Dave Kellogg, CEO of Host Analytics, used his experience in creating three budgets during his career to talk about how he learned to develop a model for finance transformation.
Kellogg began his thought leadership presentation at the 2016 Chief Financial Officer Leadership Forum held on November 2 in New York by announcing he’d be talking about finance transformation from his own experience as a manager over the past 25 years. “We’re going to review three budgets I created across my career and talk about the lessons learned from each of them.”
Kellogg was first assigned to make a budget in the 1980s as a Director of Product Marketing. He had a small team, some marketing programs, and the budget was in the single-digit millions. “I was so excited. I spent two months coming up with a budget, I submitted it, and they whacked the heck out of it,” he said. He then went into "a trough of despair" for a month and gradually crawled back up to a more balanced baseline, but the excitement was definitely gone.
“I ended up leaving that company as a result of this experience, because the budget wasn’t approved until June,” said Kellogg. “In this experience, two things would have helped enormously—context and strategy. Give me some context when you tell me to make a budget, and let’s derive the budget from strategy. Also, give me some targets. None of that happened. I think a lot of us put people, especially junior people, through this emotional whipsaw when we enter the planning process.”
“Give me some context when you tell me to make a budget, and let’s derive the budget from strategy. Also, give me some targets.”
When Kellogg was next asked to develop a budget, it was the late 1990s and he was an SVP of Marketing. He had a team comprising scores of people worldwide, the budget was in the twenties of millions, and portions of the budget were overlaid into country P&Ls. “The instructions were to make a budget that hit two sets of targets—marketing targets for the corporate marketing organization and field marketing targets in each of the regional P&Ls—as well as generating adequate leads to support sales. It was pretty clear," he said. "Then this person shows up and I ask, ‘Who are you?’ She was an FP&A and said she was there to help me. I’d never heard of an FP&A person before, and I was cynical that she could help. It ended up that she was an indispensable part of my team. I learned the meaning of a business partnership,” he said. “This was also the first time I had to build a model. We used Excel. The experience was wonderful for me, but it wasn’t tied to anything. It was tied neither to the budget nor to the other models. When targets changed, that was a problem. What I learned was we needed visibility among the models, and they needed to be tied together,” said Kellogg.
“When targets changed, that was a problem. What I learned was we needed visibility among the models, and they needed to be tied together.”
Kellogg then mentioned coming upon a book entitled Beyond Budgeting by Jeremy Hope and Robin Fraser, which was published in 2003. Some of the key concepts in this book are:
• Pay for performance, not negotiation
• Don’t determine where you’re going by analyzing the wake
• The budget is outdated before you approve it (moving to a rolling forecast model)
Next, Kellogg was asked to create a budget as a CEO. “This was great, because we did what you’re supposed to do. We created a strategy for the company. We derived 10 goals to support the strategy using metrics as much as possible. We used comparable benchmarks but weren’t slaves to them; benchmarks can be a tool of enlightenment or a tool of oppression. We got to make trade-offs between investment areas. We also got to balance beatability (bonus) with value creation (stock).”
“We used comparable benchmarks but weren’t slaves to them; benchmarks can be a tool of enlightenment or a tool of oppression.”
Kellogg summarized by saying, “Given all these experiences, I learned that when talking about finance transformation, I always ask, ‘From what to what?’ We should try to transform to true business partnerships. This can be best accomplished using three things—automation, acceleration, and alignment. Automate to reduce drudgery and errors as well as retain staff, accelerate to create time for strategic value-added activities, and align to tie existing ops-created models to each other and to the operating plan so you can plan holistically.”
ABOUT DAVE KELLOGG:
Dave Kellogg has more than 20 years of leadership experience at high-growth companies. This experience includes being CEO of MarkLogic, CMO of Business Objects, and a member of the Aster Data Board of Directors. Dave also served in advisory roles to MongoDB developer 10gen, Hadapt, and Tableau Software.
Prior to joining Host Analytics as CEO, Dave served as senior vice president and general manager for Service Cloud at salesforce.com, overseeing one of the company’s fastest growing businesses. Previously, he spent six years as CEO at MarkLogic, growing the company from zero in revenues to an $80M run rate. Before that, Dave led Marketing at Business Objects for nearly a decade as the company grew from 250 to over 4,500 people and from $30M to over $1B in annual revenues.
A recognized industry thought leader on topics ranging from venture capital and Silicon Valley culture to cloud, big data, and social enterprise technologies, Kellogg authored a highly regarded blog for five years and remains active on Twitter @Kellblog.