Why Connecting Strategy to Spend Matters
The Blunt Truth
Here’s a common scenario: It’s the beginning of March, and you get an email that says the company needs employees to cut non-critical travel for the rest of the month. You and the rest of your team pull up the calendar and start debating about what’s least critical: the meeting with the client who’s got a 65% chance of closing this month, the sales training for new hires, or the annual industry trade show in Boston?
Travel freezes are a common tactic used by companies big and small to ensure that spending aligns with revenue projections. They happen because something in the business is off track. It could be that a product is late to ship. Or clients are late to pay their bills. Or expenses somewhere in the company came in way over budget. No matter the reason, the objective is to minimize nonessential spending in the short term to mitigate the problem.
The challenge is that a tactic like a travel freeze is a blunt tool. It asks everyone across the company to cut spending, without regard for what might be planned or the relative priority of specific initiatives.
So why do companies rely on travel freezes? Fundamentally, because strategy and spend are not connected. After all, a company’s budget is a reflection of its strategy, and its spending should be, too. Let’s consider each of these areas individually to better understand the fundamental disconnect.
Budgets—the documents traditionally generated once a year as part of the planning process—reflect the strategy set during that business process. Budgets are where a company allocates the resources (people, money, and equipment) needed to execute its plan.
Unfortunately, those budgets become out of date quickly, because businesses change rapidly: You land a huge deal after months of work. Or a business partnership takes longer to develop than expected. When significant changes like these happen, the tactics you use to execute your strategy—and sometimes the strategy itself—must change, too.
The challenge is that the budget document itself isn’t a live tool. It’s a huge spreadsheet with links and formulas that require manual updating. And because budgets are static, managers can’t respond to changing circumstances, like shortfalls in revenue or lower than expected fundraising, with the amount of precision required.
In the same way that freezes are blunt tools for managing budgets, most corporate cards are blunt tools for spending. Take a minute to picture a corporate card in your mind. I feel confident that we have a shared image of a basic plastic card. Let’s face it: in an era of innovation, plastic payment cards have changed very little in the last few decades. They connect to nothing other than the card reader at a store or restaurant, and it can take up to 30 days to get a statement detailing your transactions.
Corporate card spend is traditionally used for discretionary purchases like travel, meals and entertainment, office supplies, and software subscriptions. And these discretionary items represent a significant portion of your budget—25% or more.
Visibility into discretionary spend is a major challenge for finance managers. It’s dispersed across many departments and employees. Most of the time, finance only knows about discretionary spend after the money’s been spent, through the next month’s credit card statements or filed expense reports.
That said, discretionary spend is also the area that where finance departments can exert the most financial controls when needed. It’s far preferable to cut travel than to cut jobs when spending and budget go off track. Once again, connecting strategy to spend, in real time, is essential.
A Different Approach
Imagine a different scenario than the travel freeze described above. It’s still the middle of March, and finance projects that revenue isn’t going to come in as planned. The team reviews the company’s discretionary spending data and sees that the R&D department is tracking well below budget for travel. At the same time, the finance team sees that sales has several upcoming customer meetings scheduled in advance of quarter end. Finance also reviews exactly where every other department stands on this date.
The team shifts budget around to meet the spend targets and issues new guidance: R&D will freeze travel this month, the rest of the company will dial back on employee meals and office supplies, and sales will see a slight increase in budget so that they can get in front of the accounts most likely to close. This is an example of using a strategic, integrated approach to spend management that enables companies to target their resources to the most critical functions.
At Center, we see an opportunity to reinvent the corporate credit card into a tool that can be used to proactively manage your corporate spend to your evolving business strategy. Having lived through travel freezes and budget cuts, we know how hard it is to gain visibility into discretionary spend so that you can make good, timely decisions. We are proud to introduce CenterCard, a new corporate card program that brings together budgeting software and spend.
As we’ve worked on our product, we outlined three goals that our solution needed to meet:
- Provide proactive spend management and controls,
- Forecast committed future spend, and
- Make the budget understandable to everyone in the company, in real time
This last point is important. Budget is often seen as something the finance team controls, but all employees contribute to execution of the strategy. This means that department managers and individual spenders need to know how much budget they have available. Our mobile app shows managers how a budget request impacts their department so they can make good decisions when, for example, an engineer wants to attend a conference. And our digital card shows employees exactly how much money they have remaining on their travel budgets—right at the point of sale—so they, too, can make informed choices.
We reinvented the corporate card by combining it with budgeting software to proactively manage your spend. Budgets are no longer static, outdated documents. Cards are no longer disconnected pieces of plastic. Together, they become an actionable, strategic tool that empowers everyone in the organization to spend against the evolving business strategy.
Please join us in our mission to make business spending strategic, intelligent, and connected.