What if everyone had a say on where the money is spent?

The success of crowdfunding has now sparked a new idea for business – fully collaborative budgeting, or co-budgeting, where businesses are turning budgeting decisions over to their employees and letting them choose what will, and won’t, be funded.

Bold experiments in collaborative budgeting and internal crowdfunding are boosting staff engagement in businesses large and small.

From Kickstarter to Australian platform Pozible, crowdfunding is picking up pace. What started as a solution for cash-strapped individuals to fund their entrepreneurial dreams has morphed into not-for-profits raising money for charitable causes, families collecting funds for children dealing with long-term illnesses and even individuals wanting to pursue their own hobbies.

The success of crowdfunding has now sparked a new idea for business – fully collaborative budgeting, or co-budgeting, where businesses are turning budgeting decisions over to their employees and letting them choose what will, and won’t, be funded.

The concept is still in its infancy for corporates, but one New Zealand business is leading the way. And the pioneering work it’s doing, including creating an easy-to-use app, could revolutionise the method of budgeting within companies.

Meet Enspiral and its founder Joshua Vial, who six years ago began to gather a collective of like-minded professionals who wanted to disrupt traditional, top-down thinking and make a real difference to their world.

Enspiral’s core aim is to drastically increase the capacity of people doing meaningful work. The group wants to turn the “trickle of human energy going toward the biggest challenges of our times … into a river.”

Enspiral – a group of social enterprise start-ups encompassing everything from marketing to legal services to software design – didn’t set out to use what it now terms “co-budgeting”.

But last year, when the co-operative’s leadership team found Enspiral was slowly morphing into a traditional organisation where decision-making and budgeting were centralised, they did something radical. They quit.

“It invites people to step into responsibility for the bigger picture... There is no behind the scenes.” – Joshua Vial, Enspiral 

It could have meant the end of the group, which had grown to involve more than 150 people in independent businesses, working together in a shared space with pooled services and a mutual ethos. Instead, it forced the group to think outside the square as to how it would manage itself.

One of the former leaders has described the situation of walking away from her role as “not an act of abandonment, but of tough love”.

“It was less like mutiny and more like a mother bird gently nudging a fledgling out of the nest,” says Alanna Krause. “We didn’t know where it would go, but we knew it would fly.” Once the support crew stepped down, the bosses were gone and so was the management hierarchy. Instead, just like the internet, there remained a network of interconnected nodes.

The organisation had become adept at attacking problems by “scratching its own itch”, trialling solutions and then rolling out – through open-source software – processes that could work for other businesses and groups. And Enspiral was already using an open-source app called Loomio – designed by Krause’s company – to enable collaborative discussion and decision-making. So it wasn’t a completely unnatural move for the group to shift into co-budgeting, a concept successfully used in Canada by Toronto Community Housing to let residents decide how they wanted to invest capital to improve their communities.

The challenge for Enspiral was how to do it. There was no readymade software available so the group initially used spreadsheets. The pool of funds they had to spend on non-essential shared services and projects was modest – about NZ$10,000 a month – and sourced from members of the co-operative paying about 5 per cent of their earnings into the pool.

From the get-go the system had to be fair and simple. It also had to have an element of fun to entice managers to take part. The solution was to add a slightly game-like feel.

Enspiral’s initial spreadsheets were effective if slightly cumbersome. But confident that the process could work, Enspiral’s members then followed their ethos of disrupting every core organisational process and began developing a collaborative budgeting open-source tool called Cobudget. The group crowdsourced 400-plus hours of design and app development from its own team.

Vial says the benefits of internal crowdfunding at Enspiral have been threefold.

“It spreads out the decision-making, which we think is really good,” he says.

“And it starts to give an outlet in the organisation for improvements, for people who may have a problem. If something is not working for someone, there is always the budgeting round coming through next month where they can pitch an idea to fix it. So it becomes less about complaining about how things work and more about actively seeking a solution.”

The third benefit has been an increased level of transparency.

“It has spread financial information around the organisation quite well,” says Vial.

“I can send out profit-and-loss statements to my heart’s content and no one really reads them or understands them. But as soon as we say ‘here’s a game’, everyone has an intuitive understanding about how much we have to spend and what we spend it on. And so they have this quite nice, high-level contextual awareness about our financial situation.”

One of the biggest challenges when Enspiral proposed the idea was that no one actually knew what collaborative budgeting was. But when they realised they would all get to propose “buckets” that money should be spent on and to have direct control over budgeting, they were motivated to take part.

Enspiral says its Cobudget app will make the process of budgeting more fluid, as people will be able to propose potential projects to be funded at any time rather than wait for the spreadsheet to be created each month.

It will also build in a reporting function to capture income and expenditure flows, track how well a project went after being funded, gather data on the different ways people are contributing to and interacting with the system, and paint a picture of how a project’s results relate to the group’s overall strategy pillars.

“Cobudget is just one very small example of how rich information systems can decentralise control in an organisation,” says Vial.

Krause acknowledges that co-budgeting isn’t a financial panacea. The problems every organisation faces – such as not having enough money to make all they want come to fruition – will still exist. However, those problems will be transparent, so everyone can understand when things can’t be funded and why.

And one problem it can help alleviate is business units having the “use it or lose it” mentality at the end of the financial year.

“Governments are a really good example where everyone has to spend their money or they lose it,” says Vial.

“But this way, it’s this game which is optimised so if you don’t spend it, you get to spend it on something else. You start to have a completely different dynamic. I think that the cost savings and the outcomes are significant.”

There are plenty of other positives, too. Krause points out that dissolving the central point of authority in a group and replacing it with a process where people can express their opinions, exercise power and bid for resources can have a transformative effect on an organisation by breaking down the “us and them” dynamic.

“It invites people to step into responsibility for the bigger picture,” she explains. “This causes a cultural change, which ripples through every aspect of organisational life. There is no behind the scenes. There is no ‘us versus them’. There is only us, doing the best we can to make a difference with what we have.”

Giving citizens a say

New York City Council is proving that collaborative funding can work in government. For four years it has been inviting residents to have a direct say in how they want their local authority to spend money.

What started as a trickle in 2011-12, when lobby group Community Voices Heard convinced four councillors to give their communities a say in how their slice of the district’s budget would be spent, has grown into a US$25 million public decision-making process across 24 council districts.

The current budgeting round is underway and between now and April next year, community members get to exchange ideas online and in person, work together to create project proposals and then have a say on which proposals will get funded.

The Brazilian city of Porto Alegre is widely credited with having started the first full participatory budgeting process 25 years ago, when it invited residents to decide how up to one-fifth of the annual budget would be spent. The concept is now believed to be used in more than 1500 cities around the world and has been trialled by at least two Australian councils.

Co-budgeting for big business

Tech giant IBM has its own form of co-budgeting that it refers to as enterprise crowdfunding. Others are labelling it IBM’s “inner Kickstarter”.

The global company began experimenting with behind-the-firewall crowdsourcing two years ago when it gave 500 employees US$100 each to invest in colleagues’ proposals, which were put up on an internal Kickstarter-like portal.

About half of those employees became involved by either investing the money they had been allocated or volunteering to help with the projects. IBM has since trialled enterprise crowdfunding with larger amounts allocated to individual “investors”, and says it has sparked innovation within the company.

This article is from the December 2014 issue of INTHEBLACK

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