Introduction

How many companies claim to be customer-oriented while also running an annual budgeting process? If we assume that 80% of companies run an annual budgeting process, and 80% of those claim to be customer-focused, that gives a rough estimate: two-thirds.

That’s a high number. It’s also an oxymoron. If you have a relentless focus on the customer, how can you hit a static budget under all conditions? You can’t. The opposite is equally true.

The simple reason is that when companies run annual budgeting, the budget becomes the most important thing executives optimize for, and that often has little to do with what is good for the customer.

A negative way to look at this is that many are operating inefficiently. A positive alternative is to see this for what it is: a huge opportunity to become more customer-oriented.

Focus on the Budget, Not the Customer

According to finance experts, the purpose of the annual budget is to set targets for the year. And that’s what most companies do: they take the budget numbers as targets and link the highest monetary incentives to reaching them.

“To reach those numbers, people will need to do what’s good for the customer.”

Yes, that’s the theory, but it doesn’t, unfortunately, work in practice—for at least three reasons.

First, it’s possible to cheat to hit the numbers. Second, even if cheating weren’t possible, there’s a flawed assumption that the business logic behind the numbers is valid under all conditions. Third, there’s another flawed assumption that any solid logic exists behind the budget numbers in the first place.

Conversely, a company running annual budgeting can only be customer-focused if it isn’t possible to cheat (which an annual time horizon alone makes impossible to correct), the world stands still for 12 months, and the initial negotiation is free from internal politics and power struggles to build maximum buffers for bonuses.

Who Is the Customer, Anyway?

One practical consequence of static targets is losing sight of who the customer really is. A customer-oriented company focuses on meeting the needs of a specific type of customer, rather than trying to serve everyone.

For instance, a Michelin-starred restaurant focuses on customers seeking an exquisite culinary experience and willing to pay hundreds of dollars for it. They aren’t targeting customers looking for a $10 burger and fries from McDonald’s.

The issue with focusing on static budget numbers is that serving only the customers the company is best suited to serve may not always be enough to “hit the plan.”

As a result, many companies end up serving entirely different customer groups. It’s like a Michelin-starred restaurant opening a drive-through to sell $10 burgers and fries—or McDonald’s hiring Wolfgang Puck to create a 10-course menu.

Stifles innovation

According to Jeff Bezos, being customer-oriented requires being long-term oriented. This is because customer orientation requires invention, which involves taking risks—and taking risks means accepting uncertainty and failure.

He cites several examples from Amazon, such as Kindle, Prime, and Web Services, all of which were only possible through long-term orientation and a relentless focus on the customer.

Annual budgeting is the opposite of that. It is short-term oriented, risk-averse, and creates an illusion of certainty and predictability rather than embracing uncertainty.

Unpredictability demands experimentation. Take, for example, free shipping with Amazon Prime. On paper, it was impossible to predict its performance impact in advance.

As Colin Bryar and Bill Carr explain, there was no rationale for launching Prime to improve quarterly or even annual results. Instead, it required a time horizon of 5 to 7 years. The primary motivation was an obsession with the customer and improving convenience and service. A company focused on hitting a cost budget would never have implemented it.

Amazon, however, did. It wasn’t part of a ‘strategic plan’ or AOP. It was a response to a slowing growth rate—note that they were still growing at double digits, but the rate was declining. They concluded that they needed to do something compelling to encourage customers to do more business with them.

Their approach? “Let’s test it.”

Not only did they launch Prime, but they also rolled it out within 11 weeks—during peak demand and at a time when a budget-oriented company would have been preoccupied with ‘hitting the plan.’

Was it perfect at launch? No. But eventually, it became one of the key drivers of their growth, and, obviously, the customers loved it.

“Wait, But What About This?”

Wait, if companies running an annual budgeting process cannot be customer-oriented, how about this company [enter your favorite example]?

Yes, the title is (obviously) an exaggeration for effect. Of course, there are companies that run annual budgeting and are remarkably customer-oriented.

How can that be? Well, for one, some of them don’t really care about the budget.

They either change it or neglect it entirely. The former may involve revising the budget or creating new “target numbers” altogether.

That, however, raises the question: why do they run annual budgeting in the first place?

Many companies that run annual budgeting and are customer-oriented could probably quit doing it altogether. In fact, what they are already doing is some form of continuous planning, whether or not they call it that.

In addition, some executives are just so customer-oriented by nature that they make decisions against the budget: “Forget the budget; this makes the most sense from the customer’s point of view.”

So no, it’s not a perfectly black-and-white oxymoron, and perhaps a better-suited title should be “Customer-oriented companies have no reason to run annual budgeting.”

However, it’s also a matter of degree. At its core, the original title still stands. What is most likely happening, even in the best example you can come up with, is that while the company may appear to obsess about the customer, it does so only up to a point.

In other words, the customer orientation comes with fine print that says: “as long as we’re on track with the budget.”

It’s worth mentioning that the difference isn’t necessarily night and day. A company can act 80% customer-oriented and still do 20% dumb things to prioritize hitting the budget. While the short-term impacts may even be negligible, they can become significant—and even existential—over the long term.

How Customer or Budget Oriented Are You?

Here’s a simple way to determine whether you’re customer- or budget-oriented: count the number of decisions this year that were driven by the need to “hit the budget” but negatively impacted the customer.

For example, consider instances where customers were pushed to accept earlier deliveries—not only when they didn’t need the product but possibly didn’t even know what products they would need.

Now, count the number of decisions made to benefit the customer that prevented you from hitting the plan. Divide the smaller number by the larger and multiply by 100.

That’s your percentage of customer- or budget-orientation, depending on which value you used as the denominator.

Too abstract and complicated? Maybe.

Try this then: jot down how many times during a day you ask people about their actions to hit the budget versus how their actions reflect a relentless focus on the customer.

Still too vague?

Fine, here’s an easy one. Pick a meeting where the business is steered—such as a monthly budget review—and measure the time spent understanding and closing gaps to the budget versus the time spent discussing adding value to the customer.

Sure, the same actions can contribute to both, but which is the driving factor: hitting the budget or creating value for the customer? Divide the time spent on each by the total meeting duration to estimate your orientation.

Conclusion

If you’re running annual budgeting, the odds are you’re not customer-focused. Sure, customers might be a second or third priority, but they’re not the first—hitting the budget is.

And, yes, you may be customer-focused 80% of the time—when you’re ‘on track with the budget’ or when focusing on the customer doesn’t interfere with meeting the budget. But that’s like considering your spouse’s feelings only 80% of the time—namely, when it suits you.

While being 80% customer-focused might sound impressive, here’s a psychological insight to consider: research shows people are about five times more sensitive to negative experiences than to positive ones.

This means that one negative experience and five positive ones roughly balance out to a neutral perception. Of course, it’s not always that simple, but common sense suggests that if 20% of your actions are perceived negatively, you’re unlikely to leave a positive impression overall.

If you’re getting stuck on the percentages, you’re missing the point.

So, if your company touts a slogan about customer orientation or lists it as a core value, it might be time to take it down.

Here are some alternatives to consider:

“We are a budget-oriented company.”

“Hitting the budget is our most important value.”

“Customer second!”

“We are 80% focused on the customer.”

“Don’t hesitate to inconvenience the customer if that’s what it takes to hit the budget.”

“We are willing to go the extra mile to prioritize shortsighted actions over customer satisfaction if it helps us hit the budget.”

“Innovation? Sure, innovate as much as you want, as long as it fits the static budget!”

Practical insights

1. Companies running annual budgeting are budget oriented.
2. Annual budgeting is disconnected from reality.
3. Focus on ‘hitting the plan’ loses focus on who is the customer.
4. Annual budgeting stifles innovation.
5. Annual budgeting encourages to lie and cheat.