4. Flow of Money

Many organizations receive a budget from their chain of command, and don't charge customers for their products and services.

This can mislead staff into thinking they exist to serve their boss rather than their customers.

Staff may think they are paid by the corporation to look after the interests of the corporation as a whole. They do what they think is best for the shareholders, rather than serve their internal customers and do what their customers think is best. This is the opposite of customer focus.

And since they've already gotten the money, they may not respect their customers right to decide what they'll buy, or recognize that they have competition. This leads to complacence and arrogance. Staff may even attempt to control customers by fighting any attempts to buy from external vendors.

This bureaucratic perspective, the antithesis of the BWB paradigm, undermines partnership, which threatens staff's ability to deliver strategic value.

In the BWB paradigm, budget is viewed as a pre-paid account. It's money put on deposit with the organization at the beginning of each year, to be used by customers throughout the year to buy its products and services.

In other words, an organization's budget is money in escrow, and doesn't belong to staff until they earn it by delivering their products and services.

The annual budget process fills these escrow accounts. Then a "purser" must be appointed -- a person or committee who has the power to write checks out of this account, that is, to set priorities.

The purser should be a fair representative of the customers. It's inappropriate to appoint the provider organization as purser for its own resources. That would be like allowing IBM to decide what computers you'll buy.

In a BWB organization, each group begins the year with no budget. It spends money on staff compensation and other items. These expenses are offset by revenues, which are collected out of the escrow account when the organization delivers its products and services to its customers.

If customers want something, they must pay for it.

One way to pay is to convince the purser to set priorities such that the work is funded by the escrow account.

Another way is to give the organization money from the customer's own budget, which it can use to expand its capacity (through contractors and vendors) and provide work beyond what's covered by the budget.

Note: In advanced organizations, all work is funded through chargebacks. However, chargebacks are not recommended outside the context of an internal market economy, and it takes careful planning to implement a free market within a corporation. Even without chargebacks, a market effect can be created by appointing an organization's internal clients as its purser.

In either case, everything has a cost to shareholders that must be paid by the customer.

Note that if a group can't do everything its customers demand, it's not the staff's fault. The corporation's spending power is limited. It's up to the group's customers to provide funding. Once the funding is there, the group's capacity is unlimited.

By the way, note that executives who wish to control costs have been frustrated with the ineffectiveness of headcount and expense caps. These artificial limits on the internal supply don't really reduce spending. They only drive costs up by forcing greater use of contractors, or forcing customers to use alternative sources such as decentralization and outsourcing.

The only meaningful way to control costs is by constraining customers' spending power (demand), not by constraining staff's supply.

In a BWB organization, executives control spending by limiting customers' checkbooks, and then leave entrepreneurial staff free to expand their supply to meet all funded demand.