city’s

history” (Budget One).

Strong communication is a mandatory requirement for facilitating change, and the city

was upfront that the recession affecting the United States and locally in Bellevue would

result in a multi-million dollar operating budget deficit for the 2011-2012 Budget. The city

was candid about its capital program by stating, “our long term capital program cannot be

sustained as planned with the decline in future revenues anticipated by our forecast”

(ibid). Moreover, the city faced a broader challenge and communicated it in the following

way:

We face a second challenge—the need to refine our business practices to ensure they meet community needs. Our traditional way of developing a


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budget—department by department—must make way for a process that targets spending with specific community needs. “Budget One” is our new budget development process. It embodies the philosophy of our One City effort that stresses teamwork, transparency, collaboration, shared leadership, and broad employee participation in the decision-making processes. It embraces the leadership philosophy that our collective success is larger than any one of us individually. In keeping with our leadership philosophy, Budget One offers us both challenge and opportunity. For this new budget process to work, we must seek innovative ways to cut costs (ibid).

This call for broad employee participation exemplifies the leadership component for

developing the new budgeting process. The need for change was clear, and the message

above successfully rallied city participants to develop a brand new budget with a brand

new process. The need for leadership was expanded beyond the city council to include

city employees. Balducci stated that a lot of discussions took place to get the staff on

board. The council recognized that getting people to buy into the process is important, so

the time and energy was spent to make sure the message was communicated. Robertson

explained that the best of the best employees with the most leadership qualities were

selected to lead the Results Teams and that picking the right leaders made the whole

process work smoother. Even though the process was very time consuming, everyone

rose to the occasion. She also pointed out that one of the characteristics of a strong

leader is the ability to hear other people without bringing too many emotions into the

conversation. Being level headed, thinking outside the box, and working well together

resulted in a fair process for all of the participants (Robertson).

Both council members agreed that the latest biannual budget was the best one

produced to date. Yet, leadership alone did not develop the budget, rather, a well

designed budgeting process was developed and used that resulted in the best budget

under the current economic climate. The City Council started by developing their top

seven priorities: Safe Community, Improved Mobility, Innovative, Vibrant & Caring

Community, Quality Neighborhoods, Healthy & Sustainable Environment, Economic

Growth & Competitiveness, and Responsive Government. Employees were assigned to

Results Teams and were asked to wear “citizen hats” to focus their thinking and efforts on

what residents want from their city government. They were asked to think creatively and

collaborate with others, inside and outside of City Hall, to identify opportunities to find cost

savings within current city operations. Balducci said that the process started with a

fundamentally different question. Instead of asking the traditional question of “what are we

going to cut?”, the new question was “what are we buying?” It was made clear that the

new budget was a ‘fundamental reset’ and that this new question drove the conversation


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around the value of each proposal, even of services that had been in existence for a long

time. The City of Bellevue wanted to have a clear idea of the costs and benefits of every

item in the budget.

Given the expectations, Balducci said that the number one success factor at this

phase in the process was to educate everyone about what goes on in the city

government. Employees had to learn about other areas. She mentioned that it is easy to

point the finger at another group where you have no experience and declare that the

budget cuts should come from that group; but once you understand what other

departments do, the challenges they face, and their current priorities, it is easier to come

together to work on the budget and not point the finger so quickly. This required the

Results Teams to operate as cross functional teams in order to understand the needs of

the various departments. She continued by saying that the process was labor intensive

because it had to be created for the first time, but wouldn’t be as labor intensive in the

future. “We had to educate everyone this time about why it is important to deliver the

biggest bang for our tax payers’ buck. People need to know ‘how’ and ‘why’ we spend

money. There was not much understanding about how our services were provided, but

the budget cuts forced us to better understand our own services. It cost us approximately

one million dollars in time to develop our billion dollar budget, but it was money well spent,

and the returns continue to grow. I would do it again” (Balducci).

The Results Team were composed of five to six staff members and assigned to each

outcome to identify the factors and purchasing strategies that have the most impact in

achieving the outcome. Results Teams were asked to wear a “citizen hat” to evaluate the

outcome as a citizen might and not as representatives of their respective departments.

This was to ensure that budget priorities are oriented toward what will best provide value

to those who have a stake in the community. Including a variety of positions and levels of

experience on the Results Teams was consistent with the organization's Leadership

Philosophy which encourages shared leadership and provides the opportunity to engage

more people in decision making and shape the direction of the organization. The broad

participation positively impacted the final output.

Each Results Team was responsible for developing Requests for Results (RFRs)

which helped guide departments in the preparation of their proposals. The Results Teams

used many internal and external sources to create the RFRs including the City’s Mission

and Vision, Comprehensive Plan, Community Vision, and internal and industry experts to

identify the types of activities that will best achieve the desired outcome. Such research is


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commendable to help ensure that the city has done due diligence in providing the right

priorities and factors for accomplishing the priorities. The culmination of this work was a

cause and effect map for each of the seven priorities, which provides a one page

summary of each priority, a value statement from the community, detailed criteria (factors)

for accomplishing the priorities, and community indicators for tracking the accomplishment

of the particular priority. For each primary factor, detailed purchasing strategies were

provided to help guide the proposal process and provide focus on those proposals that will

add the most value and contribute most strongly toward the particular priority. An example

of the ‘Safe Community’ cause and effect map is shown below along with the City’s own

definitions for the various components of the strategy map (extracted from the Budget

One process documentation).

Cause & Effect Map—A visual representation of the pathway to the result. Using

words and/or images, it helps viewers understand the cause-effect connection between

activities, strategies, factors, and the outcome. Cause and effect maps are included in the

Request for Results (previously called “strategy maps”).


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Community Value Statements—These statements provide broad direction on what

is important to people who live, work, and play in Bellevue. They can be focused on what

is of immediate value, an aspiration, or both. They must relate to the outcome and that

relationship should be clear.

Factors (Primary and Sub)—Factors are part of the cause and effect maps. They

help to understand the cause-effect connections that achieve an outcome. Primary factors

actively contribute to the desired outcome, while sub-factors are secondary actions or

processes that contribute to a primary factor which in turn contributes to the desired

outcome.

Community Indicator (CI)—A set of performance indicators for each of the City’s

outcomes. CIs serve as high level indications that may be affected by change over time.

They are high level “barometers” or “yardsticks” of progress. Together they measure

progress toward the City’s outcomes and goals.

Purchasing Strategies—A set of actions defined by Results Teams to achieve an

outcome. A strategy is based on an understanding (or assumption) of the cause-effect

connection between specific actions and specific outcomes.

When asked about some of the success factors for the city of Bellevue and their

budgeting process, Robertson responded by saying that Bellevue has a very forward

thinking council and has had visionary leaders who have been good at identifying areas of

growth. One example she provided was the updating of the city’s utilities infrastructure.

Bellevue recently raised utility rates in order to help cover the costs of the upgrade,

knowing that other cities will have to raise rates significantly more in the future than

Bellevue. The Council believes that Bellevue will have one of the lowest rates 10-15 years

from now. Another example of forward thinking is related to road repair. Even though the

city gets criticized for ‘gold plating’ their projects, the council believes that the long-term

costs of maintaining roads are greater if repairs are delayed until after the streets have

already cracked. For this reason, Bellevue takes better care of their roads by repaving

more often (Robertson). These are also examples of proactive leadership.

Part 3: Analysis and Take-aways

After surveying current literature on governance, accountability, and leadership, and

reviewing governance processes at the Boeing company and the City of Bellevue, there

are several key take-aways.


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First, the foremost point from this research is the need to be proactive in developing

the governance framework, a shared vision, and strategic goals. These items are the

result of proactive leadership, leaders who understand that hard work is required up front

to develop these processes and goals and then share it with stakeholders. The more

proactive a management team is to develop good governance processes and

communicate the organizational vision and goals, the quicker it can respond with better

decisions when budget cuts do occur. This enables organizations to ‘cut where they must

so they can invest where they must’ (Friedman). With any significant budget cuts,

organizations have to put new budgets in place. The difference in whether the

organization “responds” or “reacts” depends largely on the strength of the governance

processes that have been put in place and the leadership behind it. Responsiveness

carries with it the connotation of preparation, whereas being reactive can be linked to

impulsiveness. Organizations that do not have strong governance, leadership, and

strategic goals will react to budgetary pressures. Being proactive in defining an

organization’s course and establishing good governance processes empowers the

governance team to be more nimble and respond faster and better to economic

downturns.

Unfortunately, this is not an easy task. As noted in the Fiscal Responsibility article,

“taking on the nation’s long-term fiscal challenge is…more akin to dealing with the

termites in the woodwork—a problem that is not immediately apparent but can bring the

entire house down if not dealt with proactively” (Fiscal Responsibility). In the same article,

the author bemoans the fact that historically, significant changes usually only come out of

a crisis. Yet, waiting for a crisis to happen before making significant changes is the

antithesis of proactive leadership. One root cause for this attitude is due to the American

focus on short-term results, with little view of long-term consequences. Warren Bennis

says that this short term thinking is “the societal disease of our time” (Bennis).

Managers who operate predominantly in a reactive mode will be ill-prepared to make

good investment decisions when faced with eminent budget cuts. It is the responsibility of

a city’s or corporation’s leadership to develop, institutionalize, and live the values

conveyed by good governance processes. The Boeing Company and The City of Bellevue

are good examples of developing good governance processes. Boeing’s Computing

Governance is a well developed governance structure that incorporates all six of the

pillars of governance discussed earlier. It is robust enough to handle a divergent array of

complex projects and maintain financial and architectural accountability. As noted by Brett


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Roberts, one of the greatest strengths of the process is the consistent financial reviews

that are booked against organizational long-term plans. The governance process also

does a good job of escalating project proposals across two different governance bodies

ensuring that the proposal is reviewed by the appropriate level of management. The City

of Bellevue did a great job of realizing that the economic climate was changing and

realized that it needed to develop a brand new budgeting process from the ground up that

would include greater community participation and founded on agreed-upon priorities.

Budget One was a success due to the active participation by City leadership in the

governance process as well as involving City employees and citizens in developing future

proposals that align with City goals and objectives.

Second, in order to balance long-term and short-term needs, leadership needs to do

six crucial things: communicate the organizational purpose and vision, develop

organizational goals, document the organizational priorities, provide detailed decision

making criteria, identify the current state of the organization, and map out how to arrive at

an agreed upon future state. These steps will provide a complete and transparent picture

of the organization, where it stands, where it wants to go, and what it will take to get there.

Not only will this message be clear to the organization, but it will enable the accountability

required to actually achieve the organizational goals.

The City of Bellevue also did an outstanding job of demonstrating this with their cause

and effect maps by making each map easy to read as well as easy to understand how the

factors and sub-factors contribute toward the priority. These maps can be used as a

communication vehicle for helping people understand where and why the city is allocating

funds. Unfortunately, many companies never achieve such detailed ‘strategy maps’. Often

companies provide high level strategic priorities and ask organizations to prioritize their

own statements of work around the priorities. Yet, such high level goals are often too

generic to be actionable. Detailed criteria, like the city of Bellevue produced, is required to

translate strategy into action. Many corporations could learn from Bellevue in developing

more detailed strategy maps.

A third take-away was the shift in view that Balducci highlighted with the new Budget

One process. Instead of starting with the old budget and ask, “what are we going to cut?”,

the city council decided to start over with a brand new budget and ask the question “what

are we buying?” This is a complete and fundamental shift in thinking for developing

budgets. In order to answer the question, the city had to do extensive work to develop

priorities and detailed decision making criteria along with a new proposal process. In the


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new process, proposal teams were responsible for clearly outlining the value of each

proposal, aligning it to one distinguishable priority, and identifying metrics that would

enable the city to track the value of each proposal.

Based on the preceding literature and the experiences of the City of Bellevue, it is

clear that there is greater leverage in governance decision-making through the

development and communication of a cohesive vision and strategy than at the individual

project proposal level. In other words, without a shared vision and common strategic

goals, there will be inadequate criteria for screening out “bad” investments and

governance bodies can spend significant time evaluating the merits of multiple project

proposals without arriving at a comprehensive and cohesive plan. Such reviews can turn

into sales pitches that are not grounded in strategic criteria and do not align to the

organizational goals and objectives. Therefore, organizations will reap far greater benefits

by developing strategic goals with detailed criteria before evaluating project proposals

within a budgeting process.

Next, Balducci also pointed out that the number one success factor in the Budget One

process was educating all the participating City employees about City government

operations. Without a shared view of how the city operates, it would have been too easy

for individual departments to go back to the old way of developing budgets and fight for

increased departmental funding. However, through additional cross-training and the use of

cross-functional teams, this conflict was significantly reduced to the point that the greatest

debate took place over the last million dollars of the budget. The out-of-the-box cross

functional approach was led by good leadership and highlights the need for greater

organizational communication and a “big picture” view.

Balducci and Robertson both strongly agreed that the 2010-2011 biannual budget was

the best, but most time consuming one produced to date. The development of seven clear

priorities, detailed criteria, cross-functional training, and the new proposal process all took

more effort than anticipated. These items simply required hours upon hours of discussion

and review; there were no shortcuts. The end result, however, was a shared vision and a

quality budgeting process that would enable the City of Bellevue to move forward in light

of reduced tax revenue. Both council members believed that the end result was worth the

price and would willingly do it again. The initial development of Bellevue’s Budget One

process took time, but future budgets should be developed faster due to the learning

curve of the process. The key point here is that there are no short-cuts to developing and

using good governance processes. Getting people to agree on the priorities and vision of


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a city or corporation can be difficult, but is possible through extensive and transparent

discussions among the various stakeholders and managers.

Conclusion The focus of this paper was to understand whether budget cuts drive accountability

and force decision makers to make better decisions. The background for this was the

2010 Washington state elections where multiple tax initiatives were on the ballot. Voters

rejected the measures and sent a message to the state and local governments that

greater fiscal responsibility was expected. However, fiscal responsibility extends beyond

state and local governments into private corporations which also experience budget cuts

between internal departments. To achieve fiscal responsibility, leaders must be held

accountable for making good budgetary decisions. Based on current literature,

accountability can be addressed with three elements: a governance framework that

enables accountability, a common purpose and shared vision with strategic goals to

demonstrate accountability, and leadership to drive accountability.

Organizations that are successful in proactively developing good governance

processes can respond quicker with better decisions when budget cuts do occur. This was

demonstrated particularly by the City of Bellevue with its new Budget One process. Two

council members were interviewed for this paper and both agreed that although the new

budgeting process was challenging and time consuming, it yielded the best budget under

the current economic conditions. One of the outstanding features of Bellevue’s process

was the leadership required to drive both the development, communication, and

accountability of the new process. The City did a great job of identifying priorities and

factors that would contribute toward the fulfillment of those priorities. This resulted in a

more transparent process that brought significantly more valuable proposals than in the

past.

Boeing’s Computing Governance was a good example of a tiered governance

framework capable of handling a diverse set of complex needs. Two senior managers

from the company both agreed that budget cuts do drive accountability and force better

decision makers due to increased scrutiny. However, they both cautioned that such cuts

can be effective up to the point of touching critical products or services.

With the current economic environment, governments and corporations alike are faced

with heavy pressure to do more with less and demonstrate to stakeholders that resources

are allocated to the right things. Local governments and corporations that invest in a


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robust governance framework will be more prepared to face future economic downturns

than those governments or organizations which simply react to the present situations.

Hence, being proactive yields far greater returns in the long-run.

However, developing a governance framework and an organizational vision with

strategic goals comes at a price. For the short-sighted organization, this price may be too

high. Yet, this short-term price is low compared to the potential consequences of not

developing the vision and governance framework. Unfortunately, “the national obsession

with the short term comes directly from business” making short term thinking “the societal

disease of our time” (Bennis). In the end, only strong proactive leadership will drive an

organization to develop a governance framework and an organizational vision. Such

leadership will ensure that the right decisions are made that will protect the quality of life

for citizens and the profitability and growth of corporations.


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