Balancing Process for Adjusting Cash Balance

Balancing Process for Adjusting Cash Balance to Cash Surplus or Shortage

The diagram referred to in this excerpt is not included. The text describes a balancing feedback process. To walk yourself through the process, it’s generally easiest to start at the gap—the discrepancy between what is desired and what exists:

Here, there is a shortfall in cash on hand for our cashflow needs. (In other words, there’s a gap between our desired and actual cash balances.)

Then look at the actions being taken to correct the gap:

We borrow money, which makes our cash balance larger, and the gap decreases.

The chart shows that a balancing process is always operating to reduce a gap between what is desired and what exists. Moreover, such goals as desired cash balances change over time with growth or decline in the business. Regardless, the balancing process will continue to work to adjust actual cash balances to what is needed, even if the target is moving.

Whenever there is resistance to change, you can count on there being one or more “hidden” balancing processes. Resistance to change is neither capricious nor mysterious. It almost always arises from threats to traditional norms and ways of doing things. Often these norms are woven into the fabric of established power relationships. The norm is entrenched because the distribution of authority and control is entrenched. Rather than pushing harder to overcome resistance to change, artful leaders discern the source of the resistance. They focus directly on the implicit norms and power relationships within which the norms are embedded.